<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-57365
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------
CAPROCK COMMUNICATIONS CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
TEXAS 1731 75-2765572
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Number) Identification
Incorporation or Organization) Number)
</TABLE>
TWO GALLERIA TOWER, SUITE 1925
13455 NOEL ROAD
DALLAS, TX 75240-6638
(972) 982-9500
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
--------------------------
MR. JERE W. THOMPSON, JR.
CHIEF EXECUTIVE OFFICER
CAPROCK COMMUNICATIONS CORP.
TWO GALLERIA TOWER, SUITE 1925
13455 NOEL ROAD
DALLAS, TX 75240-6638
(972) 982-9500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
A. MICHAEL HAINSFURTHER, ESQ. MR. IGNATIUS W. LEONARDS DUDLEY W.
MARK A. KOPIDLANSKY, ESQ. PRESIDENT MURREY, ESQ.
MUNSCH HARDT KOPF HARR & CAPROCK COMMUNICATIONS CORP. HUGHES & LUCE,
DINAN, P.C. 12000 AEROSPACE AVENUE, L.L.P.
1445 ROSS AVE., SUITE 4000 SUITE 200 1717 MAIN
DALLAS, TX 75202-2790 HOUSTON, TX 77034 STREET, SUITE
(214) 855-7500 (281) 482-0289 2800
DALLAS, TX 75201
(214) 939-5500
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time of the merger of one subsidiary of CapRock Communications Corp.
("Holdings") with and into IWL Communications, Incorporated ("IWL"), the
consummation of the exchange of Holdings common stock for all of the partnership
interests of CapRock Fiber Network, Ltd. that are validly tendered to and
accepted by Holdings, and the merger of another subsidiary of Holdings with and
into CapRock Telecommunications Corp., all as described in the Agreement and
Plan of Merger and Plan of Exchange dated as of February 16, 1998, as amended.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
[IWL PRESIDENT'S LETTER]
, 1998
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of the shareholders of
IWL Communications, Incorporated ("IWL") on , 1998 (the "IWL Special
Meeting"), at which shareholders of IWL will be asked to approve the combination
of the businesses of IWL, CapRock Telecommunications Corp. (formerly known as
CapRock Communications Corp.) ("Telecommunications") and CapRock Fiber Network,
Ltd. (the "Partnership"). Upon the consummation of this business combination,
IWL and Telecommunications will become wholly owned subsidiaries of a newly
formed holding company, CapRock Communications Corp. (formerly known as IWL
Holdings Corp.) ("Holdings"), and Holdings will become a substitute limited
partner in the Partnership, with Telecommunications becoming a substitute
general partner in the Partnership. In addition, at the IWL Special Meeting, the
shareholders of IWL will be asked to approve the adoption of the CapRock
Communications Corp. 1998 Equity Incentive Plan (the "Equity Incentive Plan")
and the CapRock Communications Corp. 1998 Director Stock Option Plan (the
"Director Stock Option Plan").
Upon the completion of the business combination:
- each outstanding share of IWL common stock will be converted into one
share of Holdings common stock;
- each outstanding share of Telecommunications common stock will be
converted into 1.789030878 shares of Holdings common stock; and
- each one percent (1%) of the general and limited partnership interests in
the Partnership that is validly tendered to and accepted by Holdings will
be exchanged for 63,194.54 shares of Holdings common stock.
Immediately following the business combination, assuming all partnership
interests are validly tendered and accepted, the former holders of IWL common
stock will collectively hold approximately 13.8% of the issued and outstanding
shares of Holdings common stock, the former holders of Telecommunications common
stock will collectively hold approximately 64.4% of the issued and outstanding
shares of Holdings common stock and the former partners of the Partnership will
hold approximately 21.8% of the issued and outstanding shares of Holdings common
stock. On a diluted basis, the former holders of common stock, options, warrants
and partnership interests of IWL, Telecommunications and the Partnership will
own approximately 15%, 63.8% and 21.2% of the equity interests in Holdings,
respectively.
The accompanying Joint Proxy Statement/Prospectus provides you with detailed
information concerning the IWL Special Meeting, the proposed business
combination and the Holdings common stock to be issued in connection with the
transaction, the Equity Incentive Plan, the Director Stock Option Plan and
certain other matters. Please read the accompanying Joint Proxy
Statement/Prospectus carefully and give this information your careful attention.
Your Board of Directors (the "Board") has carefully reviewed and considered
the terms and conditions of the proposed business combination and believes that
the proposed business combination will provide opportunities to achieve
substantial benefits for IWL shareholders and customers through the more
efficient utilization of the combined assets, management and personnel of IWL,
Telecommunications and the Partnership. Your Board further believes that
Holdings will be better able to capitalize on growth opportunities in the
telecommunications industry, both domestically and internationally, and be
better positioned to compete effectively in the rapidly changing
telecommunications industry.
Cruttenden Roth Incorporated, the Board's financial advisor in connection
with this transaction, has delivered a written opinion to the Board, a copy of
which is attached to the accompanying Joint Proxy Statement/Prospectus, to the
effect that, as of the date of such opinion and based on and subject to the
assumptions, limitations and qualifications set forth therein, from a financial
point of view, the relative
<PAGE>
exchange ratio of Holdings common stock to IWL common stock and the
consideration to be received by the shareholders of IWL are fair to the
shareholders of IWL.
Your Board, by unanimous vote, has determined that the terms and provisions
of the proposed business combination are fair to, and in the best interests of,
IWL and the shareholders of IWL, and recommends that you vote FOR the proposal
to approve the business combination.
Your Board also has carefully reviewed and considered the Equity Incentive
Plan and the Director Stock Option Plan and unanimously recommends that you vote
FOR the proposals to approve each of these plans.
Please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to revoke your proxy, including by attending the IWL Special Meeting and
voting in person.
Sincerely yours,
Ignatius W. Leonards
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
<PAGE>
IWL COMMUNICATIONS, INCORPORATED
12000 Aerospace Avenue
Suite 200
Houston, Texas 77034
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
Houston, Texas
, 1998
Notice is hereby given that a special meeting of the shareholders (the "IWL
Special Meeting") of IWL Communications, Incorporated ("IWL") will be held on
, 1998 at 10:00 a.m. local time, at , for the
following purposes:
1. To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger and Plan of Exchange dated as of February 16,
1998, as amended (as so amended, the "Merger Agreement"), among IWL, CapRock
Communications Corp., a Texas corporation formerly known as IWL Holdings
Corp. ("Holdings"), IWL Acquisition Corp., a Texas corporation ("I-Sub"),
CapRock Telecommunications Corp., a Texas corporation formerly known as
CapRock Communications Corp. ("Telecommunications"), CapRock Acquisition
Corp., a Texas corporation ("C-Sub"), and CapRock Fiber Network, Ltd., a
Texas limited partnership (the "Partnership"), pursuant to which (i) I-Sub,
a newly formed subsidiary of Holdings, will be merged with and into IWL,
(ii) the general partnership interest and the limited partnership interests
in the Partnership that are validly tendered to and accepted by Holdings
will be exchanged (the "Interest Exchange") for shares of Holdings common
stock and (iii) C-Sub, a newly formed subsidiary of Holdings, will be merged
with and into Telecommunications (the mergers described in (i) and (iii) are
collectively referred to herein as the "Mergers"). As a result of the
Mergers and the Interest Exchange, and assuming that the general partnership
interest and at least 80% of the limited partnership interests are validly
tendered and accepted, IWL and Telecommunications will become wholly owned
subsidiaries of Holdings, Telecommunications will become a substitute
general partner in the Partnership and Holdings will become a substitute
limited partner in the Partnership. Upon the consummation of the Mergers,
each outstanding share of IWL common stock will be converted into one share
of Holdings common stock and each outstanding share of Telecommunications
common stock will be converted into 1.789030878 shares of Holdings common
stock. Upon consummation of the Interest Exchange, each one percent (1%)
general or limited partnership interest in the Partnership that is validly
tendered to and accepted by Holdings will be exchanged for 63,194.54 shares
of Holdings common stock. Immediately following the Mergers and the Interest
Exchange, assuming all partnership interests are validly tendered and
accepted, the former holders of IWL common stock will collectively hold
approximately 13.8% of the issued and outstanding shares of Holdings common
stock, the former holders of Telecommunications common stock will
collectively hold approximately 64.4% of the issued and outstanding shares
of Holdings common stock and the former partners of the Partnership will
hold approximately 21.8% of the issued and outstanding shares of Holdings
common stock. On a diluted basis, the former holders of common stock,
options, warrants and partnership interests of IWL, Telecommunications and
the Partnership will own approximately 15%, 63.8% and 21.2% of the equity
interests in Holdings, respectively.
2. To consider and vote on a proposal to approve the CapRock
Communications Corp. 1998 Equity Incentive Plan (the "Equity Incentive
Plan").
3. To consider and vote on a proposal to approve the CapRock
Communications Corp. 1998 Director Stock Option Plan (the "Director Stock
Option Plan").
4. To grant authorization to IWL to adjourn the IWL Special Meeting to
solicit additional proxies.
5. To transact such other business as may properly come before the IWL
Special Meeting.
<PAGE>
Shareholders of record at the close of business on , 1998 will be
entitled to receive notice of, and to vote at, the IWL Special Meeting. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of IWL common stock entitled to vote at the IWL Special Meeting is
necessary to constitute a quorum at the IWL Special Meeting. Under the Texas
Business Corporation Act and pursuant to IWL's Articles of Incorporation, as
amended, the affirmative vote, in person or by proxy, of the holders of a
majority of the shares of IWL common stock outstanding and entitled to vote
thereon is required to approve and adopt the Merger Agreement. The affirmative
vote of a majority of the votes cast (including express abstentions), in person
or by proxy, by the holders of IWL common stock entitled to vote thereon at the
IWL Special Meeting, assuming a quorum is present, is required to approve all
other action proposed, including the Equity Incentive Plan and the Director
Stock Option Plan, except that the affirmative vote of the holders of a majority
of the IWL common stock represented in person or by proxy at the IWL Special
Meeting and entitled to vote thereon is required to approve the adjournment of
the IWL Special Meeting, if no quorum is present.
Please note that attendance at the IWL Special Meeting will be limited to
shareholders of IWL as of the record date (or their authorized representatives).
If your shares are held by a bank or broker, please bring to the IWL Special
Meeting evidence from your bank or broker of your beneficial ownership of IWL
common stock. A complete list of shareholders entitled to vote at the IWL
Special Meeting will be maintained in IWL's offices at 12000 Aerospace Avenue,
Suite 200, Houston, Texas 77034, for ten (10) days prior to the IWL Special
Meeting and will be open to the examination of any shareholder during ordinary
business hours of IWL.
Please advise IWL's transfer agent, American Securities Transfer & Trust,
Inc., 1825 Lawrence Street, Suite 444, Denver, Colorado 80202, of any changes in
your address.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE IWL SPECIAL MEETING, PLEASE
PROMPTLY MARK, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT IN THE
ENCLOSED PREPAID ENVELOPE. SHAREHOLDERS WHO DECIDE TO ATTEND THE IWL SPECIAL
MEETING MAY REVOKE THEIR PROXIES AT OR PRIOR TO THE IWL SPECIAL MEETING AND VOTE
IN PERSON EVEN IF THEY HAVE PREVIOUSLY RETURNED A PROXY.
By Order of the Board of Directors,
Richard H. Roberson
SECRETARY
<PAGE>
[TELECOMMUNICATIONS PRESIDENT'S LETTER]
, 1998
Dear Fellow Shareholder:
You are cordially invited to attend a special meeting of the shareholders of
CapRock Telecommunications Corp. (formerly known as CapRock Communications
Corp.)("Telecommunications") on , 1998 (the
"Telecommunications Special Meeting"), at which the shareholders of
Telecommunications will be asked to approve the combination of the businesses of
Telecommunications, CapRock Fiber Network, Ltd. (the "Partnership"), and IWL
Communications, Incorporated ("IWL"). Upon the consummation of this business
combination, Telecommunications and IWL will become wholly owned subsidiaries of
a newly formed holding company, CapRock Communications Corp. (formerly known as
IWL Holdings Corp.) ("Holdings"), and Holdings will become a substitute limited
partner in the Partnership, with Telecommunications becoming a substitute
general partner in the Partnership. In addition, at the Telecommunications
Special Meeting, the shareholders of Telecommunications will be asked to approve
the adoption of the CapRock Communications Corp. 1998 Equity Incentive Plan (the
"Equity Incentive Plan") and the CapRock Communications Corp. 1998 Director
Stock Option Plan (the "Director Stock Option Plan").
Upon the completion of the business combination:
- each outstanding share of Telecommunications common stock will be
converted into 1.789030878 shares of Holdings common stock;
- each one percent (1%) of the general and limited partnership interests in
the Partnership that is validly tendered to and accepted by Holdings will
be exchanged for 63,194.54 shares of Holdings common stock; and
- each outstanding share of IWL common stock will be converted into one
share of Holdings common stock.
Immediately following the business combination, assuming all partnership
interests are validly tendered and accepted, the former holders of IWL common
stock will collectively hold approximately 13.8% of the issued and outstanding
shares of Holdings common stock, the former holders of Telecommunications common
stock will collectively hold approximately 64.4% of the issued and outstanding
shares of Holdings common stock and the former partners of the Partnership will
hold approximately 21.8% of the issued and outstanding shares of Holdings common
stock. On a diluted basis, the former holders of common stock, options, warrants
and partnership interests of IWL, Telecommunications and the Partnership will
own approximately 15%, 63.8% and 21.2% of the equity interests in Holdings,
respectively.
The accompanying Joint Proxy Statement/Prospectus provides you with detailed
information concerning the Telecommunications Special Meeting, the proposed
business combination and the Holdings common stock to be issued in connection
with the transaction, the Equity Incentive Plan, the Director Stock Option Plan
and certain other matters. Please read the accompanying Joint Proxy
Statement/Prospectus carefully and give this information your careful attention.
Your Board of Directors (the "Board") has carefully reviewed and considered
the terms and conditions of the proposed business combination and believes that
the proposed business combination will provide opportunities to achieve
substantial benefits for Telecommunications shareholders and customers through
the more efficient utilization of the combined assets, management and personnel
of Telecommunications, the Partnership and IWL. Your Board further believes that
Holdings will be better able to capitalize on growth opportunities in the
telecommunications industry, both domestically and internationally, and be
better positioned to compete effectively in the rapidly changing
telecommunications industry.
Your Board, by unanimous vote, has determined that the terms and provisions
of the proposed business combination are fair to, and in the best interests of,
Telecommunications and the shareholders of Telecommunications and recommends
that you vote FOR the proposal to approve the business combination.
Your Board also has carefully reviewed and considered the Equity Incentive
Plan and the Director Stock Option Plan and unanimously recommends that you vote
FOR the proposals to approve each of these plans.
Please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to revoke your proxy, including by attending the Telecommunications
Special Meeting and voting in person.
Sincerely yours,
Jere W. Thompson, Jr.
PRESIDENT
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
TWO GALLERIA TOWER
13455 NOEL ROAD
SUITE 1925
DALLAS, TEXAS 75240
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
Dallas, Texas
, 1998
Notice is hereby given that a special meeting of the shareholders (the
"Telecommunications Special Meeting") of CapRock Telecommunications Corp.
(formerly known as CapRock Communications Corp.) ("Telecommunications") will be
held on , 1998 at 10:00 a.m. local time, at
, for the following purposes:
1. To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger and Plan of Exchange dated as of February 16,
1998, as amended (as so amended, the "Merger Agreement"), among
Telecommunications, CapRock Communications Corp., a Texas corporation
formerly known as IWL Holdings Corp. ("Holdings"), IWL Acquisition Corp., a
Texas corporation ("I-Sub"), IWL Communications, Incorporated, a Texas
corporation ("IWL"), CapRock Acquisition Corp., a Texas corporation
("C-Sub"), and CapRock Fiber Network, Ltd., a Texas limited partnership (the
"Partnership"), pursuant to which (i) I-Sub, a newly formed subsidiary of
Holdings, will be merged with and into IWL, (ii) the general partnership
interest and the limited partnership interests in the Partnership that are
validly tendered to and accepted by Holdings will be exchanged (the
"Interest Exchange") for shares of Holdings common stock and (iii) C-Sub, a
newly formed subsidiary of Holdings, will be merged with and into
Telecommunications (the mergers described in (i) and (iii) are collectively
referred to herein as the "Mergers"). As a result of the Mergers and the
Interest Exchange, and assuming that the general partnership interest and at
least 80% of the limited partnership interests are validly tendered and
accepted, Telecommunications and IWL will become wholly owned subsidiaries
of Holdings, Telecommunications will become a substitute general partner in
the Partnership and Holdings will become a substitute limited partner in the
Partnership. Upon the consummation of the Mergers, each outstanding share of
Telecommunications common stock will be converted into 1.789030878 shares of
Holdings common stock and each outstanding share of IWL common stock will be
converted into one share of Holdings common stock. Upon consummation of the
Interest Exchange, each one percent (1%) general or limited partnership
interest in the Partnership that is validly tendered to and accepted by
Holdings will be exchanged for 63,194.54 shares of Holdings common stock.
Immediately following the Mergers and the Interest Exchange, assuming all
partnership interests are validly tendered and accepted, the former holders
of IWL common stock will collectively hold approximately 13.8% of the issued
and outstanding shares of Holdings common stock, the former holders of
Telecommunications common stock will collectively hold approximately 64.4%
of the issued and outstanding shares of Holdings common stock and the former
partners of the Partnership will hold approximately 21.8% of the issued and
outstanding shares of Holdings common stock. On a diluted basis, the former
holders of common stock, options, warrants and partnership interests of IWL,
Telecommunications and the Partnership will own approximately 15%, 63.8% and
21.2% of the equity interests in Holdings, respectively.
2. To consider and vote on a proposal to approve the CapRock
Communications Corp. 1998 Equity Incentive Plan (the "Equity Incentive
Plan").
3. To consider and vote on a proposal to approve the CapRock
Communications Corp. 1998 Director Stock Option Plan (the "Director Stock
Option Plan").
4. To grant authorization to Telecommunications to adjourn the
Telecommunications Special Meeting to solicit additional proxies.
5. To transact such other business as may properly come before the
Telecommunications Special Meeting.
Shareholders of record at the close of business on , 1998
will be entitled to receive notice of, and to vote at, the Telecommunications
Special Meeting. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Telecommunications common stock entitled
<PAGE>
to vote at the Telecommunications Special Meeting is necessary to constitute a
quorum at the Telecommunications Special Meeting. Under the Texas Business
Corporation Act, the affirmative vote, in person or by proxy, of the holders of
at least two-thirds of the shares of Telecommunications common stock outstanding
and entitled to vote thereon is required to approve and adopt the Merger
Agreement. The affirmative vote of a majority of the votes cast (including
express abstentions), in person or by proxy, by the holders of
Telecommunications common stock entitled to vote thereon at the
Telecommunications Special Meeting, assuming a quorum is present, is required to
approve all other action proposed, including the Equity Incentive Plan and the
Director Stock Option Plan, except that the affirmative vote of the holders of a
majority of the Telecommunications common stock represented in person or by
proxy at the Telecommunications Special Meeting and entitled to vote thereon is
required to approve the adjournment of the Telecommunications Special Meeting,
if no quorum is present.
Please note that attendance at the Telecommunications Special Meeting will
be limited to shareholders of Telecommunications as of the record date (or their
authorized representatives). If your shares are held by a bank or broker, please
bring to the Telecommunications Special Meeting evidence from your bank or
broker of your beneficial ownership of Telecommunications common stock. A
complete list of shareholders entitled to vote at the Telecommunications Special
Meeting will be maintained in Telecommunications' offices at Two Galleria Tower,
13455 Noel Road, Suite 1925, Dallas, Texas 75240, for ten (10) days prior to the
Telecommunications Special Meeting and will be open to the examination of any
shareholder during ordinary business hours of Telecommunications.
Please advise Telecommunications, at its offices at such address to the
attention of its Corporate Secretary, of any changes in your address.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE TELECOMMUNICATIONS SPECIAL
MEETING, PLEASE PROMPTLY MARK, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND
RETURN IT IN THE ENCLOSED PREPAID ENVELOPE. SHAREHOLDERS WHO DECIDE TO ATTEND
THE TELECOMMUNICATIONS SPECIAL MEETING MAY REVOKE THEIR PROXIES AT OR PRIOR TO
THE TELECOMMUNICATIONS SPECIAL MEETING AND VOTE IN PERSON EVEN IF THEY HAVE
PREVIOUSLY RETURNED A PROXY.
By Order of the Board of Directors,
Timothy M. Terrell
SECRETARY
<PAGE>
[GENERAL PARTNER'S PRESIDENT'S LETTER AND NOTICE]
, 1998
Dear Partner:
Notice is hereby given of the proposed combination of the businesses of
CapRock Fiber Network, Ltd. (the "Partnership"), CapRock Telecommunications
Corp. (formerly known as CapRock Communications Corp.)("Telecommunications") and
IWL Communications, Incorporated ("IWL"). Upon the consummation of this business
combination, Telecommunications and IWL will become wholly owned subsidiaries of
a newly formed holding company, CapRock Communications Corp. (formerly known as
IWL Holdings Corp.) ("Holdings"), and Holdings will become a substitute limited
partner in the Partnership, with Telecommunications becoming a substitute
general partner in the Partnership. In addition, in connection with such
transaction, Holdings intends to adopt the CapRock Communications Corp. 1998
Equity Incentive Plan (the "Equity Incentive Plan") and the CapRock
Communications Corp. 1998 Director Stock Option Plan (the "Director Stock Option
Plan").
Upon the completion of the business combination:
- each one percent (1%) of the general and limited partnership interests in
the Partnership that is validly tendered to and accepted by Holdings will
be exchanged for 63,194.54 shares of Holdings common stock;
- each outstanding share of Telecommunications common stock will be
converted into 1.789030878 shares of Holdings common stock; and
- each outstanding share of IWL common stock will be converted into one
share of Holdings common stock.
Immediately following the business combination, assuming all partnership
interests are validly tendered and accepted, the former holders of IWL common
stock will collectively hold approximately 13.8% of the issued and outstanding
shares of Holdings common stock, the former holders of Telecommunications common
stock will collectively hold approximately 64.4% of the issued and outstanding
shares of Holdings common stock and the former partners of the Partnership will
hold approximately 21.8% of the issued and outstanding shares of Holdings common
stock. On a diluted basis, the former holders of common stock, options, warrants
and partnership interests of IWL, Telecommunications and the Partnership will
own approximately 15%, 63.8% and 21.2% of equity interests in Holdings,
respectively.
Each partner of the Partnership is being provided with a contribution
agreement (the "Contribution Agreement") pursuant to which each partner may
elect, among other things, to:
1. Approve and adopt the Agreement and Plan of Merger and Plan of
Exchange dated as of February 16, 1998, as amended (as so amended, the
"Merger Agreement"), among the Partnership, Telecommunications, Holdings,
IWL, IWL Acquisition Corp., a Texas corporation ("I-Sub"), and CapRock
Acquisition Corp., a Texas corporation ("C-Sub"), pursuant to which (i)
C-Sub and I-Sub, two newly formed subsidiaries of Holdings, will be merged
with and into Telecommunications and IWL, respectively (the "Mergers"), and
(ii) immediately after the effective time of the Merger of
I-Sub into IWL and immediately prior to the effective time of the Merger of
C-Sub into Telecommunications, the general partnership interest and the
limited partnership interests in the Partnership that are validly tendered
to and accepted by Holdings will be exchanged (the "Interest Exchange") for
shares of Holdings common stock.
2. Transfer and contribute the partner's entire partnership interest in
the Partnership to Holdings in exchange for shares of Holdings common stock
at the exchange ratio set forth above, and consent to all other transfers of
partnership interests in the Interest Exchange, including the transfer of
the general partnership interest (i) from CapRock Systems, Inc., a Texas
corporation that is the current general partner in the Partnership (the
"General Partner") to Holdings, (ii) from Holdings to C-Sub and (iii) from
C-Sub to Telecommunications.
<PAGE>
3. Consent to the substitution of Holdings as a substitute limited
partner in the Partnership in respect of the limited partnership interests
accepted by it in the Interest Exchange.
4. Consent to the substitution of Telecommunications as a substitute
general partner in the Partnership in respect of the general partnership
interest accepted by Holdings in the Interest Exchange and then transferred
indirectly to Telecommunications.
5. Approve the Equity Incentive Plan.
6. Approve the Director Stock Option Plan.
The accompanying Joint Proxy Statement/Prospectus provides you with detailed
information concerning the Interest Exchange, the special meetings of the
shareholders of IWL and Telecommunications for the Mergers, the proposed
business combination and the Holdings common stock to be issued in connection
with the transaction, the Equity Incentive Plan, the Director Stock Option Plan
and certain other matters. Please read the accompanying Joint Proxy
Statement/Prospectus carefully and give this information your careful attention.
The Board of Directors of the General Partner has carefully reviewed and
considered the terms and conditions of the proposed business combination and
believes that the proposed business combination will provide opportunities to
achieve substantial benefits for the Partnership's partners and customers
through the more efficient utilization of the combined assets, management and
personnel of the Partnership, Telecommunications and IWL. The General Partner's
Board of Directors further believes that Holdings will be better able to
capitalize on growth opportunities in the telecommunications industry, both
domestically and internationally, and be better positioned to compete
effectively in the rapidly changing telecommunications industry.
The Board of Directors of the General Partner, by unanimous vote, has
determined that the terms and provisions of the proposed business combination
are fair to, and in the best interests of the Partnership and the holders of
partnership interests in the Partnership and recommends that you approve the
business combination and the Interest Exchange and, in connection therewith, the
substitution of Holdings and Telecommunications as a substitute limited partner
and general partner, respectively, in the Partnership.
The Board of Directors of the General Partner also has carefully reviewed
and considered the Equity Incentive Plan and the Director Stock Option Plan and
unanimously recommends that you approve each of these plans.
Please complete and sign the enclosed Contribution Agreement and return it
in the enclosed prepaid envelope as soon as possible (please leave the
Contribution Agreement undated; it will be dated as of the effective date of the
IWL Merger).
Sincerely yours,
Jere W. Thompson, Jr.
PRESIDENT, CAPROCK SYSTEMS, INC.
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
FOR SPECIAL MEETINGS OF SHAREHOLDERS
OF
IWL COMMUNICATIONS, INCORPORATED
AND
CAPROCK TELECOMMUNICATIONS CORP.
TO BE HELD ON , 1998
------------------------
CAPROCK COMMUNICATIONS CORP.
29,738,607 SHARES OF $.01 PAR VALUE COMMON STOCK
------------------
PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders of
common stock, par value $.01 per share ("IWL Common Stock"), of IWL
Communications, Incorporated, a Texas corporation ("IWL"), and holders of common
stock, $.01 par value per share ("Telecommunications Common Stock"), of CapRock
Telecommunications Corp., a Texas corporation formerly known as CapRock
Communications Corp. ("Telecommunications"), in connection with the solicitation
of proxies by the respective Boards of Directors of IWL and Telecommunications
for use at their respective special meetings of shareholders, and at any
adjournment or postponement thereof (the "IWL Special Meeting" and the
"Telecommunications Special Meeting," respectively, and, collectively, the
"Special Meetings"), called to consider and vote upon (i) a proposal to approve
and adopt the Agreement and Plan of Merger and Plan of Exchange, dated as of
February 16, 1998, as amended (as so amended, the "Merger Agreement"), among
IWL, Telecommunications, CapRock Communications Corp., a Texas corporation
formerly known as IWL Holdings Corp. ("Holdings"), IWL Acquisition Corp., a
Texas corporation ("I-Sub"), CapRock Acquisition Corp., a Texas corporation
("C-Sub"), and CapRock Fiber Network, Ltd., a Texas limited partnership (the
"Partnership"), and (ii) proposals (collectively, the "Plan Proposals") to
approve each of the CapRock Communications Corp. 1998 Equity Incentive Plan (the
"Equity Incentive Plan") and the CapRock Communications Corp. 1998 Director
Stock Option Plan (the "Director Stock Option Plan"). This Joint Proxy
Statement/Prospectus is also being furnished in connection with the issuance of
shares of Holdings Common Stock (as defined below) to holders of IWL Common
Stock, holders of Telecommunications Common Stock, and holders of Partnership
Interests (as defined below) upon the consummation of the Mergers and the
Interest Exchange (as defined below). The combination of the businesses of IWL,
Telecommunications and the Partnership contemplated by the Merger Agreement is
referred to herein as the "Transaction." Prior to the mailing of this Joint
Proxy Statement/Prospectus, Holdings, which was incorporated as "IWL Holdings
Corp.," changed its name to "CapRock Communications Corp." and, in connection
therewith, Telecommunications changed its name from "CapRock Communications
Corp." to "CapRock Telecommunications Corp."
The Merger Agreement provides, among other things, for (a) the merger of
I-Sub with and into IWL (the "IWL Merger"), with IWL surviving the IWL Merger as
a wholly owned subsidiary of Holdings, (b) the exchange (the "Interest
Exchange") of the general partnership interest and limited partnership interests
(collectively, the "Partnership Interests") in the Partnership that are validly
tendered to and accepted by Holdings pursuant to the Exchange Offer (as defined
below) for shares of the common stock, par value $.01 per share, of Holdings
(the "Holdings Common Stock") and (c) the merger of C-Sub with and into
Telecommunications (the "Telecommunications Merger" and, together with the IWL
Merger, the "Mergers"), with Telecommunications surviving the Telecommunications
Merger as a wholly owned subsidiary of Holdings. Upon the effectiveness of the
Mergers, the shares of IWL Common Stock and the shares of Telecommunications
Common Stock will be converted into shares of Holdings Common Stock, and the
holders of such shares will become shareholders of Holdings, on the terms
described in the Merger Agreement and this Joint Proxy Statement/Prospectus. The
Mergers are expected to become effective after the receipt of the requisite
regulatory and shareholder approvals (the time at which the IWL Merger becomes
effective being called the "IWL Merger Effective Time," the time at which the
Telecommunications Merger becomes effective being called the "Telecommunications
Merger Effective Time" and each being called an "Effective Time"). As part of
the Interest Exchange, Holdings will contribute to C-Sub the general Partnership
Interest in the Partnership received by Holdings in the Interest Exchange. At
the Effective Time of the Telecommunications Merger, Telecommunications, as
successor by merger to C-Sub, will acquire the general Partnership Interest in
the Partnership and will become a substitute general partner in the Partnership.
In addition, the Interest Exchange will result in Holdings becoming a substitute
limited partner in the Partnership in respect of the limited Partnership
Interests received by it in the Interest Exchange. Holders of Partnership
Interests that are validly tendered in the Exchange Offer to and are accepted by
Holdings will receive shares of Holdings Common Stock in exchange for their
interests in the Partnership and will become shareholders of Holdings on the
terms described in the Merger Agreement and this Joint Proxy
Statement/Prospectus. Holders of Telecommunications Common Stock will be
entitled to appraisal rights but holders of IWL Common Stock and holders of
Partnership Interests will not have such appraisal rights. See "The Transaction"
and "The Merger Agreement."
SEE "RISK FACTORS" BEGINNING ON PAGE 39 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS WHICH SHOULD BE
CAREFULLY CONSIDERED BY HOLDERS OF IWL COMMON STOCK AND HOLDERS OF
TELECOMMUNICATIONS COMMON STOCK IN DETERMINING HOW TO VOTE WITH RESPECT TO THE
MERGER AGREEMENT AND BY HOLDERS OF PARTNERSHIP INTERESTS IN DETERMINING WHETHER
TO PARTICIPATE IN THE INTEREST EXCHANGE.
<PAGE>
Holdings has filed a registration statement on Form S-4 (together with all
amendments thereto and all schedules and exhibits filed or incorporated by
reference as a part thereof, the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to up to 29,738,607
shares of Holdings Common Stock that are proposed to be issued (i) in connection
with the Mergers to holders of outstanding shares of IWL Common Stock and to
holders of outstanding shares of Telecommunications Common Stock, (ii) in
connection with the Interest Exchange to holders of outstanding Partnership
Interests in the Partnership that are validly tendered and accepted and (iii)
upon the exercise of IWL and Telecommunications stock options and warrants that
are outstanding and unexercised at the Effective Time and that, pursuant to the
Merger Agreement, will be assumed by Holdings and converted into options and
warrants to purchase shares of Holdings Common Stock. This Joint Proxy
Statement/Prospectus also constitutes the Prospectus of Holdings filed as part
of the Registration Statement. Upon completion of the Transaction, the former
holders of IWL Common Stock, stock options and warrants, the former holders of
Telecommunications Common Stock and stock options and the former holders of the
Partnership Interests (assuming all Partnership Interests are validly tendered
to and accepted by Holdings in the Exchange Offer) will hold approximately 15%,
63.8% and 21.2%, respectively, of the issued and outstanding shares of Holdings
Common Stock, on a diluted basis.
Prior to the date on which the Mergers and the Interest Exchange are
consummated (the "Closing Date"), Holdings shall use its best efforts to obtain
the approval for listing on the Nasdaq National Market, subject to official
notice of issuance, of the Holdings Common Stock registered under the
Registration Statement. It is a condition to the closing of the Transaction that
such approval be obtained. See "The Merger Agreement--Consideration to be
Received in the Mergers," "--Treatment of Stock Options" and "--Certain
Conditions."
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to holders of IWL Common Stock, holders of Telecommunications
Common Stock and holders of Partnership Interests on or about July , 1998.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN TIME, ON AUGUST
, 1998, UNLESS EXTENDED. SEE "THE INTEREST EXCHANGE."
------------------------------
THE IWL BOARD HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR
TO, AND IN THE BEST INTERESTS OF, IWL AND THE HOLDERS OF IWL COMMON STOCK AND
RECOMMENDS THAT HOLDERS OF IWL COMMON STOCK VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT. THE TELECOMMUNICATIONS BOARD HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, TELECOMMUNICATIONS
AND THE HOLDERS OF TELECOMMUNICATIONS COMMON STOCK AND RECOMMENDS THAT THE
HOLDERS OF TELECOMMUNICATIONS COMMON STOCK VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT.
THE GENERAL PARTNER'S BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF
THE MERGER AGREEMENT AND THE EXCHANGE OFFER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE PARTNERSHIP AND THE HOLDERS OF PARTNERSHIP INTERESTS AND
RECOMMENDS THAT THE HOLDERS OF PARTNERSHIP INTERESTS PARTICIPATE IN THE INTEREST
EXCHANGE AND, IN CONNECTION THEREWITH, EXCHANGE THEIR PARTNERSHIP INTERESTS FOR
SHARES OF HOLDINGS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND THE
EXCHANGE OFFER.
------------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
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 JOINT PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus does not cover any resales of the
Holdings Common Stock to be received by the holders of IWL Common Stock or the
holders of Telecommunications Common Stock upon the consummation of the Mergers
or to be received by holders of Partnership Interests upon consummation of the
Interest Exchange. No person is authorized to make any use of this Joint Proxy
Statement/Prospectus in connection with any such resale.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JULY , 1998.
2
<PAGE>
AVAILABLE INFORMATION
IWL is subject to the information reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Upon
consummation of the Transaction, Holdings will be subject to the information
reporting requirements of the Exchange Act and, in accordance therewith, will be
required to file reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information filed with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, Room 1024, N.W., Washington, D.C. 20549 and at the Regional Offices of
the Commission at Seven World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Commission maintains a Web site on
the Internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
including IWL (http: / / www.sec.gov). IWL Common Stock is listed on the Nasdaq
National Market and such information with respect to IWL may also be inspected
at the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006. Upon consummation of the Transaction,
Holdings' Common Stock will be listed on the Nasdaq National Market and such
information with respect to Holdings may also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus does not include all of the
information set forth in the Registration Statement filed by Holdings with the
Commission under the Securities Act, as permitted by the rules and regulations
of the Commission. The Registration Statement is available for inspection and
copying as set forth above. Statements contained in this Joint Proxy
Statement/Prospectus or in any document incorporated herein by reference or
included herein concerning the contents of any contract or other document
referred to herein or therein are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, and each statement
shall be deemed qualified in its entirety by such reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES COVERED BY THIS JOINT PROXY
STATEMENT/ PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR
TO OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF IWL,
TELECOMMUNICATIONS, THE PARTNERSHIP OR HOLDINGS SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED OR INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
Neither Telecommunications nor the Partnership is currently subject to the
reporting requirements of the Exchange Act, and neither has any class of
securities listed on a national securities exchange or quoted on the Nasdaq
National Market.
3
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains certain forward-looking
statements (as defined in the Private Securities Litigation Reform Act of 1995),
including, without limitation, the information concerning possible, assumed or
projected future results of operations of IWL set forth under "The Transaction--
Recommendation of IWL Board," "--Recommendation of Telecommunications Board,"
"--Reasons for the Transaction," "--Fairness Opinion of IWL Financial Advisor,"
"Business of Holdings," "Summary-- Summary Selected Unaudited Pro Forma Combined
Condensed Financial Data," "Unaudited Pro Forma Combined Condensed Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of IWL," statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "may," "will," "could," "should," or "continue" or the negative
thereof or other variations thereof and other similar expressions and all other
statements that are not historical facts. All forward-looking statements in this
Joint Proxy Statement/Prospectus are based on management's current expectations
of the near term results of IWL based on certain assumptions and current
information available pertaining to IWL, including the risk factors described
below under the caption "Risk Factors." All forward-looking statements involve
risks and uncertainties and do not purport to be predictions of future events or
circumstances and actual results could differ materially. Readers are cautioned
that the following important factors, in addition to those discussed elsewhere
herein (including, without limitation, the matters discussed under "Risk
Factors"), could affect the future results of IWL and cause those results to
differ materially from those expressed in such forward-looking statements: the
ability to service substantial indebtedness and to comply with the restrictive
covenants associated therewith, IWL's ability to fund its significant capital
requirements, risks associated with the development of provisioning, billing,
customer service and management information systems, competition and
technological advances, dependence on other long distance and local carriers,
dependence on key personnel, risks associated with industry concentration, and
dependence on major customers, risks associated with international customers,
risks of government regulation, risks of possible service interruptions and
natural disasters, risks associated with being an Internet service provider,
risks associated with variability of operating results, risks associated with
the Year 2000 issues and risks associated with general business and economic
conditions.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................................................................. 3
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS............................ 4
SUMMARY............................................................................... 11
Risk Factors........................................................................ 11
The Companies....................................................................... 11
The Special Meetings................................................................ 17
The Transaction..................................................................... 20
The Plan Proposals.................................................................. 28
Summary Selected Unaudited Pro Forma
Combined Condensed Financial Data................................................. 29
Summary Selected Consolidated Historical Financial Data of IWL...................... 31
Summary Selected Historical Financial Data of Telecommunications.................... 33
Summary Selected Historical Financial Data of the Partnership....................... 35
Comparative Per Share Information................................................... 37
Comparative Per Share Market Price Information...................................... 38
Listing of Holdings Common Stock.................................................... 38
Dividend Policy..................................................................... 38
RISK FACTORS.......................................................................... 39
Fixed Exchange Ratio................................................................ 39
Sustantial Indebtedness; Restrictive Covenants...................................... 39
Holding Company Structure; Structural Subordination................................. 40
Managing Rapid Change; Integration of Combined Businesses........................... 41
Significant Capital Requirements.................................................... 41
Risks Related to the Fiber Network.................................................. 42
Development of Provisioning, Billing, Customer Service
and Management Information Systems................................................ 43
Competition......................................................................... 43
Dependence on Other Long Distance Carriers.......................................... 45
Dependence on Incumbent Local Exchange Carriers..................................... 46
Dependence on Key Personnel......................................................... 46
Dependence on Major Customers....................................................... 46
Risks Associated with International Customers....................................... 47
Regulation of Long Distance and Local Telephone Services............................ 47
Possible Service Interruptions; Natural Disasters................................... 48
Potential Liability of Internet Service Providers................................... 49
Need to Obtain and Maintain Rights-of-Way........................................... 49
Failure to Consummate Transaction; Proceeds in Escrow Account May Be Insufficient to
Repurchase Notes.................................................................. 49
Variability in Operating Results.................................................... 50
Possible Claims Relating to Ownership of Proprietary Rights......................... 50
Lack of Dividends................................................................... 50
Concentration of Ownership.......................................................... 50
Change of Control of IWL............................................................ 51
Year 2000 Compliance................................................................ 51
Certain Anti-Takeover Matters....................................................... 51
Assumption of General Partner Liabilities........................................... 52
THE TRANSACTION....................................................................... 53
General............................................................................. 53
</TABLE>
5
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<TABLE>
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Background of the Transaction....................................................... 53
Recommendation of IWL Board......................................................... 60
Recommendation of Telecommunications Board.......................................... 61
Recommendation of General Partner Board............................................. 62
Reasons for the Transaction......................................................... 63
Fairness Opinion of IWL Financial Advisor........................................... 64
Interests of Certain Persons in the Transaction..................................... 69
Accounting Treatment................................................................ 71
Certain United States Federal Income Tax Consequences of the Mergers................ 71
Certain United States Federal Income Tax Consequences of the Interest Exchange...... 73
Regulatory Approvals................................................................ 74
Nasdaq Listing...................................................................... 75
Delisting and Deregistration of IWL Common Stock;
Cessation of Periodic Reporting................................................... 75
Federal Securities Laws Consequences................................................ 75
Appraisal Rights.................................................................... 75
BUSINESS OF HOLDINGS.................................................................. 79
DIRECTORS AND MANAGEMENT OF HOLDINGS.................................................. 81
Directors........................................................................... 81
Committees of Holdings.............................................................. 81
Directors and Officers.............................................................. 82
Executive Compensation.............................................................. 83
OWNERSHIP OF HOLDINGS................................................................. 83
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION........................... 86
SELECTED HISTORICAL FINANCIAL DATA OF TELECOMMUNICATIONS.............................. 87
SELECTED HISTORICAL FINANCIAL DATA OF THE PARTNERSHIP................................. 89
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF IWL................................ 91
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........................... 93
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS............................................. 99
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF TELECOMMUNICATIONS..................................... 100
Overview............................................................................ 100
Results of Operations............................................................... 100
New Accounting Pronouncements....................................................... 102
Liquidity and Capital Resources..................................................... 103
Contingencies....................................................................... 104
Year 2000........................................................................... 104
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP........................................ 105
Overview............................................................................ 105
Results of Operations............................................................... 105
New Accounting Pronouncements....................................................... 107
Liquidity and Capital Resources..................................................... 108
Contingencies....................................................................... 109
Year 2000........................................................................... 109
</TABLE>
6
<PAGE>
<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF IWL.................................................... 110
Overview............................................................................ 110
Comparison of Three Months Ended March 31, 1998 and 1997............................ 111
Comparison of Six Months Ended December 31, 1997 and 1996........................... 112
Comparison of Fiscal Years Ended June 30, 1997 and 1996............................. 113
Comparison of Fiscal Years Ended June 30, 1996 and 1995............................. 114
New Accounting Pronouncements....................................................... 115
Liquidity and Capital Resources..................................................... 116
Contingencies....................................................................... 117
Year 2000........................................................................... 117
Recent Developments................................................................. 117
ISSUANCE OF NOTES..................................................................... 118
INFORMATION REGARDING TELECOMMUNICATIONS.............................................. 119
Business............................................................................ 119
Products and Services............................................................... 119
Carrier Services.................................................................... 121
Sales and Marketing................................................................. 121
Competition and Government Regulation............................................... 122
Customer Care and Support Systems................................................... 123
Employees........................................................................... 123
Properties.......................................................................... 123
Legal Proceedings................................................................... 123
Directors and Executive Officers.................................................... 124
Executive Compensation.............................................................. 125
Employee Benefit Plans and Arrangements............................................. 125
Related Party Transactions.......................................................... 126
Security Ownership of Certain Beneficial Owners
and Management of Telecommunications.............................................. 127
INFORMATION REGARDING THE PARTNERSHIP................................................. 129
Business............................................................................ 129
Network............................................................................. 129
Service Agreements.................................................................. 130
Competition......................................................................... 130
Employees........................................................................... 130
Properties.......................................................................... 130
Legal Proceedings................................................................... 130
Directors and Executive Officers.................................................... 130
Executive Compensation.............................................................. 131
Related Party Transactions.......................................................... 131
Ownership of Certain Beneficial Owners and Management of the Partnership............ 132
INFORMATION REGARDING IWL............................................................. 133
Business............................................................................ 133
Service Offerings................................................................... 134
Project Management Services......................................................... 134
Offshore Services................................................................... 134
Internet Service Provider........................................................... 134
Wireless Services................................................................... 134
Sales and Marketing................................................................. 134
</TABLE>
7
<PAGE>
<TABLE>
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Customer Service.................................................................... 135
Competition and Government Regulation............................................... 135
Employees........................................................................... 135
Licenses and Certifications......................................................... 135
Properties.......................................................................... 136
Legal Proceedings................................................................... 136
Directors and Executive Officers.................................................... 137
Board Committees.................................................................... 139
Director Compensation............................................................... 139
Compensation Committee Interlocks and Insider Participation......................... 139
Executive Compensation.............................................................. 139
Summary Compensation Table.......................................................... 140
Option Grants in Last Fiscal Year................................................... 141
Fiscal Year-End Option Values Table................................................. 141
Incentive Bonus Program............................................................. 141
Related Party Transactions.......................................................... 141
Security Ownership of Certain Beneficial Owners and Management of IWL............... 142
COMPETITION........................................................................... 144
REGULATION AND LICENSES............................................................... 147
Government Regulation............................................................... 147
Licenses............................................................................ 153
THE SPECIAL MEETINGS.................................................................. 154
General............................................................................. 154
Record Dates........................................................................ 154
Times and Places; Purposes.......................................................... 154
Voting Rights; Votes Required for Approval.......................................... 155
Proxies............................................................................. 156
THE MERGER AGREEMENT.................................................................. 158
General............................................................................. 158
Consideration to be Received in the Mergers......................................... 158
Dissenter's Rights.................................................................. 159
Treatment of Stock Options.......................................................... 159
Holdings Following the Merger....................................................... 160
Certain Conditions.................................................................. 160
Certain Representations and Warranties.............................................. 161
Certain Covenants................................................................... 162
No Solicitation of Transactions..................................................... 163
Control of Other Party's Business................................................... 163
Employment Agreements............................................................... 163
Pooling Accounting.................................................................. 163
Termination......................................................................... 163
Effect of Termination............................................................... 164
Expenses............................................................................ 165
Modification or Amendment........................................................... 166
THE INTEREST EXCHANGE................................................................. 167
Terms of the Exchange; Expiration Date.............................................. 167
Acceptance for Exchange............................................................. 167
Conditions.......................................................................... 168
Procedure for Tendering Partnership Interests....................................... 168
</TABLE>
8
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<TABLE>
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Withdrawal Rights................................................................... 169
Representations, Approvals, Appointments, Waivers and Covenants..................... 169
Extension of Tender Period; Termination; Amendment.................................. 171
THE PLAN PROPOSALS.................................................................... 171
The Equity Incentive Plan........................................................... 171
The Director Stock Option Plan...................................................... 174
Certain Federal Income Tax Consequences............................................. 175
COMPARISON OF SHAREHOLDER RIGHTS...................................................... 178
Comparison of Shareholder Rights of IWL and Holdings................................ 178
Comparison of Shareholder Rights of Telecommunications and Holdings................. 178
COMPARISON OF PARTNERSHIP INTERESTS AND HOLDINGS COMMON STOCK......................... 180
Issuer.............................................................................. 181
Taxation............................................................................ 181
Distributions and Dividends......................................................... 181
Management.......................................................................... 182
Voting Rights....................................................................... 182
Special Meetings.................................................................... 183
Conversion Rights................................................................... 183
Liquidation Rights.................................................................. 183
Right to Compel Dissolution......................................................... 183
Limited Liability................................................................... 184
Liquidity and Marketability......................................................... 184
Continuity of Existence............................................................. 184
Financial Reporting................................................................. 184
Certain Legal Rights................................................................ 184
Right to List of Holders; Inspection of Books and Records........................... 185
DESCRIPTION OF HOLDINGS CAPITAL STOCK................................................. 185
Authorized Capital Stock............................................................ 185
Common Stock........................................................................ 185
Preferred Stock..................................................................... 186
Preemptive Rights................................................................... 186
Transfer Agent and Registrar........................................................ 186
Certain Anti-Takeover Effects....................................................... 186
Warrants............................................................................ 187
Registration Rights................................................................. 187
LEGAL MATTERS......................................................................... 187
EXPERTS............................................................................... 187
ACCOUNTANTS........................................................................... 188
FUTURE STOCKHOLDER PROPOSALS.......................................................... 188
CAPROCK TELECOMMUNICATIONS CORP. (FORMERLY CAPROCK COMMUNICATIONS CORP.)
Independent Auditors' Report of KPMG Peat Marwick LLP................................. F-1
Independent Auditors' Report of Burds, Reed and Mercer, P.C........................... F-2
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998.................... F-3
Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1997 and 1998...................................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1998...................................... F-5
</TABLE>
9
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<TABLE>
<S> <C>
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1997 and 1998...................................... F-6
Notes to Financial Statements......................................................... F-7
CAPROCK FIBER NETWORK, LTD.
Independent Auditors' Report of KPMG Peat Marwick LLP................................. F-16
Independent Auditors' Report of Burds, Reed and Mercer, P.C........................... F-17
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998.................... F-18
Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1997 and 1998...................................... F-19
Statements of Partners' Deficit for the years ended December 31, 1995, 1996 and 1997
and the three months ended March 31, 1998........................................... F-20
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for
the three months ended March 31, 1997 and 1998...................................... F-21
Notes to Financial Statements......................................................... F-22
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
Independent Auditors' Report.......................................................... F-28
Consolidated Balance Sheets as of June 30, 1996 and 1997 and December 31, 1997........ F-29
Consolidated Statements of Operations for the years ended June 30, 1995, 1996 and 1997
and for the six months ended December 31, 1996 and 1997............................. F-30
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1995,
1996 and 1997 and for the six months ended December 31, 1997........................ F-31
Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and 1997
and for the six months ended December 31, 1996 and 1997............................. F-32
Notes to Consolidated Financial Statements............................................ F-34
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998................ F-50
Consolidated Statements of Operations for the three months ended March 31, 1997 and
1998................................................................................ F-51
Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and
1998................................................................................ F-52
Notes to Consolidated Financial Statements............................................ F-53
CAPROCK COMMUNICATIONS CORP. (FORMERLY IWL HOLDINGS CORP.)
Independent Auditors' Report.......................................................... F-55
Consolidated Balance Sheet as of March 31, 1998....................................... F-56
Notes to Balance Sheet................................................................ F-57
</TABLE>
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<S> <C> <C>
Appendix I - Merger Agreement, as amended
Appendix II - Opinion of Cruttenden Roth Incorporated
Appendix III - Articles of Incorporation of CapRock
Communications Corp.
Appendix IV - Bylaws of CapRock Communications Corp.
Appendix V - Articles 5.11 through 5.13 of the
the Texas Business Corporation Act
Appendix VI - CapRock Communications Corp. 1998
Equity Incentive Plan
Appendix VII - CapRock Communications Corp. 1998
Director Stock Option Plan
</TABLE>
10
<PAGE>
SUMMARY
THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE APPENDICES HERETO AND THE DOCUMENTS OTHERWISE REFERRED
TO HEREIN, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO OF
TELECOMMUNICATIONS, THE PARTNERSHIP AND IWL. HOLDERS OF TELECOMMUNICATIONS
COMMON STOCK, HOLDERS OF PARTNERSHIP INTERESTS AND HOLDERS OF IWL COMMON STOCK
SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN UNDER THE CAPTION "RISK
FACTORS" AND ARE URGED TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS
ENTIRETY. UNLESS THE CONTEXT OTHERWISE INDICATES, ALL REFERENCES TO
TELECOMMUNICATIONS, THE PARTNERSHIP AND IWL HEREIN INCLUDE SUCH COMPANIES AND
THEIR RESPECTIVE SUBSIDIARIES AND PREDECESSORS. UNLESS THE CONTEXT OTHERWISE
REQUIRES OR AS OTHERWISE EXPRESSLY PROVIDED HEREIN, REFERENCES IN THIS JOINT
PROXY STATEMENT/PROSPECTUS TO HOLDINGS REFER TO CAPROCK COMMUNICATIONS CORP. AND
ITS SUBSIDIARIES, COLLECTIVELY, INCLUDING, AFTER CONSUMMATION OF THE MERGERS AND
THE INTEREST EXCHANGE, TELECOMMUNICATIONS, THE PARTNERSHIP AND IWL AND THEIR
RESPECTIVE SUBSIDIARIES. ALL REFERENCES HEREIN TO YEARS ARE REFERENCES TO
CALENDAR YEARS AND NOT FISCAL YEARS UNLESS OTHERWISE STATED. IN CONNECTION WITH
THE TRANSACTION, IN MAY 1998, IWL CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO
DECEMBER 31.
RISK FACTORS
SEE "RISK FACTORS" FOLLOWING THIS SUMMARY FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY THE IWL SHAREHOLDERS AND THE
TELECOMMUNICATIONS SHAREHOLDERS IN EVALUATING WHETHER TO VOTE IN FAVOR OF THE
MERGERS AND BY THE PARTNERS IN THE PARTNERSHIP IN EVALUATING WHETHER TO
PARTICIPATE IN THE INTEREST EXCHANGE.
These risks include, among other factors, the fact that the exchange ratios
are fixed, the ability to service substantial indebtedness and to comply with
the restrictive covenants associated therewith, the risks associated with a
holding company structure, the ability of Holdings to manage rapid change
(particularly as evidenced by IWL's recent reclassification of interim financial
information) and to integrate the business of three companies and achieve the
benefits of the Transaction, Holdings' ability to fund its significant capital
requirements, risks related to building a fiber network, risks associated with
the development of provisioning, billing, customer service and management
information systems, competition and technological advances, dependence on other
long distance and local carriers, dependence on key personnel, risks associated
with industry concentration and dependence on major customers, risks associated
with international customers, risks of government regulation, risks of possible
service interruptions and natural disasters, risks associated with being an
Internet service provider, risks of obtaining and maintaining rights of way for
the fiber network, risks associated with variability of operating results
(particularly as evidenced by IWL's revenues not reaching the business plan
provided to Telecommunications and the Partnership and delays in certain IWL
contracts), risks of claims relating to ownership of proprietary rights, risks
associated with lack of dividends, risks associated with the concentration of
ownership, risks associated with the Year 2000 issues, risks associated with
certain anti-takeover matters and risks associated with the assumption of
General Partner liabilities.
THE COMPANIES
HOLDINGS
Holdings is a Texas corporation that was formed on February 3, 1998 to be a
holding company for IWL, Telecommunications and the Partnership and their
respective subsidiaries following the consummation of the Mergers and the
Interest Exchange. Prior to the consummation of the Transaction, Holdings has
had and will have no operations other than those incident to its formation, its
execution of the Merger Agreement, the preparation of this Joint Proxy
Statement/Prospectus and the incurrence of indebtedness
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under the Notes (as defined below). See "Issuance of Notes." Holdings currently
has no operations and nominal or no assets and liabilities (other than the
Notes), and, unless the context otherwise requires, all discussions herein of
the historical and planned business operations and strategy of Holdings assumes,
on a pro forma basis, that the proposed business combination to be effected by
the Mergers and Interest Exchange has been consummated. On such pro forma basis,
Holdings would have had 1997 revenues and net income of approximately $75.3
million and $2.6 million, respectively. Prior to the mailing of this Joint Proxy
Statement/Prospectus, Holdings, which was incorporated as "IWL Holdings Corp.,"
changed its name to "CapRock Communications Corp." and, in connection therewith,
Telecommunications changed its name from "CapRock Communications Corp." to
"CapRock Telecommunications Corp."
Holdings intends to become the leading facilities-based integrated
communications provider ("ICP") in Texas, Louisiana, Oklahoma and Arkansas
("Texas and the Gulf Coast region"). The combined businesses will offer a
complete suite of telecommunications services including local, long distance,
Internet, data and private line services to small and medium-sized businesses.
Holdings will also provide switched and dedicated access, regional and
international long distance, private lines and dark fiber to carrier customers.
Holdings believes the Transaction will enable it to significantly accelerate the
implementation of its business plan and to more rapidly achieve its business
objectives by: (i) enhancing its revenue opportunities by leveraging the
existing and planned fiber and switching network infrastructure of each company
to offer voice, data, and broadband services in markets geographically clustered
along or near Holdings' infrastructure, (ii) creating greater organizational
depth through the combination of the sales, customer service and networking
strengths of Telecommunications with the technological, project management and
last mile distribution expertise of IWL and the fiber network construction and
operational expertise of the Partnership, (iii) providing the opportunity to
cross-sell its products and provide single source onshore and offshore
communications solutions to IWL's existing base of oil and gas customers and to
Telecommunications' existing base of business and carrier customers throughout
Texas and the Gulf Coast region, (iv) capitalizing on international revenue
opportunities through the combination of Telecommunications' customer base, the
Partnership's planned network and IWL's relationships with foreign regulators
and communications providers and (v) reducing the combined capital expenditures
of the three companies through the construction of a single communications
infrastructure.
BUSINESS STRATEGY
Holdings' business objectives are (i) to become the leading ICP in Texas and
the Gulf Coast region, offering local, long distance, data and private line
services to end-user customers, (ii) to establish itself as the premier
carriers' carrier in Texas and the Gulf Coast region, providing voice, data and
broadband services over the most extensive alternative fiber optic network in
Texas and the Gulf Coast region, and (iii) to capitalize on the growing
opportunities to provide international long distance and international project
services. To achieve these objectives, Holdings intends to:
BECOME A SINGLE SOURCE PROVIDER OF COMMUNICATIONS AND NETWORK INTEGRATION
SERVICES. Holdings believes that there is significant demand among small and
medium-sized business customers in its target markets for an integrated package
of communications services and equipment tailored to satisfy the customer's
total communications needs. Holdings intends to offer its customers local,
domestic and international long distance, data (including asynchronous transfer
mode ("ATM"), frame relay, digital subscriber line and Internet) and broadband
(including T-1/E-1, DS-3, OC-N and dark fiber) services. Holdings believes that
its ability to provide an integrated package of communications services, to
provide, install and maintain a broad range of communications equipment and to
invoice these services on a single, convergent bill will enable it to rapidly
penetrate its targeted markets, capture virtually all of its customers'
expenditures for telecommunications services and equipment, increase customer
satisfaction and reduce customer turnover.
STRATEGICALLY BUILD OUT ITS REGIONAL FIBER NETWORK. Holdings intends to
expand the Partnership's fiber optic network to approximately 4,300 route miles
throughout Texas and the Gulf Coast region. Holdings'
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fiber optic backbone will provide it with a platform to offer an integrated
package of voice, data and broadband services, as well as to access primary,
secondary and tertiary cities and the tandems of incumbent local exchange
carriers ("ILECs") throughout Texas and the Gulf Coast region. The Partnership
owns and operates 260 route miles of fiber network in Texas extending from
Houston to Victoria and Corpus Christi, and is currently constructing an
additional 500 route miles in Texas from San Antonio to Laredo, McAllen,
Harlingen, Brownsville and Corpus Christi. The completion of Holdings' network
will allow it to originate and terminate most of its customers' voice and data
traffic within the region on-net, dramatically increase its available broadband
capacity and link together more markets than other competitive providers of
communications services in the region.
OFFER DATA, INTERNET AND ENHANCED SERVICES TO ACCELERATE MARKET PENETRATION
AND MINIMIZE POTENTIAL CHURN. Data services represent one of the fastest
growing product segments in the communications industry. Holdings believes it
can accelerate new account penetration and minimize potential customer turnover
by offering local area network ("LAN") interconnections, frame relay, ATM,
Internet services, Integrated Services Digital Network ("ISDN"), digital
subscriber line ("DSL"), Web page design, Web server hosting, and other enhanced
services not generally available from the ILECs (or available only at prices
higher than those Holdings intends to charge). Holdings intends to leverage its
expertise in providing data services by targeting small and medium-sized
business customers, as well as data-intensive and multi-point customers, such as
banks, financial institutions and health care providers.
BUILD MARKET SHARE THROUGH PERSONALIZED SALES AND CUSTOMER
SERVICE. Holdings believes the most effective method of acquiring and retaining
a high quality customer base is through a consultative, face-to-face sales
process to develop creative solutions and respond rapidly to customers'
communications needs, as well as providing superior and personalized customer
service. Holdings believes that small and medium-sized business customers in its
target markets have been neglected by the ILECs with respect to these
approaches. Holdings intends to significantly increase the size of its direct
and agent sales forces over the next three years.
DEVELOP EFFICIENT AUTOMATED BACK OFFICE SYSTEMS. Holdings will handle its
provisioning, customer care, convergent billing and traffic reporting functions
on a proprietary software platform currently being developed by RiverRock
Systems, Ltd., a Texas limited partnership ("RiverRock") in which
Telecommunications is a limited partner. These operations support systems
("OSS") and other back office systems are required to enter, schedule and track
a customer's order from the point of sale to the installation and testing of
service. These systems also include or interface with trouble management,
inventory, billing, collection and customer service systems. The system is
scalable and flexible to support Holdings' expected future back office
requirements. The system, when fully implemented, will enable Holdings to: (i)
minimize the time to initiate local and long distance services for new customers
internally and through the ILEC (commonly referred to as provisioning), (ii)
provide detailed and customized customer billing information, (iii) respond
quickly to customers' needs and information requests, and (iv) monitor and
analyze traffic, financial and operating trends. Holdings believes that this
system, when fully implemented, will provide a significant competitive advantage
in terms of cost, ability to process large order volumes, and customer service
as compared to ILECs using legacy systems and CLECs that outsource back-office
services or that do not have an advanced OSS platform.
EXPAND INTERNATIONAL SERVICE OFFERINGS. Holdings believes that it can
leverage IWL's existing international commercial relationships, regulatory
expertise and points of presence in Texas, Russia and Scotland with
Telecommunications' extensive relationships with domestic carriers to
significantly increase Holdings' international traffic.
PURSUE ACQUISITIONS AND STRATEGIC ALLIANCES. In Holdings' target markets, a
large number of small private companies provide local and long distance
services, data services, Internet services, and telecommunications equipment.
This fragmentation creates numerous opportunities for Holdings to acquire
industry participants that can provide technical support, management talent,
customers and product
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extensions and could enable Holdings to accelerate the implementation of its
business plan. Holdings also intends to pursue strategic relationships with
utilities, state transportation departments and other governmental authorities.
As part of its growth plan, Holdings has been discussing and continues to
discuss with other companies in its region business ventures and combinations,
including potential mergers and acquisitions. In connection with these
discussions, Holdings currently has obtained an option to acquire a minority
interest in a Texas-based CLEC. Discussions are in a preliminary stage, and no
assurance can be given as to when or if such investment will be made.
LEVERAGE ITS EXPERIENCED MANAGEMENT TEAM. Holdings' management team will
include individuals with significant experience in the deployment and marketing
of communications services. Jere W. Thompson, Jr., President of
Telecommunications and Chief Executive Officer of Holdings, founded the
Partnership in 1992. Ignatius W. Leonards, Chief Executive Officer of IWL and
President of Holdings, founded IWL in 1981 and has over 23 years of experience
in the telecommunications industry. Timothy W. Rogers, Timothy M. Terrell and
Scott L. Roberts, each Executive Vice Presidents of Telecommunications and
Holdings, founded Telecommunications in 1991 and have a combined 33 years of
telecommunications experience working at Sprint Corporation ("Sprint"), Qwest
Communications International Inc. ("Qwest") and Telecommunications in carrier
and commercial sales. Byron M. Allen, President of IWL and an Executive Vice
President of Holdings, has five years of experience in the domestic and
international telecommunications industry, and Kevin W. McAleer, Holding's Chief
Financial Officer, has over 16 years of experience as the chief financial
officer of publicly-held companies.
The mailing address of Holdings' principal executive offices is Two Galleria
Tower, 13455 Noel Road, Suite 1925, Dallas, Texas 75240 and its telephone number
is (972) 982-9500.
TELECOMMUNICATIONS
Telecommunications commenced operations in Dallas, Texas in 1992. It is a
facilities-based provider of voice, data and broadband communications services
to interexchange carriers and other communications entities and to businesses
and consumers. In 1997, Telecommunications' revenues more than doubled, growing
from $23.2 million in 1996 to $46.7 million, and net income was $1.8 million as
compared to a net loss of $183,000 in 1996. Telecommunications' volume of
monthly long distance minutes of traffic has grown from approximately 3.0
million minutes in April 1994 to approximately 75 million minutes in April 1998.
The number of Telecommunications' full-time employees has increased from
approximately 42 on December 31, 1996 to approximately 81 on April 30, 1998.
Telecommunications' early strategy was to double in size every year, to grow
from internal cash flow, to develop the internal systems and processes to
support its growth, and once cash flow from carrier services generated excess
capital, to build a commercial services division. In mid-1996,
Telecommunications began investing in the infrastructure to support commercial
sales activities. As a result, Telecommunications' commercial sales grew
five-fold in 1997 over 1996 and now represents approximately 30% of sales. At
April 30, 1998, Telecommunications had a direct sales force of 11 carrier and 29
commercial sales people. Telecommunications also has an agent sales force
numbering approximately 100 independent agents throughout Texas.
Telecommunications owns a DSC DEX 600 switch in Dallas, Texas, and a smaller
PC-based switch used to provide calling card services. To extend
Telecommunications' reach across the Southwest and to lower its terminating
costs in the Western United States, Telecommunications has acquired a second DEX
600 switch, which is currently being installed in Phoenix, Arizona.
Telecommunications intends to install an advanced mainframe switch capable of
providing local and long distance services in Houston, Texas in the second half
of 1998.
Telecommunications' provisioning, customer care, convergent billing and
traffic reporting functions are performed on a proprietary software platform
that is currently being developed by RiverRock, a limited partnership in which
Telecommunications is a limited partner. Telecommunications believes that this
platform is scalable, flexible and well suited to support Telecommunications'
strategy to minimize the
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time to initiate local and long distance services for new customers, to provide
detailed and customized customer billing information, to respond quickly to
customers' needs and information requests, and to provide convergent billing for
local, long distance, data and private line services. See "Information Regarding
Telecommunications--Business--Customer Care and Support Systems."
Telecommunications currently has over 30 carrier customers including AT&T
Corporation ("AT&T"), IXC Communications, Inc. ("IXC"), MCI Communications
Corporation ("MCI"), Qwest and Sprint, as well as various regional independent
telephone companies, such as Century Telephone Enterprises, Inc. and Lufkin
Conroe Telephone. Telecommunications offers its commercial customers flat rate
pricing with rates generally lower than those of AT&T, MCI, Sprint and WorldCom,
Inc. ("WorldCom"). Telecommunications has introduced various local exchange
services ("LEC Services") to customers by acquiring such services from various
ILECs on a bundled basis and reselling them. Telecommunications also offers
frame-relay and ATM data products, as well as broadband services that it resells
over the networks of other carriers.
The mailing address of Telecommunications' principal executive offices is
Two Galleria Tower, 13455 Noel Road, Suite 1925, Lock Box 46, Dallas, Texas
75240-6638 and its telephone number is (972) 982-9500.
THE PARTNERSHIP
The Partnership is a facilities-based provider of broadband
telecommunications services ("Telecommunications Services") to interexchange
carriers, other communications entities and businesses. The Partnership had no
revenues in 1996. In 1997 it had revenues and a net loss of $1.9 million and
$104,000, respectively.
The Partnership began operations in 1992 to design, manage the construction
of, operate, maintain and market a 185 route mile fiber optic network in South
Texas. In 1996, the Partnership entered into a ten year contract for the lease
of dark fiber over a 260 route mile fiber network between Houston and Corpus
Christi, Texas. The Partnership completed construction of the network in January
1997. In January 1998, the Partnership entered into a contract for the sale of
dark fiber between San Antonio and Laredo, Texas. The Partnership expects to
complete the construction of approximately 500 additional route miles of fiber
network from San Antonio to Laredo, McAllen, Harlingen, Brownsville and Corpus
Christi, Texas by the end of 1998. The Partnership intends to expand its
regional fiber network to approximately 4,300 route miles throughout Texas and
the Gulf Coast region by the end of 2000. The Partnership's ability to expand
its network and increase its revenues will be dependent upon a number of
factors, including the availability of financing, and, as a result, no assurance
can be given that its expansion plans will be met.
The Partnership provides dedicated line services over the Partnership's
owned fiber network to interexchange carriers and other telecommunications
providers for terms of one year or longer. High volume capacity service
agreements and dedicated line service agreements generally provide for "take or
pay" monthly payments at fixed rates based on the capacity term and length of
circuit used. Customers are typically billed on a monthly basis and also may
incur an installation charge or certain ancillary charges for equipment. After
contract expiration, the contracts may be renewed or the services may be
provided on a month-to-month basis. The Partnership is expanding its network to
increase its revenue stream and reduce per unit costs, targeting capacity sales
on a segment-by-segment basis as the Partnership's network is deployed and
activated, and is increasingly seeking longer-term, high-volume capacity
agreements from major carriers. In addition to traditional telecommunications
carriers, the Partnership is marketing to Internet service providers and other
data service companies.
As of December 31, 1997, substantially all of the Partnership's revenues
were derived from two customers. One of the customers provided for approximately
93% of total revenues and comprised 78% of the trade receivable balance. The
other significant customer provided for approximately 5% of total revenues in
1997 and comprised 22% of the trade receivable balance. The lease terms are
through August 2004 and July 2006, respectively.
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The mailing address of the Partnership's principal executive offices is Two
Galleria Tower, 13455 Noel Road, Suite 1925, Lock Box 46, Dallas, Texas
75240-6638 and its telephone number is (972) 982-9500.
IWL
IWL's revenues are derived from the provision of a variety of services,
including telecommunications services, project and other services and product
resales. IWL had revenues and net income of $30.3 million and $689,000 for its
fiscal year ended June 30, 1997 compared to revenues and net income of $27.8
million and $734,000 for its fiscal year 1996. Telecommunications services
include the resale of long distance telecommunications services, the provision
of private leased lines and the rental of telecommunications equipment and
systems. IWL operates a tandem switch at its facility in Houston, Texas to
provide services as a switch-based long distance carrier and is currently
completing the installation of its Gulf Coast regional network. Project and
other services consist of the installation of telecommunications system projects
and the sale, service and maintenance of communications systems.
In connection with product resales, IWL serves as the exclusive
manufacturer's representative of products of Alcatel Network Systems, Inc.
("Alcatel") to the U.S. oil and gas industry. In fiscal 1996 and 1997, IWL
provided services to a subsidiary of Shell Oil Company ("Shell"), which included
the resale of a significant amount of Alcatel products. For the fiscal years
ended June 30, 1996 and 1997, the Shell subsidiary purchased from IWL
approximately $10.6 million and $7.6 million, respectively, of Alcatel products
and other equipment and hardware, representing approximately 38.0% and 25.2%,
respectively, of total sales during such periods. Although profitable, the sale
of Alcatel products to the Shell subsidiary significantly reduced IWL's gross
margin in these periods. The Shell project was substantially completed in May
1997 and, therefore, is not expected to contribute in a material manner to IWL's
total sales in future periods.
IWL was founded in 1981 as a contract supplier of communications technology
installation and equipment leasing services and over the ensuing years broadened
the scope of its service offerings to include microwave, two-way radio and
related wireless services and technologies for an expanded customer base,
primarily comprised of major oil and gas companies operating in the Gulf of
Mexico region. During this period, IWL began to provide an increasing variety of
services to its oil and gas customers in other remote and underdeveloped regions
around the world, including communications services for special projects with
critical timing and other extreme or unusual challenges.
To support its international expansion, in 1994 IWL began providing
telecommunications services and network support inside the former Soviet Union
to United States oil and gas customers. As IWL expanded its service offerings
and developed greater infrastructure, it commenced service as a switchless
reseller of long distance services in the United States in 1994. IWL is
continuing to expand its network through its tandem switch and the installation
of fiber optic cable and microwave radios in targeted service areas. In
connection with such expansion, IWL has also received status as a CLEC (as
defined below) in Texas and Louisiana.
While annual growth rates of IWL's total sales since 1992 have ranged from
6.3% to 76.0%, IWL's quarterly operating results have varied significantly in
the past and can be expected to vary in the future. These fluctuations in
operating results generally are caused by a number of factors, including changes
in IWL's services and product mix, levels of product resales, adverse weather
conditions in customer locations, the degree to which IWL encounters competition
in its existing or target markets, general economic conditions, the volume and
timing of orders received during the period, sales and marketing expenses
related to entering new markets, the timing of new product or service
introductions by IWL or its competitors and changes in billing rates by IWL or
its competitors. IWL's ability to grow its revenues will be dependent upon a
number of factors, many of which are not within its control and, as a result, no
assurance can be given that such objectives will be met.
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In May 1998, IWL changed its fiscal year to a December 31 year end to
coincide with the fiscal years of Holdings, Telecommunications and the
Partnership and, in connection therewith, filed a December 31, 1997 transition
period Form 10-K for the transition period from June 30, 1997 to December 31,
1997.
The mailing address of IWL's principal executive offices is 12000 Aerospace
Avenue, Suite 200, Houston, Texas 77034 and its telephone number is (281)
482-0289. IWL also has domestic offices in Friendswood, Texas, and Lafayette and
New Orleans, Louisiana, and international offices in Moscow, Russia, and
Aberdeen, Scotland.
ISSUANCE OF NOTES
On July 16, 1998, Holdings, Telecommunications and the Partnership (with IWL
as a guarantor of certain obligations with respect to the Notes) sold, through a
private placement under Rule 144A under the Securities Act, senior notes (the
"Notes") in the aggregate principal amount of $150.0 million. The maturity date
of the Notes is ten years after the date of their issuance, and the interest
rate on the Notes is 12% per annum, payable semi-annually in cash, commencing
January 15, 1999. The Notes are senior unsecured obligations of Holdings and, as
such, will rank PARI PASSU in right of payment with all existing and future
unsecured and unsubordinated indebtedness of Holdings. Holdings,
Telecommunications and the Partnership (with IWL as a guarantor) will be
required to make an offer to purchase the Notes at 101% of their principal
amount, plus accrued and unpaid interest to the date of repayment, in the event
that the Transaction is not consummated and certain other conditions are not
satisfied by August 31, 1998, or if it appears, in the sole judgment of
Holdings, Telecommunications, the Partnership and IWL, that the Transaction will
not be consummated or such conditions will not be satisfied by such date. Prior
to the earlier of (i) the date on which the Transaction is consummated and
certain other conditions are satisfied and (ii) the payment date for all Notes
tendered in such offer to purchase, approximately $145.0 million of the net
proceeds from the offering of the Notes will be held in an escrow account
pursuant to the terms of an escrow and security agreement (the "Escrow
Agreement"). To the extent amounts held in the escrow account are insufficient
to repurchase Notes tendered pursuant to such offer to purchase, Holdings,
Telecommunications, the Partnership and IWL (as guarantor) have jointly and
severally agreed to repay such amounts (with an estimated contingent liability
of not more than approximately $7.0 million). There can be no assurance that
Holdings, Telecommunications, the Partnership and IWL will have sufficient funds
available at the time of such offer to purchase to repay all Notes tendered.
Following payment of all Notes tendered in such offer to purchase, if any Notes
remain outstanding, Holdings and IWL will be released from their obligations
under the Notes and Telecommunications and the Partnership will be required to
effect either a statutory merger or interest exchange within 60 days after the
payment of all Notes tendered in such offer to purchase. In the event the
Transaction is consummated by August 31, 1998, Telecommunications and the
Partnership will be released from the Notes (and IWL will be released from its
obligations under such offer to purchase), and Holdings will be the sole obligor
thereunder. See "Issuance of Notes."
THE SPECIAL MEETINGS
TELECOMMUNICATIONS
The Telecommunications Special Meeting will be held at on
, 1998, starting at a.m., local time. At the Telecommunications
Special Meeting, holders of Telecommunications Common Stock will be asked to (i)
approve and adopt the Merger Agreement, (ii) approve the Plan Proposals, (iii)
grant authorization to Telecommunications to adjourn the Telecommunications
Special Meeting to solicit additional proxies and (iv) approve such other
business as may properly come before the Telecommunications Special Meeting. See
"The Transaction," "The Merger Agreement" and "The Plan Proposals."
Holders of record of Telecommunications Common Stock at the close of
business on , 1998 (the "Telecommunications Record Date") have the
right to receive notice of, and to vote at, the Telecommunications Special
Meeting. On the Telecommunications Record Date, there were approximately
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10,398,954 shares of Telecommunications Common Stock outstanding. Each share of
Telecommunications Common Stock outstanding on the Telecommunications Record
Date is entitled to one vote on each matter that is properly presented to
shareholders for a vote at the Telecommunications Special Meeting. Under the
Texas Business Corporation Act (the "TBCA"), the affirmative vote, in person or
by proxy, of the holders of at least two-thirds of the outstanding shares of
Telecommunications Common Stock entitled to vote thereon is required to approve
and adopt the Merger Agreement. The affirmative vote of a majority of the votes
cast (including express abstentions), in person or by proxy, by the holders of
Telecommunications Common Stock at the Telecommunications Special Meeting,
assuming a quorum is present, is required to approve the Plan Proposals and any
other matter that properly comes before the Telecommunications Special Meeting.
The affirmative vote of the holders of a majority of the Telecommunications
Common Stock represented in person or by proxy at the Telecommunications Special
Meeting at which a quorum is not present is required to approve an adjournment
of the Telecommunications Special Meeting. The Merger Agreement and the Plan
Proposals are also subject to approval by the holders of IWL Common Stock and
the holders of Partnership Interests as described herein. IWL, in its capacity
as the current sole shareholder of Holdings, has adopted and approved the Equity
Incentive Plan and the Director Stock Option Plan. Proxies may be revoked by
notice of revocation or a later signed and dated proxy or by attending the
Telecommunications Special Meeting and voting in person. Attendance at the
Telecommunications Special Meeting will not in itself constitute the revocation
of a proxy. See "The Special Meetings--Voting Rights; Votes Required for
Approval" and "--Proxies."
As of the Telecommunications Record Date, CapRock Investors, a Texas joint
venture ("CapRock Investors"), owned 23.5% by Jere W. Thompson, Jr., the
President and a director of Telecommunications, 42.5% by Mark Langdale, a
director of Telecommunications, and 30.9% by Jere W. Thompson, Sr., a director
of Telecommunications, owned 4,835,514 shares of Telecommunications Common
Stock, which represented approximately 46.5% of the outstanding shares of
Telecommunications Common Stock as of such date. As of the Telecommunications
Record Date, each of Scott L. Roberts, Timothy W. Rogers and Timothy M. Terrell,
each of whom is an Executive Vice President of Telecommunications, owned
1,611,838 shares of Telecommunications Common Stock, which represented in the
aggregate approximately 46.5% of the outstanding shares of Telecommunications
Common Stock as of such date. CapRock Investors and Messrs. Roberts, Rogers and
Terrell entered into the CapRock Owners Agreement (as hereinafter defined) with
IWL pursuant to which they have agreed to vote all of their respective shares of
Telecommunications Common Stock in favor of the approval of the Merger
Agreement, subject to the conditions set forth in the CapRock Owners Agreement.
If the conditions set forth in the CapRock Owners Agreement are satisfied,
approval of the Merger Agreement by the holders of Telecommunications Common
Stock is assured. See "The Transaction--Interests of Certain Persons in the
Transaction--CapRock Owners Agreement."
IWL
The IWL Special Meeting will be held at , on , 1998,
starting at a.m., local time. At the IWL Special Meeting, holders of IWL
Common Stock will be asked to (i) approve and adopt the Merger Agreement, (ii)
approve the Plan Proposals, (iii) grant authorization to IWL to adjourn the IWL
Special Meeting to solicit additional proxies and (iv) approve such other
business as may properly come before the IWL Special Meeting. See "The
Transaction," "The Merger Agreement" and "The Plan Proposals."
Holders of record of IWL Common Stock at the close of business on
, 1998 (the "IWL Record Date") have the right to receive notice of,
and to vote at, the IWL Special Meeting. On the IWL Record Date, there were
approximately shares of IWL Common Stock issued and outstanding and entitled
to vote. Each share of IWL Common Stock outstanding on the IWL Record Date is
entitled to one vote on each matter that is properly presented to shareholders
for a vote at the IWL Special Meeting. Under the TBCA and pursuant to the
provisions of IWL's Articles of Incorporation, the affirmative vote, in person
or by proxy, of the holders of a majority of the outstanding shares of IWL
Common Stock entitled to vote thereon is required to approve and adopt the
Merger Agreement. The affirmative vote of a
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majority of the votes cast (including express abstentions), in person or by
proxy, by the holders of IWL Common Stock at the IWL Special Meeting, assuming a
quorum is present, is required to approve the Plan Proposals and any other
matter that properly comes before the IWL Special Meeting. The affirmative vote
of the holders of a majority of the IWL Common Stock represented in person or
proxy at the IWL Special Meeting at which a quorum is not present is required to
approve an adjournment of the IWL Special Meeting. The Merger Agreement and the
Plan Proposals are also subject to approval by the holders of Telecommunications
Common Stock and the holders of Partnership Interests as described herein. IWL,
in its capacity as the current sole shareholder of Holdings, has adopted and
approved the Equity Incentive Plan and the Director Stock Option Plan. Proxies
may be revoked by notice of revocation or a later signed and dated proxy or by
attending the IWL Special Meeting and voting in person. Attendance at the IWL
Special Meeting will not in itself constitute the revocation of a proxy. See
"The Special Meetings--Voting Rights; Votes Required for Approval" and
"--Proxies."
As of the IWL Record Date, Ignatius W. Leonards, the Chief Executive Officer
and Chairman of the Board of IWL, beneficially owned 1,897,528 shares of IWL,
which represented approximately 47.6% of the outstanding shares of IWL Common
Stock as of such date. As of the IWL Record Date, Byron M. Allen, President and
a director of IWL, beneficially owned 222,200 shares of IWL, which represented
approximately 5.6% of the outstanding shares of IWL Common Stock as of such
date. Messrs. Leonards and Allen entered into the IWL Shareholders Agreement (as
hereunder defined) with Telecommunications and the Partnership pursuant to which
they have agreed to vote all of their respective shares of IWL Common Stock in
favor of the approval of the Merger Agreement, subject to the conditions set
forth in the IWL Shareholders Agreement. If the conditions set forth in the IWL
Shareholders Agreement are satisfied, approval of the Merger Agreement by the
holders of IWL Common Stock is assured. See "The Transaction--Interests of
Certain Persons in the Transaction--IWL Shareholders Agreement."
THE PARTNERSHIP
The consent of the limited partners in the Partnership is not required to
approve the Merger Agreement, the Mergers and the transactions contemplated
thereby. The Interest Exchange is not a statutory interest exchange; as a
result, the partners of the Partnership will not vote on or consent to the
Interest Exchange but will each make his or its own decision whether to accept
the Exchange Offer. However, the consummation of the Transaction, including the
consummation of the Mergers, is conditioned on the receipt by Holdings of a
Contribution Agreement (as defined below) from the General Partner and from
limited partners holding, in the aggregate, at least 80% of the limited
Partnership Interests in the Partnership pursuant to which such partner, among
other things, shall approve and adopt the Merger Agreement, transfer and
contribute the partner's entire Partnership Interest in the Partnership to
Holdings in exchange for shares of Holdings Common Stock at the exchange ratio
set forth in the Merger Agreement, consent to all transfers of Partnership
Interests contemplated by the Interest Exchange, consent to the substitution of
Holdings as a substitute limited partner in the Partnership, consent to the
substitution of Telecommunications as a substitute general partner in the
Partnership, approve the Equity Incentive Plan and approve the Director Stock
Option Plan. See "The Interest Exchange."
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<PAGE>
THE TRANSACTION
CONSIDERATION TO BE RECEIVED BY SHAREHOLDERS IN THE MERGERS
Pursuant to the Merger Agreement, I-Sub will be merged with and into IWL,
with IWL surviving the IWL Merger as a wholly owned subsidiary of Holdings. Upon
consummation of the IWL Merger, (i) each outstanding share of IWL Common Stock
will be converted into one share of Holdings Common Stock (the "IWL Exchange
Ratio") and (ii) any outstanding shares of IWL Common Stock held by IWL in its
treasury will be canceled and will cease to exist. Immediately following the
Transaction, assuming all Partnership Interests are validly tendered and
accepted, the former holders of IWL Common Stock will collectively hold
approximately 13.8% of the issued and outstanding shares of Holdings Common
Stock and, on a diluted basis, the former holders of common stock, options and
warrants of IWL will own approximately 15% of the equity interests in Holdings.
See "--Ownership of Holdings After the Transaction." Fractional shares of
Holdings Common Stock will not be issued in connection with the IWL Merger. See
"The Merger Agreement--Consideration to be Received in the Mergers." For a
description of Holdings Common Stock, see "Description of Holdings Capital
Stock." For a summary of the principal differences between the rights of holders
of IWL Common Stock and holders of Holdings Common Stock, see "Comparison of
Shareholder Rights."
Pursuant to the Merger Agreement, C-Sub will be merged with and into
Telecommunications, with Telecommunications surviving the Telecommunications
Merger as a wholly owned subsidiary of Holdings. Upon consummation of the
Telecommunications Merger, (i) each outstanding share of Telecommunications
Common Stock will be converted into 1.789030878 shares (the "Telecommunications
Exchange Ratio") of Holdings Common Stock (the "Telecommunications Merger
Consideration") and (ii) any outstanding shares of Telecommunications Common
Stock held by Telecommunications in its treasury will be canceled and will cease
to exist. Immediately following the Transaction, assuming all Partnership
Interests are validly tendered and accepted, the former holders of
Telecommunications Common Stock will collectively hold approximately 64.4% of
the issued and outstanding shares of Holdings Common Stock and, on a diluted
basis, the former holders of common stock and options of Telecommunications will
own approximately 63.8% of the equity interests in Holdings. See "--Ownership of
Holdings After the Transaction." Fractional shares of Holdings Common Stock will
not be issued in connection with the Telecommunications Merger. For a discussion
of the treatment of fractional shares that would otherwise be issued, see "The
Merger Agreement--Consideration to be Received in the Mergers." For a
description of Holdings Common Stock, see "Description of Holdings Capital
Stock." For a summary of the principal differences between the rights of holders
of Telecommunications Common Stock and holders of Holdings Common Stock, see
"Comparison of Shareholder Rights."
For a description of the treatment of outstanding options and warrants to
purchase IWL Common Stock and outstanding options to purchase Telecommunications
Common Stock upon the consummation of the Mergers, see "The Merger
Agreement--Treatment of Stock Options."
HOLDERS OF TELECOMMUNICATIONS COMMON STOCK AND HOLDERS OF IWL COMMON STOCK
SHOULD NOT SEND IN THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS. A LETTER OF
TRANSMITTAL WITH INSTRUCTIONS REGARDING THE EXCHANGE OF SHARES OF HOLDINGS
COMMON STOCK WILL BE SENT TO FORMER HOLDERS OF TELECOMMUNICATIONS COMMON STOCK
AND IWL COMMON STOCK AS SOON AS PRACTICABLE FOLLOWING THE CLOSING DATE.
Each one percent (1%) of the Partnership Interests issued and outstanding
immediately before the Closing Date shall, if validly tendered to and accepted
by Holdings, be exchanged for 63,194.54 shares of Holdings Common Stock.
20
<PAGE>
THE INTEREST EXCHANGE
In connection with the Mergers, holders of all Partnership Interests in the
Partnership are being offered the opportunity to tender their Partnership
Interests to Holdings in exchange for Holdings Common Stock (the "Exchange
Offer"). Each one percent (1%) of the Partnership Interests issued and
outstanding immediately before the Effective Time and all rights in respect
thereof at the Effective Time shall, if validly tendered to and accepted by
Holdings, be exchanged for 63,194.54 (the "Partnership Exchange Ratio" and,
collectively with the IWL Exchange Ratio and the Telecommunications Exchange
Ratio, the "Exchange Ratios") shares of Holdings Common Stock (the "Interest
Exchange Consideration"). Immediately following the Transaction, assuming all
Partnership Interests are validly tendered and accepted, the former partners of
the Partnership will hold approximately 21.8% of the issued and outstanding
shares of Holdings Common Stock and, on a diluted basis, the former holders of
Partnership Interests in the Partnership will own approximately 21.2% of the
equity interests in Holdings. See "--Ownership of Holdings After the
Transaction."
The consent of the limited partners in the Partnership is not required to
approve the Merger Agreement, the Mergers and the transactions contemplated
thereby. The Interest Exchange is not a statutory interest exchange; as a
result, the limited partners of the Partnership will not vote on or consent to
the Interest Exchange but will each make his or its own decision whether to
exchange such partner's Partnership Interests for Holdings Common Stock.
However, it is a condition to the consummation of the Transaction, including the
Mergers, that the General Partner and limited partners holding, in the
aggregate, at least 80% of the limited Partnership Interests in the Partnership
shall have executed and delivered to Holdings a Contribution Agreement in
respect of such holder's Partnership Interest, shall have consented to the
transfers of Partnership Interests contemplated by the Interest Exchange, shall
have consented to the substitution of Telecommunications as a substitute general
partner in the Partnership and of Holdings as a substitute limited partner in
the Partnership and shall have approved the Plan Proposals.
For additional information regarding the Interest Exchange and the Exchange
Offer, see "The Interest Exchange" and "The Transaction--Certain United States
Federal Income Tax Consequences of the Interest Exchange."
RELATIVE EXCHANGE RATIOS AND CONSIDERATION
The following table sets forth the market value of the shares of Holdings
Common Stock (assuming an equivalent per share value of Holdings Common Stock
and IWL Common Stock) to be received upon the Mergers and the Interest Exchange
calculated based on (i) the closing price of shares of IWL Common Stock of
$15.00 per share as reported on the Nasdaq National Market on June 19, 1998, the
date prior to the date the original exchange ratios were changed to the modified
Exchange Ratios pursuant to the second amendment to the Merger Agreement, (ii)
the closing price of shares of IWL Common Stock of $8.75 per share as reported
on the Nasdaq National Market on June 22, 1998, the day the change of the
original exchange ratios to the modified Exchange Ratios was announced and (iii)
the closing price of shares of IWL Common Stock of $9.25 per share as reported
on the Nasdaq National Market on July 15, 1998, the most recent practicable date
prior to the mailing of this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
TOTAL VALUE TO TOTAL VALUE TO
BE RECEIVED AT BE RECEIVED AT
$15.00 $9.25
(CLOSING PRICE TOTAL VALUE TO BE (CLOSING PRICE
ON RECEIVED AT $8.75 ON
JUNE 19, (CLOSING PRICE ON JULY 15,
1998)(1) JUNE 22, 1998)(2) 1998)(2)
---------------- ----------------- ----------------
<S> <C> <C> <C>
IWL (3).................................................... $ 59,800,770 $ 34,883,783 $ 36,886,392
Telecommunications......................................... 117,448,830 162,785,438 172,087,463
The Partnership............................................ 39,929,700 55,295,223 58,454,950
---------------- ----------------- ----------------
Total.................................................... $217,179,300 $ 252,964,444 $267,428,805
</TABLE>
(1) Calculated using the original exchange ratios for IWL of 1:1, for
Telecommunications of .75295288:1 and for the Partnership of 26,619.8:1,
which were in effect on June 19, 1998.
(2) Calculated using the modified Exchange Ratios for IWL of 1:1, for
Telecommunications of 1.789030878:1 and for the Partnership of 63,194.54:1,
which were in effect on June 22, 1998 and July 15, 1998.
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<PAGE>
(3) The number of shares of IWL Common Stock that were issued and outstanding on
June 19, 1998 and June 22, 1998 was 3,986,718 and on July 15, 1998 was
3,987,718.
These values are shown for illustrative purposes only. Actual values
received will be dependent upon the market value of Holdings Common Stock. There
can be no assurance that the values reflected in this table will be achieved or
that the value of IWL Common Stock before the Transaction will be indicative of
the value of Holdings Common Stock after the Transaction.
AMENDMENT OF MERGER AGREEMENT
The Merger Agreement has been amended three times and the amendments are
included in the Appendix hereto. The original Merger Agreement (as amended April
30, 1998) provided that each outstanding share of IWL Common Stock would be
converted into one share of Holdings Common Stock, a Telecommunications Exchange
Ratio of .75295288 and a Partnership Exchange Ratio of 26,619.8. On June 20,
1998, the original Merger Agreement was amended for the second time, and on July
8, 1998 for a third time. The first amendment to the Merger Agreement was made
on April 30, 1998 to make minor adjustments to the Telecommunications Exchange
Ratio in order to address calculation errors in the number of options and shares
of Telecommunications Common Stock that were outstanding. Such amendment did not
change any of the other Exchange Ratios or change the total number of shares
that had been approved for issuance by Holdings. The second amendment provided
for a Telecommunications Exchange Ratio of 1.789030878 and a Partnership
Exchange Ratio of 63,194.54. The second amendment is expected to result in an
additional 14,639,148 shares of Holdings Common Stock being issued, for a total
of 29,738,607 (assuming all of the Partnership interests are validly tendered to
and accepted by Holdings in the Exchange Offer). The second amendment and the
revised Exchange Ratios were prompted by assertions by Telecommunications and
the Partnership that the reduction in IWL's revenues from its plan constituted a
Material Adverse Effect (as defined in the Merger Agreement) with respect to IWL
which could reasonably be expected to have a Material Adverse Effect on
Telecommunications and the Partnership. In lieu of terminating the Merger
Agreement or disputing whether such a right to terminate existed, the parties
agreed to modify the Exchange Ratios. In modifying the Exchange Ratios, the
parties considered, among other factors, (i) contract delays causing lower IWL
project revenues and operating income than those set forth in the IWL business
plan furnished to Telecommunications and the Partnership in connection with the
original negotiations of the Merger Agreement, (ii) the continued improvement in
Telecommunications' and the Partnership's operations and (iii) the significant
expansion in Telecommunications' and the Partnership's business plans from the
plans furnished to IWL in connection with the original negotiations of the
Merger Agreement. The second amendment was entered into on June 20, 1998 to
adjust the IWL Exchange Ratio, the Telecommunications Exchange Ratio and the
Partnership Exchange Ratio, to remove various conditions to closing that had
been met or which had been determined to not be material and to allow for the
issuance by Holdings, Telecommunications and the Partnership of the Notes and
their guarantee by IWL. The third amendment was entered into to confirm the
receipt of all required regulatory approvals and the fairness opinion from IWL's
financial advisor.
OWNERSHIP OF HOLDINGS AFTER THE TRANSACTION
Immediately following the Mergers and the Interest Exchange, assuming all
Partnership Interests are validly tendered and accepted, the former holders of
IWL Common Stock will collectively hold approximately 13.8% of the issued and
outstanding shares of Holdings Common Stock, the former holders of
Telecommunications Common Stock will collectively hold approximately 64.4% of
the issued and outstanding shares of Holdings Common Stock, and the former
partners of the Partnership will hold approximately 21.8% of the issued and
outstanding shares of Holdings Common Stock. On a diluted basis, the former
holders of common stock, options, warrants and partnership interests of IWL,
Telecommunications and the Partnership will own approximately 15%, 63.8% and
21.2% of the equity interests in Holdings, respectively. Consequently, the
former holders of the Telecommunications Common Stock and options and the former
holders of Partnership Interests in the Partnership will hold over 50% of the
shares of Holdings Common Stock to be outstanding immediately after the
consummation of the Transaction.
22
<PAGE>
The following two charts show the ownership structure of the various parties
to the Merger Agreement prior to the consummation of the Transaction and
following the consummation of the Transaction.
PRE-TRANSACTION STRUCTURE
[LOGO]
POST-TRANSACTION STRUCTURE
[GRAPH]
23
<PAGE>
RECOMMENDATION OF IWL BOARD OF DIRECTORS
The Board of Directors of IWL (the "IWL Board"), by unanimous vote, has
determined that the terms and provisions of the Merger Agreement are fair to,
and in the best interests of, IWL and the holders of IWL Common Stock and
recommends that holders of IWL Common Stock vote in favor of approval of the
Merger Agreement. The decision of the IWL Board to enter into the Merger
Agreement and to recommend that holders of IWL Common Stock vote in favor of the
approval of the Merger Agreement is based upon its evaluation of a number of
factors, including, among others, the written opinion of Cruttenden Roth
Incorporated ("Cruttenden Roth"), IWL's financial advisor in connection with the
Transaction, dated June 19, 1998 and updated as of the date of this Joint Proxy
Statement/Prospectus, stating that, as of such dates and based on and subject to
the assumptions, limitations and qualifications set forth therein, from a
financial point of view, the relative Exchange Ratios and the consideration to
be received by IWL shareholders in the IWL Merger were fair to the shareholders
of IWL. See "The Transaction--Recommendation of IWL Board" and "--Fairness
Opinion of IWL Financial Advisor."
RECOMMENDATION OF TELECOMMUNICATIONS BOARD OF DIRECTORS
The Board of Directors of Telecommunications (the "Telecommunications
Board"), by unanimous vote, has determined that the Transaction is fair to and
in the best interests of Telecommunications and the holders of
Telecommunications Common Stock and recommends that the holders of
Telecommunications Common Stock vote in favor of approval of the Merger
Agreement. See "The Transaction--Recommendation of Telecommunications Board."
RECOMMENDATION OF BOARD OF DIRECTORS OF GENERAL PARTNER
The Board of Directors of CapRock Systems, Inc. (the "General Partner
Board"), a Texas corporation that is the current general partner of the
Partnership (the "General Partner"), by unanimous vote, has determined that the
Transaction is in the best interests of the Partnership and the holders of
Partnership Interests and recommends that the holders of Partnership Interests
participate in the Interest Exchange by accepting the Exchange Offer and that,
in connection therewith, they deliver to Holdings their Contribution Agreement
with respect to their Partnership Interests. See "The
Transaction--Recommendation of General Partner Board."
REASONS FOR THE TRANSACTION
The combination of IWL, Telecommunications and the Partnership will create
an integrated communications company with extensive assets and customers in
Texas and the Gulf Coast region. The IWL Board, the Telecommunications Board and
the General Partner Board (collectively, the "Boards") believe that the
Transaction will provide opportunities to achieve substantial benefits for the
respective shareholders and partners of the three companies. The Boards further
believe that the combined entities will be better and more quickly able to
capitalize on opportunities in the telecommunications industry, both
domestically and internationally, and be better positioned to compete
effectively in the rapidly changing telecommunications industry than any of the
entities on a stand-alone basis.
The primary strategic advantages of the Transaction that were considered by
the Boards in reaching their determinations to recommend the Transaction were
(i) enhanced revenue opportunities from the integration of the existing fiber
and switching network infrastructure of each company, (ii) greater
organizational depth through the combination of the marketing, customer service
and networking strengths of Telecommunications with the technological, project
management and last mile distribution expertise of IWL, (iii) opportunities to
leverage the Partnership's fiber network by offering voice, data and
24
<PAGE>
broadband services in markets geographically clustered along or near the
existing and planned infrastructure of the three companies and (iv)
opportunities for international revenue growth through the combination of
Telecommunications' customer base, the Partnership's planned network and IWL's
relationships with numerous foreign regulators and communications providers.
In addition to the joint reasons for the Transaction described above, in
reaching its determination to recommend the Transaction, the IWL Board
considered the benefits of obtaining access to the existing Partnership network,
which will enable IWL to avoid the cost, delay and management time commitment
required to build new network infrastructures.
In addition to the joint reasons for the Transaction described above, in
reaching their determination to recommend the Transaction, the
Telecommunications Board and the General Partner Board considered the benefits
of being able to quickly access the public capital markets to help grow their
businesses, including to finance capital expenditures.
For a more complete discussion of IWL's, Telecommunications' and the
Partnership's reasons for the Transaction, see "The Transaction--Reasons for the
Transaction."
OPINION OF FINANCIAL ADVISOR TO IWL
On June 19, 1998, Cruttenden Roth delivered its written opinion to the IWL
Board to the effect that, as of such date and based on and subject to the
assumptions, limitations and qualifications set forth therein, from a financial
point of view, the relative Exchange Ratios and the consideration to be received
by the IWL shareholders in the IWL Merger were fair to the shareholders of IWL.
Cruttenden Roth subsequently updated such opinion by delivery of its written
opinion dated as of the date of this Joint Proxy Statement/Prospectus. A copy of
the Cruttenden Roth opinion, dated as of the date of this Joint Proxy
Statement/Prospectus, which sets forth the assumptions made and matters
considered by Cruttenden Roth in rendering its opinion, is attached as Appendix
II to this Joint Proxy Statement/Prospectus. Holders of IWL Common Stock are
urged to read such opinion in its entirety. See "The Transaction--Fairness
Opinion of IWL Financial Advisor."
BOARD OF DIRECTORS AND MANAGEMENT OF HOLDINGS, IWL AND TELECOMMUNICATIONS
It is expected that, following the consummation of the Transaction, the
Board of Directors of Holdings (the "Holdings Board") will consist of Ignatius
W. Leonards, Chairman of the IWL Board and a director of IWL, Byron M. Allen,
President and a director of IWL, Jere W. Thompson, Jr., President and a director
of Telecommunications, Mark Langdale, a director of Telecommunications, Timothy
W. Rogers, Executive Vice President and a director of Telecommunications, one
outside director designated by IWL (who will initially be Christopher J.
Amenson, a director of IWL) and one outside director designated by
Telecommunications (who will initially be John R. Harris).
Following the consummation of the Transaction, Mr. Thompson will be Chief
Executive Officer and Chairman of the Board of Holdings, Mr. Leonards will be
President and Vice Chairman of the Board of Holdings, Kevin W. McAleer will be
Senior Vice President and Chief Financial Officer of Holdings (and is currently
serving in that position in anticipation of the Transaction), Byron M. Allen,
Scott L. Roberts, Timothy W. Rogers and Timothy M. Terrell each will be an
Executive Vice President of Holdings, and Richard H. Roberson will be
Controller, Treasurer and Secretary of Holdings. Messrs. Roberts, Rogers and
Terrell are currently Executive Vice Presidents and directors of
Telecommunications. Mr. Roberson is currently the Chief Financial Officer,
Secretary and a director of IWL.
Holdings has entered into new employment agreements with, among other
persons, each of Jere W. Thompson, Jr., Ignatius W. Leonards, Kevin W. McAleer,
Byron M. Allen, Scott L. Roberts, Timothy W. Rogers, Timothy M. Terrell and
Richard H. Roberson. See "The Transaction--Interests of Certain Persons in the
Transaction--Employment Agreements."
25
<PAGE>
ACCOUNTING TREATMENT
IWL, Telecommunications and the Partnership expect that the Mergers and the
Interest Exchange will be accounted for using the pooling of interests method of
accounting. The pooling of interests method of accounting assumes that the
combining companies were merged from inception and the historical financial
statements for the periods prior to consummation of the Mergers and the Interest
Exchange are restated as though the companies had been combined from inception.
It is a condition to closing that IWL, Telecommunications and the Partnership
shall each have received from KPMG Peat Marwick LLP, their independent auditors,
letters, dated the date of or shortly prior to the Closing Date, stating its
opinion that the Mergers and the Interest Exchange qualify for
pooling-of-interests accounting treatment. See "The Transaction--Accounting
Treatment."
The unaudited pro forma financial information contained in this Joint Proxy
Statement/Prospectus has been prepared using the pooling of interests accounting
method to account for the Mergers and the Interest Exchange. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
CONDITIONS TO THE MERGERS
The respective obligations of IWL, Telecommunications and the Partnership to
consummate the Mergers and the Interest Exchange are subject to the satisfaction
of certain conditions, including, among others, (a) receipt of material
regulatory approvals from the FCC and various state regulatory agencies in the
states of Texas, Louisiana, Arkansas and Oklahoma, which have been obtained, (b)
receipt of updated tax opinions as of the Closing Date which will update the tax
opinions filed as exhibits to the Registration Statement by each of
Telecommunications, the Partnership and IWL from their respective special tax
counsel, (c) receipt by IWL of a regulatory opinion from Telecommunications' and
the Partnership's regulatory counsel and by Telecommunications and the
Partnership of a regulatory opinion from IWL's regulatory counsel, (d) receipt
of letters by IWL, Telecommunications and the Partnership from KPMG Peat Marwick
LLP, their independent auditors, letters, dated the date of or shortly prior to
the Effective Time, stating its opinion that the Mergers and the Interest
Exchange qualify for pooling-of-interests accounting treatment and (e) the
absence of any event that has had or could reasonably be expected to have a
Material Adverse Effect (as defined in the Merger Agreement) on the other or on
Holdings. The Transaction requires the consent of the existing lenders to IWL,
the Partnership and Telecommunications, which consents have been obtained.
Receipt of tax opinions and the receipt of the accountants' letters as described
in (b) and (d) above are waivable conditions of the Merger Agreement although
such waivers are not anticipated to be granted and are likely to not be allowed
under the Indenture for the Notes without the consent of the holders of a
majority of the Notes. If such conditions are waived, the parties would amend
the Registration Statement and resolicit votes for the Transaction. See "The
Merger Agreement-- Certain Conditions."
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEE
The Merger Agreement may be terminated prior to the Closing Date under
certain circumstances by IWL, Telecommunications or the Partnership if, among
other events, (a) the Mergers and the Interest Exchange are not consummated on
or before December 31, 1998 (the "Termination Date"), unless such failure to
consummate is caused solely by reason of the failure to obtain certain
regulatory approvals, in which case the Termination Date shall be extended to
February 16, 1999, (b) a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action, in each case permanently
restraining, enjoining or otherwise prohibiting either of the Mergers or the
Interest Exchange, (c) another party shall have breached, or failed to comply
with, in any material respect, any of its obligations under the Merger Agreement
or any of its representations or warranties shall have been incorrect in any
material respect when made or shall have since ceased to be true and correct and
such breach, failure or incorrect representation or warranty shall have resulted
or be reasonably expected to result in a Material Adverse Effect on the
terminating party,
26
<PAGE>
(d) a Material Adverse Effect or an event which could reasonably be expected to
result in a Material Adverse Effect on another party or on Holdings occurs, (e)
the Board of Directors of another party (or of the General Partner, as the case
may be), or any committee thereof, withdraws or modifies in any adverse manner
its approval or recommendation of the Merger Agreement, the Mergers or the
Interest Exchange, (f) any of the required approvals of the shareholders or
partners, as the case may be, of another party shall fail to be obtained, or (g)
under certain situations and subject to certain conditions, prior to the
approval of the Merger Agreement by the holders of common stock (or Partnership
Interests, if applicable) of another party, the Board of Directors of such other
party (or of the General Partner, as the case may be) determines in good faith
that its fiduciary obligations under applicable law require such action. See
"The Merger Agreement--Effect of Termination."
Under certain circumstances, the Merger Agreement obligates IWL to pay to
Telecommunications and the Partnership a fee of $2.5 million in the aggregate if
the Merger Agreement is terminated (of which $1,875,000 is to be paid to
Telecommunications and $625,000 is to be paid to the Partnership) and under
certain circumstances obligates Telecommunications and the Partnership to pay to
IWL a fee of $2.5 million in the aggregate if the Merger Agreement is terminated
(of which $1,875,000 is to be paid by Telecommunications and $625,000 is to be
paid by the Partnership). See "The Merger Agreement--No Solicitation of
Transactions" and "--Effect of Termination."
REGULATORY APPROVALS
The Transaction is subject to review by the applicable state regulatory
authorities governing telecommunications services in each of the states in which
IWL, Telecommunications or the Partnership provides telephone service and to
receipt of the approval of the FCC. See "The Transaction--Regulatory Approvals."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The Transaction has been structured to qualify as a nontaxable transaction
under the Internal Revenue Code of 1986, as amended (the "Code"). In connection
with the preparation of this Joint Proxy Statement/Prospectus, IWL has received
an opinion (the "Munsch Hardt Tax Opinion") from Munsch Hardt Kopf Harr & Dinan,
P.C., counsel to IWL ("Munsch Hardt"), that no gain or loss will be recognized
by IWL or the holders of IWL Common Stock in connection with the Mergers. In
connection with the preparation of this Joint Proxy Statement/Prospectus,
Telecommunications and the Partnership have received an opinion (the "Hughes &
Luce Tax Opinion") from Hughes & Luce, L.L.P., counsel to Telecommunications and
the Partnership ("Hughes & Luce"), that no gain or loss will be recognized by
Telecommunications or the Partnership or their respective holders of common
stock or Partnership Interests in connection with the Mergers and the Interest
Exchange. Copies of these opinions are filed as exhibits to the Registration
Statement. See "The Transaction--Certain United States Federal Income Tax
Consequences of the Mergers" and "--Certain United States Federal Income Tax
Consequences of the Interest Exchange."
APPRAISAL RIGHTS
The TBCA provides for certain appraisal rights for shareholders who do not
desire to participate in a merger of their corporation. Under the TBCA and Texas
partnership laws these appraisal rights are available for the shareholders of
Telecommunications, but not for the shareholders of IWL or the holders of
Partnership Interests. See "The Transaction--Appraisal Rights."
27
<PAGE>
THE PLAN PROPOSALS
THE EQUITY INCENTIVE PLAN
The Equity Incentive Plan is intended to provide a means by which selected
employees of and consultants to Holdings may be given an opportunity to acquire
an equity interest in Holdings. Awards granted under the Equity Incentive Plan
("Awards") may consist of stock options, stock appreciation rights, restricted
stock, deferred stock, stock reload options and/or other stock-based awards.
Options granted under the Equity Incentive Plan may be either options that
qualify for treatment as "incentive stock options" under Section 422 of the Code
("Incentive Stock Options") or options that do not so qualify ("Nonqualified
Stock Options"). Stock options may be granted under the Equity Incentive Plan to
any person who is an officer or other employee (including, subject to certain
conditions, officers and employees who are also directors) of Holdings or any of
its subsidiaries. The exercise price of Incentive Stock Options must be at least
the fair market value of a share of Holdings Common Stock on the date of grant
(and not less than 110% of the fair market value in the case of an Incentive
Stock Option granted to an optionee owning 10% or more of Holdings Common
Stock). The exercise price of Nonqualified Stock Options may be less than 100%
of the fair market value of a share of Holdings Common Stock on the date of
grant. A total of 5,000,000 shares of Holdings Common Stock have been reserved
for issuance in satisfaction of Awards granted under the Equity Incentive Plan
and the maximum number of shares which may be issued to any participant pursuant
to Awards granted under the Equity Incentive Plan is 2,500,000. For a more
detailed description of the Equity Incentive Plan, see "The Plan Proposals."
THE DIRECTOR STOCK OPTION PLAN
The Director Stock Option Plan is intended to encourage ownership of
Holdings by eligible non-employee directors of Holdings whose continued services
are considered essential to Holdings' future progress and to provide them with a
further incentive to remain as directors of Holdings. All options to be granted
under the Director Stock Option Plan will be Nonqualified Stock Options that
will not be eligible for treatment as Incentive Stock Options. The exercise
price per share of each option granted under the Director Stock Option Plan may
be less than 100% of the fair market value of Holdings Common Stock on the date
of grant. A total of 400,000 shares of Holdings Common Stock have been reserved
for issuance upon the exercise of options to be granted under the Director Stock
Option Plan. For a more detailed description of the Director Stock Option Plan,
see "The Plan Proposals."
The adoption of each of the Equity Incentive Plan and the Director Stock
Option Plan has been unanimously approved by each of the IWL Board, the
Telecommunications Board, the General Partner Board and the Holdings Board, in
each case subject to the approval of the holders of IWL Common Stock,
Telecommunications Common Stock and the Partnership Interests. IWL, in its
capacity as the current sole shareholder of Holdings, has adopted and approved
the Equity Incentive Plan and the Director Stock Option Plan. The IWL Board
recommends that holders of IWL Common Stock vote FOR the approval of the Plan
Proposals, the Telecommunications Board recommends that holders of
Telecommunications Common Stock vote FOR the approval of the Plan Proposals and
the General Partner Board recommends that holders of Partnership Interests
execute and deliver their Contribution Agreements, in which they will, among
other things, consent to the adoption by Holdings of the Plan Proposals. See
"The Plan Proposals."
28
<PAGE>
SUMMARY SELECTED UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma balance sheet and statement of operations
data of Holdings illustrates the effect of the Transaction as if the Transaction
had occurred on March 31, 1998 for the pro forma balance sheet data and as of
the beginning of the period for the pro forma statement of operations data. In
May 1998, IWL changed its fiscal year end to coincide with the fiscal years of
Holdings, Telecommunications and the Partnership. Accordingly, the pro forma
statement of operations data for 1997 is presented for the 12 months ended
December 31, 1997 on a combined basis for all three entities. The unaudited
combined condensed statement of operations data for the three-month period ended
March 31, 1998 and 1997 combine the financial statements of IWL with those of
Telecommunications and the Partnership. The unaudited pro forma combined
condensed statements of operations for the years ended December 31, 1996 and
1995 combine IWL's consolidated statements of operations data for the years
ended June 30, 1996 and 1995 with the Telecommunications and Partnership
statements of operations data for the years ended December 31, 1996 and 1995.
The revenue and net income of IWL for the six month period ended December 31,
1996 was excluded from the pro forma combined condensed statement of operations
in the amounts of $15.6 million and $260,000, respectively. The pro forma data
is not necessarily indicative of the results of operations or the financial
condition that would have been reported by Holdings had the Transaction been in
effect during those periods, or as of those dates, or that may be reported in
the future. Pro forma combined per share data of IWL, Telecommunications and the
Partnership give effect to the exchange of each share of IWL Common Stock for
one share of Holdings Common Stock, each share of Telecommunications Common
Stock for 1.789030878 shares of Holdings Common Stock, and each 1% of the
Partnership Interests for 63,194.54 shares of Holdings Common Stock.
This information should be read in conjunction with, and is qualified in its
entirety by, the consolidated financial statements of IWL, and the financial
statements of Telecommunications and the Partnership and the related notes
thereto included elsewhere herein and the Unaudited Pro Forma Combined Condensed
Financial Statements and the related notes thereto included elsewhere herein.
See "Unaudited Pro Forma Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenues:
Telecommunications services.......................... $ 18,194 $ 29,705 $ 57,892 $ 11,355 $ 19,162
Projects and other................................... 11,213 10,711 14,512 3,161 5,251
Product resales(1)................................... -- 10,554 2,946 2,506 --
--------- --------- --------- --------- ---------
Total revenues..................................... 29,407 50,970 75,350 17,022 24,413
Operating costs and expenses........................... 29,696 49,876 69,892 16,651 21,729
--------- --------- --------- --------- ---------
Operating income (loss)................................ (289) 1,094 5,458 371 2,684
Other income (expense)................................. 150 41 220 114 (17)
Interest expense, net.................................. (484) (585) (1,603) (368) (433)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
item................................................. (623) 550 4,075 117 2,234
Income taxes........................................... 37 143 1,475 2 874
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item................ (660) 407 2,600 115 1,360
Extraordinary item..................................... 645 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)...................................... $ (15) $ 407 $ 2,600 $ 115 $ 1,360
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share(2):
Basic................................................ $ -- $ 0.01 $ 0.09 $ -- $ 0.05
Diluted.............................................. $ -- $ 0.01 $ 0.09 $ -- $ 0.05
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31,
1998
-------------
(IN
THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 1,378
Working capital (deficit)......................... (4,751)
Property and equipment, net....................... 30,000
Total assets...................................... 54,335
Long-term debt and capital lease obligations,
including current portion....................... 12,563
Stockholders' equity.............................. 14,045
</TABLE>
- ------------------------
(1) Includes the resale of Alcatel products and other equipment and hardware to
a subsidiary of Shell Oil Company ("Shell"). For the 12 months ended June
30, 1996 and December 31, 1997, the Shell subsidiary purchased from Holdings
approximately $10.6 million and $2.9 million of Alcatel products and other
equipment and hardware. The Shell project was substantially completed in May
1997 and, therefore, is not expected to contribute in a material manner to
total sales in future periods.
(2) Net income (loss) per share amounts have been calculated in accordance with
SFAS No. 128, "Earnings Per Share," for all periods presented.
30
<PAGE>
SUMMARY SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF IWL
The following selected consolidated historical financial data for each of
the four fiscal years ended June 30, 1997 and for the six months ended December
31, 1997, are derived from IWL's consolidated financial statements, which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
whose report with respect to the three-year period ended June 30, 1997 appears
elsewhere herein. The following selected consolidated historical financial data
for the fiscal year ended June 30, 1993 are derived from IWL's unaudited
consolidated financial statements. The following selected consolidated
historical financial data for the six months ended December 31, 1996 and 1997
and for the three months ended March 31, 1997 and 1998 are derived from
unaudited consolidated financial statements of IWL which, in the opinion of
IWL's management, contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation thereof. The results of
operations for an interim period are not necessarily indicative of the results
of operations to be expected for a full year. The data set forth below in this
table are qualified in their entirety by, and should be read in conjunction
with, the financial statements of IWL and the related notes thereto included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of IWL."
<TABLE>
<CAPTION>
THREE
SIX MONTHS ENDED MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31, MARCH 31,
----------------------------------------------------- -------------------- ---------
1993 1994 1995 1996 1997 1996 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Telecommunications services..... $ 2,238 $ 3,301 $ 5,790 $ 6,531 $ 7,993 $ 3,646 $ 4,856 $ 2,298
Project and other............... 10,722 11,559 10,004 10,711 14,708 7,303 7,107 3,161
Product resales(1).............. -- -- -- 10,554 7,641 4,695 -- 2,506
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues................ 12,960 14,860 15,794 27,796 30,342 15,644 11,963 7,965
Cost of revenues.................. 8,641 10,071 9,639 20,416 21,737 11,684 6,557 5,674
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit...................... 4,319 4,789 6,155 7,380 8,605 3,960 5,406 2,291
Operating expenses:
Selling, general and
administrative................ 3,132 4,070 4,399 5,099 5,845 2,736 3,631 1,611
Depreciation and amortization... 359 571 821 1,003 1,403 635 982 347
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses...... 3,491 4,641 5,220 6,102 7,248 3,371 4,613 1,958
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income.................. 828 148 935 1,278 1,357 589 793 333
Interest expense, net............. (10) (215) (244) (270) (514) (214) (218) (125)
Other income (expense)............ (86) 252 139 42 129 19 110 114
--------- --------- --------- --------- --------- --------- --------- ---------
Income before income taxes........ 732 185 830 1,050 972 394 685 322
Income taxes...................... 249 41 294 316 283 134 264 95
--------- --------- --------- --------- --------- --------- --------- ---------
Net income........................ $ 483 $ 144 $ 536 $ 734 $ 689 $ 260 $ 421 $ 227
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings per share amounts(2):
Basic........................... $ 0.24 $ 0.07 $ 0.24 $ 0.33 $ 0.30 $ 0.12 $ 0.11 $ 0.10
Diluted......................... $ 0.24 $ 0.07 $ 0.24 $ 0.33 $ 0.30 $ 0.11 $ 0.11 $ 0.10
Weighted average shares
outstanding:
Basic........................... 2,000 2,001 2,222 2,222 2,298 2,226 3,737 2,234
Diluted......................... 2,011 2,011 2,233 2,233 2,323 2,261 3,908 2,298
<CAPTION>
1998
---------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Telecommunications services..... $ 2,804
Project and other............... 5,251
Product resales(1).............. --
---------
Total revenues................ 8,055
Cost of revenues.................. 4,421
---------
Gross profit...................... 3,634
Operating expenses:
Selling, general and
administrative................ 2,188
Depreciation and amortization... 647
---------
Total operating expenses...... 2,835
---------
Operating income.................. 799
Interest expense, net............. (155)
Other income (expense)............ 1
---------
Income before income taxes........ 645
Income taxes...................... 254
---------
Net income........................ $ 391
---------
---------
Earnings per share amounts(2):
Basic........................... $ 0.10
Diluted......................... $ 0.09
Weighted average shares
outstanding:
Basic........................... 3,912
Diluted......................... 4,199
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------- DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 72 $ -- $ 291 $ 361 $ 7,660 $ 3,345 $ 720
Working capital (deficit)...................... 709 (367) (265) 1,811 9,721 1,330 (398)
Total assets................................... 5,748 7,437 8,232 12,409 26,062 26,284 29,834
Long-term debt and capital lease obligations,
net of current portion....................... 533 1,108 1,329 2,944 7,692 3,588 3,948
Stockholders' equity........................... 1,511 2,419 2,955 3,698 11,394 12,166 14,135
</TABLE>
- ------------------------
(1) Comprised of the resale of Alcatel products and other equipment and hardware
to a subsidiary of Shell.
(2) Earnings per share amounts have been calculated in accordance with SFAS No.
128, "Earnings Per Share," in 1997 and 1998. Prior year amounts have been
restated on a comparable basis.
32
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF TELECOMMUNICATIONS
The following selected historical financial data for Telecommunications for
the years ended and as of December 31, 1993 and 1994 have been derived from the
unaudited financial statements of Telecommunications. The financial data for the
years ended and as of December 31, 1995 and 1996 have been derived from
Telecommunications' financial statements and related notes which have been
audited by Burds, Reed & Mercer, P.C., independent certified public accountants.
The financial data for the year ended and as of December 31, 1997 have been
derived from Telecommunications' financial statements and related notes which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The financial data for the three months ended March 31, 1997 and
1998 are derived from unaudited financial statements of Telecommunications,
which in the opinion of Telecommunication's management, contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. The results of operations for an interim period are not
necessarily indicative of the results of operations to be expected for a full
year. The data set forth below in this table are qualified in their entirety by,
and should be read in conjunction with, the financial statements of
Telecommunications and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of
Telecommunications."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues......................... $ 526 $ 5,965 $ 13,440 $ 23,174 $ 46,745 $ 8,697 $ 15,770
Cost of revenues....................... 39 4,780 11,043 18,941 35,776 7,118 11,802
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................... 487 1,185 2,397 4,233 10,969 1,579 3,968
Operating expenses:
Selling, general and
administrative..................... 426 1,038 2,601 3,711 7,049 1,487 2,176
Depreciation and amortization........ 4 10 333 478 694 142 231
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses............. 430 1,048 2,934 4,189 7,743 1,629 2,407
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)................ 57 137 (537) 44 3,226 (50) 1,561
Interest expense....................... -- (9) (240) (315) (311) (78) (86)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes...... 57 128 (777) (271) 2,915 (128) 1,475
Income taxes (benefit)................. 3 36 (245) (88) 1,100 (65) 578
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ 54 $ 92 $ (532) $ (183) $ 1,815 $ (63) $ 897
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per common share(1):
Basic................................ $ 0.01 $ 0.01 $ (0.05) $ (0.02) $ 0.17 $ (0.01) $ 0.09
Diluted.............................. $ 0.01 $ 0.01 $ (0.05) $ (0.02) $ 0.17 $ (0.01) $ 0.08
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................... $ 37 $ 104 $ (533) $ (1,348) $ (576) $ (38)
Property and equipment, net......................... 34 118 2,214 2,858 3,693 4,162
Total assets........................................ 111 1,716 4,953 7,356 13,327 14,552
Long-term debt and capital lease obligations, net of
current portion................................... 3 113 1,114 720 453 431
Stockholders' equity (deficit)...................... (3) 375 593 411 2,247 3,165
</TABLE>
33
<PAGE>
- ------------------------
(1) Earnings (loss) per share amounts have been calculated in accordance with
SFAS No. 128, "Earnings Per Share," in 1997 and 1998. Prior year amounts
have been restated on a comparable basis.
34
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF THE PARTNERSHIP
The following selected historical financial data for the Partnership for the
years ended and as of December 31, 1993, 1994, 1995 and 1996 have been derived
from the Partnership's financial statements and related notes which have been
audited by Burds, Reed & Mercer, P.C., independent certified public accountants.
The financial data for the year ended and as of December 31, 1997 have been
derived from the Partnership's financial statements and related notes which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
The financial data for the three months ended March 31, 1997 and 1998 are
derived from unaudited financial statements of the Partnership, which in the
opinion of the Partnership's management, contain all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation thereof.
The results of operations for an interim period are not necessarily indicative
of the results of operations to be expected for a full year. The data set forth
below in this table are qualified in their entirety by, and should be read in
conjunction with, the financial statements of the Partnership and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Telecommunications services....................... $ -- $ -- $ -- $ -- $ 1,945 $ 360 $ 588
Projects and other................................ 240 334 173 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................................. 240 334 173 -- 1,945 360 588
Operating costs and expenses:
Network access expenses........................... -- 444 503 -- 86 41 12
Selling, general and administrative............... 245 457 326 174 286 65 67
Depreciation and amortization..................... 18 50 31 54 902 166 185
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses.............. 263 951 860 228 1,274 272 264
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............................. (23) (617) (687) (228) 671 88 324
Interest expense.................................... -- -- -- -- (774) (165) (210)
Other income (expense).............................. 15 4 12 -- (1) -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
item.............................................. (8) (613) (675) (228) (104) (77) 114
Income taxes(1)..................................... -- -- -- -- -- -- (42)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item............. (8) (613) (675) (228) (104) (77) 72
Extraordinary item (2).............................. -- -- 645 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................... $ (8) $ (613) $ (30) $ (228) $ (104) $ (77) $ 72
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- ----- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................ $ 497 $ (178) $ 1 $ (2,616) $ (1,059) $ (1,314)
Property and equipment, net.............................. 239 206 -- 8,552 9,300 9,168
Total assets............................................. 788 443 13 8,757 9,779 9,949
Long-term debt and capital lease obligations, net of
current portion........................................ -- -- -- 6,336 8,665 8,184
Partners' capital (deficit).............................. 742 34 4 (223) (327) (255)
</TABLE>
35
<PAGE>
- ------------------------
(1) Effective January 1, 1998, the Partnership elected to be taxed as a
corporation and as such has recorded income taxes of $42,000 relating to the
three months ended March 31, 1998. Prior to January 1, 1998, the Partnership
allocated net income and net losses to its Partnership Interests and
therefore no income taxes were recorded for periods ended prior to January
1, 1998.
(2) Extraordinary gain of approximately $645,000 relates to extinguishment of
certain lease obligations in 1995.
36
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following table sets forth, for the periods indicated, selected pro
forma per share amounts for Holdings Common Stock, pro forma per share
equivalent amounts for Telecommunications Common Stock, pro forma per one
percent equivalent amounts for Partnership Interests, giving effect to the
Transaction, and the corresponding historical per share data for IWL Common
Stock and Telecommunications Common Stock and the historical data for each one
percent Partnership Interest in the Partnership. Net income per share data is
computed using diluted share information. The information presented is based
upon, and is qualified in its entirety by, the Consolidated Financial Statements
and the related notes thereto of IWL and the Financial Statements and related
notes thereto of Telecommunications and the Partnership included elsewhere
herein. These data are not necessarily indicative of the results of the future
operations of Holdings or the actual results that would have occurred if the
Transaction had been consummated prior to the periods indicated. See "Unaudited
Pro Forma Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
AS OF OR FOR THE YEAR ENDED DECEMBER ENDED MARCH
31, 31,
------------------------------------- ------------
1995 1996 1997 1998
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED(1)
Net income (loss) per share--diluted........................ $ -- $ 0.01 $ 0.09 $ 0.05
Book value per share........................................ $ 0.49
TELECOMMUNICATIONS PER SHARE EQUIVALENTS(2)
Net income (loss) per share--diluted........................ $ -- $ 0.03 $ 0.16 $ 0.08
Book value per share........................................ $ 0.87
PARTNERSHIP ONE PERCENT EQUIVALENTS(3)
Net income (loss) per one percent interest.................. $ (36.55) $ 947.09 $ 5,785.62 $ 2,951.19
Book value per one percent interest......................... $ 30,720.18
IWL HISTORICAL(4)
Net income per share--diluted............................... $ 0.24 $ 0.33 $ 0.30 $ 0.08
Book value per share........................................ $ 3.56
TELECOMMUNICATIONS HISTORICAL
Net income (loss) per share................................. $ (0.05) $ (0.02) $ 0.17 $ 0.09
Book value per share........................................ $ 0.30
PARTNERSHIP HISTORICAL
Net loss per one percent interest........................... $ (301.61) $ (2,274.03) $ (1,037.98) $ 716.40
Book deficit per one percent interest....................... $ (2,552.98)
</TABLE>
- ------------------------
(1) The pro forma IWL per share equivalents are equal to the Unaudited Pro Forma
Combined per share amounts as the Exchange Ratio of IWL Common Stock to
Holdings Common Stock is 1 to 1.
(2) The Telecommunications Per Share Equivalents were calculated by multiplying
the Unaudited Pro Forma Combined per share amounts by the Telecommunications
Exchange Ratio to reflect the exchange of 1.789030878 shares of Holdings
Common Stock for each share of Telecommunications Common Stock pursuant to
the Merger Agreement.
(3) The Partnership One Percent Equivalents were calculated by multiplying the
Unaudited Pro Forma Combined per share amounts by the Partnership Exchange
Ratio to reflect the exchange of 63,194.54 shares of Holdings Common Stock
for each one percent (1%) of the Partnership Interests pursuant to the
Merger Agreement.
37
<PAGE>
(4) The IWL historical net income per share amounts are presented for the years
ended June 30, 1995 and 1996 and for the twelve months ended December 31,
1997 to correspond with the periods used to prepare the unaudited pro forma
combined condensed financial statements.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
IWL Common Stock is listed on the Nasdaq National Market under the trading
symbol "IWLC." On February 12, 1998, the last full trading day prior to the
public announcement of the proposed Mergers, the closing price of IWL Common
Stock on the Nasdaq National Market was $9.875 per share. On July 15, 1998, the
most recent practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, the closing price of IWL Common Stock on the Nasdaq
National Market was $9.25 per share. Holders of IWL Common Stock are urged to
obtain current market quotations of the IWL Common Stock prior to making any
decision with respect to the Mergers. There has previously been no public market
for the shares of Holdings Common Stock or Telecommunications Common Stock or
the Partnership Interests. See "Comparative Per Share Market Price and Dividend
Information."
LISTING OF HOLDINGS COMMON STOCK
Holdings intends to apply for listing of the Holdings Common Stock on the
Nasdaq National Market and anticipates that its shares will trade on the Nasdaq
National Market, upon official notice of issuance, under the symbol "CPRK."
There has previously been no public market for the shares of Holdings Common
Stock. See "The Transaction--Nasdaq Listing."
DIVIDEND POLICY
Holdings currently intends to retain all future earnings for use in the
operation of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. The declaration and payment in the future
of any cash dividends will be at the discretion of the Holdings Board and will
depend upon, among other factors, the earnings, capital requirements and
financial position of Holdings, existing and/or future covenants contained in
Holdings' bank credit agreements or other financing documents and general
economic conditions. IWL has not paid any dividends to date. Telecommunications
has not paid any dividends to date. The Partnership made a one time,
extraordinary distribution in April 1994 to its partners, but otherwise has not
paid any distributions to date.
38
<PAGE>
RISK FACTORS
THIS SECTION DESCRIBES CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY THE
IWL SHAREHOLDERS AND TELECOMMUNICATIONS SHAREHOLDERS IN EVALUATING WHETHER TO
VOTE IN FAVOR OF THE MERGERS AND BY THE PARTNERS IN THE PARTNERSHIP IN
EVALUATING WHETHER TO PARTICIPATE IN THE INTEREST EXCHANGE, AND INCLUDES RISK
FACTORS FOR THE COMBINED BUSINESSES OF IWL, TELECOMMUNICATIONS AND THE
PARTNERSHIP AS WELL AS RISK FACTORS THAT RELATE ONLY TO ONE OF SUCH COMPANIES.
FIXED EXCHANGE RATIO
The IWL Exchange Ratio, Telecommunications Exchange Ratio and Partnership
Exchange Ratio are expressed as fixed ratios in the Merger Agreement. The Merger
Agreement does not contain any provisions for adjustment of the IWL Exchange
Ratio, the Telecommunications Exchange Ratio or the Partnership Exchange Ratio
based upon fluctuations in the market price of IWL Common Stock. Accordingly,
the value of the stock consideration to be received by holders of IWL Common
Stock, Telecommunications Common Stock and Partnership Interests upon the
consummation of the Mergers and the Interest Exchange, as determined by
reference to the market price of the IWL Common Stock on the Nasdaq National
Market, is not presently ascertainable and will depend upon the market price of
Holdings Common Stock on the Closing Date, which in turn will be affected by,
among other factors, the market price of IWL Common Stock immediately prior to
the Closing Date and the value of the business of Telecommunications and the
Partnership on the Closing Date. The exchange ratios were initially determined
on February 16, 1998, which is also the date prior to the date the Transaction
was announced. On February 12, 1998, the most recent day in which trading
occurred in IWL Common Stock prior to such date, the closing price of IWL Common
Stock on the Nasdaq National Market was $9.875 per share. The Exchange Ratios
were recalculated on June 20, 1998. From February 17, 1998 until June 19, 1998,
the date prior to the date the Exchange Ratios were recalculated, the highest
and lowest closing prices of IWL Common Stock were $22.375 per share and $11.75
per share, respectively. On June 19, 1998, the closing price was $15.00 per
share. From June 20, 1998, through July 15, 1998, the highest and lowest closing
prices of IWL Common Stock on the Nasdaq National Market were $9.75 per share
and $8.125 per share, respectively, and the closing price on July 15, 1998, the
most recent practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus, was $9.25 per share. These variations may result from
changes in the business, amendments to the Merger Agreement, operations or
prospects of IWL, Telecommunications or the Partnership, market assessment of
the Transaction, general economic conditions or other factors. The IWL Common
Stock is the only publicly traded security of the parties to the Transaction and
it has a one for one exchange ratio for the Holdings Common Stock. As the market
value of the shares of IWL Common Stock increases or decreases, the market value
(and not the number of such shares of stock) to be received by the shareholders
or partners of IWL, Telecommunications or the Partnership, as applicable, will
also increase or decrease (assuming an equivalent per share value of Holdings
Common Stock and IWL Common Stock). Holders of IWL Common Stock,
Telecommunications Common Stock and Partnership Interests are urged to obtain
current market quotations prior to making any decision with respect to the
Mergers and the Interest Exchange. There has previously been no public market
for the shares of Holdings Common Stock, Telecommunications Common Stock or the
Partnership Interests. The Merger Agreement provides that fluctuations in the
price of IWL Common Stock shall be deemed to be an event that does not have a
Material Adverse Effect (as defined in the Merger Agreement) on any other party
or on Holdings that would give rise to the right to terminate the Merger
Agreement.
SUBSTANTIAL INDEBTEDNESS; RESTRICTIVE COVENANTS
On July 16, 1998, Holdings, Telecommunications and the Partnership (with IWL
as a guarantor of certain obligations with respect to the Notes) sold the Notes
through a private placement under Rule 144A under the Securities Act. The
aggregate principal amount of the Notes was $150,000,000. As a result of the
issuance of the Notes, Holdings is highly leveraged. At March 31, 1998, on a pro
forma basis after giving
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effect to the consummation of the Transaction and the issuance of the Notes and
the application of the net proceeds therefrom, Holdings would have had total
consolidated indebtedness of $150 million before the costs of the Transaction
and the offering of the Notes (or approximately 92% of the total capitalization
of Holdings) and the total liabilities of Holdings (including trade accounts
payable and accrued liabilities) would have been approximately $168.6 million.
The degree to which Holdings is leveraged may adversely affect Holdings' ability
to finance its future operations, to compete effectively against better
capitalized companies, to be flexible in planning for, or reacting to, changes
in its business, to withstand downturns in its business or the economy
generally, and to pursue business opportunities that may be in the best
interests of Holdings.
The successful implementation of Holdings' strategy, including expanding its
network, increasing its sales force and obtaining and retaining a significant
number of customers in order to generate significant and sustained growth in
Holdings' cash flow, will be necessary for Holdings to be able to meet its debt
service requirements, including its obligations under the Notes. There can be no
assurance that Holdings will successfully implement its strategy or that
Holdings will be able to generate sufficient cash flow from operating activities
to meet its debt service obligations and working capital requirements. In the
event the implementation of Holdings' strategy is delayed or is unsuccessful or
Holdings does not generate sufficient cash flow to meet its debt service and
working capital requirements, Holdings may need to seek additional financing.
There can be no assurance that any such financing could be obtained on terms
that are acceptable to Holdings, or at all. In the absence of such financing,
Holdings could be forced to dispose of assets in order to make up for any
shortfall in the payments due on its indebtedness under circumstances that might
not be favorable to realizing the highest price for such assets. As a result,
there can be no assurance that Holdings' assets could be sold quickly enough or
for sufficient amounts to enable Holdings to meet its obligations, including its
obligations with respect to the Notes.
Holdings is currently negotiating with a lender to obtain a senior credit
facility (the "Credit Facility") which the Company expects will become available
upon consummation of the Transaction. The Credit Facility and the Indenture (as
defined below) will impose operating and financial restrictions on Holdings and
its subsidiaries. These restrictions will affect, and in certain cases
significantly limit or prohibit, among other things, the ability of Holdings and
its subsidiaries to incur additional indebtedness, create liens upon assets,
apply the proceeds from the disposal of assets, make investments, make dividend
payments and other distributions on capital stock (other than to Holdings) and
redeem capital stock. In addition, the Credit Facility is expected to require
Holdings to maintain certain financial ratios and meet certain financial
covenants relating to Holdings. There can be no assurance that Holdings will be
able to maintain such ratios or that such covenants will not adversely affect
Holdings' ability to finance its future operations or capital needs or to engage
in other business activities that may be in the best interest of Holdings.
HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION
Upon completion of the Transaction, Holdings will be a holding company with
no direct operations and no significant assets other than its direct and
indirect ownership interests in its subsidiaries. The Notes are general
unsecured obligations of Holdings and rank pari passu in right of payment with
all future senior indebtedness of Holdings, if any, and senior in right of
payment to all future subordinated indebtedness of Holdings, if any. Holdings
does not currently have any other existing debt other than the Notes and the
debt of its subsidiaries. Each of Holdings' subsidiaries is a separate legal
entity that upon completion of the Transaction has no obligation to pay any
amounts that may be due pursuant to the Notes or to make any funds available
therefor, whether by dividends, loans or other payments. Because upon completion
of the Transaction (as currently contemplated) the Notes will not be guaranteed
by the subsidiaries, all indebtedness of the subsidiaries, including the
subsidiaries' borrowings under the Credit Facility, any vendor financings and
trade payables, will be structurally senior to the Notes. In addition, Holdings
may be required to pledge the stock of Telecommunications and IWL, which will
become Holdings' direct wholly owned subsidiaries upon completion of the
Transaction, to secure the borrowings
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under the Credit Facility and other vendor financings and Holdings subsidiaries
may be required to grant liens on substantially all of their assets as security
for the obligations under the Credit Facility. In the event of any dissolution,
bankruptcy or liquidation or reorganization of Holdings' subsidiaries, the right
of Holdings to receive assets of the subsidiaries upon such liquidation or
reorganization (and the consequent right of holders of the Notes to participate
in the distribution or realize proceeds from those assets) will be effectively
subordinated to the claims of the subsidiaries' creditors (including trade
creditors and holders of other indebtedness of such subsidiaries) except if and
to the extent Holdings is itself a creditor of such subsidiary, in which case
the claims of Holdings would still be effectively subordinated to any security
interest in the assets of such subsidiary held by other creditors. As of March
31, 1998, after giving effect to the Transaction and the issuance of the Notes
(and the application of the net proceeds therefrom) Holdings and its
subsidiaries, on a consolidated basis, would have had approximately $18.6
million of total outstanding liabilities (excluding intercompany payables and
the Notes), all of which would have been liabilities of Holdings' subsidiaries
and all of which would have been structurally senior to the Notes. See
"Unaudited Pro Forma Combined Condensed Financial Statements." Holdings will be
dependent on the cash flow of its subsidiaries to meet its obligations,
including the payment of interest and principal obligations on the Notes when
due. Accordingly, Holdings' ability to make principal, interest and other
payments to holders of the Notes when due will be dependent on the receipt of
sufficient funds from its subsidiaries. Receipt of such funds will be restricted
by the terms of existing and future indebtedness of the subsidiaries, including
the Credit Facility.
MANAGING RAPID CHANGE; INTEGRATION OF COMBINED BUSINESSES
IWL, Telecommunications and the Partnership each have experienced a recent
period of significant growth and expansion that has placed, and if sustained
would continue to place, a significant strain on their respective
administrative, operational and financial resources, as evidenced by IWL's
recent misclassification of revenue. This growth has resulted in an increase in
the level of responsibility for management personnel. The Transaction is
intended in part to help fuel additional growth and expansion, which could add
additional strain on Holdings' resources and increase demands on its systems and
controls. Holdings' ability to continue to manage its growth successfully will
require Holdings to enhance its operational, management, financial and
information systems and controls and to hire and retain qualified sales,
marketing, administrative, operating and technical personnel. There can be no
assurance that Holdings will be able to do so.
The Transaction involves the integration of three companies, which will
impose many risks on Holdings, including risks associated with assimilating the
operations, services, products and personnel of the three companies. No
assurance can be given that Holdings will not encounter significant difficulties
in integrating the respective operations of IWL, Telecommunications and the
Partnership or that the benefits and revenue growth expected from such
integration will be realized. The achievement of the benefits and revenue growth
expected from such integration will require Holdings to, among other things,
access significant amounts of growth capital, to complete successfully the
approximately 4,300 route mile fiber network planned by the Partnership, to
provide cost-effective services in many new markets, to expand rapidly its sales
force and customer service department, to introduce new data products as they
become available and, in regards to the Transaction, to incur significant costs
in connection with the integration of IWL's, Telecommunications' and the
Partnership's operations, financial reporting and accounting systems, and
networks, as well as other costs relating to transitional planning and
implementation. The incurrence of any such costs, as well as any unexpected
costs or delays in connection with such integration, could have a material
adverse effect on Holdings' financial condition, results of operations and cash
flow.
SIGNIFICANT CAPITAL REQUIREMENTS
Following the Transaction, the expansion of Holdings' fiber network, the
installation of additional switches, the opening of new sales offices, the
recruiting and training of new personnel, additional and
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increased marketing expenses and other expenses related to Holdings' growth will
require substantial capital and operating funds. Holdings currently estimates
that its aggregate capital expenditure requirements will total approximately $50
million during the second half of 1998 and $140 million for 1999. Holdings
anticipates making substantial capital expenditures thereafter. Capital
expenditures and working capital will be required to (i) fund the construction
and operation of the fiber optic network, (ii) fund the installation of voice
and data switches and (iii) open sales offices and add sales support and
customer service personnel in markets throughout Texas and the Gulf Coast
region. Holdings believes that the estimated net proceeds from the issuance of
the Notes, together with cash flow from operations, borrowings under the Credit
Facility which Holdings is currently negotiating with a bank lender, vendor
financings, sales of dark fiber or otherwise, will provide sufficient funds to
enable Holdings to fund its capital expenditures and working capital
requirements for the next 18 months. There can be no assurance, however, as to
when and if Holdings will enter into the Credit Facility or any other substitute
senior credit facility or as to the amount or terms of the Credit Facility or
any other substitute credit facility. Additional capital will be required after
such time to finance additional expansion of Holdings network.
The actual amount and timing of Holdings' future capital requirements may
differ materially from Holdings' estimates, depending on the demand for
Holdings' services and as a result of regulatory, technological and competitive
developments, including new market developments and new opportunities, in
Holdings' industry. Holdings may also require additional capital in the future,
or sooner than currently anticipated, for new business activities related to its
current and planned businesses or in the event it decides to make additional
acquisitions or enter into joint ventures and strategic alliances. Sources of
additional capital may include cash flow from operations and public and private
equity and debt financings. There can be no assurance, however, that Holdings
will be successful in producing sufficient cash flow or raising sufficient debt
or capital to meet its strategic objectives or that such funds, if available,
will be available on a timely basis on terms that are acceptable to Holdings and
within the limitations contained in Holdings' financing arrangements. See
"--Substantial Indebtedness; Restrictive Covenants." Failure to generate or
raise sufficient funds, whether through the issuance of the Notes or through the
Credit Facility, through vendor financings, sales of dark fiber or otherwise,
may require Holdings to delay or abandon some or all of its future expansion
plans or expenditures, which could have a material adverse effect on Holdings'
financial condition, results of operations and cash flow. Such failure could
also limit the ability of Holdings to make principal and interest payments on
its indebtedness, including the Notes.
RISKS RELATED TO THE FIBER NETWORK
Holdings' ability to achieve its strategic objectives will depend in large
part upon the successful, timely and cost-effective completion of its planned
4,300 route mile fiber network. Additionally, Holdings must achieve substantial
traffic volume over the expanded network in order to fully realize the expected
cash flows, operating efficiencies and cost benefits. The construction of
Holdings' fiber network may be affected by a variety of factors, uncertainties
and contingencies, many of which are beyond Holdings' control, including but not
limited to, Holdings' access to sufficient capital, access to rights-of-way, the
timely granting of franchise agreements, availability of construction
contractors, timing conflicts with other fiber projects which could increase
contractor costs, the pricing and availability of advanced fiber optic cable,
construction delays and cost overruns. Although Holdings believes that its cost
estimates and build-out schedule are reasonable, there can be no assurance that
the actual construction costs or time required to complete the construction of
Holdings' fiber network will not exceed current estimates. Holdings believes
that it is likely that broadband prices for carriers' carrier services and
end-user services will continue to decline over the next several years due
primarily to (i) the construction of additional fiber networks that will supply
substantially more transmission capacity than historically has been demanded,
(ii) technological advances that permit substantial increases in the
transmission capacity of fiber at costs lower than building new fiber networks
and (iii) strategic alliances, such as long distance capacity purchasing
alliances among certain Regional Bell Operating Companies, ("RBOCs"), that
increase customer purchasing power. There can be no assurance that Holdings will
be able to achieve increased capacity and traffic volumes at prices
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necessary to support the expanded network. A significant delay, or the inability
to complete Holdings' fiber network or to successfully market the capacity of
the network, could have a material adverse effect on Holdings' financial
condition, results of operations and cash flow.
DEVELOPMENT OF PROVISIONING, BILLING, CUSTOMER SERVICE AND MANAGEMENT
INFORMATION SYSTEMS
Sophisticated OSS systems are vital to Holdings' ability to add new
customers and new products, manage network capacity, monitor costs, render
monthly invoices for services, process customer orders, provide customer service
and achieve operating efficiencies. Holdings intends to develop internally or
acquire the information and support systems necessary to manage its growth and
provide its services efficiently. However, there can be no assurance that
Holdings will be able to timely and successfully develop, acquire or operate
such systems. As Holdings begins to provide local switched services, the need
for sophisticated billing and information systems will also increase
significantly, and Holdings will have significant additional requirements for
electronic data interfaces with ILECs and other CLECs. Additionally, any
acquisitions would place additional burdens on Holdings' accounting, information
and other systems. Unanticipated problems in any of the above areas, or
Holdings' inability to implement solutions in a timely manner or to establish or
upgrade systems as necessary, could have a material adverse impact on the
ability of Holdings to reach its objectives and on its financial condition,
results of operations and cash flow.
COMPETITION
OVERVIEW. The communications services industry is highly competitive,
rapidly evolving and subject to constant technological change. In particular,
there are numerous companies offering long distance and local services, and
Holdings expects competition to increase in the future. Holdings believes that
existing competitors are likely to continue to expand their service offerings to
appeal to existing or potential customers of Holdings. Many of Holdings's
existing competitors have financial, personnel and other resources, including
brand name recognition, substantially greater than those of Holdings. Moreover,
Holdings expects that new competitors are likely to enter the communications
market, and some of these new competitors may market communications services
similar to Holdings' services. In addition, some of these new competitors may
have financial, personnel and other resources, including brand name recognition,
substantially greater than those of Holdings.
In addition, the regulatory environment in which Holdings operates is
undergoing significant change. As this regulatory environment evolves, changes
may occur which could create greater or unique competitive advantages for all or
some of Holdings' current or potential competitors, or could make it easier for
additional parties to provide services. Other providers currently offer one or
more of each of the services offered by Holdings, and many communications
companies operate generally in the same long distance and local service
submarkets as Holdings. As a service provider in the long distance
communications industry, Holdings competes with several well established
providers, as well as many other long distance providers with less significant
market shares.
DOMESTIC AND INTERNATIONAL LONG DISTANCE. Holdings provides long distance
services using its own facilities and by reselling the facilities of other
carriers in the United States and between the United States and other countries.
The long distance communications industry is intensely competitive and
significantly influenced by the marketing and pricing decisions of the larger
industry participants such as AT&T, MCI, Sprint and WorldCom. Moreover, the
industry is undergoing significant consolidation that has created and will
continue to create numerous other entities with substantial resources to compete
for long distance business, such as Excel Communications, Inc., Frontier
Communications Service, Inc. and Qwest. In addition, as a result of the
Telecommunications Act of 1996 (the "1996 Telecommunications Act"), RBOCs and
GTE Operating Companies ("GTOCs") are able or will be able in the future to
enter the long distance market. These larger competitors have significantly
greater name recognition, financial, technical, network and marketing resources.
They may also offer a broader portfolio of services and have long standing
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relationships with customers targeted by Holdings. Moreover, there can be no
assurances that certain of Holdings' competitors will not be better situated to
negotiate contracts with suppliers of telecommunications services which are more
favorable than contracts negotiated by Holdings. Many of Holdings' competitors
enjoy economies of scale that can result in a lower cost structure for
transmission and related terminating costs, which could cause significant
pricing pressures on Holdings.
Holdings competes in the long distance market primarily on the basis of
price, customer service and the ability to provide a variety of communications
products and services. Customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. Prices for domestic and international long distance calls have
declined in recent years and are likely to continue to decrease. Competition in
all of the relevant markets is expected to increase which could adversely affect
net revenue per minute and gross margins as a percentage of net revenue. There
can be no assurance that Holdings will be able to compete effectively in the
domestic or international long distance markets.
LOCAL EXCHANGE SERVICE. Holdings seeks to expand significantly its
operations to provide services typically provided by ILECs. The local service
market has only recently been opened broadly to new service providers following
enactment of the 1996 Telecommunications Act. The services intended to be
offered by Holdings will compete with those offered by ILECs, such as BellSouth,
Southwestern Bell and the GTOCs, as well as very large interexchange carriers
("IXCs"), such as AT&T, MCI, Sprint and WorldCom. The ILECs currently dominate
the provision of local services in their respective markets and the ILECs and
the IXCs have greater name recognition, financial, technical, network, marketing
and personnel resources than the new entrants, as well as longer standing
relationships with regulatory authorities at the federal and state levels.
Moreover, there can be no assurance that certain of Holdings' competitors will
not be better situated to negotiate contracts with suppliers of
telecommunications services which are more favorable than contracts negotiated
by Holdings. Holdings also may face competition from other current and potential
market entrants, including other CLECs, cable companies, electric utilities,
local exchange carriers ("LECs") operating outside their current local service
areas, other long distance carriers, wireless telephone system owners, microwave
owners, satellite carriers, private networks built by large companies, and
start-up telecommunications ventures. There can be no assurance that Holdings
will be able to compete effectively in the local service markets.
FIBER NETWORKS. Holdings intends to expand its fiber optic network to
approximately 4,300 route miles throughout Texas and the Gulf Coast region.
Holdings will compete with numerous established and start-up national and
regional fiber optic networks owned by IXCs, ILECs and CLECs throughout Texas
and the Gulf Coast region. These competitors include very large companies such
as AT&T, MCI, WorldCom, Sprint, IXC and Qwest, each of whom has greater name
recognition, financial, personnel, technical and marketing resources than
Holdings. Holdings is aware that other facilities-based providers of local and
long distance telecommunications services are planning and constructing fiber
networks and/or purchasing or leasing dark fiber in order to build additional
networks that, if and when completed, could compete with Holdings' network. In
addition to IXCs and LECs, entities potentially capable of offering broadband
services in competition with Holdings' existing and planned network include
other facilities-based communications service providers, cable television
companies, electric utilities, microwave carriers, satellite carriers, wireless
telephone system operators and large companies who build private networks. Such
competing networks may also have advanced fiber and operating capabilities
similar to those of Holdings' existing and planned network and may be positioned
geographically to compete directly with Holdings' existing and planned network
for many of the same customers along a significant portion of the same routes.
INTERNET TELEPHONY. Internet services are currently deemed enhanced
services by the FCC and therefore are not subject to federal and state common
carrier regulations, including long distance interstate and intra-state access
fees. Certain Internet service providers ("ISPs") have recently announced
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plans to use Internet protocol technologies ("IP Telephony") to introduce
domestic and international long distance services at rates 30% to 50% below
standard long distance rates. Although the FCC intends to review this issue, IP
Telephony could increase pressure on IXCs and other communications companies to
reduce prices and margins from domestic and international long distance
services. There can be no assurance that Holdings or the carrier customers of
Holdings will not experience substantial decreases in call volume, pricing
and/or margins due to IP Telephony. There can also be no assurance that Holdings
will be able to offer its telecommunications services to end users at a price
which is competitive with the IP Telephony services offered by these new
companies. IWL also is an ISP. There can be no assurance that Internet services
will not be subject to additional regulation in the future, although Holdings
seeks to compete by introducing IP Telephony in late 1998. The Internet services
market is highly competitive although there are no substantial barriers to
entry, and Holdings expects that competition will continue to intensify.
Holdings' competitors in this market include ISPs, other telecommunications
companies, online services providers and Internet software providers. Many of
these competitors have greater financial, technical and marketing resources than
those available to Holdings.
TECHNOLOGICAL ADVANCES. In the future, Holdings may be subject to intense
competition due to the development of new technologies resulting in an increased
supply of domestic and international transmission capacity. The
telecommunications industry is experiencing a period of rapid and significant
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite transmission capacity for services similar to
those to be provided by Holdings. For instance, recent advances in wave division
multiplexing technology permit substantial increases in transmission capacity of
both new and older fiber. The introduction of new products or emergence of new
technologies may cause capacity to greatly exceed the demand, reducing the
pricing of certain services to be provided by Holdings. There can be no
assurance that Holdings' services will satisfy future customer needs, that
Holdings' technologies will not become obsolete in light of future technological
developments, or that Holdings will not have to make significant additional
capital investments to upgrade or replace its system and equipment. The effect
on Holdings' operations of technological changes cannot be predicted, and if
Holdings is unable to keep pace with advances, it could have a material adverse
effect on the financial condition, results of operations and cash flow of
Holdings.
OFFSHORE AND REMOTE TELECOMMUNICATIONS SERVICES. Currently, Holdings
provides telecommunications services to oil and gas customers in the Gulf of
Mexico, the North Sea and other oil and gas producing regions around the world.
In the Gulf of Mexico, Holdings competes directly with Autocomm Communications
Engineering Corp., Sola Communications, Inc., Datacom and Shell, as well as
cellular carriers such as Petrocom and Coastel, and with Data Marine Systems and
EAE Ltd. in the North Sea. Shell currently provides competing services through
its microwave network in the Gulf of Mexico and has announced plans to become a
full service telecommunications provider to the oil and gas industry in the
region. Holdings provides private-line telecommunications services in Russia. In
Russia, the major competitors for networks are SOVAMTEL and AMRUSCOM. Although
Holdings believes that it competes successfully in each of its markets today,
there can be no assurance that Holdings will be able to continue to compete
successfully in the future. Holdings believes that most of its larger
competitors have generally not made it a priority to provide remote,
difficult-access telecommunications services. Should one or more of the
competitors decide to focus on such services, it could have a material adverse
effect on the financial condition, results of operations and cash flow of
Holdings.
DEPENDENCE ON OTHER LONG DISTANCE CARRIERS
Holdings has agreements with many carriers to terminate domestic and
international long distance traffic. Certain of these agreements allow for the
termination of domestic traffic, particularly intrastate traffic, at rates
significantly lower than those which Holdings could obtain by terminating
directly with the ILEC at tariffed rates. A termination of service by these
carriers, a reduction in their quality of service or a
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change in the rates these carriers charge for their services could have a
material adverse effect on Holdings' financial condition, results of operations
and cash flow.
More than half of Holdings' international traffic is to Mexico. In January
and February 1998, many carriers, including one used by Holdings, were
temporarily unable to terminate traffic into Mexico. Most of these carriers have
since regained their ability to terminate traffic, and they, along with many
other new carriers, continue to offer terminating rates significantly below
international settlement rates. If competing carriers can provide Holdings'
customers with quality and rates Holdings is unable to match, Holdings could
lose a significant portion of its traffic into Mexico or any other foreign
country, which could have a material adverse effect on Holdings' financial
condition, results of operations and cash flow.
DEPENDENCE ON INCUMBENT LOCAL EXCHANGE CARRIERS
In addition to reselling local service from ILECs, Holdings intends to
significantly expand its existing efforts to utilize unbundled network elements
that are the components of those services. Such resale will play an important
part in Holdings' local exchange service business strategy. Although the 1996
Telecommunications Act requires the ILECs to allow such resale, there can be no
assurance (i) that the implementation of the 1996 Telecommunications Act, which
has been challenged in federal court by the ILECs, will be concluded on a timely
basis and on terms favorable to Holdings or (ii) that Holdings will be
successful in negotiating with ILECs the necessary co-location, interconnection
and resale agreements, particularly the unbundled network elements that Holdings
intends to resell, on terms that will be favorable to Holdings. Any substantial
limitation on Holdings' ability to secure reasonable and timely access to ILEC
services and unbundled network elements could have a material adverse effect on
Holdings' financial condition, results of operations and cash flow.
DEPENDENCE ON KEY PERSONNEL
The success of Holdings' business will depend, in part, on the continued
services of certain members of the management of Holdings, IWL,
Telecommunications and the Partnership. In particular, the loss of the services
of one or more of Jere W. Thompson, Jr., Chief Executive Officer and Chairman of
the Board of Holdings, President of Telecommunications and President of the
General Partner, Ignatius W. Leonards, President and Vice Chairman of the Board
of Holdings and Chief Executive Officer and Chairman of the Board of IWL, Byron
M. Allen, Executive Vice President of Holdings and President of IWL and Scott L.
Roberts, Timothy W. Rogers or Timothy M. Terrell, each Executive Vice Presidents
of Holdings and each Executive Vice Presidents of Telecommunications, could have
a material adverse effect on the business, results of operations and financial
condition of Holdings. The competition for qualified managers and employees in
the telecommunications industry is intense. Accordingly, there can be no
assurance that Holdings and its operating subsidiaries will be able to retain
their key employees or that they will be able to attract or retain skilled
personnel in the future.
DEPENDENCE ON MAJOR CUSTOMERS
Holdings' carrier customers generally use more than one service provider for
switched access services and can quickly reduce their use of Holdings' services
and move to other providers without incurring significant expense. Holdings'
private line agreements with its customers generally provide that the customer
may terminate service without penalty in the event of certain prolonged outages
in service and for certain other defined causes. As a result of these and other
factors, there can be no assurance that Holdings will be able to retain its
carrier customers. For the year ended December 31, 1997, revenues from services
provided to MCI accounted for more than 10% of Holdings' combined pro forma
revenues. The loss of or a significant decrease of business from any of
Holdings' largest customers would have a material adverse effect on Holdings'
financial condition, results of operations and cash flow.
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Customers in the oil and gas industry accounted for substantially all of
Holdings' offshore and project related sales in the fiscal year ended December
31, 1997. Price decreases in oil and gas and other market forces negatively
affecting the oil and gas industry as a whole could affect funding for drilling
activities in the Gulf of Mexico, the North Sea and elsewhere, which could have
a material adverse effect on Holdings' financial condition, results of
operations and cash flow.
RISKS ASSOCIATED WITH INTERNATIONAL CUSTOMERS
A portion of IWL's project-related sales to date have been made to customers
located outside of the United States, including customers located in Moscow,
Russia and Quito, Ecuador. Risks inherent in Holdings' international business
activities include changes in regulatory requirements, costs and risks of
localizing systems in foreign countries, customs matters, longer payment cycles,
higher tax rates or additional withholding requirements, difficulty in enforcing
agreements, military, political and transportation obstacles, political and
economic instability, expropriation, nationalization, insurrection, war,
difficulties in staffing and managing foreign operations, fluctuations in
currency exchange rates, regulations which restrict or prohibit repatriation of
funds, technology export and import restrictions or prohibitions, the burden of
complying with a wide variety of complex foreign laws and treaties, changes in
local laws and difficulty in accounts receivable collections. There can be no
assurance that any of these factors will not have a material adverse effect on
Holdings' financial condition, results of operations and cash flow.
REGULATION OF LONG DISTANCE AND LOCAL TELEPHONE SERVICES
Telecommunications services are subject to significant regulation at the
federal, state, local and international levels, affecting Holdings and its
existing and potential competitors. Delays in receiving required regulatory
approvals or the enactment of new and adverse legislation, regulations or
regulatory requirements may have a material adverse effect on Holdings'
financial condition, results of operations and cash flow. In addition, future
legislative, judicial and regulatory agency actions could alter competitive
conditions in the markets in which Holdings intends to operate, in ways not
necessarily to Holdings' advantage.
Holdings is currently subject to federal and state government regulation of
its long distance and local telephone services. Holdings is regulated at the
federal level by the FCC and is required to maintain both domestic and
international tariffs for interstate services containing the currently effective
rates, terms and conditions of service. The FCC has proposed, however, to
eliminate the tariffing requirement for domestic interstate non-dominant
carriers, although such detariffing is being reviewed by a federal court and
carriers must continue to file such tariffs during the pendency of the
litigation. In addition, Holdings is required to obtain and maintain a
certificate, issued by the FCC, in connection with its international services.
Holdings holds global authority from the FCC to provide resale of switched
services, and holds global authority from the FCC to provide private line (where
permitted by the FCC) and facilities-based services. Holdings also maintains
numerous licenses in the satellite earth station, microwave and business radio
services which are subject to detailed licensing, operations and technical
requirements established by the FCC. The FCC generally retains the right to
sanction a carrier or revoke its authorization if a carrier violates applicable
laws of regulations. Intrastate long distance telecommunications operations are
also subject to various state laws and regulations, including prior
certifications, notification, or registration requirements. Holdings generally
must obtain and maintain certificates of public convenience and necessity from
regulatory authorities in most states in which it offers intrastate long
distance service. In most of these jurisdictions, Holdings must file and obtain
prior regulatory approval of tariffs for intrastate services. In addition,
Holdings must update or amend the tariffs and, in some cases, the certificates
of public convenience and necessity when rates are adjusted or new products are
added to the long distance services. The FCC and numerous state agencies also
impose prior approval requirements on transfers of control, including pro forma
transfers of control and corporate reorganizations, and assignments of
regulatory authorizations. As a result, Telecommunications, IWL and Holdings
filed notices and/or applications for
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approval of the Transaction, and the receipt of certain of such approvals is a
condition to the consummation of the Transaction. While Holdings expects to
receive all such approvals that have been requested, there can be no assurance
that such approvals will be granted in a timely fashion.
Holdings' CLEC operations are subject to specific state certification and
compliance requirements. Most states require a certification or other
authorization to offer local exchange services. These certifications generally
require a showing that the carrier has adequate financial, managerial and
technical resources to offer the proposed services in a manner consistent with
the public interest. States generally retain the right to sanction a carrier or
to revoke certifications if a carrier violates applicable laws and/or
regulations.
Holdings' cost of providing long distance service, and its revenues from
providing local services, will both be affected by changes in "access charges"
and universal services. In 1997, the FCC released an order establishing a
significantly expanded federal universal service subsidy regime to be funded by
interstate carriers and certain other entities. The FCC established new
universal service funds to support telecommunications and information services
provided to qualifying schools, libraries and rural health care providers, and
expanded the federal subsidies for local telephone services provided to
low-income consumers. If the federal and state regulations requiring the LECs to
provide equal access for the origination and termination of calls by long
distance subscribers change or if the regulations governing access charge rates
or universal service contribution change, such changes could have a material
adverse effect on Holdings' financial condition, results of operations and cash
flow. On July 18, 1997, the United States Court of Appeals for the Eighth
Circuit overturned many of the rules the FCC had established pursuant to the
1996 Telecommunications Act. The Eighth Circuit decision substantially limits
the FCC's jurisdiction and expands state regulators' jurisdiction to set and
enforce rules governing the development of local competition. As a result, it is
more likely that the rules governing local competition will vary substantially
from state to state. If a patchwork of state regulations were to develop, it
could increase Holdings' cost of regulatory compliance and could make entry into
and conducting business in some markets more expensive than in others. The U.S.
Supreme Court has decided to review the Eighth Circuit's decision. There can be
no assurance as to how or when the U.S. Supreme Court will act on the appeal or
that the outcome of the appeal will not have a material adverse effect on
Holdings' financial condition, results of operations and cash flow. See
"Competition" and "Regulation and Licenses--Government Regulation."
POSSIBLE SERVICE INTERRUPTIONS; NATURAL DISASTERS
Holdings' operations are dependent on its ability, and the ability of third
parties from whom it obtains services, to protect its network and equipment
against damage that may be caused by fire, equipment failures, weather, power
loss, failures, fiber cuts, failure or loss of satellites, human error,
unauthorized intrusion, natural disasters or occurrences, acts of sabotage and
other similar events. Almost all of Telecommunications' voice traffic currently
passes through its single Dallas switch. A second switch is not planned to be
operational until the third quarter of 1998, and no assurance can be given that
such additional switch will be installed on a timely basis or at all. IWL's
operations in remote and underdeveloped areas of the world make IWL's
operations, equipment and employees susceptible to extreme environmental
conditions and political instability. A significant portion of the satellite
communications equipment and foreign circuits used by IWL to provide services is
housed in a single location in IWL's network operations center without a back-up
center and a second center is not planned to be operational until the fourth
quarter of 1998, and no assurance can be given that such additional center will
be operational on a timely basis or at all. In addition, IWL owns or leases
equipment located in the Gulf of Mexico that is susceptible to hurricanes. There
can be no assurance that fire, equipment failure or other events would not
disable Telecommunications', the Partnership's or IWL's equipment, which could
have a material adverse effect on Holdings' financial condition, results of
operations and cash flow. Also, networks and switching facilities experience
periodic service interruptions and equipment failures, and the operation of such
networks will be subject to international, national and regional
telecommunications
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outages or regulatory issues from time to time. It is therefore possible that
the networks and facilities utilized by IWL, Telecommunications and the
Partnership may from time to time experience service interruptions or equipment
failures that would have a material adverse effect on Holdings' financial
condition, results of operations and cash flow.
POTENTIAL LIABILITY OF INTERNET SERVICE PROVIDERS
IWL is an ISP. The law governing the liability of on-line services providers
and Internet access providers for participating in the hosting or transmission
of objectionable materials or information currently is unsettled. Under the
terms of the 1996 Telecommunications Act, both civil and criminal penalties can
be imposed for the use of interactive computer services for the transmission of
certain indecent or obscene communications. However, this provision as it
relates to indecent, but not obscene, communications was recently found to be
unconstitutional by the United States Supreme Court in JANET RENO V. AMERICAN
CIVIL LIBERTIES UNION. Nonetheless, some states have adopted or are considering
adopting similar requirements, and the constitutionality of such state
requirements remains unsettled at this time. In addition, several private
lawsuits have been filed seeking to hold Internet access providers accountable
for information which they transmit, such as libelous material and copyrighted
material. While the outcome of these activities is uncertain, the ultimate
imposition of potential liability on Internet access providers for information
which they host, distribute or transport could materially change the way they
must conduct business and could impact the determination by Holdings to expand
or continue this business and could subject IWL, Telecommunications or the
Partnership to litigation which could have a material adverse effect on
Holdings' financial condition, results of operations and cash flow.
NEED TO OBTAIN AND MAINTAIN RIGHTS-OF-WAY
The Partnership must obtain rights-of-way and other permits to install
underground conduits from railroads, utilities, state highway authorities, local
governments and transit authorities. There can be no assurance that the
Partnership will be able to obtain and maintain the additional rights and
permits needed to implement its business plan on acceptable terms. Loss of
substantial rights and permits or the failure to enter into and maintain
required arrangements for the fiber network could have a material adverse effect
on Holdings' financial condition, results of operations and cash flow.
FAILURE TO CONSUMMATE TRANSACTION; PROCEEDS IN ESCROW ACCOUNT MAY BE
INSUFFICIENT TO REPURCHASE NOTES
Consummation of the Transaction is subject to certain closing conditions,
including, among other conditions, approval of the respective Mergers by the
shareholders of IWL and Telecommunications, the agreement of the General Partner
and Limited Partners holding at least 80% of the limited Partnership Interests
in the Partnership to contribute their Partnership Interests to Holdings in
exchange for shares of Holdings Common Stock and receipt of material regulatory
approvals from the FCC and various state regulatory agencies in states in which
IWL, Telecommunications or the Partnership provide communications services. The
failure to satisfy such conditions would permit Holdings or the other parties
thereto to refuse to consummate the Transaction. Accordingly, there can be no
assurance that the Transaction will be consummated. The Merger Agreement
provides for the Transaction to be consummated no later than December 31, 1998,
although such date may be modified by the parties to the Merger Agreement.
Approximately $145.0 million of the net proceeds from the issuance of the
Notes was deposited into the Escrow Account and invested in temporary cash
investments. If the Transaction is not consummated by August 31, 1998, Holdings,
Telecommunications and the Partnership will be required to make an offer to
purchase the Notes at 101% of their original principal amount, plus accrued and
unpaid interest to the date of purchase. See "Issuance of Notes." The amounts
held in the Escrow Account may be insufficient to repurchase all tendered Notes,
and will be insufficient by approximately $7.0 million if all or substantially
all of the Notes are tendered. Although each of Holdings, Telecommunications and
the Partnership have
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jointly and severally agreed to fund any such deficiency (and IWL has guaranteed
such obligation), they do not currently have the financial ability to fund any
such deficiency. In addition, the ability of Holdings, Telecommunications, the
Partnership and IWL to repurchase the Notes in the event of such offer to
purchase may be limited by the terms of their respective then existing
contractual obligations.
In the event such offer to purchase is required to be made and is
consummated and any Notes remain outstanding thereafter, Holdings and IWL shall
be released from their respective obligations under the Notes, and
Telecommunications and the Partnership will be required to engage in either a
statutory merger or interest exchange. No assurance can be given however, that
the Partnership and Telecommunications will consummate such merger or interest
exchange.
VARIABILITY IN OPERATING RESULTS
The timing of IWL's project-related sales have varied significantly in the
past and are expected to vary significantly in the future, particularly as
evidenced by the recent variations in IWL's revenues, which did not reach the
levels contemplated by the business plan provided to Telecommunications and the
Partnership. This could cause Holdings future quarterly or fiscal year operating
results to vary significantly from the prior period and, because of the
possibility of these fluctuations, results for any particular quarter or fiscal
year should not be relied upon as being indicative of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of IWL."
POSSIBLE CLAIMS RELATING TO OWNERSHIP OF PROPRIETARY RIGHTS
Notwithstanding that Holdings has registered the use of the mark CAPROCK
COMMUNICATIONS in the United States, numerous other companies in many different
industries, particularly in West Texas, have preexisting rights to the name
"Caprock" within defined territories, including one company that may have the
right to use the name for long distance services within an established area, and
these companies could seek to require Holdings to obtain a license from them for
the use of the name "CapRock" within those defined territories or require
Holdings to change its name, either of which could require Holdings to incur
additional expenses. Additionally, if Holdings were required to change its name,
it could lose the goodwill, if any, associated with the CapRock name.
LACK OF DIVIDENDS
Neither IWL nor Telecommunications has ever paid dividends on its common
stock, and the Partnership has never made a distribution to its partners (other
than an one-time, extraordinary distribution in 1994) and Holdings does not
anticipate paying any cash dividends on the Holdings Common Stock in the
foreseeable future and, in certain circumstances, will be prohibited from doing
so under the terms of the Notes, the Credit Facility (if it is entered into) and
any other credit documents to which Holdings is a party of from time to time.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of IWL" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Telecommunications."
CONCENTRATION OF OWNERSHIP
Following the consummation of the Transaction (and assuming all Partnership
Interests are validly tendered pursuant to the Exchange Offer and accepted), the
current officers and directors of IWL, Telecommunications and the General
Partner will beneficially own, in the aggregate, approximately 90.0% of the
outstanding shares of Holdings Common Stock (on a non-dilutive basis).
Accordingly, the current officers and directors of IWL, Telecommunications and
the General Partner, acting as a group, will have the ability to elect all of
the directors of Holdings and to control Holdings' management, operations and
affairs. In addition, following the consummation of the Transaction (and
assuming all of the Partnership
Interests are validly tendered pursuant to the Exchange Offer and accepted), the
current officers and
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directors of Telecommunications and the General Partner will beneficially own,
in the aggregate, approximately 82.7% of the outstanding shares of Holdings
Common Stock (on a non-dilutive basis).
CHANGE OF CONTROL OF IWL
After the Transaction is consummated, and assuming all of the Partnership
Interests are validly tendered pursuant to the Exchange Offer and accepted, the
former shareholders and optionholders of Telecommunications and the former
partners in the Partnership will own, in the aggregate, approximately 85% of the
Holdings Common Stock and the former shareholders, optionholders and
warrantholders of IWL will own approximately 15% of the Holdings Common Stock on
a diluted basis. This will effectively constitute substantial dilution of the
voting interest of IWL shareholders in IWL and an effective change of control of
IWL.
YEAR 2000 COMPLIANCE
IWL, Telecommunications and the Partnership each utilizes a significant
number of computer software programs and operating systems in its operations,
including applications used in product development, financial business systems,
and various administrative functions. To the extent that their software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year "2000," some level of modification or even possibly
replacement of such applications will be necessary. IWL, Telecommunications and
the Partnership are each currently in the process of completing its
identification of applications that are not "Year 2000" compliant. Given
information known at this time about their systems having such issues, coupled
with their on-going, normal course-of-business efforts to upgrade or replace
business critical systems, as necessary, it is currently not anticipated that
these "Year 2000" costs will have any material adverse impact on Holdings'
financial condition or its results of operations or cash flow. To the extent
that either Holdings' systems or the systems of the entities with which Holdings
contracts are not fully Year 2000 compliant, potential systems interruptions or
the cost necessary to update software by IWL, Telecommunications and the
Partnership or one of their major vendors or customers could have a material
adverse effect on Holdings' financial condition, results of operations and cash
flow.
CERTAIN ANTI-TAKEOVER MATTERS
Upon the consummation of the Transaction, based on the number of shares of
IWL Common Stock and Telecommunications Common Stock outstanding as of May 31,
1998 and assuming all of the Partnership Interests are validly tendered pursuant
to the Exchange Offer and accepted by Holdings, there will be 171,089,778
authorized and unissued shares of Common Stock and 20,000,000 authorized and
unissued shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock") of Holdings. The existence of authorized but unissued Common Stock and
Preferred Stock may enable the Board of Directors to render more difficult or to
discourage an attempt to obtain control of Holdings by means of a merger, tender
offer, proxy solicitation or otherwise. Holdings is also subject to prior
regulatory approval by the FCC and various state regulatory agencies for a
transfer of control of Holdings or for the assignment of Holdings' (or its
subsidiaries') intrastate certification authority, its international authority
and other FCC licenses and authorizations. The Communications Act of 1934, as
amended (the "1934 Communications Act"), generally limits direct foreign
ownership of wireless licenses to 20%, but provides for indirect foreign
ownership holdings above 25% upon FCC approval. In addition, because Holdings
(or its subsidiaries) holds FCC authority to provide international service, the
FCC will scrutinize an ownership interest in Holdings of greater than 25%, or a
controlling interest at any level, by a dominant foreign carrier. International
carriers, such as Holdings, must notify the FCC 60 days in advance of an
acquisition by a foreign carrier or by an entity that controls a foreign carrier
of a 25% or greater or a controlling interest in such carriers. However, new
rules allow for up to 100% indirect ownership of most wireless licenses upon FCC
review and approval by foreign interests from countries that have participated
in the
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1997 World Trade Organization ("WTO") Agreement on Basic Telecommunications
Services, in which the United States and 68 other countries committed to open
their telecommunications markets to competition starting in 1998. Furthermore,
the Indenture provides for a mandatory purchase of the Notes upon a change of
control and it is currently expected that the Credit Facility will provide that
an event of default or redemption event thereunder will occur if all or a
controlling interest in Holdings' capital stock is sold, assigned or otherwise
transferred. Any of the foregoing factors could have the effect of delaying,
deferring or preventing a change of control of Holdings. The Articles of
Incorporation of Holdings provide that Article 13.03 of the Texas Business
Corporation Act, which includes statutory anti-takeover measures, will not apply
to Holdings. See "Regulation and Licenses--Government Regulation" and
"Description of Holdings Capital Stock--Preferred Stock" and "--Certain
Anti-Takeover Effects."
ASSUMPTION OF GENERAL PARTNER LIABILITIES
After giving effect to the Interest Exchange, and assuming all Partnership
Interests are validly tendered pursuant to the Exchange Offer and accepted,
Telecommunications will become a substitute general partner in the Partnership.
As a general partner, Telecommunications will become generally liable for the
debts and obligations of the Partnership, including debts and obligations that
may be contingent or unknown at the time of the acquisition. The liabilities of
the Partnership outstanding at March 31, 1998 consisted of trade accounts
payable and accrued expenses of $1.1 million and a term construction loan of
$9.1 million, due December 31, 2001. The Partnership was in violation of certain
debt covenants as of December 31, 1996 and 1997 and March 31, 1998. The
Partnership has obtained a waiver for its covenant violations. The Partnership's
lender has consented to consummation of the Transaction. There can be no
assurance that these obligations will not have a material adverse effect on
Holdings' financial condition, results of operations and cash flow.
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THE TRANSACTION
GENERAL
The Merger Agreement provides for a business combination among IWL,
Telecommunications and the Partnership. Pursuant to the Merger Agreement and
subject to the satisfaction of the conditions set forth therein, I-Sub will be
merged with and into IWL and C-Sub will be merged with and into
Telecommunications, with IWL and Telecommunications each continuing as the
surviving corporations of the Mergers. Pursuant to the Interest Exchange,
immediately after the IWL Merger Effective Time and immediately prior to the
Telecommunications Merger Effective Time, all of the Partnership Interests that
are validly tendered to and accepted by Holdings pursuant to the Exchange Offer
will be exchanged for shares of Holdings Common Stock. Upon the IWL Merger
Effective Time and the Telecommunications Merger Effective Time, respectively,
the holders of IWL Common Stock and the holders of Telecommunications Common
Stock will become shareholders of Holdings, with each outstanding share of IWL
Common Stock being converted into one share of Holdings Common Stock and each
outstanding share of Telecommunications Common Stock being converted into
1.789030878 shares of Holdings Common Stock. After the Interest Exchange and
prior to the Telecommunications Merger Effective Time, Holdings will contribute
to C-Sub the general Partnership Interest received by Holdings in the Interest
Exchange. As a result, upon consummation of the Telecommunications Merger,
Telecommunications (which will acquire the general Partnership Interest from
C-Sub in the Telecommunications Merger) will become a substitute general partner
in the Partnership in respect of the general Partnership Interest transferred to
it, Holdings will become a substitute limited partner in the Partnership in
respect of the limited Partnership Interests transferred to it and the holders
of the Partnership Interests will become shareholders of Holdings, with each one
percent (1%) of the Partnership Interests being exchanged for 63,194.54 shares
of Holdings Common Stock. As a result of the Mergers and the Interest Exchange,
assuming all Partnership Interests are validly tendered pursuant to the Exchange
Offer and accepted, the former holders of IWL Common Stock and stock options and
warrants to acquire IWL Common Stock collectively will hold approximately 15% of
the equity interests in Holdings, and the former holders of Telecommunications
Common Stock and stock options to acquire Telecommunications Common Stock and
the former holders of the Partnership Interests collectively will hold
approximately 85% of the equity interests in Holdings.
BACKGROUND OF THE TRANSACTION
Prior to entering into negotiations relating to the Transaction, IWL had in
September 1997 entered into a commercial relationship with Telecommunications
and the Partnership to lease fiber from the Partnership. See "--Interests of
Certain Persons in the Transaction."
IWL, Telecommunications and the Partnership each regularly evaluated
strategic opportunities, including possible alliances, joint ventures,
acquisitions and other business combinations with various industry participants.
Under appropriate circumstances, representatives of IWL, Telecommunications or
the Partnership established direct or indirect contact with potential
candidates. Set forth below is a summary of the background of the negotiations
that led to the Transaction.
On Friday, October 10, 1997, Norman Bagwell of Bank One, Texas, N.A.
suggested to Jere W. Thompson, Jr., President of Telecommunications and of the
General Partner, that he meet with representatives of IWL to discuss each
company's strategy for growing their respective businesses.
On Friday, October 17, 1997, Richard H. Roberson, the Chief Financial
Officer of IWL, and Byron M. Allen, the President of IWL, were introduced to
Mark Langdale, a director and principal shareholder of Telecommunications and
Secretary and a director of the General Partner, and Mr. Thompson by Mark Wade
and Norman Bagwell of Bank One, Texas, N.A. A meeting was held in Dallas, Texas.
During the meeting, the discussions were limited to general conversation
regarding each company's business and the similarities between the companies and
their respective strategies for growth. An invitation was extended to Messrs.
Thompson and Langdale to visit the IWL facilities in Houston.
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On Friday, October 31, 1997, Messrs. Roberson, Allen and Ignatius W.
Leonards, the Chief Executive Officer of IWL, met with Messrs. Thompson and
Langdale in Houston, Texas, where the discussion included the possible benefits
of a merger of the two companies and the Partnership. Between October 31, 1997
and November 20, 1997, Mr. Thompson and Mr. Allen had several telephone
conversations to discuss the possible organizational structure of the combined
companies.
On Thursday, November 20, 1997, Mr. Thompson met with Messrs. Allen and
Leonards and a representative of Cruttenden Roth to discuss a potential
transaction by IWL with Telecommunications and the Partnership.
On Friday, November 21, 1997, Messrs. Leonards, Allen and Roberson met with
Mr. Thompson and Timothy W. Rogers, Timothy M. Terrell and Scott L. Roberts,
each an Executive Vice President of Telecommunications, to discuss and describe
to each other the respective business of their companies.
On Monday, December 1, 1997, Messrs. Leonards and Thompson had a conference
call from their respective offices to discuss the benefits of a possible
combination of their companies.
On Tuesday, December 2, 1997, IWL and Telecommunications executed a
Confidentiality Agreement and Messrs. Leonards and Thompson met in Houston,
Texas, to discuss the benefits of a merger. Mr. Allen joined the meeting to
discuss transactions being considered by IWL.
On Friday, December 5, 1997, the Board of Directors of IWL held a scheduled
board meeting telephonically. During the meeting, Mr. Leonards briefed the IWL
Board regarding the discussions with Telecommunications and the Partnership. A
representative of Munsch Hardt explained the fiduciary duties of the IWL Board
in such a transaction.
On Monday, December 15, 1997, Mr. Allen and Myron Goins, an outside director
of IWL, together with a representative of Cruttenden Roth, met with Messrs.
Rogers, Thompson and Langdale. Extensive discussions and negotiations were held
regarding various operational strengths of each organization and, among other
things, the terms and structure of a possible merger, pooling versus purchase
accounting, board representation of the combined company, executive officers of
the combined company, termination fees, proposed exchange ratios, valuation of
each organization and other legal, tax and financial considerations relating to
a possible transaction.
On Tuesday and Wednesday, December 16 and 17, 1997, Messrs. Thompson,
Leonards and Allen had various telephone conversations regarding the proposed
business combination and the business synergies which would make the combined
companies more successful.
On Thursday, December 18, 1997, representatives of IWL, Telecommunications
and the Partnership met at the offices of IWL's counsel, Munsch Hardt, in
Dallas, Texas. Those present included Messrs. Thompson and Langdale of
Telecommunications and Mr. Allen of IWL. A representative of Cruttenden Roth was
present, as well as representatives of Munsch Hardt and representatives of
Hughes & Luce, counsel to Telecommunications and the Partnership. At this
meeting the parties discussed the need for maintenance of confidentiality of the
discussions and, among other things, the structure of the merger, pooling
issues, exchange ratios, caps and collars, timing for preparation and execution
of a definitive agreement, the selection of an auditor and the need for audited
financial statements, the potential need to raise additional capital, due
diligence issues, existing options, break up fees, and members of the Board of
Directors of the new public entity.
On Thursday, December 18, 1997, Telecommunications retained Hoak, Breedlove
& Wesneski, Inc. ("Hoak Breedlove") as its financial advisor pursuant to an
agreement dated as of December 18, 1997. No report, opinion or appraisal was
provided by Hoak Breedlove.
From Friday, December 26, 1997, through the execution of the Merger
Agreement, management of IWL, Telecommunications and the Partnership had
numerous telephone conferences and held numerous
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due diligence meetings and numerous other meetings to consider organizational
and operational issues of the combined businesses and the terms of the proposed
business combination.
On Friday, January 2, 1998, Messrs. Thompson, Leonards and Allen met in
Houston where they discussed management structure and international
opportunities for the combined companies.
On Tuesday, January 6, 1998, IWL retained Cruttenden Roth pursuant to a
letter dated January 6, 1998, to assist IWL as a financial advisor with respect
to a potential transaction with Telecommunications and the Partnership.
On Friday, January 9, 1998, Messrs. Thompson, Terrell and Rogers of
Telecommunications met in Houston with Mr. Allen and other members of IWL
management to discuss their respective companies and the proposed business
combination.
On Thursday, January 15, 1998, a special meeting of the IWL Board was held
telephonically to discuss and approve the acquisition by IWL of the shares of
stock of ICEL. Also present at the meeting was a representative from Munsch
Hardt. During that meeting Mr. Leonards provided an update to the IWL Board on
the status of the discussions with Telecommunications and the Partnership and
responded, along with Messrs. Allen and Roberson, to various questions by the
directors about the Transaction and about Telecommunications and the
Partnership.
On Monday, January 19, 1998, a special meeting of the IWL Board was held
telephonically, although Messrs. Leonards and Allen were in the offices of
Telecommunications after having meetings with Mr. Thompson to discuss the
proposed business combination. Also present via teleconference were
representatives of Munsch Hardt and a representative of Cruttenden Roth. At this
meeting the representative of Cruttenden Roth reviewed in detail among other
things (i) the operations of Telecommunications and the Partnership, (ii) sales
and marketing department of Telecommunications, (iii) customer mix, (iv) the
opportunities for growth both domestically and internationally, (v) potential
synergies of the combined businesses, (vi) the basis for the valuations being
considered, (vii) the value of the IWL shares, (viii) pooling issues, (ix)
expectations for revenue growth but little, if any, expectations for cost
savings from the termination of redundant operations, although cost savings may
result from avoidance of redundancy in the future, (x) the need for future
capital for the combined business and (xi) the network capacity of the combined
businesses.
On Friday, January 23, 1998, Messrs. Allen and Leonards met with Mr.
Thompson to continue the negotiation of the relative values of both businesses
and the respective exchange ratios and issues regarding termination of traffic
in Mexico and Texas.
On Thursday, January 29, 1998, Messrs. Thompson and Langdale and a
representative of Hoak Breedlove, on the one hand, and Messrs. Leonards, Allen
and a representative of Cruttenden Roth, on the other hand, had numerous
telephone conversations regarding the proposed exchange ratios for the proposed
business combination. These discussions continued through the next day and were
culminated when Messrs. Thompson and Leonards agreed upon the exchange ratios
for the Transaction, subject to the other terms and provisions of the Merger
Agreement being finalized.
On Tuesday, February 3, 1998, the IWL Board held a special meeting at the
offices of Telecommunications in Dallas which enabled outside directors of IWL
to tour the facilities of Telecommunications and the Partnership and to have
personal meetings with the members of the executive team of Telecommunications
and the Partnership. Also present at the meeting were representatives of Munsch
Hardt and a representative of Cruttenden Roth. At this meeting a representative
of Munsch Hardt reviewed the material terms of the agreements for the
Transaction. Mr. Allen explained to the IWL Board that, since the ICEL
transaction had just occurred, both the value of ICEL and the shares of stock of
IWL issued to acquire ICEL were excluded from the calculation of values and
ratios which the IWL Board considered and ultimately approved when it approved
the Transaction. The representative from Cruttenden Roth then presented its
valuation materials to the IWL Board and made his presentation to the IWL Board,
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discussing among other things: (i) the analysis prepared by Cruttenden Roth of
each entity, (ii) the relationship between EBITDA and gross revenues in the
various analyses and (iii) the likely impact on the business of
Telecommunications and the Partnership and the proposed combined business if the
rates to be charged to Telecommunications for terminating traffic in Mexico and
in certain areas of Texas were increased. The IWL Board requested that
Cruttenden Roth prepare revised materials showing an increase in the rates
charged to Telecommunications for business in Mexico and certain areas of Texas
and lower margins for such business. Mr. Allen reviewed with the IWL Board the
perceived competitive advantages of each company, including for
Telecommunications and the Partnership (i) strong sales growth, (ii) fiber and
switch infrastructure, (iii) strong management team and (iv) carrier billing
system. Mr. Allen explained how these strengths complemented IWL's (i) deployed
fiber, microwave and switches, (ii) oil company customers and international
traffic, (iii) technical and service personnel and (iv) status as a CLEC in
Texas and Louisiana.
Mr. Allen then explained to the IWL Board the strategy for the combined
business of building an infrastructure in Texas, Louisiana and Oklahoma
utilizing the Partnership's existing network and fiber and IWL's existing
network to grow the business. The representative of Cruttenden Roth then
summarized the results of its analysis and delivered its oral opinion to the IWL
Board that, as of such date and subject to certain assumptions, limitations and
qualifications from a financial point of view, the relative exchange ratios and
the consideration to be received by the shareholders of IWL in the Transaction
were fair to the shareholders of IWL.
Mr. Thompson joined the meeting to discuss with the IWL Board the strategy
of Telecommunications and the Partnership, his vision and implementation plans
for the Transaction and the combined business.
On Thursday, February 5, 1998, the Telecommunications Board met to discuss
the Transaction and its terms. At that time, it determined that the provisions
and terms of the Merger Agreement were fair to and in the best interest of
Telecommunications and its shareholders and authorized the officers of
Telecommunications to execute the Merger Agreement and the related agreements on
behalf of Telecommunications.
On Thursday, February 5, 1998, the General Partner Board determined that the
provisions and terms of the Merger Agreement were fair to and in the best
interest of the Partnership and the partners and authorized the officers of the
General Partner to execute the Merger Agreement and the related agreements on
behalf of the Partnership.
On Saturday, February 7, 1998, Mr. Thompson called Mr. Leonards to inform
him that one of Telecommunications' underlying long distance carriers into
Mexico could no longer complete Telecommunications' traffic to Mexico.
On Sunday, February 8, 1998, Mr. Thompson met with Messrs. Allen and
Leonards in Houston to discuss the Transaction and the impact, if any, on
Telecommunications and the proposed business combination of the loss of one of
Telecommunications' underlying long distance carriers into Mexico.
On Tuesday, February 10, 1998, the IWL Board held a special telephonic board
meeting to discuss the proposed business combination. Each director had received
a revised analysis from Cruttenden Roth that had been revised to address changes
in the pricing and the potential decline in revenues for Telecommunications'
traffic into Mexico and certain areas of Texas. The representative from
Cruttenden Roth made a presentation summarizing the Transaction and the history
of the negotiations and discussions including (i) caps and collars, (ii) pooling
of interests, (iii) the accretive nature of the transaction, (iv) strategic
implications for the combined companies, (v) the financial markets viewpoint of
telecommunications companies, (vi) enhanced speed to market for IWL because of
the existing network of the Partnership, (vii) the synergy of IWL's technical
expertise with the marketing expertise of Telecommunications, (viii) the
additional minutes which would be provided for use on the Partnership's network
from IWL customers, (ix) growth areas in the international markets and (x) the
enhanced ability for the combined business to
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provide more traditional telecommunications services and products including long
distance and LEC Services to customers.
Mr. Allen then gave a report on the status of Telecommunications' traffic
into Mexico. IWL's staff had been working with another carrier in Mexico to
enter into an agreement for the termination of calls into Mexico, and Mr. Allen
believed that such an agreement was imminent. The analysis prepared by
Cruttenden Roth contemplated such a potential service interruption occurrence in
Mexico. The analysis reflected that Telecommunications, like many other long
distance carriers, has agreements with many carriers to terminate domestic and
international long distance traffic, and the termination of certain of these
contracts or a change in the rates these carriers charge for their services
would impact Telecommunications. Mr. Allen and the representative of Cruttenden
Roth pointed out to the IWL Board that the exchange ratios had been previously
adjusted due to the potential risk of lost traffic into Mexico and Texas.
The IWL Board decided to defer any decision on the Transaction until it had
received a report from Telecommunications' management regarding the impact of
traffic into Mexico.
On Thursday, February 12, 1998, the IWL Board held a special telephonic
board meeting to discuss the proposed business combination. Also participating
in the meeting by invitation of the IWL Board were representatives of Cruttenden
Roth and representatives of Munsch Hardt. Each director confirmed that they had
received reports from Cruttenden Roth reflecting changes in the assumptions for
the discounted cash flow analysis of IWL, Telecommunications and the
Partnership. The assumptions of Telecommunications and the Partnership were
adjusted to reflect possible changes in tariffs and rates both in Mexico and
other areas for Telecommunications and the Partnership. Mr. Allen advised the
IWL Board that Telecommunications had retained a significant portion of its
traffic into Mexico and that an agreement between IWL and a long distance
carrier based in Mexico to terminate traffic into Mexico had been negotiated.
Mr. Allen also provided support for the reasonableness of the assumptions used
by Cruttenden Roth. A representative from Cruttenden Roth confirmed that its
analysis showed that the Transaction would be accretive on a going forward basis
in 1998. A representative of Cruttenden Roth then reconfirmed that its opinion
regarding the Transaction remained unchanged after review of the various matters
that had transpired since the February 3, 1998, IWL Board meeting, and that
based upon its analysis of the Transaction it was its opinion that as of that
date, subject to the certain assumptions, limitations, and qualifications, from
a financial point of view, the exchange ratios and the consideration to be
received by the IWL shareholders in the Transaction were fair to the IWL
shareholders. After deliberations with respect thereto, the IWL Board
unanimously determined that the provisions and terms of the Merger Agreement
were fair to and in the best interest of IWL and the IWL shareholders,
recommended that the holders of IWL Common Stock vote for the approval of the
Merger Agreement and authorized the officers of IWL to execute the Merger
Agreement and the related agreements on behalf of IWL.
Following the IWL Board meeting on Thursday, February 12, 1998, Messrs.
Leonards, Allen, Roberson, Thompson and Langdale, as well as representatives of
Munsch Hardt and of Hughes & Luce, met at the offices of Telecommunications in
Dallas to finalize the terms of the Merger Agreement, which contained exchange
ratios that would have resulted in holders of IWL Common Stock and options and
warrants owning 29% and holders of Telecommunications Common Stock and options
and of Partnership Interests (assuming they were all tendered to and accepted by
Holdings in the Exchange Offer) owning 71% of the Holdings Common Stock, on a
diluted basis, upon consummation of the Transaction.
On Monday, February 16, 1998, IWL, Telecommunications and the Partnership
executed the Merger Agreement, certain owners of Telecommunications and the
Partnership and IWL executed the CapRock Owners Agreement and certain IWL
shareholders and Telecommunications and the Partnership executed the IWL
Shareholders Agreement. February 16, 1998 was a holiday. The closing price of
shares of IWL Common Stock on the Nasdaq National Market on Friday, February 12,
1998, the last business day prior to February 16, 1998 on which IWL Common Stock
was traded, was $9.875 per share, which, under the original exchange ratios (as
amended in April 1998), which were in effect on that date (and assuming an
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equivalent per share value of Holdings Common Stock and IWL Common Stock), would
have resulted in the shareholders of IWL receiving Holdings Common Stock with a
market value of $37,073,021, the shareholders of Telecommunications receiving
Holdings Common Stock with a market value of $77,320,495 and the holders of the
Partnership Interests receiving Holdings Common Stock with a market value of
$26,287,053 if the Transaction was effected that day and all of the Partnership
Interests were validly tendered to and accepted by Holdings in the Exchange
Offer.
On Tuesday, February 17, 1998, prior to the opening of trading on the Nasdaq
National Market, IWL issued a press release announcing the Transaction.
On April 30, 1998, the IWL Board, the General Partner Board, the
Telecommunications Board, the Holdings Board and the boards of each merger
subsidiary approved, and the appropriate officers executed, the First Amendment
to the Merger Agreement to make minor adjustments to the Telecommunications
Exchange Ratio to address calculation errors in the number of shares of
Telecommunications Common Stock and of Telecommunications options that were
outstanding. Such amendment did not change any of the other exchange ratios or
change the total number of shares that had been approved for issuance by
Holdings.
On Thursday, June 11, 1998, the Board of Directors of Holdings and the IWL
Board each held meetings to authorize the issuance and guarantee of the Notes
and the amendment of the Merger Agreement in order to update or correct certain
schedules and to specify the states in which the receipt of regulatory approvals
was a condition to closing. The Boards of Directors of Telecommunications and of
the General Partner approved the issuance of the Notes on Thursday June 18,
1998.
On Saturday, June 13, 1998, Mr. Thompson called Mr. Leonards to assert that,
in Mr. Thompson's opinion, the projected decline in IWL revenues of
approximately $2.3 million to $2.5 million for the quarter ended June 30, 1998
and the possible additional decline in IWL revenues in subsequent quarters
thereafter from those set forth in the IWL business plan furnished to
Telecommunications and the Partnership in connection with the original
negotiations of the Merger Agreement constituted a Material Adverse Effect (as
defined in the Merger Agreement). As a result of such asserted Material Adverse
Effect, Mr. Thompson asserted that Telecommunications and the Partnership
believed that they had the right to terminate the Merger Agreement, but that in
lieu of exercising such right of termination, they would be willing to complete
the Transaction with modified exchange ratios.
On Saturday, June 13, 1998, following the conversation between Messrs.
Leonards and Thompson, the IWL Board held a special meeting. Also participating
in this meeting by invitation of the IWL Board was a representative of
Cruttenden Roth and a representative of Munsch Hardt. At this meeting, Mr.
Leonards provided a summary to the IWL Board of his conversations with Mr.
Thompson. Mr. Roberson then provided an update to the IWL Board of the decline
of IWL's revenues as compared with those in its business plan which had been
provided to Telecommunications and the Partnership prior to execution of the
Merger Agreement. The decline in revenues from the business plan was
attributable primarily to delays in contracts and, to a much lesser extent, to
delays in developing revenues in the IWL's long distance and dedicated access
services. Mr. Thompson had been advised of the contract delays on Thursday, June
11, 1998. A representative of Munsch Hardt then provided a summary of the terms
of the Merger Agreement and the legal alternatives available. After significant
discussion of potential benefits as well as the potential risks of disputing the
assertions, terminating the Merger Agreement, or amending the exchange ratios,
the IWL Board determined that the alternative that was in the best interest of
IWL and the shareholders of IWL was to pursue the Transaction with modified
exchange ratios. A representative of Cruttenden Roth was requested to provide an
updated opinion to the IWL Board regarding the modified exchange ratios once
they were tentatively determined. Mr. Leonards was authorized to approach Mr.
Thompson to discuss alternative exchange ratios.
Between June 13, 1998, and June 18, 1998, Messrs. Leonards and Thompson had
numerous telephone conversations regarding the proposed Transaction and the
existing exchange ratios, as well as proposed
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modifications thereto. As a result of these discussions, it was proposed that
the exchange ratios be changed so that the holders of IWL Common Stock and
options and warrants would own 15% of Holdings Common Stock, holders of
Telecommunications Common Stock and options would own 63.8% of Holdings Common
Stock and the holders of Partnership Interests (assuming they were all validly
tendered to and accepted by Holdings in the Exchange Offer) would own 21.2% of
Holdings Common Stock, on a diluted basis, upon consummation of the Transaction.
On Thursday, June 18, 1998, the IWL Board held a special meeting. Also
participating in this meeting by invitation of the IWL Board was a
representative of Cruttenden Roth and a representative of Munsch Hardt. Mr.
Leonards provided a summary of his conversations with Mr. Thompson which
included the modifications to the exchange ratios as requested by Mr. Thompson.
A representative of Munsch Hardt discussed the terms of the proposed amendment
to the Merger Agreement, which in addition to modifying the exchange ratios
removed many of the conditions to the Transaction, including the receipt of
lock-up agreements, officers' certificates, acceptance of the form of documents
by counsel and accountants, the receipt of affiliate agreements, the receipt of
employment agreements, the execution of a shareholders' and owners' agreement,
the release of guaranties and the receipt of certain consents. Each director
confirmed that he had received revised reports from Cruttenden Roth. The report
showed the disparities between IWL's actual operations and those of the
forecasts used internally by IWL and provided to Telecommunications and the
Partnership in connection with negotiation of the Merger Agreement. The report
also reflected changes in the assumptions in the discounted cash flow analysis
of Telecommunications and the Partnership. The assumptions for IWL were adjusted
to reflect its performance to date for the year and management's expectations
for the remainder of the year. The assumptions for Telecommunications and the
Partnership were adjusted to reflect the respective entities' revised combined
projections, which included the build out of a 4,300 route mile fiber network. A
representative of Cruttenden Roth then provided its oral opinion that, based
upon its analysis of the Transaction and the proposed modified exchange ratios,
it was its opinion that, as of that date, subject to certain assumptions,
limitations and qualifications, from a financial point of view, the modified
exchange ratios and the consideration to be received by the IWL shareholders in
the Transaction were fair to the IWL shareholders. After deliberations with
respect thereto, the IWL Board determined that the amendment to the Merger
Agreement containing the modified exchange ratios and the consideration to be
received by the IWL shareholders in the Transaction were fair to and in the best
interest of IWL and the IWL shareholders, recommended that the holders of IWL
Common Stock vote for the approval of the Merger Agreement with the modified
exchange ratios and authorized the officers of IWL to execute an amendment to
the Merger Agreement to reflect such modified exchange ratios. The closing price
of shares of IWL Common Stock on the Nasdaq National Market on Thursday, June
18, 1998 was $16.00 per share, which under the original exchange ratios, which
were in effect on that day (and assuming an equivalent per share value of
Holdings Common Stock and IWL Common Stock), would have resulted in the
shareholders of IWL receiving shares of Holdings Common Stock with a market
value of $63,787,488, the shareholders of Telecommunications receiving shares of
Holdings Common Stock with a market value of $125,278,752 and the holders of the
Partnership Interests receiving shares of Holdings Common Stock with a market
value of $42,591,680 if the Transaction was effected that day and assuming that
all of the Partnership Interests were validly tendered to and accepted by
Holdings.
On Thursday, June 18, 1998, the Telecommunications Board determined that the
amendment to the Merger Agreement containing the modified exchange ratios was
fair to and in the best interest of Telecommunications and its shareholders and
authorized the officers of Telecommunications to execute an amendment to the
Merger Agreement to reflect the modified exchange ratios.
On Thursday, June 18, 1998, the General Partner Board determined that the
amendment to the Merger Agreement containing the modified exchange ratios were
fair to and in the best interest of the partners and the Partnership and
authorized the officers of the General Partner to execute an amendment to the
Merger Agreement to reflect the modified exchange ratios.
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On Thursday, June 18, 1998, following the meetings of the boards of IWL,
Telecommunications and the General Partner, Mr. Thompson learned of and then
called Mr. Leonards to advise him of uncertainties regarding the size and timing
of the offering of the Notes. Mr. Leonards then called a meeting of the IWL
Board to be held on Saturday, June 20, 1998, in order to consider the new
information prior to his execution of the amendment to the Merger Agreement.
On Saturday, June 20, the IWL Board met again and, following review of the
information regarding the uncertainties of the size and timing of the offering
of the Notes, confirmed their decisions made on Thursday, June 18, 1998, and
reauthorized the officers to execute an amendment to the Merger Agreement to
reflect, among other things, the modified exchange ratios. The amendment to the
Merger Agreement was executed on June 20, 1998.
On Monday, June 22, 1998, IWL issued a press release announcing the
amendment to the Merger Agreement and the change in the exchange ratios (the
press release was issued prior to the commencement of trading in IWL Common
Stock on that date). The closing price of shares of IWL Common Stock on the
Nasdaq National Market on Friday, June 19, 1998, the last trading day prior to
such press release, was $15.00 per share, which under the original exchange
ratios, which were in effect on that day (and assuming an equivalent per share
value of Holdings Common Stock and IWL Common Stock), would have resulted in the
shareholders of IWL receiving shares of Holdings Common Stock with a market
value of $59,800,770, the shareholders of Telecommunications receiving shares of
Holdings Common Stock with a market value of $117,448,830 and the holders of the
Partnership Interests receiving shares of Holdings Common Stock with a market
value of $39,929,700 if the Transaction was effected that day and assuming that
all of the Partnership Interests were validly tendered to and accepted by
Holdings. The closing price of shares of IWL Common Stock on the Nasdaq National
Market on Monday, June 22, 1998, the date such press release was issued, was
$8.75 per share (a decrease of $6.25 per share from the closing price on June
19, 1998), which under the modified Exchange Ratios, which were in effect on
that day (and assuming an equivalent per share value of Holdings Common Stock
and IWL Common Stock), would have resulted in the shareholders of IWL receiving
shares of Holdings Common Stock with a market value of $34,883,783, the
shareholders of Telecommunications receiving shares of Holdings Common Stock
with a market value of $162,785,438 and the holders of the Partnership Interests
receiving shares of Holdings Common Stock with a market value of $55,295,223 if
the Transaction was effected that day and assuming that all of the Partnership
Interests were validly tendered to and accepted by Holdings.
On July 8, 1998, the IWL Board, the General Partner Board, the
Telecommunications Board, the Holdings Board and the boards of each merger
subsidiary approved, and the appropriate officers executed, the Third Amendment
to the Merger Agreement to confirm the receipt of all required regulatory
approvals and the receipt of the fairness opinion from IWL's financial advisor.
RECOMMENDATION OF IWL BOARD
THE IWL BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF THE HOLDERS OF IWL
COMMON STOCK AND RECOMMENDS THAT HOLDERS OF IWL COMMON STOCK VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT.
In reaching its determination to approve the Merger Agreement and the
transactions contemplated thereby, the IWL Board consulted with IWL management
and financial and legal advisors and considered the proposed terms of the Merger
Agreement and the related agreements. In reaching its conclusions, the IWL Board
also considered the strategic advantages of the Transaction described below
under "--Reasons for the Transaction," as well as, among other things the
following: (i) information concerning the financial performance and condition,
business operations, capital levels, asset quality and prospects of
Telecommunications and the Partnership and the projected future financial
performance of IWL as a separate entity and of IWL, Telecommunications and the
Partnership on a combined basis including the customer mix of
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each of the companies, the enhanced speed to gain access to the market for IWL
through the existing network of the Partnership, the synergy of IWL's technical
expertise with the marketing expertise of Telecommunications, the additional
minutes which would be provided for use on the Partnership's network from IWL's
customers, growth opportunities domestically in the Texas Gulf Coast region and
internationally, particularly Mexico, and the enhanced ability for the combined
business to provide more traditional telecommunications services and products
including long distance and LEC services to customers; (ii) current industry,
economic and market conditions and trends, including the likelihood of
continuing consolidation and increasing competition in the telecommunications
industry; (iii) the opinion of Cruttenden Roth described below as to the
fairness, from a financial point of view, to the shareholders of IWL of the
relative exchange ratios (which were determined through arm's-length
negotiations among IWL, Telecommunications and the Partnership) and the
consideration to be received by the IWL shareholders in the Transaction; (iv)
the likelihood of obtaining required regulatory approvals and the possibility
that regulatory authorities may impose burdensome conditions to the grant of
such approvals; (v) presentations by IWL management and its financial and legal
advisors regarding Telecommunications and the Partnership; (vi) that the board
representation initially provided in the Merger Agreement reflecting the
minority shareholder position of the IWL shareholders in Holdings would not be
guaranteed after the Transaction; (vii) the risks and benefits of completing the
Transaction with the Exchange Ratios (as modified in June 1998) as compared with
disputing the existence of a Material Adverse Effect or terminating the Merger
Agreement; (viii) the existing cash position of IWL, the recognition of the need
for capital for IWL and the ability to accelerate the business plan of IWL if
the Notes were issued, as weighed against the risk of such offering not being
completed and the ability of IWL to raise capital on its own without the
Transaction; (ix) expectations for revenue growth of the combined businesses but
little, if any, expectations for cost savings from termination of redundant
operations, although cost savings were determined to be potentially available
from the avoidance of redundancy in the future; (x) the network capacity of the
combined business; (xi) the strong sales growth of Telecommunications and the
Partnership; (xii) the synergies among the combined and complementary management
teams; and (xiii) the risks associated with the Transaction which, among other
things, included the ability of all three businesses to manage change and to
maintain operations during the merger process, the ability to integrate the
business, the impact upon employees and customers, the need for capital to
achieve the business plan of the combined organizations and competition.
RECOMMENDATION OF TELECOMMUNICATIONS BOARD
THE TELECOMMUNICATIONS BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF,
TELECOMMUNICATIONS AND THE HOLDERS OF TELECOMMUNICATIONS COMMON STOCK AND
RECOMMENDS THAT THE HOLDERS OF TELECOMMUNICATIONS COMMON STOCK VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT.
In reaching its determination to approve the Merger Agreement and the
transactions contemplated thereby, the Telecommunications Board consulted with
Telecommunications management and financial and legal advisors and considered
the proposed Merger Agreement and the related agreements although no financial
report, opinion or appraisal was provided. In reaching its conclusions, the
Telecommunications Board also considered the strategic advantages of the
Transaction described below under "--Reasons for the Transaction," as well as,
among other things, the following: (i) the terms of the Merger Agreement and the
ability of the holders of Telecommunications Common Stock to receive Holdings
Common Stock, which upon consummation of the Transaction will, subject to
applicable securities laws, be publicly traded, in exchange for their
Telecommunications Common Stock; (ii) its knowledge of the business, operations,
properties, assets, financial condition, operating results and prospects of
Telecommunications, the Partnership and IWL, including the synergies between the
technical expertise of IWL and the marketing expertise of Telecommunications,
the benefits to be obtained from the existing CLEC status of IWL in Texas and
Louisiana and the access to the customer base and international traffic of IWL;
(iii) current industry,
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economic and market conditions; (iv) presentations by Telecommunications
management and its financial and legal advisors regarding IWL and the
Partnership; (v) the compatibility of the respective business philosophies of
Telecommunications, the Partnership and IWL; (vi) the opportunity for the
holders of Telecommunications Common Stock to participate in a larger, stronger
and more competitive telecommunications company; (vii) the benefits of being
able to access the public capital markets to help grow its business and finance
its operations; (viii) continuing the existing business plan of
Telecommunications as an independent organization; (ix) the potential benefit of
completing the Transaction with the exchange ratios (as modified in June 1998)
versus the risks associated with the variable revenue stream and net income of
IWL as caused by contract delays or otherwise and the risks associated with
potential delays in implementing its business plan and the potential costs and
risks associated with terminating the Merger Agreement; and (x) the risks
associated with the Transaction which, among other things, included the ability
of all three businesses to manage change and to maintain operations during the
merger process, the ability to integrate the business, the impact upon
customers, the need for capital to achieve the business plan of the combined
organizations, and competition.
RECOMMENDATION OF GENERAL PARTNER BOARD
THE GENERAL PARTNER BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE TERMS
OF THE MERGER AGREEMENT AND THE EXCHANGE OFFER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE PARTNERSHIP AND THE HOLDERS OF PARTNERSHIP INTERESTS AND
RECOMMENDS THAT THE HOLDERS OF PARTNERSHIP INTERESTS PARTICIPATE IN THE INTEREST
EXCHANGE AND, IN CONNECTION THEREWITH, EXCHANGE THEIR PARTNERSHIP INTERESTS FOR
SHARES OF HOLDINGS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND THE
EXCHANGE OFFER.
In reaching its determination to approve the Merger Agreement and the
transactions contemplated thereby, the General Partner Board consulted with
Partnership management and financial and legal advisors and considered the
proposed Merger Agreement and the related agreements although no financial
report, opinion or appraisal was provided. In reaching its conclusions, the
General Partner Board also considered the strategic advantages of the
Transaction described below under "--Reasons for the Transaction," as well as,
among other things, the following: (i) the terms of the Merger Agreement, and
the ability of the holders of Partnership Interests to receive Holdings Common
Stock, which, upon consummation of the Interest Exchange, will, subject to
applicable securities laws, be publicly traded, in exchange for their
Partnership Interests; (ii) its knowledge of the business, operations,
properties, assets, financial condition, operating results and prospects of
Telecommunications, the Partnership and IWL, including the complementary
locations of IWL's existing microwave locations and switches with the deployed
fiber and switches of the Partnership; (iii) current industry, economic and
market conditions; (iv) presentations by Partnership management and its
financial and legal advisors regarding IWL and Telecommunications; (v) the
compatibility of the respective business philosophies of Telecommunications, the
Partnership and IWL; (vi) the opportunity for the holders of Partnership
Interests to participate in a larger, stronger and more competitive
telecommunications company; (vii) the benefits of being able to access the
public capital markets to help finance the expansion and construction of its
fiber network; (viii) continuing the existing business plan of the Partnership
as an independent entity; (ix) the potential benefit of completing the
Transaction with the Exchange Ratios (as modified in June 1998) versus the risks
associated with the variable revenue stream and net income of IWL as caused by
contract delays or otherwise and the risks associated with potential delays in
implementing its business plan and the potential costs and risks associated with
terminating the Merger Agreement; and (x) the risks associated with the
Transaction which, among other things, included the ability of all three
businesses to manage change and the ability to maintain operations during the
merger process, the ability to integrate the business, the impact upon employees
and customers, the need for capital to achieve the business plan of the combined
organizations, and competition.
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REASONS FOR THE TRANSACTION
The IWL Board, the Telecommunications Board and the General Partner Board
believe that the combination of businesses of IWL, Telecommunications and the
Partnership will create the platform for Holdings to become a leading
facilities-based provider of integrated communications services in Texas and the
Gulf Coast region. The IWL Board, the Telecommunications Board and the General
Partner Board believe that the Transaction will provide opportunities to achieve
substantial benefits for the respective shareholders and partners of each
company by combining their respective assets, management, personnel and
customers. The Boards further believe that the combined entities will be better
and more quickly able to capitalize on opportunities in the rapidly changing
communications industry, both domestically and internationally, than any of the
entities on a stand-alone basis.
The Boards believe that the Transaction enables Holdings to offer a complete
suite of communications services, including local and long distance, data and
dedicated long distance capacity. The primary strategic advantages of the
Transaction that were considered by the Boards in reaching their determinations
to recommend the Transaction were (i) enhanced revenue opportunities from the
integration of the existing fiber and switching network infrastructure of each
company, (ii) greater organizational depth through the combination of the
marketing, customer service and networking strengths of Telecommunications with
the technological, project management and last mile distribution expertise of
IWL, (iii) opportunities to leverage the Partnership's fiber network by offering
voice, data and broadband services in markets geographically clustered near or
along the existing and planned infrastructure of the three companies; and (iv)
opportunities for international revenue growth through the combination of
Telecommunications' customer base, the Partnership's planned network and IWL's
relationships with numerous foreign regulators and communications providers.
In addition to the joint reasons for the Transaction described above, in
reaching its determination to recommend the Transaction the IWL Board considered
the benefits of obtaining access to an existing network, which will enable IWL
to avoid the cost, delay and management time commitment required to build a new
network infrastructure.
In addition to the joint reasons for the Transaction described above, in
reaching their determination to recommend the Transaction, the
Telecommunications Board and the General Partner Board considered the benefits
of being able to access the public capital markets to help grow their
businesses, including to finance capital expenditures.
The following are the primary strategic advantages of the Transaction that
were considered by the Boards in reaching their determinations to recommend the
Transaction:
COMBINED NETWORK INFRASTRUCTURE. The IWL Board, the Telecommunications
Board and the General Partner Board believe that the Transaction will create
revenue opportunities from the combination of existing switching fiber and
microwave network infrastructure of the three companies in Texas and the Gulf
Coast region. The Partnership's existing fiber network extends from Houston to
Corpus Christi, Texas. Telecommunications owns a DSC DEX 600 switch and a
smaller PC based switch installed in Dallas, Texas with an extensive originating
and terminating network throughout Texas and Oklahoma. IWL owns multiple earth
stations and leases access to satellites having footprints covering parts of the
U.S. and Europe. IWL also owns a digital microwave network in and along the
Texas Gulf Coast connecting drilling rigs, and 15 towns and cities to the
Partnership's existing fiber network.
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BRINGING THE IWL CUSTOMER BASE TO THE PARTNERSHIP'S NETWORK. The Boards
believe that the margins for the combined business will be enhanced by utilizing
the Partnership's network for IWL's existing traffic and that additional
services will be available for sale to such customers as a result.
ENHANCED MANAGEMENT CAPABILITIES. The Boards believe that the marketing,
customer service and networking strengths of Telecommunications will be able to
expand the business of the customers and contacts of IWL and that the technology
and project expertise of IWL will help the expansion of the business of
Telecommunications and the Partnership.
REVENUE GROWTH INTERNATIONALLY. The Boards have seen the combined
management teams of IWL, and Telecommunications and the Partnership work
together to address the delivery of long distance service into Mexico and
believe that this will be an opportunity for additional growth. The Boards also
believe that the contacts, customers, expertise and presence of IWL in various
other international markets will, when combined with the marketing talents of
Telecommunications, provide additional opportunities for growth.
CLEC. IWL is licensed to provide LEC Services in Louisiana and Texas, and
IWL has negotiated agreements with Southwestern Bell and Bell South that permit
IWL to purchase unbundled network elements. Telecommunications has a Service
Provider Certificates of Authority ("SPCOA") in Texas and similar authority in
Oklahoma, Kansas and Arkansas to sell LEC Services, and has negotiated
agreements with Southwestern Bell and Bell South that permit Telecommunications
to resell their local and enhanced services. The Boards believe these agreements
(together with the completed fiber network of the Partnership) will create
opportunities for revenue growth.
In addition to the joint reasons for the Transaction described above, in
reaching its determination to recommend the Transaction the IWL Board
considered:
ACCELERATION OF FIBER NETWORK BUILD OUT. One of IWL's business strategies
has been to develop company-owned fiber infrastructure. The Transaction will
accelerate the achievement of this strategy by providing IWL with access to the
Partnership's existing fiber network, expansion plans and management, thereby
enabling IWL to avoid the cost, delay and management time commitment required to
build its own fiber network infrastructure.
In addition to the joint reasons for the Transaction described above in
reaching its determination to recommend the Transaction, the Telecommunications
Board and the General Partner Board considered:
ACCESS TO PUBLIC CAPITAL MARKETS. The Telecommunications Board and the
General Partner Board believe the combination with IWL will give
Telecommunications and the Partnership, respectively, enhanced and quicker
access to the public capital markets, making it easier to finance the capital
expenditures and the growth of the businesses of Telecommunications and the
Partnership. Additionally, the Transaction will provide liquidity to the holders
of Telecommunications Common Stock and the Partnership Interests who, upon
consummation of the Transaction, will receive Holdings Common Stock which will
be publicly traded, subject to applicable securities laws.
There can be no assurance that any of the potential advantages, efficiencies
or opportunities described herein will be achieved through the consummation of
the Transaction. See "Cautionary Statement Concerning Forward-Looking
Statements" and "Risk Factors."
The foregoing discussion of the information and factors considered by the
Boards is not intended to be exhaustive, but is intended to include the material
factors considered by each Board. In view of the wide variety of factors
considered by each of the Boards, the directors of each Board did not find it
practical to, and did not, quantify or otherwise assign relative weight to the
specific factors considered and individual directors may have ascribed different
weights to different factors.
FAIRNESS OPINION OF IWL FINANCIAL ADVISOR
Cruttenden Roth acted as financial advisor to IWL in connection with the
Transaction and delivered a written opinion to the IWL Board dated June 19, 1998
(such written opinion, the "Cruttenden Roth
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Opinion"), stating that as of the date of the Cruttenden Roth Opinion, and based
on and subject to the assumptions, limitations and qualifications set forth
therein, from a financial point of view, the consideration to be paid by
Holdings to the shareholders of IWL and the relative exchange ratios are fair to
the shareholders of IWL.
THE FULL TEXT OF CRUTTENDEN ROTH'S WRITTEN OPINION IS ATTACHED AS ANNEX II
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. IWL SHAREHOLDERS SHOULD READ THE CRUTTENDEN ROTH OPINION IN ITS
ENTIRETY FOR ASSUPTIONS MADE, PROCEDURES FOLLOWED AND OTHER MATTERS CONSIDERED.
Cruttenden Roth's analysis in its determination of the fairness of the
exchange ratios to the shareholders of IWL and the consideration to be paid by
Holdings in the Transaction included discounted cash flow analysis of
Telecommunication's and the Partnership's projections, which assumed the
buildout of a 4,300 route mile fiber network as compared to earlier projections
that assumed a 1,100 route mile fiber network, the ability of Telecommunications
and the Partnership to finance a 4,300 route mile fiber network and
Telecommunications' and the Partnership's achievement of their respective
business plans to date. Additionally, Cruttenden Roth analyzed actual and
anticipated operating results for IWL as compared to IWL management's earlier
business plan.
No limitations were imposed by IWL on the scope of Cruttenden Roth's
investigation or the procedures to be followed by Cruttenden Roth in rendering
its opinion. Cruttenden Roth was not requested to and did not make any
recommendation to the IWL Board as to the form or amount of the consideration to
be paid by IWL, which was determined through arm's-length negotiations among the
parties. In arriving at its opinion, Cruttenden Roth did not ascribe a specific
range of values to Telecommunications, the Partnership or IWL, but rather made
its determination as to the fairness, from a financial point of view, to the
shareholders of IWL, of the relative exchange ratios and the consideration to be
paid by Holdings in the Transaction on the basis of the financial and
comparative analyses described below. Cruttenden Roth's opinion is for the use
and benefit of the IWL Board and was rendered to the IWL Board in connection
with its consideration of the Transaction. Cruttenden Roth's opinion is not
intended to be and does not constitute a recommendation to any shareholder of
IWL as to how such shareholder should vote with respect to the Transaction.
Cruttenden Roth was not requested to opine as to, and its opinion does not
address, IWL's underlying business decision to proceed with or effect the
Transaction.
In arriving at its opinion, Cruttenden Roth reviewed and analyzed: (1) the
Merger Agreement, as amended, and the specific terms of the Transaction, (2)
such publicly available information relating to IWL, Telecommunications and the
Partnership which it believed to be relevant to Cruttenden Roth's analysis, (3)
historical and projected financial and operating information with respect to the
business, operations and prospects of IWL furnished to Cruttenden Roth by IWL,
(4) historical and projected financial and operating information with respect to
the business, operations and prospects of Telecommunications and the Partnership
furnished to Cruttenden Roth by Telecommunications, the Partnership and IWL, (5)
the trading history of IWL Common Stock from its initial public offering date to
the date of the Cruttenden Roth Opinion and a comparison of that trading history
with those of other companies that it deemed relevant, (6) a comparison of the
historical financial results and present financial condition of IWL with those
of other companies that Cruttenden Roth deemed relevant, (7) a comparison of the
historical financial results and the present financial condition of
Telecommunications and the Partnership as of the date of Cruttenden Roth Opinion
with those of other companies that Cruttenden Roth deemed relevant, (8) a
comparison of the quarterly and annual earnings estimates of Cruttenden Roth's
research analyst for IWL with IWL's actual and projected results, (9) the
potential pro forma financial effects of the proposed Transaction, (10) a
comparison of the financial terms of the proposed Transaction with the financial
terms of certain other transactions that Cruttenden Roth deemed relevant and
(11) the projections of IWL, Telecommunications and the Partnership on a
combined basis and the relative contribution of the business of IWL to the
projected combined operating results in relation to the relative exchange
ratios. In addition,
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Cruttenden Roth had discussions with the managements of IWL, Telecommunications
and the Partnership concerning their respective businesses, operations, assets,
financial conditions and prospects and the potential strategic benefits of the
proposed Transaction and has undertaken such other studies, analyses and
investigations as Cruttenden Roth deemed appropriate.
In arriving at its opinion, Cruttenden Roth assumed and relied upon the
accuracy and completeness of the financial and other information used by
Cruttenden Roth without assuming any responsibility for independent verification
of such information and further relied upon the assurances of managements of
IWL, Telecommunications and the Partnership that they are not aware of any facts
that would make such information inaccurate or misleading. With respect to the
financial projections of IWL, Telecommunications and the Partnership, upon
advice of IWL, Cruttenden Roth assumed that such projections were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the respective management teams of IWL, Telecommunications, and the
Partnership as to the future financial performance of IWL, Telecommunications,
the Partnership and the combined company (not including the cost savings and
operating synergies, if any, which may result from a combination of IWL,
Telecommunications and the Partnership.) In arriving at its opinion, Cruttenden
Roth did not make or obtain any evaluations or appraisals of the assets or
liabilities of IWL, Telecommunications and the Partnership. Upon advice of IWL
and its legal and accounting advisors, Cruttenden Roth assumed that the
Transaction will qualify as a tax-free transaction to the shareholders of IWL
and Telecommunications and the partners in the Partnership. Cruttenden Roth's
opinion necessarily is based upon market, economic and other conditions as they
existed on, and could be evaluated as of, the date of its opinion.
In connection with the delivery of its opinion, Cruttenden Roth performed a
variety of financial and comparative analyses, the principal elements of which
are described below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial and
comparative analysis and the application of those methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its opinion, Cruttenden Roth
did not attribute any particular weight to any analysis or factor considered by
it but, rather, made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Cruttenden Roth believes that its
analyses must be considered as a whole and that considering any portion of such
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the process underlying its opinion. In its
analyses, Cruttenden Roth made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of IWL, Telecommunications and the Partnership. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
COMPARABLE COMPANY ANALYSIS. Using publicly available information,
Cruttenden Roth compared the financial performance of Telecommunications and the
Partnership with the following companies which were selected based on general
business, operating and financial characteristics representative of local, long
distance and fiber communications based communications companies: Winstar
Communications Inc., ICG Communications Inc., Qwest Communications International
Inc., Intermedia Communications Inc., McLeodUSA Inc., Nextlink Communications
Inc., E Spire Communications Inc. (formerly American Communications Services
Inc, ITC Deltacom Inc., Startec Global Communications Inc., Trescom
International Inc., US Wats Inc., IXC Communications Inc., Star
Telecommunications Inc., and Pacific Gateway Exchange Inc. (the "Comparable
Public Companies"). Cruttenden Roth calculated the median multiples for the
Comparable Public Companies for the equity market value plus net indebtedness,
preferred stock and minority interests ("Firm Value") to latest twelve months
revenue and to estimated fiscal 1998 and 1999 revenues. The median multiples
were 7.9x, 4.9, and 3.4x, respectively. The range of multiples was from 0.7x to
24.5x, 0.4x to 21.9x and 0.3x to 6.0x, respectively. These compared to multiples
of 4.8x, 3.4x and 2.1x for Telecommunications and the Partnership, collectively.
Cruttenden Roth calculated the median
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multiples for the Firm Value of the Comparable Public Companies to latest twelve
months earnings before interest, taxes, depreciation and amortization ("EBITDA")
and to estimated 1998 and 1999 EBITDA. The median multiples were -13.6x, 12.3x,
and 12.0x, respectively. The range of multiples was from -109.6x to 531.3x,
- -348.3x to 141.8x and -40.9x to 55.4x, respectively. These compared to multiples
of 36.0x, 28.3x and 16.6x for Telecommunications and the Partnership,
collectively. The ratios for Telecommunications and the Partnership are based on
financial statements for the last twelve months and period ending March 31, 1998
and the ratios for the Comparable Public Companies are based on the most
recently reported public financial statements for the last twelve months of
operations and closing stock market prices on June 18, 1998 and the most recent
Cruttenden Roth and third party equity research reports available to Cruttenden
Roth as of June 18, 1998 that contained revenue and EBITDA projections.
Cruttenden Roth noted that the foregoing multiples for Telecommunications
and the Partnership were within the range of multiples for the Comparable Public
Companies. However, because of the inherent differences between the businesses,
operations and prospects of Telecommunications and the Partnership and the
businesses, operations and prospects of the Comparable Public Companies,
Cruttenden Roth believed that it was inappropriate to, and therefore did not,
rely solely on the quantitative result of the analysis, and accordingly also
made qualitative judgments concerning differences between the characteristics of
Telecommunications and the Partnership and the Comparable Public Companies that
would affect the public trading values of Telecommunications and the Partnership
and the Comparable Public Companies.
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information,
Cruttenden Roth reviewed certain terms and financial characteristics of 12
telecommunications company merger or acquisition transactions which Cruttenden
Roth deemed to be comparable to the Transaction. The transactions considered by
Cruttenden Roth in its analysis consisted of (identified by acquirer/acquiree):
Excel Communications Inc./Telco Communications Inc., LCI International Inc./USLD
Communications Corp., WorldCom Inc./MCI Communications Corp., Teleport
Communications Group/ACC Corp., AT&T Corp./ Teleport Communications Group, AvTel
Communications Inc./Matrix Telecom Inc., IXC Communications Inc./Network Long
Distance Inc., World Access Inc./NACT Telecommunications, Primus
Telecommunications/TresCom International Inc., Qwest Communications Corp./LCI
International Inc., ALLTEL Corp./360 Communications Co., and SBC Communications
Inc./Ameritech Corp. (the "Cruttenden Roth Comparable Transactions"). The median
Firm Value (using the transaction price for equity market value) to latest
twelve months revenue and EBITDA multiple for the Cruttenden Roth Comparable
Transactions was 2.9x, and 24.1x, respectively. The range of multiples was from
0.9x to 7.7x and 19.1x to 280.6x, respectively. This compared to a transaction
multiple of 4.8x and 46.7x, respectively, for the Transaction based on the
consideration described in the Merger Agreement.
Cruttenden Roth noted that for each of the foregoing multiples, the
transaction multiples for the Transaction were within the range of multiples for
the Cruttenden Roth Comparable Transactions. However, because the reasons for
and the circumstances surrounding each of the Cruttenden Roth Comparable
Transactions analyzed were specific to each transaction and because of the
inherent differences in the businesses, operations and prospects of IWL,
Telecommunications and the Partnership and the businesses, operations and
prospects of the acquired companies included in the Cruttenden Roth Comparable
Transactions, Cruttenden Roth believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly also made qualitative judgments concerning differences between the
characteristics of these transactions and the Transaction that would affect the
acquisition values of Telecommunications and the Partnership and such acquired
companies.
DISCOUNTED CASH FLOW ANALYSIS OF TELECOMMUNICATIONS AND THE
PARTNERSHIP. Cruttenden Roth calculated the present value of the streams of
after-tax cash flows that Telecommunications and the Partnership could be
expected to produce over a five and ten year period. The analysis utilized
financial and operating information relating to the business, operations and
prospects of Telecommunications and the Partnership provided by management of
Telecommunications and the Partnership and relied on certain assumptions with
respect to future business and operations. After-tax cash flows for the five and
ten year period
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beginning on January 1, 1998 and ending on December 31, 2002 and 2007,
respectively, were calculated as unlevered after-tax earnings plus amortization
and depreciation less net changes in non-cash, non-debt working capital and
capital expenditures. Cruttenden Roth calculated terminal values for
Telecommunications and the Partnership in 2002 and 2007 by applying to projected
EBITDA a range of multiples of 7x to 10x. Cruttenden Roth's determination of the
appropriate range of multiples was based on an assessment of forward EBITDA
trading multiples in the current market of the Comparable Public Companies and
on Cruttenden Roth's general experience in valuations of companies. The cash
flow streams and terminal values were then discounted to present values using a
range of discount rates of 16% to 25%, which were chosen based on several
assumptions regarding factors such as the inflation rate, interest rates, the
inherent business risk in Telecommunications and the Partnership's business, and
the cost of capital of Telecommunications and the Partnership.
The management of Telecommunications and the Partnership provided Cruttenden
Roth with a set of projections reflecting current expectations for
Telecommunications and the Partnership results of operations (the
"Telecommunications Case Projections"). Cruttenden Roth performed discounted
cash flow analyses and generated per share equity value ranges based on these
projections. The Telecommunications Case Projections generated a five-year per
share value range of $13.71 to $33.02. The Telecommunications Case Projections
generated a ten-year per share value range of $12.32 to $37.27.
PRO FORMA MERGER ANALYSIS. Using IWL management's financial projections for
1998 with respect to IWL and the Telecommunications Case Projections for 1998
with respect to Telecommunications and the Partnership, and making such other
assumptions it deemed necessary, Cruttenden Roth performed discounted cash flow
analysis on the pro forma forecasted results of operations and compared IWL's
estimated earnings per share ("EPS") for calendar year 1998 both on a
stand-alone basis and assuming consummation of the Transaction. These estimates
assume that each share of Telecommunications Common Stock and the Partnership
Interests will be exchanged for consideration as described in the Merger
Agreement. Based upon the assumptions and estimates relied upon and including
financings and other costs associated with the build out of the combined company
fiber network, Cruttenden Roth noted that the Transaction would not result in
EPS accretion in the near term for current holders of IWL Common Stock and that
the Transaction would most likely have a dilutive effect on earnings per share.
RELATIVE PERFORMANCE ANALYSIS. Using IWL management's financial projections
for 1998 with respect to IWL and the Telecommunications Case Projections for
1998 with respect to Telecommunications and the Partnership, and making such
other assumptions it deemed necessary, Cruttenden Roth compared the actual
results operations for the period ended March 31, 1998 for IWL,
Telecommunications and the Partnership to those results internally forecasted
prior to the announcement date of the proposed Transaction. Cruttenden Roth
considered revised growth rates and revenue and EBITDA variances between the
forecasted and actual results of operations in arriving at its opinion.
Cruttenden Roth is a nationally recognized investment banking firm and, as
part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The IWL Board selected Cruttenden
Roth because of its expertise, reputation and familiarity with IWL in particular
and the telecommunications industry in general and because its investment
banking professionals have substantial experience in transactions similar to the
Transaction.
As compensation for its services in connection with the Transaction, IWL has
agreed to pay Cruttenden Roth a fee for acting as financial advisor in
connection with the Transaction, including rendering its opinion. This fee,
which was determined by IWL and Cruttenden Roth, includes (i) a $25,000 retainer
which was payable upon signing of the engagement letter between IWL and
Cruttenden Roth, dated January 6, 1998, and which is to be credited against the
remainder of the fee to be paid as set forth in (ii) and (iii) below, (ii)
$125,000 payable upon the signing of the Merger Agreement and (iii) $225,000
payable upon the closing the Transaction. In addition, IWL has agreed to
indemnify Cruttenden Roth and
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certain related persons for certain liabilities that may arise out of its
engagement by IWL and the rendering of its services.
In the ordinary course of its business, Cruttenden Roth may actively trade
in IWL Common Stock and Holdings Common Stock for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities. Cruttenden Roth underwrote the initial public
offering of IWL Common Stock which occurred on June 12, 1997 and as a result was
paid commissions of approximately $635,000 and received a non-accountable
expense allowance of approximately $272,000 and received warrants to purchase
145,000 shares of IWL Common Stock at an exercise price per share of $7.20,
subject to adjustment pursuant to the terms of the Warrant Purchase Agreement.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the respective recommendations of the IWL Board, the
Telecommunications Board and the General Partner Board with respect to the
Transaction, the holders of IWL Common Stock, the holders of Telecommunications
Common Stock and the holders of the Partnership Interests should be aware that
certain members of the management of IWL, Telecommunications and the Partnership
have interests in the Transaction that are different from, or in addition to,
the interests of the holders of IWL Common Stock, the holders of
Telecommunications Common Stock and the holders of Partnership Interests
generally.
IWL has entered into agreements with the Partnership to use the
Partnership's network for DS-3s services for five years in three segments in
Texas. The agreement regarding the first segment was entered into in September
1997 and became operative in March 1998, the agreement regarding the second
segment was entered into in September 1997 and became operative in April 1998,
and the agreement regarding the third segment was entered into in October 1997
and became operative in April 1998. The three leases each has a term of not to
exceed 60 months, with monthly payments of approximately $3,000 each, once the
service is initiated. In addition, once the service is initiated, a
telecommunications agreement is entered into for traffic, with charges based
upon the time and location of the traffic.
EMPLOYMENT AGREEMENTS
Pursuant to the terms of the Merger Agreement, upon execution thereof,
Holdings entered into an employment agreement with, among other persons, each of
Jere W. Thompson, Jr., Ignatius W. Leonards, Byron M. Allen, Richard H.
Roberson, Scott L. Roberts, Timothy W. Rogers, and Timothy M. Terrell. In
addition, on May 11, 1998, Holdings entered into an employment agreement with
Kevin W. McAleer (collectively, the "Employment Agreements"). The following is a
summary of the principal terms of the Employment Agreements.
Each of the Employment Agreements is for an initial term of three years,
subject to the right of either party to terminate such agreement upon 30 days'
advance written notice at any time.
Pursuant to their Employment Agreements, Messrs. Thompson and Leonards have
agreed to serve as Chief Executive Officer and President of Holdings,
respectively. Each of Messrs. Thompson and Leonards will receive an annual base
salary of $180,000 and $168,000, respectively, subject to increase upon review
annually by the Board of Directors of Holdings.
Pursuant to their Employment Agreements, Mr. McAleer has agreed to serve as
Senior Vice President and Chief Financial Officer of Holdings, Messrs. Allen,
Roberts, Rogers and Terrell have each agreed to serve as an Executive Vice
President of Holdings and Mr. Roberson has agreed to serve as Controller,
Treasurer and Secretary of Holdings. Messrs. McAleer, Allen, Roberts, Rogers,
Terrell and Roberson will receive annual salaries of $200,000, $125,000,
$133,333, $133,333, $133,333 and $92,000, respectively, in each case subject to
increase upon review annually by the Board of Directors of Holdings.
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Each of the Employment Agreements provides that, at the discretion of the
Holdings Board, each employee may be paid bonus compensation and/or may be
allowed to participate in a management incentive bonus plan should one be
adopted by Holdings. Each of the Employment Agreements also provides for certain
insurance benefits and provides that the employee is eligible to participate in
all retirement and other benefit plans generally available to employees of
Holdings and any equity or other employee benefit plan of Holdings that is
generally available to senior executive officers of such company. In addition,
each of the Employment Agreements provides for certain payments and benefits in
the event the employee is terminated without cause or due to death or permanent
disability.
Each Employment Agreement generally provides that the employee will keep
confidential certain non-public information regarding Holdings and further
provides that, during the period specified therein (generally during the term of
employment and for two years thereafter), the employee will not, subject to
certain exceptions, own, manage, control, or participate in the ownership,
management or control of, or be employed by or otherwise associated with, or
receive compensation from or otherwise engage in, any business in which Holdings
is engaged during such restricted period, including the provision of local and
long distance telecommunications services. The restricted territory under each
Employment Agreement is generally the entire United States but in certain cases
is limited to certain southern states. Each employee further agrees that during
the restricted period he will not (i) solicit or engage the business of any
clients of Holdings or its affiliates or (ii) solicit any employee of Holdings
or its affiliates to terminate any relationship that person may have with
Holdings or its affiliates or engage, employ or compensate any employee of
Holdings or its affiliates.
CAPROCK OWNERS AGREEMENT
Pursuant to the CapRock Owners Agreement dated as of February 16, 1998 (the
"CapRock Owners Agreement"), among IWL, the General Partner, certain of the
shareholders of Telecommunications and each of the partners in the Partnership,
including the General Partner (such shareholders and partners each being called
an "Owner" and collectively called the "Owners"), each Owner agreed, among other
things, to vote (or cause to be voted) the shares in Telecommunications and/or
the Partnership Interests beneficially owned by such Owner, whether theretofore
owned or thereafter acquired (and, if applicable, agreed to grant any required
consents under the limited partnership agreement of the Partnership), (i) in
favor of approval of the Merger Agreement, the Telecommunications Merger and the
Interest Exchange, in each case on the terms and subject to the conditions set
forth in the Merger Agreement, and any actions required in furtherance thereof,
including the issuance of shares of Holding Common Stock in connection with the
Transaction; (ii) against any action or agreement that would result in a breach
in any respect of any covenant, representation or warranty or any other
obligation or agreement of Telecommunications or the Partnership under the
Merger Agreement (after giving effect to any materiality or similar
qualifications contained therein); and (iii) except to the extent the action is
not prohibited to be taken by Telecommunications or the Partnership under the
Merger Agreement or is otherwise agreed to in writing in advance by IWL, against
any action which is intended, or could reasonably be expected, to impede,
interfere with, materially delay or postpone, or materially adversely affect the
Telecommunications Merger, the Interest Exchange or the transactions
contemplated by the CapRock Owners Agreement and the Merger Agreement. The
foregoing agreements contained in the CapRock Owners Agreement are subject to
the condition that such agreements will terminate upon the earlier of the
Closing Date and the termination of the Merger Agreement. As a result of these
provisions of the CapRock Owners Agreement (but subject to the condition
described above), the requisite approval of the Merger Agreement by the holders
of Telecommunications Common Stock and the holders of the Partnership Interests
is assured.
Each Owner has further agreed that, during the period commencing thirty days
prior to the Closing Date and continuing until the first to occur of the Closing
Date and the termination of the Merger Agreement in accordance with its terms,
such Owner shall not, directly or indirectly, except as contemplated by the
Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber,
assign or
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otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
such Owner's shares in Telecommunications and/or interests in the Partnership
or, in either case, any interest therein.
IWL SHAREHOLDERS AGREEMENT
Pursuant to the IWL Shareholders Agreement, dated as of February 16, 1998
(the "IWL Shareholders Agreement"), among Messrs. Leonards and Allen and their
spouses (collectively, the "IWL Shareholders"), Telecommunications, and the
Partnership, each of the IWL Shareholders has agreed, among other things, to
vote (or cause to be voted) the shares of IWL Common Stock held or beneficially
owned by such IWL Shareholder (i) in favor of approval of the Merger Agreement
and any actions required in furtherance thereof, including the issuance of
shares of Holdings Common Stock in connection with the Transaction; (ii) against
any action that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of IWL under the
Merger Agreement (after giving effect to any materiality or similar
qualifications contained therein); and (iii) except to the extent any action is
not prohibited to be taken by IWL under the Merger Agreement or is otherwise
agreed to in writing in advance by Telecommunications or the Partnership,
against any action which is intended, or could reasonably be expected, to
impede, interfere with, materially delay or postpone, or materially adversely
affect the IWL Merger or the transactions contemplated by the IWL Shareholders
Agreement and the Merger Agreement. The foregoing agreement is subject to the
condition that such agreement will terminate upon the earlier of the Closing
Date and the termination of the Merger Agreement. As a result of these
provisions of the IWL Shareholders Agreement (but subject to the condition
described above), the requisite approval of the Merger Agreement by the holders
of IWL Common Stock is assured.
Each of the IWL Shareholders has further agreed that, until the earlier of
the termination of the Merger Agreement and the Closing Date, such IWL
Shareholder will not, directly or indirectly, sell or otherwise transfer any of
its shares of IWL Common Stock.
ACCOUNTING TREATMENT
IWL, Telecommunications and the Partnership expect that the Mergers and the
Interest Exchange will be accounted for using the pooling of interests method of
accounting. The pooling of interests method of accounting assumes that the
combining companies were merged from inception and the historical financial
statements for the periods prior to consummation of the Mergers and the Interest
Exchange are restated as though the companies had been combined from inception
subject to certain adjustments. It is a condition to closing that IWL,
Telecommunications and the Partnership shall each have received from KPMG Peat
Marwick LLP, their independent auditors, letters, dated the date of or shortly
prior to the Closing Date, stating its opinion that the Mergers and the Interest
Exchange all qualify for pooling of interests accounting treatment. See "The
Transaction--Accounting Treatment."
The unaudited pro forma financial information contained in this Joint Proxy
Statement/Prospectus has been prepared using the pooling of interests accounting
method to account for the Mergers and the Interest Exchange. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGERS
In connection with the preparation of this Joint Proxy Statement/Prospectus,
Munsch Hardt has delivered to IWL an opinion and Hughes & Luce has delivered to
Telecommunications an opinion, regarding the material federal income tax
consequences of the Transaction. Copies of these opinions are filed as exhibits
to the Registration Statement. The following discussion is a summary of the
opinion of Munsch Hardt as to the material United States federal income tax
consequences of the IWL Merger and a summary of the opinion of Hughes & Luce as
to the material United States federal income tax
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consequences of the Telecommunications Merger. The following discussion is based
on the Code, the final, proposed and temporary Treasury regulations promulgated
thereunder, administrative rulings and interpretations, and judicial decisions,
in each case as in effect as of the date hereof. All of the foregoing are
subject to change at any time, possibly with retroactive effect. The discussion
set forth below does not address all aspects of federal income taxation that may
be relevant to a shareholder in light of such shareholder's particular
circumstances or to shareholders subject to special rules under the federal
income tax laws, such as non-United States persons, financial institutions,
tax-exempt organizations, insurance companies, dealers in securities or
shareholders who acquired their IWL or Telecommunications shares pursuant to the
exercise of employee stock options or otherwise as compensation, nor any
consequences arising under the laws of any state, locality or foreign
jurisdiction. This discussion assumes that holders of IWL Common Stock and
holders of Telecommunications Common Stock hold their respective shares of stock
as capital assets within the meaning of Section 1221 of the Code.
None of IWL, Telecommunications, the Partnership or Holdings intends to
secure a ruling from the Internal Revenue Service with respect to the tax
consequences of the Transaction. It is a condition to the obligation of IWL to
consummate the Transaction that IWL shall have received an updated opinion from
Munsch Hardt as of the Closing Date that no gain or loss will be recognized by
Holdings, IWL or I-Sub as a result of the Merger of I-Sub with and into IWL in
the IWL Merger and that no gain or loss will be recognized by holders of IWL
Common Stock as a result of the IWL Merger. It is a condition to the obligation
of Telecommunications and the Partnership to consummate the Transaction that
Telecommunications shall have received an updated opinion from Hughes & Luce as
of the Closing Date that no gain or loss will be recognized by Holdings,
Telecommunications or C-Sub as a result of the Merger of C-Sub with and into
Telecommunications in the Telecommunications Merger, no gain or loss will be
recognized by holders of Telecommunications Common Stock as a result of the
Telecommunications Merger and no gain or loss will be recognized by the Partners
as a result of the Interest Exchange. The updated tax opinions from Munsch Hardt
and Hughes & Luce as of the Closing Date will update the tax opinions filed with
the Registration Statement. Receipt of such updated tax opinions are waivable
conditions of the Merger Agreement although such waivers are not anticipated to
be granted and are likely to not be allowed under the Indenture for the Notes
without the consent of the holders of a majority of the Notes. If such
conditions are waived, the parties would amend the Registration Statement and
resolicit votes for the Transaction. The opinions of Munsch Hardt and Hughes &
Luce referred to in this section will be based on facts existing at the date
hereof and at the Closing Date. In rendering the opinions of counsel referred to
in this section, Munsch Hardt and Hughes & Luce assume the absence of changes in
existing facts and will rely on representations and covenants made by Holdings,
IWL, Telecommunications and the Partnership and others.
TAX IMPLICATIONS TO IWL SHAREHOLDERS, HOLDINGS, IWL AND I-SUB. The opinion
of Munsch Hardt states that the material federal income tax consequences of the
Transaction to holders of IWL Common Stock, Holdings, IWL, and I-Sub are as
follows: (i) no gain or loss will be recognized for federal income tax purposes
by holders of IWL Common Stock who exchange their IWL Common Stock for Holdings
Common Stock pursuant to the IWL Merger, (ii) the aggregate tax basis of
Holdings Common Stock received as a result of the IWL Merger will be the same as
the shareholder's aggregate tax basis in the IWL Common Stock surrendered in the
exchange, (iii) the holding period of the Holdings Common Stock held by former
holders of IWL Common Stock as a result of the exchange will include the period
during which such shareholders held the IWL Common Stock exchanged, and (iv) no
gain or loss will be recognized for federal income tax purposes by Holdings, IWL
or I-Sub as a result of the formation of Holdings or I-Sub or as a result of the
IWL Merger.
TAX IMPLICATIONS TO TELECOMMUNICATIONS SHAREHOLDERS, HOLDINGS,
TELECOMMUNICATIONS AND C-SUB. The opinion of Hughes & Luce states that the
material federal income tax consequences of the Transaction to holders of
Telecommunications Common Stock, Holdings, Telecommunications, and C-Sub are as
follows: (i) no gain or loss will be recognized for federal income tax purposes
by holders of Telecommunications
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Common Stock as a result of the Telecommunications Merger, (ii) the aggregate
tax basis of Holdings Common Stock received as a result of the
Telecommunications Merger will be the same as the shareholder's aggregate tax
basis in the Telecommunications Common Stock surrendered in the exchange, (iii)
the holding period of the Holdings Common Stock held by former holders of
Telecommunications Common Stock as a result of the exchange will include the
period during which such shareholder held the Telecommunications Common Stock
exchanged, and (iv) no gain or loss will be recognized for federal income tax
purposes by Holdings, Telecommunications or C-Sub as a result of the formation
of Holdings, C-Sub and the Telecommunications Merger. Under current law, the
holding period required for taxation of long-term capital gains at a maximum
rate of twenty-percent (20%) is more than eighteen (18) months. However, the
House of Representatives and the Senate recently passed legislation (the
"Proposed Tax Legislation") which, if signed by the President, would reduce the
holding period required for application of the 20% rate to more than one year
from more than 18 months for all investments sold on or after January 1, 1998.
There can be no assurance that the Proposed Tax Legislation will in fact be
enacted into law.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE TRANSACTION, INCLUDING THE APPLICABILITY AND EFFECT
OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS AND THE EFFECT OF ANY PROPOSED
CHANGES IN THE TAX LAWS.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE INTEREST EXCHANGE
In connection with the preparation of this Joint Proxy Statement/Prospectus,
Hughes & Luce has delivered to the Partnership an opinion regarding the material
federal income tax consequences of the Interest Exchange. A copy of this opinion
is filed as an exhibit to the Registration Statement. The following discussion
is a summary of the opinion of Hughes & Luce as to the material United States
federal income tax consequences of the Interest Exchange. The following
discussion is based on the provisions of the Code, the final, proposed and
temporary Treasury regulations promulgated thereunder, administrative rulings
and interpretations, and judicial decisions, in each case as in effect as of the
date hereof. All of the foregoing are subject to change at any time, possibly
with retroactive effect. The discussion set forth below does not address all
aspects of federal income taxation that may be relevant to a holder of a
Partnership Interest (a "Partner") in light of such Partner's particular
circumstances or to Partners subject to special rules under the federal income
tax laws, such as non-United States persons, financial institutions, tax-exempt
organizations, insurance companies, dealers in securities or Partners who
acquired their Partnership Interest pursuant to the exercise of employee equity
options or otherwise as compensation, nor any consequences arising under the
laws of any state, locality or foreign jurisdiction. This discussion assumes
that Partners hold their Partnership Interest as a capital asset within the
meaning of Section 1221 of the Code.
None of the Partnership, the General Partner or Holdings intends to secure a
ruling from the Internal Revenue Service with respect to the tax consequences of
the Interest Exchange. It is a condition to the obligation of the Partnership to
consummate the Interest Exchange that the Partnership shall have received an
updated opinion from Hughes & Luce as of the Closing Date that no gain or loss
will be recognized for federal income tax purposes by the Partners upon their
exchange of Partnership Interests for shares of Holdings Common Stock pursuant
to the Interest Exchange. The updated tax opinions from Hughes & Luce as of the
Closing Date will update the tax opinions filed with the Registration Statement.
Receipt of such updated tax opinions are waivable conditions of the Merger
Agreement although such waivers are not anticipated to be granted and are likely
to not be allowed under the Indenture for the Notes without the consent of the
holders of a majority of the Notes. If such conditions are waived, the parties
would amend the Registration Statement and resolicit votes for the Transaction.
The opinions of Hughes & Luce referred to in this section will be based on facts
existing at the date hereof and at the Closing Date. In rendering the opinion of
counsel referred to in this section, Hughes & Luce will assume
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the absence of changes in existing facts and will rely on representations and
covenants made by Holdings, IWL, Telecommunications and the Partnership and
others. Among other representations and assumptions, the opinion of Hughes &
Luce as of the date hereof relies, and the opinion of Hughes & Luce on the
Closing Date will rely, on (i) representations from IWL, Telecommunications and
the Partnership that they have no knowledge of contracts entered into by the
holders of IWL Common Stock, the holders of Telecommunications Common Stock, or
the Partners to sell Holdings Common Stock that would cause them as a group not
to have control of Holdings (as defined in Section 368(c) of the Code)
immediately after the Closing Date and (ii) the assumption that any such
contracts are not of an aggregate magnitude that would cause the holders of IWL
Common Stock, the holders of Telecommunications Common Stock, or the Partners as
a group not to have control of Holdings (as defined in Section 368(c) of the
Code) immediately after the Closing Date.
PRE-INTEREST EXCHANGE OPERATIONS OF THE PARTNERSHIP. The Partnership has
elected for federal income tax purposes to be taxed as a corporation as of
January 1, 1998. Although this election does not change the Partnership's
characterization as a partnership for state law purposes, the Partnership will
be regarded as a corporation for all federal income tax purposes as of such
time. Consequently, as of January 1, 1998, the Partnership itself will be
subject to the federal corporate income tax, and the Partnership's income and
deductions will no longer be allocated among and reported by the Partners.
TAX IMPLICATIONS TO PARTNERS. The opinion of Hughes & Luce states that the
material federal income tax consequences of the Transaction to a Partner who
receives shares of Holdings Common Stock as a result of the Interest Exchange
are as follows: (i) no gain or loss will be recognized for federal income tax
purposes by the Partners who exchange their Partnership Interests for Holdings
Common Stock, (ii) a Partner's aggregate tax basis in all shares of Holdings
Common Stock received in the Interest Exchange will equal the Partner's
aggregate tax basis in the Partner's Partnership Interest, and (iii) a Partner's
holding period for the Holdings Common Stock received in the Interest Exchange
will include the holding period of the Partnership Interest surrendered in
exchange therefor. Under current law, the holding period required for taxation
of long-term capital gains at a maximum rate of twenty-percent (20%) is more
than eighteen (18) months. However, the House of Representatives and the Senate
recently passed the Proposed Tax Legislation (as defined above) which, if signed
by the President, would reduce the holding period required for application of
the 20% rate to more than one year from more than 18 months for all investments
sold on or after January 1, 1998. There can be no assurance that the Proposed
Tax Legislation will in fact be enacted into law.
PARTNERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE INTEREST EXCHANGE, INCLUDING THE APPLICABILITY AND
EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS AND THE EFFECT OF ANY
PROPOSED CHANGES IN THE TAX LAWS.
REGULATORY APPROVALS
STATE AND FEDERAL REGULATORY APPROVALS. The Transaction is also subject to
certain other state and federal regulatory approvals. It is expected that the
Transaction will require prior approval by the appropriate telecommunications
agencies, commonly known as public service commissions or public utility
commissions, governing telecommunications services (the "State Commissions") in
approximately four states. All such approvals have been obtained. Although the
Transaction does not require approval of the State Commissions in the other
states, notice of the Transaction has been filed with certain of those State
Commissions. The governing legal standard varies from state to state, but
approval of the Transaction generally requires a showing that it is consistent
with the public interest.
IWL and Telecommunications each hold global authority from the FCC to
provide resale of switched services, and IWL holds global authority from the FCC
to provide private line and facilities-based services.
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IWL and Telecommunications each maintain an international tariff on file with
the FCC. As a result, the Transaction will require the prior approval of the
FCC, which has been obtained.
NASDAQ LISTING
Holdings has applied for the listing of Holdings Common Stock on the Nasdaq
National Market and anticipates that its shares will trade on the Nasdaq
National Market, upon official notice of issuance, under the symbol "CPRK." It
is a condition to the Mergers and the Interest Exchange that the shares of
Holdings Common Stock issuable in the Mergers and the Interest Exchange be
approved for listing on the Nasdaq National Market.
DELISTING AND DEREGISTRATION OF IWL COMMON STOCK; CESSATION OF PERIODIC
REPORTING
If the Transaction is consummated, IWL Common Stock will cease to be listed
on the Nasdaq National Market. In such event, IWL intends to apply to the
Commission for the deregistration of such securities.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Holdings Common Stock received by holders of IWL Common Stock,
holders of Telecommunications Common Stock and holders of Partnership Interests
in the Mergers and the Interest Exchange will be freely transferable, except
that shares of Holdings Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of IWL,
Telecommunications or the Partnership prior to the Transaction may be resold by
them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of Holdings) or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of IWL,
Telecommunications, the Partnership or Holdings generally include individuals or
entities that control, are controlled by, or are under common control with, such
party and may include certain officers and directors of such party as well as
principal shareholders of such party. Each affiliate of IWL, Telecommunications
and the Partnership has agreed that such person will not offer or sell or
otherwise dispose of any of the shares of Holdings Common Stock issued to such
person in the Transaction in violation of the Securities Act or the rules and
regulations promulgated thereunder.
APPRAISAL RIGHTS
Article 5.11 of the TBCA provides for appraisal rights in the case of a plan
of merger or exchange or a sale of all or substantially all of the corporation's
assets where shareholder approval is required. No appraisal rights are available
for a plan of merger or plan of exchange if (i) the shares of the corporation
held by the shareholder are listed on a national securities exchange or on the
Nasdaq Stock Market or are held of record by not less than 2,000 holders and
(ii) the shareholder is not required to accept any consideration that is
different than the consideration (other than cash in lieu of fractional shares)
to be provided to any other holder of shares of the same class of shares held by
the shareholder, (iii) the shareholder is not required to accept any
consideration other than (a) shares of a corporation that will be listed or
authorized for listing upon official notice of issuance on a national securities
exchange or approved for quotation as a national market security by the NASD or
will be held of record by not less than 2,000 holders and (b) cash in lieu of
fractional shares. Accordingly, holders of Telecommunications Common Stock will
be entitled to appraisal rights in the Telecommunications Merger, but holders of
IWL Common Stock will not be entitled to appraisal rights in the IWL Merger.
Set forth below is a summary of the procedures relating to the exercise of
the right to dissent as provided in the TBCA. The summary does not purport to be
complete and is qualified in its entirety by reference to Articles 5.11, 5.12
and 5.13 of the TBCA, copies of which are attached hereto as Appendix
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V. FAILURE TO COMPLY WITH ANY OF THE REQUIRED STEPS MAY RESULT IN TERMINATION OF
A SHAREHOLDER'S RIGHT TO DISSENT.
Each Telecommunications shareholder has a right to dissent which can be
exercised only by complying with the following procedures: (i) with respect to
the proposal to approve the Merger Agreement that is being submitted to a vote
of the Telecommunications shareholders at the Telecommunications Special
Meeting, the shareholder must file with Telecommunications, prior to the
Telecommunications Special Meeting, a written objection to the Merger Agreement,
setting out that the shareholder's right to dissent will be exercised if the
Telecommunications Merger is effected and giving the shareholder's address to
which notice thereof shall be delivered or mailed in the event that the
Telecommunications Merger is effected; and (ii) if the Telecommunications Merger
is effected and the shareholder shall not have voted in favor of the Merger
Agreement, Holdings shall, within ten days after the Telecommunications Merger
is effective, deliver or mail to the shareholder written notice that the
Telecommunications Merger has been effected, and the shareholder may, within ten
days from the delivery or mailing of the notice, make written demand on Holdings
for payment of the fair value of the shareholder's shares of Telecommunications
Common Stock.
A shareholder who votes in favor of the Merger Agreement will be deemed to
have waived the right to dissent. However, as described above, a vote against
the Merger Agreement alone will not satisfy the requirements of the TBCA
relative to the right to dissent.
The fair value of the Telecommunications Common Stock shall be the value
thereof as of the day immediately preceding the Telecommunications Special
Meeting, excluding any appreciation or depreciation in anticipation of the
Telecommunications Merger. The demand shall state the number of shares of
Telecommunications Common Stock owned by the shareholder and the fair value of
such shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten-day period shall be bound by the Merger Agreement and the
Telecommunications Merger. Within twenty days after demanding payment for his
shares, each holder of certificates formerly representing shares of
Telecommunications Common Stock so demanding payment shall submit such
certificates to Telecommunications for notation thereon that such demand has
been made. The failure of a holder of such certificates to do so shall, at the
option of Telecommunications, terminate such shareholder's rights to dissent,
unless a court of competent jurisdiction for good and sufficient cause shown
shall otherwise direct.
Any shareholder who has demanded payment for shares in accordance with the
TBCA shall not thereafter be entitled to vote or exercise any other rights of a
shareholder except the right to receive payment for such holder's shares of
Telecommunications Common Stock in accordance with the TBCA and the right to
maintain an appropriate action to obtain relief on the ground that the
Telecommunications Merger would be or was fraudulent. The respective shares of
Telecommunications Common Stock for which payment has been properly demanded
shall not thereafter be considered outstanding for the purposes of any
subsequent vote of Telecommunications shareholders.
Within 20 days after receipt by Holdings of a demand for payment made by a
dissenting shareholder, Holdings shall deliver or mail to the dissenting
shareholder a written notice that shall either: (i) state that Holdings accepts
the amount claimed in the demand and agrees to pay that amount within 90 days
after the date on which the Telecommunications Merger was effected, upon the
surrender of the share certificates duly endorsed, or (ii) contain an estimate
by Holdings of the fair value of the shares of Telecommunications Common Stock,
together with an offer to pay the amount of that estimate within 90 days after
the date on which the Telecommunications Merger was effected, upon receipt of
notice within 60 days after that date from the shareholder that the shareholder
agrees to accept that amount, upon the surrender of the certificates duly
endorsed.
If, within 60 days after the date on which the Telecommunications Merger was
effected, the value of the shares of Telecommunications Common Stock is agreed
upon between the shareholder and Holdings, payment for the shares shall be made
within 90 days after the date on which the Telecommunications
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Merger was effected and, in the case of shares represented by certificates, upon
surrender of the share certificates duly endorsed.
If, within the period of 60 days after the date on which the
Telecommunications Merger was effected, the dissenting shareholder and Holdings
do not so agree, then the shareholder or Holdings may, within 60 days after the
expiration of such 60 day period, file a petition in any court of competent
jurisdiction in Dallas County, Texas asking for a finding and determination of
the fair value of the shareholder's shares of Telecommunications Common Stock.
The clerk of the court shall give notice of the time and place fixed for the
hearing of the petition by registered mail to Holdings and to the shareholders
who have demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by Telecommunications. Holdings and
all Telecommunications shareholders so notified shall be bound by the final
judgment of such court.
After the hearing on the petition, the court shall determine the
shareholders who have complied with the provisions of Article 5.12 of the TBCA
and have become entitled to the valuation of and payment for their shares and
shall appoint one or more qualified appraisers to determine that value. In
addition to having the power to examine the books and records of
Telecommunications, the appraisers shall afford a reasonable opportunity to the
interested parties to submit to the appraisers pertinent evidence as to the
value of the shares of Telecommunications Common Stock.
The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the court clerk.
Notice of the filing of the report shall be given by the clerk to the parties in
interest. The report shall be subject to exceptions to be heard before the court
both upon the law and the facts. The court shall by its judgment determine the
fair value of the shares of the shareholders entitled to payment for their
shares and shall direct the payment of that value by Holdings together with
interest thereon, beginning 91 days after the date on which the
Telecommunications Merger was effected to the date of such judgment, to the
shareholders entitled to payment. The judgment shall be payable to the holders
of shares represented by certificates only upon, and simultaneously with, the
surrender to Holdings of duly endorsed certificates for those shares. Upon
payment of the judgment, the dissenting shareholders shall cease to have any
interest in those shares or in Telecommunications. The court shall allow the
appraisers a reasonable fee as court costs, and all costs shall be allocated
between the parties in the manner that the court determines to be fair and
equitable.
Pursuant to the Merger Agreement, Telecommunications shareholders exercising
their right to dissent under the TBCA will be entitled to payment solely out of
the historic assets of Telecommunications.
Any Telecommunications Common Stock held by a Telecommunications shareholder
who ultimately receives payment for such Telecommunications Common Stock
pursuant to Article 5.11 through 5.13 of the TBCA will not be converted into
Holdings Common Stock pursuant to the Merger Agreement, and the holder thereof
will only be entitled to such rights as are granted by the TBCA.
Any shareholder who has demanded payment for shares of Telecommunications
Common Stock in accordance with the TBCA may withdraw such demand at any time
before payment for such holder's shares or before any petition has been filed
pursuant to the TBCA asking for a finding and determination of the fair value of
such shares, but no such demand may be withdrawn after such payment has been
made or, unless Holdings shall consent thereto, after any such petition has been
filed. However, if: (i) such demand shall be withdrawn as described above, (ii)
pursuant to the TBCA, Telecommunications shall terminate the shareholder's
rights to dissent under the TBCA, (iii) no petition asking for a finding and
determination of fair value of such shares of Telecommunications Common Stock by
a court shall have been filed within the time provided in the TBCA or (iv) after
the hearing of a petition filed pursuant to the TBCA, the court shall determine
that a shareholder is not entitled to the relief provided by the TBCA, then, in
any such case, such shareholder and all persons claiming under such shareholder
shall be
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conclusively presumed to have approved and ratified the Telecommunications
Merger and shall be bound thereby, the right of such shareholder to be paid the
fair value of such holder's shares shall cease.
If after the Telecommunications Merger Effective Time a dissenter loses the
right to receive payment pursuant to Articles 5.11 through 5.13 of the TBCA,
then upon the occurrence of such event, such holder's shares will automatically
be converted into Holdings Common Stock effective as of the Telecommunications
Merger Effective Time, without prejudice to any corporate proceedings which may
have been taken during the interim period between the Telecommunications Merger
Effective Time and the occurrence of such event, and such shareholder will be
entitled to receive any dividends or other distributions made to Holdings
shareholders during such interim period.
Exercise of the right to dissent under the TBCA, if such right is available,
may result in a judicial determination that the "fair value" of a dissenting
shareholder's shares of Telecommunications Common Stock is higher or lower than
the value of the consideration to be received pursuant to the Merger Agreement.
In general, a dissenting shareholder receiving cash for Telecommunications
shares pursuant to the exercise of appraisal rights will recognize gain or loss
for federal income tax purposes upon receipt of the payment of the cash. See
"--Certain United States Federal Income Tax Consequences of the Mergers."
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BUSINESS OF HOLDINGS
Holdings is a Texas corporation that was formed on February 3, 1998 to be a
holding company for IWL, Telecommunications and the Partnership and their
respective subsidiaries following the consummation of the Mergers and the
Interest Exchange. Prior to the consummation of the Transaction, Holdings has
had and will have no operations other than those incident to its formation, its
execution of the Merger Agreement, the preparation of this Joint Proxy
Statement/Prospectus and the incurrence of indebtedness under the Notes. See
"Issuance of Notes." Holdings currently has no operations and nominal or no
assets and liabilities (other than the Notes), and, unless the context otherwise
requires, all discussions herein of the historical and planned business
operations and strategy of Holdings assumes, on a pro forma basis, that the
proposed business combination to be effected by the Mergers and Interest
Exchange has been consummated. On such pro forma basis, Holdings would have had
1997 revenues and net income of approximately $75.3 million and $2.6 million,
respectively. Prior to the mailing of this Joint Proxy Statement/Prospectus,
Holdings, which was incorporated as "IWL Holdings Corp.," changed its name to
"CapRock Communications Corp." and, in connection therewith, Telecommunications
changed its name from "CapRock Communications Corp." to "CapRock
Telecommunications Corp."
Holdings intends to become the leading facilities-based ICP in Texas and the
Gulf Coast region. The combined businesses will offer a complete suite of
telecommunications services including local, long distance, Internet, data and
private line services to small and medium-sized businesses. Holdings will also
provide switched and dedicated access, regional and international long distance,
private lines and dark fiber to carrier customers. Holdings believes the
Transaction will enable it to significantly accelerate the implementation of its
business plan and to more rapidly achieve its business objectives by: (i)
enhancing its revenue opportunities by leveraging the existing and planned fiber
and switching network infrastructure of each company to offer voice, data, and
broadband services in markets geographically clustered along or near the
Company's infrastructure, (ii) creating greater organizational depth through the
combination of the sales, customer service and networking strengths of
Telecommunications with the technological, project management and last mile
distribution expertise of IWL and the fiber network construction and operational
expertise of the Partnership, (iii) providing the opportunity to cross-sell its
products and provide single source onshore and offshore communications solutions
to IWL's existing base of oil and gas customers and to Telecommunications'
existing base of business and carrier customers throughout Texas and the Gulf
Coast region, (iv) capitalizing on international revenue opportunities through
the combination of Telecommunications' customer base, the Partnership's planned
network and IWL's relationships with foreign regulators and communications
providers and (v) reducing the combined capital expenditures of the three
companies through the construction of a single communications infrastructure.
BUSINESS STRATEGY
Holdings' business objectives are (i) to become the leading ICP in Texas and
the Gulf Coast region, offering local, long distance, data and private line
services to end-user customers, (ii) to establish itself as the premier
carriers' carrier in Texas and the Gulf Coast region, providing voice, data and
broadband services over the most extensive alternative fiber optic network in
Texas and the Gulf Coast region, and (iii) to capitalize on the growing
opportunities to provide international long distance and international project
services. To achieve these objectives, Holdings intends to:
BECOME A SINGLE SOURCE PROVIDER OF COMMUNICATIONS AND NETWORK INTEGRATION
SERVICES. Holdings believes that there is significant demand among small and
medium-sized business customers in its target markets for an integrated package
of communications services and equipment tailored to satisfy the customer's
total communications needs. Holdings intends to offer its customers local,
domestic and international long distance, data (including ATM, frame relay,
digital subscriber line and Internet) and broadband (including T-1/E-1, DS-3,
OC-N and dark fiber) services. Holdings believes that its ability to provide an
integrated package of communications services, to provide, install and maintain
a broad range of communications equipment and to invoice these services on a
single, convergent bill will enable it to
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rapidly penetrate its targeted markets, capture virtually all of its customers'
expenditures for telecommunications services and equipment, increase customer
satisfaction and reduce customer turnover.
STRATEGICALLY BUILD OUT ITS REGIONAL FIBER NETWORK. Holdings intends to
expand the Partnership's fiber optic network to approximately 4,300 route miles
throughout Texas and the Gulf Coast region. Holdings' fiber optic backbone will
provide it with a platform to offer an integrated package of voice, data and
broadband services, as well as to access primary, secondary and tertiary cities
and the tandems of ILECs throughout Texas and the Gulf Coast region. The
Partnership owns and operates 260 route miles of fiber network in Texas
extending from Houston to Victoria and Corpus Christi, and is currently
constructing an additional 500 route miles in Texas from San Antonio to Laredo,
McAllen, Harlingen, Brownsville and Corpus Christi. The completion of Holdings'
network will allow it to originate and terminate most of its customers voice and
data traffic within the region on-net, dramatically increase its available
broadband capacity and link together more markets than other competitive
providers of communications services in the region.
OFFER DATA, INTERNET AND ENHANCED SERVICES TO ACCELERATE MARKET PENETRATION
AND MINIMIZE POTENTIAL CHURN. Data services represent one of the fastest
growing product segments in the communications industry. Holdings believes it
can accelerate new account penetration and minimize potential customer turnover
by offering LAN interconnections, frame relay, ATM, Internet services, ISDN,
DSL, Web page design, Web server hosting, and other enhanced services not
generally available or from the ILECs (or available only at prices higher than
those Holdings intends to charge). Holdings intends to leverage its expertise in
providing data services by targeting small and medium-sized business customers,
as well as data-intensive and multi-point customers, such as banks, financial
institutions and health care providers.
BUILD MARKET SHARE THROUGH PERSONALIZED SALES AND CUSTOMER
SERVICE. Holdings believes the most effective method of acquiring and retaining
a high quality customer base is through a consultative, face-to-face sales
process to develop creative solutions and respond rapidly to customers'
communications needs, as well as providing superior and personalized customer
service. Holdings believes that small and medium-sized business customers in its
target markets have been neglected by the ILECs with respect to these
approaches. Holdings intends to significantly increase the size of its direct
and agent sales forces over the next three years.
DEVELOP EFFICIENT AUTOMATED BACK OFFICE SYSTEMS. Holdings will handle its
provisioning, customer care, convergent billing and traffic reporting functions
on a proprietary software platform currently being developed by RiverRock, a
limited partnership in which Telecommunications is a limited partner. These OSS
and other back office systems are required to enter, schedule and track a
customer's order from the point of sale to the installation and testing of
service. These systems also include or interface with trouble management,
inventory, billing, collection and customer service systems. The system is
scalable and flexible to support Holdings' expected future back office
requirements. The system, when fully implemented, will enable Holdings to: (i)
minimize the time to initiate local and long distance services for new customers
internally and through the ILEC (commonly referred to as provisioning), (ii)
provide detailed and customized customer billing information, (iii) respond
quickly to customers' needs and information requests, and (iv) monitor and
analyze traffic, financial and operating trends. Holdings believes that this
system, when fully implemented, will provide a significant competitive advantage
in terms of cost, ability to process large order volumes, and customer service
as compared to ILECs using legacy systems and CLECs that outsource back-office
services or that do not have an advanced OSS platform.
EXPAND INTERNATIONAL SERVICE OFFERINGS. Holdings believes that it can
leverage IWL's existing international commercial relationships, regulatory
expertise and points of presence in Texas, Russia and Scotland with
Telecommunications' extensive relationships with domestic carriers to
significantly increase Holdings' international traffic.
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PURSUE ACQUISITIONS AND STRATEGIC ALLIANCES. In Holdings' target markets, a
large number of small private companies provide local and long distance
services, data services, Internet services, and telecommunications equipment.
This fragmentation creates numerous opportunities for Holdings to acquire
industry participants that can provide technical support, management talent,
customers and product extensions and could enable Holdings to accelerate the
implementation of its business plan. Holdings also intends to pursue strategic
relationships with utilities, state transportation departments and other
governmental authorities. As part of its growth plan, Holdings has been
discussing and continues to discuss with other companies in its region business
ventures and combinations, including potential mergers and acquisitions. In
connection with these discussions, Holdings currently has obtained an option to
acquire a minority interest in a Texas-based CLEC. Discussions are in a
preliminary stage, and no assurance can be given as to when or if such
investment will be made.
LEVERAGE ITS EXPERIENCED MANAGEMENT TEAM. Holdings' management team will
include individuals with significant experience in the deployment and marketing
of communications services. Jere W. Thompson, Jr., President of
Telecommunications and Chief Executive Officer of Holdings, founded the
Partnership in 1992. Ignatius W. Leonards, Chief Executive Officer of IWL and
President of Holdings, founded IWL in 1981 and has over 23 years of experience
in the telecommunications industry. Timothy W. Rogers, Timothy M. Terrell and
Scott L. Roberts, each Executive Vice Presidents of Telecommunications and
Holdings founded Telecommunications in 1991 and have a combined 33 years of
telecommunications experience working at Sprint, Qwest and Telecommunications in
carrier and commercial sales. Byron M. Allen, President of IWL and an Executive
Vice President of Holdings, has five years of experience in the domestic and
international telecommunications industry, and Kevin W. McAleer, Holding's Chief
Financial Officer, has over 16 years of experience as the chief financial
officer of publicly-held companies.
DIRECTORS AND MANAGEMENT OF HOLDINGS
DIRECTORS
BOARD. It is expected that, following the consummation of the Transaction,
the Board of Directors of Holdings will consist of Jere W. Thompson, Jr.,
Ignatius W. Leonards, Byron M. Allen, Mark Langdale, Timothy W. Rogers, one
outside director designated by IWL (who will initially be Christopher J.
Amenson) and one outside director designated by Telecommunications (who will
initially be John R. Harris), provided that IWL and Telecommunications each has
the right to veto the other's designee. The Merger Agreement provides that
Holdings will use commercially reasonable efforts to cause its board of
directors to consist of Ignatius W. Leonards, Byron M. Allen, Jere W. Thompson,
Jr., Mark Langdale, Tim Rogers and one outside director designated by IWL and
one by Telecommunications.
COMMITTEES OF HOLDINGS
The Holdings Board has established a Compensation Committee ("Holdings
Compensation Committee") consisting of Christopher J. Amenson and, effective
upon consummation of the Transaction, John R. Harris. All members of the
Holdings Compensation Committee will be "Non-Employee Directors" within the
meaning of Rule 16b-3 of the Exchange Act and "outside directors" within the
meaning of Section 162(m) of the Code. The Holdings Compensation Committee will
be responsible for establishing salaries, bonuses, and other compensation for
Holdings' executive officers and for administering the Equity Incentive Plan
(including granting options and other awards and setting the terms thereof
pursuant to such plan) and Holdings' other executive compensation plans and
programs. In the event that at any time any member of the Holdings Compensation
Committee fails to qualify as a "Non-Employee Director" within the meaning of
Rule 16b-3 under the Exchange Act, the entire Holdings Board will also approve
stock option grants and other awards.
The Holdings Board has established an audit committee consisting of
Christopher J. Amenson and, effective upon consummation of the Transaction, John
R. Harris. The audit committee will be responsible
81
<PAGE>
for reviewing Holdings' annual audit and meeting with Holdings' independent
accountants to review Holdings' internal controls and financial management
practices.
DIRECTORS AND OFFICERS
Directors who are employees of Holdings or its subsidiaries will not receive
any compensation for service on the Holdings Board, but will be reimbursed by
Holdings for expenses incurred in attending meetings of the Holdings Board or
any committees thereof. In order to more closely align the interests of
directors and shareholders, non-employee directors of Holdings will be eligible
to participate in the Director Stock Option Plan, pursuant to which each will be
eligible to receive Nonqualified Options. See "The Plan Proposals--The Director
Stock Option Plan."
The directors and the senior management team of Holdings is expected to be
comprised of the following individuals, upon consummation of the Transaction,
many of whom are currently officers and/or directors of IWL or
Telecommunications:
<TABLE>
<CAPTION>
<S> <C>
Jere W. Thompson, Jr.................................... Chairman of the Board, Chief Executive Officer and
Director
Ignatius W. Leonards.................................... Vice Chairman of the Board, President and Director
Kevin W. McAleer........................................ Senior Vice President and Chief Financial Officer
Byron M. Allen.......................................... Executive Vice President and Director
Timothy M. Terrell...................................... Executive Vice President
Timothy W. Rogers....................................... Executive Vice President and Director
Scott L. Roberts........................................ Executive Vice President
Richard H. Roberson..................................... Controller, Treasurer and Secretary
Mark Langdale........................................... Director
Christopher J. Amenson.................................. Director
John R. Harris.......................................... Director Nominee*
</TABLE>
- ------------------------
*Mr. Harris has consented to becoming a director upon consummation of the
Transaction.
The following provides certain information regarding Messrs. McAleer and
Harris as of June 1, 1998:
Mr. Kevin W. McAleer, age 47, has served as Senior Vice President and Chief
Financial Officer of the Company since April 1998. From 1996 to 1998, Mr.
McAleer served as Chief Financial Officer, Secretary and as a member of the
Executive Management Committee of American Pad and Paper Co., one of the largest
manufacturers and marketers of paper-based office products in North America.
From 1990 to 1996, Mr. McAleer served as Executive Vice President, Chief
Financial Officer and as a member of the Executive Management Committee of
Rexene Corporation, which manufactures plastic film and plastic resins. From
1985 to 1990, Mr. McAleer served as Senior Vice President--Administration, Chief
Financial Officer, Secretary and Treasurer, and as a member of the Executive
Management Committee and the Board of Directors of Varo, Inc., which
manufactures electronics supplied primarily to U.S. military agencies, such as
proprietary night vision systems, high-reliability power systems and airborne
missile launchers. From 1981 to 1985, Mr. McAleer served as Vice President
Finance, Chief Financial Officer, Secretary and Treasurer, and as a member of
the Executive Management Committee of Tocom, Inc., which designs and
manufactures high-technology communications products and services for the cable
industry. Mr. McAleer is a certified public accountant and is a member of the
American Institute of Certified Public Accountants and the Texas Society of
Certified Public Accountants. Mr. McAleer has a B.S. in Accounting/ Economics
from LaSalle University in Philadelphia, Pennsylvania.
Mr. John R. Harris, age 49, has been a Corporate Vice President at
Electronic Data Systems Corporation, an information and technology outsourcing
and data processing company ("EDS"), since
82
<PAGE>
1997 where he is responsible for marketing and corporate strategy. From 1989 to
1997, he served as a Vice President of the Communications Industry Group at EDS
where he was responsible for four business units directed toward wirelines,
wireless, media and interactive services. Mr. Harris is on the Board of
Directors of Applied Graphics Technologies, Inc., an independent provider of
digital prepress services. Mr. Harris received his undergraduate and graduate
degrees in business administration from West Georgia University.
For biographical and other information regarding Messrs. Thompson, Terrell,
Rogers, Roberts and Langdale, see "Information Regarding
Telecommunications--Directors and Executive Officers." For biographical and
other information regarding Messrs. Leonards, Allen, Roberson and Amenson, see
"Information Regarding IWL--Directors and Executive Officers."
EXECUTIVE COMPENSATION
For information regarding compensation paid to executive officers of
Telecommunications, the General Partner and IWL in 1997, including the
individuals named above, see "Information Regarding
Telecommunications--Executive Compensation," "Information Regarding the
Partnership--Executive Compensation," and "Information Regarding IWL--Executive
Compensation," respectively. The Holdings Board will rely on the Holdings
Compensation Committee, which will be composed of Non-Employee Directors, to
recommend the form and amount of compensation to be paid to executive officers
of Holdings who do not have an employment agreement with Holdings. For
information regarding employment agreements with certain of the above
individuals, see "The Transaction--Interests of Certain Persons in the
Transaction--Employment Agreements."
OWNERSHIP OF HOLDINGS
There are currently 1,000 shares of Holdings Common Stock outstanding, all
of which are owned by IWL and will be canceled in the IWL Merger. It is
anticipated that, after giving effect to the Transaction, approximately
28,910,222 shares of Holdings Common Stock will be issued and outstanding,
approximately 828,385 additional shares will be reserved for issuance upon the
exercise of options and warrants to acquire IWL Common Stock and
Telecommunications Common Stock assumed by Holdings and approximately 5,400,000
additional shares will be available for issuance in connection with grants made
after the Closing Date under the Equity Incentive Plan and the Director Stock
Option Plan.
The following table sets forth information, concerning the beneficial
ownership of Holdings Common Stock as of May 31, 1998 after giving effect to the
Mergers and the Interest Exchange and assuming all Partnership Interests are
validly tendered and accepted pursuant to the Exchange Offer, by (i) each person
or group of persons known to IWL, Telecommunications or the Partnership expected
to beneficially own more than five percent (5%) of the outstanding shares of
Holdings Common Stock, (ii) each person who is (or, upon consummation of the
Mergers and the Interest Exchange, will be) an executive officer, director or
director nominee of Holdings and (iii) all such executive officers and directors
of Holdings as a group. The information contained in this table with respect to
beneficial ownership reflects "beneficial ownership" as defined in Rule 13d-3
under the Exchange Act, which means generally any person who, directly or
indirectly, has or shares voting power or investment power with respect to a
security. Shares of Holdings Common Stock not outstanding but deemed
beneficially owned by virtue of the right of an individual or group to acquire
such shares within 60 days after May 31, 1998 are treated as outstanding only
when determining the amount and percentage of Holdings Common Stock owned by
such individual or group. All information with respect to the beneficial
ownership of any principal shareholder was furnished by such principal
shareholder and Holdings believes that, except as otherwise noted or pursuant to
community property laws, each shareholder has sole voting and investment power
with respect to shares shown. The address for Messrs. Leonards, Allen and
Roberson is 12000 Aerospace Ave., Suite 200, Houston, Texas
83
<PAGE>
77034. The address for Messrs. Thompson, Rogers, Roberts, Terrell, McAleer,
CapRock Investors and Greenway Holdings, L.P. is Two Galleria Tower, 13455 Noel
Road, Suite 1925, Dallas, Texas 75240.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------------
NUMBER PERCENTAGE
NAME OF SHARES OWNERSHIP
- ---------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Jere W. Thompson, Jr.(2)................................................................ 10,773,897 37.3%
Ignatius W. Leonards(3)................................................................. 1,897,528 6.6%
Byron M. Allen(4)....................................................................... 222,200 *
Timothy W. Rogers....................................................................... 2,883,628 10.0%
Scott L. Roberts........................................................................ 2,883,628 10.0%
Timothy M. Terrell...................................................................... 2,883,628 10.0%
Kevin W. McAleer........................................................................ -- --
Richard H. Roberson(5).................................................................. 3,400 *
Mark Langdale(6)........................................................................ 11,224,352 38.8%
5950 Berkshire, Suite 990
Dallas, TX 75225
Christopher J. Amenson.................................................................. 2,000 *
c/o SBS Technologies, Inc.
2400 Louisiana Blvd., N.E.
AFC Building 5, Suite 600
Albuquerque, NM 87110
Jere W. Thompson, Sr.(7)................................................................ 10,657,169 36.9%
Two Turtle Creek Village
3838 Oak Lawn Ave., Suite 1850
Dallas, TX 75219
Greenway Holdings, L.P.(2).............................................................. 2,014,081 7.0%
CapRock Investors(2).................................................................... 8,650,884 29.9%
All executive officers and directors as a group (ten persons)(8)........................ 24,014,445 83.1%
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of the class.
(1) Based upon 28,910,222 shares of Holdings Common Stock issued and
outstanding.
(2) Represents 8,650,884 shares held of record by CapRock Investors, 108,932
shares held of record of by CapRock Systems, Inc. and 2,014,081 shares held
of record by Greenway Holdings, L.P. CapRock Investors is a Texas joint
venture, of which Jere W. Thompson, Jr. is the managing venturer and in
which he owns a controlling interest. The Joint Venture Agreement of CapRock
Investors grants to Mr. Thompson, Jr. certain authority, including the
authority to decide and cast all votes on behalf of CapRock Investors as a
shareholder of Telecommunications. As a consequence, both CapRock Investors
and Mr. Thompson, Jr. may each be deemed to be the beneficial owner of all
of the shares. CapRock Systems, Inc. is a Texas corporation of which Mr.
Thompson, Jr. owns 50% of the outstanding common stock and is an officer and
a director; as a result he has shared voting, investment, and dispositive
power with respect to the 108,932 shares held by CapRock Systems, Inc.
Greenway Holdings, L.P. is a Texas limited partnership of which Mr.
Thompson, Jr. is the general partner and has sole voting, investment and
dispositive power; as a result, he may be deemed to be the beneficial owner
of all of the shares held of record by Greenway Holdings, L.P.
(3) Includes 6,666 shares held by Ignatius W. Leonards as custodian for minor
children.
84
<PAGE>
(4) Includes 7,300 shares held by Byron M. Allen as custodian for minor children
and 7,300 shares held by Mr. Allen's daughters, the voting, investment and
dispositive power of which are shared by Mr. Allen with his daughters.
(5) Includes 100 shares held by the spouse of Richard H. Roberson and 200 shares
held by Richard H. Roberson as custodian for minor children, the voting,
investment and dispositive power of which are shared by Mr. Roberson with
his spouse. Includes 3,000 shares subject to options exercisable within 60
days of May 31, 1998. Does not include 27,000 shares subject to options not
yet vested.
(6) Includes 8,650,884 shares held of record by CapRock Investors and 108,932
shares held of record of CapRock Systems, Inc. Under the Joint Venture
Agreement of CapRock Investors, the approval of a majority-in-interest of
the venturers is required to approve the disposition of the shares. Because
of the ownership interest of Jere W. Thompson, Jr., Mark Langdale, and Jere
W. Thompson, Sr. (23.5%, 42.5% and 30.9%, respectively), two of the three
acting together can authorize or prevent a disposition of the shares. As a
result, each may be deemed to be the beneficial owner of all of the shares.
CapRock Systems, Inc. is a Texas corporation of which Mr. Langdale owns 50%
of the outstanding common stock and is an officer and a director; as a
result he has shared voting, investment and dispositive power with respect
to the 108,932 shares held by CapRock Systems, Inc.
(7) Includes 1,302,282 shares held of record by The Williamsburg Corporation,
8,650,884 shares held of record by CapRock Investors and 289,677 shares held
of record by Jere W. Thompson, Jr.'s spouse. Under the Joint Venture
Agreement of CapRock Investors, the approval of a majority-in-interest of
the venturers is required to approve the disposition of the shares. Because
of the ownership interest of Jere W. Thompson, Jr., Mark Langdale, and Jere
W. Thompson, Sr., two of the three acting together can authorize or prevent
a disposition of the shares. As a result, each may be deemed to be the
beneficial owner of all of the shares. The Williamsburg Corporation is a
Texas corporation, of which Mr. Thompson, Sr. is the president and a
director; as a result he has shared voting, investment, and dispositive
power with respect to the 1,302,282 shares held by The Williamsburg
Corporation.
(8) Includes 3,000 shares subject to options exercisable within 60 days of May
31, 1998 granted to the executive officers of Holdings as a group.
85
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
IWL consummated the initial public offering of its common stock in June
1997, and the IWL Common Stock has been listed on the Nasdaq National Market
since June 1997 under the symbol "IWLC." There is currently no public market for
the Holdings Common Stock, the Telecommunications Common Stock or the
Partnership Interests.
The table below sets forth, for the calendar quarters indicated, the
reported high and low sale prices of IWL Common Stock as reported on the Nasdaq
National Market based on published financial sources.
<TABLE>
<CAPTION>
IWL COMMON STOCK MARKET
PRICE
------------------------
HIGH LOW
------------ ----------
<S> <C> <C>
1997
Second Quarter beginning on June 12, 1997................................... $ 6 $ 51/4
Third Quarter............................................................... $ 81/2 $ 5
Fourth Quarter.............................................................. $ 13 $ 81/4
1998
First Quarter............................................................... $ 263/8 $ 81/4
Second Quarter.............................................................. $ 22 $ 75/8
Third Quarter (through July 15, 1998)....................................... $ 913/16 $ 83/4
</TABLE>
During the calendar quarters indicated above, no dividends or distributions
were declared or made by IWL, Telecommunications, the Partnership or Holdings.
On February 12, 1998, the last full trading day prior to the public
announcement of the proposed Transaction, the closing price of IWL Common Stock
on the Nasdaq National Market was $9.875 per share. On June 19, 1998, the date
on which the exchange ratios were changed pursuant to the second amendment to
the Merger Agreement, the closing price of IWL Common Stock was $15.00 per
share, and on June 22, 1998, the date such changed exchange ratios were publicly
announced, the closing price was $8.75 per share (a decrease of $6.25 per share
from the closing price on June 19, 1998). On July 15, 1998, the most recent
practicable date prior to the mailing of this Joint Proxy Statement/Prospectus,
the closing price of IWL Common Stock on the Nasdaq National Market was $9.25
per share. Holders of IWL Common Stock, Telecommunications Common Stock or
Partnership Interests are urged to obtain current market quotations prior to
making any decision with respect to the Mergers and the Interest Exchange. See
"Summary--Comparative Per Share Information."
86
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF TELECOMMUNICATIONS
The following selected historical financial data for Telecommunications for
the years ended and as of December 31, 1993 and 1994 have been derived from the
unaudited financial statements of Telecommunications. The financial data for the
years ended and as of December 31, 1995 and 1996 have been derived from
Telecommunications' financial statements and related notes which have been
audited by Burds, Reed & Mercer, P.C., independent certified public accountants.
The financial data for the year ended and as of December 31, 1997 have been
derived from Telecommunications' financial statements and related notes which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The financial data for the three months ended March 31, 1997 and
1998 are derived from unaudited financial statements of Telecommunications,
which in the opinion of Telecommunication's management, contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation thereof. The results of operations for an interim period are not
necessarily indicative of the results of operations to be expected for the full
year. The data set forth below in this table are qualified in their entirety by,
and should be read in conjunction with, the financial statements of
Telecommunications and the related notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of
Telecommunications."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues............................. $ 526 $ 5,965 $ 13,440 $ 23,174 $ 46,745 $ 8,697 $ 15,770
Cost of revenues........................... 39 4,780 11,043 18,941 35,776 7,118 11,802
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 487 1,185 2,397 4,233 10,969 1,579 3,968
Operating expenses:
Selling, general and administrative...... 426 1,038 2,601 3,711 7,049 1,487 2,176
Depreciation and amortization............ 4 10 333 478 694 142 231
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................. 430 1,048 2,934 4,189 7,743 1,629 2,407
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).................... 57 137 (537) 44 3,226 (50) 1,561
Interest expense........................... -- (9) (240) (315) (311) (78) (86)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.......... 57 128 (777) (271) 2,915 (128) 1,475
Income taxes (benefit)..................... 3 36 (245) (88) 1,100 (65) 578
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... $ 54 92 $ (532) $ (183) $ 1,815 $ (63) $ 897
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
EARNINGS (LOSS) PER COMMON SHARE(1):
Basic...................................... $ 0.01 $ 0.01 $ (0.05) $ (0.02) $ 0.17 $ (0.01) $ 0.09
Diluted.................................... $ 0.01 $ 0.01 $ (0.05) $ (0.02) $ 0.17 $ (0.01) $ 0.08
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................ $ 37 $ 104 $ (533) $ (1,348) $ (576) $ (38)
Property and equipment, net.......................... 34 118 2,214 2,858 3,693 4,162
Total assets......................................... 111 1,716 4,953 7,356 13,327 14,552
Long-term debt and capital lease obligations......... 3 113 1,114 720 453 431
Stockholders' equity (deficit)....................... (3) 375 593 411 2,247 3,165
</TABLE>
87
<PAGE>
- ------------------------
(1) Earnings (loss) per share amounts have been calculated in accordance with
SFAS No. 128, "Earnings Per Share," in 1997 and 1998. Prior year amounts
have been restated on a comparable basis.
88
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF THE PARTNERSHIP
The following selected historical financial data for the Partnership for the
years ended and as of December 31, 1993, 1994, 1995 and 1996 have been derived
from the Partnership's financial statements and related notes which have been
audited by Burds, Reed & Mercer, P.C., independent certified public accountants.
The financial data for the year ended and as of December 31, 1997 have been
derived from the Partnership's financial statements and related notes which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
The financial data for the three months ended March 31, 1997 and 1998 are
derived from unaudited financial statements of the Partnership, which in the
opinion of the Partnership's management, contain all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation thereof.
The results of operations for an interim period are not necessarily indicative
of the results of operations to be expected for the full year. The data set
forth below in this table are qualified in their entirety by, and should be read
in conjunction with, the financial statements of the Partnership and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Partnership."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUES:
Telecommunications services....................... $ -- $ -- $ -- $ -- $ 1,945 $ 360 $ 588
Projects and other................................ 240 334 173 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................................. 240 334 173 -- 1,945 360 588
OPERATING EXPENSES:
Network access expenses........................... -- 444 503 -- 86 41 12
Selling, general and administrative............... 245 457 326 174 286 65 67
Depreciation and amortization..................... 18 50 31 54 902 166 185
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses.............. 263 951 860 228 1,274 272 264
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............................. (23) (617) (687) (228) 671 88 324
Interest expense.................................... -- -- -- -- (774) (165) (210)
Other income (expense).............................. 15 4 12 -- (1) -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
item.............................................. (8) (613) (675) (228) (104) (77) 114
Income taxes(1)..................................... -- -- -- -- -- -- (42)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item............. (8) (613) (675) (228) (104) (77) 72
Extraordinary item(2)............................... -- -- 645 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................... $ (8) $ (613) $ (30) $ (228) $ (104) $ (77) $ 72
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
--------- --------- ----- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................ $ 497 $ (178) $ 1 $ (2,616) $ (1,059) $ (1,314)
Property and equipment, net.............................. 239 206 -- 8,552 9,300 9,168
Total assets............................................. 788 443 13 8,757 9,779 9,949
Long-term debt and capital lease obligations, net of
current portion........................................ -- -- -- 6,336 8,665 8,184
Partners' capital (deficit).............................. 742 34 4 (223) (327) (255)
</TABLE>
89
<PAGE>
- ------------------------
(1) Effective January 1, 1998, the Partnership elected to be taxed as a
corporation and as such has recorded income taxes of $42,000 relating to the
three months ended March 31, 1998. Prior to January 1, 1998, the Partnership
allocated net income and net losses to its Partnership Interests and
therefore no income taxes were recorded for periods ended prior to January
1, 1998.
(2) Extraordinary gain of approximately $645,000 relates to extinguishment of
certain lease obligations in 1995.
90
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF IWL
The following selected consolidated historical financial data for each of
the four fiscal years ended June 30, 1997 and for the six months ended December
31, 1997, are derived from IWL's consolidated financial statements, which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
whose report with respect to the three-year period ended June 30, 1997 appears
elsewhere herein. The following selected consolidated historical financial data
for the fiscal year ended June 30, 1993 are derived from IWL's unaudited
consolidated financial statements. The following selected consolidated
historical financial data for the six months ended December 31, 1996 and for the
three months ended March 31, 1997 and 1998 are derived from unaudited
consolidated financial statements of IWL which, in the opinion of IWL's
management, contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation thereof. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results of operations to be expected for the full year. The
data set forth below in this table are qualified in their entirety by, and
should be read in conjunction with, the financial statements of IWL and the
related notes thereto included elsewhere herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of IWL."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Telecommunication services................. $ 2,238 $ 3,301 $ 5,790 $ 6,531 $ 7,993 $ 3,646 $ 4,856
Project and other.......................... 10,722 11,559 10,004 10,711 14,708 7,303 7,107
Product resales(1)......................... -- -- -- 10,554 7,641 4,695 --
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................... 12,960 14,860 15,794 27,796 30,342 15,644 11,963
Cost of revenues............................. 8,641 10,071 9,639 20,416 21,737 11,684 6,557
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................. 4,319 4,789 6,155 7,380 8,605 3,960 5,406
Operating expenses:
Selling, general and administrative........ 3,132 4,070 4,399 5,099 5,845 2,736 3,631
Depreciation and amortization.............. 359 571 821 1,003 1,403 635 982
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................. 3,491 4,641 5,220 6,102 7,248 3,371 4,613
--------- --------- --------- --------- --------- --------- ---------
Operating income............................. 828 148 935 1,278 1,357 589 793
Interest expense, net........................ (10) (215) (244) (270) (514) (214) (218)
Other income (expense)....................... (86) 252 139 42 129 19 110
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes................... 732 185 830 1,050 972 394 685
Income taxes................................. 249 41 294 316 283 134 264
--------- --------- --------- --------- --------- --------- ---------
Net income................................... $ 483 $ 144 $ 536 $ 734 $ 689 $ 260 $ 421
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share amounts(2):
Basic...................................... $ 0.24 $ 0.07 $ 0.24 $ 0.33 $ 0.30 $ 0.12 $ 0.11
Diluted.................................... $ 0.24 $ 0.07 $ 0.24 $ 0.33 $ 0.30 $ 0.11 $ 0.11
Weighted average shares outstanding:
Basic...................................... 2,000 2,001 2,222 2,222 2,298 2,226 3,737
Diluted.................................... 2,011 2,011 2,233 2,233 2,323 2,261 3,908
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Telecommunication services................. $ 2,298 $ 2,804
Project and other.......................... 3,161 5,251
Product resales(1)......................... 2,506 --
--------- ---------
Total revenues........................... 7,965 8,055
Cost of revenues............................. 5,674 4,421
--------- ---------
Gross profit................................. 2,291 3,634
Operating expenses:
Selling, general and administrative........ 1,611 2,188
Depreciation and amortization.............. 347 647
--------- ---------
Total operating expenses................. 1,958 2,835
--------- ---------
Operating income............................. 333 799
Interest expense, net........................ (125) (155)
Other income (expense)....................... 114 1
--------- ---------
Income before income taxes................... 322 645
Income taxes................................. 95 254
--------- ---------
Net income................................... $ 227 $ 391
--------- ---------
--------- ---------
Earnings per share amounts(2):
Basic...................................... $ 0.10 $ 0.10
Diluted.................................... $ 0.10 $ 0.09
Weighted average shares outstanding:
Basic...................................... 2,234 3,912
Diluted.................................... 2,298 4,199
</TABLE>
91
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 72 $ -- $ 291 $ 361 $ 7,660 $ 3,345
Working capital (deficit)........................... 709 (367) (265) 1,811 9,721 1,330
Total assets........................................ 5,748 7,437 8,232 12,409 26,062 26,284
Long-term debt and capital lease obligations, net of
current portion................................... 533 1,108 1,329 2,944 7,692 3,588
Stockholders' equity................................ 1,511 2,419 2,955 3,698 11,394 12,166
<CAPTION>
MARCH 31,
1998
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 720
Working capital (deficit)........................... (398)
Total assets........................................ 29,834
Long-term debt and capital lease obligations, net of
current portion................................... 3,948
Stockholders' equity................................ 14,135
</TABLE>
- ------------------------------
(1) Comprised of the resale of Alcatel products and other equipment and hardware
to a Shell subsidiary.
(2) Earnings per share amounts have been calculated in accordance with SFAS No.
128, "Earnings Per Share," in 1997 and 1998. Prior year amounts have been
restated on a comparable basis.
92
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Transaction under the pooling of interests method of
accounting. The unaudited pro forma combined condensed financial statements are
based upon the respective historical financial statements of IWL,
Telecommunications, and the Partnership and should be read in conjunction with
such historical financial statements and the notes thereto, which are included
elsewhere in this Joint Proxy Statement/Prospectus. In May 1998, IWL changed its
fiscal year end to coincide with the fiscal years of Holdings,
Telecommunications and the Partnership. Accordingly, the pro forma statement of
operations for 1997 is presented for the 12 months ended December 31, 1997 on a
combined basis for all three entities. The unaudited combined condensed
statement of operations for the three months ended March 31, 1998 combine the
financial statements of IWL with those of Telecommunications and the
Partnership. The unaudited pro forma combined condensed statements of operations
for the years ended December 31, 1995 and 1996 combine IWL's consolidated
statements of operations for the years ended June 30, 1995 and 1996 with the
Telecommunications and Partnership statements of operations for the years ended
December 31, 1995 and 1996. The revenues and net income of IWL for the six month
period ended December 31, 1996 were excluded from the pro forma combined
condensed statement of operations for the year ended December 31, 1996 in the
amount of $15.6 million and $260,000, respectively.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Transaction had been consummated as presented in the
accompanying unaudited pro forma combined financial information, nor is it
necessarily indicative of future operating results or financial position.
93
<PAGE>
CAPROCK COMMUNICATIONS CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------- ------------------------
IWL TELECOMMUNICATIONS PARTNERSHIP ADJUSTMENTS COMBINED
--------- ------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications services.............. $ 2,804 $ 15,770 $ 588 $ -- $ 19,162
Projects and other....................... 5,251 -- -- -- 5,251
--------- ------- ----- ----------- -----------
Total revenues......................... 8,055 15,770 588 -- 24,413
Cost of services........................... 4,421 11,802 12 -- 16,235
--------- ------- ----- ----------- -----------
Gross profit............................... 3,634 3,968 576 -- 8,178
Operating expenses
Selling, general and administrative...... 2,188 2,176 67 -- 4,431
Depreciation and amortization............ 647 231 185 -- 1,063
--------- ------- ----- ----------- -----------
Total operating costs and expenses....... 2,835 2,407 252 -- 5,494
--------- ------- ----- ----------- -----------
Operating income........................... 799 1,561 324 -- 2,684
Interest expense, net...................... (155) (68) (210) -- (433)
Other income (expense)..................... 1 (18) -- -- (17)
--------- ------- ----- ----------- -----------
Income before income taxes................. 645 1,475 114 -- 2,234
Income taxes............................... 254 578 42 -- 874
--------- ------- ----- ----------- -----------
Net income................................. $ 391 $ 897 $ 72 $ -- $ 1,360
--------- ------- ----- ----------- -----------
--------- ------- ----- ----------- -----------
Earnings per common share:
Basic.................................... $ 0.10 $ 0.09 $ -- $ -- $ 0.05
Diluted.................................. $ 0.09 $ 0.08 $ -- $ -- $ 0.05
Weighted average shares outstanding:
Basic.................................... 3,912 10,399 -- 14,525(a) 28,836
Diluted.................................. 4,199 10,581 -- 14,342(a) 29,122
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
94
<PAGE>
CAPROCK COMMUNICATIONS CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------ ------------------------
IWL TELECOMMUNICATIONS PARTNERSHIP ADJUSTMENTS COMBINED
--------- ------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunication services.............. $ 9,202 $ 46,745 $ 1,945 $ -- $ 57,892
Projects and other...................... 14,512 -- -- 14,512
Product resales......................... 2,946 -- -- -- 2,946
--------- ------- ----------- ----------- -----------
Total revenues........................ 26,660 46,745 1,945 -- 75,350
Cost of services.......................... 14,261 35,776 86 -- 50,123
Cost of product resales................... 2,347 -- -- -- 2,347
--------- ------- ----------- ----------- -----------
Gross profit.............................. 10,052 10,969 1,859 -- 22,880
Operating expenses:
Selling, general, and
administrative........................ 6,742 7,049 286 -- 14,077
Depreciation and amortization........... 1,749 694 902 -- 3,345
--------- ------- ----------- ----------- -----------
Total operating cost and expenses..... 8,491 7,743 1,188 -- 17,422
--------- ------- ----------- ----------- -----------
Operating income.......................... 1,561 3,226 671 -- 5,458
Interest income (expense), net............ (518) (311) (774) -- (1,603)
Other income (expense).................... 221 -- (1) -- 220
--------- ------- ----------- ----------- -----------
Income before income taxes................ 1,264 2,915 (104) -- 4,075
Income taxes (benefit).................... 413 1,100 -- (38)(b) 1,475
--------- ------- ----------- ----------- -----------
Net income (loss)......................... $ 851 $ 1,815 $ (104) $ 38 $ 2,600
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
Earnings per common share:
Basic................................... $ 0.28 $ 0.17 $ -- $ -- $ 0.09
Diluted................................. $ 0.26 $ 0.17 $ -- $ -- $ 0.09
Weighted average shares outstanding:
Basic................................... 3,060 10,399 -- 14,525(a) 27,984
Diluted................................. 3,231 10,581 -- 14,527(a) 28,339
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
95
<PAGE>
CAPROCK COMMUNICATIONS CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1996 1996 PRO FORMA
--------- ------------------ ------------- ------------------------
IWL TELECOMMUNICATIONS PARTNERSHIP ADJUSTMENTS COMBINED
--------- ------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunication services............. $ 6,531 $ 23,174 $ -- $ -- $ 29,705
Project and other...................... 10,711 -- -- 10,711
Product resales........................ 10,554 -- -- -- 10,554
--------- ------- ----- ----------- -----------
Total revenues....................... 27,796 23,174 -- -- 50,970
Cost of services....................... 10,744 18,941 -- -- 29,685
Cost of product resales................ 9,672 -- -- -- 9,672
--------- ------- ----- ----------- -----------
Gross profit........................... 7,380 4,233 -- -- 11,613
Operating costs and expenses:
Selling, general, and administrative... 5,099 3,711 174 -- 8,984
Depreciation and amortization.......... 1,003 478 54 -- 1,535
--------- ------- ----- ----------- -----------
Total operating expenses............. 6,102 4,189 228 -- 10,519
--------- ------- ----- ----------- -----------
Operating income......................... 1,278 44 (228) -- 1,094
Interest expense, net.................... (270) (315) -- -- (585)
Other income............................. 41 -- -- -- 41
--------- ------- ----- ----------- -----------
Income before income taxes............... 1,049 (271) (228) -- 550
Income taxes (benefit)................... 315 (88) -- (84)(b) 143
--------- ------- ----- ----------- -----------
Net income (loss)........................ $ 734 $ (183) $ (228) $ 84 $ 407
--------- ------- ----- ----------- -----------
--------- ------- ----- ----------- -----------
Earnings (loss) per common share:
Basic.................................. $ 0.33 $ (0.02) $ -- $ -- $ 0.01
Diluted................................ $ 0.33 $ (0.02) $ -- $ -- $ 0.01
Weighted average shares outstanding:
Basic.................................. 2,222 10,399 -- 14,525(a) 27,146
Diluted................................ 2,233 10,399 -- 14,525(a) 27,157
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
96
<PAGE>
CAPROCK COMMUNICATIONS CORP.
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------
FOR THE YEAR ENDED
--------------------------------------------
JUNE 30, DECEMBER 31, DECEMBER 31,
1995 1995 1995 PRO FORMA
--------- ------------------ ------------- ------------------------
IWL TELECOMMUNICATIONS PARTNERSHIP ADJUSTMENTS COMBINED
--------- ------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunication services............. $ 5,790 $ 12,231 $ -- $ -- $ 18,021
Projects and other..................... 10,004 1,209 173 -- 11,386
--------- ------- ----- ----------- -----------
Total revenues....................... 15,794 13,440 173 -- 29,407
Cost of services....................... 9,639 11,043 503 -- 21,185
--------- ------- ----- ----------- -----------
Gross profit........................... 6,155 2,397 (330) -- 8,222
Operating expenses:
Selling, general, and administrative... 4,399 2,601 326 -- 7,326
Depreciation and amortization.......... 821 333 31 -- 1,185
--------- ------- ----- ----------- -----------
Total operating expenses............... 5,220 2,934 357 -- 8,511
--------- ------- ----- ----------- -----------
Operating income......................... 935 (537) (687) -- (289)
Interest expense, net.................... (244) (240) -- -- (484)
Other.................................... 138 -- 12 -- 150
--------- ------- ----- ----------- -----------
Income (loss) before income taxes and
extraordinary item..................... 829 (777) (675) -- (623)
Income taxes (benefit)................... 293 (245) -- (11)(b) 37
--------- ------- ----- ----------- -----------
Income (loss) before extraordinary item 536 (532) (675) 11 (660)
Extraordinary item -- -- 645 -- 645
--------- ------- ----- ----------- -----------
Net income (loss)........................ $ 536 $ (532) $ (30) $ 11 $ (15)
--------- ------- ----- ----------- -----------
--------- ------- ----- ----------- -----------
Earnings (loss) per common share:
Basic.................................. $ 0.24 $ (0.05) $ -- $ -- $ --
Diluted................................ $ 0.24 $ (0.05) $ -- $ -- $ --
Weighted average shares outstanding:
Basic.................................. 2,222 9,717 -- 13,987(a) 25,926
Diluted................................ 2,233 9,717 -- 13,987(a) 25,937
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
97
<PAGE>
CAPROCK COMMUNICATIONS CORP.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------ ------------------------
IWL TELECOMMUNICATIONS PARTNERSHIP ADJUSTMENTS COMBINED
--------- ------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 720 $ -- $ 658 $ -- $ 1,378
Accounts receivable, net................ 8,056 9,319 44 -- 17,419
Inventories............................. 998 -- -- -- 998
Prepaid expenses and other.............. 924 447 4 -- 1,375
Deferred income taxes................... 242 624 -- -- 866
--------- ------- ----------- ----------- -----------
Total current assets.................. 10,940 10,390 706 -- 22,036
Property, plant and equipment, net........ 16,670 4,162 9,168 -- 30,000
Other assets.............................. 2,224 -- 75 -- 2,299
--------- ------- ----------- ----------- -----------
Total assets.......................... $ 29,834 $ 14,552 $ 9,949 $ -- $ 54,335
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....... $ 6,354 $ 1,642 $ 891 $ -- $ 8,887
Accounts payable and accrued expenses... 3,975 7,710 388 3,000(c) 15,073
Accrued commitment and guarantor fees... -- -- 418 -- 418
Customer deposits....................... 360 35 -- -- 395
Current installments under capital
lease................................. -- 247 -- -- 247
Income taxes payable.................... 490 642 -- -- 1,132
Unearned revenue........................ 159 153 323 -- 635
--------- ------- ----------- ----------- -----------
Total current liabilities............. 11,338 10,429 2,020 3,000 26,787
Long-term debt............................ 3,948 128 8,184 -- 12,260
Deferred income taxes..................... 413 527 -- -- 940
Obligations under capital lease........... -- 303 -- -- 303
--------- ------- ----------- ----------- -----------
Total liabilities..................... 15,699 11,387 10,204 3,000 40,290
Stockholders' equity
Common Stock............................ 40 1,458 -- (1,353)(a) 145
Additional paid-in capital.............. 9,173 -- (255) 1,353(a) 10,271
Retained earnings....................... 4,922 2,082 -- (3,000)(c) 4,004
Unearned compensation................... -- (375) -- -- (375)
--------- ------- ----------- ----------- -----------
Total stockholders' equity............ 14,135 3,165 (255) (3,000) 14,045
--------- ------- ----------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $ 29,834 $ 14,552 $ 9,949 $ -- $ 54,335
--------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
98
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
(a) The Merger Agreement, as amended, was entered into on February 16, 1998 by
IWL, Telecommunications, the Partnership and Holdings and other subsidiaries
created to facilitate the Transaction. Under terms of the Merger Agreement,
each share of IWL Common Stock will be exchanged for one share of Holdings
Common Stock, each share of Telecommunications Common Stock will be
exchanged for 1.789030878 shares of Holdings Common Stock and each one
percent (1%) of the general and limited Partnership Interests in the
Partnership that are validly tendered to and accepted by Holdings will be
exchanged for 63,194.54 shares of Holdings Common Stock. The following table
details the pro forma issuances in connection with the Transaction as if the
Transaction had occurred on March 31, 1998:
<TABLE>
<CAPTION>
COMMON
SHARES NUMBER OF
OUTSTANDING EXCHANGE RATIO HOLDINGS SHARES
------------ -------------- ---------------
<S> <C> <C> <C>
Holdings Common Shares to be issued to the
shareholders of Telecommunications........... 10,398,954 1.789030878 18,604,050
Holdings Common Shares to be issued to the
partners of the Partnership.................. 6,319,454
Holdings Common Shares to be issued to the
shareholders of IWL.......................... 3,968,607 1.0 3,968,607
---------------
Total Holdings Common Shares outstanding after
completion of the Transaction................ 28,892,111
---------------
---------------
</TABLE>
The actual number of shares of Holdings Common Stock to be issued will be
determined at the effective time of the Transaction based on the number of
shares of IWL and Telecommunications Common Stock outstanding and the number
of Partnership Interests that are validly tendered to and accepted by
Holdings. The adjustments to the balance sheet as of March 31, 1998 result
in the recapitalization of Holdings.
(b) The net adjustments to tax expense for the Partnership for the years ended
December 31, 1995, 1996 and 1997 included in the pro forma adjustments were
estimated at 37%. These adjustments were made to reflect the tax expense and
the deferred tax assets and liabilities that would have been recorded if the
Partnership had been taxed as a C Corporation in those years.
(c) Since the Transaction has not been completed, costs of the Transaction can
only be estimated at this time. IWL, Telecommunications and the Partnership
estimate they will incur certain direct transaction costs of approximately
$3.0 million associated with the Transaction consisting of transaction fees
for investment bankers, attorneys, accountants, financial printing and other
related charges. The pro forma combined condensed balance sheet as of March
31, 1998 includes the effect of these costs as if the Transaction occurred
on March 31, 1998 and the pro forma combined condensed statement of
operations for all prior periods presented exclude the effects of these
costs. Such costs will be expenses in the period in which the Transaction is
consummated.
99
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF TELECOMMUNICATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED HISTORICAL FINANCIAL DATA, FINANCIAL STATEMENTS AND NOTES THERETO AND
THE OTHER HISTORICAL FINANCIAL INFORMATION OF TELECOMMUNICATIONS CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
OVERVIEW
Telecommunications is a facilities-based provider of voice, data and
broadband communications services to interexchange carriers, to other
communications entities and to businesses and consumers ("Telecommunications
Services"). Revenue from Telecommunications Services is recognized primarily on
a minutes-of-use basis. Telecommunications experiences slight seasonal
reductions of revenues around the Thanksgiving and Christmas holidays.
TELECOMMUNICATIONS SERVICES. Telecommunications Services includes switched
services over owned and leased network facilities to interexchange carriers and
other telecommunications providers, as well as voice and data services to
businesses and consumers. Telecommunications plans to expand its presence in the
market by developing its brand identity and aggressively marketing its existing
and planned voice, data and other products and services. Telecommunications also
plans to further build direct, end-user relationships by significantly
increasing the size of its direct and agent sales forces, providing competitive
pricing and superior network quality and offering enhanced, market-driven
services to businesses and consumers. Telecommunications' ability to grow its
revenues will be dependent upon a number of factors, many of which are not
within its control and as a result no assurance can be given that such
objectives will be met. For the year ended December 31, 1997,
Telecommunications' five largest carrier customers accounted for approximately
41% of Telecommunications' services revenues, and MCI accounted for more than
10% of Telecommunications' revenues.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
REVENUE. Total revenue was $15.8 million for the three months ended March
31, 1998, as compared to $8.7 million for the same period in 1997. The 82%
increase was due to increases in both domestic and international switched
services and to growth in switched services provided to small and medium-sized
businesses as a result of continued expansion of Telecommunications' direct and
agent sales channels. For the three months ended March 31, 1998, revenues from
international operations was $5.6 million, or 36% of total revenues, as compared
to $2.1 million for the three months ended March 31, 1997, or 24% of total
revenues.
OPERATING COSTS AND EXPENSES. Telecommunications' principal operating costs
and expenses consist of cost of revenues, SG&A, and depreciation.
Total operating costs and expenses increased to approximately $14.2 million
as compared to $8.7 million for the same period in 1997. Cost of revenues
increased to $11.8 million for the three months ended March 31, 1998, as
compared to $7.1 million for the same period in 1997. The growth in cost of
revenues was primarily attributable to the continued growth in switched services
and network operations. The increase in gross margin from 18% to 25% resulted
from, among other things, favorable pricing attributable to the higher traffic
and new vendors, as well as a more favorable mix of international and domestic
traffic. Gross margins may vary in the future periods as a result of these
factors.
SG&A includes the cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased to $2.2
million for the three months ended March 31, 1998 as compared to $1.5 million
for the same period in 1997. The increase resulted from the expanded
administrative and information activities needed to support Telecommunications'
growth,
100
<PAGE>
recruitment of additional personnel and additional sales commission payments.
SG&A expenses, in terms of absolute costs, will increase in subsequent periods
as Telecommunications continues to expand its telecommunications services,
expand its agent and direct sales operations, open additional commercial sales
offices in selected Texas markets, and recruit experienced telecommunications
industry personnel to implement Telecommunications' strategy.
Telecommunications' depreciation and amortization expense increased to
$231,000 for the three months ended March 31, 1998 as compared to $142,000 for
the same period in 1997. The increase resulted primarily from purchases of
additional equipment and other fixed assets to accommodate Telecommunications'
growth. Telecommunications expects that depreciation and amortization expense
will continue to increase in subsequent periods as Telecommunications continues
to expand its facilities.
INTEREST EXPENSE. For the three months ended March 31, 1998,
Telecommunications' interest expense increased to $86,000 as compared to $78,000
for the same period in 1997.
INCOME TAXES. Telecommunications' income tax expense was $578,000 for the
three months ended March 31, 1998, as compared to an income tax benefit of
$65,000 for the same period in 1997.
NET INCOME (LOSS). Telecommunications reported net income of $897,000 for
the three months ended March 31, 1998, compared to a net loss of $63,000 for the
three months ended March 31, 1997 as a result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE. Total revenues increased to approximately $46.7 million during the
year ended December 31, 1997, as compared to approximately $23.2 million in
1996. The 101% increase was due to increases in revenues from both domestic and
international switched services and to growth in switched services provided to
small and medium-sized businesses and to consumers as a result of continued
expansion of Telecommunications' direct and agent sales channels. In 1997,
revenues from international operations were $14.0 million, or 30% of total
revenues, as compared to $4.2 million in 1996, or 18% of total revenues.
OPERATING COSTS AND EXPENSES. Telecommunications' principal operating costs
and expenses consist of cost of revenues, SG&A, and depreciation.
Total operating costs and expenses increased to approximately $43.5 million
during the year ended December 31, 1997 as compared to approximately $23.1
million during the corresponding period in 1996. Cost of revenues increased to
approximately $35.8 million for the year ended December 31, 1997, as compared to
approximately $18.9 million for 1996. The growth in cost of revenues was
primarily attributable to the continued growth in switched services and network
operations. The increase in gross margin from 18% to 23% resulted from, among
other things, favorable pricing attributable to the higher traffic and the
efficient utilization of Telecommunications' switching network.
SG&A includes the cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased to $7.0
million for the year ended December 31, 1997, as compared to approximately $3.7
million in 1996. The increase resulted from the expanded administrative and
information activities needed to support Telecommunications' growth, recruitment
of additional personnel and additional sales commission payments.
Telecommunications' depreciation and amortization expense increased to
approximately $694,000 during the year ended December 31, 1997 as compared to
approximately $478,000 in 1996. This increase resulted primarily from purchases
of additional equipment and other fixed assets to accommodate
Telecommunications' growth. Telecommunications expects that depreciation and
amortization expense will continue to increase in subsequent periods as
Telecommunications continues to expand its facilities.
101
<PAGE>
INTEREST EXPENSE. During 1997, Telecommunications' interest expense
decreased slightly to approximately $311,000 as compared to approximately
$315,000 in 1996.
INCOME TAXES. Telecommunications' income tax expense was approximately $1.1
million during the year ended December 31, 1997 as compared to an income tax
benefit of approximately $88,000 in 1996. This increase was attributable to the
improved profitability of Telecommunications in 1997.
NET INCOME (LOSS). Telecommunications realized net income of approximately
$1.8 million in the year ended December 31, 1997, as compared to a net loss of
approximately $183,000 in the corresponding period of 1996 as a result of the
factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE. Total revenues increased to approximately $23.2 million during the
year ended December 31, 1996 from approximately $13.4 million in 1995 due to
significantly higher revenues from Telecommunications Services. This 73%
increase was largely attributable to growth in domestic switched services
provided to carriers.
OPERATING COSTS AND EXPENSES. Total operating costs and expenses increased
to approximately $23.1 million in 1996 from approximately $14.0 million in 1995,
due primarily to increases in cost of revenues and SG&A. Expenses for cost of
revenues increased to approximately $18.9 million for the year ended December
31, 1996 as compared to approximately $11.0 million for 1995. The growth in cost
of revenues was primarily attributable to the continued growth in switched
services and network operations.
SG&A includes the cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased to $3.7
million for the year ended December 31, 1996 as compared to $2.6 million in
1995. The increase resulted from the expanded administrative and information
activities needed to support Telecommunications' growth, recruitment of
additional personnel and additional sales commission payments.
Telecommunications' depreciation and amortization expense increased to
approximately $478,000 in 1996 from approximately $333,000 in 1995. This
increase was primarily due to Telecommunications' purchases of additional
equipment and other fixed assets to accommodate Telecommunications' growth.
INTEREST EXPENSE. During 1996, Telecommunications' net interest expense
increased to approximately $315,000 from approximately $240,000 in 1995. This
increase is primarily attributable to increases in revolving line borrowings to
support Telecommunications' working capital requirements.
INCOME TAXES. Telecommunications' income tax benefit was approximately
$88,000 during the year ended December 31, 1996 as compared to a benefit of
approximately $245,000 in 1995.
NET LOSS. Telecommunications experienced a net loss of approximately
$183,000 in 1996 compared to a net loss of approximately $532,000 in 1995 as a
result of the factors discussed above.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS 128") effective for financial
statements issued for periods ending after December 15, 1997. SFAS 128
establishes standards for computing and presenting earnings per share and
supersedes APB No. 15, "Earnings Per Share." Telecommunications adopted SFAS 128
and all prior periods have been restated to conform with the requirements of
this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130") which establishes standards for reporting and display of
comprehensive income and its components. The required disclosures for SFAS 130
will be adopted in 1998. The adoption of SFAS 130 will have no impact
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on Telecommunications' results of operations, financial position or cash flows
and any effect will be limited to the presentation of its disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the manner in which business
enterprises are to report information about operating segments in its annual
statements and requires those enterprises to report selected information
regarding operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. Financial
statements disclosures for prior periods are required to be restated.
Telecommunications is in the process of evaluating the disclosure requirements.
The adoption of SFAS 131 will not have an impact on Telecommunications' results
of operations, financial position or cash flows and any effect will be limited
to the presentation of its disclosures.
LIQUIDITY AND CAPITAL RESOURCES
From January 1, 1995 through December 31, 1997, Telecommunications funded
capital expenditures, debt service and cash used in operations through a
combination of stockholder loans, the sale of common stock, a revolving credit
facility with a bank and a note payable to a bank guaranteed by certain
shareholders of Telecommunications. Total cash expended during the three years
ended December 31, 1997 to fund capital expenditures and repayments of long-term
debt to third parties, was $3.3 million and $1.1 million, respectively. Total
cash generated from operations was $2.9 million during the same period. Total
cash provided during this same period from revolving loans was $1.2 million. As
of December 31, 1997, Telecommunications had a working capital deficit of
$576,000. At December 31, 1996, Telecommunications had a working capital deficit
of approximately $1.3 million. As of March 31, 1998, Telecommunications had a
working capital deficit of $38,000. Telecommunications has a $2.5 million
secured revolving line of credit with Bank One, Texas, N.A. The amount available
to be drawn thereunder has certain borrowing base limitations, primarily
relating to the accounts receivable balance. Interest is at prime plus 2%. The
loan agreement contains affirmative and negative prohibitions on the payment of
dividends. Telecommunications has previously been in technical default of a
covenant requiring lender consent to the Transaction and certain actions to be
taken by Telecommunications in connection therewith. The bank has waived such
defaults, consented to the Transaction and such actions by Telecommunications
and has renewed the line of credit through August 31, 1998, The balance
outstanding at December 31, 1997 was approximately $1.2 million. Throughout
1997, Telecommunications also had a $1.5 million secured line of credit. In June
1998, Telecommunications increased its bank line of credit to $7 million,
subject to a borrowing base based on accounts receivable and property, plant and
equipment. Telecommunications can advance a maximum of $2.5 million to the
Partnership. The line of credit will mature on August 31, 1998. Holdings intends
to use part of the proceeds from the sale of the Notes to repay indebtedness
owing by Telecommunications to Bank One, Texas, N.A. If the Transaction is not
consummated by August 31, 1998 (and as a result, the net proceeds from the
issuance of the Notes are not available to Holdings), Telecommunications intends
to renegotiate the terms of its loans from Bank One, Texas, N.A. If such
negotiations are not successful, Telecommunications will seek additional sources
of financing. No assurance can be given that such financing will be available
or, if available, that the terms will be satisfactory.
Telecommunications anticipates that, based on current plans and assumptions
relating to its operations, its financial resources and equipment financing
arrangements will be sufficient to fund Telecommunications' growth and
operations for approximately 12 months from the date of this Joint Proxy
Statement/ Prospectus. Telecommunications believes that its capital needs at the
end of such period will continue to be significant and, therefore,
Telecommunications may continue to seek additional sources of capital. Further,
in the event Telecommunications' plans or assumptions change or prove to be
inaccurate, or if Telecommunications consummates any unplanned acquisitions of
businesses or assets, Telecommunications may be required to seek additional
sources of capital sooner than currently anticipated. Sources of additional
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capital may include public and private equity and debt financings, sales of
non-strategic assets and other financing arrangements. See "Issuance of Notes."
CONTINGENCIES
Telecommunications is party to ordinary litigation incidental to its
business, none of which is expected to have a material adverse effect on the
results of operations, financial condition or cash flow of Telecommunications.
YEAR 2000
As the year 2000 approaches, Telecommunications recognizes the need to
ensure its operations will not be adversely impacted by Year 2000 computer
software failures. Telecommunications is addressing this issue to ensure the
availability and integrity of its financial systems and the reliability of its
operational systems. Telecommunications has established processes for evaluating
and managing the risks and costs associated with this problem.
Telecommunications has and will continue to make certain investments in its
software systems and applications to ensure Telecommunications is Year 2000
compliant. The financial impact to Telecommunications has not yet been fully
determined, however such impact is not anticipated to have a material adverse
effect on the financial condition, results of operations or cash flow of
Telecommunications.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PARTNERSHIP
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED HISTORICAL FINANCIAL DATA, FINANCIAL STATEMENTS AND NOTES THERETO AND
THE OTHER HISTORICAL FINANCIAL INFORMATION OF THE PARTNERSHIP CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
OVERVIEW
The Partnership is a facilities-based provider of broadband
Telecommunications Services to interexchange carriers, other communications
entities and businesses. The Partnership had no revenues in 1996. In 1997 it had
revenues and a net loss of $1.9 million and $104,000, respectively.
The Partnership began operations in 1992 to design, manage the construction
of, operate, maintain and market a 185 route mile fiber optic network in South
Texas. In 1996, the Partnership entered into a ten year contract for the lease
of dark fiber over a 260 route mile fiber network between Houston and Corpus
Christi, Texas. The Partnership completed construction of the network in January
1997. In January 1998, the Partnership entered into a contract for the sale of
dark fiber between San Antonio and Laredo, Texas. The Partnership expects to
complete the construction of approximately 500 additional route miles of fiber
network from San Antonio to Laredo, McAllen, Harlingen, Brownsville and Corpus
Christi, Texas by the end of 1998. The Partnership intends to expand its
regional fiber network to approximately 4,300 route miles throughout Texas and
the Gulf Coast region by the end of 2000. The Partnership's ability to expand
its network and increase its revenues will be dependent upon a number of
factors, including the availability of financing, and as a result no assurance
can be given that its expansion plans will be met.
The Partnership provides dedicated line services over the Partnership's
owned fiber network to interexchange carriers and other telecommunications
providers for terms of one year or longer. High volume capacity service
agreements and dedicated line service agreements generally provide for "take or
pay" monthly payments at fixed rates based on the capacity term and length of
circuit used. Customers are typically billed on a monthly basis and also may
incur an installation charge or certain ancillary charges for equipment. After
contract expiration, the contracts may be renewed or the services may be
provided on a month-to-month basis. The Partnership is expanding its network to
increase its revenue stream and reduce per unit costs, targeting capacity sales
on a segment-by-segment basis as the Partnership's network is deployed and
activated, and is increasingly seeking longer-term, high-volume capacity
agreements from major carriers. In addition to traditional telecommunications
carriers, the Partnership is marketing to ISPs and other data service companies.
As of December 31, 1997, substantially all of the Partnership's revenues
were derived from two customers. One of the customers provided for approximately
93% of total revenues in 1997 and comprised 78% of the trade receivable balance.
The other significant customer provided for approximately 5% of total revenues
in 1997 and comprised 22% of the trade receivable balance. The lease terms are
through August 2004 and July 2006, respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
REVENUE. Total revenues were $588,000 for the three months ended March 31,
1998, as compared to $360,000 for the same period in 1997. Telecommunications
Services revenues represented 100% of the revenue for these periods. This
reflected the completion of the Partnership's fiber optic network between
Houston and Corpus Christi, Texas in January 1997.
OPERATING EXPENSES. The Partnership's principal operating expenses consist
of expenses for SG&A, and depreciation and amortization. Total operating
expenses remained comparable with $264,000 for the three months ended March 31,
1998 and $272,000 for the same period in 1997.
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SG&A includes cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A remained
comparable with $67,000 for the three months ended March 31, 1998 and $65,000
for the same period in 1997. SG&A expenses will increase as the Partnership
continues to expand its Telecommunications Services, initiate its direct sales
operations and recruit experienced telecommunications industry personnel to
implement the Partnership's network expansion strategy.
The Partnership's depreciation and amortization expense increased to
$185,000 for the three months ended March 31, 1998 as compared to $166,000 for
the same period in 1997. This increase resulted primarily from activating the
initial segment of the Partnership's fiber network during 1997, purchases of
additional equipment used in constructing the Partnership's fiber network and
purchases of other fixed assets to accommodate the Partnership's growth. The
Partnership expects that depreciation and amortization expense will continue to
increase in subsequent periods as the Partnership continues to activate
additional segments of the Partnership's planned fiber network.
INTEREST EXPENSE. For the three months ended March 31, 1998, the
Partnership's interest expense increased to $210,000 as compared to $165,000 for
the same period in 1997. The increase resulted from an increase in long-term
indebtedness.
INCOME TAXES. Effective January 1, 1998, the Partnership elected to be
taxed as a corporation and as such has recorded income taxes of $42,000 relating
to the three months ended March 31, 1998. Prior to January 1, 1998, the
Partnership allocated net income and net losses to its Partnership Interests and
therefore no income taxes were recorded for periods ended prior to January 1,
1998.
NET INCOME (LOSS). The Partnership reported net income of $72,000 for the
three months ended March 31, 1998, compared to a net loss of $77,000 for the
three months ended March 31, 1997 as a result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE. Total revenues were approximately $1.9 million, during the year
ended December 31, 1997, as compared to $0 in 1996. Telecommunications Services
revenue represented 100% of 1997 revenues which reflected the completion of the
Partnership's fiber optic network between Houston and Corpus Christi, Texas in
January 1997.
OPERATING EXPENSES. The Partnership's principal operating expenses consist
of expenses for network access expenses, SG&A, and depreciation and
amortization. Total operating expenses increased to approximately $1.3 million
during the year ended December 31, 1997 as compared to approximately $228,000 in
the corresponding period in 1996. Network access expenses were $86,000 in 1997,
as compared to $0 in 1996, as the fiber network was placed in service in January
1997.
SG&A includes the cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased to
approximately $286,000 in the year ended December 31, 1997, as compared to
approximately $174,000 in 1996. The increase was due primarily to increases in
expenses related to the Partnership's first full year of operating the initial
segment of its fiber network.
The Partnership's depreciation and amortization expense increased to
approximately $902,000 during the year ended December 31, 1997 as compared to
approximately $54,000 in 1996. This increase resulted primarily from activating
the initial segment of the Partnership's fiber network during 1997, purchases of
additional equipment used in constructing the Partnership's fiber network and
purchases of other fixed assets to accommodate the Partnership's growth.
INTEREST EXPENSE. During 1997, the Partnership's net interest expense
increased to approximately $774,000 as compared to $0 in 1996. The increase
resulted from an increase in interest on long-term
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indebtedness, and expensing interest as opposed to capitalizing interest during
the construction phase in 1996. In 1996, the Partnership capitalized
approximately $143,000 of interest. None was capitalized in 1997.
INCOME TAXES. The Partnership allocated net income and net losses to its
Partnership Interests. Therefore, no income taxes were recorded for 1997 or
1996.
NET LOSS. The Partnership realized a net loss of approximately $104,000 in
the year ended December 31, 1997, as compared to a net loss of approximately
$228,000 in the corresponding period of 1996 as a result of the factors
discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE. Total revenue decreased to $0 during the year ended December 31,
1996 from approximately $173,000 in 1995, due to the termination of both a lease
agreement and a maintenance and operating agreement between the Partnership and
the owner of the 185 route mile fiber network between Corpus Christi and
McAllen, Texas, which the Partnership designed, managed the construction of,
maintained, operated and marketed. The parties agreed to terminate the
agreements in the third quarter of 1995 due to a disagreement on the strategy of
extending the fiber network to Houston. The Partnership's sole activity in 1996
was the construction of the 260 route mile fiber network between Houston and
Corpus Christi, Texas.
OPERATING EXPENSES. Total operating expenses decreased to approximately
$228,000 from approximately $860,000 during 1995 and network access expenses
were $0 in 1996 and $503,000 in 1995 due to the discontinuation of operating and
maintenance activities in late 1995 related to the fiber network line between
Corpus Christi and McAllen, Texas.
SG&A expenses decreased from approximately $326,000 in 1995 to approximately
$174,000 in 1996. The Partnership incurred lower SG&A expenses due to the
discontinuation of operating and maintenance activities in late 1995 related to
the fiber network line between Corpus Christi and McAllen, Texas.
The Partnership's depreciation and amortization expense increased from
approximately $31,000 in 1995 to approximately $54,000 in 1996. This increase
was primarily due to the Partnership's investment in the initial segment of its
fiber network between Houston and Corpus Christi, Texas.
EXTRAORDINARY ITEM. The Partnership recorded a gain on extinguishment of
debt of approximately $645,000 in 1995 which related to forgiveness of lease
amounts due in exchange for property and equipment provided to the owner of the
Corpus Christi to McAllen fiber network line, and the forgiveness by such owner
of current and future lease payments due from the Partnership.
INCOME TAXES. The Partnership allocated net income and net losses to its
Partnership Interests. Therefore, no income taxes were recorded for 1996 or
1995.
NET LOSS. The Partnership had a net loss of approximately $228,000 in 1996
compared to a net loss of approximately $30,000 in 1995 as a result of the
factors discussed above.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130") which establishes standards for reporting and display of
comprehensive income and its components. The required disclosures for SFAS 130
will be adopted in 1998. The adoption of SFAS 130 will have no impact on the
Partnership's results of operations, financial position or cash flows and any
effect will be limited to the presentation of its disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosure About Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the manner in which business
enterprises are to report information about operating segments in its
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annual statements and requires those enterprises to report selected information
regarding operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. Financial
statements disclosures for prior periods are required to be restated. The
Partnership is in the process of evaluating the disclosure requirements. The
adoption of SFAS 131 will not have an impact on the Partnership's results of
operations, financial position or cash flows and any effect will be limited to
the presentation of its disclosures.
LIQUIDITY AND CAPITAL RESOURCES
From January 1, 1995 through December 31, 1995, the Partnership funded
capital expenditures and cash used in operations with operating cash flow and
partners' capital contributions. From January 1, 1996 through December 31, 1997,
the Partnership funded capital expenditures and cash used in operations with the
proceeds from a $10.0 million long term bank loan. The Partnership intends to
finance its operations in the future through internally and externally generated
funds without relying on contributions or guarantees from its general and
limited partners. Total cash expended during the three years ended December 31,
1997 to fund capital expenditures and loan fees on long-term debt was $9.5
million. Total cash used in operations was approximately $431,362 during the
same period. Total cash provided during this same period from proceeds under the
long-term note agreement was $9.9 million. As of December 31, 1997, the
Partnership had a working capital deficit of approximately $1.1 million. As of
March 31, 1998, the Partnership had a working capital deficit of $1.3 million.
As of January 1998, the Partnership had obtained approximately $5.0 million of
contracts for sales of dark fiber, which amounts will be paid as the Partnership
completes certain milestones under the contracts (which is expected to occur in
the fourth quarter of 1998). In addition, the Partnership obtained a loan
agreement with a bank to borrow up to $10 million for the construction, start-up
and related expenses of the Houston to Corpus Christi fiber optic network.
Approximately $9.1 million was outstanding thereunder at March 31, 1998. Accrued
interest is payable monthly. Principal payments began on March 31, 1997.
Principal payment amounts escalate from 0.5% to 3.5% of the outstanding
principal balance existing at March 31, 1997. Additional principal payments
began on June 30, 1997 based upon excess cash flow, as defined in the loan
agreement. All unpaid principal and accrued interest is due in full by December
31, 2001, subject to acceleration on August 31, 1998. Holdings intends to use
part of the proceeds from the sale of the Notes to repay indebtedness owing by
the Partnership to Bank One, Texas, N.A. If the Transaction is not consummated
by August 31, 1998 (and as a result, the net proceeds from the issuance of the
Notes are not available to Holdings), the Partnership intends to renegotiate the
terms of its loans from Bank One, Texas, N.A. If such negotiations are not
successful, the Partnership will seek additional sources of financing. No
assurance can be given that such financing will be available or, if available,
that the terms will be satisfactory. Interest is charged at the bank's prime
rate (8.25%, 8.5% and 8.5% at December 31, 1996 and 1997, and March 31, 1998,
respectively). The current portion outstanding under this loan agreement at
December 31, 1996 and 1997 and March 31, 1998 was $506,981 and $886,304 and
$891,000, respectively. The Partnership was in violation of certain covenants
requiring maintenance of debt as a percentage of adjusted net income as of
December 31, 1996 and 1997 and April 30, 1998, and also was in technical default
of a covenant requiring the lender's consent to the Transaction. The Partnership
has obtained a waiver of these covenant violations and has obtained the lender's
consent to the Transaction and has executed an amendment revising these
covenants. The Partnership anticipates that the amended covenant requirements
will be met through December 31, 1998.
The Partnership anticipates that, based on current plans and assumptions
relating to its operations, its financial resources and equipment financing
arrangements will be sufficient to fund the Partnership's growth and operations
for approximately 12 months from the date of this Joint Proxy Statement/
Prospectus only if the Partnership limits its current construction efforts and
plans. The Partnership plans to seek sources of additional capital which may
include public and private equity and debt financings and other financing
arrangements. There can be no assurance that Holdings will be successful in
raising the
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funds. If unsuccessful, the scope and plans for expansion of Telecommunications'
business and the Partnership's fiber network will be significantly curtailed.
See "Issuance of Notes."
CONTINGENCIES
The Partnership has never been a party to any litigation.
YEAR 2000
As the year 2000 approaches, the Partnership recognizes the need to ensure
its operations will not be adversely impacted by Year 2000 computer software
failures. The Partnership is addressing this issue to ensure the availability
and integrity of its financial systems and the reliability of its operational
systems. The Partnership has established processes for evaluating and managing
the risks and costs associated with this problem. The Partnership has and will
continue to make certain investments in its software systems and applications to
ensure the Partnership is Year 2000 compliant. The financial impact to the
Partnership has not yet been fully determined, however such impact is not
anticipated to have a material adverse effect on the financial condition,
results of operations or cash flow of the Partnership.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF IWL
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA, CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO AND THE OTHER HISTORICAL FINANCIAL INFORMATION OF
IWL CONTAINED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
OVERVIEW
IWL's revenues are derived from the provision of a variety of services,
including telecommunications services, project and other services and product
resales. Telecommunications services include the resale of long distance
telecommunications services, the provision of private leased lines and the
rental of telecommunications equipment and systems. IWL operates a tandem switch
at its facility in Houston, Texas to provide services as a switch-based long
distance carrier and is currently completing the installation of its Gulf Coast
regional network. Project and other services consist of the installation of
telecommunications system projects and the sale, service and maintenance of
communications systems.
In connection with product resales, IWL serves as the exclusive
manufacturer's representative of Alcatel products to the U.S. oil and gas
industry. In fiscal 1996 and 1997, IWL provided services to a subsidiary of
Shell, which included the resale of a significant amount of Alcatel products.
For the fiscal years ended June 30, 1996 and 1997, the Shell subsidiary
purchased from IWL approximately $10.6 million and $7.6 million, respectively,
of Alcatel products and other equipment and hardware, representing approximately
38.0% and 25.2%, respectively, of total sales during such periods. Although
profitable, the sale of Alcatel products to the Shell subsidiary significantly
reduced IWL's gross margin in these periods. The Shell project was substantially
completed in May 1997 and, therefore, is not expected to contribute in a
material manner to IWL's total sales in future periods.
IWL was founded in 1981 as a contract supplier of communications technology
installation and equipment leasing services, and over the ensuing years
broadened the scope of its service offerings to include microwave, two-way radio
and related wireless services and technologies for an expanded customer base,
primarily comprised of major oil and gas companies operating in the Gulf of
Mexico region. During this period, IWL began to provide an increasing variety of
services to its oil and gas customers in other remote and underdeveloped regions
around the world, including communications services for special projects with
critical timing and other extreme or unusual challenges.
To support its international expansion, in 1994 IWL began providing
telecommunications services and network support inside the former Soviet Union
to United States oil and gas customers. As IWL expanded its service offerings
and developed greater infrastructure, it commenced service as a switchless
reseller of long distance services in the United States in 1994. IWL is
continuing to expand its network through its tandem switch and the installation
of fiber optic cable and microwave radios in targeted service areas. In
connection with such expansion, IWL has also received CLEC status in Texas and
Louisiana.
While annual growth rates of IWL's total sales since 1992 have ranged from
6.3% to 76.0%, IWL's quarterly operating results have varied significantly in
the past, and can be expected to vary in the future. These fluctuations in
operating results generally are caused by a number of factors, including changes
in IWL's services and product mix, levels of product resales, adverse weather
conditions in customer locations, the degree to which IWL encounters competition
in its existing or target markets, general economic conditions, the volume and
timing of orders received during the period, sales and marketing expenses
related to entering new markets, the timing of new product or service
introductions by IWL or its competitors and changes in billing rates by IWL or
its competitors. IWL's ability to grow its revenues will be dependent upon a
number of factors, many of which are not within its control and as a result no
assurance can be given that such objectives will be met.
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In May 1998, IWL changed its fiscal year to a December 31 year end to
coincide with the fiscal years of CapRock, Telecommunications and the
Partnership and, in connection therewith, filed a December 31, 1997 transition
period Form 10-K for the transition period from June 30, 1997 to December 31,
1997.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
TOTAL REVENUES. Total revenues increased approximately $90,000 or
approximately 1.1% to approximately $8.1 million for the three months ended
March 31, 1998 from approximately $8.0 million for the three months ended March
31, 1997. This increase was comprised of an increase of approximately $506,000
or approximately 22.0% in the IWL's telecommunications services revenues, an
increase of approximately $2.1 million or approximately 65.6% in IWL's project
and other services revenues and a decrease of approximately $2.5 million or 100%
in product resales to a single customer. The increase in telecommunications
services revenues was largely attributable to increased traffic on IWL's telecom
network in the Gulf of Mexico from the continued expansion of IWL's ODDS
services. The increase in projects and other revenue resulted from increased
sales of telecommunications equipment and related services. The product resales
to a single customer were substantially completed in May 1997.
GROSS PROFIT. Gross profit increased approximately $1.3 million or
approximately 56.5% to approximately $3.6 million for the three months ended
March 31, 1998 from approximately $2.3 million for the three months ended March
31, 1997, representing gross profit of approximately 45.1% and approximately
28.8%, respectively. The increase in gross profit was due in principal part to
the completion of the product resales to a single customer in May 1997 and from
increased demand for higher margin services. Excluding product resales, gross
profit for the three months ended March 31, 1997 would have been approximately
$1.7 million representing a gross profit of approximately 31.5%.
SELLING EXPENSES. Selling expenses increased approximately $109,000 or
approximately 32.3% to approximately $446,000 for the three months ended March
31, 1998 from approximately $337,000 for the three months ended March 31, 1997.
Selling expenses as a percentage of total revenues increased to approximately
5.5% from approximately 4.2% during these respective periods. The increase in
selling expenses resulted from the addition of sales personnel and from
increases in travel and advertising.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $467,000 or approximately 35.9% to approximately $1.7
million for the three months ended March 31, 1998 from approximately $1.3
million for the three months ended March 31, 1997. As a percentage of total
revenues, general and administrative expenses increased to approximately 21.6%
for the three months ended March 31, 1998 from approximately 16.0% for the three
months ended March 31, 1997. The increases in general and administrative
expenses as a percentage of sales was primarily due to the decline in product
resales overall. The increases in the dollar amount of general and
administrative expenses over these periods were due in principal part to
increased telephone expense, insurance expense, provision for bad debts, rent
expense and legal expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased approximately $300,000 or approximately 86.5% to approximately
$647,000 for the three months ended March 31, 1998 from approximately $347,000
for the three months ended March 31, 1997. This increase was primarily
attributable to the acquisition of an additional $10.7 million of property,
plant and equipment, comprised of approximately $9.5 million in satellite,
microwave and other telecommunications equipment, approximately $1.1 million for
computers, furniture and fixtures, service vehicles and test equipment and
approximately $127,000 for building and improvements.
NET INTEREST EXPENSE. Net interest expense increased approximately $30,000
or approximately 24.0% to approximately $155,000 for the three months ended
March 31, 1998 from approximately $125,000 for the three months ended March 31,
1997. IWL's borrowings increased to approximately $10.3 million for the three
months ended March 31, 1998 from approximately $7.3 million for the three months
ended
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March 31, 1997. The increase in borrowings was used to fund acquisitions of
property, plant and equipment.
OTHER INCOME NET. Other income for the three months ended March 31, 1997
included IWL's 50% ownership interest in the earnings of Kenwood Systems Group
("Kenwood") as well as certain other asset dispositions.
INCOME TAX EXPENSE. Provision for income taxes increased approximately
$160,000 or approximately 168.4% to approximately $254,000 for the three months
ended March 31, 1998 from approximately $95,000 for the three months ended March
31, 1997 which represents an effective tax rate of approximately 39.4% and
approximately 29.3% for each period, respectively.
NET INCOME. IWL reported net income of $390,586 for the three months ended
March 31, 1998, compared to $227,847 for the three months ended March 31, 1997
as a result of the factors discussed above.
COMPARISON OF SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
TOTAL REVENUES. Total revenues decreased approximately $3.7 million or
approximately 23.5% to approximately $12.0 million for the six months ended
December 31, 1997 from approximately $15.6 million for the six months ended
December 31, 1996. This decrease was comprised of an increase of approximately
$1.2 million or approximately 33.2% in IWL's telecommunications services, a
decrease of approximately $196,000 or approximately 2.7% in IWL's project and
other services and a decrease of approximately $4.7 million or 100% in product
resales to a single customer. The increase in telecommunications services was
largely attributable to increased traffic on IWL's telecom network in the Gulf
of Mexico and the continued expansion of IWL's ODDS services in the Gulf of
Mexico. The decrease in project and other services resulted from a decrease in
product and project sales. The product resales were substantially completed in
May 1997.
GROSS PROFIT. Gross profit increased approximately $1.4 million or
approximately 36.5% to approximately $5.4 million for the six months ended
December 31, 1997 from $4.0 million for the six months ended December 31, 1996,
representing gross profit of approximately 45.2% and approximately 25.3%,
respectively. The increase in gross profit was due in principal part to the
completion of the product resales to a single customer in May 1997, which had
lower margins, and from changes in IWL's sales mix to higher margin services.
Excluding product resales, gross profit for the six months ended December 31,
1996 would have been approximately $3.9 million representing a gross profit of
approximately 36.0%.
SELLING EXPENSES. Selling expenses increased approximately $298,000 or
approximately 60.2% to approximately $793,000 for the six months ended December
31, 1997 from approximately $495,000 for the six months ended December 31, 1996.
The increase in selling expenses resulted from increased salary expenses related
to the addition of sales personnel and from increases in travel and advertising
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $598,000 or approximately 26.7% to approximately $2.8
million for the six months ended December 31, 1997 from approximately $2.2
million for the six months ended December 31, 1996. The increase in the dollar
amount of general and administrative expenses over these periods were due in
principal part to increases in salaries and personnel cost and increases in
telephone, insurance, rent, and legal expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased approximately $347,000 or approximately 54.5% to approximately
$982,000 for the six months ended December 31, 1997 from approximately $635,000
in the six months ended December 31, 1996. This increase was primarily due to
infrastructure and network expansion.
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NET INTEREST EXPENSE. Net interest expense increased approximately $4,000
or approximately 1.9% to approximately $218,000 for the six months ended
December 31, 1997 from approximately $214,000 for the six months ended December
31, 1996. The increase was comprised of an increase in interest expense of
approximately $116,000 to approximately $348,000 from approximately $232,000 for
the comparable six month period in 1996. This increase was offset by an increase
in interest income of approximately $112,000 to approximately $130,000 from
approximately $18,000 for the same six month period in 1996.
OTHER INCOME, NET. Other income for the six months ended December 31, 1997
included the gain of approximately $66,000 resulting primarily from the
disposition of IWL's 50% ownership in Kenwood, as well as certain other asset
dispositions, and from IWL's 50% ownership interest in the earnings of Kenwood
through the date of sale. Other income for the six months ended December 31,
1996 included IWL's 50% ownership interest in the earnings of Kenwood, as well
as certain other asset dispositions.
INCOME TAX EXPENSE. Provision for income taxes increased approximately
$130,000 or approximately 97.0% to approximately $265,000 for the six months
ended December 31, 1997 from approximately $134,000 for the six months ended
December 31, 1996 which represents an effective tax rate of 38.6% and 34% for
each period, respectively.
NET INCOME. IWL reported net income of $421,487 for the six months ended
December 31, 1997, compared to $260,408 for the six months ended December 31,
1996 as a result of the factors discussed above.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
TOTAL REVENUES. Total revenues increased approximately $2.5 million or
approximately 9.0% to approximately $30.3 million for fiscal 1997 from
approximately $27.8 million for fiscal 1996. This increase was comprised of an
increase of approximately $1.5 million or approximately 23.1% in IWL's
telecommunications services, an increase of approximately $4.0 million or
approximately 37.4% in IWL's project and other services and a decrease of
approximately $2.9 million or approximately 27.6% in product resales to a single
customer. The increase in telecommunications services was largely attributable
to increased traffic on IWL's telecom network in the Gulf of Mexico, an increase
in the number of ODDS units in the Gulf of Mexico, and expansion of IWL's
business outside the Gulf of Mexico. The increase in project and other services
was largely due to increases in the winning of larger projects and the
associated support revenues. The product resales were substantially completed in
May 1997 and, therefore, are not expected to contribute in a material manner to
IWL's total sales in future periods.
GROSS PROFIT. Gross profit increased approximately $1.2 million or
approximately 16.6% to approximately $8.6 million for fiscal 1997 from
approximately $7.4 million for fiscal 1996, representing gross profit of
approximately 28.4% and 26.6%, respectively. The increase in gross profit was
due in principal part to the completion of the product resales to a single
customer in May 1997. Excluding product resales, gross profit for fiscal 1997
and fiscal 1996 would have been approximately $8.0 million and $6.5 million,
respectively, representing a gross profit of approximately 35.2% and 37.7%,
respectively. The decrease in gross profit was attributable to the increase of
land mobile services (which yield lower margins) in IWL's overall service mix.
SELLING EXPENSES. Selling expenses increased approximately $299,000 or
approximately 35.5% to approximately $1.1 million for fiscal 1997 from
approximately $842,000 for fiscal 1996. Selling expenses as a percentage of
total sales increased to approximately 3.8% from 3.0% during these respective
periods. The increase in selling expenses resulted from the addition of sales
personnel and from increases in travel and advertising.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $447,000 or approximately 10.5% to approximately $4.7
million for fiscal 1997 from approximately
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$4.3 million for fiscal 1996. As a percentage of total sales, general and
administrative expenses increased to approximately 15.5% for fiscal 1997 from
approximately 15.3% for fiscal 1996. The increase in general and administrative
expenses as a percentage of sales was primarily due to the decline in product
resales overall. The increase in the dollar amount of general and administrative
expenses over these periods were due in principal part to increased telephone
expenses, insurance expenses, rent expenses and legal expenses relating to
facilities and personnel additions in Houston, Texas and Lafayette, Louisiana.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased approximately $400,000 or approximately 39.9% to approximately $1.4
million for fiscal 1997 from approximately $1.0 million in fiscal 1996. This
increase was primarily attributable to the acquisition of an additional
approximately $5.9 million of property, plant and equipment, comprised of
approximately $4.7 million in equipment for satellite, microwave and other
equipment, approximately $936,000 for computers, furniture and fixtures, service
vehicles and test equipment and approximately $285,000 for buildings and
improvements.
NET INTEREST EXPENSE. Net interest expense increased approximately $244,000
or approximately 90.4% to approximately $514,000 for fiscal 1997 from
approximately $270,000 for fiscal 1996. IWL's borrowings increased to
approximately $8.7 million for fiscal 1997 from approximately $3.9 million for
fiscal 1996. Borrowings were reduced in fiscal 1996 due to the receipt of
approximately $2.0 million from a subsidiary of Shell as a deposit under a
product resale contract. The increase in borrowings was used to fund
acquisitions of property, plant and equipment.
OTHER INCOME, NET. Other income for fiscal 1997 and 1996 resulted from
IWL's 50% ownership interest in Kenwood, as well as certain asset dispositions
affected in such periods. Such items were not material to IWL's operating
results for fiscal 1997 and 1996.
INCOME TAX EXPENSE. Provision for income taxes decreased approximately
$33,000 or approximately 10.4% to approximately $283,000 for fiscal 1997 from
approximately $316,000 for fiscal 1996 which represents an effective tax rate of
29.0% and 30.1% for each period, respectively.
NET INCOME. IWL reported net income of $689,050 for the year ended June 30,
1997, compared to $733,662 for the year ended June 30, 1996 as a result of the
factors above.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
TOTAL REVENUES. Total revenues increased by approximately $12.0 million or
approximately 75.9% to approximately $27.8 million for fiscal 1996 from
approximately $15.8 million for fiscal 1995. Of this increase, approximately
$741,000 or approximately 12.8% resulted from increases in IWL's
telecommunications services, project and other services accounted for
approximately $707,000 or approximately 7.1% of such increase, and approximately
$10.6 million, or approximately 88% of such increase, resulted in part from
product resales to a single customer. While revenues related to project and
other services were relatively constant, the increase in sales of
telecommunications services reflected continued growth of IWL's offshore
network. Excluding product resales, total sales for fiscal 1996 would have been
approximately $17.3 million. Since such product resales are expected to be
substantially completed in fiscal 1997, they are not expected to contribute in a
material manner to IWL's total sales in future periods after fiscal 1997.
GROSS PROFIT. Gross profit increased approximately $1.2 million or
approximately 19.7% to approximately $7.34 million in fiscal 1996 from
approximately $6.2 million in fiscal 1995, representing gross profit of
approximately 26.5% and 39.0%, respectively. The decrease in gross profit
primarily was due to the lower profit margin from product resales. Excluding
product resales, gross profit would have been approximately $6.5 million in
fiscal 1996, representing a gross profit of approximately 37.7%.
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SELLING EXPENSES. Selling expenses decreased approximately $20,000 or
approximately 2.4% to approximately $842,000, or approximately 3.0% of total
sales, in fiscal 1996 from approximately $862,000, or approximately 5.5% of
total sales, in fiscal 1995. Advertising and promotion expenditures increased
approximately $81,000, travel expenses increased approximately $21,000 and
salaries and employee benefits decreased approximately $110,000, which reflected
the reassignment of certain employees to other departments.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased approximately $720,000 or approximately 20.4% to approximately $4.2
million in fiscal 1996 from approximately $3.5 million in fiscal 1995. As a
percentage of total sales, general and administrative expenses decreased to
approximately 15.3% for fiscal 1996 from approximately 22.4% for fiscal 1995.
The increase in general and administrative expenses was primarily due to a
higher level of expenses in fiscal 1996 associated with the expansion of IWL's
international operations and related travel, including increased activity in
Russia and South America as well as a project in Bosnia that was started and
completed in fiscal 1996. In addition, general and administrative expenses were
higher in fiscal 1996 due to increased development of IWL's infrastructure to
accommodate growth, which resulted in increases in insurance costs and employee
compensation through an increased number of employees, increased telephone
expenses relating to increased activity in IWL's international operations and
costs associated with opening offices in Lafayette and New Orleans, Louisiana.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased approximately $182,000 or approximately 22.3% to approximately $1.0
million in fiscal 1996 from approximately $820,000 in fiscal 1995. This increase
was principally attributable to an additional $1.2 million of property, plant
and equipment, comprised of approximately $621,000 for satellite, microwave and
other telecommunications equipment, and approximately $579,000 for computers,
furniture and fixtures, service vehicles and test equipment.
NET INTEREST EXPENSE. Net interest expense increased approximately $26,000
or approximately 10.6% to approximately $270,000 in fiscal 1996 from
approximately $244,000 in fiscal 1995. The increase in interest expense was due
to an increase of approximately $350,000 in borrowings under IWL's credit lines.
Interest expense was minimized during fiscal 1996 as a result of a $2.0 million
deposit received from Shell under a product resale contract.
OTHER INCOME, NET. Other income in fiscal 1996 and fiscal 1995 resulted
from IWL's 50% ownership interest in Kenwood, as well as certain asset
dispositions affected in such periods. Such items were not material to IWL's
operating results in fiscal 1996 or fiscal 1995.
INCOME TAX EXPENSE. Provision for income taxes increased approximately
$23,000 or approximately 7.8% to approximately $316,000 in fiscal 1996,
representing an effective income tax rate of 30.0%, from approximately $293,000
in fiscal 1995, representing an effective tax rate of 35.4%. The decrease in the
effective tax rate in fiscal 1996 primarily was due to the availability of
foreign tax credits in such year.
NET INCOME. IWL reported net income of $733,662 for the year ended June 30,
1996, compared to $535,641 for the year ended June 30, 1995 as a result of the
factors discussed above.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS 128 effective for financial
statements issued for periods ending after December 15, 1997. SFAS 128
establishes standards for computing and presenting earnings per share and
supersedes APB No. 15, "Earnings Per Share." IWL adopted SFAS 128 and all prior
periods have been restated to conform with the requirements of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130") which establishes standards for reporting and display of
comprehensive income and its components. The
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required disclosures for SFAS 130 will be included in the quarterly reports on
Form 10-Q in 1998. The adoption of SFAS 130 will have no impact on IWL's results
of operations, financial position or cash flows and any effect will be limited
to the presentation of its disclosures.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes standards
for the manner in which business enterprises are to report information about
operating segments in its annual statements and requires those enterprises to
report selected information regarding operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for fiscal years beginning after December 15, 1997.
Financial statements disclosures for prior periods are required to be restated.
IWL is in the process of evaluating the disclosure requirements. The adoption of
SFAS 131 will not have an impact on IWL's results of operations, financial
position or cash flows and any effect will be limited to the presentation of its
disclosures.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, IWL borrowed an additional net
amount of approximately $679,000 from credit facilities, and received
approximately $25,000 from the sale and issuance of IWL's common stock. IWL
invested approximately $2.8 million in property and equipment (net of proceeds
of approximately $73,000 from certain dispositions of assets) and also expended
approximately $610,000 to acquire Integrated Communications and Engineering,
LTD. in January, 1998. IWL's cash balance decreased by approximately $2.6
million to a balance of approximately $720,000 at March 31, 1998. IWL had a
working capital deficit of approximately $400,000 at March 31, 1998. The
reduction in IWL's working capital at March 31, 1998 was the result of, among
other factors, the reclassification of IWL's Working Capital Loan (as defined
below) to current liabilities from long-term debt. During the twelve months
ended December 31, 1997, IWL generated approximately $2.2 million of cash in
operating activities, borrowed an additional net amount of approximately $3.6
million from credit facilities, and received approximately $7.3 million from the
sale and issuance of IWL common stock. IWL invested approximately $10.6 million
in property and equipment (net of proceeds of approximately $115,000 from
certain dispositions of assets) and realized proceeds of approximately $529,000
from the disposition of its investment in an unconsolidated subsidiary. These
activities increased IWL's cash balance by approximately $3.0 million to a
balance of approximately $3.3 million at December 31, 1997. IWL had working
capital of approximately $1.3 million at December 31, 1997.
IWL has four credit facilities with Bank One, Texas, N.A., its primary
lender, to provide working capital and to finance equipment to be leased by IWL
to its customers. IWL has a secured revolving line of credit (the "Working
Capital Loan"), a secured guidance line of credit (the "Guidance Line"), a term
facility (the "Term Loan") and a short-term facility issued on June 17, 1998
under the existing revolving credit agreement ("Short-Term Facility") from Bank
One, Texas, N.A. The maximum amount of the Working Capital Loan is $5.0 million
subject to a borrowing base based on accounts receivables and inventory. The
maximum amount of the Guidance Line is $5.0 million, which is used to finance
IWL's purchase and subsequent lease of telecommunications equipment. The Term
Loan, the Short-Term Facility and the Working Capital Loan are collateralized by
substantially all of the personal property of IWL. IWL had approximately $1.2
million available under the Working Capital Loan at March 31, 1998 and $500,000
available under the Guidance Line. The Guidance Line is reduced by the term loan
created as the leased equipment is deployed. The interest rate on each facility
is, at IWL's option, Bank One, Texas, N.A.'s base rate or 30, 60 or 90 day
adjusted LIBOR plus 2.40%. The interest rate will be subject to downward
adjustment in certain circumstances as specified in the credit agreement. The
Guidance Line expired on June 30, 1998. Borrowing availability under the Working
Capital Loan is based upon eligible accounts receivable and inventory, and a fee
equal to 0.25% will be charged on any unused portion of the Working Capital
Loan. IWL was in violation of the financial covenant requiring maintenance of a
current ratio as of
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December 31, 1997 and March 31, 1998 and was in technical default of a covenant
requiring the lender's consent to the Transaction. IWL has obtained a waiver of
these covenant violations and has obtained the lender's consent to the
Transaction. On June 17, 1998, the lender extended IWL additional credit under
the Short-Term Facility of up to $4.0 million. The Short-Term Facility, the Term
Loan and the Working Capital Loan and all other amounts due the lender will
mature on August 31, 1998. Holdings intends to use part of the proceeds from the
sale of the Notes to repay indebtedness owing by IWL to Bank One, Texas, N.A. If
the Transaction is not consummated by August 31, 1998 (and as a result, the net
proceeds from the issuance of the Notes are not available to Holdings), IWL
intends to renegotiate the terms of its loans from Bank One, Texas, N.A. If such
negotiations are not successful, IWL will seek additional sources of financing.
No assurance can be given that such financing will be available or, if
available, that the terms will be satisfactory.
IWL anticipates that, based on current plans and assumptions relating to its
operations, its financial resources and equipment financing arrangements will be
sufficient to fund IWL's growth and operations for approximately 12 months from
the date of this Joint Proxy Statement/Prospectus. IWL believes that its capital
needs at the end of such period will continue to be significant and, therefore,
IWL will continue to seek additional sources of capital. Further, in the event
IWL's plans or assumptions change or prove to be inaccurate, or if IWL
consummates any unplanned acquisitions of businesses or assets, IWL may be
required to seek additional sources of capital sooner than currently
anticipated. Sources of additional capital may include public and private equity
and debt financings, sales of nonstrategic assets and other financing
arrangements. See "Issuance of Notes."
CONTINGENCIES
IWL is not currently a party to any litigation. However, IWL is from time to
time a party to ordinary litigation incidental to its business, none of which is
expected to have a material adverse effect on the results of operations,
financial condition or cash flow of IWL.
YEAR 2000
As the year 2000 approaches, IWL recognizes the need to ensure its
operations will not be adversely impacted by Year 2000 computer software
failures. IWL is addressing this issue to ensure the availability and integrity
of its financial systems and the reliability of its operational systems. IWL has
established processes for evaluating and managing the risks and costs associated
with this problem. IWL has and will continue to make certain investments in its
software systems and applications to ensure IWL is Year 2000 compliant. The
financial impact to IWL has not yet been fully determined, however such impact
is not anticipated to have a material adverse effect on the financial condition,
results of operations or cash flow of IWL.
RECENT DEVELOPMENTS
Based upon preliminary results for the quarter ended June 30, 1998, IWL's
revenues for such quarter are expected to be between $8.2 million and $8.4
million and its net income for such quarter is expected to be between $1,000 and
$100,000. For the quarter ended June 30, 1997, IWL had revenues of $6.8 million
and net income of approximately $200,000.
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ISSUANCE OF NOTES
On July 16, 1998, Holdings, Telecommunications and the Partnership (with IWL
as a guarantor of certain obligations with respect to the Notes) sold the Notes
through a private placement under Rule 144A under the Securities Act. The
aggregate principal amount of the Notes was $150.0 million and maturity date of
the Notes is ten years after the date of their issuance, with an interest rate
on the Notes of 12% per annum payable semi-annually in cash, commencing January
15, 1999. The Notes are senior unsecured obligations of Holdings and, as such,
will rank PARI PASSU in right of payment with all existing and future unsecured
and unsubordinated indebtedness of Holdings. Holdings, Telecommunications and
the Partnership (with IWL as a guarantor) will be required to make an offer to
purchase the Notes at 101% of their principal amount, plus accrued and unpaid
interest to the date of repayment, in the event that the Transaction is not
consummated and certain other conditions are not satisfied by August 31, 1998,
or if it appears, in the sole judgment of Holdings, Telecommunications, the
Partnership and IWL, that the Transaction will not be consummated or such
conditions will not be satisfied by such date. Prior to the earlier of (i) the
date on which the Transaction is consummated and certain other conditions are
satisfied and (ii) the payment date for all Notes tendered in such offer to
purchase, approximately $145.0 million of the net proceeds from the offering of
the Notes will be held in an escrow account pursuant to the terms of the Escrow
Agreement. To the extent amounts held in the escrow account are insufficient to
repurchase Notes tendered pursuant to such offer to purchase, Holdings,
Telecommunications, the Partnership and IWL (as guarantor) have jointly and
severally agreed to repay such amounts (with an estimated contingent liability
of not more than approximately $7.0 million). There can be no assurance that
Holdings, Telecommunications, the Partnership and IWL will have sufficient funds
available at the time of such offer to purchase to repay all Notes tendered.
Following payment of all Notes tendered in such offer to purchase, if any Notes
remain outstanding, Holdings and IWL will be released from their obligations
under the Notes and Telecommunications and the Partnership will be required to
effect either a statutory merger or interest exchange within 60 days after the
payment of all Notes tendered in such offer to purchase. In the event the
Transaction is consummated by August 31, 1998, Telecommunications and the
Partnership will be released from the Notes (and IWL will be released from its
obligations under such offer to purchase), and Holdings will be the sole obligor
thereunder.
Assuming the Transaction is consummated prior to August 31, 1998, Holdings
intends to use the net proceeds from the issuance of the Notes, which are
expected to be approximately $144.4 million after deduction of discounts and
estimated expenses payable by Holdings (i) to fund additional capital
expenditures for the construction and operation of its fiber optic network, (ii)
fund the installation of voice and data switches, (iii) open sales offices and
add sales support and customer service personnel, in markets throughout Texas
and the Gulf Coast region, (iv) to repay approximately $21.7 million of
outstanding indebtedness, and (v) for potential acquisitions and additional
working capital and other general corporate purposes.
The indenture (the "Indenture") that governs the Notes contains certain
covenants including, among other things, covenants with respect to the following
matters: (i) limitation on additional indebtedness, (ii) limitation on certain
restricted payments, (iii) limitation on dividends and other payment
restrictions affecting certain restricted subsidiaries, (iv) limitation on
issuances and sales of capital stock of certain restricted subsidiaries, (v)
limitation on issuances of guarantees by certain restricted subsidiaries, (vi)
limitation on transactions with stockholders and affiliates, (vii) limitation on
liens, (viii) limitation on any sale lease-back transactions, (ix) limitation on
certain asset sales, and (x) providing copies of periodic reports. Certain
covenants are subject to a number of important qualifications and exceptions.
The Notes will not initially be registered under the Securities Act, provided
that Holdings has agreed, pursuant to a registration rights agreement entered
into concurrently with the issuance of the Notes, to file a registration
statement with respect to an offer to exchange the Notes for senior debt
securities of Holdings with terms identical to the Notes (except that such
exchange notes will not contain terms with respect to transfer restrictions).
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INFORMATION REGARDING TELECOMMUNICATIONS
BUSINESS
Telecommunications commenced operations in Dallas, Texas in 1992. It is a
facilities-based provider of voice, data and broadband communications services
to interexchange carriers and other communications entities and to businesses
and consumers. Telecommunications was a switchless, non-facilities based
reseller of long distance services prior to the investment by CapRock Investors
in April 1994. The decision to become facilities based was made in October 1994.
Thereafter, the manner in which Telecommunications delivered products changed,
but the products remained essentially the same. In 1997, Telecommunications'
revenues more than doubled, growing from $23.2 million in 1996 to $46.7 million,
and a $183,000 loss in 1996 improved to $1.8 million of net income in 1997.
Telecommunications' volume of monthly long
distance minutes of traffic has grown from approximately 3.0 million minutes in
April 1994 to approximately 75 million minutes in April 1998. The number of
Telecommunications' full-time employees has increased from approximately 42 on
December 31, 1996 to approximately 81 on April 30, 1998.
Telecommunications' early strategy was to double in size every year, to grow
from internal cash flow, to develop the internal systems and processes to
support its growth, and once cash flow from carrier services generated excess
capital, to build a commercial services division. In mid-1996,
Telecommunications began investing in the infrastructure to support commercial
sales activities. As a result, Telecommunications' commercial sales grew
five-fold in 1997 over 1996 and now represents approximately 30% of sales. At
April 30, 1998, Telecommunications had a direct sales force of 11 carrier and 29
commercial sales people. Telecommunications also has an agent sales force
numbering approximately 100 independent agents throughout Texas.
Telecommunications owns a DSC DEX 600 switch in Dallas, Texas, and a smaller
PC-based switch used to provide calling card services. To extend
Telecommunications' reach across the Southwest and to lower its terminating
costs in the Western United States, Telecommunications has acquired a second DEX
600 switch, which is currently being installed in Phoenix, Arizona.
Telecommunications intends to install an advanced mainframe switch capable of
providing local and long distance services in Houston, Texas in the second half
of 1998.
Telecommunications' provisioning, customer care, convergent billing and
network traffic reporting functions are performed on a proprietary software
platform, which is being developed by RiverRock, a limited partnership in which
Telecommunications is a limited partner. Telecommunications believes that this
platform is scalable, flexible and well suited to support Telecommunications'
strategy to minimize the timing to initiate local and long distance services for
new customers, to provide detailed and customized customer billing information,
to respond quickly to customers' needs and information requests, and to provide
convergent billing for local, long distance, data and private line services. See
"Information Regarding Telecommunications--Business--Customer Care and Support
Systems."
Telecommunications currently has over 30 carrier customers including AT&T,
IXC, MCI, Qwest and Sprint, as well as various regional independent telephone
companies, such as Century Telephone Enterprises, Inc. and Lufkin Conroe
Telephone. Telecommunications offers its commercial customers flat rate pricing
with rates generally lower than those of AT&T, MCI, Sprint and WorldCom.
Telecommunications has introduced various LEC Services to customers by acquiring
such services from various ILECs on a bundled basis and reselling them.
Telecommunications also offers frame-relay and ATM data products, as well as
broadband services that it resells over the networks of other carriers.
PRODUCTS AND SERVICES
INTEGRATED COMMUNICATIONS SERVICES
Telecommunications currently offers, on a non-integrated basis, local,
domestic and international long distance, data (including ATM, frame relay, and
Internet) and broadband (including T-1, DS-3 and dark
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fiber) services. By the end of 1998, Telecommunications intends to offer these
services to customers as an integrated suite of products that will be invoiced
on a single, convergent bill. Telecommunications believes that its ability to
provide an integrated package of communications services, to provide, install
and maintain a broad range of communications equipment and to invoice these
services on a single, convergent bill will enable it to (i) rapidly penetrate
its targeted markets, (ii) capture virtually all of its existing and newly
acquired customers' expenditures for telecommunications services and equipment,
(iii) increase customer satisfaction, and (iv) reduce customer turnover.
Telecommunications offers (or, where indicated, intends to offer) the
following products:
ONE PLUS LONG DISTANCE. This service offers customers the ability to make
outbound switched long distance calls by simply dialing a 1, plus the area code
and phone number. Customers select Telecommunications as their primary long
distance provider by placing an order with it. This service may be used for both
domestic and international calling.
LONG DISTANCE DEDICATED SERVICE. This service is designed for larger users
with sufficient long distance traffic volume to warrant the use of dedicated
lines directly to the customer to originate calls. Instead of long distance
calls switched through the ILEC, this service uses a dedicated line that
directly connects the end user and Telecommunications' switch. This eliminates
ILEC originating access fees and reduces per minute rates to the user.
LOCAL EXCHANGE SERVICES. These services offer customers local switched and
enhanced services. Telecommunications intends to continue to obtain local
telephone services from ILECs on a wholesale basis and resell such services to
end-users. As the demand for LEC services in an area economically justifies the
introduction of a local switch, Telecommunications intends to purchase unbundled
network elements from ILECs and to begin utilizing its own value-added switching
facilities. Telecommunications believes this approach will significantly boost
its margins and return on invested capital, and will reduce the time required to
enter new markets.
INTERNET. Telecommunications currently provides Internet services to
approximately 1,000 customers. The services include a mail server, news server,
and hosting of customer web pages.
INTERNET TELEPHONY. Telecommunications plans to introduce IP Telephony
services based on voice over IP protocols in major Texas markets. Service will
be expanded to other Texas markets in conjunction with the planned fiber network
build out. Telecommunications plans to offer its Internet customers long
distance services at significant discounts to basic rates offered by most IXCs.
DATA. Telecommunications' fiber network has been designed with SONET
technology and broadband capabilities to provide a platform to support high
capacity, bandwidth intensive products such as frame relay, ATM, multi-media,
and Internet-related applications. Telecommunications currently resells data
products and intends to migrate those services onto its own network as that
network is built out.
CUSTOMER PREMISE EQUIPMENT. Telecommunications currently sells and installs
telephone and switchboard equipment to its offshore customers.
Telecommunications intends to add office switchboard and private branch exchange
equipment for its small and medium-sized business customers. Telecommunications
already has and intends to build its relationships with local customer premise
equipment installation companies in all of its markets for the purpose of
selling and installing customer premise equipment not otherwise provided by
Telecommunications.
TOLL FREE 800/888. This inbound service, where the receiving party pays for
the call, is accessed by dialing an 800/888 area code. This is used in a wide
variety of applications, many of which generate revenue for the user (such as
reservation centers or customer service centers).
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CALLING CARD. These traditional, basic telephone calling cards allow the
user to place calls from anywhere in the United States or Canada.
Telecommunications offers additional features such as conference calling,
international origination and speed dialing.
PREPAID CARD. Prepaid cards allow a customer to purchase and pay in advance
for a card with a fixed amount of calling time. The card is then used as a
standard calling card from which time is deducted when used. Prepaid cards may
be purchased with enhanced features similar to those of calling cards and also
may be renewed by purchasing additional time.
CARRIER SERVICES
Telecommunications' business objective is to establish itself as the premier
carriers' carrier within Texas and the Gulf Coast region, providing voice, data
and bandwidth services over the approximately 4,300 route mile advanced fiber
network that the Partnership intends to build throughout the region.
Telecommunications carrier services consist of three principal products: the
transmission of long distance traffic processed through Telecommunications'
switches ("long distance switched services"), the sale and leasing of dark fiber
over Telecommunications' facilities ("dark fiber"), and the transmission of
voice and data over dedicated circuits ("private lines"). Telecommunications'
carrier customer base includes more than 30 national carriers, including AT&T,
WorldCom, MCI, Sprint, IXC, Qwest, as well as regional independents such as
Century Telephone, Lufkin Conroe Telephone and Pioneer Telephone Company.
LONG DISTANCE SWITCHED SERVICES. The domestic and international long
distance switched services provided by Telecommunications are processed through
Telecommunications' digital switches and carried over long distance circuits and
other transmission facilities owned or leased by Telecommunications.
Telecommunications sells these services on a per-call basis, charging by minutes
of use ("MOU"), with payment due monthly after services are rendered.
Telecommunications' volume of monthly long distance minutes of traffic has grown
from approximately 3.0 million minutes in April 1994 to approximately 75 million
minutes in April 1998, which included approximately 4.5 million minutes of
traffic terminated in Mexico.
PRIVATE LINE SERVICES. Telecommunications' private line customers include
non-facilities based carriers requiring dedicated long distance transmission
capacity to carry their customers' long distance traffic and facilities-based
carriers that require long distance transmission capacity where they have
geographic gaps in their facilities, and additional capacity or require
geographically diverse routing. Services are provided through private line
contracts, requiring fixed monthly payments, generally in advance, some of which
contain "take or pay" commitments.
SALES AND MARKETING
INTEGRATED COMMUNICATIONS SERVICES. Telecommunications focuses its retail
sales efforts on small to medium-sized businesses in Texas and the Gulf Coast
region. Telecommunications markets its integrated telecommunications services
primarily through two channels: Telecommunications' direct sales force and its
network of independent sales agents.
Telecommunications' direct sales force consisted of 11 account executives in
Dallas, Texas as of April 30, 1998. Telecommunications also has 100 independent
sales agents located throughout Texas. Telecommunications intends to recruit,
train and deploy an additional 75 account executives by the end of 1998 and an
additional 100 account executives by the end of 1999. Telecommunications' sales
personnel call on prospective and existing business customers, conduct analyses
of business customers' telecommunications usage histories and service needs, and
demonstrate how Telecommunications' various service packages will improve a
customer's communications capabilities in a cost-effective manner. Sales
personnel identify potential business customers by several methods, including
customer referral, marketing research, telemarketing and other networking
alliances such as endorsement agreements with trade
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associations and local chambers of commerce. Telecommunications' sales personnel
work closely with Telecommunications' engineers and field support specialists to
address customers' network and service delivery needs and to design new service
products and applications for customers.
Telecommunications' agent program, established in 1996, is a network of
independent telephone equipment vendors and other agents authorized by
Telecommunications to market its products and services. As of May 31, 1998,
approximately 100 agents were participating in the agent program. Authorized
agents receive recurring commissions based on products and services sold, volume
of usage and retention of the customer. Telecommunications has four agent
managers who actively recruit new agents.
Telecommunications' direct sales force and its authorized agents are trained
to emphasize Telecommunications' customer focused sales and customer service
approach. Telecommunications reinforces this approach by tying a portion of each
account executive's and agent's compensation directly to the longevity of their
customer accounts. Telecommunications' marketing strategy is built upon the
belief that customers prefer to have one company serve all of their
telecommunications needs. As part of this strategy, Telecommunications generally
assigns to each customer its own dedicated field support specialist, thereby
providing the customer with a single point of contact to address its
telecommunications needs with a combination of products and services designed to
meet the customer's needs. Telecommunications believes that this personalized
attention to a business needs, coupled with Telecommunications' ability to
provide one fully integrated billing statement for all of the services that it
offers, is appealing to both existing and prospective customers.
Telecommunications intends to rapidly build its direct sales force
throughout Texas, Louisiana and Oklahoma over the next two years.
Telecommunications intends to recruit new account executives by emphasizing the
Company's extensive and advanced fiber communications network, attractive
compensation and commission plans, stock option programs, and marketing support
plans. Additionally, Telecommunications believes it will be able to attract and
retain highly qualified sales and support personnel by offering them the
opportunity to: (i) work with an experienced and success proven management team
in building a developing, entrepreneurial company; (ii) market an integrated
package of communications products and services; and (iii) participate in the
potential economic returns made available through a results oriented
compensation package emphasizing sales commissions and equity incentives.
CARRIER SERVICES. Telecommunications established a carrier services sales
force in 1992. This group markets carrier services to telecommunications
carriers and other large end-user customers. Telecommunications believes it can
compete effectively in this market based on a combination of price, reliability,
advanced technology, route diversity, ease of ordering and customer service.
Telecommunications markets its carrier services primarily through five direct
sales personnel and four support specialists located in Telecommunications'
headquarters in Dallas. In general, these sales professionals locate potential
customers for Telecommunications' carrier services through customer referrals,
trade shows and industry alliances. When calling on a potential customer,
Telecommunications' sales professionals work with network engineers to gain a
better understanding of the customer's operations and bulk telecommunications
transmission needs to develop innovative application-specific solutions for each
customer's requirements. Telecommunications also markets its carrier services
through trade forums and generally attends industry trade shows.
COMPETITION AND GOVERNMENT REGULATION
The telecommunications industry and Telecommunications' provision of
communications services is subject to intense competition and extensive federal
and state regulation. See "Competition" and "Regulation and Licenses."
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CUSTOMER CARE AND SUPPORT SYSTEMS
Telecommunications strives to provide superior customer care and support for
its customers and believes that personal contact with its customers through
customer service representatives is a significant factor in customer acquisition
and retention. Telecommunications intends for the number of customer service
agents to grow rapidly through 1999 as the number of direct and agent sales
representatives grows.
Telecommunications operates a call center in Dallas, Texas staffed by
Telecommunications' customer service employees, who have completed a
certification and training program provided by Telecommunications. To enhance
the effectiveness of the customer service representatives, Telecommunications,
in addition to the initial training program, provides ongoing training to all
customer service representatives. Telecommunications' customer service
department uses on-line, real-time automated systems that provide notes from all
prior contacts with the customer, and provide a complete account and payment
history for customers directly billed by Telecommunications. Through this
proprietary contact management software, Telecommunications is able to provide a
high level of customer care. As Telecommunications' sales force and operations
expand, Telecommunications intends to recruit and train additional sales
personnel to support its operations.
Telecommunications handles its provisioning, customer care, convergent
billing and traffic reporting functions on a proprietary software platform ("OSS
System") currently being developed by RiverRock, a limited partnership in which
Telecommunications is a limited partner. The OSS System has been in use since
January 1997 and continues to be enhanced. The OSS System is required to enter,
schedule and track a customer's order from the point of sale to the installation
and testing of service and also include or interface with trouble management,
inventory, billing, collection and customer service systems. The OSS System is
scalable and flexible to support Telecommunications' expected future back office
requirements. The OSS System, when fully implemented, will enable
Telecommunications to: (i) minimize the time to initiate local and long distance
services for new customers through the ILEC (commonly referred to as
provisioning), (ii) provide detailed and customized customer billing
information, (iii) respond quickly to customer's needs and information requests,
and (iv) monitor and analyze traffic, financial and operating trends.
Telecommunications believes that the OSS System, when fully implemented, will
provide a significant competitive advantage in terms of cost, ability to process
large order volumes and customer service as compared to ILECs using legacy
systems and CLECs that outsource back-office services or that do not have an
advanced OSS platform. See "--Related Party Transactions."
EMPLOYEES
As of April 30, 1998, Telecommunications employed 81 employees of which
approximately 12 perform corporate and administrative services, approximately 9
provide Network Construction Services, approximately 29 provide Commercial
Services, approximately 11 provide Carrier Services, and approximately 20
perform network operations and related functions.
PROPERTIES
Telecommunications operates out of three separate locations in Dallas, Texas
consisting of approximately 19,200 square feet of general and administrative
office space under leases that expire at various times in the future. As of
April 30, 1998, Telecommunications was negotiating leases for switch sites in
both Phoenix, Arizona and Houston, Texas. Telecommunications believes that
suitable additional space will be available, as needed, to accommodate further
physical expansion of corporate operations.
LEGAL PROCEEDINGS
Telecommunications is party to ordinary litigation incidental to its
business, none of which is expected to have a material adverse effect on the
results of operations, financial condition or cash flow of Telecommunications.
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DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding the directors and
executive officers of Telecommunications as of June 15, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Jere W. Thompson, Sr............ 66 Chairman of the Board and Director
Jere W. Thompson, Jr............ 41 President and Director
Timothy M. Terrell.............. 35 Executive Vice President and Director
Timothy W. Rogers............... 35 Executive Vice President and Director
Scott L. Roberts................ 36 Executive Vice President and Director
Mark Langdale................... 44 Director
</TABLE>
Jere W. Thompson, Sr. has served as Chairman and a Director of
Telecommunications since April 1994. Mr. Thompson joined The Southland
Corporation in 1956 and served in various capacities, including President from
1973 and President and Chief Executive Officer from May 1986 to March 1991, and
as a director from 1962 through 1996. Mr. Thompson is president of The
Williamsburg Corporation, an investment company which owns shares of
Telecommunications Common Stock, and has served in such capacity since its
inception in 1958. Mr. Thompson currently serves as Chairman of the National
Center of Policy Analysis and on the boards of directors of The Communities
Foundation of Texas, The Brady Center, The University of Texas Chancellor's
Council, The University of Texas Development Board, the Longhorn Foundation, The
St. Paul Medical Center Foundation and The Catholic Charities Foundation. Mr.
Thompson has a B.A. in Business from The University of Texas and is the father
of Jere W. Thompson, Jr.
Jere W. Thompson, Jr. has served as President of Telecommunications since
April 1994. In July 1992, Mr. Thompson founded the Partnership and is President
of its General Partner. From 1978 to 1980, Mr. Thompson worked at Goldman, Sachs
& Co. as an analyst in its Investment Banking Division. From 1980 through 1982,
Mr. Thompson attended graduate school at The University of Texas Graduate School
of Business. From 1982 to 1986, Mr. Thompson worked in commercial real estate as
a broker and then with Trammell Crow Community Development Company. In 1987, he
joined The Thompson Company where he became a Vice President and assisted in the
acquisition and management of several of The Thompson Company portfolio
companies. Since 1989 Mr. Thompson has been a member of the board of directors
and since 1995 he has served as Chairman of the North Texas Tollway Authority
and its predecessor, the Texas Turnpike Authority. Mr. Thompson is also a board
member of The Cistercian Preparatory School. Mr. Thompson has a B.A. in
Economics from Stanford University and an M.B.A. from the University of Texas
Graduate School of Business.
Timothy M. Terrell has served as Executive Vice President and a Director of
Telecommunications since April 1994. In 1992, Mr. Terrell co-founded Synergy
Telecommunications, Inc. ("Synergy"), a telecommunications company responsible
for marketing a fiber optic network in West Texas, Oklahoma, Colorado and New
Mexico and from February 1993 to April 1994 served as one of its three executive
officers. In April 1994, CapRock Investors purchased half of Synergy and
subsequently Synergy changed its name to Telecommunications. From November 1986
to June 1988, Mr. Terrell was a major account representative with Sprint. From
July 1988 to January 1989, Mr. Terrell held the same position at Metromedia Long
Distance. From February 1989 to January 1993, Mr. Terrell was Director of Sales
of Qwest and acted as Vice President of Sales during a transition period
following Qwest's buyout by MCI. Mr. Terrell has a B.B.A. in Marketing from
Southwest Texas State University.
Timothy W. Rogers has served as Executive Vice President and a Director of
Telecommunications since April 1994. In 1992, Mr. Rogers was a co-founder of
Synergy and from February 1992 to April 1994 served as one of its three
executive officers. From August 1989 to December 1991, Mr. Rogers was a sales
manager of Qwest. From July 1988 to August 1989, Mr. Rogers was a Senior Account
Executive for
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Southwest Network Services. From April 1987 to June 1988, Mr. Rogers was an
account executive with Sprint. Mr. Rogers has a B.B.A. in Marketing from
Southwest Texas State University.
Scott L. Roberts has served as Executive Vice President and a Director of
Telecommunications since April 1994. In 1992, Mr. Roberts co-founded Synergy and
served as one of its three executive officers from February 1992 to April 1994.
From September 1989 to February 1992, Mr. Roberts was a carrier sales manager of
Qwest. From April 1987 to September 1989, Mr. Roberts was a major account
representative with Sprint. Mr. Roberts has a B.S. in Business Administration
from the University of Nebraska.
Mark Langdale has served as a Director of Telecommunications since April
1994 and Secretary of the General Partner since 1992. Mr. Langdale is President
of Posadas USA, Inc., a subsidiary of Grupo Posadas S.A. De C.V., a hotel
management company domiciled in Mexico, a position he has held since 1989. From
1987 to 1989, he served as Vice President for Thompson Realty Company, a real
estate investment company. Mr. Langdale currently serves as a member of the
Board of Directors of Grupo Posadas S.A. De C.V., a director of the Texas
Department of Commerce Policy Board and as Chairman of the Texas Department of
Economic Development.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table set forth certain
compensation awarded or paid by Telecommunications to its President and the
other executive officers of Telecommunications whose total annual salary and
bonus for services to Telecommunications exceeded $100,000 in the fiscal year
ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (SHARES) COMPENSATION
- -------------------------------------------------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Jere W. Thompson, Jr.................................... $ 122,283 $ 100,000(1) -- --
President
Timothy M. Terrell...................................... $ 125,781 $ 125,000(1) -- --
Executive Vice President
Timothy W. Rogers....................................... $ 126,814 $ 125,000(1) -- --
Executive Vice President
Scott L. Roberts........................................ $ 124,521 $ 125,000(1) -- $ 4,937(2)
Executive Vice President
</TABLE>
- ------------------------
(1) Represents bonus amount earned in fiscal year 1997 and paid in fiscal year
1998.
(2) Represents payment of club dues for Mr. Roberts.
EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS
Telecommunications entered into employment agreements with Vice Presidents
Timothy W. Rogers, Timothy M. Terrell and Scott L. Roberts in April 1994. The
agreements had contract terms from April 1994 to April 2000, with base
compensation as provided for in the agreements. The agreements included an
annual bonus of $25,000 per individual to be paid April 15th (or accrued if not
paid), through April 2000. The agreements were terminated in connection with new
agreements entered into with Holdings in connection with the Transaction.
Telecommunications established a nonqualified stock option plan in September
1997. Options granted under this plan vest 20% per year and have a term of ten
years. Vesting accelerates in the event of an initial
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public offering or a change of control; however, the Transaction does not cause
such acceleration of vesting to occur. In September 1997, Telecommunications
granted approximately 208,550 options under such plan to employees. These
options will be assumed by Holdings in connection with the Transaction.
Telecommunications established a 401(k) Savings Plan as of July 1, 1996.
Contributions to the plan include employer discretionary contributions and
discretionary matching contributions. Employees vest in employer match and are
fully vested after six years of service. A favorable determination letter was
received by the IRS on November 17, 1997.
RELATED PARTY TRANSACTIONS
Telecommunications' OSS System is being developed by RiverRock, a limited
partnership in which Telecommunications owns a 49% limited partnership interest
and David E. Thompson owns a 50% limited partnership interest and of which
Thompson Technology, Inc., a Texas corporation ("TTI") (which is owned by David
E. Thompson, a brother of Jere W. Thompson, Jr.) is the general partner and owns
a 1% general partnership interest. Although it is the intention of RiverRock to
market and sell licenses for the OSS System to third parties, to date no
marketing or sales to third parties have been made. RiverRock was formed when
Telecommunications and TTI transferred all rights to the OSS System developed by
Telecommunications and TTI into RiverRock. Telecommunications has been granted a
royalty-free, perpetual and non-exclusive license for the use of the OSS System.
Telecommunications also receives upgrades, maintenance and other support from
RiverRock for three years, without the payment of any fees or royalties.
Thereafter, Telecommunications will be required to pay the same fees and
royalties for OSS System upgrades, maintenance and support as other licensees of
RiverRock. From January 1998 to May 1998, Telecommunications contributed an
average of $19,000 a month to RiverRock for the development of the OSS System
and has committed to fund up to a total of $700,000 as capital contributions to
RiverRock, which will be used for the continued development of the OSS System.
See "--Customer Care and Support Systems."
The Williamsburg Corporation, a Texas corporation of which Jere W. Thompson,
Sr., Chairman of the Board and a director of Telecommunications, is the
president, lent Telecommunications $1,170,000 in 1995 at the rate of 13% per
annum and payable on demand or the due date of March 31, 1998. During the fiscal
year ended December 31, 1995, The Williamsburg Corporation converted $750,000 of
the outstanding principal and interest amount of such note into 727,925 shares
of Telecommunications common stock. The remaining principal balance of the note,
together with interest thereon, was repaid by Telecommunications during the
fiscal year ended December 31, 1997. Jere W. Thompson, Sr. is the father of Jere
W. Thompson, Jr.
The Partnership has an administrative services agreement with
Telecommunications pursuant to which Telecommunications and its employees
provide administrative and management services for the Partnership. The
Partnership reimburses Telecommunications for the direct costs of the network,
plus 5%. The total general and administrative expenses reimbursed were $0,
$77,000 and $150,948 for the years ended December 31, 1995, 1996 and 1997,
respectively. In addition, as payment for marketing services, the Partnership
will pay 7% of any additional lease payments generated as a result of
Telecommunications efforts. There were no payments made in 1995, 1996 and 1997.
Holdings intends to terminate the administrative services agreement upon
completion of the Transaction.
Telecommunications currently leases private line services from TISP, Inc.
("TISP"), which is owned by Patrick J. Thompson, a brother of Jere W. Thompson,
Jr. Total payments to TISP in 1997 were $764,742. Pricing of private line
services is a function of the capacity, term and distance of the circuit
involved. Circuits are usually available from multiple vendors, and vendors are
selected on the basis of price, speed of provisioning and circuit diversity.
Rates are fixed and payable monthly, generally in advance. The actual rates paid
to TISP are determined in the same manner as rates for unrelated parties.
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In 1994, Telecommunications executed three promissory notes, one payable to
the order of each of Scott L. Roberts, Timothy M. Terrell and Timothy W. Rogers,
each Executive Vice Presidents of Holdings and of Telecommunications, relating
to 334 shares of Telecommunications Common Stock repurchased from each of them
with such shares of stock pledged by Telecommunications to repay the notes. The
aggregate purchase price for the 334 shares from each individual was $50,000.
Each of the original notes are in the amount of $50,000 with no stated interest
rate. The notes have been discounted using an interest rate of 5.8% and are
payable in three annual installments beginning April 1998. The aggregate amount
outstanding relating to these notes, net of unamortized discount, was $112,827
and $128,166 as of December 31, 1996 and 1997, respectively. The unamortized
discount was $37,173 and $21,834 as of December 31, 1996 and 1997, respectively.
Upon completion of the Transaction, Holdings intends to repay the notes.
Telecommunications has a revolving credit facility with Bank One, Texas N.A.
in the amount of $2,500,000, which is guaranteed by Jere W. Thompson, Jr. The
release of this guaranty is a condition to the closing of the Transaction. See
"Information Regarding the Partnership--Related Party Transactions."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF TELECOMMUNICATIONS
The following table sets forth certain information regarding the beneficial
ownership of Telecommunications Common Stock as of May 31, 1998 (and prior to
giving effect to the Mergers and the Interest Exchange) by (i) each person who
is known by Telecommunications to own beneficially more than five percent (5%)
of Telecommunications Common Stock, (ii) each of Telecommunications' executive
officers, directors and director nominees, and (iii) all of the current
executive officers and directors of Telecommunications as a group. The
information contained in this table with respect to beneficial ownership
reflects "beneficial ownership" as defined in Rule 13d-3 under the Exchange Act
which means generally any person who, directly or indirectly, has or shares
voting power or investment power with respect to a security. Shares of
Telecommunications Common Stock not outstanding but deemed beneficially owned by
virtue of the right of an individual or group to acquire shares within 60 days
after May 31, 1998 are treated as outstanding only when determining the amount
and percentage of Telecommunications Common Stock owned by such individual or
group. All information with respect to the beneficial ownership of any principal
shareholder was furnished by such principal shareholder and Holdings believes
that except as otherwise noted or pursuant to community property laws, each
shareholder has sole voting and sole investment power with respect to the shares
shown. The address of each person listed is Two Galleria Tower, 13455 Noel Road,
Suite 1925, Dallas, Texas 75240, except as otherwise indicated.
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SHARES OF TELECOMMUNICATIONS
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED
---------------------------
NUMBER OF PERCENTAGE
NAME SHARES OWNERSHIP(1)
- ----------------------------------------------------------------- ------------ -------------
<S> <C> <C>
CapRock Investors(2)............................................. 4,835,514 46.5%
Jere W. Thompson, Jr.(2)......................................... 4,835,514 46.5%
Mark Langdale(3)
5950 Berkshire, Suite 990
Dallas, TX 75225............................................... 4,835,514 46.5%
Scott L. Roberts................................................. 1,611,838 15.5%
Timothy M. Terrell............................................... 1,611,838 15.5%
Timothy W. Rogers................................................ 1,611,838 15.5%
The Williamsburg Corporation(4)
Two Turtle Creek Village
3838 Oak Lawn Ave., Suite 1850
Dallas, TX 75219............................................... 727,926 7.0%
Jere W. Thompson, Sr.(5)
Two Turtle Creek Village
3838 Oak Lawn Ave., Suite 1850
Dallas, TX 75219............................................... 5,563,440 53.5%
All executive officers and directors as a group (six persons).... 10,398,954 100.0%
</TABLE>
- ------------------------
(1) Based upon 10,398,954 shares of Telecommunications Common Stock issued and
outstanding.
(2) Represents 4,835,514 shares held of record by CapRock Investors. CapRock
Investors is a Texas joint venture, of which Jere W. Thompson, Jr. is the
managing venturer and in which he owns a controlling interest. The Joint
Venture Agreement of CapRock Investors grants to Mr. Thompson, Jr. certain
authority, including the authority to decide and cast all votes on behalf of
CapRock Investors as a shareholder of Telecommunications. As a consequence,
both CapRock Investors and Mr. Thompson may each be deemed to be the
beneficial owner of all of the shares.
(3) Represents 4,835,514 shares held of record by CapRock Investors. Under the
Joint Venture Agreement of CapRock Investors, the approval of a
majority-in-interest of the venturers is required to approve the disposition
of the shares. Because of the ownership interest of Jere W. Thompson, Jr.,
Mark Langdale, and Jere W. Thompson, Sr. (23.5%, 42.5% and 30.9%,
respectively), two of the three acting together can authorize or prevent a
disposition of shares. As a result, each may be deemed to be the beneficial
owner of all of the shares.
(4) The Williamsburg Corporation, which is the record owner of 727,926 shares of
Telecommunications Common Stock, is a Texas corporation, of which Mr. Jere
W. Thompson, Sr. is the Chairman of the Board and a Director; as a result
each of them has shared voting, investment and dispositive power with
respect to the 727,926 shares held by The Williamsburg Corporation.
(5) Represents 727,926 shares held of record by The Williamsburg Corporation and
4,835,514 shares held of record by CapRock Investors. Under the Joint
Venture Agreement of CapRock Investors, the approval of a
majority-in-interest of the venturers is required to approve the disposition
of the shares. Because of the ownership interest of Jere W. Thompson, Jr.,
Mark Langdale, and Jere W. Thompson, Sr., two of the three acting together
can authorize or prevent a disposition of shares. As a result, each may be
deemed to be the beneficial owner of all of the shares.
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INFORMATION REGARDING THE PARTNERSHIP
BUSINESS
The Partnership is a facilities-based provider of broadband
Telecommunications Services to interexchange carriers, other communications
entities and businesses. The Partnership had no revenues in 1996. In 1997 it had
revenues and a net loss of $1.9 million and $104,000, respectively.
The Partnership began operations in 1992 to design, manage the construction
of, operate, maintain and market a 185 route mile fiber optic network in South
Texas. In 1996, the Partnership entered into a ten year contract for the lease
of dark fiber over a 260 route mile fiber network between Houston and Corpus
Christi, Texas. The Partnership completed construction of the network in January
1997. In January 1998, the Partnership entered into a contract for the sale of
dark fiber between San Antonio and Laredo, Texas. The Partnership expects to
complete the construction of approximately 500 additional route miles of fiber
network from San Antonio to Laredo, McAllen, Harlingen, Brownsville and Corpus
Christi, Texas by the end of 1998. The Partnership intends to expand its
regional fiber network to approximately 4,300 route miles throughout Texas and
the Gulf Coast region by the end of 2000. The Partnership's ability to expand
its network and increase its revenues will be dependent upon a number of
factors, including the availability of financing, and as a result no assurance
can be given that its expansion plans will be met.
The Partnership provides dedicated line services over the Partnership's
owned fiber network to interexchange carriers and other telecommunications
providers for terms of one year or longer. High volume capacity service
agreements and dedicated line service agreements generally provide for "take or
pay" monthly payments at fixed rates based on the capacity term and length of
circuit used. Customers are typically billed on a monthly basis and also may
incur an installation charge or certain ancillary charges for equipment. After
contract expiration, the contracts may be renewed or the services may be
provided on a month-to-month basis. The Partnership is expanding its network to
increase its revenue stream and reduce per unit costs, targeting capacity sales
on a segment-by-segment basis as the Partnership's network is deployed and
activated, and is increasingly seeking longer-term, high-volume capacity
agreements from major carriers. In addition to traditional telecommunications
carriers, the Partnership is marketing to ISPs and other data service companies.
As of December 31, 1997, substantially all of the Partnership's revenues
were derived from two customers. One of the customers provided for approximately
93% of total revenues in 1997 and comprised 78% of the trade receivable balance.
The other significant customer provided for approximately 5% of total revenues
in 1997 and comprised 22% of the trade receivable balance. The lease terms are
through August 2004 and July 2006, respectively.
NETWORK
The Partnership completed construction of the first 260 route miles of its
fiber network in January 1997. The Partnership intends to expand its network to
approximately 800 route miles by the end of 1998, linking San Antonio, Laredo,
McAllen, Harlingen, Brownsville and Corpus Christi, Texas. The Partnership
intends to expand its network to approximately 3,000 route miles by the end of
1999 and approximately 4,300 route miles by the end of 2000. The Partnership
believes that its network, once completed, will be the most extensive
alternative fiber network in Texas and the Gulf Coast region and will enable the
Partnership to serve nearly every primary, secondary and tertiary city in the
region. The Partnership's network is designed to be scalable and will have
significant flexibility to meet future demand. The Partnership network will
include advanced fiber capable of supporting dense wave division multiplexing
with an OC-48 backbone scalable to OC-192. The Partnership will install 96
fibers and two spare ducts throughout most of its network and will retain on
average 48 fiber strands. The routes of the network expansion are planned to be
generally geographically diverse from the existing fiber networks of AT&T, IXC,
MCI, Qwest, Sprint, and WorldCom. The fiber network will also interconnect with
the fiber networks of selected Mexican carriers at multiple border crossings.
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The Partnership anticipates that, based on current plans and assumptions
relating to its operations, its financial resources and equipment financing
arrangements will be sufficient to fund the Partnership's growth (including the
buildout of its fiber network) for approximately 12 months from the date of this
Joint Proxy Statement/Prospectus only if the Partnership limits its current
construction efforts and plans. The Partnership plans to seek sources of
additional capital which may include public and private equity and debt
financings and other financing arrangements. There can be no assurance that the
Partnership will be successful in raising the funds. If unsuccessful, the scope
and plans for expansion of the Partnership's fiber network will be significantly
curtailed. See "Issuance of Notes."
SERVICE AGREEMENTS
The Partnership provides high volume transmission capacity services through
service agreements for terms of one year or longer. Dedicated line services are
generally offered under service agreements for an initial term of one year. High
volume capacity service agreements and dedicated line service agreements
generally provide for "take or pay" monthly payments at fixed rates based on the
capacity term and length of circuit used. Customers are typically billed on a
monthly basis and also may incur an installation charge of certain ancillary
charges for equipment. After contract expiration, the contracts may be renewed
or the services may be provided on a month-to-month basis.
COMPETITION
The telecommunications industry and the Partnership's provision of
communications services is subject to intense competition and extensive federal
and state regulation. See "Competition" and "Regulation and Licenses."
EMPLOYEES
As of April 30, 1998, the Partnership leased the services of two fiber
technicians and five network construction personnel from Telecommunications. The
Partnership uses the services of independent contractors for installation and
maintenance of portions of its network.
PROPERTIES
The Partnership's network, including the completed portions and the portions
currently being constructed, and its component assets are the principal
properties owned by the Partnership. The Partnership owns substantially all of
the telecommunications equipment required for its business and owns or leases
various sites for transmission facilities. The Partnership installed fiber optic
cable is laid under various public and private rights-of-ways. Other fixed
assets are located at various locations in geographic areas served by the
Partnership.
LEGAL PROCEEDINGS
The Partnership is not currently a party to any litigation.
DIRECTORS AND EXECUTIVE OFFICERS
Jere W. Thompson, Jr. is the President and a director of the General
Partner. Mark Langdale is the Secretary and a director of the General Partner.
Mr Thompson received compensation from the Partnership totaling $24,628 in 1997.
Additionally, Mr. Thompson received $205,908 from the General Partner in 1997,
which was based upon the total construction services revenue earned by the
General Partner, which has a construction management agreement with the
Partnership. Mr. Langdale earned loan commitment fees, loan guaranty fees and a
subsequent guarantee fee in return for guaranteeing the entire amount of the
construction loan. As of March 31, 1998, guaranty and commitment fees together
with accrued interest due to Mark Langdale amounted to approximately $157,000.
Additionally the General Partner, CapRock
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Systems, Inc., agreed to pay Mr. Langdale a $20,000 guaranty fee, which was paid
in May 1998. See "--Related Party Transactions" and "Information Regarding
Telecommunications--Directors and Executive Officers."
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded or paid by the
General Partner or the Partnership to the President of the General Partner.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- AWARDS OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEARS SALARY BONUS (SHARES) COMPENSATION
- -------------------------------------------------------- --------- --------- ----------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Jere W. Thompson, Jr.................................... 1997 $ 24,628 -- -- $ 205,908(1)
President of the General Partner
</TABLE>
- ------------------------
(1) Such amounts represent the fees paid by the General Partner and were based
upon the total construction services revenues earned by the General Partner
in 1996 and 1997.
RELATED PARTY TRANSACTIONS
Mark Langdale, Joe C. Thompson, Jr., The Florida Company (which is owned by
Joe C. Thompson, an uncle of Jere W. Thompson, Jr.), The Hayden Company (which
is owned by John P. Thompson, an uncle of Jere W. Thompson, Jr.) and Jere W.
Thompson, Sr., who are partners of the Partnership, guaranteed portions of the
$10,000,000 loan from Bank One, Texas, N.A. to the Partnership in 1996 and each
received in exchange for each $1 million of indebtedness guaranteed (i) a 2.67%
limited partnership interest in the Partnership, (ii) a commitment fee equal to
1% of the amount guaranteed, which accrued interest at the rate of 12% per annum
commencing July 1, 1997 and increases 2% on each July 1 thereafter that the
commitment fee remains unpaid and (iii) an annual loan guaranty fee equal to 7%
of the amount of each partner's guarantee multiplied by a fraction, the
numerator being the lesser of $8 million or the average outstanding daily
principal of the loan guaranteed and the denominator being $8 million. The
guarantees (other than the joint and several guarantees of Mark Langdale and
Jere W. Thompson, Jr.) were released in April 1997 and, therefore, no guaranty
fees have been accrued subsequent to April 1, 1997 other than the accrued
interest. The total commitment fees and loan guarantee fees and accrued interest
thereon as of December 31, 1996 and 1997 were approximately $208,000 and
$406,000, respectively. Additionally, in exchange for Mark Langdale remaining on
his joint and several guaranty, the General Partner agreed to pay him $20,000,
which was paid in 1998.
The Partnership retained Telecommunications to manage and administer the
operations of the network. In consideration for these services, the Partnership
will reimburse direct costs of the network plus 5%, payable monthly. The total
general and administrative expenses paid to the General Partner were $0, $77,000
and $150,948, respectively for the years ended December 31, 1995, 1996 and 1997.
In addition, as payment for marketing services, the Partnership will pay 7% of
any additional lease payments generated as a result of Telecommunications'
efforts. There were no payments made in 1995, 1996 and 1997 under this
agreement. See "Information Regarding Telecommunications--Related Party
Transactions."
The Partnership entered into an agreement with the General Partner to manage
the construction of the Houston to Corpus Christi fiber optic network. Under
this agreement, the Partnership paid approximately 4% of the costs of
constructing the network to the General Partner. The Partnership paid management
fees of $285,964 in 1997 and a total of $450,964 under the contract.
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OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE PARTNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Partnership Interests as of May 31, 1998 (and prior to giving
effect to the Mergers and the Interest Exchange) for the executive officers,
directors and five percent (5%) shareholders of Telecommunications who also hold
Partnership Interests in the Partnership. The address of each person listed
below is Two Galleria Tower, 13455 Noel Road, Suite 1925, Dallas, Texas 75240,
except as otherwise indicated.
<TABLE>
<CAPTION>
INTERESTS
BENEFICIALLY OWNED
---------------------
INTERESTS TYPE OF
NAME OWNED INTEREST
- ------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
CapRock Systems, Inc.(1)........................................... 1.72375% General
Mark Langdale(2)................................................... 38.99919% Limited
5950 Berkshire, Suite 990
Dallas, TX 75225
Jere W. Thompson, Sr.(3)........................................... 11.14024% Limited
Two Turtle Creek Village
3838 Oak Lawn Avenue, Suite 1850
Dallas, TX 75219
Jere W. Thompson, Jr.(4)........................................... 31.87113% Limited
Greenway Holdings, L.P.(4)......................................... 31.87113% Limited
</TABLE>
- ------------------------
(1) CapRock Systems, Inc. is a Texas corporation of which Mr. Thompson, Jr. and
Mr. Langdale each own 50% of the outstanding common stock and of which each
is an officer and director.
(2) Does not include the 1.72375% general partnership interest held by CapRock
Systems, Inc. See footnote (1).
(3) Represents a 6.55635% interest held by Mr. Thompson, Sr. and a 4.58389%
interest held by his spouse.
(4) Represents a 31.87113% interest held of record by Greenway Holdings, L.P., a
Texas limited partnership of which Mr. Thompson, Jr. is the general partner.
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INFORMATION REGARDING IWL
BUSINESS
IWL's revenues are derived from the provision of a variety of services,
including telecommunications services, project and other services and product
resales. Telecommunications services include the resale of long distance
telecommunications services, the provision of private leased lines, and the
rental of telecommunications equipment and systems. IWL operates a tandem switch
at its facility in Houston, Texas to provide services as a switch-based long
distance carrier and is currently completing the installation of its Gulf Coast
regional network. Project and other services consist of the installation of
telecommunications system projects and the sale, service and maintenance of
communications systems.
In connection with product resales, IWL serves as the exclusive
manufacturer's representative of Alcatel products to the U.S. oil and gas
industry. In fiscal 1996 and 1997, IWL provided services to a subsidiary of
Shell, which included the resale of a significant amount of Alcatel products.
For the fiscal years ended June 30, 1996 and 1997, the Shell subsidiary
purchased from IWL approximately $10.6 million and $7.6 million, respectively,
of Alcatel products and other equipment and hardware, representing approximately
38.0% and 25.2%, respectively, of total sales during such periods. Although
profitable, the sale of Alcatel products to the Shell subsidiary significantly
reduced IWL's gross margin in these periods. The Shell project was substantially
completed in fiscal 1997 and, therefore, is not expected to contribute in a
material manner to IWL's total sales in future periods.
IWL was founded in 1981 as a contract supplier of communications technology
installation and equipment leasing services, and over the ensuing years
broadened the scope of its service offerings to include microwave, two-way radio
and related wireless services and technologies for an expanded customer base,
primarily comprised of major oil and gas companies operating in the Gulf of
Mexico region. During this period, IWL began to provide an increasing variety of
services to its oil and gas customers in other remote and underdeveloped regions
around the world, including communications services for special projects with
critical timing and other extreme or unusual challenges.
To support its international expansion, in 1994 IWL began providing
telecommunications services and network support inside the former Soviet Union
to United States oil and gas customers. On January 22, 1998 to expand its
presence in the North Sea, IWL purchased all of the issued share capital of
Integrated Communications and Engineering Limited, a limited company
incorporated in Scotland ("ICEL") from its three foreign shareholders, and paid
the sum of L230,540.06 or U.S.$377,854 and issued to such shareholders 207,266
shares of IWL Common Stock. As IWL expanded its service offerings and developed
greater infrastructure, it commenced service as a switchless reseller of long
distance services in the United States in 1994. IWL is continuing to expand its
network through its tandem switch and the installation of fiber optic cable and
microwave radios in targeted service areas. In connection with such expansion,
IWL has also received CLEC status in Texas and Louisiana.
While annual growth rates of IWL's total sales since 1992 have ranged from
6.3% to 76.0%, IWL's quarterly operating results have varied significantly in
the past, and can be expected to vary in the future. These fluctuations in
operating results generally are caused by a number of factors, including changes
in IWL's services and product mix, levels of product resales, adverse weather
conditions in customer locations, the degree to which IWL encounters competition
in its existing or target markets, general economic conditions, the volume and
timing of orders received during the period, sales and marketing expenses
related to entering new markets, the timing of new product or service
introductions by IWL or its competitors and changes in billing rates by IWL or
its competitors. IWL's ability to grow its revenues will be dependent upon a
number of factors, many of which are not within its control and as a result no
assurance can be given that such objectives will be met.
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<PAGE>
In May 1998, IWL changed its fiscal year to a December 31 year end to
coincide with the fiscal years of CapRock, Telecommunications and the
Partnership and, in connection therewith, filed a December 31, 1997 transition
period Form 10-K for the transition period from June 30, 1997 to December 31,
1997.
SERVICE OFFERINGS
IWL's service offerings include project management services, offshore
services, Internet services and wireless services.
PROJECT MANAGEMENT SERVICES
To provide its customers with total, integrated communications services, IWL
performs many functions, including system specification, project engineering,
integration, equipment procurement, test, installation and maintenance and
network management. IWL's expertise in planning, designing and implementing
communications solutions for customers with operations in remote regions or
underdeveloped areas allows IWL, from time to time, to provide communications
services for special projects with critical-timing requirements or other extreme
and unusual challenges. IWL utilizes satellite, microwave and fiber solutions
for voice and data applications to meet its customers' specifications.
OFFSHORE SERVICES
IWL provides offshore voice and data services to the oil and gas industry in
the Gulf of Mexico and the North Sea. Satellite and microwave transmission media
are used depending on the type and location of the drilling rig involved. IWL's
communications systems are flexible and can be quickly readjusted as rigs move
to new locations. IWL's telecommunications services also provide the connection
between other carriers' networks and a customer's location. Although this
connection can span large distances, it is commonly referred to as last-mile
connectivity. IWL's Offshore Dedicated Digital Services program ("ODDS"), which
delivers connectivity to offshore locations, exemplifies IWL's last-mile
connectivity services in the Gulf of Mexico. ODDS is a fully digital
communications system that is flexible enough to be reconfigured to a new
location after the customer's drilling rig changes locations.
INTERNET SERVICE PROVIDER
IWL provides Internet access to retail, commercial and other ISPs in the
Houston area and in Moscow. The services include a mail server, news server, and
hosting of customer web pages. IWL is linked to the Internet backbone via a
direct connection with a global service provider in Houston on dedicated lines.
WIRELESS SERVICES
IWL provides two-way radio sales and maintenance services to oil and gas
companies, governmental agencies and petrochemical plants located on the Texas
and Louisiana Gulf Coast through its wireless division. IWL resells a broad line
of two-way and trunking radios, paging products and wireless systems for both
voice and data applications. IWL also engineers and designs new systems and
modifies existing systems to meet its customers' specifications. In addition,
IWL provides complete turnkey design and implementation of conventional and
trunking radio networks, integrates new equipment into existing networks and
engineers and designs new systems or updates existing systems to meet new FCC
regulations as they are adopted.
SALES AND MARKETING
IWL targets domestic and international customers that require turnkey system
solutions and other telecommunications services. IWL's sales force sells
frequency bandwidth and call completion and system solutions, which allows IWL
to further develop its own telecommunications infrastructure. Current and
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<PAGE>
prospective customers are assigned to account managers, who are principally
responsible for providing high levels of contact and customer service. In
addition, IWL utilizes business development managers to focus on specific
customer requirements and opportunities. The business development manager
typically is involved in major projects and the installation of infrastructure
domestically or internationally. IWL currently has a sales force of
approximately 23 sales representatives, with sales personnel located in Houston,
Texas, New Orleans, Louisiana, Moscow, Russia and Aberdeen, Scotland. IWL's
direct sales approach enables it to provide a high level of customer service. To
complement IWL's direct sales efforts, IWL often participates in various
domestic and international industry trade shows and conducts advertising
campaigns in trade publications.
CUSTOMER SERVICE
IWL also provides customer support for its project management and offshore
products and services through its full-service support teams in Friendswood,
Texas, Lafayette and New Orleans, Louisiana, Moscow, Russia and Aberdeen,
Scotland. Support services include: (i) on-site maintenance, with over 50
technical specialists on call for immediate dispatch when customers'
communications systems require maintenance; (ii) a network operations center in
Friendswood, Texas where IWL's professionals remotely monitor customers'
communications systems throughout the Gulf of Mexico and around the world seven
days a week, 24 hours a day; (iii) customer support through its wireless
division, (iv) training programs designed to maximize the customers'
communications investment, classroom training at customers' sites and multimedia
video training tools; and (v) research and development for unique applications
where IWL's engineers can custom design or modify hardware to improve its
performance within a particular system.
COMPETITION AND GOVERNMENT REGULATION
The telecommunications industry and IWL's provision of communications
services is subject to intense competition and extensive federal and state
regulation. See "Competition" and "Regulation and Licenses."
EMPLOYEES
As of March 31, 1998, IWL employed approximately 166 people, including
approximately 23 in sales and marketing, approximately 100 in engineering and
technical services and approximately 43 in management, administration and
finance. None of IWL's employees is represented by a labor union or is subject
to a collective bargaining agreement. IWL believes that its relations with its
employees are good.
LICENSES AND CERTIFICATIONS
IWL has owned and maintained a variety of telecommunications infrastructures
and holds many FCC and international licenses to transmit voice and data. FCC
radio licenses issued to IWL allow it to provide land mobile, microwave and
satellite communications services. IWL currently holds approximately 30 FCC
licenses, with approximately 250 frequency pairs, for commercial mobile radio
service. These licenses have varying terms which expire and will require renewal
between July 1998 and March 2002. As licenses come due for renewal, IWL
evaluates the need for such license and elects to either renew the license or
let it expire. For example, the license that will expire in July 1998 is for a
location in Arkansas that is no longer used by IWL and which is not anticipated
to be used in the future. As a result, IWL does not intend to renew it. These
licenses allow IWL to provide two-way wireless radio services along the Texas
and Louisiana Gulf Coast region and offshore to oil and gas-related companies.
Each frequency pair allows two-way transmission and reception. IWL holds five
microwave FCC licenses providing voice and data services along the Texas and
Louisiana Gulf Coast region and offshore to drilling, production and related
companies. IWL holds and operates seven Ku band and two C band fixed earth
stations and holds FCC licenses that allow IWL to locate earth stations in Texas
and other U.S. locations.
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<PAGE>
IWL operates as a FCC licensed 214 carrier to provide resold switched
telecommunications services. IWL has also obtained broader common carrier
authority from the FCC to provide global resale of switched and private line
services as well as global facilities-based service. IWL currently provides
international facilities-based private line service on a private carrier basis
into Bolivia, Bosnia, Croatia, Ecuador, Hungary and Russia. In 1997, IWL
installed a Class 4 tandem switch and value-added services platform at its
facility in Houston, Texas as part of its new point-of-presence for its IWL
Connect-TM- division. As part of IWL's plans to increase its service offerings,
IWL has obtained authority to provide dedicated services in Louisiana and CLEC
and long distance services in Texas and Louisiana. In addition, IWL has been
approved to have pole attachment rights to existing or future facilities of
Entergy, BellSouth and the State of Louisiana. Pole attachment rights allow IWL
to attach its own fiber optic cable to such parties' respective utility poles.
PROPERTIES
IWL occupies buildings that contain approximately 70,000 square feet of
floor space. IWL owns an office building in Friendswood, Texas and Lafayette,
Louisiana and leases additional space in Friendswood and Houston, Texas, New
Orleans, Louisiana, Moscow, Russia and Aberdeen, Scotland under agreements that
expire at various dates through 2004. The principal facilities are located as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET DESCRIPTION
- ------------------------------------- ------------- ------------------------------------------------------------
<S> <C> <C>
Houston, Texas (Aerospace)........... 18,940 Corporate headquarters for administration, finance and sales
functions, and IWL Connect
Friendswood, Texas................... 12,500 Engineering, Research and Development, Network Operations
Center, Production, and Warehouse
Lafayette, Louisiana................. 8,450 Administration, Sales, Production, Shipping/Receiving, and
Warehouse
Friendswood, Texas................... 7,000 Administration, Sales, Production and Warehouse
New Orleans, Louisiana............... 6,470 Administration, Sales, Production, Shipping/Receiving, and
Warehouse
Friendswood, Texas................... 5,000 Procurement, Inventory, Shipping/Receiving and Warehouse
Aberdeen, Scotland................... 4,200 Administrative, Sales, Shipping/Receiving and Warehouse
Moscow, Russia....................... 1,800 Administrative and Engineering
</TABLE>
IWL considers its current facilities adequate for its current needs and
believes that suitable additional space will be available, as needed, to
accommodate further physical expansion of corporate operations and for
additional sales and service.
LEGAL PROCEEDINGS
IWL is not currently a party to any litigation. However, IWL is from time to
time a party to ordinary litigation incidental to its business, none of which is
expected to have a material adverse effect on the results of operations,
financial condition or cash flow of IWL.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding the directors and
executive officers of IWL as of June 15, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Ignatius W. Leonards.............................. 44 Chairman, Chief Executive Officer and Director
Byron M. Allen.................................... 50 President and Director
Richard H. Roberson............................... 39 Chief Financial Officer, Secretary and Director
James T. Gordon................................... 59 Vice President-Telecom Operations
J. Keith Johnson.................................. 36 Vice President-Marketing
Bryan L. Olivier.................................. 36 Vice President-IWL Connect Division
Errol J. Olivier.................................. 35 Vice President-Telecom Sales
Christopher J. Amenson............................ 48 Director
Myron J. Goins.................................... 37 Director
</TABLE>
- ------------------------
There is no family relationship between any executive officers or directors of
IWL.
Mr. Ignatius W. Leonards has served as Chairman of the Board, Chief
Executive Officer and a director of IWL since founding IWL in 1981 and served as
President from 1981 until February 1997. Mr. Leonards was employed by Bibbins &
Rice Electronics as Telecom Service Manager until 1981. Mr. Leonards has an
industrial electronics degree from the T.H. Harris Technical Institute in
Opelousas, Louisiana.
Mr. Byron M. Allen has served as President and a director of IWL since
February 1997 and served as a Vice President of IWL from December 1993 until
February 1997. From 1986 to 1993, Mr. Allen served as Executive Vice President
of SBS Technologies, Inc., a manufacturer of computer components. Mr. Allen was
a co-founder of SBS Technologies, Inc. In 1985 and 1986, Mr. Allen served as a
senior principal staff member at BDM Corporation, a defense consulting firm. In
1984 and 1985, he served as manager of Navy New Business Development for the
Singer Link Corporation. From 1983 to 1984, Mr. Allen served as the managing
director of European operations of Intermetrics, Inc. He served as manager of
Houston operations of Intermetrics, Inc. from 1977 to 1983. Mr. Allen graduated
from the University of Alabama with a degree in Mathematics. He attended
graduate school at Wright State University in Dayton, Ohio where he studied
systems engineering.
Mr. Richard H. Roberson has served as Chief Financial Officer of IWL since
joining IWL in October 1996 and has served as a director of IWL since February
1997. From November 1995 until October 1996, Mr. Roberson was Director of
Administration at Weaver and Tidwell, LLP., a certified public accounting firm.
From May 1989 until October 1995, Mr. Roberson was Chief Financial Officer and
Controller of Local and Western of Texas, Inc., a wholesaler of meat and other
food products. Mr. Roberson is a certified public accountant and is a member of
the American Institute of Certified Public Accountants and the Texas Society of
Certified Public Accountants. Mr. Roberson has a B.B.A. in Accounting from the
University of Texas at Austin.
Mr. James T. Gordon has served as Vice President-Telecom Operations of IWL
since October 1996. Prior to joining IWL, he was an independent
telecommunications consultant. From September 1992 through December 1994, Mr.
Gordon was Director-Installation and Test Engineering Services for Alcatel
Network Systems, Inc., a telecommunications company, and, from April 1991 to
September 1992, he served as Manager-Customer Account Services-Independent
Operating Cos. for Alcatel Network Systems, Inc. Mr. Gordon was employed by
Rockwell International Corporation in various capacities from 1970 until 1991.
Mr. Gordon received a B.B.A. in Production Management from the University of
North Texas.
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<PAGE>
Mr. J. Keith Johnson has served as Vice President of Marketing since
December 1992 and was Director of Sales and Marketing of IWL from December 1986
to December 1992. From June 1985 to December 1986, Mr. Johnson was an Account
Executive with ARGO Communications, Inc., a long distance carrier, where he sold
long-distance voice and data lines to medium and large commercial users. Mr.
Johnson worked for AT&T from May 1983 until June 1985, where he sold telephone
systems to small and medium-sized companies. Mr. Johnson graduated from Houston
Baptist University with a double major in marketing and management.
Mr. Bryan L. Olivier has served as a Vice President of IWL's IWL Connect-TM-
division since January 1996. Prior thereto, he served as Director of Engineering
for Spacelink Systems, Inc., a subsidiary of IWL, from May 1992 to December
1995. From January 1992 to March 1992, he was a member of the strategic planning
group of Wiltel Communications, a long distance carrier. From May 1981 to
December 1988, he was the manager of the International Telecommunications Group
of Tenneco Oil E&P/ Operators Inc. Mr. Olivier graduated with a B.S. degree in
Electrical Engineering from the University of Southwest Louisiana with a
concentration in telecommunications management and from T.H. Harris Technical
Institute in Opelousas, Louisiana in the field of industrial engineering.
Mr. Errol J. Olivier has served as Vice President of Telecom Sales since
September 1996 and served as Vice President of Telecom Services from July 1995
until September 1996. From February 1995 until July 1995, Mr. Olivier served as
Director of Telecom Services and was responsible for the opening of IWL's
Lafayette and New Orleans offices. Mr. Olivier joined IWL in March 1990 and
served as an Account Manager from March 1990 until January 1992 and as the
Regional Manager of IWL's New Orleans office from January 1992 until February
1995. Mr. Olivier has an electronics technology degree from T.H. Harris
Technical Institute in Opelousas, Louisiana.
Mr. Christopher J. Amenson has served as a director of IWL since June 1997.
Mr. Amenson has served as President and Chief Operating Officer of SBS
Technologies, Inc., a manufacturer of computer components, since April 1992 and
as a director since August 1992. In October 1996, he became the Chief Executive
Officer of SBS Technologies, Inc. For five years prior to joining SBS
Technologies, Inc., Mr. Amenson was President of Industrial Analytics, Inc., a
Boston-based investment banking firm. Mr. Amenson holds a B.A. degree in
Government from the University of Notre Dame and a Master's Degree in Business
Management from the Sloan Fellows Program at the Massachusetts Institute of
Technology.
Mr. Myron J. Goins has served as a director of IWL since June 1997. Mr.
Goins has served as a Managing Director of Seruus Ventures LLC, an investment
firm specializing in telecommunications-related investments, since September
1996. From September 1995 until the founding of Seruus, Mr. Goins was employed
by National Telemanagement Corporation, a diversified telecom company, as its
Chief Financial Officer. From April 1994 until Corporate Telemanagement Group's
sale to LCI International in September of 1995, Mr. Goins was Vice President of
Corporate Development for Corporate Telemanagement Group, a long distance
company. From 1988 to April 1994, Mr. Goins was Director of Financial Analysis
at Sprint, a long distance company, where he was involved in numerous merger and
acquisition transactions including the $3.5 billion merger of Sprint and Centel
and various local, long distance, satellite and other infrastructure
investments. Mr. Goins received his B.B.A. degree from the University of Memphis
and his M.B.A. from Vanderbilt University's Owen Graduate School of Management.
Each director serves until the next annual meeting of shareholders and until
his successor is duly elected and qualified. The IWL Board is currently composed
of five directors. Officers serve at the discretion of the IWL Board. There are
no family relationships among any of the directors or IWL Named Executive
Officers (as defined below).
Pursuant to IWL's By-Laws, the next annual meeting of shareholders of IWL
will be held in 1998.
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<PAGE>
BOARD COMMITTEES
Effective upon the consummation of IWL's initial public offering in June
1997, the IWL Board established two standing committees: the Audit Committee and
the Compensation Committee. The functions of the Audit Committee, of which Mr.
Amenson and Mr. Goins are the current members, are to make recommendations
regarding the engagement of IWL's independent auditors and to review with
management and the independent auditors IWL's financial statements, basic
accounting and financial policies and practices, audit scope and competency of
control personnel. The functions of the Compensation Committee, of which Mr.
Amenson and Mr. Goins are the current members, are to review and recommend to
the IWL Board the compensation of executive officers of IWL and to administer
and make awards and take all other action as prescribed under the employee
benefit plans of IWL (other than IWL's 1997 Director Option Plan, which is
administered by the entire IWL Board). All members of the Compensation Committee
are and will continue to be "Non-Employee Directors" within the meaning of Rule
16b-3(b) promulgated under the Exchange Act and "outside directors" as
contemplated by Section 162(m)(4)(C)(i) of the Code.
DIRECTOR COMPENSATION
Non-Employee Directors of the IWL Board are paid $1,000 per meeting for
attending or participating in meetings of the IWL Board or any committee thereof
and receive reimbursement for out-of-pocket expenses incurred for attendance at
meetings. Non-Employee Directors will also receive from time to time
non-statutory stock options under IWL's 1997 Director Option Plan. IWL granted
options to acquire 10,000 shares of IWL Common Stock at a per share exercise
price of $6.00 under the 1997 Director Option Plan to each of Messrs. Amenson
and Goins effective upon their commencing to serve as directors of IWL in June
1997. IWL's policy is not to pay any additional compensation to employees of IWL
for their services as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Amenson and Goins were the sole members of the Compensation
Committee during the fiscal year ended June 30, 1997 and for the transition
period from July 1, 1997 until December 31, 1997 (the "1997 Transition Period").
The IWL Board established the Compensation Committee effective upon consummation
of IWL's initial public offering in June 1997. Prior thereto, IWL had no
Compensation Committee or other committee of the IWL Board performing similar
functions, and accordingly, the IWL Board determined the compensation for the
executive officers and related matters.
During the last fiscal year and during the 1997 Transition Period, no
executive officer of IWL served as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the IWL Board or IWL's Compensation Committee.
Caroline Fontenot, the sister of Mr. Leonards, IWL's Chairman of the Board
and Chief Executive Officer, lent IWL $75,000 on June 1, 1992, of which a
balance of $39,460, bearing interest at the rate of 12% per annum, remained
outstanding as of December 31, 1997 and a balance of $43,693 remained
outstanding as of June 30, 1997.
IWL paid to Mr. Leonards during fiscal year 1996 and fiscal year 1997,
$18,000 and $10,500, respectively, in management fees ($1,500 a month) for
management rights granted by Mr. Leonards to IWL with respect to a condominium
owned by Mr. Leonards and used by IWL.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
compensation awarded or paid by IWL to its Chairman of the Board and Chief
Executive Officer and the other executive officers of IWL whose total annual
salary and bonus for services to IWL exceeded $100,000 in the fiscal year ended
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June 30, 1997 (the "IWL Named Executive Officers"). Information is also provided
for such persons for the 1997 Transition Period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ---------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEARS SALARY BONUS OPTIONS (SHARES) COMPENSATION
- ---------------------------------------------- ------------ ---------- --------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Ignatius W. Leonards ......................... 1997(1) $ 84,390 $ -- -- $ $4,260(2)
Chairman of the Board and Chief Executive 1997 157,427 -- -- 29,254(3)
Officer 1996 150,000 -- -- 36,522(4)
1997(1) $ 60,000 -- -- $ 806(5)
J. Keith Johnson ............................. 1997 115,485 -- 5,000(6) 1,801(5)
Vice President--Marketing 1996 100,604 $ 12,250 36,141(7) 1,655(5)
</TABLE>
- ------------------------
(1) IWL changed its year end from June 30 to December 31, therefore the
information presented in this line item represents the 1997 Transition
Period, which is from July 1, 1997 to December 31, 1997.
(2) Represents (i) $606 of matching payments made by IWL to Mr. Leonards'
account under IWL's Retirement and Savings Plan (the "401(k) Plan"); and
(ii) $3,654 for the company car provided to Mr. Leonards by IWL
(3) Represents (i) $8,998 earned by Mr. Leonards pursuant to an agreement (the
"Kenwood Agreement") between IWL and Kenwood Americas Corporation ("KAC")
whereby Mr. Leonards is paid 10% of the net profits of Kenwood Systems
Group, Inc. (IWL owns 50% of the outstanding capital stock of Kenwood
Systems Group, Inc., with the other 50% owned by KAC); (ii) $2,448 of
matching payments made by IWL to Mr. Leonards' account under IWL's 401(k)
Plan; (iii) $10,500 in management fees ($1,500 a month) paid to Mr. Leonards
by IWL for management rights granted by Mr. Leonards to IWL with respect to
a condominium owned by Mr. Leonards and used by IWL; and (iv) $7,308 for the
company car provided to Mr. Leonards by IWL.
(4) Represents (i) $9,000 earned by Mr. Leonards pursuant to the Kenwood
Agreement; (ii) $2,214 of matching payments made by IWL to Mr. Leonards'
account under IWL's 401(k) Plan; (iii) $18,000 in management fees ($1,500 a
month) paid to Mr. Leonards by IWL for management rights granted by Mr.
Leonards to IWL with respect to a condominium owned by Mr. Leonards and used
by IWL; and (iv) $7,308 for the company car provided to Mr. Leonards by IWL.
(5) Represents matching payments made by IWL to Mr. Johnson's account under
IWL's 401(k) Plan.
(6) Represents stock options granted pursuant to IWL's 1997 Stock Option Plan,
which have an exercise price of $6.00 per share and are subject to vesting
requirements.
(7) Represents stock options granted pursuant to IWL's Employee Incentive Stock
Option Plan, which have an exercise price of $3.56 per share. The vesting of
all such options was accelerated upon consummation of IWL's initial public
offering in June 1997.
OPTION GRANTS TABLE. There were no option grants during the 1997 Transition
Period to the IWL Named Executive Officers. The following table provides
information on grants of stock options pursuant to the Employee Incentive Stock
Option Plan during the fiscal year ended June 30, 1997 to the IWL Named
Executive Officers:
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF PERCENT OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS GRANTED TO EXERCISE OR OPTION TERM (1)
UNDERLYING EMPLOYEES IN FISCAL BASE PRICE EXPIRATION --------------------
NAME OPTIONS GRANTED YEAR (PER SHARE) DATE 5% 10%
- -------------------------------- ----------------- ------------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
J. Keith Johnson................ 5,000(2) 3.6% $ 6.00(3) 5/8/07 $ 18,867 $ 77,813
</TABLE>
- ------------------------
(1) The 5% and 10% assumed annual compound rates of stock appreciation are
mandated by the rules of the Commission and do not represent IWL's estimate
or projection of future IWL Common Stock prices. The actual value realized
may be greater or less than the potential realizable value set forth in the
table.
(2) These options were granted to Mr. Johnson in May 1997 pursuant to IWL's 1997
Stock Option Plan and vest in five installments of 20% each and become fully
vested five years after due date of grant.
(3) These options were granted at a price per share of $6.00, which was equal to
the initial public offering price of IWL's Common Stock in its initial
public offering and, accordingly, was at least equal to the fair market
value of the IWL Common Stock on the date of grant, as determined by the IWL
Board.
FISCAL YEAR-END OPTION VALUES TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
---------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Keith Johnson.......................................... 36,141(2) 5,000 $ 341,171 $ 35,000
</TABLE>
- ------------------------
(1) Based on the fair market value of the IWL Common Stock of $13.00 per share
as reported on the Nasdaq National Market on December 31, 1997.
(2) The IWL Board accelerated the vesting of all outstanding options granted
under the Employee Incentive Stock Option Plan effective upon completion of
IWL's initial public offering in June 1997.
INCENTIVE BONUS PROGRAM
The bonuses available to the executive officers are based upon the
subjective evaluation of the performance of each individual and are not
contingent on the achievement of any specific performance targets. Such bonuses
are designed to maximize the shareholder value.
RELATED PARTY TRANSACTIONS
Since the beginning of IWL's 1994 fiscal year, IWL has entered into the
various transaction with officers, directors and affiliates of IWL described
below.
Byron M. Allen, IWL's President and a director, loaned IWL $150,000 in
September 1994, which loan is evidenced by a promissory note payable to Mr.
Allen bearing interest at the rate of 10% per annum. During the fiscal year
ending June 30, 1995, Mr. Allen loaned IWL an additional $100,000 evidenced by
another promissory note payable to Mr. Allen bearing interest at the rate of 2%
per annum in excess of Mr. Allen's cost of funds in his margin account at his
brokerage firm. The full amount of such notes, together with interest thereon,
was repaid by IWL in December 1995.
Caroline Fontenot, the sister of Mr. Leonards, IWL's Chairman of the Board
and Chief Executive Officer, loaned IWL $75,000 on June 1, 1992, of which a
balance of $39,460, bearing interest at the rate of
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<PAGE>
12% per annum, remained outstanding as of December 31, 1997 and a balance of
$43,693 remained outstanding as of June 30, 1997.
IWL paid to Mr. Leonards during fiscal year 1996 and fiscal year 1997,
$18,000 and $10,500, respectively, in management fees ($1,500 a month) for
management rights granted by Mr. Leonards to IWL with respect to a condominium
owned by Mr. Leonards and used by IWL. Such fees were equal to $1,500 a month
and terminated in January 1997.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF IWL
The following table sets forth certain information regarding the beneficial
ownership of IWL Common Stock as of May 31, 1998 by (i) each person who is known
by IWL to own beneficially more than five percent (5%) of IWL Common Stock, (ii)
each of IWL's Named Executive Officers, directors and director nominees, and
(iii) all of the current executive officers and directors of IWL as a group. The
information contained in this table with respect to beneficial ownership
reflects "beneficial ownership" as defined in Rule 13d-3 under the Exchange Act
which means generally any person who, directly or indirectly, has or shares
voting power or investment power with respect to a security. Shares of IWL
Common Stock not outstanding but deemed beneficially owned by virtue of the
right of an individual or group to acquire shares within 60 days after May 31,
1998 are treated as outstanding only when determining the amount and percentage
of IWL Common Stock owned by such individual or group. All information with
respect to the beneficial ownership of any principal shareholder was supplied in
a Schedule 13D or 13G filed with the Commission by or on behalf of such
principal shareholder under the Exchange Act and/or was furnished by such
principal shareholder and Holdings believes that, except as otherwise noted or
pursuant to community property laws, each shareholder has sole voting and sole
investment power with respect to the shares shown. The address of each person
listed is 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034, except as
otherwise indicated.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
-------------------------
NUMBER OF PERCENTAGE
NAME SHARES OWNERSHIP
- ----------------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Ignatius W. Leonards(2).................................................................. 1,897,528 47.6%
Byron M. Allen(3)........................................................................ 222,200 5.6%
J. Keith Johnson(4)...................................................................... 37,949 *
Richard H. Roberson(5)................................................................... 3,400 *
Christopher J. Amenson................................................................... 2,000 *
c/o SBS Technologies, Inc.
2400 Louisiana Boulevard, NE
AFC Building 5, Suite 600
Albuquerque, New Mexico 87110
Myron J. Goins........................................................................... -- --
200 North Main Street, Suite 301
Greenville, South Carolina 29601
Wellington Management Company, LLP(6).................................................... 360,000 9.0%
75 State Street
Boston, MA 02109
All executive officers and directors as a group (nine persons)(7)........................ 2,250,203 54.8%
---------- ---
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of the class.
(1) Based upon 3,986,718 shares of IWL Common Stock issued and outstanding.
(2) Includes 6,666 shares held by Ignatius W. Leonards as custodian for minor
children.
(3) Includes 7,300 shares held by Byron M. Allen as custodian for minor children
and 7,300 shares held by Mr. Allen's daughters, the voting, investment and
dispositive power of which are shared by Mr. Allen with his daughters.
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<PAGE>
(4) Includes 36,141 shares of IWL Common Stock subject to currently exercisable
options and 1,000 shares of IWL Common Stock subject to options exercisable
within 60 days of May 31, 1998. Does not include 4,000 shares of IWL Common
Stock subject to options not yet vested.
(5) Includes 100 shares of IWL Common Stock held by spouse of Richard H.
Roberson and 200 shares of IWL Common Stock held by Richard H. Roberson as
custodian for minor children, the voting, investment and dispositive power
of which are shared by Mr. Roberson with his spouse. Includes 3,000 shares
of IWL Common Stock subject to options exercisable within 60 days of May 31,
1998. Does not include 27,000 shares of IWL Common Stock subject to options
not yet vested.
(6) Address and current ownership information obtained from review of Commission
Form 13G filed by Wellington Management Company, LLP on February 9, 1998.
(7) Includes 102,807 shares of IWL Common Stock subject to currently exercisable
options, and 20,200 shares of IWL Common Stock subject to options
exercisable within 60 days of May 31, 1998, granted to the executive
officers of IWL, as a group.
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<PAGE>
COMPETITION
OVERVIEW. The communications services industry is highly competitive,
rapidly evolving and subject to constant technological change. In particular,
there are numerous companies offering long distance and local services, and
Holdings expects competition to increase in the future. Holdings believes that
existing competitors are likely to continue to expand their service offerings to
appeal to existing or potential customers of Holdings. Many of Holdings'
existing customers have financial, personnel and other resources, including
brand name recognition, substantially greater than that of Holdings. Moreover,
Holdings expects that new competitors are likely to enter the communications
market, and some of these new competitors may market communications services
similar to Holdings' services. In addition, some of these new competitors may
have financial, personnel and other resources, including brand name recognition,
substantially greater than those of Holdings.
In addition, the regulatory environment in which Holdings operates is
undergoing significant change. As this regulatory environment evolves, changes
may occur which could create greater or unique competitive advantages for all or
some of Holdings' current or potential competitors, or could make it easier for
additional parties to provide services. Other providers currently offer one or
more of each of the services offered by Holdings, and many communications
companies operate generally in the same long distance and local services
submarkets as Holdings. As a service provider in the long distance
communications industry, Holdings competes with several well established
providers, as well as many other long distance providers with less significant
market shares.
DOMESTIC AND INTERNATIONAL LONG DISTANCE. Holdings provides long distance
services using its own facilities and by reselling the facilities of other
carriers in the United States and between the United States and other countries.
The long distance communications industry is intensely competitive and
significantly influenced by the marketing and pricing decisions of the larger
industry participants such as AT&T, MCI, Sprint and WorldCom. Moreover, the
industry is undergoing significant consolidation that has created and will
continue to create numerous other entities with substantial resources to compete
for long distance business, such as Excel Communications, Inc., Frontier
Communications Service, Inc. and Qwest. In addition, as a result of the 1996
Telecommunications Act, RBOCs and GTOCs are able or will be able in the future
to enter the long distance market. These larger competitors have significantly
greater name recognition, financial, technical, network and marketing resources.
They may also offer a broader portfolio of services and have longer standing
relationships with customers targeted by Holdings. Moreover, there can be no
assurance that certain of Holdings's competitors will not be better situated to
negotiate contracts with suppliers of telecommunications services which are more
favorable than contracts negotiated by Holdings. Many of Holdings' competitors
enjoy economies of scale that can result in a lower cost structure for
transmission and related terminating costs, which could cause significant
pricing pressures on Holdings.
Holdings competes in the long distance market primarily on the basis of
price, customer service and the ability to provide a variety of communications
products and services. Customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. Prices for domestic and international long distance calls have
declined in recent years and are likely to continue to decrease. Competition in
all of the relevant markets is expected to increase which could adversely affect
net revenue per minute and gross margins as a percentage of net revenue. There
can be no assurance that Holdings will be able to compete effectively in the
domestic or international long distance markets.
LOCAL EXCHANGE SERVICE. Holdings seeks to expand significantly its
operations to provide LEC services typically provided by ILECs. The local
service market has only recently been opened broadly to new service providers
following enactment of the 1996 Telecommunications Act. The services intended to
be offered by Holdings will compete with those offered by ILECs, such as
BellSouth, Southwestern Bell and the GTOCs, as well as very large IXCs, such as
AT&T, MCI, Sprint and WorldCom. The ILECs currently dominate the provision of
local services in their respective markets, and the ILECs and IXCs
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<PAGE>
have greater name recognition, financial, technical, network, marketing and
personnel resources, as well as longer standing relationships with regulatory
authorities at the federal and state levels than the new entrants. Moreover,
there can be no assurance that certain of Holdings' competitors will not be
better situated to negotiate contracts with suppliers of telecommunications
services which are more favorable than contracts negotiated by Holdings.
Holdings also may face competition from other current and potential market
entrants, including other CLECs, cable companies, electric utilities, LECs
operating outside their current local service areas, other long distance
carriers, wireless telephone system owners, microwave owners, satellite
carriers, private networks built by large companies, and start-up
telecommunications ventures. There can be no assurance that Holdings will be
able to compete effectively in the local service markets.
FIBER NETWORKS
Holdings intends to expand the fiber optic network to approximately 4,300
route miles throughout Texas and the Gulf Coast region. Holdings will compete
with numerous established and start-up national and regional fiber optic
networks owned by IXCs, ILECs and CLECs throughout Texas and the Gulf Coast
region. These competitors include very large companies such as AT&T, MCI,
WorldCom, Sprint, IXC and Qwest, each of whom has greater name recognition,
financial, personnel, technical and marketing resources than Holdings. Holdings
is aware that other facilities-based providers of local and long distance
telecommunications services are planning and constructing fiber networks and/or
purchasing or leasing dark fiber in order to build additional networks that, if
and when completed, could compete with Holdings' network. In addition to IXCs
and LECs, entities potentially capable of offering broadband services in
competition with Holdings' existing and planned network include other
facilities-based communications service providers, cable television companies,
electric utilities, microwave carriers, satellite carriers, wireless telephone
system operators and large companies who build private networks. Such competing
networks may also have advanced fiber and operating capabilities similar to
those of Holdings' existing and planned network and may be positioned
geographically to compete directly with Holdings' existing and planned network
for many of the same customers along a significant portion of the same routes.
INTERNET SERVICE PROVIDER AND INTERNET TELEPHONY
IWL is an ISP and Holdings plans to introduce IP Telephony in late 1998.
Internet services are currently deemed enhanced services by the FCC and
therefore are not subject to federal and state common carrier regulations,
including long distance interstate and intra-state access fees. Certain ISPs
have recently announced plans to use IP Telephony to introduce domestic and
international long distance services at rates 30% to 50% below standard long
distance rates. Although the FCC intends to review this issue, IP Telephony
could increase pressure on IXCs and other communications companies to reduce
prices and margins from domestic and international long distance services. There
can be no assurance that Holdings or the carrier customers of Holdings will not
experience substantial decreases in call volume, pricing and/or margins due to
IP Telephony. There can also be no assurance that Holdings will be able to offer
its telecommunications services to end users at a price which is competitive
with the IP Telephony services offered by these new companies, or that Internet
services will not be subject to additional regulation in the future, although
Holdings seeks to compete by introducing IP Telephony in late 1998. The Internet
services market is highly competitive, although there are no substantial
barriers to entry, and Holdings expects that competition will continue to
intensify. Holdings's competitors in this market include ISPs, other
telecommunications companies, online services providers and Internet software
providers. Many of these competitors have greater financial, technological and
marketing resources than those available to Holdings.
TECHNOLOGICAL ADVANCES
In the future, Holdings may be subject to intense competition due to the
development of new technologies resulting in an increased supply of domestic and
international transmission capacity. The
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<PAGE>
telecommunications industry is experiencing a period of rapid and significant
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite transmission capacity for services similar to
those to be provided by Holdings. For instance, recent advances in wave division
multiplexing technology permit substantial increases in transmission capacity of
both new and older fiber. The introduction of new products or emergence of new
technologies may cause capacity to greatly exceed the demand, reducing the
pricing of certain services to be provided by Holdings. There can be no
assurance that Holdings' services will satisfy future customer needs, that
Holdings' technologies will not become obsolete in light of future technological
developments, or that Holdings will not have to make significant additional
capital investments to upgrade or replace its system and equipment. The effect
on Holdings's operations of technological changes cannot be predicted and if
Holdings is unable to keep pace with advances, it could have a material adverse
effect on the financial condition, results of operations and cash flow of
Holdings.
OFFSHORE AND REMOTE AND TELECOMMUNICATIONS SERVICES
Currently, Holdings provides telecommunications services to oil and gas
customers in the Gulf of Mexico, the North Sea and other oil and gas producing
regions around the world. In the Gulf of Mexico, Holdings competes directly with
Autocomm Communications Engineering Corp., Sola Communications, Inc., Datacom
and Shell, as well as cellular carriers such as Petrocom and Coastel, and with
Data Marine Systems and EAE Ltd. in the North Sea. Shell currently provides
competing services through its microwave network in the Gulf of Mexico and has
announced plans to become a full service telecommunications provider to the oil
and gas industry in the region. Holdings provides private-line
telecommunications services in Russia. In Russia, the major competitors for
networks are SOVAMTEL and AMRUSCOM. Although Holdings believes that it competes
successfully in each of its markets today, there can be no assurance that
Holdings will be able to continue to compete successfully in the future.
Holdings believes that most of its larger competitors have generally not made it
a priority to provide remote, difficult-access telecommunications services.
Should one or more of the competitors decide to focus on such services, it could
have a material adverse effect on the financial condition, results of operations
and cash flow of Holdings.
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REGULATION AND LICENSES
GOVERNMENT REGULATION
THE FOLLOWING SUMMARY OF REGULATORY DEVELOPMENTS AND LEGISLATION DOES NOT
PURPORT TO DESCRIBE ALL PRESENT AND PROPOSED FEDERAL, STATE AND LOCAL
REGULATIONS AND LEGISLATION AFFECTING THE TELECOMMUNICATIONS INDUSTRY. OTHER
EXISTING FEDERAL, STATE AND LOCAL LEGISLATION AND REGULATIONS ARE CURRENTLY THE
SUBJECT OF JUDICIAL PROCEEDINGS, LEGISLATIVE HEARINGS, AND ADMINISTRATIVE
PROPOSALS WHICH COULD CHANGE, IN VARYING DEGREES, THE MANNER IN WHICH THIS
INDUSTRY OPERATES. NEITHER THE OUTCOME OF THESE PROCEEDINGS, NOR THEIR IMPACT
UPON THE TELECOMMUNICATIONS INDUSTRY OR HOLDINGS, CAN BE PREDICTED AT THIS TIME.
THIS SECTION ALSO SETS FORTH A BRIEF DESCRIPTION OF REGULATORY AND TARIFF ISSUES
PERTAINING TO THE OPERATION OF HOLDINGS.
Holdings provides domestic and international services that are subject to
varying degrees of U.S. federal, state and local regulation. In the United
States, the provision of telecommunications services is subject to the 1934
Communications Act, as amended, including as amended by the 1996
Telecommunications Act and the regulations thereunder promulgated by the FCC, as
well as the applicable laws and regulations of the various states and state
regulatory commissions. The FCC exercises jurisdiction under Title II of the
1934 Communications Act over all facilities of, and services offered by,
telecommunications common carriers to the extent such services involve
jurisdictionally interstate communications, including international
communications, while state regulatory authorities retain jurisdiction over
jurisdictionally intrastate communications. Under Title III of the 1934
Communications Act, the FCC is also charged with regulating the licensing and
use of the radio frequency spectrum. Local governments sometimes impose
franchise or licensing requirements on local service competitors and/or
facilities companies. Services provided in other countries are subject to the
telecommunications laws and regulations of those countries.
Holdings is subject to the authority of the FCC and the state regulatory
agencies to enforce applicable regulatory requirements. The FCC and the state
regulatory agencies may address regulatory non-compliance with a variety of
enforcement mechanisms, including monetary forfeitures, refund orders,
injunctive relief, license conditions, and/or license revocation.
The regulation of the telecommunications industry is changing rapidly and
the regulatory environment varies substantially from state to state. Moreover,
as deregulation at the federal level occurs, some states are reassessing the
level and scope of regulation that may be applicable to carriers. There can be
no assurance that future regulatory, judicial or legislative activities will not
have a material adverse effect on the financial condition, results of operations
or cash flow of Holdings or that domestic or international regulators or third
parties will not raise material issues with regard to compliance or
non-compliance with applicable regulations.
U.S. FEDERAL REGULATION
LOCAL SERVICE REGULATION UNDER THE 1996 TELECOMMUNICATIONS ACT. The 1934
Communications Act was substantially amended by the 1996 Telecommunications Act,
which provides for comprehensive reform of the United States' telecommunications
laws. The 1996 Telecommunications Act may have potentially significant effects
on the financial condition, results of operations or cash flow of Holdings. The
1996 Telecommunications Act is designed to enhance competition in, among other
markets, the local telecommunications marketplace by, among other things: (i)
removing state and local entry barriers, (ii) requiring ILECs to provide
interconnection to their facilities, (iii) facilitating the end users' choice to
switch service providers from ILECs to CLECs, and (iv) requiring access to
rights-of-way. The legislation also is designed to increase local competition by
newer competitors such as long distance carriers, cable companies and public
utility companies. Under the 1996 Telecommunications Act, RBOCs have the
opportunity to provide out of region long distance services immediately and in
region long distance services if certain conditions are met and are no longer
prohibited (in most instances) from providing certain cable TV services. Entry
of such companies into the domestic and international long distance business and
the
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emergence of other new local competitors could result in substantial competition
to CapRock and may have a material adverse effect on the financial condition,
results of operations or cash flow of CapRock.
The 1996 Telecommunications Act specifically requires all LECs (including
ILECs and CLECs): (i) not to prohibit or unduly restrict resale of their
services; (ii) to provide dialing parity, number portability and
nondiscriminatory access to telephone numbers, operator services, directory
assistance and directory listings; (iii) to afford access to poles, ducts,
conduits and rights-of-way; and (iv) to establish reciprocal compensation
arrangements for the transport and termination of telecommunications. ILECs are
specifically required to provide interconnection on certain terms and
conditions, as well as unbundled network elements, resold local services at
wholesale rates, reasonable public notice of any changes in the information
needed for transmission and routing services over their communications
facilities and physical collocation of equipment necessary for interconnection
and access to unbundled network elements at the LECs' premises. An RBOC can
enter the market for in-region long distance services within the area where it
provides local exchange service upon FCC approval based on a showing that
facilities-based competition is present and that interconnection agreements
meeting a 14-point checklist are in place in the states to be entered. RBOCs are
permitted to enter the out of region long distance market immediately upon
enactment. The provision of inter-LATA services by RBOCs is expected to reduce
the market share of major IXCs, and consequently, may have an adverse effect on
the ability of CLECs to generate access revenues from the IXCs.
On August 8, 1996, the FCC released the Interconnection Decision, which
established a framework of minimum, national rules enabling state commissions
and the FCC to begin implementing many of the local competition provisions of
the 1996 Telecommunications Act. Among other things, the Interconnection
Decision prescribed certain minimum points of interconnection, adopted a minimum
list of unbundled network elements that ILECs must make available to
competitors, and adopted a methodology for states to use when setting wholesale
prices for retail services. The U.S. Court of Appeals for the Eighth Circuit
issued a decision vacating certain portions of the Interconnection Decision and
the United States Supreme Court has agreed to consider the challenges to the
Eighth Circuit Court's decision filed by the FCC and interested carriers.
Whether the Eighth Circuit decisions will stand, or what further actions the FCC
may or may not take in response to these appellate decisions cannot be
predicted.
In a separate case, on December 31, 1997, the U.S. District Court for the
Northern District of Texas ruled that Sections 271 to 275 of the 1996
Telecommunications Act, which establish the conditions the RBOCs must satisfy
before they may provide in-region long distance telecommunications services, are
unconstitutional (the "SBC Decision"). The SBC Decision has been stayed and is
being reviewed by higher courts, and could ultimately be reviewed by the Supreme
Court. The outcome of that review cannot be predicted. If, however, the SBC
Decision were upheld on appeal it would likely have an unfavorable effect on the
ability of new entrants to compete because the SBC Decision removes the
incentive for RBOCs to open their local markets to competition.
DOMESTIC INTERSTATE SERVICES. Domestic interstate common carriers without
market power, such as Holdings, are deemed nondominant and are subject to
minimal FCC regulation. Interstate carriers offering services to the public must
comply with the federal statutory and regulatory requirements of common carriage
under the 1934 Communications Act. Among other things, interstate common
carriers must offer service on a non-discriminatory basis at just and reasonable
rates. Nondominant carriers are exempt from the requirement to obtain specific
prior FCC approval to initiate or expand domestic interstate services, although
they are required to file a tariff at the FCC and remain subject to the FCC's
complaint jurisdiction. The FCC has issued an order eliminating the requirement
that nondominant carriers maintain tariffs for their domestic interstate
services on file at the FCC. The FCC order has been appealed to the U.S. Court
of Appeals for the District of Columbia and stayed pending resolution of the
appeal. If the FCC order becomes effective, nondominant interexchange carriers
will need to find new means of providing notice to customers of prices, terms
and conditions on which they offer their interstate services. Elimination of
tariffs will require that Holdings secure with each of its customers contractual
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agreements containing the terms of the services offered. To the extent that
disputes arise over such contacts, carriers such as Holdings may no longer
resort to the legal doctrine that the terms of a filed tariff supersede
individual contract language.
INTERNATIONAL SERVICE REGULATION. Holdings is a nondominant international
carrier and must comply with the federal statutory and regulatory requirements
of common carriage under the 1934 Communications Act. International common
carriers are required to obtain authority under Section 214 of the 1934
Communications Act and to file a tariff containing the rates, terms, and
conditions applicable to their services prior to initiating their international
telecommunications services. Holdings holds global authority from the FCC to
provide resale of switched services and to provide private line (where permitted
by the FCC) and facilities-based services. Holdings maintains an international
tariff on file with the FCC. International telecommunications service providers
are also required to file copies of their contracts with other carriers,
including foreign carrier agreements, and a variety of reports regarding their
international revenue, traffic flows and use of international facilities.
Carriers holding Section 214 authority are also subject to FCC rules requiring,
among other things, prior approval for transfers of control and assignments.
Authorized international carriers are subject to the FCC's international
service regulations, including the International Settlements Policy ("ISPY")
that governs the payment settlements between U.S. common carriers and their
foreign correspondents for terminating traffic over each other's networks, the
accounting rates for such settlement and permissible deviations from these
policies. The FCC recently enacted certain changes in its rules designed to
permit alternative arrangements outside of its ISPY as a means of encouraging
competition and lower, cost-based accounting rates. As a part of implementing
the ISPY, the FCC maintains a private line resale policy that prohibits carriers
from reselling international private leased circuits to provide switched
services to or from a country unless the FCC has found that the country affords
U.S. carriers equivalent resale opportunities to engage in similar activities in
that country. The FCC recently revised this and other policies to accommodate
the 1997 WTO Agreement on basic services, a compact that addresses market
access, foreign investment, and procompetitive regulatory principles in areas
currently generating a vast majority of the world's telecommunications revenue.
Currently, the FCC's rules permit U.S. carriers to provide switched service over
international leased lines or facilities-based private lines between the U.S.
and WTO countries where the local telecommunications provider generally charges
U.S. carriers at or below an FCC-determined rate for terminating the U.S.
carriers' traffic or equivalent resale opportunities are available.
The FCC has adopted measures intended to overhaul the system of
international settlements by, among other things, establishing lower ceilings
("Benchmarks") for the rates that U.S. carriers will pay foreign carriers for
the termination of international services. Several parties have sought
reconsideration and/or filed appeals of the FCC's benchmark decision. While
these rule changes may provide carriers with more flexibility to respond more
rapidly to changes in the global telecommunications market, they will also
likely increase the level of competition in the international telecommunications
marketplace.
WIRELESS SERVICES. Holdings owns and maintains a variety of
telecommunications infrastructures and holds various FCC and international
licenses to transmit voice and data. Holdings currently holds numerous FCC
licenses to provide land mobile, microwave and satellite communications
services. Holdings holds approximately 35 FCC licenses, with approximately 300
frequency pairs for business radio service. These licenses allow Holdings to
provide two-way wireless radio services along the Texas and Louisiana Gulf Coast
region and offshore to oil and gas-related companies. Each frequency pair allows
two way transmission and reception. Holdings holds approximately 20 microwave
licenses providing voice and data services along the Texas and Louisiana Gulf
Coast region and offshore to drilling, production and related companies. IWL
holds and operates a network of fixed earth stations and Very Small Aperture
Terminal ("VSAT") networks, which include seven KU band and two C band fixed
earth station authorizations.
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Facilities licensed by the FCC to provide microwave, satellite earth station
and land mobile service are subject, under Title III of the 1934 Communications
Act, to a variety of detailed licensing, operational and technical requirements
specific to each service. Among other requirements, licensees seeking to
continue operating beyond the expiration date of the licenses must renew their
authority. FCC rules also impose prior approval requirements on proposed
transfers of control or license assignments. The FCC continues to refine its
wireless rules for each service area to accommodate advances in technology,
developing markets and new service arrangements, to implement certain provisions
of the 1996 Telecommunications Act, and to eliminate confusing, outdated,
redundant or otherwise burdensome regulation. Opportunities to obtain new common
carrier wireless licenses are often limited by the FCC's auction process under
which wireless licenses are assigned to the highest bidder.
The 1934 Communications Act generally limits direct foreign ownership of
wireless licenses to 20%, but provides for indirect foreign ownership holdings
above 25% upon FCC approval. In its order implementing the U.S. commitment under
the WTO Agreement, the FCC established new rules that effectively relax the
foreign ownership limits for common carrier wireless licenses. Specifically, the
new rules allow for up to 100% indirect ownership of wireless licenses by
foreign interests from countries that have participated in the WTO Agreement
upon FCC review and approval.
ACCESS CHARGES. The cost of providing long distance and local exchange
services will be affected by changes in the "access charge" rates imposed by
ILECs on long-distance carriers for origination and termination of calls over
local facilities. On May 8, 1997, the FCC released an order intended to reform
its system of interstate access charges to make that regime compatible with the
pro-competitive deregulatory framework of the 1996 Telecommunications Act.
Access service is the use of local exchange facilities for the origination and
termination of interexchange communications. The FCC's recent access reform
order adopts various changes to its policies governing interstate access service
pricing designed to move access charges, over time, to more economically
efficient levels and rate structures. Among other things, the FCC modified rate
structures for certain non-traffic sensitive access rate elements, moving some
costs from a per-minute-of-use basis to flat-rate recovery, including one new
flat rate element; changed its structure for interstate transport services; and
affirmed that ISPs may not be assessed interstate access charges. In response to
claims that existing access charge levels are excessive, the FCC stated that it
would rely on market forces first to drive prices for interstate access to
levels that would be achieved through competition but that a "prescriptive"
approach, specifying the nature and timing of changes to existing access rate
levels, might be adopted in the absence of competition. The FCC has indicated
that it will promulgate additional rules sometime in 1998 that may grant
increased pricing flexibility to price cap LECs (i.e., the RBOCs, GTE and
certain independents that are permitted flexibility to establish rates at or
below a designated price ceiling and are no longer regulated based on cost of
service) upon demonstrations of increased competition (or potential competition)
in relevant markets.
UNIVERSAL SERVICE CHARGES. In 1997, the FCC released an order establishing
a significantly expanded federal universal service subsidy regime to be funded
by interstate carriers and certain other entities. The FCC established new
universal service funds to support telecommunications and information services
provided to qualifying schools, libraries and rural health care providers, and
expanded the federal subsidies for local telephone services provided to
low-income consumers. In accordance with the 1996 Telecommunications Act, the
FCC adopted plans to implement the recommendations of a Federal-State Joint
Board to preserve universal service, including a definition of services to be
supported, and defining carriers eligible for contributing to and receiving from
universal service subsidies. The FCC plans to revise its rules for subsidizing
service provided to consumers in high cost areas, which may result in further
substantial increases in the overall cost of the subsidy program. The FCC issued
a public notice in April 1998 seeking comment on proposals to revise the
methodology for determining universal service support. In a recent report to
Congress, the FCC clarified that transmission services supplied to ISPs are
revenue subject to the contribution. The FCC plans to address in the future the
contribution obligations, if any, of ISPs using their own facilities and ISPs
providing phone-to-phone IP telephony. The outcome of these proceedings or
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their effect on the companies, cannot be predicted. Several parties have
appealed the FCC's order and those appeals are pending before the Fifth Circuit
Court of Appeals. The outcome of the further FCC proceedings or of the pending
judicial appeals or petitions for FCC reconsideration on its operations cannot
be predicted.
INTERNET SERVICES. Federal and state regulations generally treat ISPs as
"enhanced service providers" and exempt from federal and state common carrier
regulations. Accordingly, Internet access services are exempt from tariffing,
certification and rate regulation. In December 1996, the FCC initiated a Notice
of Inquiry regarding whether to impose regulations or surcharges upon providers
of Internet access and Information Services (the "Internet NOI"). The Internet
NOI sought public comment upon whether to impose or continue to forebear from
regulation of Internet and other packet-switched network service providers and
specifically identifies Internet telephony as a subject for FCC consideration.
Additionally, regulations governing disclosure of confidential communications,
copyright, excise tax, and other requirements may apply to the provision of
Internet access services. The extent to which federal and state regulatory
authorities will impose additional regulation on Internet service providers
cannot be predicted.
The Eighth Circuit is currently considering the issue of whether the FCC has
a reasonable basis for not requiring Internet service providers to pay access
charges. The FCC is expected to address this issue in future rule making
proceedings. In June 1997, every RBOC advised CLECs that they did not consider
calls in the same local calling area from their customers to CLEC customers, who
are ISPs, to be local calls under the interconnection agreements between the
RBOCs and the CLECs. The RBOCs claimed, however, that the FCC exempted these
calls from access charges so that no compensation is owed to the CLECs for
transporting and terminating such calls. As a result, the RBOCs threatened to
withhold, and in many cases did withhold, reciprocal compensation for the
transport and termination of such calls. To date, numerous state commissions
have ruled on this issue in the context of state commission arbitration
proceedings or enforcement proceedings. In every state, to date, the state
commission has determined that reciprocal compensation is owed for such calls
although in at least one state, such a decision has been stayed. Several of
these cases are presently on appeal. The outcome of these appeals, or of
additional pending cases, cannot be predicted.
STATE REGULATION
Most states require a certification or other authorization to offer local
exchange and long distance intrastate services. These certifications generally
require a showing that the carrier has adequate financial, managerial and
technical resources to offer the proposed services in a manner consistent with
the public interest. In addition to tariff requirements, most states require
that common carriers charge just and reasonable rates and not discriminate among
similarly situated customers. Some states also require the filing of periodic
reports, the payment of various regulatory fees and surcharges, and compliance
with service standards and consumer protection rules. States also often require
prior approvals or notifications for certain transfers of assets, customers, or
ownership. States generally retain the right to sanction a carrier or to revoke
certifications if a carrier violates relevant laws and/or regulations. If any
state regulatory agency were to conclude that Holdings is or was providing
intrastate service without the appropriate authority, the agency could initiate
enforcement actions, which could include the imposition of fines, the disgorging
of revenues, or the refusal to grant the regulatory authority necessary for the
future provision of intrastate telecommunications services. Holdings holds
authority to provide interexchange and competitive local exchange services in
certain service areas in Arkansas, Kansas, Louisiana, Oklahoma and Texas, and
has had its application for interexchange authority granted or is permitted to
offer interexchange service on a deregulated basis in at least 35 states.
In addition, carriers are subject to the outcome of proceedings held by
state utility commissions to determine state regulatory policies with respect to
ILEC and CLEC competition, geographic build-out, mandatory de-tariffing and
other matters. Certain states have adopted specific universal service funding
obligations. Proceedings to adopt state universal service funding obligations
rules are also pending or
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contemplated in numerous other states. State commissions generally have
authority to impose sanctions on carriers ranging from fines to license
revocation to address non-compliance with the states' particular regulatory
policies and requirements.
State regulatory agencies also regulate access charges and other pricing for
telecommunications services within each state. The RBOCs and other LECs have
been seeking reduction of state regulatory requirements, including greater
pricing flexibility. If regulations are changed to allow variable pricing of
access charges based on volume Holdings could be placed at a competitive
disadvantage over larger long distance carriers. Holdings also could face
increased price competition from the RBOCs and other LECs for local and long
distance services, which competition may be increased by the removal of former
restrictions on long distance service offerings by the RBOCs as a result of the
1996 Telecommunications Act. The impact of such rule changes on Holdings cannot
be predicted.
LOCAL GOVERNMENT AUTHORIZATIONS
Holdings may own telecommunications facilities that may be subject to
certain local government requirements. In particular, facilities companies must
obtain street use and construction permits and licenses and/or franchises to
install and expand fiber optic networks using municipal rights of way.
Termination of the existing franchise or license agreements prior to their
expiration dates or failure to renew such agreements and any resulting
requirement to remove facilities could have a material adverse effect on
Holdings' financial condition, results of operations and cash flow. In some
municipalities carriers must pay license or franchise fees based on a percentage
of gross revenues or on a per linear foot basis, as well as post performance
bonds or letters of credit. There can be no assurance that following expiration
of existing franchises, fees will remain at their current levels.
Telecommunications is generally required by its Texas Public Service
Commission authority to provide 911 service along with its CLEC offerings in
Texas. As a condition to providing 911 service in the City of Dallas, the City
of Dallas requires that service providers obtain a municipal franchise, which,
among other things, requires the franchise holder to pay a 4% gross revenue fee
based on operations in the City of Dallas, permits use of certain conduit by the
City of Dallas without charge, and provides a single fiber pair in the
franchisee's system for the City of Dallas' exclusive use. To date,
Telecommunications has not obtained a franchise and on May 26, 1998,
Telecommunications, along with two other entities authorized to provide CLEC
service in Texas, Golden Harbor of Texas, Inc., and Westel, Inc., filed suit in
the U.S. District Court for the Northern District of Texas against the City of
Dallas alleging that the franchise requirements imposed by the City of Dallas
violate the 1996 Telecommunications Act, particularly with respect to resellers
of LEC services. This action has been consolidated with a similar action brought
by AT&T Communications of the Southwest, Inc. ("AT&TSW"). Although AT&TSW has
obtained a preliminary injunction against the City of Dallas' imposition of
certain conditions on its franchise, there can be no assurance that
Telecommunications will prevail in its pending lawsuit against the City of
Dallas.
FOREIGN REGULATION
International telecommunications providers are subject to varying degrees of
regulation in each of the jurisdictions in which they provide services. Local
laws and regulations, and the interpretation of such laws and regulations,
differ significantly from country to country. To the extent that Holdings
provides, now or in the future, services in non-U.S. countries, it will be
subject to the laws and regulations of foreign countries. The nature and extent
of telecommunications regulation varies significantly from country to country
and may include requirements that reflect closed or limited market access and/or
requirements Holdings may also face to obtain initial licensing, operational and
rate requirements in the relevant countries.
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LICENSES
Holdings has had its application for state certification granted or is
authorized, by virtue of state certification, tariff, registration, or on a
deregulated basis, to provide resold long distance services in at least 35
states. In order to provide its wireless mobile services, Holdings owns various
radio systems that provide two-way voice communications and has obtained
approximately 35 FCC licenses with approximately 300 frequency pairs. These
licenses have varying terms which expire and will require renewal between July
1998 and August 2002. As each license comes due for renewal, Holdings will
evaluate the need for such license and elect to either renew the license or let
it expire. For example, the license that will expire in July 1998 is for a
location in Arkansas that is no longer used by Holdings and which is not
anticipated to be used in the future. As a result, Holdings does not intend to
renew it. These licenses allow Holdings to provide two-way wireless radio
services along the Texas and Louisiana Gulf Coast region and offshore to oil and
gas-related companies. Each frequency pair allows two-way transmission and
reception. Holdings holds approximately 20 microwave FCC licenses providing
voice and data services along the Texas and Louisiana Gulf Coast region and
offshore to drilling, production and related companies. Holdings holds and
operates seven Ku band and two C band fixed earth stations and holds FCC
licenses that allow Holdings to locate VSAT earth stations in Texas and other
U.S. locations.
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Holdings operates as a FCC certificated section 214 carrier to provide
resold switched telecommunications services. Holdings has also obtained broader
common carrier authority from the FCC to provide global resale of switched and
private line services as well as global facilities-based service. Holdings
currently provides international facilities-based private line service on a
private carrier basis into Bolivia, Bosnia, Croatia, Ecuador, Hungary and
Russia. As part of Holdings' plans to increase its service offerings, Holdings
has obtained authority to provide dedicated services in Louisiana and CLEC and
long distance services in Arkansas, Kansas, Louisiana, Oklahoma and Texas. In
addition, Holdings has been approved to have pole attachment rights to existing
or future facilities of Entergy, BellSouth and the State of Louisiana. Pole
attachment rights allow Holdings to attach its own fiber optic cable to such
parties' respective utility poles. In addition, Holdings' installed fiber optic
cable is laid under various public and private rights-of-ways.
THE SPECIAL MEETINGS
GENERAL
IWL. This Joint Proxy Statement/Prospectus is being furnished to holders of
IWL Common Stock in connection with the solicitation of proxies by the IWL Board
for use at the IWL Special Meeting to consider and vote upon the approval and
adoption of the Merger Agreement and the approval of the Plan Proposals, to
grant authorization to IWL to adjourn the IWL Special Meeting to solicit
additional proxies and to transact such other business as may properly come
before the IWL Special Meeting.
THE IWL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RATIFIED THE
PLAN PROPOSALS AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF IWL COMMON STOCK
VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND FOR THE APPROVAL
OF THE PLAN PROPOSALS.
TELECOMMUNICATIONS. This Joint Proxy Statement/Prospectus is being
furnished to holders of Telecommunications Common Stock in connection with the
solicitation of proxies by the Telecommunications Board for use at the
Telecommunications Special Meeting to consider and vote upon the approval and
adoption of the Merger Agreement and the approval of the Plan Proposals, to
grant authorization to Telecommunications to adjourn the Telecommunications
Special Meeting to solicit additional proxies and to transact such other
business as may properly come before the Telecommunications Special Meeting.
THE TELECOMMUNICATIONS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RATIFIED THE PLAN PROPOSALS AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
TELECOMMUNICATIONS COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND FOR APPROVAL OF THE PLAN PROPOSALS.
RECORD DATES
IWL. The IWL Board has fixed the close of business on , 1998 as
the IWL Record Date for the determination of the holders of IWL Common Stock
entitled to receive notice of, and to vote at, the IWL Special Meeting.
TELECOMMUNICATIONS. The Telecommunications Board has fixed the close of
business on , 1998 as the Telecommunications Record Date for the
determination of the holders of Telecommunications Common Stock entitled to
receive notice of, and to vote at, the Telecommunications Special Meeting.
TIMES AND PLACES; PURPOSES
IWL. The IWL Special Meeting will be held at on ,
1998, starting at a.m. local time. At the IWL Special Meeting, the holders
of IWL Common Stock will be asked to
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consider and vote upon (i) the Merger Agreement, (ii) the Plan Proposals and
(iii) such other matters as may properly come before the IWL Special Meeting,
including adjournment of the IWL Special Meeting to solicit additional proxies.
TELECOMMUNICATIONS. The Telecommunications Special Meeting will be held at
on , 1998, starting at a.m. local time. At the
Telecommunications Special Meeting, the holders of Telecommunications Common
Stock will be asked to consider and vote upon (i) the Merger Agreement, (ii) the
Plan Proposals and (iii) such other matters as may properly come before the
Telecommunications Special Meeting, including adjournment of the
Telecommunications Special Meeting to solicit additional proxies.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
IWL. Only holders of record of shares of IWL Common Stock on the IWL Record
Date are entitled to notice of, and to vote at, the IWL Special Meeting. On the
IWL Record Date, there were approximately shares of IWL Common Stock
outstanding and entitled to vote at the IWL Special Meeting held by
approximately shareholders of record.
Each holder of record of IWL Common Stock, as of the IWL Record Date, is
entitled to cast one vote per share. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of IWL Common Stock entitled to
vote is necessary to constitute a quorum at the IWL Special Meeting. Under the
TCBA and pursuant to IWL's Articles of Incorporation, the affirmative vote, in
person or by proxy, of the holders of a majority of the outstanding shares of
IWL Common Stock entitled to vote thereon is required to approve and adopt the
Merger Agreement. The affirmative vote of a majority of the votes cast
(including express abstentions), in person or by proxy, by the holders of IWL
Common Stock at the IWL Special Meeting, assuming a quorum is present, is
required to approve the Plan Proposals and any other matter that properly comes
before the IWL Special Meeting. The affirmative vote of the holders of a
majority of the IWL Common Stock represented in person or proxy at the IWL
Special Meeting, at which a quorum is not present, is required to approve an
adjournment of the IWL Special Meeting. The Merger Agreement and the Plan
Proposals are also subject to approval by the holders of Telecommunications
Common Stock and the holders of Partnership Interests as described herein. IWL,
in its capacity as the current sole shareholder of Holdings, has adopted and
approved the Equity Incentive Plan and the Director Stock Option Plan. Proxies
may be revoked by notice of revocation or a later signed and dated proxy or by
attending the IWL Special Meeting and voting in person. Attendance at the IWL
Special Meeting will not in itself constitute the revocation of a proxy.
As of the IWL Record Date, Ignatius W. Leonards, the Chief Executive Officer
and Chairman of the Board of IWL, beneficially owned 1,897,528 shares of IWL
Common Stock, which represented approximately 47.6% of the outstanding shares of
IWL Common Stock as of such date. As of the IWL Record Date, Byron M. Allen,
President and a director of IWL, beneficially owned 222,200 shares of IWL Common
Stock, which represented approximately 5.6% of the outstanding shares of IWL
Common Stock as of such date. Messrs. Leonards and Allen entered into the IWL
Shareholders Agreement with Telecommunications and the Partnership pursuant to
which they have agreed to vote all of their respective shares of IWL Common
Stock in favor of the approval of the Merger Agreement, subject to the
conditions set forth in the IWL Shareholders Agreement. If the conditions set
forth in the IWL Shareholders Agreement are satisfied, approval of the Merger
Agreement by the holders of IWL Common Stock is assured. See "The
Transaction--Interests of Certain Persons in the Transaction--IWL Shareholders
Agreement."
TELECOMMUNICATIONS. Only holders of record of shares of Telecommunications
Common Stock on the Telecommunications Record Date are entitled to notice of and
to vote at the Telecommunications Special Meeting. On the Telecommunications
Record Date, there were approximately 10,398,954 shares of
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Telecommunications Common Stock outstanding and entitled to vote at the
Telecommunications Special Meeting held by five shareholders of record.
Each holder of record of Telecommunications Common Stock, as of the
Telecommunications Record Date, is entitled to cast one vote per share. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of Telecommunications Common Stock entitled to vote is necessary to
constitute a quorum at the Telecommunications Special Meeting. Under the TBCA,
the affirmative vote, in person or by proxy, of the holders of at least
two-thirds of the outstanding shares of Telecommunications Common Stock entitled
to vote thereon is required to approve and adopt the Merger Agreement. The
affirmative vote of a majority of the votes cast (including express
abstentions), in person or by proxy, by the holders of Telecommunications Common
Stock at the Telecommunications Special Meeting, assuming a quorum is present,
is required to approve the Plan Proposals and any other matter that properly
comes before the Telecommunications Special Meeting. The affirmative vote of the
holders of a majority of the Telecommunications Common Stock represented in
person or by proxy at the Telecommunications Special Meeting, at which a quorum
is not present, is required to approve an adjournment of the Special Meeting.
The Merger Agreement and the Plan Proposals are also subject to approval by the
holders of IWL Common Stock and holders of Partnership Interests as described
herein. IWL, in its capacity as the current sole shareholder of Holdings, has
adopted and approved the Equity Incentive Plan and the Director Stock Option
Plan. Proxies may be revoked by notice of revocation or a later signed and dated
proxy or by attending the Telecommunications Special Meeting and voting in
person. Attendance at the Telecommunications Special Meeting will not in itself
constitute the revocation of a proxy.
As of the Telecommunications Record Date, CapRock Investors, a Texas joint
venture owned 23.5% by Jere W. Thompson, Jr., the President and a director of
Telecommunications, 42.5% by Mark Langdale, a director of Telecommunications,
and 30.9% by Jere W. Thompson, Sr., a director of Telecommunications, owned
4,835,514 shares of Telecommunications Common Stock, which represent 46.5% of
the outstanding shares of Telecommunications Common Stock as of such date. As of
the Telecommunications Record Date, each of Scott L. Roberts, Timothy W. Rogers
and Timothy M. Terrell, each of whom is an Executive Vice President of
Telecommunications, owned 1,611,838 shares of Telecommunications Common Stock,
which represented in the aggregate 46.5% of the outstanding shares of
Telecommunications Common Stock as of such date. CapRock Investors and Messrs.
Roberts, Rogers and Terrell entered into the CapRock Owners Agreement with IWL
pursuant to which they have agreed to vote all of their respective shares of
Telecommunications Common Stock in favor of the approval of the Merger
Agreement, subject to the conditions set forth in the CapRock Owners Agreement.
If the conditions set forth in the CapRock Owners Agreement are satisfied,
approval of the Merger Agreement by the holders of Telecommunications Common
Stock is assured. See "The Transaction--Interests of Certain Persons in the
Transaction-- CapRock Owners Agreement."
PROXIES
All shares of IWL Common Stock and Telecommunications Common Stock
represented by properly executed proxies received prior to or at the IWL Special
Meeting or Telecommunications Special Meeting, respectively, and not
subsequently revoked will be voted in accordance with the instructions indicated
on such proxies. If no instructions are indicated on a properly executed and
returned proxy, such proxy will be voted FOR the approval of the Merger
Agreement and FOR the approval of the Plan Proposals. A properly executed proxy
marked "ABSTAIN," although counted for purposes of determining whether there is
a quorum and for purposes of determining the aggregate voting power and number
of shares represented and entitled to vote at the applicable Special Meeting,
will not be voted. Accordingly, as the affirmative vote of a majority (in the
case of IWL) or two-thirds (in the case of Telecommunications) of the
outstanding shares is required for the approval of the Merger Agreement, a proxy
marked "ABSTAIN" will have the effect of a vote against the proposal.
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A broker non-vote occurs when an agent holding shares for a beneficial owner
does not vote on a particular proposal because the agent does not have
discretionary voting power with respect to that proposal and has not received
instructions with respect to how to vote on such matter from the beneficial
owner. In accordance with Nasdaq National Market rules, brokers and nominees are
precluded from exercising their voting discretion with respect to the approval
and adoption of the Merger Agreement and approval of the Plan Proposals and,
therefore, absent specific instructions from the beneficial owner of such
shares, are not empowered to vote such shares with respect to such proposals.
Shares represented by broker non-votes will be counted for purposes of
determining whether there is a quorum at the applicable Special Meeting but will
not be counted for purposes of determining the number of shares present entitled
to vote with respect to a particular proposal for which authorization to vote
was withheld. With respect to the Merger Agreement, however, since the
affirmative vote of a majority or two-thirds, as the case may be, of the
outstanding shares is required for approval of the Merger Agreement, a broker
non-vote with respect to such proposal will have the effect of a vote against
such proposal. For other matters to come before a meeting, broker non-votes have
the practical effect of reducing the number of affirmative votes required to
achieve the requisite vote for such proposal by reducing the total number of
shares of common stock from which the requisite vote is calculated. Accordingly,
broker non-votes with respect to a proposal will not be considered shares
entitled to vote and, therefore, will not be counted as votes for or against
such proposal in determining whether such proposal is approved.
The IWL Board and the Telecommunications Board are not currently aware of
any business to be acted upon at their respective Special Meetings other than as
described herein. If, however, other matters are properly brought before either
Special Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have discretion to vote or act thereon according to
their best judgment. Such adjournment may be for the purpose of soliciting
additional proxies. Shares represented by proxies voting against the approval
and adoption of the Merger Agreement or against the approval of the Plan
Proposals will be voted against a proposal to adjourn the respective Special
Meeting for the purpose of soliciting additional proxies with respect to such
matter.
Holders of IWL Common Stock and holders of Telecommunications Common Stock
will not be entitled to present any matter for consideration at either of the
Special Meetings.
A holder of IWL Common Stock or a holder of Telecommunications Common Stock
may revoke his or her proxy at any time prior to the voting of the proxy by
delivering to the Secretary of IWL or Telecommunications, as the case may be, a
signed notice of revocation or a later dated signed proxy or by attending the
applicable Special Meeting and voting in person. Attendance at the IWL Special
Meeting or the Telecommunications Special Meeting will not itself constitute the
revocation of a proxy.
The cost of solicitation of proxies will be paid by IWL for IWL proxies and
by Telecommunications for Telecommunications proxies. In addition to
solicitation by mail, arrangements may be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxy material to beneficial
owners, and IWL or Telecommunications, as the case may be, will, upon request,
reimburse them for their reasonable expenses in so doing.
HOLDERS OF IWL COMMON STOCK AND HOLDERS OF TELECOMMUNICATIONS COMMON STOCK
SHOULD NOT SEND IN ANY STOCK OR SHARE CERTIFICATES WITH THEIR PROXY CARDS. A
TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF CERTIFICATES FOR IWL
COMMON STOCK AND TELECOMMUNICATIONS COMMON STOCK WILL BE MAILED BY IWL AND
TELECOMMUNICATIONS TO THEIR RESPECTIVE HOLDERS OF COMMON STOCK AS SOON AS
PRACTICABLE AFTER THE CONSUMMATION OF THE TRANSACTION. SEE "THE
TRANSACTION--APPRAISAL RIGHTS."
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THE MERGER AGREEMENT
GENERAL
The Merger Agreement contemplates the mergers of I-Sub and C-Sub, two wholly
owned subsidiaries of Holdings, with and into IWL and Telecommunications,
respectively, with IWL and Telecommunications surviving the Mergers as wholly
owned subsidiaries of Holdings, and upon the consummation of the IWL Merger, but
before the consummation of the Telecommunications Merger, the Interest Exchange
of the Partnership Interests for shares of Holdings Common Stock, resulting in
the Partnership becoming an indirect subsidiary of Holdings (with
Telecommunications becoming a substitute general partner of the Partnership in
respect of the general Partnership Interest, which will be transferred to
Holdings, contributed to C-Sub and then transferred to Telecommunications by
virtue of the Telecommunications Merger, and Holdings becoming a substitute
limited partner of the Partnership in respect of the limited Partnership
Interests transferred to it). The Mergers will become effective by filing
Articles of Merger with the Secretary of State of the State of Texas. It is
anticipated that such filings will be made immediately on the closing under the
Merger Agreement. The Merger Agreement obligates Holdings to use its best
efforts to obtain the listing of the Holdings Common Stock on the Nasdaq
National Market upon official notice of issuance and obtaining such listing
approval is a condition to the consummation of the Transaction. The following
description of the Merger Agreement is qualified by reference to the complete
text of the Merger Agreement, which is incorporated by reference herein and
attached hereto as Appendix I. Capitalized terms used in the following
description of the Merger Agreement that are defined in the Merger Agreement and
not otherwise defined are used herein as defined in the Merger Agreement.
CONSIDERATION TO BE RECEIVED IN THE MERGERS
IWL MERGER. At the IWL Merger Effective Time, (a) each outstanding share of
IWL Common Stock (excluding those held in the treasury of IWL) and all rights in
respect thereof will be converted into one share of Holdings Common Stock and
(b) each outstanding share of IWL Common Stock held in the treasury of IWL will
be canceled and cease to exist.
TELECOMMUNICATIONS MERGER. At the Telecommunications Merger Effective Time,
(a) each outstanding share of Telecommunications Common Stock (excluding those
held in the treasury of Telecommunications and any Dissenter's Shares) and all
rights in respect thereof will be converted into 1.789030878 shares of Holdings
Common Stock and (b) each outstanding share of Telecommunications Common Stock
held in the treasury of Telecommunications will be canceled and cease to exist.
INTEREST EXCHANGE. Prior to the Closing Date, the holders of each issued
and outstanding one percent (1%) Partnership Interest and all rights in respect
thereof will be offered the opportunity to participate in the Exchange Offer and
tender such Partnership Interests to Holdings in exchange for 63,194.54 shares
of Holdings Common Stock.
EXCHANGE OF SHARES. Subject to the terms and conditions of the Merger
Agreement, at or prior to the Closing Date, Holdings will appoint an exchange
agent (the "Exchange Agent") to effect the exchange of IWL Common Stock,
Telecommunications Common Stock and Partnership Interests for Holdings Common
Stock. Holdings will upon the Closing Date deposit certificates representing
shares of Holdings Common Stock with the Exchange Agent for conversion of IWL
Common Stock and Telecommunications Common Stock and exchange of Partnership
Interests. Commencing immediately after the relevant Effective Time, holders of
IWL Common Stock or Telecommunications Common Stock may surrender their
certificates to the Exchange Agent (or, if at the time of such surrender there
is no Exchange Agent, to Holdings directly). In exchange for such share
certificates, holders will receive Holdings Common Stock certificates
representing such number of shares as described under "--Consideration to be
Received in the Transaction." Holders of unexchanged certificates that, prior to
the relevant Effective Time, represented shares of IWL Common Stock or
Telecommunications Common Stock will not be entitled to receive any
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dividends or other distributions payable by Holdings until their certificates
are surrendered. Upon surrender, however, subject to applicable laws, such
holders will receive accumulated dividends and distributions, without interest.
In order to validly tender Partnership Interests pursuant to the Exchange
Offer, each tendering holder of Partnership Interests will need to execute and
deliver to Holdings a Contribution Agreement in respect of such holder's
Partnership Interest. By executing and delivering a Contribution Agreement, the
holder of a Partnership Interest, among other things, will (a) tender the
Partnership Interest in the Exchange Offer; (b) consent to and approve the
Merger Agreement; (c) approve the Plan Proposals; (d) consent to all of the
transfers of Partnership Interests in the Interest Exchange, including the
transfer of the general Partnership Interest first to Holdings, then to C-Sub
and finally to Telecommunications; (e) consent to the substitution of Holdings
as a substitute limited partner in the Partnership in respect of the transferred
limited Partnership Interests and the substitution of Telecommunications as a
substitute general partner in respect of the transferred general Partnership
Interest; (f) waive any right to purchase any of the Partnership Interests
transferred to Holdings in the Interest Exchange or to C-Sub and/or
Telecommunications following the Interest Exchange; and (g) consent to the
continuation of the business of the Partnership to the extent any of the actions
described above would dissolve the Partnership. See "Interest
Exchange--Representations, Approvals, Appointments, Waivers and Covenants."
No fractional shares of Holdings Common Stock will be issued. Each holder of
shares of Telecommunications Common Stock and each holder of Partnership
Interests who would otherwise be entitled to a fraction of a share of Holdings
Common Stock (after aggregating all fractional shares of Holdings Common Stock
to be received by such holder) shall be entitled to receive a whole share of
Holdings Common Stock.
DISSENTER'S RIGHTS
Holders of shares of Telecommunications Common Stock have dissenters' rights
under Articles 5.11 through 5.13 of the TBCA. Any shares of capital stock of
Telecommunications with respect to which the holder thereof ("Dissenter")
ultimately receives payment pursuant to Articles 5.11 through 5.13 of the TBCA
will not be converted into Holdings Common Stock pursuant to the Agreement, but
the holder thereof will only be entitled to such rights as are granted by the
TBCA. Pursuant to Article 5.11.B of the TBCA, holders of IWL Common Stock will
not have dissenters' rights. See "The Transaction--Appraisal Rights."
If, after the Closing Date, a Dissenter loses the right to receive payment
pursuant to Articles 5.11 through 5.13 of the TBCA, then such holder's shares
will automatically be converted into and represent only the Holdings Common
Stock into which such shares would have been converted under the Merger
Agreement if there had been no dissent, effective as of the relevant Effective
Time. Upon surrender of the certificate representing such shares, without
prejudice to any corporate proceedings which may have been taken during the
interim period between the relevant Effective Time and the occurrence of such
event, such shareholder will be entitled to receive any dividends or other
distributions made to shareholders during such interim period. See "The
Transaction--Appraisal Rights."
TREATMENT OF STOCK OPTIONS
At the relevant Effective Time, (a) each outstanding and unexercised option
to purchase shares of IWL Common Stock or Telecommunications Common Stock (an
"Option") will be assumed by Holdings and converted into an option ("Holdings
Option") to purchase shares of Holdings Common Stock. The number of shares of
Holdings Common Stock to be subject to the Holdings Option into which an Option
is converted (a "Converted Option") shall be equal to the product of (x) the
number of shares of IWL Common Stock or Telecommunications Common Stock subject
to the Option that is converted immediately prior to the relevant Effective Time
and (y) the IWL Exchange Ratio or the Telecommunications
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Exchange Ratio, as applicable, each rounded down to the nearest whole share. The
exercise price per share of Holdings Common Stock for each particular Holdings
Option shall be equal to (x) if such Holdings Option resulted from a Converted
Option to acquire IWL Common Stock, the exercise price per share under the
Converted Option, or (y) if such Holdings Option resulted from a Converted
Option to acquire Telecommunications Common Stock, (1) the exercise price per
share under the Converted Option divided by (2) the Telecommunications Exchange
Ratio, each of which shall be rounded up to the nearest whole cent.
For a further discussion of the treatment of IWL and Telecommunications
stock options and other employee benefit plans for each of IWL,
Telecommunications and the Partnership under the Merger Agreement, see "The
Transaction--Interests of Certain Persons in the Transaction." For a description
of Holdings Common Stock, see "Description of Holdings Capital Stock--Common
Stock."
HOLDINGS FOLLOWING THE MERGER
BOARD. The Merger Agreement provides that following the consummation of the
Mergers, Holdings shall use commercially reasonable efforts to cause the Board
of Directors of Holdings to consist of Ignatius W. Leonards, Byron M. Allen,
Jere W. Thompson, Jr., Mark Langdale, Timothy W. Rogers, one outside director
designated by IWL (who will initially be Christopher J. Amenson) and one outside
director designated by the Telecommunications (who will initially be John R.
Harris) (provided that IWL and the Telecommunications shall each have the right
to veto the other's designee). See "Directors and Management of
Holdings--Directors."
CERTAIN CONDITIONS
CONDITIONS OF EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS. In addition to
approval by shareholders of IWL and Telecommunications and the partners in the
Partnership, the obligation of each party to the Merger Agreement to consummate
the Mergers and the Interest Exchange is subject to the following conditions:
(a) no federal, state or foreign statute, rule, regulation, executive order,
decree or injunction shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which makes the Mergers or the Interest
Exchange illegal or otherwise prohibits their consummation, (b) all material
authorizations, consents, orders and approvals of, or declarations and filings
with, and all expirations of waiting periods imposed by the Federal
Communications Commission ("FCC"), (and, as the date hereof, the parties have
agreed that all such necessary approvals have been obtained), and the state
public utility commissions or other similar authority which governs the
provision of telecommunications services in the states of Texas, Louisiana,
Arkansas and Oklahoma shall have been obtained (and, as the date hereof, the
parties have agreed that all such necessary approvals have been obtained), (c)
the Registration Statement, of which this Joint Proxy Statement/Prospectus forms
a part, shall have become effective prior to mailing by IWL, Telecommunications
and the Partnership of this Joint Proxy Statement/ Prospectus to their
respective shareholders and Partners and no stop order suspending the
effectiveness of the Registration Statement, of which this Joint Proxy
Statement/Prospectus forms a part, shall be then threatened, initiated or in
effect, (d) all required state securities and blue sky permits or approvals
shall have been received and (e) the Holdings Common Stock shall have been duly
approved for listing on the Nasdaq National Market.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF IWL AND THE MERGER
SUBSIDIARIES. The obligations of IWL, I-Sub and C-Sub (I-Sub and C-Sub being
referred to collectively as the "Merger Subsidiaries") to effect the
transactions contemplated by the Merger Agreement are further subject to all of
the following conditions, among others: (a) the representations and warranties
of Telecommunications and the Partnership contained in the Merger Agreement
shall be true and correct as of the Closing Date with the same effect as though
made on and as of such time (except to the extent such representations and
warranties speak as of an earlier date); (b) Telecommunications and the
Partnership shall have performed or complied in all material respects with all
covenants, obligations and conditions required to be performed and complied
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with as of the Closing Date; (c) Telecommunications and the Partnership shall
have obtained certain required third-party consents with respect to the
transactions; (d) IWL and the Merger Subsidiaries and Telecommunications and the
Partnership shall have received certain legal opinions with respect to
corporate, regulatory and tax matters; (e) there shall not have occurred any
event, fact or condition which has had or reasonably would be expected to have a
Material Adverse Effect on Holdings, Telecommunications, the Partnership or the
surviving corporations since the date of the Merger Agreement; (f) the General
Partner and the holders of at least 80% of the limited Partnership Interests in
the Partnership shall have executed and delivered to Holdings and not withdrawn
a Contribution Agreement in respect of such partner's Partnership Interests; and
(g) IWL shall have received a letter from KPMG Peat Marwick, LLP to the effect
that the Mergers and the Interest Exchange qualify for "pooling of interests"
accounting treatment under Accounting Principles Board Opinion No. 16 if
consummated in accordance with the Merger Agreement. -
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF TELECOMMUNICATIONS AND THE
PARTNERSHIP. The obligations of Telecommunications and the Partnership to
effect the transactions contemplated by the Merger Agreement are further subject
to all of the following conditions, among others: (a) the representations and
warranties of IWL and the Merger Subsidiaries contained in the Merger Agreement
shall be true and correct as of the Closing Date with the same effect as though
made as of such time (except to the extent such representations and warranties
speak as of an earlier date); (b) IWL and the Merger Subsidiaries shall have
performed or compiled in all material respects with all covenants, obligations
and conditions required to be performed and complied with as of the Closing
Date; (c) Telecommunications and the Partnership and IWL and the Merger
Subsidiaries shall have received certain legal opinions with respect to
corporate, regulatory and tax matters; (d) there shall not have occurred any
event that has had or could reasonably be expected to have a Material Adverse
Effect on IWL; (e) each of Telecommunications and the Partnership shall have
received a letter from KPMG Peat Marwick, LLP to the effect that the Mergers and
the Interest Exchange qualify for "pooling of interests" accounting treatment
under Accounting Principles Board Opinion No. 16 if consummated in accordance
with the Merger Agreement.
"Material Adverse Effect," as defined in the Merger Agreement, means any
change in or effect on the business of the referenced entity or any of its
subsidiaries that is or will be materially adverse to the business, operations
(including the income statement), properties (including intangible properties),
condition (financial or otherwise), assets, liabilities or regulatory status of
such referenced entity and its subsidiaries, taken as a whole, but shall not
include the effects of changes that are generally applicable in (A) the United
States economy or (B) the United States securities markets if, in either of (A)
or (B), the effect on IWL, Telecommunications or the Partnership (as the case
may be) and its respective subsidiaries, taken as a whole, is not
disproportionate relative to the effect on the other parties and its
subsidiaries, taken as a whole. The parties to the Merger Agreement have agreed
that the increase or decrease in the price of the shares of IWL Common Stock as
reported on the Nasdaq National Market shall be deemed to not have a Material
Adverse Effect on any of the parties to the Merger Agreement. The parties have
further agreed that the modification made to the IWL Exchange Ratio, the
Telecommunications Exchange Ratio and the Partnership Exchange Ratio in the
second amendment to the Merger Agreement addresses and takes into account all
changes of which they are aware to the business of IWL since the execution of
the Merger Agreement through the date of the second amendment to the Merger
Agreement, including, but not limited to, IWL's failure to meet earnings, income
projections or models.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain representations and warranties of IWL,
Telecommunications and the Partnership as to, among other things, due
organization and good standing, authorized capital stock, authorized Partnership
Interests, ownership of subsidiaries, corporate or partnership authority to
enter into the contemplated transactions, recent filings with the Commission (if
applicable), financial statements, ownership of and title to assets and
properties, material contracts, tax matters, regulatory
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matters, information supplied for use in this Registration Statement and Joint
Proxy Statement/Prospectus, the absence of certain undisclosed liabilities, the
absence of material changes or events, compliance with laws, agreements,
contracts or commitments with third parties, ownership of personal property,
litigation, employee benefit plans, intellectual property, labor matters and
environmental matters.
CERTAIN COVENANTS
The Merger Agreement provides that from the date thereof to the Closing
Date, except as otherwise permitted by the Merger Agreement, Telecommunications
and the Partnership will each conduct its business in the ordinary course
consistent with past practices. By way of illustration and without limiting the
foregoing, the Merger Agreement places restrictions on the ability of
Telecommunications and the Partnership to, among other things, (a) enter into
any commitment or transaction involving more than $500,000 of products and
services of Telecommunications and the Partnership; (b) grant any severance or
termination pay in excess of $10,000; (c) transfer intellectual property rights,
subject to certain exceptions; (d) enter into, amend or terminate or assign any
agreements pursuant to which any other party is granted exclusive marketing or
other rights with respect to any products of Telecommunications or the
Partnership; (e) violate or amend any contracts or agreements required to be set
forth in the disclosure schedule to the Merger Agreement; (f) subject to certain
exceptions, commence any litigation except for normal collection actions; (g)
declare or pay dividends, make distributions with respect to Telecommunications
stock, or split, combine or reclassify Telecommunications' stock or issue
securities; (h) issue or sell shares, unless pursuant to an employee stock
option granted prior to the execution of the Merger Agreement; (i) amend
Telecommunications' Articles of Incorporation or Bylaws or the Partnership's
Agreement of Limited Partnership except as provided in the Articles of Merger;
(j) acquire assets of any entity or dispose of any assets which are material to
the business of the Telecommunications or the Partnership; (k) incur
indebtedness; (l) adopt or amend employee compensation and severance benefits;
(m) revalue any of its assets, other than in the ordinary course of business;
(n) pay more than $25,000 in any one case (or $100,000 in the aggregate) of any
obligation except in the ordinary course of business or liabilities reflected or
reserved against in certain of Telecommunications' or the Partnership's
financial statements; (o) change any material election or any accounting method
in respect of taxes; or (p) take any action which would jeopardize the ability
of the business combination to be effected by the Mergers and the Interest
Exchange from being accounted for as a pooling of interests.
The Merger Agreement also requires IWL, except as otherwise permitted by the
Merger Agreement, to conduct its business in the ordinary course consistent with
past practices and places restrictions on the ability of IWL to (a) enter into
any commitment or transaction involving more than $500,000 of products and
services of IWL; (b) grant any severance or termination pay in excess of
$10,000; (c) transfer intellectual property rights, subject to certain
exceptions; (d) enter into, amend or terminate or assign any agreements pursuant
to which any other party is granted exclusive marketing or other rights with
respect to any products of IWL; (e) violate or amend any contracts or agreements
required to be set forth in the disclosure schedule to the Merger Agreement; (f)
subject to certain exceptions, commence any litigation except for normal
collection actions; (g) declare or pay dividends, make distributions with
respect to IWL stock, or split, combine or reclassify IWL's stock or issue
securities; (h) issue or sell shares, unless pursuant to an employee stock
option granted prior to the execution of the Merger Agreement; (i) amend IWL's
Articles of Incorporation or Bylaws except as provided in the Articles of
Merger; (j) acquire assets of any entity or dispose of any assets which are
material to the business of IWL; (k) incur indebtedness; (l) adopt or amend
employee compensation and severance benefits; (m) revalue any of its assets,
other than in the ordinary course of business; (n) pay more than $25,000 in any
one case (or $100,000 in the aggregate) of any obligation except in the ordinary
course of business or liabilities reflected or reserved against in certain of
IWL's financial statements; (o) change any material election or any accounting
method in respect of taxes; or (p) take any action which would jeopardize the
ability of the business combination to be effected by the Mergers and the
Interest Exchange from being accounted for as a pooling of interests.
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NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that Telecommunications and the Partnership
will not, and will not allow any of its officers, directors, or shareholders
affiliated with any officer, director, or Telecommunications' agents to,
directly or indirectly, solicit, initiate, encourage or participate in any
discussions or negotiations relating to an Acquisition Proposal (as defined
below) or cooperate with any Acquisition Proposal. Except for disclosures made
in the ordinary course of business, Telecommunications and the Partnership will
not disclose information concerning its business and properties.
As defined in the Merger Agreement, "Acquisition Proposal" means a proposal
or offer for a tender or exchange offer, merger, consolidation or other business
combination involving Telecommunications or the Partnership or any proposal to
acquire in any manner a substantial equity interest in, or all or substantially
all the assets of, Telecommunications or the Partnership.
CONTROL OF OTHER PARTY'S BUSINESS
Nothing in the Merger Agreement grants (i) IWL the right to control or
direct Telecommunications or the Partnership's operations prior to the Closing
Date, or (ii) Telecommunications or the Partnership the right to control or
direct IWL's operations prior to the Closing Date.
EMPLOYMENT AGREEMENTS
Pursuant to the Merger Agreement, each of Ignatius W. Leonards, Byron M.
Allen, Errol J. Olivier, Richard H. Roberson and Bryan L. Olivier, who are
currently IWL employees, and each of Jere W. Thompson, Jr., Scott L. Roberts,
Timothy W. Rogers and Timothy M. Terrell, who are currently Telecommunications'
employees, entered into an Employment Agreement (which includes a covenant not
to compete) with Holdings. Under the terms of the Merger Agreement, prior to the
Closing Date, Telecommunications is responsible for the performance of all of
Holdings' obligations under the Employment Agreements of the Telecommunications
employees and IWL is responsible for the performance of all of Holdings'
obligations under the Employment Agreements with the IWL employees, in each case
including obligations to pay base compensation and bonus (if any), tax
withholding and payment obligations (including with respect to FICA, Medicare
and all other similar taxes) and employee expense reimbursement obligations.
POOLING ACCOUNTING
IWL, the Partnership and Telecommunications are each required under the
Merger Agreement to use commercially reasonable efforts to cause the business
combination to be effected by the Mergers and the Interest Exchange to be
accounted for as a pooling of interests. Each of IWL, the Partnership and
Telecommunications is also required under the Merger Agreement to use
commercially reasonable efforts to cause their respective "affiliates" (within
the meaning of Rule 145 promulgated under the Securities Act) not to take any
action that would adversely affect the ability of the parties to account for the
business combination to be effected by the Mergers and the Interest Exchange as
a pooling of interests.
TERMINATION
At any time prior to the Closing Date, the Merger Agreement may be
terminated as authorized by the respective Boards of Directors of IWL, on the
one hand, or of Telecommunications or the General Partner, on the other hand, as
follows: (a) by mutual written consent of IWL, Telecommunications and the
General Partner; (b) by either IWL, on the one hand (referred to as "party" to
the Transaction), or Telecommunications and the Partnership, on the other hand
(also collectively referred to as a "party" to the Transaction), if the Mergers
and the Interest Exchange shall not have been consummated on or before December
31, 1998 (unless such failure to consummate is caused solely by reason of the
failure to obtain certain regulatory approvals, in which case the Termination
Date shall be extended to February 16, 1999) unless
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the terminating party caused the failure to consummate; (c) by either party if
the other party shall have made a misrepresentation or breached an obligation
under the Merger Agreement, and such breach or misrepresentation is not cured
within 30 days after notice thereof and such breach or misrepresentation results
or would reasonably be expected to result in a Material Adverse Effect on the
terminating party; (d) by either party upon the occurrence of a Material Adverse
Effect on the other party or an event which could reasonably be expected to
result in a Material Adverse Effect on the other party; (e) by either party (the
"terminating party") (i) if the other party's Board of Directors or any
committee of the Board of Directors or the General Partner, as applicable, shall
withdraw or modify in any adverse manner its approval or recommendation of the
Merger Agreement or the Mergers or the Interest Exchange or (ii) if the
terminating party's own Board of Directors or any committee of the Board of
Directors or General Partner, as applicable, shall withdraw or modify in any
adverse manner its approval or recommendation of the Merger Agreement or the
Mergers or the Interest Exchange; (f) by either party if any of the required
approvals of the shareholders or partners, as the case may be, shall fail to
have been obtained; (g) by either party prior to the approval of the Merger
Agreement by the shareholders or the partners of such party, as applicable, upon
two business days' prior notice to the other party, if, as a result of an
Acquisition Proposal received from a person other than a party to the
Transaction or any of its affiliates, the Board of Directors or the General
Partner, as applicable, of such party determines in good faith, on the basis of
oral or written advice of outside counsel, that their fiduciary obligations
under applicable law require that such Acquisition Proposal be accepted;
provided, however, that (i) the Board of Directors or the General Partner of
such party shall have concluded in good faith, after considering applicable
provisions of law, on the basis of oral or written advice of outside counsel,
that such action is necessary for the Board of Directors or the General Partner
of such party to act in a manner consistent with its fiduciary duties under
applicable law and (ii) prior to any such termination, the terminating party
shall, and shall cause its respective financial and legal advisors to, negotiate
with the non-terminating party to adjust the terms and conditions of the Merger
Agreement to provide the opportunity for the terminating party to proceed with
the transactions contemplated thereby; or (h) by IWL, Telecommunications or the
Partnership if there exists a final, nonappealable order or a ruling by a court
of competent jurisdiction or governmental, regulatory or administrative agency
or commission permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement. See "--Certain Covenants."
EFFECT OF TERMINATION
The Merger Agreement obligates IWL to pay to Telecommunications and the
Partnership, or Telecommunications and the Partnership to pay to IWL, in certain
circumstances set forth in the Merger Agreement, a termination fee of $2.5
million in cash in the aggregate (the "Termination Fee") on the date the Merger
Agreement is terminated. The Merger Agreement obligates Telecommunications and
the Partnership to pay to IWL the Termination Fee if (i) IWL (or, in certain
cases, Telecommunications and the Partnership) terminates the Merger Agreement
because the Board of Directors or any committee thereof of Telecommunications or
the General Partner withdraws or modifies in any adverse manner its approval or
recommendation of the Merger Agreement, the Mergers or the Interest Exchange,
(ii) IWL or Telecommunications or the Partnership terminate the Merger Agreement
due to the failure to obtain the required approval from the Telecommunications
shareholders or the Partnership's partners, (iii) Telecommunications and the
Partnership terminate the Merger Agreement prior to the approval of the Merger
Agreement by the Telecommunications shareholders or the partners in the
Partnership, upon Telecommunications or the Partnership having received an
Acquisition Proposal and the Telecommunications Board or the General Partner
Board having concluded that its fiduciary obligations under applicable law
require that such Acquisition Proposal be accepted, or (iv) IWL terminates the
Merger Agreement as a result of the failure of Telecommunications or the
Partnership to take all action necessary to obtain approval of the Transaction
from their respective shareholders and partners. In such event, $1,875,000 of
the Termination Fee will be paid by Telecommunications and $625,000 will be paid
by the Partnership.
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In addition, the Merger Agreement obligates IWL to pay to Telecommunications
and the Partnership the Termination Fee if (i) Telecommunications and the
Partnership (or, in certain cases, IWL) terminate the Merger Agreement because
the IWL Board or any committee thereof withdraws or modifies in any adverse
manner its approval or recommendation of the Merger Agreement, the Mergers or
the Interest Exchange; (ii) IWL or Telecommunications or the Partnership
terminate the Merger Agreement due to the failure to obtain the required
approval from the IWL shareholders, (iii) IWL terminates the Merger Agreement
prior to the approval of the Merger Agreement by the IWL shareholders upon IWL
having received an Acquisition Proposal and the IWL Board having concluded that
its fiduciary obligations under applicable law require that such Acquisition
Proposal be accepted, or (iv) Telecommunications or the Partnership terminates
the Merger Agreement as a result of IWL's failure to take all action necessary
to obtain approval of the Transaction from IWL's shareholders. In such event,
IWL will pay $1,875,000 of the Termination Fee to Telecommunications and will
pay $625,000 of the Termination Fee to the Partnership.
EXPENSES
Each of the parties to the Merger Agreement will bear its own costs and
expenses incurred in connection with the Merger Agreement and the transactions
contemplated thereby, except that the expenses incurred in connection with the
printing of this Joint Proxy Statement/Prospectus and the Registration Statement
will be shared equally by Telecommunications and IWL.
MODIFICATION OR AMENDMENT
The Merger Agreement may be amended by action taken in writing by all of the
parties at any time before the Effective Time, but after approval of the Mergers
and the Interest Exchange by the shareholders of IWL or Telecommunications or
the partners of the Partnership (whichever shall occur first), no amendment may
be made that would (a) alter or change the amounts or kinds of consideration to
be received by the holders of IWL Common Stock or Telecommunications Common
Stock or holders of Partnership Interests upon consummation of the Mergers and
the Interest Exchange, (b) alter or change any term of the Articles of
Incorporation of either of the Surviving Corporations or (c) alter or change any
of the terms and conditions of the Merger Agreement if such alteration or change
would adversely affect the holders of any class or series of securities of
Holdings, IWL, Telecommunications or the Partnership. The Merger Agreement has
been amended three times and the amendments are included in the Appendix hereto.
The original Merger Agreement (as amended April 30, 1998) provided that each
outstanding share of IWL Common Stock would be converted into one share of
Holdings Common Stock, a Telecommunications Ratio of .75295288 and a Partnership
Exchange Ratio of 26,619.8. On June 20, 1998, the original Merger Agreement was
amended for the second time and on July 8, 1998 for a third time. The first
amendment to the Merger Agreement was made on April 30, 1998 to make minor
adjustments to the Telecommunications Exchange Ratio in order to address
calculation errors in the number of options and shares of Telecommunications
Common Stock that were outstanding. Such amendment did not change any of the
other Exchange Ratios or change the total number of shares that had been
approved for issuance by Holdings. The second amendment provided for a
Telecommunications Exchange Ratio of 1.789030878 and a Partnership Exchange
Ratio of 63,194.54. The second amendment is expected to result in an additional
14,639,148 shares of Holdings Common Stock being issued, for a total of
29,738,607 (assuming all of the Partnership interests are validly tendered to
and accepted by Holdings in the Exchange Offer). The second amendment and the
revised Exchange Ratios were prompted by assertions by Telecommunications and
the Partnership that the reduction in IWL's revenues from its plan and the
delays in contracts, among other factors, constituted a Material Adverse Effect
(as defined in the Merger Agreement) with respect to IWL which could reasonably
be expected to have a Material Adverse Effect on Telecommunications and the
Partnership. In lieu of terminating the Merger Agreement or disputing whether
such a right to terminate existed, the parties agreed to modify the Exchange
Ratios. In modifying the Exchange Ratios, the parties considered, among other
factors, (i) contract delays causing lower IWL project revenues and operating
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income than those set forth in the IWL business plan furnished to
Telecommunications and the Partnership in connection with the original
negotiations of the Merger Agreement, (ii) the continued improvement in
Telecommunications' and the Partership's operations and (iii) the significant
expansion in Telecommunications' and the Partnership's business plans from the
plans furnished to IWL in connection with the original negotiations of the
Merger Agreement. The second amendment was entered into on June 20, 1998 to
adjust the IWL Exchange Ratio, the Telecommunications Exchange Ratio and the
Partnership Exchange Ratio, to remove various conditions to closing that had
been met or which had been determined to not be material and to allow for the
issuance by Holdings, Telecommunications and the Partnership of the Notes and
their guarantee by IWL. The third amendment was entered into to confirm the
receipt of all required regulatory approvals and the receipt of the fairness
opinion from IWL's financial advisor.
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INTEREST EXCHANGE
TERMS OF THE EXCHANGE OFFER; EXPIRATION DATE
Partners in the Partnership are being offered the opportunity to tender
their Partnership Interests in exchange for Holdings Common Stock (the "Exchange
Offer"). Each one percent (1%) of the Partnership Interests issued and
outstanding immediately before the Closing Date and all rights in respect
thereof at the Closing Date shall, upon the execution and delivery by the holder
thereof of a Contribution Agreement with respect to such Partnership Interests
and the acceptance thereof by Holdings, be exchanged for 63,194.54 shares of
Holdings Common Stock. Upon the terms and subject to the conditions of the
Exchange Offer, as stated herein, Holdings will accept for exchange all
Partnership Interests validly tendered on or prior to the Expiration Date and
not withdrawn in accordance with the procedures set forth in this section. For
purposes of the Exchange Offer, the term "Expiration Date" shall mean 12:00
midnight, Eastern Time, on July , 1998, unless Holdings, in its sole
discretion, shall have extended the period of time for which the Exchange Offer
is open, in which event the term "Expiration Date" shall mean the latest time
and date on which the Exchange Offer, as extended by Holdings, shall expire. See
"--Extension of Tender Period; Termination; Amendment" for a description of
Holdings' right to extend the period of time during which the Exchange Offer is
open and to amend or terminate the Exchange Offer.
If, prior to the Expiration Date, Holdings increases the consideration
offered for Partnership Interests pursuant to the Exchange Offer, the increased
consideration will be delivered for all Partnership Interests accepted for
exchange pursuant to the Exchange Offer, regardless of whether the Partnership
Interests were tendered prior to the increase in the consideration offered.
The Exchange Offer is conditioned upon satisfaction of certain conditions.
See "--Conditions," which describes the conditions of the Exchange Offer.
Holdings reserves the right (but in no event shall be obligated), in its sole
discretion, to waive any or all of those conditions. If, on or prior to the
Expiration Date, any or all of the Exchange Offer Conditions (as described
below) have not been satisfied or waived, Holdings reserves the right to (i)
decline to exchange any of the Partnership Interests tendered and terminate the
Exchange Offer, (ii) waive all of the unsatisfied Exchange Offer Conditions and,
subject to complying with applicable rules and regulations of the Commission,
exchange all Partnership Interests validly tendered, (iii) extend the period of
time during which the Exchange Offer is open and, subject to the right of the
holders of Partnership Interests to withdraw such Partnership Interests until
the Expiration Date, retain the Partnership Interests that are tendered prior to
the Expiration Date and/or (iv) amend the Exchange Offer. See "Merger
Agreement--Certain Conditions."
By executing and delivering a Contribution Agreement, a partner will not
only tender its Parnership Interest but will, among other things, also make
certain representations, waive certain rights, agree to certain actions and
appoint certain proxies and attorneys-in-fact, all as described under
"--Representations, Approvals, Appointments, Waivers and Covenants." The
partners in the Partnership do not have rights equivalent to a corporate
shareholder's appraisal rights. Any partner not executing a Contribution
Agreement will remain a partner in the Partnership.
For a discussion of federal tax consequences applicable to the proposed
Interest Exchange, see "The Transaction--Certain United States Federal Income
Tax Consequences of the Interest Exchange."
This Joint Proxy Statement/Prospectus and the accompanying Contribution
Agreement are being mailed by Holdings to the persons shown by the Partnership's
records to have been holding Partnership Interests as of , 1998.
ACCEPTANCE FOR EXCHANGE
Upon the terms of the Exchange Offer and subject to the satisfaction of the
Exchange Offer Conditions (as described below), Holdings will accept for
exchange all Partnership Interests validly
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tendered and not withdrawn in accordance with the procedures specified in this
section as promptly as practicable following the Expiration Date. In all cases,
exchanges of Partnership Interests made pursuant to the Exchange Offer will be
made only after timely receipt by Holdings of a properly completed and duly
executed Contribution Agreement. If any tendered Partnership Interests are not
exchanged for shares of Holdings Common Stock for any reason, the Contribution
Agreement with respect to such Partnership Interests will be destroyed by
Holdings and the holders shall retain such Partnership Interests with all
current rights, obligations and liabilities, as the same may be amended by
actions effected pursuant to the Contribution Agreements that are delivered.
CONDITIONS
Satisfaction of the following conditions (the "Exchange Offer Conditions")
prior to the Expiration Date is a condition of the Interest Exchange:
MINIMUM ACCEPTANCE. The General Partner and partners holding, in the
aggregate, at least 80% of the limited Partnership Interests in the Partnership
shall have executed and delivered to Holdings a Contribution Agreement in
respect of such partner's Partnership Interest.
MERGERS. If the Mergers are not approved by the requisite vote of all
shareholders eligible to vote for the Mergers or not consummated for some other
reason, no tenders will be accepted by Holdings and the Interest Exchange will
not be consummated.
OTHER CONDITIONS. The Interest Exchange is also subject to satisfaction of
those conditions described under "The Merger Agreement--Certain Conditions" as
well as qualifications under the applicable securities laws of the states in
which the partners and Holdings reside. Any determination by Holdings concerning
the events set forth above will be final and binding on all parties. The
foregoing conditions are for the sole benefit of Holdings and may be waived by
it in its sole discretion, in whole or in part.
PROCEDURE FOR TENDERING PARTNERSHIP INTERESTS
VALID TENDER. In order for a tendering general or limited partner in the
Partnership to participate in the Interest Exchange, such partner's Partnership
Interests must be validly tendered and not withdrawn on or prior to the
Expiration Date. To validly tender Partnership Interests, a properly completed
and duly executed Contribution Agreement, together with any requisite
assignments, releases or other documents indicated in the Contribution
Agreement, must be received by Holdings on or prior to the Expiration Date.
DELIVERY OF CONTRIBUTION AGREEMENT. The method of delivery of the
Contribution Agreement is at the option and risk of the tendering partner, and
delivery will be deemed made only when actually received by Holdings. In all
cases, sufficient time should be allowed to assure timely delivery.
DETERMINATION OF VALIDITY; REJECTION OF INTERESTS'; WAIVER OF DEFECTS; NO
OBLIGATION TO GIVE NOTICE OF DEFECTS. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for exchange of any
tender (or subsequent withdrawal) of Partnership Interests pursuant to the
Exchange Offer will be determined by Holdings, in its sole discretion, which
determination shall be final and binding. Holdings reserves the absolute right
to reject any or all tenders or withdrawals of any particular Partnership
Interests determined by it not to be in proper form or if the acceptance of or
exchange for those Partnership Interests may, in the opinion of Holdings's
counsel, be unlawful. Holdings also reserves the absolute right to waive or
amend any of the conditions of the Exchange Offer that it is legally permitted
to waive as to the tender of any particular Partnership Interests and to waive
any defect or irregularity in any tender or withdrawal with respect to any
particular Partnership Interests of any particular partner. Holdings'
interpretation of the terms and conditions of the Exchange Offer (including the
Contribution Agreement) will be final and binding. No tender or withdrawal of
Partnership Interests will be deemed to have been validly made until all defects
and irregularities have been cured or waived. Neither Holdings nor any other
person will be under any duty to give notification of any defects or
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irregularities in the tender or subsequent withdrawal of any Partnership
Interests or will incur any liability for failure to give any such notification.
SPECIAL REQUIREMENTS OF CERTAIN PARTNERS. Some of the partners in the
Partnership are entities. With respect to Partnership Interests tendered by any
such entities, Holdings will require that each Contribution Agreement be
accompanied by evidence acceptable to Holdings that such entity has met all
requirements of its governing instruments, such as its applicable articles of
incorporation or bylaws, and is authorized to tender such Partnership Interests
under the laws of the jurisdiction in which such entity was organized. There may
also be required an opinion of counsel for each such partners in the
Partnership, in a form acceptable to Holdings, to the effect that the tender of
Partnership Interests by such entity has been duly authorized and does not
violate its governing instruments and is legal, valid, and binding on such
entity.
Holders of Partnership Interests who are individuals living in community
property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico,
Texas, and Washington) may be required to present evidence acceptable to
Holdings that the transfer of Partnership Interests to Holdings is not done in
violation of the applicable community property laws.
BINDING OBLIGATION. A tender of Partnership Interests pursuant to and in
accordance with the procedures described in this section and the acceptance of
shares of Holdings Common Stock by a partner in exchange for such Partnership
Interests will constitute a binding agreement between the tendering partner and
Holdings on the terms set forth in this Joint Proxy Statement/Prospectus and in
the Contribution Agreement.
WITHDRAWAL RIGHTS
Tenders of Partnership Interests made pursuant to the Exchange Offer are
irrevocable, except that Partnership Interests tendered pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date and, unless
already accepted for exchange as provided in this Exchange Offer, may also be
withdrawn at any time after August 31, 1998. For withdrawal to be effective, a
written notice of withdrawal must be timely received by Holdings. Any such
notice of withdrawal must specify the name of the partner who tendered the
Partnership Interests to be withdrawn and must be signed by the person(s) who
signed the Contribution Agreement in the same manner as the Contribution
Agreement was signed. Partnership Interests properly withdrawn will be deemed to
not be validly tendered for purposes of the Exchange Offer. Withdrawn
Partnership Interests may be re-tendered, however, by following the procedures
described in this section at any time prior to the Expiration Date.
REPRESENTATIONS, APPROVALS, APPOINTMENTS, WAIVERS AND COVENANTS
REPRESENTATIONS. By executing and delivering a Contribution Agreement, each
tendering partner will represent in the Contribution Agreement that, among other
things, (i) such partner has the right and authority to transfer the tendered
Partnership Interest, (ii) such Partnership Interest is free and clear of all
liens, encumbrances, and adverse claims other than those liens securing
indebtedness of the Partnership or which were otherwise taken into account in
the calculation of the exchange value of such Partnership Interest, (iii) the
partner has not made any binding commitment requiring such partner to dispose of
the shares of Holdings Common Stock to be received by such partner in the
Interest Exchange and (iv) such partner has no plan or intention of making such
a disposition.
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APPROVALS. By executing and delivering a Contribution Agreement, each
tendering partner will approve and consent to a number of items, including the
following: (i) the Merger Agreement, (ii) the Plan Proposals, (iii) the
transfers of the Partnership Interests to Holdings in the Exchange Offer and the
subsequent transfer of the Partnership Interest of the General Partner to C-Sub,
which, as a result of the Telecommunications Merger, will be transferred to
Telecommunications, (iv) the substitution of Telecommunications as a general
partner of the Partnership in respect of the Partnership Interests transferred
to it, without the necessity of signing the Shareholders Agreement as otherwise
required by the Partnership Agreement, and the substitution of Holdings as a
limited partner in respect of the Partnership Interests transferred to it, (v)
the continuation of the business of the Partnership to the extent any of the
actions effected pursuant to the Transaction would cause a dissolution of the
Partnership and (vi) any amendment to the Partnership Agreement necessary to
permit any of the actions effected pursuant to the foregoing or the Transaction.
WAIVERS. By executing and delivering a Contribution Agreement, a partner
will waive (i) any rights it may have to purchase Partnership Interests that are
transferred in the Interest Exchange or subsequently transferred by Holdings to
C-Sub or in the Telecommunications Merger, including those rights of first
refusal granted in the Partnership Agreement and (ii) any default that exists
under the Partnership Agreement as a result of the Interest Exchange or any of
the other matters consented to by the partner in the Contribution Agreement.
COVENANTS. Each partner who executes and delivers a Contribution Agreement
will agree to take such further action and execute such further documents as
Holdings may request in order to effect or confirm the Interest Exchange and the
other matters addressed by the Contribution Agreement.
APPOINTMENT OF PROXY AND ATTORNEY-IN-FACT. By executing and delivering a
Contribution Agreement, a tendering partner will irrevocably appoint Holdings
and its executive officers and designees as the partner's proxies, in the manner
set forth in the Contribution Agreement, each with full power of substitution,
to the full extent of the partner's rights with respect to the Partnership
Interests tendered by the partner and accepted for exchange by Holdings. Each
such proxy shall be considered coupled with an interest in the tendered
Partnership Interests. Such appointment will be effective when, and only to the
extent that, Holdings accepts the tendered Partnership Interests for exchange.
Upon such acceptance for exchange, all prior proxies given by the partner with
respect to the Partnership Interests will, without further action, be revoked,
and no subsequent proxies may be given (and if given will not be effective).
Holdings and its executive officers and designees will, as to those Partnership
Interests, be empowered to exercise all voting and other rights of the partner
as they in their sole discretion may deem proper at any meeting of partners, by
written consent or otherwise. Holdings reserves the right to require that, in
order for Partnership Interests to be deemed validly tendered, immediately upon
Holding's acceptance for exchange of the Partnership Interests, Holdings must be
able to exercise full voting rights with respect to the Partnership Interests,
including voting at any meeting of partners then scheduled or acting by written
consent without a meeting.
By executing and delivering a Contribution Agreement, a tendering partner
will also irrevocably constitute and appoint Holdings and its executive officers
and designees as the partner's attorneys-in-fact, each with full power of
substitution, to the full extent of the partner's rights with respect to the
Partnership Interests tendered by the partner and accepted for exchange by
Holdings. Such appointment will be effective when, and only to the extent that,
Holdings accepts the tendered Partnership Interests for exchange. The tendering
partner agrees not to exercise any rights pertaining to the tendered Partnership
Interests without the prior consent of Holdings. Upon such acceptance for
exchange, all prior powers of attorney granted by the partner with respect to
such Partnership Interests will, without further action, be revoked, and no
subsequent powers of attorney may be granted (and if granted will not be
effective). Pursuant to such appointment as attorneys-in-fact, Holdings and its
executive officers and designees each will have the power, among other things to
transfer ownership of such Partnership Interests on the
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Partnership books (and execute and deliver any accompanying evidences of
transfer and authenticity any of them may deem necessary or appropriate in
connection therewith).
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
Holdings expressly reserves the right, in its sole discretion, at any time
and from time to time, (i) to extend the period of time during which the
Exchange Offer is open and thereby delay acceptance for exchange of validly
tendered Partnership Interests, (ii) to terminate the Exchange Offer and not
accept for exchange any Partnership Interests not already accepted for exchange,
or (iii) to amend the Exchange Offer in any respect. In the case of an extension
of the Exchange Offer, the extension will be followed by a press release or
public announcement that will be issued no later than 9:00 a.m., Eastern Time,
on the next business day after the then scheduled Expiration Date, in accordance
with Rule 14e-1(d) under the Exchange Act.
If Holdings makes a material change in the terms of the Exchange Offer or
the information concerning the Exchange Offer or waives an Exchange Offer
Condition, Holdings will extend the Exchange Offer and disseminate additional
tender offer materials to the extent required by Rules 14d-4(c) and 14d-6(d)
under the Exchange Act. The minimum period during which an offer must remain
open following a material change in the terms of the offer or information
concerning the Exchange Offer will depend upon the facts and circumstances,
including the relative materiality of the change in the terms or information. In
the Commission's view, an offer should remain open for a minimum of five
business days from the date the material change is first published, sent or
given to security holders, and if material changes are made with respect to
information that approaches the significance of price or the percentage of
securities sought, a minimum of ten business days may be required to allow for
adequate dissemination to security holders and investor response. As used in
this section, "business day" means any day other than a Saturday, Sunday or a
federal holiday and consists of the time period from 12:01 a.m. through 12:00
midnight, Eastern Time.
THE PLAN PROPOSALS
Terms not otherwise defined in this discussion of the Plan Proposals shall
have the meanings ascribed to them in the Equity Incentive Plan, a copy of which
is attached as Appendix VI.
THE EQUITY INCENTIVE PLAN
IN GENERAL. The Equity Incentive Plan was adopted and approved prior to the
date hereof by the Holdings Board and was approved by the IWL Board and the
Telecommunications Board, in each case subject to the approval of the holders of
the common stock of their respective companies. The Equity Incentive Plan is
intended to provide a means by which selected employees of and consultants to
Holdings and its subsidiaries may be given an opportunity to acquire an equity
interest in Holdings. Holdings, by means of the Equity Incentive Plan, will seek
to retain the services of persons who are or become employees of or consultants
to Holdings and its subsidiaries and to provide incentives for such persons to
exert maximum efforts for the success of Holdings and its subsidiaries.
ADMINISTRATION. The Equity Incentive Plan will be administered by a
Compensation Committee ("Committee") appointed by the Holdings Board, whose
members will serve at the pleasure of the Holdings Board. The Committee will
have two or more members, each of whom will be an "outside director" within the
meaning of Treasury Regulation Section 1.162-27(e)(3). In addition, such
committee members will also be Non-Employee Directors within the meaning of Rule
16b-3 promulgated under the Exchange Act. If no Committee is so designated, then
the Equity Incentive Plan will be administered by the entire Holdings Board. The
Committee will have full authority, subject to the provisions of the Equity
Incentive Plan, to award (i) Stock Options, (ii) Stock Appreciation Rights,
(iii) Restricted Stock, (iv) Deferred Stock, (v) Stock Reload Options and/or
(vi) Other Stock-Based Awards (collectively, "Awards").
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Subject to the provisions of the Equity Incentive Plan, the Committee will
determine, among other things, the persons to whom from time to time Awards may
be granted ("Participants"), the specific type of Awards to be granted (e.g.,
Stock Options, Restricted Stock, etc.), the number of shares subject to each
Award, share prices, any restrictions or limitations on such Awards and any
vesting, exchange, deferral, surrender, cancellation, acceleration, termination,
exercise or forfeiture provisions related to such Awards. The interpretation and
construction by the Committee of any provisions of, and the determination of any
questions arising under the Equity Incentive Plan or any rule or regulation
established by the Committee pursuant to the Equity Incentive Plan will be
final, conclusive and binding on all persons interested in the Equity Incentive
Plan.
SHARES SUBJECT TO THE PLAN, GENERAL TERMS. The Equity Incentive Plan
authorizes the granting of Awards which would allow up to an aggregate of
5,000,000 shares of Holdings Common Stock to be acquired by the Holders and
provides that a maximum of 2,500,000 shares of Holdings Common Stock may be
issued to any one Holder. In order to prevent the dilution or enlargement of the
rights of Participants under the Equity Incentive Plan, the number of shares of
Holdings Common Stock authorized by the Equity Incentive Plan is subject to
adjustment by the Holdings Board in the event of any increase or decrease in the
number of shares of outstanding Holdings Common Stock resulting from a stock
dividend, stock split, reverse stock split, merger, reorganization,
consolidation, recapitalization or other change in corporate structure affecting
the Holdings Common Stock. If any shares granted under the Equity Incentive Plan
are forfeited or terminated, such shares will again be available for
distribution in connection with Awards subsequently granted under the Equity
Incentive Plan.
ELIGIBILITY. Subject to the provisions of the Equity Incentive Plan, Awards
may be granted to key employees, officers, directors, and other persons who are
deemed to have rendered or to be able to render significant services to Holdings
or its subsidiaries and are deemed to have contributed or to have the potential
to contribute to the success of Holdings. Incentive Stock Options may be awarded
only to persons who, at the time of such awards, are employees of Holdings or
its subsidiaries.
STOCK OPTIONS. Options granted under the Equity Incentive Plan may be
either options that are intended to qualify for treatment as "incentive stock
options" under Section 422 of the Code or options that do not so qualify.
Options may be granted under the Equity Incentive Plan to any person who is an
officer or other employee (including an officer or other employee who is also a
director) or consultants of Holdings or any of its subsidiaries. The exercise
price of Incentive Stock Options must be at least the fair market value of a
share of Holdings Common Stock on the date of grant (and not less than 110% of
the fair market value in the case of an Incentive Stock Option granted to an
optionee owning 10% or more of Holdings Common Stock). The exercise price of
Non-qualified Stock Options may be less than 100% of the fair market value of a
share of Holdings Common Stock on the date of grant. The term of an option may
not exceed 10 years (five years in the case of an Incentive Stock Option granted
to an optionee owning 10% or more of Holdings Common Stock).
STOCK APPRECIATION RIGHTS. The Committee may grant Stock Appreciation
Rights ("SARs" or singularly "SAR") in conjunction with all or part of any
Option granted under the Equity Incentive Plan or may grant SARs on a
freestanding basis. In conjunction with Non-qualified Stock Options, SARs may be
granted either at or after the time of the grant of such Non-qualified Stock
Options. In conjunction with Incentive Options, SARs may be granted only at the
time of the grant of such Incentive Stock Options. An SAR entitles the Holder
thereof to receive an amount (payable in cash and/or shares of Holdings Common
Stock, as determined by the Committee) equal to the excess fair market value of
one share of Holdings Common Stock over the SAR price or the exercise price of
the related Option, multiplied by the number of shares subject to the SAR.
RESTRICTED STOCK AWARDS. The Committee may award shares of restricted stock
("Restricted Stock") either alone or in addition to other Awards granted under
the Equity Incentive Plan. The Committee shall determine the restricted period
during which the shares of stock may be forfeited if, for example, the Holder's
employment is terminated. In order to enforce the forfeiture provisions, the
Equity Incentive
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Plan requires that all shares of Restricted Stock awarded to the Holder remain
in the physical custody of Holdings until the restrictions on such shares have
terminated.
DEFERRED STOCK. The Committee may award shares of deferred stock ("Deferred
Stock") either alone or in addition to other Awards granted under the Equity
Incentive Plan. The Committee shall determine the deferral period during which
time the receipt of the stock is deferred. The Award may specify, for example,
that the Holder must remain employed by Holdings during the entire deferral
period in order to be issued the stock.
STOCK RELOAD OPTIONS. The Committee may grant Stock Reload Options in
conjunction with any Option granted under the Equity Incentive Plan. In
conjunction with Incentive Options, Stock Reload Options may be granted only at
the time of the grant of such Incentive Option. In conjunction with Non-
qualified Options, Stock Reload Options may be granted either at or after the
time of the grant of such Non-qualified Options. A Stock Reload Option permits a
Holder who exercises an Option by delivering already owned stock (i.e., the
stock-for-stock method) to receive back from Holdings a new Option (at the
current market price) for the same number of shares delivered to exercise the
Option, which new Option may not be exercised until one year after it was
granted and expires on the date the original option would have expired (had it
not been previously exercised).
OTHER STOCK-BASED AWARDS. The Committee may grant performance shares and
shares of stock valued with reference to the performance of Holdings, either
alone or in addition to or in tandem with Stock Options, Restricted Stock or
Deferred Stock. Subject to the terms of the Equity Incentive Plan, the Committee
has complete discretion to determine the terms and conditions applicable to any
such stock-based awards. Such terms and conditions may require, among other
things, continued employment and/or the attainment of specified performance
objectives.
CHANGE IN CONTROL
Awards may be granted under the Equity Incentive Plan that at any time after
the Effective Time of the Mergers, in the event of (i) any person or group of
persons becoming for the first time the beneficial owner, directly or
indirectly, of more than 50% of the total voting stock of Holdings, other than
as a result of a transfer or series of related transfers of voting stock from a
person or group of persons who immediately prior to such transfer or transfers
was the beneficial owner, and who after giving effect to such transfer or
transfers continues to be the beneficial owner, of more than 50% of the voting
stock of Holdings; (ii) a merger (other than the Mergers) or consolidation of
Holdings as a result of which the holders of all of the voting stock of Holdings
prior to such event do not continue to hold either directly or indirectly at
least a majority of Holdings voting stock after such event, (iii) a sale of all
or substantially all of the assets of Holdings or (iv) certain changes in the
majority of the Holdings Board during any 12 consecutive month period any
portion of which is after the Effective Time of the Mergers, the Awards may be
exercised in whole or in part without regard to any provisions thereof. The
accelerated vesting of outstanding Awards upon the occurrence of such a "change
in control" transaction could have the effect of delaying, deferring, or
preventing a change in control of Holdings.
TERMS AND TERMINATION OF THE EQUITY INCENTIVE PLAN. The Equity Incentive
Plan will be effective upon shareholder approval of the Equity Incentive Plan
("Effective Date"). Any Awards granted under the Equity Incentive Plan prior to
such approval shall be effective when made (unless otherwise specified by the
Committee at the time of grant), but shall be conditioned upon, and subject to,
the approval of the Equity Incentive Plan by Holdings' stockholders. If the
Equity Incentive Plan is not so approved, all Awards granted thereunder shall be
of no effect and any Holdings Common Stock received by a Participant shall be
deemed forfeited and returned to Holdings by the Holder. Unless terminated by
the Board, the Equity Incentive Plan shall continue to remain effective until
such time as no further Awards may be granted and all Awards granted under the
Equity Incentive Plan are no longer outstanding. Notwithstanding the foregoing,
grants of Incentive Stock Options may only be made during the ten-year period
following the Effective Date.
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AMENDMENTS TO THE PLAN. The Equity Incentive Plan provides that the
Holdings Board may amend or terminate the Equity Incentive Plan in any respect
whatsoever, provided that any such amendment or termination will not affect
Awards previously granted. If required by Rule 16b-3 under the Exchange Act, or
any Code or NASD requirements, the Holdings Board will not amend or terminate
the Equity Incentive Plan without shareholder approval.
REGISTRATION OF SHARES. Holdings will file with the Commission a
Registration Statement on Form S-8, which will become effective upon filing,
covering the issuance of shares of Holdings Common Stock pursuant to an Award
granted under the Equity Incentive Plan.
SHAREHOLDER APPROVAL. The affirmative vote of a majority of the outstanding
shares of IWL Common Stock and Telecommunications Common Stock represented at
the IWL Special Meeting and the Telecommunications Special Meeting,
respectively, and entitled to vote is required for approval of the Equity
Incentive Plan.
EACH OF THE IWL BOARD AND THE TELECOMMUNICATIONS BOARD RECOMMENDS A VOTE FOR
THE APPROVAL OF THE EQUITY INCENTIVE PLAN. UNLESS INDICATED OTHERWISE BY YOUR
PROXY VOTE, THE SHARES REPRESENTED BY SUCH PROXY WILL BE VOTED FOR THE APPROVAL
OF THE EQUITY INCENTIVE PLAN.
THE DIRECTOR STOCK OPTION PLAN
The Director Stock Option Plan was approved prior to the date hereof by each
of the IWL Board, the Telecommunications Board and the Holdings Board, in each
case subject to the approval of the holders of the common stock of their
respective companies. The purpose of the Director Stock Option Plan is to
encourage ownership of Holdings Common Stock by eligible non-employee directors
of Holdings whose continued services are considered essential to Holdings'
future progress and to provide them with a further incentive to remain as
directors of Holdings. All options to be granted under the Director Stock Option
Plan will be Non-qualified Stock Options. A total of 400,000 shares of Holdings
Common Stock have been reserved for issuance under the Director Stock Option
Plan.
The Director Stock Option Plan will be administered by the Holdings Board.
The Holdings Board will have full and final authority in their discretion,
subject to the provisions of the Director Stock Option Plan, to (i) determine
the individuals to whom, and the time or times at which, options will be granted
and the number of shares of Common Stock covered by each Option and (ii)
construe and interpret the terms of the Director Stock Option Plan and the
options granted thereunder. Holdings expects that each new non-employee director
of Holdings, upon becoming a director, will receive option grants under the
Director Stock Option Plan. The Holdings Board will also have the authority to
make additional option grants to existing non-employee directors.
Each option will expire ten years from the date of grant. Outstanding
options will expire earlier if an optionee terminates service as a director
before the end of the first ten-year term. If an optionee terminates service as
a director for any reason, including disability or death, the option will
automatically expire three months after the date of termination (but in no event
later than the expiration of the ten-year term). Options are not assignable and
may not be transferred other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order. Upon a
dissolution or liquidation of Holdings, each outstanding option will terminate
unless otherwise provided by the Holdings Board. In the event of a proposed sale
of all or substantially all of the assets of Holdings or upon certain mergers in
which the shareholders of Holdings receive cash or securities of another issuer,
the options will be assumed by the successor entity or substituted with an
equivalent option.
The Director Stock Option Plan provides that the Holdings Board may amend or
terminate the Director Stock Option Plan in any respect whatsoever, provided
that any such amendment or termination will not affect options previously
granted. If required by Rule 16b-3 under the Exchange Act or any Code or NASD
requirements, the Holdings Board will not amend or terminate the Director Stock
Option Plan without shareholder approval.
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Holdings will file with the Commission a Registration Statement on Form S-8,
which will become effective upon filing, covering the issuance of shares of
Holdings Common Stock upon exercise of options to be granted under the Director
Stock Option Plan.
The affirmative vote of a majority of the outstanding shares of IWL Common
Stock and Telecommunications Common Stock represented at the IWL Special Meeting
and the Telecommunications Special Meeting, respectively, and entitled to vote
is required for approval of the Director Stock Option Plan.
EACH OF THE IWL BOARD AND THE TELECOMMUNICATIONS BOARD RECOMMENDS A VOTE FOR
THE APPROVAL OF THE DIRECTOR STOCK OPTION PLAN. UNLESS INDICATED OTHERWISE BY
YOUR PROXY VOTE, THE SHARES REPRESENTED BY SUCH PROXY WILL BE VOTED FOR THE
APPROVAL OF THE DIRECTOR STOCK OPTION PLAN.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal federal income tax consequences of
participation in the Equity Incentive Plan and the Director Stock Option Plan is
based on statutory authority, as well as judicial and administrative
interpretations as of the date of this Joint Proxy Statement/Prospectus, all of
which are subject to change at any time (possibly with retroactive effect). As
the law is technical and complex, the discussion below necessarily represents
only a general summary.
INCENTIVE STOCK OPTIONS. Incentive Stock Options granted under the Equity
Incentive Plan are intended to meet the definitional requirements of Section
422(b) of the Code for "incentive stock options."
An employee who receives an Incentive Stock Option does not recognize any
taxable income upon the grant of such Incentive Stock Option. Similarly, the
exercise of an Incentive Stock Option generally does not give rise to federal
income tax to the employee, PROVIDED THAT (i) the federal "alternative minimum
tax," which depends on the employee's particular tax situation, does not apply
and (ii) the employee is employed by Holdings from the date of grant of the
option until 3 months prior to the exercise thereof, except where such
employment terminates by reason of disability (where the 3 month period is
extended to 1 year) or death (where this requirement does not apply). If an
employee exercises an Incentive Stock Option after these requisite periods, the
Incentive Stock Option will be treated as a Non-qualified Stock Option and will
be subject to the rules set forth below under the caption "Non-qualified
Options."
Further, if after exercising an Incentive Stock Option, an employee disposes
of the shares so acquired more than two years from the date of grant and more
than one year from the date of receipt of the shares upon exercise of such
Incentive Stock Option (the "applicable holding period"), the employee will
normally recognize a capital gain or loss equal to the difference, if any,
between the amount received for the shares and the employee's tax basis in such
shares.
If, however, an employee does not hold the shares so acquired for the
applicable holding period, thereby making a "disqualifying disposition," the
employee would realize ordinary income on the excess of the fair market value of
the shares at the time the Incentive Stock Option was exercised over the
exercise price and the balance, if any, would be short-term, mid-term or
long-term capital gain depending on the length of the employee's holding period
and provided that the employee held such shares as a capital asset at such time.
If the sales price of the stock sold in a disqualifying disposition is less than
its fair market value on the exercise date, the ordinary income is limited to
the amount of the gain (if any) realized on the sale. If the sales price of the
stock sold in a disqualifying disposition is less than the exercise price, the
employee will recognize a capital loss.
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An employee who exercises an Incentive Stock Option by delivering shares
previously acquired pursuant to the exercise of an Incentive Stock Option is
treated as making a "disqualifying disposition" of his or her shares if the
employee delivers them before the expiration of their applicable holding period.
Upon the exercise of an Incentive Stock Option with previously-acquired shares
as to which no disqualifying disposition occurs, despite some uncertainty, it
appears that the employee would not recognize gain or loss with respect to such
previously-acquired shares.
Holdings will not be allowed a federal income tax deduction upon the grant
or exercise of an Incentive Stock Option or the disposition, after the
applicable holding period, of the shares acquired upon exercise of an Incentive
Stock Option. In the event of a disqualifying disposition, Holdings generally
will be entitled to a deduction equal to the ordinary income recognized by the
employee, provided that such amount constitutes an ordinary and necessary
business expense to Holdings and is reasonable and the limitations of Sections
280G and 162(m) of the Code do not apply.
NON-QUALIFIED OPTIONS. Non-qualified Stock Options granted under the Equity
Incentive Plan or the Director Stock Option Plan are options that do not qualify
as Incentive Stock Options. An individual who receives a Non-qualified Stock
Option generally will not recognize any taxable income upon the grant of such
Non-qualified Stock Option. However, the individual generally will recognize
ordinary income upon exercise of a Non-qualified Stock Option in an amount equal
to the excess of (i) the fair market value of the shares at the time of exercise
over (ii) the exercise price.
The ordinary income recognized with respect to the receipt of shares upon
exercise of a Non-qualified Stock Option will be subject to both wage
withholding and employment taxes.
As a result of Section 16(b) of the Exchange Act, any individual who is an
officer or director of Holdings or a beneficial owner of more than ten percent
(10%) of any class of equity securities of Holdings should consult with his or
her tax advisor as to whether the timing of income recognition is deferred for
any period following the exercise of a Non-qualified Stock Option (i.e., the
"Deferral Period"). Absent an election pursuant to Section 83(b) of the Code
filed with the Internal Revenue Service within 30 days after the date of
transfer of such shares pursuant to the option (the "Section 83(b) election"),
recognition of income by such an individual will be deferred until the
expiration of the Deferral Period, if any.
An individual's tax basis in the shares received on exercise of a
Non-qualified Stock Option will be equal to the amount of any cash paid on
exercise, plus the amount of ordinary income recognized by such individual as a
result of the receipt of such shares. The holding period for such shares would
begin just after the transfer of the shares or, in the case of an officer,
director or beneficial owner of more than 10% of any class of equity securities
of Holdings who does not make a Section 83(b) election, just after the
expiration of the Deferral Period, if any. A federal income tax deduction
generally will be allowed to Holdings in an amount equal to the ordinary income
included by the individual with respect to his or her Non-qualified Stock
Option, provided that such amount constitutes an ordinary and necessary business
expense to Holdings and is reasonable and the limitations of Sections 280G and
162(m) of the Code do not apply.
If an individual exercises a Non-qualified Stock Option by delivering shares
to Holdings, other than shares previously acquired pursuant to the exercise of
an Incentive Stock Option which is treated as a "disqualifying disposition" as
described above, the individual will not recognize gain or loss with respect to
the exchange of such shares, even if their then fair market value is different
from the individual's tax basis. The individual, however, will be taxed as
described above with respect to the exercise of the Non-qualified Stock Option
as if he or she had paid the exercise price in cash, and Holdings likewise
generally will be entitled to an equivalent tax deduction. So long as the
individual receives a separate identifiable stock certificate therefor, the tax
basis and the holding period for that number of shares received on such exercise
that is equal to the number of shares surrendered on such exercise will be equal
to the tax basis and include the holding period of those shares surrendered. The
individual's tax basis and holding period for the additional shares received on
exercise of a Non-qualified Stock Option paid for, in whole or in part,
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with shares will be the same as if the individual had exercised the
Non-qualified Stock Option solely for cash.
As described above, upon a Change of Control of Holdings, some or all of the
then-outstanding stock options and other Awards may immediately become
exercisable. In general, if the total amount of payments to an individual that
are contingent upon a "change of control" of Holdings (as defined in Section
280G of the Code), including payments under the Equity Incentive Plan that vest
upon a Change of Control, equals or exceeds three times the individual's "base
amount" (generally, such individual's average annual compensation for the five
complete years preceding the "change of control"), then, subject to certain
exceptions, the payments may be treated as "parachute payments" under the Code,
in which case a portion of such payments would be non-deductible to Holdings and
the individual would be subject to a 20% excise tax.
STOCK APPRECIATION RIGHTS. Recipients of SARs do not recognize income upon
the grant of such rights. When a participant elects to receive payment of an
SAR, the participant recognizes ordinary income in an amount equal to the cash
and fair market value of Holdings Common Shares received, and the employer of
such participant is entitled to a deduction equal to such amount.
RESTRICTED STOCK AWARDS. In the absence of a Section 83(b) election,
grantees of Restricted Stock do not recognize income at the time of the grant of
such stock. When shares of Restricted Stock are no longer subject to a
substantial risk of forfeiture, grantees recognize ordinary income in an amount
equal to the fair market value of the stock less the amount paid, if any, for
the stock. Alternatively, the recipient may elect under Section 83(b) to report
the fair market value of the Restricted Stock as income on the date the stock is
transferred to the recipient, and the employer will be entitled to a
compensation deduction for the same amount.
DEFERRED STOCK. A recipient of an award of Deferred Stock under the Equity
Incentive Plan will be taxed at ordinary income rates on the fair market value
of the award at the later of the time when the Deferred Stock is transferred to
the recipient or when the recipient's rights in such Deferred Stock become
vested. At that time the employer will be entitled to a deduction equal to the
amount which is includible in the recipient's income.
STOCK RELOAD OPTIONS. A recipient who receives Stock Reload Options under
the Equity Incentive Plan will be taxed on such Options in the manner described
above under the heading "Incentive Stock Options" or "Nonqualified Options," as
appropriate, and the consequences to the employer will follow that discussion as
well. The recipient will not be taxed on the grant of the Stock Reload Options,
but will be taxed upon their exercise or on a later sale of the underlying
Stock, depending on the nature of the Options.
OTHER STOCK-BASED AWARDS. The tax consequences arising from the issuance of
Other Stock-Based Awards will depend on the specific terms of the Award, but in
most cases the recipient will be taxed at ordinary income rates on the fair
market value of the Award at the later of the time when cash or Stock is
transferred to the recipient pursuant to the Award or when the recipient's
rights in the subject of the Award become vested.
CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION. With
certain exceptions, Section 162(m) of the Code denies a deduction to
publicly-held corporations for compensation paid to certain executive officers
in excess of $1 million per executive per taxable year (including any deduction
with respect to the exercise of a Non-qualified Stock Option or the
disqualifying disposition of stock purchased pursuant to an Incentive Stock
Option). One such exception applies to certain performance-based compensation
that has been approved by shareholders in a separate vote where certain other
requirements are met. Holdings presently intends that any new Stock Options
granted under the Equity Incentive Plan with an exercise price of not less than
fair market value at the date of grant will qualify for the performance-based
compensation exception to Section 162(m).
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COMPARISON OF SHAREHOLDER RIGHTS
If the Mergers are consummated, IWL's and Telecommunications' shareholders
will receive shares of Holdings Common Stock, and the rights of such
shareholders will be governed by Texas state law, the Articles of Incorporation
of Holdings and the Bylaws of Holdings. The following is a summary of the
material differences between (i) the rights of holders of IWL Common Stock and
the rights of holders of Holdings Common Stock and (ii) the rights of holders of
Telecommunications Common Stock and the rights of holders of Holdings Common
Stock. As each of IWL, Telecommunications and Holdings are companies
incorporated under the laws of the State of Texas, these differences arise
primarily from various provisions of the articles of incorporation and bylaws of
the companies. This summary does not purport to be a complete statement of the
rights of holders of IWL Common Stock, Telecommunications Common Stock and
Holdings Common Stock, and is qualified in its entirety by reference to, the
Texas Business Corporation Act ("TBCA") and the respective articles of
incorporation and bylaws of IWL, Telecommunications and Holdings.
COMPARISON OF SHAREHOLDER RIGHTS OF IWL AND HOLDINGS
Since the Articles of Incorporation and Bylaws of Holdings and IWL are
substantially identical, and both companies are incorporated in Texas, the
rights of holders of IWL Common Stock and Holdings Common Stock are
substantially identical and have no material differences.
COMPARISON OF SHAREHOLDER RIGHTS OF TELECOMMUNICATIONS AND HOLDINGS
AUTHORIZED CAPITAL
TELECOMMUNICATIONS. The authorized capital stock of Telecommunications is
one hundred thousand (100,000) shares of common stock, par value $.01 per share.
HOLDINGS. The authorized capital stock of Holdings is two hundred and
twenty million (220,000,000) shares of stock in the aggregate, including two
hundred million (200,000,000) shares of common stock and twenty million
(20,000,000) shares of preferred stock, each having a par value of $.01 per
share.
PREFERRED SHARES
TELECOMMUNICATIONS. The Articles of Incorporation of Telecommunications do
not authorize the issuance of preferred stock.
HOLDINGS. The Articles of Incorporation of Holdings authorize the Board of
Directors to issue preferred stock in one or more series and to fix or determine
from time to time the designations, preferences, limitations and relative rights
including voting rights of the shares of any series to the same extent that such
designations, preferences, limitations, and relative rights could be stated if
fully set forth in the Articles of Incorporation. Such authority includes,
without limitation, the dividend rights, dividend rate, conversion rights,
voting rights, rights and terms of redemption, redemption price or prices, and
the liquidation preferences of any wholly unissued series of preferred stock.
The holders of common stock may receive distributions and have liquidation
rights subject to the prior rights and preferences of the preferred stock.
PREEMPTIVE RIGHTS
TELECOMMUNICATIONS. The Telecommunications shareholders have the preemptive
right to acquire additional, unissued, or treasury shares of Telecommunications,
or securities of Telecommunications convertible into or carrying a right to
subscribe to or to acquire shares except to the extent limited by Article 2.22
of the TBCA.
HOLDINGS. The Holdings shareholders are denied the right of any preemptive,
preferential or presumptive right to receive, purchase or subscribe to and
treasury shares, evidences of indebtedness or other securities of Holdings,
subscriptions, warrants or options, but the Telecommunications Board may by
contract grant preemptive rights from time to time.
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MEETINGS OF SHAREHOLDERS
TELECOMMUNICATIONS. Meetings of shareholders of Telecommunications may be
held within or without the State of Texas, provided that no meeting of
shareholders be held at any place outside of Dallas County, Texas unless all
shareholders agree to the place and time in writing before the meeting is held.
HOLDINGS. Meetings of shareholders of Holdings may be held inside or
outside the State of Texas, without the consent of the shareholders as to
location.
SPECIAL MEETINGS
TELECOMMUNICATIONS. Special meetings of shareholders of Telecommunications
may be called for any purpose or purposes by the President, the
Telecommunications Board, or the holders of not less than 50% of all shares
entitled to vote at the meeting.
HOLDINGS. Special meetings of shareholders of Holdings may be called for
any purpose or purposes by the Chief Executive Officer, the President, the
Telecommunications Board, or the holders of not less than 10% of all shares
entitled to vote at the meeting.
NOTICE
TELECOMMUNICATIONS. Written notice of a meeting or special meeting must be
delivered not less than 10 nor more than 50 days before the date of the meeting
to each shareholder of record of Telecommunications entitled to vote at the
meeting.
HOLDINGS. Written notice of a meeting or special meeting must be delivered
not less than 10 nor more than 60 days before the date of the meeting to each
shareholder of record of Holdings entitled to vote at the meeting; provided,
however in the event of a merger or consolidation, such notice shall be
delivered not less than 20 days before the meeting.
VOTING
TELECOMMUNICATIONS. The vote of the holders of a majority of the shares
having voting power present in person or represented by proxy at a meeting at
which a quorum is present shall decide any question (including election of
directors) brought before a meeting, unless the question is one which under a
statute, the Articles of Incorporation of Telecommunications or the Bylaws of
Telecommunications, a different vote is required. The TBCA requires the
affirmative vote of at least two-thirds of the outstanding shares entitles to
vote in a merger, exchange, acquisition and a sale, lease or disposition of
substantially all assets (if not in the ordinary course of business).
HOLDINGS. With respect to any matter other than election of a director, the
affirmative vote of the holders of a majority of the shares entitled to vote on
that matter and represented in person or by proxy at a meeting of shareholders
at which a quorum is present shall decide any question brought before a meeting,
unless otherwise provided by statute, the Articles of Incorporation of Holdings
or the Bylaws of Holdings, a different vote is required. The TBCA requires the
affirmative vote of at least a majority of the outstanding shares entitled to
vote in a merger, exchange, acquisition and a sale, lease or disposition of
substantially all assets (if not in the ordinary course of business). With
respect to election of directors, a plurality of the votes cast by the holders
of shares entitled to vote at a meeting at which a quorum is present will
determine the directors.
DIRECTORS
TELECOMMUNICATIONS. The Telecommunications Board consists of three
directors. If any vacancies occur in the Telecommunications Board by reason
other than increase in the number of directors, a
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successor may be elected by either a majority of the remaining directors, though
less than a quorum, or by the shareholders at a special meeting called for that
purpose.
HOLDINGS. The Holdings Board shall consist of not less than one director.
Directors shall be elected by a plurality of votes cast by holders of shares
entitled to vote in the election of directors at each annual meeting and, if a
vacancy occurs in the Holdings Board by reason of increase in the number of
directors, at a special meeting of shareholders called for that purpose. If any
vacancies occur in the Holdings Board by reason other than increase in the
number of directors, a successor may be elected by a majority of the remaining
directors, though less than a quorum.
FIXING RECORD DATE
TELECOMMUNICATIONS. The Telecommunications Board may fix in advance a
record date for the purpose of determining shareholders entitled to receive
payment of any dividend, such record date not to be more than 50 days prior to
the payment date (and under the TBCA, not less than 10 days prior to the payment
date), or the Telecommunications Board may close the stock transfer books for
such purpose for a period of not more than 50 days prior to the payment date of
such dividend.
HOLDINGS. The Holdings Board may fix in advance a record date for the
purpose of determining shareholders entitled to receive payment of any dividend,
such record date not to be more than 60 days prior to the payment date and not
less than 10 days prior to the payment date, or the Holdings Board may close the
stock transfer books for such purpose for a period of not more than 60 days
prior to the payment date of such dividend.
ANTI-TAKEOVER PROVISION
TBCA Part Thirteen prevents an "affiliated shareholder" (defined generally
as a shareholder owning 20% or more of a corporation's outstanding voting
shares) from engaging in a "business combination" (as defined in the TBCA) with
a Texas corporation for three years following the date such person became an
affiliated shareholder, subject to certain exceptions such as transactions done
with the approval of the board of directors and of the holders of at least
two-thirds of the outstanding voting shares not owned by the interested
shareholder ("Business Combination Laws"). The existence of this provision
generally is expected to have an anti-takeover effect, including possibly
discouraging takeover attempts that might result in a premium over the market
price for the shares of Holdings Common Stock.
TELECOMMUNICATIONS. Telecommunications has not elected to opt out of the
Business Combinations Laws of the TBCA. The Business Combinations Law has not
applied to Telecommunications as of the date of the Merger Agreement because
Telecommunications is not an "issuing public corporation" as defined in Part
Thirteen of the TBCA.
HOLDINGS. Holdings has expressly elected not to be governed by Part
Thirteen of the TBCA. Therefore, if Holdings qualifies as "an issuing public
corporation" under Part Thirteen of the TBCA and a shareholder of Holdings who
owns 20% or more of Holdings enters into certain mergers, sales of assets,
reclassifications and other transactions with Holdings, the approval of
two-thirds of the nonaffiliated shareholders will not need to be obtained.
COMPARISON OF PARTNERSHIP INTERESTS AND HOLDINGS COMMON STOCK
If the Interest Exchange is consummated, tendering holders of Partnership
Interests whose valid tenders are accepted will receive shares of Holdings
Common Stock, and the right of such shareholders will be governed by Texas state
law, the Articles of Incorporation of Holdings and the Bylaws of Holdings. The
following summary discusses the material differences between ownership of
Partnership Interests and ownership of Holdings Common Stock and the effects
relating thereto.
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ISSUER
PARTNERSHIP INTERESTS
The Partnership, a Texas limited partnership, is the issuer.
HOLDINGS COMMON STOCK
Holdings, a Texas corporation, is the issuer.
TAXATION
PARTNERSHIP INTERESTS
As a result of the Partnership's election to be taxed as a corporation for
federal income tax purposes as of January 1, 1998, the Partnership is a taxable
entity with respect to its income after allowable deductions and credits.
Partners will have taxable income from the Partnership's operations only to the
extent that taxable dividends and other distributions are declared and paid by
the Partnership. See "The Transaction--Certain United States Federal Income Tax
Consequences of the Interest Exchange."
HOLDINGS COMMON STOCK
Holdings is a taxable entity with respect to its income after allowable
deductions and credits. Shareholders will have taxable income from Holding's
operations only to the extent that taxable dividends and other distributions are
declared and paid on Holdings Common Stock. See "The Transaction--Certain United
States Federal Income Tax Consequences of the Mergers."
No portion of the earnings of, or any dividends received from, Holdings will
constitute unrelated business taxable income to tax-exempt shareholders, except
to the extent their investment in stock of Holdings is considered debt-financed.
See "The Transaction--Certain United States Federal Income Tax Consequences of
the Mergers."
DISTRIBUTIONS AND DIVIDENDS
PARTNERSHIP INTERESTS
The Partnership is required under the Agreement of Limited Partnership of
the Partnership (the "Partnership Agreement") to distribute Cash Flow (as
defined below) from activities arising in the ordinary course of business or
from a major capital event arising other than in the ordinary course of
business. Under the Partnership Agreement, Cash Flow is distributed as follows:
(i) first to guarantors under the Partnership Agreement, (ii) next, to the
partners pro rata in accordance with their respective Partnership Interests
until the guarantors (other than Mark Langdale) have been released, and (iii)
thereafter, 1% to the General Partner, 19.5% to Jere W. Thompson, Jr., 4.5% to
Mark Langdale and the remainder among the partners (including Messrs. Thompson
and Langdale) pro rata in accordance with their respective Partnership
Interests. Under the Partnership Agreement, "Cash Flow" means the amount by
which the aggregate cash receipts of the Partnership from any source exceed the
sum of the cash expenditures of the Partnership plus a cash reserve in the
amount determined by the General Partner to be sufficient to meet the working
capital requirements of the Partnership.
HOLDINGS COMMON STOCK
The Board of Directors of Holdings has the discretion to determine whether
or not and when to declare and pay dividends and the amount of any dividend.
Holders of Holdings Common Stock will have no contractual right to receive
dividends.
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MANAGEMENT
PARTNERSHIP INTERESTS
The business and affairs of the Partnership are managed by the General
Partner. The Partnership Agreement does not expressly specify any actions that
may be taken by the General Partner only with the consent of the Limited
Partners.
HOLDINGS COMMON STOCK
The business and affairs of Holdings will be managed by or under the
direction of the Holdings Board. The holders of Holdings Common Stock will have
the ability to elect members of the Holdings Board with a plurality of the votes
cast for such election and to remove the Holdings Board with a majority vote of
the Common Stock outstanding and entitled to vote.
VOTING RIGHTS
PARTNERSHIP INTERESTS
Under the Partnership Agreement, Limited Partners have voting rights with
respect to amendments to the Partnership Agreement. The General Partner and
partners owning more than 50% of the Partnership Interests must approve the
amendment.
HOLDINGS COMMON STOCK
Holders of Holdings Common Stock will have the right to vote on all matters
on which shareholders must be permitted to vote under Texas law and which affect
the structure of Holdings, including election of directors, mergers,
acquisitions, share exchanges, conversions, dissolution, sale of all or
substantially all of the assets of Holdings not in the ordinary course of
business, and amendments to the articles of incorporation or bylaws.
Each share of Holdings Common Stock entitles its holder to cast one vote on
each matter presented to shareholders.
Except for election of directors and voting on matters, if any, under which
Texas law requires the affirmative vote of two-thirds of the shareholders
entitled to vote, approval of any matter submitted to shareholders generally
requires the affirmative vote of the holders of a majority of the Common Stock
outstanding and entitled to vote.
Amendment of the articles of incorporation requires the adoption of a
resolution of the Holdings Board and the affirmative vote of the holders of a
majority of the Common Stock outstanding and entitled to vote. Amendments to the
bylaws require either a resolution of the Holdings Board or the affirmative vote
of the majority of the shareholders entitled to vote thereon. If shareholders
adopt a bylaw with the stipulation that only the shareholders may amend such
bylaw, the Holdings Board does not have the authority to amend such bylaw.
A merger, share exchange, acquisition, conversion and sale of substantially
all assets not in the ordinary course of business requires the adoption of a
resolution by the Holdings Board and the affirmative vote of the holders of a
majority of the Common Stock outstanding and entitled to vote, or the written
consent of all shareholders.
The dissolution of Holdings requires either the adoption of a resolution by
the Holdings Board with the approval of the holders of a majority of the Common
Stock outstanding and entitled to vote.
Shareholders may act by written consent in lieu of a meeting with a number
of votes sufficient for such action.
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SPECIAL MEETINGS
PARTNERSHIP INTERESTS
The Partnership Agreement does not address the issue of special meetings.
The General Partner, as part of its management duties, may call a special
meeting. Texas law does not prohibit a limited partner or limited partners from
calling meetings. Under Texas law, a limited partner will not be considered as
participating in the management of the Partnership by virtue of having called a
meeting or meetings of partners.
HOLDINGS COMMON STOCK
Shareholders are permitted to call a special meeting of shareholders or
require that the board of directors call a special meeting of shareholders if
such meeting is called or requested by holders of at least 10% of outstanding
Holdings Common Stock.
CONVERSION RIGHTS
PARTNERSHIP INTERESTS
The Partnership Interests are not convertible into any other securities.
HOLDINGS COMMON STOCK
Shares of Holdings Common Stock are not convertible into any other
securities.
LIQUIDATION RIGHTS
PARTNERSHIP INTERESTS
In the event of the liquidation of the Partnership, the assets of the
Partnership remaining shall be applied in the following order of priority: (i)
to satisfy all debts and liabilities of the Partnership; (ii) to set up a
reserve account which the General Partner deems reasonably necessary for
contingent or unforseen liabilities or obligations of the Partnership; and (iii)
to the partners in accordance with each partner's interest in the Partnership.
HOLDINGS COMMON STOCK
In the event of a liquidation of Holdings, the holders of Holdings Common
Stock would be entitled to share ratably in any assets remaining after
satisfaction of obligations to creditors and any liquidation preferences on any
series of preferred stock of Holdings that may then be outstanding.
RIGHT TO COMPEL DISSOLUTION
PARTNERSHIP INTERESTS
Under the Partnership Agreement, the General Partner may compel dissolution
of the Partnership. Under Texas law, all partners may compel dissolution by
unanimous written consent. The Limited Partners acting alone are not expressly
granted the authority under the Partnership Agreement to compel dissolution.
HOLDINGS COMMON STOCK
Under Texas law, holders of Holdings Common Stock may compel dissolution of
Holdings, absent prior action by the board of directors, only if all holders
consent in writing. A plan of dissolution adopted by the board of directors must
be approved by the holders of a majority of the Holdings Common Stock
outstanding and entitled to vote.
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LIMITED LIABILITY
PARTNERSHIP INTERESTS
In general, holders of Partnership Interests are limited partners in a Texas
limited partnership, and do not have personal liability for obligations of the
Partnership.
HOLDINGS COMMON STOCK
Shares of Holdings Common Stock will be fully paid and nonassessable.
Shareholders generally will not have personal liability for obligations of
Holdings.
LIQUIDITY AND MARKETABILITY
PARTNERSHIP INTERESTS
The Partnership Interests are not freely transferable, except for a transfer
to another partner, unless the (i) written consent of the General Partner is
obtained and (ii) the Partnership Interests are first offered to the other
partners pursuant to the right of first refusal contained in the Partnership
Agreement.
HOLDINGS COMMON STOCK
The Holdings Common Stock will be freely transferable and application has
been made for listing the Holdings Common Stock on the Nasdaq National Market
and subject to satisfaction of applicable securities laws.
CONTINUITY OF EXISTENCE
PARTNERSHIP INTERESTS
The Partnership Agreement provides for the Partnership to continue in
existence until December 31, 2025, unless earlier terminated in accordance with
the Partnership Agreement.
HOLDINGS COMMON STOCK
Holdings' Articles of Incorporation provides for perpetual existence,
subject to Texas law.
FINANCIAL REPORTING
PARTNERSHIP INTERESTS
The Partnership provides annual reports to its Limited Partners at the end
of each fiscal year and notifies limited partners of any significant development
materially adversely affecting the Partnership.
HOLDINGS COMMON STOCK
Holdings will be subject to the reporting requirements of the Exchange Act
and will file annual and quarterly reports thereunder. Holdings also will
provide annual and quarterly reports to its shareholders.
CERTAIN LEGAL RIGHTS
PARTNERSHIP INTERESTS
Texas law allows a limited partner to institute legal action in a court of
competent jurisdiction on behalf of the Partnership (a partnership derivative
action) to recover a judgment in the Partnership's favor where the General
Partner has failed to institute the action.
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HOLDINGS COMMON STOCK
Texas law affords shareholders of Holdings rights to bring shareholder
derivative actions when, after the shareholder has made proper demand to the
Holdings Board, the Holdings Board has failed to institute an action against
third parties or directors of Holdings.
RIGHT TO LIST OF HOLDERS; INSPECTION OF BOOKS AND RECORDS
PARTNERSHIP INTERESTS
Upon reasonable demand, at the Limited Partner's own expense and for a
purpose reasonably related to his interest in the Partnership, a Limited Partner
may have access, at reasonable times, to certain information regarding the
status of the business and financial condition of the Partnership, tax returns,
governing instruments of the Partnership and a current list of the partners of
the Partnership.
HOLDINGS COMMON STOCK
Under Texas law, any person who shall have been a shareholder for at least
six (6) months immediately preceding the demand or shall be the holder of at
least five percent (5%) of the outstanding shares of the corporation, upon
written request, at reasonable times and for a proper purpose reasonably related
to a shareholder's interest as a shareholder, shall have the right to examine
and copy the corporation's books and records of account, minutes, and share
transfer records.
DESCRIPTION OF HOLDINGS CAPITAL STOCK
The summary of the terms of the capital stock of Holdings set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Holdings Articles of Incorporation and the Holdings Bylaws.
Copies of the Holdings Articles of Incorporation, in substantially the form to
be adopted prior to the Effective Time, and the Holdings Bylaws are attached to
this Joint Proxy Statement/Prospectus as Appendix III and Appendix IV,
respectively.
AUTHORIZED CAPITAL STOCK
Under the Holdings Articles of Incorporation, the total number of shares of
all classes of stock that Holdings will have authority to issue is 220,000,000
shares, each having a par value of $.01 per share, of which 200,000,000 are
shares of Holdings Common Stock and 20,000,000 are shares of Holdings Preferred
Stock. One Thousand shares of Holdings Common Stock are issued and outstanding,
which are held by IWL, and no shares of Holdings Preferred Stock are issued or
outstanding.
COMMON STOCK
Each share of Holdings Common Stock has identical rights and privileges in
every respect. The holders of Holdings Common Stock are entitled to vote upon
all matters submitted to a vote of the stockholders of Holdings and are entitled
to one vote for each share of Holdings Common Stock held.
Subject to the prior rights and preferences, if any, applicable to shares of
Holdings Preferred Stock or any series thereof, the holders of Holdings Common
Stock are entitled to receive such dividends (payable in cash, stock or
otherwise) as may be declared thereon by the Holdings Board at any time and from
time to time out of any funds of Holdings legally available therefor.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of Holdings, after distribution in full of the preferential amounts,
if any, to be distributed to the holders of Holdings Preferred Stock or any
series thereof, the holders of Holdings Common Stock will be entitled to receive
all of the remaining assets of Holdings available for distribution to its
stockholders, ratably in proportion to the number of shares of Holdings Common
Stock held by them.
185
<PAGE>
The shares of Holdings Common Stock, when issued to holders of outstanding
shares of IWL Common Stock or Telecommunications Common Stock in connection with
the Mergers, will be validly issued, fully paid and non-assessable.
Holders of Holdings Common Stock will have no preferences or any preemptive,
conversion or exchange rights.
PREFERRED STOCK
The Holdings Board is authorized at any time and from time to time to
provide for the issuance of shares of Holdings Preferred Stock in one or more
series, and to fix for each such series such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as are set forth in a resolution providing
for the issuance of such series adopted by the Holdings Board. The Holdings
Board could authorize the issuance of shares of Holdings Preferred Stock with
terms and conditions which could discourage a takeover or other transaction that
holders of some or a majority of shares of Holdings Common Stock might believe
to be in their best interests or in which such holders might receive a premium
for their shares of stock over the then market price of such shares. As of the
date hereof, no shares of Holdings Preferred Stock are outstanding and the
Holdings Board has no present intention to issue any shares of Holdings
Preferred Stock after the Effective Time.
PREEMPTIVE RIGHTS
No holder of any shares of any class of stock of Holdings will have any
preemptive or preferential right to acquire or subscribe for any unissued shares
of any class of stock or any authorized securities convertible into or carrying
any right, option or warrant to subscribe for or acquire shares of any class of
stock.
TRANSFER AGENT AND REGISTRAR
The principal transfer agent and registrar for Holdings Common Stock will be
designated by IWL prior to the consummation of the Mergers.
CERTAIN ANTI-TAKEOVER EFFECTS
Upon consummation of the Transaction, based on the number of shares of IWL
Common Stock and Telecommunications Common Stock issued and outstanding as of
May 31, 1998 and assuming all of the Partnership Interests are validly tendered
pursuant to the Exchange Offer and accepted by Holdings, there will be
171,089,778 authorized and unissued shares of Common Stock and 20,000,000
authorized and unissued shares of Preferred Stock of Holdings. The existence of
authorized but unissued Common Stock and Preferred Stock may enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of Holdings by means of a merger, tender offer, proxy solicitation or otherwise.
Holdings is also subject to prior regulatory approval by the FCC and various
state regulatory agencies for a transfer of control of Holdings or for the
assignment of Holdings's (or its subsidiaries') intrastate certification
authority, its international authority and other FCC licenses and
authorizations. The 1934 Communications Act generally limits direct foreign
ownership of wireless licenses to 20%, but provides for indirect foreign
ownership holdings above 25% upon FCC approval. In addition, because Holdings
(or its subsidiaries) holds FCC authority to provide international service, the
FCC will scrutinize an ownership interest in Holdings of greater than 25%, or a
controlling interest at any level, by a dominant foreign carrier. International
carriers, such as Holdings, must notify the FCC 60 days in advance of an
acquisition by a foreign carrier or by an entity that controls a foreign carrier
of a 25% or greater or a controlling interest in such carriers. However, new
rules allow for up to 100% indirect ownership of wireless licenses by foreign
interests from countries that have participated in the 1997 WTO Agreement on
Basic Telecommunications Services, in which the United States and 68 other
countries committed to open their
186
<PAGE>
telecommunications markets to competition starting in 1998. Furthermore, the
Indenture provides for a mandatory purchase of the Notes upon a change of
control and it is currently expected that the Credit Facility will provide that
an event of default or redemption event thereunder will occur if all or a
controlling interest in Holdings' capital stock is sold, assigned or otherwise
transferred. Any of the foregoing factors could have the effect of delaying,
deferring or preventing a change of control of Holdings. The Articles provide
that Article 13.03 of the Texas Business Corporation Act, which includes
statutory anti-takeover measures, will not apply to Holdings. See "Risk Factors
- -Certain Anti-Takeover Matters."
WARRANTS
In connection with its initial public offering, IWL issued to Cruttenden
Roth or its designees for nominal consideration, warrants to purchase up to
145,000 shares of IWL Common Stock at an exercise price of $7.20 per share
("Representative Warrants"). Following the Transaction, the Representative
Warrants will be exercisable until July 16, 2002 for such shares of Holdings
Common Stock as would have been received had such warrants been exercised
immediately prior to the Transaction.
REGISTRATION RIGHTS
Cruttenden Roth has certain demand and piggyback registration rights
associated with the common stock to be issued upon the exercise of the
Representative Warrants.
In connection with the acquisition of ICEL for cash and shares of IWL Common
Stock the shareholders of ICEL were granted demand and piggyback registration
rights that will expire upon completion of the Transaction.
In connection with the issuance of the Notes, registration rights were
granted to the holders of the Notes requiring Holdings to file a registration
statement with respect to an offer to exchange the Notes for senior debt
securities of Holdings with terms identical to the Notes (except that such
exchange notes will not contain terms with respect to transfer restrictions).
LEGAL MATTERS
The validity of the Holdings Common Stock to be issued in connection with
the Transaction will be passed upon by Munsch Hardt Kopf Harr & Dinan, P.C.,
Dallas, Texas. Matters entered under the heading "The Transaction--Certain
United States Federal Income Tax Consequences of the Mergers" have been passed
upon by Munsch Hardt and Hughes & Luce and are included herein in reliance upon
the authority of such firm as experts. Matters entered under the heading "The
Transaction--Certain United States Federal Income Tax Consequences of the
Interest Exchange" have been passed upon by Hughes & Luce and are included
herein in reliance upon the authority of such firm as experts.
EXPERTS
The consolidated financial statements of IWL at June 30, 1996 and 1997 and
December 31, 1997 and for the six months ended December 31, 1997 and for each of
the three years in the period ended June 30, 1997 included herein and made a
part of the Registration Statement of which this Joint Proxy Statement/
Prospectus is a part, have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in their report thereon included
elsewhere herein. Such consolidated financial statements of IWL and the
consolidated balance sheet of Holdings are included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The balance sheet of Holdings as December 31, 1997, and the financial
statements of Telecommunications and the Partnership at December 31, 1996 and
for the years ended December 31, 1995 and 1996, included herein and made part of
the Registration Statement of which this Joint Proxy Statement/
187
<PAGE>
Prospectus is a part, have been audited by Burds, Reed & Mercer, P.C.,
independent certified public accountants, as set forth in their reports therein
included elsewhere herein. Such financial statements of Telecommunications and
the Partnership are included herein in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Telecommunications and the Partnership at
December 31, 1997 and for the year ended December 31, 1997, included herein and
made part of the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part, have been audited by KPMG Peat Marwick, LLP,
independent certified public accountants, as set forth in their reports thereon
included elsewhere herein. The consolidated balance sheet of Holdings as of
March 31, 1998 has also been audited by KPMG Peat Marwick LLP, as set forth in
their report therein also included elsewhere herein. Such financial statements
of Holdings, Telecommunications, and the Partnership are included herein in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
It is expected that representatives of KPMG Peat Marwick LLP will be present
at the Special Meetings to respond to appropriate questions of shareholders and
to make a statement if they desire.
ACCOUNTANTS
On January 20, 1998, Burds, Reed & Mercer, P.C. resigned as the independent
certified public accountants of Telecommunications and the Partnership. On the
same day, the Board of Directors of Telecommunications and the Board of
Directors of the general partner of the Partnership approved the appointment of
KPMG Peat Marwick LLP to replace Burds, Reed & Mercer, P.C. as independent
certified public accountants. As a result, Burds, Reed & Mercer, P.C. did not
perform the audit of the financial statements of Telecommunications or the
Partnership for the fiscal year ended December 31, 1997. The accountant's report
on the financial statements for the fiscal year ended December 31, 1996 did not
contain any adverse opinion or disclaimer of opinion or qualification or
modification as to uncertainty, audit scope, or accounting principles. During
Telecommunications' and the Partnership's fiscal years ended December 31, 1995
and 1996, and through the date of their replacement, there have been no
disagreements between Telecommunications or the Partnership and Burds, Reed &
Mercer, P.C. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures and there were no
"reportable events," as that term is defined in item 304(a)(1)(v) of Regulation
S-K under the Securities Act.
FUTURE STOCKHOLDER PROPOSALS
The timing of the first annual meeting of the public stockholders of
Holdings will depend upon when the Mergers are consummated.
If the Mergers are not completed by the third quarter of 1998, IWL expects
to hold its annual meeting of stockholders in the fourth quarter of 1998.
Commission rules set forth standards as to what stockholder proposals are
required to be included in a proxy statement. Any IWL shareholder who intends to
submit a proposal for inclusion in the proxy materials for the 1998 annual
meeting of IWL must submit such proposal to the Secretary of IWL by .
188
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapRock Telecommunications Corp.
(formerly CapRock Communications Corp.)
We have audited the accompanying balance sheet of CapRock Telecommunications
Corp. (formerly CapRock Communications Corp.) as of December 31, 1997, and the
related statements of operations, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CapRock Telecommunications
Corp. (formerly CapRock Communications Corp.) as of December 31, 1997, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 11, 1998, except as to note 13,
which is as of July 16, 1998
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapRock Telecommunications Corp.:
(formerly CapRock Communications Corp.)
We have audited the accompanying balance sheet of CapRock Telecommunications
Corp. (formerly CapRock Communications Corp.), as of December 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CapRock Telecommunications
Corp. (formerly CapRock Communications Corp.) as of December 31, 1996, and the
results of its operations and its cash flows for the years ended December 31,
1995 and 1996 in conformity with generally accepted accounting principles.
Burds, Reed and Mercer, P.C.
Dallas, Texas
May 28, 1997
F-2
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------- MARCH 31,
-------------
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ -- $ 2,162 $ --
Accounts receivable and unbilled services, less allowance for
doubtful accounts of $324,703, $1,640,722 and $675,408 at
December 31, 1996 and 1997, and March 31, 1998, respectively..... 3,514,390 8,325,352 9,318,928
Prepaid expenses and other......................................... 225,996 571,650 447,117
Deferred income taxes (note 8)..................................... 735,430 624,095 624,095
------------ ------------- -------------
Total current assets............................................. 4,475,816 9,523,259 10,390,140
Property and equipment, net (note 2)................................. 2,857,622 3,692,670 4,162,199
Other assets......................................................... 22,125 110,741 --
------------ ------------- -------------
Total assets..................................................... $ 7,355,563 $ 13,326,670 $ 14,552,339
------------ ------------- -------------
------------ ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 3,786,838 $ 7,320,590 $ 7,242,599
Bank line of credit (note 4)....................................... 814,422 1,152,329 1,642,290
Accrued liabilities (note 6)....................................... 376,350 534,323 501,503
Current installments of obligations under capital lease (note 3)... 212,695 239,672 246,934
Note payable (note 4).............................................. 521,835 -- --
Income taxes payable (note 8)...................................... -- 324,550 642,198
Unearned revenue................................................... 111,352 527,774 153,089
------------ ------------- -------------
Total current liabilities........................................ 5,823,492 10,099,238 10,428,613
Deferred income taxes (note 8)....................................... 401,270 527,394 527,394
Obligations under capital leases and other long-term debt (notes 3
and 4)............................................................. 719,993 452,938 431,135
------------ ------------- -------------
Total liabilities................................................ 6,944,755 11,079,570 11,387,142
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized,
10,398,954 shares issued and outstanding; 9,680 shares held in
treasury......................................................... 1,041,173 1,458,273 1,458,273
Unearned compensation (note 7)..................................... -- (396,244) (375,388)
Retained earnings (accumulated deficit)............................ (630,365) 1,185,071 2,082,312
------------ ------------- -------------
410,808 2,247,100 3,165,197
Commitments (notes 3 and 9)
------------ ------------- -------------
Total liabilities and stockholder's equity....................... $ 7,355,563 $ 13,326,670 $ 14,552,339
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------------------- ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Telecommunication services............ $ 13,439,658 $ 23,173,904 $ 46,744,549 $ 8,696,632 $ 15,770,312
Cost of revenues...................... 11,042,775 18,941,122 35,776,468 7,117,540 11,802,008
------------- ------------- ------------- ------------ -------------
Gross profit...................... 2,396,883 4,232,782 10,968,081 1,579,092 3,968,304
Operating expenses:
Selling, general and administrative
expenses.......................... 2,600,682 3,710,671 7,047,418 1,487,354 2,175,885
Depreciation and amortization....... 333,282 478,506 694,475 142,123 231,420
------------- ------------- ------------- ------------ -------------
Income (loss) from operations..... (537,081) 43,605 3,226,188 (50,385) 1,560,999
Interest expense...................... (240,370) (314,833) (310,543) (77,283) (86,110)
------------- ------------- ------------- ------------ -------------
Income (loss) before income
taxes........................... (777,451) (271,228) 2,915,645 (127,668) 1,474,889
Income tax expense (benefit) (note
8).................................. (245,600) (88,560) 1,100,209 (65,014) 577,648
------------- ------------- ------------- ------------ -------------
Net income (loss)................. $ (531,851) $ (182,668) $ 1,815,436 $ (62,654) $ 897,241
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Net income (loss) per share:
Basic............................... $ (.05) $ (.02) $ 0.17 $ (.01) $ .09
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Diluted............................. $ (.05) $ (.02) $ 0.17 $ (.01) $ .08
------------- ------------- ------------- ------------ -------------
------------- ------------- ------------- ------------ -------------
Weighted average shares outstanding:
Basic............................... 9,717,030 10,398,954 10,398,954 10,398,954 10,398,954
Diluted............................. 9,717,030 10,398,954 10,581,435 10,398,954 10,581,435
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS TOTAL
SHARES COMMON UNEARNED (ACCUMULATED STOCKHOLDERS'
ISSUED STOCK COMPENSATION DEFICIT) EQUITY
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994................... 9,671,198 $ 291,173 $ -- $ 84,154 $ 375,327
Issuance of common stock upon conversion of
note payable (note 4)........................ 727,756 750,000 -- -- 750,000
Net loss....................................... -- -- -- (531,851) (531,851)
------------ ------------ ------------- ------------ ------------
Balance at December 31, 1995................... 10,398,954 1,041,173 -- (447,697) 593,476
Net loss....................................... -- -- -- (182,668) (182,668)
------------ ------------ ------------- ------------ ------------
Balance at December 31, 1996................... 10,398,954 1,041,173 -- (630,365) 410,808
Deferred compensation from compensatory stock
option grants................................ -- 417,100 (417,100) -- --
Amortization of deferred compensation.......... -- -- 20,856 -- 20,856
Net income..................................... -- -- -- 1,815,436 1,815,436
------------ ------------ ------------- ------------ ------------
Balance at December 31, 1997................... 10,398,954 1,458,273 (396,244) 1,185,071 2,247,100
Amortization of deferred compensation.......... -- -- 20,856 -- 20,856
Net income (unaudited)......................... -- -- -- 897,241 897,241
------------ ------------ ------------- ------------ ------------
Balance at March 31, 1998 (unaudited).......... 10,398,954 $ 1,458,273 $ (375,388) $2,082,312 $3,165,197
------------ ------------ ------------- ------------ ------------
------------ ------------ ------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $ (531,851) $ (182,668) $ 1,815,436 $ (62,654) $ 897,241
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 333,282 478,506 694,475 142,123 142,123
Amortization of discount on notes payable... 6,930 7,338 7,338 -- --
Compensation expense related to stock option
grants.................................... -- -- 20,856 -- 20,856
Deferred income taxes....................... (245,600) (88,560) 237,459 (65,013) --
Allowance for doubtful accounts............. 67,698 356,223 1,316,019 237,831 164,940
Changes in operating assets and liabilities:
Accounts receivable....................... (1,493,899) (1,481,237) (6,126,981) (2,099,443) (1,158,516)
Prepaid expenses and other................ 205,499 (172,231) (463,585) 171,011 235,274
Accounts payable and accrued
liabilities............................. 1,937,495 1,528,907 3,849,004 1,217,977 (68,089)
Income taxes payable...................... -- -- 324,550 -- 317,648
Unearned revenue.......................... 16,097 66,375 416,422 385,337 (374,685)
---------- ----------- ----------- ---------- -----------
Net cash provided by (used in) operating
activities............................ 295,651 512,653 2,090,993 (72,831) 176,792
---------- ----------- ----------- ---------- -----------
Cash flows from investing activities--purchases
of property and equipment..................... (696,407) (1,118,357) (1,500,208) (147,796) (611,652)
---------- ----------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt...... 196,045 200,000 -- -- --
Principal payments on notes payable........... (118,526) (305,602) (713,835) (200,000) --
Proceeds from line of credit.................. -- 18,564,432 40,742,755 7,591,860 14,946,744
Principal payments on line of credit.......... -- (17,750,010) (40,404,848) (7,120,416) (14,456,693)
Principal payments under capital lease
obligations................................. -- (128,324) (212,695) (50,817) (57,353)
---------- ----------- ----------- ---------- -----------
Net cash provided by (used in) financing
activities............................ 77,519 580,496 (588,623) 220,627 432,698
---------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash................. (323,237) (25,208) 2,162 -- (2,162)
Cash at beginning of period..................... 348,445 25,208 -- -- 2,162
---------- ----------- ----------- ---------- -----------
Cash at end of period........................... $ 25,208 $ -- $ 2,162 $ -- $ --
---------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ---------- -----------
Supplemental disclosure of cash flow
information:
Cash paid for interest........................ $ 138,535 $ 251,786 $ 338,151 $ 93,677 $ 67,610
---------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ---------- -----------
Cash paid for income taxes.................... $ -- $ -- $ 538,200 $ -- $ 260,000
---------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ---------- -----------
Noncash financing activities:
Network equipment acquired under capital
lease....................................... $1,732,000 $ -- $ -- $ -- $ --
---------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL INFORMATION
CapRock Telecommunications Corp. (formerly CapRock Communications Corp.)
("the Company") is a Texas corporation formed in 1991. The Company is a
facilities-based provider of voice, data and broadband services to interexchange
carriers and businesses and consumers. The Company's revenues are derived from
the sale of telecommunication services to interexchange and other
telecommunications providers and from the sale of voice and data services to
businesses and consumers. The Company extends credit to customers on an
unsecured basis with the risk of loss limited to outstanding amounts. The
Company markets its services through its internal sales representatives and a
network of independent agents.
The Company declared a 2,420 to 1 stock split effective October 31, 1997.
The financial statements, including all references to the number of shares of
common stock and all per share information, have been adjusted to reflect the
stock dividend on a retroactive basis.
(B) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over
estimated lives ranging from three to fifteen years using the straight-line
method. Property and equipment held under capital leases and leasehold
improvements are amortized on the straight-line method over the shorter of the
lease term or estimated useful life of the related asset.
(C) REVENUES, COST OF REVENUES AND COMMISSIONS EXPENSE
Revenues from telecommunication services are recognized when customer calls
are completed. Cost of revenues is based primarily on the direct costs
associated with owned and leased transmission capacity and the cost of
transmitting and terminating traffic on other carriers' facilities. Commissions
paid to acquire customer call traffic are expensed in the period when associated
call revenues are recognized.
(D) BUSINESS AND CREDIT CONCENTRATION
Financial instruments which potentially expose the Company to a
concentration of credit risk, as defined by SFAS No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, consist primarily of
accounts receivable from carrier and commercial customers.
(E) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-7
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) STOCK-BASED COMPENSATION
The Company accounts for its stock-based employee compensation plan using
the intrinsic value based method prescribed by Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, (APB No. 25). As such,
compensation expense is recorded on the date of grant to the extent the current
market price of the underlying stock exceeds the exercise price. The Company has
provided pro forma disclosures as if the fair value-based method of accounting
for these plans, as prescribed by Statement of Financial Accounting Standards
(SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS No. 123), had been
applied.
(G) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of accounts receivable, accounts payable and lease
obligations are estimated to approximate carrying value due to the short-term
maturities of these financial instruments. The carrying value of the Company's
line of credit approximates fair value as the interest rate is indexed to
changes in the bank's prime lending rate.
(I) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
(J) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS No. 128").
SFAS No. 128 revised the previous calculation methods and presentations of
earnings per share under APB 15 and requires that all prior-period earnings
(loss) per share data be restated. The Company adopted SFAS No. 128 in 1997 as
required by this Statement. In accordance with SFAS No. 128, the Company has
presented basic earnings (loss) per share, computed on the basis of the weighted
average number of common shares outstanding during the year, and diluted loss
per share, computed on the basis of the weighted average number of common shares
and all dilutive potential common shares outstanding during the year. All prior
period loss per share amounts have been restated in accordance with this
Statement.
Basic earnings per share has been computed by dividing income available to
common shareholders by the weighted-average number of shares of common stock
outstanding for the year.
Diluted earnings per share reflects the dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common
F-8
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stock that then shared in the earnings of the entity. Diluted earnings per share
has been computed by dividing the income available to common shareholders by the
weighted average number of shares outstanding for the year plus the weighted
average number of shares that would be issued upon exercise of dilutive options
assuming proceeds were used to repurchase shares pursuant to the treasury stock
method.
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE
--------------------------------------
DECEMBER 31, MARCH 31,
-------------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Weighted average number
of common shares...... 9,717,030 10,398,954 10,398,954 10,398,954 10,398,954
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
DILUTED EARNINGS PER SHARE
--------------------------------------
DECEMBER 31, MARCH 31,
-------------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Weighted average number
of common shares...... 9,717,030 10,398,954 10,398,954 10,398,954 10,398,954
Dilutive stock options
computed using
treasury stock
method................ -- -- 182,481 -- 182,481
---------- ------------ ------------ ------------ ------------
9,717,030 10,398,954 10,581,435 10,398,954 10,581,435
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>
(K) UNAUDITED INTERIM FINANCIAL INFORMATION
Interim information for the three months ended March 31, 1997 and 1998,
including such information in the notes to the financial statements, is
unaudited. This information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all adjustments, consisting of normal recurring adjustments considered necessary
for a fair presentation of the results of such period. Financial results for the
interim period are not necessarily indicative of the results for a full year.
F-9
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(2) PROPERTY AND EQUIPMENT
Property and equipment, including assets acquired under capital leases of
$1,732,000 as of December 31, 1996 and 1997 and March 31, 1998, is comprised of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL --------------------------
LIVES 1996 1997
----------- ------------ ------------ MARCH 31,
1998
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Leasehold improvements..................... 15 $ 134,164 $ 222,903 $ 736,407
Furniture, fixtures and office equipment... 5-7 114,613 194,967 336,209
Computer equipment and purchased
software................................. 5 522,383 896,654 933,183
Network equipment.......................... 5 2,912,529 3,869,376 3,908,364
------------ ------------ ------------
Total property and equipment........... 3,683,689 5,183,900 5,914,163
Less accumulated deprecation, including
amounts applicable to assets acquired
under capital leases of $474,238 and
$721,667 and $783,524 as of December 31,
1996 and 1997, and March 31, 1998,
respectively............................. 826,067 1,491,230 1,751,964
------------ ------------ ------------
Net property and equipment............. $ 2,857,622 $ 3,692,670 $ 4,162,199
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(3) LEASES
The Company leases certain network equipment under capital leases and leases
office space under operating leases. Future minimum lease payments under these
lease agreements for each of the next five years are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
Year ending December 31,:
1998............................................................. $ 299,632 $ 403,387
1999............................................................. 299,632 315,105
2000............................................................. 99,877 218,462
2001............................................................. -- 147,813
2002............................................................. -- 141,247
Thereafter....................................................... -- 261,106
----------- ------------
Total minimum lease payments................................... 699,141 $ 1,487,120
------------
------------
Less amount representing interest based upon 12% interest rate... (91,976)
-----------
Present value of future minimum lease payments................... 607,165
Less current installments........................................ (239,672)
-----------
Obligations under capital leases, excluding current
installments................................................... $ 367,493
-----------
-----------
</TABLE>
F-10
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(3) LEASES (CONTINUED)
As operating leases expire, it is expected that they will be replaced with
similar leases. Rent expense under operating leases totaled $197,345, $210,596
and $259,699 for each of the years ended December 31, 1995, 1996 and 1997,
respectively.
(4) DEBT
In March 1996, the Company entered into a revolving credit facility with a
bank for borrowings up to $1,500,000. In December 1997, the Company entered into
an amended agreement that provides for borrowings up to $2,500,000. Borrowings
under the amended line of credit agreement are due in December, 1998 and bear
interest at the prime rate plus 2% (10.5% at December 31, 1997.) The line of
credit is subject to certain borrowing base limitations, primarily relating to
the accounts receivable balance. The line of credit is secured by accounts
receivable and certain shareholder guarantees. The balance outstanding as of
December 31, 1996 and 1997 under the line of credit was $814,422 and $1,152,329,
respectively; and the amount of unused line of credit was $1,347,671 as of
December 31, 1997.
The Company was in violation of a debt covenant as of December 31, 1997. The
Company has obtained a waiver for this covenant violation. The Company
anticipates that the debt covenant requirements will be met through December 31,
1998.
At December 31, 1995, the Company had outstanding a note payable to a
related party totaling $1,170,000. The payment terms were upon demand or the due
date of March 31, 1998, bearing an interest rate of 13%. In 1995, the related
party converted $750,000 relating to the note payable and accrued interest into
approximately 7% of the outstanding stock of the Company, at that time. The
principal balance outstanding as of December 31, 1996 was $521,835 and was paid
in full in 1997.
In 1994, the Company entered into note payable agreements with three
officers of the Company relating to stock repurchased by the Company. Each of
the original note agreements are in the amount of $50,000 with no stated
interest rate. The notes have been discounted using an interest rate of 5.8% and
are payable in three annual installments beginning April 1998. The aggregate
amount outstanding relating to these notes, net of unamortized discount was
$112,827 and $128,166 as of December 31, 1996 and 1997, respectively. The
unamortized discount was $37,173 and $21,834 as of December 31, 1996 and 1997,
respectively.
At December 31, 1996, the Company had outstanding a note payable to a bank
for $200,000. The note was paid in full in 1997.
The aggregate maturities of long-term debt, exclusive of the unamortized
discount of $15,339, for each of the years subsequent to December 31, 1997 are
as follows: 1998--$50,000; 1999--$50,000 and 2000-- $50,000.
(5) RELATED PARTIES
During 1997, the Company provided general and administrative services for an
affiliate. The Company was reimbursed for the general and administrative
expenses plus a mark-up of 5%. The total general and administrative expenses
reimbursed was $-0-, $77,000 and $150,948 for the years ended December 31, 1995,
1996 and 1997, respectively.
F-11
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(6) ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Compensation-related.................................................. $ 10,728 $ 443,575
Current portion of long-term debt (note 4)............................ 200,000 42,722
Other................................................................. 165,622 48,026
---------- ----------
$ 376,350 $ 534,323
---------- ----------
---------- ----------
</TABLE>
(7) STOCKHOLDERS' EQUITY
STOCK OPTION PLAN
In September 1997, the Company adopted a stock option plan (the "Plan")
pursuant to which the Company's Board of Directors may grant nonqualified
options to employees. The Plan authorizes grants of option to purchase up to 10%
of the common shares outstanding. All stock options have a ten-year term and
cannot be exercised prior to September 1, 1998. The options are exercisable in
20% increments over a five-year vesting period. All options expire August 31,
2007.
In 1997, the Company granted 213,177 nonqualified stock options with an
exercise price of $1.00 per share. The Company recorded deferred compensation of
$417,100 related to these stock option grants which will be recognized in the
income statement over the vesting period. As of December 31, 1997, 4,627 of the
options previously granted were cancelled and no options were exercised.
The Company applied the intrinsic value method prescribed by APB Opinion No.
25 in accounting for its Plan. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net income and basic earnings per share would have been:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
AS REPORTED PRO FORMA
------------ ------------
<S> <C> <C>
Net income........................................................ $ 1,815,436 $ 1,779,177
------------ ------------
------------ ------------
Basic earnings per share.......................................... $ 0.17 $ 0.17
------------ ------------
------------ ------------
</TABLE>
Diluted earnings per share yields substantially similar results. The Company
estimated the fair value of stock options granted using the minimum value method
as defined in SFAS No. 123. The minimum value method is applicable for privately
held companies and does not consider the expected volatility of the underlying
stock. Input variables used in the minimum value computation included a risk
free rate of interest of 5.7%, no expected dividend yield, and an estimated
option life of 2.5 years. The pro forma impact on income assumes no options will
be forfeited.
F-12
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(8) INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ------------
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $ -- $ 1,229,208
State................................................ -- -- 108,459
----------- ---------- ------------
Total current...................................... -- -- 1,337,667
Deferred:
Federal.............................................. (221,810) (78,209) (218,205)
State................................................ (23,790) (10,351) (19,253)
----------- ---------- ------------
Total deferred..................................... (245,600) (88,560) (237,458)
----------- ---------- ------------
Income tax expense (benefit)....................... $ (245,600) $ (88,560) $ 1,100,209
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
Income tax expense (benefit) differs from the amount computed by applying
the federal income tax rate of 34% to earnings before taxes, as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- ------------
<S> <C> <C> <C>
Expected federal income tax expense (benefit).......... $ (264,333) $ (92,217) $ 991,319
State income tax expense (benefit), net of federal
effect............................................... (23,790) (10,351) 89,206
Other.................................................. 42,523 14,008 19,684
----------- ---------- ------------
$ (245,600) $ (88,560) $ 1,100,209
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The tax effect of significant temporary differences giving rise to deferred
income tax assets and liabilities are shown below:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Deferred income tax liabilities--property and equipment, principally
depreciation adjustments............................................ $ 401,270 $ 527,394
Deferred income tax assets:
Net operating loss carryover........................................ 587,459 --
Allowance for doubtful accounts..................................... 124,199 607,067
Unearned compensation............................................... -- 7,717
Other............................................................... 23,772 9,311
---------- ----------
Total gross deferred tax assets................................... 735,430 624,095
---------- ----------
Net deferred tax asset............................................ $ 334,160 $ 96,701
---------- ----------
---------- ----------
</TABLE>
The net operating loss carryover was fully utilized in 1997. No valuation
allowance for deferred taxes at December 31, 1996 and 1997 was considered
necessary. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
F-13
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(8) INCOME TAXES (CONTINUED)
differences become deductible. The Company considered the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
(9) COMMITMENTS
The Company has an agreement with various vendors which require minimum
usage. In the event such monthly commitments are not met, the Company is
required to remit to the vendor the difference between the commitments and the
actual usage. Such amount, if necessary, would be recorded as cost of revenue in
the period incurred.
(10) RETIREMENT PLAN
Effective July 1, 1996, the Company adopted a 401(k) Retirement Savings Plan
(the "Plan"). The Plan is a defined contribution plan covering all employees of
the Company who have one year of service and have attained the age of 21.
Participants may contribute up to 15% of their base pay in pretax dollars. The
Company will match employee contributions on a discretionary basis. Vesting in
Company contributions is 100% after five years in the Plan. The Company made no
contributions to the Plan in 1996 or 1997.
(11) BUSINESS SEGMENT
The Company operates in a single industry segment. The geographic
termination of revenue is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
United States................................... $ 13,439,658 $ 18,979,427 $ 32,760,482
International................................... -- 2,433,261 7,488,849
Mexico.......................................... -- 1,761,216 6,495,218
------------- ------------- -------------
$ 13,439,658 $ 23,173,904 $ 46,744,549
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(12) CONCENTRATION OF CUSTOMERS AND SUPPLIERS
All revenue was derived from unaffiliated customers. For the year ended
December 31, 1995, three customers provided 19%, 14% and 10% of the Company's
revenue. For the year ended December 31, 1996, three customers provided 15%, 14%
and 10% of the Company's revenue. For the year ended December 31, 1997,
approximately 20% of the Company's total revenues were derived from a single
customer.
Two suppliers accounted for 78% of the purchases in 1995 and three suppliers
accounted for 50% of the purchases in 1996. For the year ended December 31,
1997, approximately 40% of the Company's total cost of sales were attributable
to three suppliers.
(13) SUBSEQUENT EVENTS
On February 16, 1998, the Company entered into a definitive agreement to
merge with IWL Communications, Inc., a public company listed on NASDAQ and
CapRock Fiber Network, Ltd. ("Partnership") The merger is subject, among other
matters, to approval by the shareholders of IWL Communications, Inc., the
Company and the Partnership.
F-14
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
(FORMERLY CAPROCK COMMUNICATIONS CORP.)
NOTES TO FINANCIAL STATEMENTS
(13) SUBSEQUENT EVENTS (CONTINUED)
In June 1998, the Company increased its bank line of credit discussed in
Note 4 to $7 million. The Company can advance a maximum of $2.5 million to the
Partnership. The line of credit will mature on August 31, 1998.
On July 16, 1998, CapRock Communications Corp. (formerly IWL Holdings
Corporation) ("Holdings"), the Company and the Partnership (with IWL
Communications, Inc. ("IWL") as a guarantor of certain obligations with respect
to the Notes) sold, through a private placement under Rule 144A under the
Securities Act, senior notes (the "Notes") in the aggregate principal amount of
$150.0 million. Holdings, the Company and the Partnership (with IWL as a
guarantor) will be required to make an offer to purchase the Notes at 101% of
their principal amount, plus accrued and unpaid interest to the date of
repayment, in the event that the merger is not consummated and certain other
conditions are not satisfied by August 31, 1998. In the event the merger is
consummated by August 31, 1998, the Company and the Partnership will be released
from the Notes (and IWL will be released from its obligations under such offer
to purchase), and Holdings will be the sole obligor thereunder.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of
CapRock Fiber Network, Ltd.:
We have audited the accompanying balance sheet of CapRock Fiber Network,
Ltd., as of December 31, 1997, and the related statements of operations,
partners' deficit, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CapRock Fiber Network, Ltd.,
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 11, 1998, except as to note 8,
which is as of July 16, 1998
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of
CapRock Fiber Network, Ltd.:
We have audited the accompanying balance sheet of CapRock Fiber Network,
Ltd., as of December 31, 1996, and the related statements of operations,
partners' capital, and cash flows for the years ended December 31, 1995 and
1996. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CapRock Fiber Network, Ltd.,
as of December 31, 1996, and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1996 in conformity with generally
accepted accounting principles.
Burds, Reed and Mercer, P.C.
Dallas, Texas
March 19, 1997
F-17
<PAGE>
CAPROCK FIBER NETWORK, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------ MARCH 31,
------------
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.................................................................. $ -- $ 172,543 $ 657,599
Restricted cash (note 1(b))........................................... 25,415 -- --
Trade receivables..................................................... -- 206,404 44,373
Prepaid expenses...................................................... 2,733 3,602 3,602
------------ ------------ ------------
Total current assets................................................ 28,148 382,549 705,574
Property, plant and equipment, net (note 2)............................. 8,552,360 9,299,859 9,167,778
Other assets, net....................................................... 176,804 96,797 75,227
------------ ------------ ------------
Total assets........................................................ $ 8,757,312 $ 9,779,205 $ 9,948,579
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Bank overdraft........................................................ $ 957,497 $ -- $ --
Accounts payable...................................................... 894,977 81,904 279,236
Accrued commitment and guarantor fees
(note 6)............................................................ 208,020 406,010 418,312
Accrued liabilities................................................... 77,131 67,337 107,871
Current portion of long-term debt (note 3)............................ 506,981 886,304 410,470
Unearned revenue...................................................... -- -- 323,400
------------ ------------ ------------
Total current liabilities........................................... 2,644,606 1,441,555 1,539,289
Long-term debt, excluding current portion
(note 3).............................................................. 6,335,846 8,664,588 8,664,588
Partners' deficit:
General partner....................................................... (2,231) (3,273) (2,553)
Limited partners...................................................... (220,909) (323,665) (252,745)
------------ ------------ ------------
(223,140) (326,938) (255,298)
Commitments (note 4)
------------ ------------ ------------
Total liabilities and partners' deficit............................. $ 8,757,312 $ 9,779,205 $ 9,948,579
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
CAPROCK FIBER NETWORK, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Telecommunication services and other revenues........ $ 173,227 $ -- $ 1,944,778 $ 359,913 $ 587,533
Operating expenses:
Network access expenses............................ 502,881 -- 86,410 40,981 12,261
Selling, general and administrative (note 6)....... 325,956 173,618 285,219 65,392 67,028
Depreciation and amortization...................... 31,481 54,078 901,990 165,566 184,926
----------- ----------- ------------ ----------- -----------
Total operating expenses......................... 860,318 227,696 1,273,619 271,939 264,215
----------- ----------- ------------ ----------- -----------
Income (loss) from operations.................... (687,091) (227,696) 671,159 87,974 323,318
Other income (expense):
Interest expense (note 3).......................... -- (422) (775,327) (165,648) (209,944)
Interest income.................................... -- 715 1,286 309 340
Other.............................................. 12,278 -- (916) -- --
----------- ----------- ------------ ----------- -----------
Income (loss) before income taxes and
extraordinary item ............................ (674,813) (227,403) (103,798) (77,365) 113,714
Income taxes..................................... -- -- -- -- 42,074
----------- ----------- ------------ ----------- -----------
Income (loss) before extraordinary item.......... (674,813) (227,403) (103,798) (77,365) 71,640
Extraordinary item--extinguishment of debt (note
1(a))............................................ 644,652 -- -- -- --
----------- ----------- ------------ ----------- -----------
Net income (loss)................................ $ (30,161) $ (227,403) $ (103,798) $ (77,365) $ 71,640
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
CAPROCK FIBER NETWORK, LTD.
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1994................................................. $ 343 $ 34,081 $ 34,424
Net loss..................................................................... (300) (29,861) (30,161)
--------- ----------- -----------
Balance at December 31, 1995................................................. 43 4,220 4,263
Net loss..................................................................... (2,274) (225,129) (227,403)
--------- ----------- -----------
Balance at December 31, 1996................................................. (2,231) (220,909) (223,140)
Net loss..................................................................... (1,042) (102,756) (103,798)
--------- ----------- -----------
Balance at December 31, 1997................................................. (3,273) (323,665) (326,938)
Net income (unaudited)....................................................... 1,137 112,577 71,640
--------- ----------- -----------
Balance at March 31, 1998 (unaudited)........................................ $ (2,136) $ (211,088) $ (255,298)
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
CAPROCK FIBER NETWORK, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- ---------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (30,161) $ (227,403) $ (103,798) $ (77,365) $ 71,640
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Extraordinary gain on extinguishment of debt...... (644,652) -- -- -- --
Depreciation and amortization..................... 31,481 54,078 901,990 165,566 184,926
Allowance for doubtful accounts................... 49,183 -- -- -- --
Changes in operating assets and liabilities:
Restricted cash................................... -- (25,415) 25,415 -- --
Trade receivable.................................. 4,453 -- (206,404) -- 162,031
Prepaid expenses.................................. 5,310 (2,087) (869) -- --
Other assets...................................... 4,937 -- (185,131) (190,305) --
Accounts payable and accrued liabilities.......... 414,568 128,020 (624,877) 99,192 250,168
Unearned revenue.................................. -- -- -- -- 323,400
--------- ---------- ---------- ---------- ---------
Net cash provided by (used in) operating
activities.................................... (164,881) (72,807) (193,674) (2,912) 992,165
--------- ---------- ---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures................................ -- (7,601,034) (1,384,351) (1,194,784) (31,275)
Proceeds from sale of equipment..................... 7,852 -- -- -- --
--------- ---------- ---------- ---------- ---------
Net cash provided by (used in) investing
opportunities................................. 7,852 (7,601,034) (1,384,351) (1,194,784) (31,275)
--------- ---------- ---------- ---------- ---------
Cash flows from financing activities:
Proceeds under long-term note agreement............. -- 6,842,827 3,055,000 3,004,999 --
Principal payments under long-term note agreement... -- -- -- -- (475,834)
Loan fees paid under long-term note agreement....... -- (135,749) (346,935) -- --
Net change in bank overdraft........................ -- 957,497 (957,497) (957,497) --
--------- ---------- ---------- ---------- ---------
Net cash provided by (used in) financing
activities.................................... -- 7,664,575 1,750,568 2,047,502 (475,834)
--------- ---------- ---------- ---------- ---------
Net increase (decrease) in cash....................... (157,029) (9,266) 172,543 849,806 485,056
Cash at beginning of year............................. 166,295 9,266 -- -- 172,543
--------- ---------- ---------- ---------- ---------
Cash at end of year................................... $ 9,266 $ -- $ 172,543 $ 849,806 $ 657,599
--------- ---------- ---------- ---------- ---------
--------- ---------- ---------- ---------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.............. $ -- $ -- $ 785,121 $ 165,648 $ 209,944
--------- ---------- ---------- ---------- ---------
--------- ---------- ---------- ---------- ---------
Noncash investing and financing activities (note
7)................................................
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
CAPROCK FIBER NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL DESCRIPTION
CapRock Fiber Network, Ltd. ("CapRock Fiber" or "the Partnership"), is a
facilities-based provider of dark fiber bandwidth services to interexchange
carriers and other communications entities as well as to businesses and
consumers. The Partnership operates a digital fiber optic network between
Houston, Victoria and to Corpus Christi, Texas. CapRock Fiber is a Texas limited
partnership formed in December 1992. The general partner is responsible for,
among other things, the management of the affairs of the Partnership and has
unlimited liability for the debts, liabilities and obligations of the
Partnership to third parties. No limited partner shall be personally responsible
for any debts of the Partnership nor any of the losses thereof beyond the amount
of the capital contributions of each to the Partnership, except as to any debt
guarantees provided by two of the limited partners. The fiber network became
operational in January 1997. Prior to 1997, CapRock Fiber was a development
stage enterprise.
In 1995, the Partnership terminated a fiber lease agreement entered into in
June 1994 with a vendor to lease fiber capacity. The Partnership entered into
various agreements to maintain the fiber network and sublease the fiber
capacity. CapRock recorded maintenance revenues in the amount of $173,227 for
the year ended December 31, 1995. CapRock provided property and equipment to the
vendor in exchange for the forgiveness of amounts then due under the lease
agreements and the remaining future obligation. CapRock recorded an
extraordinary gain of approximately $644,000 in 1995 as a result of the
transaction.
(B) RESTRICTED CASH
Restricted cash represents cash which is restricted as security for a surety
bond. The surety bond expired on May 17, 1997, and as such there was no
restricted cash balance at December 31, 1997. The restricted cash balance was
$25,415 at December 31, 1996.
(C) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and include certain costs
which were capitalized during the installation and expansion of
telecommunications networks including interest costs related to construction of
approximately $143,255, which was incurred in 1996. No interest was capitalized
in 1997, as the fiber network was placed in service in January 1997.
Depreciation is computed using the straight-line method over the estimated usefu
lives of the assets. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the remaining terms of the leases. The estimated useful lives of owned
assets are as follows:
<TABLE>
<S> <C>
Land.............................................................. --
Buildings......................................................... 20 years
Leasehold improvements............................................ 20 years
Telecommunication network......................................... 20 years
Equipment......................................................... 5 years
</TABLE>
(D) PARTNERS' CAPITAL
The partners' capital balances are determined in accordance with the
partnership agreement which requires a tax basis computation. The financial
statements have been prepared in accordance with
F-22
<PAGE>
CAPROCK FIBER NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
generally accepted accounting principles (GAAP), therefore differences exist
between the capital accounts maintained on a GAAP basis and tax basis. Net
income or loss is allocated amongst the partners based upon the provisions of
the partnership agreement.
(E) REVENUE RECOGNITION
Telecommunication service revenues are recognized when the services are
provided. The revenue from long-term leases of fiber optic cable is recognized
monthly over the terms of the related leases. Amounts paid in advance are
recorded as unearned revenue.
(F) TRADE RECEIVABLES
As of December 31, 1997 the trade receivables balance consisted of unsecured
amounts due from customers obligated under operating lease agreements. No
allowance for doubtful accounts was recorded as of December 31, 1997. There were
no trade receivables as of December 31, 1996.
(G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Effective January 1, 1996, the Partnership has adopted the provisions of
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of cash, receivables, and accounts payable are estimated to
approximate carrying value due to the short-term maturities of these financial
instruments. The carrying value of the Partnership's long-term debt approximates
fair value as the interest rate is indexed to changes in the bank's prime
lending rate.
(I) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
(J) INCOME TAXES
The Partnership is not subject to federal income tax and, accordingly, no
provision for federal income taxes is required. Net income or loss of the
Partnership is taxed in the income tax returns of the Partners.
Effective January 1, 1998, the Partnership elected to be taxed as a C
Corporation. Consequently, the Partnership will be subject to federal income
taxes effective January 1, 1998. The unaudited pro forma effect on income taxes
as if the Partnership had been taxed as a C Corporation for all periods
presented would have been to provide an income tax benefit of approximately
$11,000, $84,000 and $38,000 for the
F-23
<PAGE>
CAPROCK FIBER NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
years ended December 31, 1995, 1996 and 1997, respectively, and $42,000 for the
three months ended March 31, 1998. The pro forma effect on the balance sheet
would provide for the establishment of deferred income tax assets of
approximately $0, $82,000 and $82,000 as of December 31, 1996 and 1997 and March
31, 1998, respectively, which is primarily attributed to depreciation and
amortization.
(K) UNAUDITED INTERIM FINANCIAL INFORMATION
Interim information for the three months ended March 31, 1997 and 1998,
including such information in the notes to the financial statements, is
unaudited. This information has been prepared on the same basis as the annual
financial statements, and, in the opinion of the Partnership's management,
reflects all adjustments, consisting of normal recurring adjustments considered
necessary for a fair presentation of the results of such period. Financial
results for the interim period are not necessarily indicative of the results for
a full year.
(2) PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------ MARCH 31,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................ $ 10,243 $ 10,243 $ 10,243
Buildings........................................... -- 186,286 186,286
Leasehold improvements.............................. 103,002 107,565 107,565
Telecommunications network.......................... 8,201,258 8,505,917 8,505,917
Equipment........................................... 237,857 1,126,700 1,157,975
------------ ------------ ------------
8,552,360 9,936,711 9,967,986
Accumulated depreciation............................ -- (636,852) (805,054)
------------ ------------ ------------
$ 8,552,360 $ 9,299,859 $ 9,162,932
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The Partnership has also leased dark fiber included in the
telecommunications network to unrelated long-distance carriers (see note 5).
(3) LONG-TERM DEBT
The Partnership has a loan agreement with a bank whereby it borrowed $10
million used for the construction, start-up and related expenses of the fiber
optic network. The loan was initially secured by the network, investment
securities of a limited partner, accounts receivable and guarantees of both the
general partner and certain limited partners, and currently is guaranteed by two
of the limited partners (see note 6). The Partnership is required to maintain
certain financial covenants as a condition of this loan. Accrued interest is
payable monthly. Quarterly principal payments began on March 31, 1997. Principal
payment amounts gradually increase from .5% to 3.5% of the outstanding principal
balance existing at March 31, 1997. Additional principal payments began on June
30, 1997 based upon excess cash flow, as defined in the agreement. All unpaid
principal and accrued interest is due in full December 31, 2001. Interest is
charged at either the bank's prime rate (8.25% and 8.5% at December 31, 1996 and
1997, respectively), or a spread over LIBOR. Under the loan agreement, the
Partnership has the ability to secure a fixed rate of interest on certain
portions of the outstanding balance, subject to certain restrictions. The
F-24
<PAGE>
CAPROCK FIBER NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(3) LONG-TERM DEBT (CONTINUED)
balance outstanding under this loan agreement at December 31, 1996 and 1997 was
$6,842,827 and $9,550,892, respectively. The current portion outstanding under
this loan agreement at December 31, 1996 and 1997 was $506,981 and $886,304,
respectively. Principal maturities are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 886,304
1999............................................................ 1,034,022
2000............................................................ 1,230,978
2001............................................................ 6,399,588
---------
$9,550,892
---------
---------
</TABLE>
The Partnership was in violation of certain debt covenants as of December
31, 1996 and 1997. The Partnership has obtained a waiver for these covenant
violations. The Partnership anticipates that debt covenant requirements will be
met through December 31, 1998.
(4) COMMITMENTS
The Partnership leases office space and land used for transmission sites.
These lease terms are for initial terms of five and twenty years, respectively.
Rent expense for the years ended December 31, 1995, 1996 and 1997 was $7,625,
$2,473 and $12,439, respectively. Future minimum lease commitments under these
agreement are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 22,303
1999.............................................................. 22,303
2000.............................................................. 22,303
2001.............................................................. 21,727
2002.............................................................. 21,000
2003 and thereafter............................................... 320,500
---------
$ 430,136
---------
---------
</TABLE>
The Partnership also is obligated to pay a telecommunications franchise fee
to a municipality. These payments are due quarterly, and amount to the greater
of $3,000 or 5% of gross income generated within the municipality.
(5) FIBER OPTIC LINE RENTAL
As of December 31, 1997, multiple lease agreements had been signed with
customers to lease capacity over the fiber optic line. Substantially all of the
Partnership's revenues in 1997 have been derived from two customers. One of the
customers provided for approximately 93% of total revenues in 1997 and comprised
78% of the trade receivable balance. The other significant customer provided for
approximately 5% of total revenues in 1997 and comprised 22% of the trade
receivable balance. The lease terms are through August 2004 and July 2006. These
lease agreements include various renewal options.
F-25
<PAGE>
CAPROCK FIBER NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(6) RELATED PARTY TRANSACTIONS
LOAN FEES:
Certain partners have guaranteed the bank loan. In consideration, the
Partnership has agreed to pay a one-time commitment fee equal to 1% of each
partner's guarantee. No commitment fees were accrued in 1997. These loan
commitment fees in 1996 were $80,000, and these fees began accruing interest at
12% on July 1, 1997. This rate increases 2% each July 1 thereafter. The
guarantors were also paid a loan guaranty fee by the Partnership equal to 7% of
the amount of the lesser of $8,000,000 or the average outstanding daily
principal of the loan. The bank released the guaranty requirement in April 1997
for certain limited partners. No guaranty fees will be paid prospectively to the
remaining guarantors and therefore, no guaranty fees have been accrued
subsequent to April 1997, other than accrued interest. The total accrued
commitment fees and loan guarantor fees as of December 31, 1996 and 1997 was
approximately $208,000 and $406,000, respectively. The Partnership has not paid
any amounts related to these agreements as of December 31, 1997.
GENERAL AND ADMINISTRATION SERVICES
The Partnership retained a related party to manage and administer the
operations of the network. In consideration for these services, the Partnership
will reimburse direct costs of the network plus 5%, payable monthly. The total
general and administrative expenses paid to the affiliate was $-0-, $77,000 and
$150,948, respectively for the years ended December 31, 1995, 1996 and 1997. In
addition, as payment for marketing services, the Partnership will pay 7% of any
additional lease payments generated as a result of the related party's efforts.
There were no payments made in 1995, 1996 and 1997 under this agreement.
The Partnership has entered into an agreement with a related party to manage
the construction of the fiber optic network. Under this agreement, the
Partnership paid 4% of the costs of constructing the network, payable monthly at
a minimum of $15,000 per month. The Partnership paid management fees of $296,576
in 1997 and $461,576, cumulative under the arrangement since construction
commenced.
(7) NONCASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1996, the Partnership capitalized
property and equipment of $1,171,818 and loan costs of $80,000 through an
increase in accounts payable and accrued liabilities.
(8) SUBSEQUENT EVENTS
MERGER
On February 16, 1998, the Partnership entered into a definitive agreement to
merge with CapRock Telecommunications Corp. (formerly CapRock Communications
Corp.) ("Telecommunications") and IWL Communications, Inc., a public company
listed on NASDAQ. The merger is subject to, among other matters, approval by the
shareholders of IWL Communications, Inc. and Telecommunications.
INDEFEASIBLE RIGHT TO USE
The Partnership is constructing a fiber optic network between San Antonio
and Laredo, and Corpus Christi, McAllen, Harlingen, and Brownsville, Texas. On
February 6, 1998, the Partnership entered into an indefeasible right to use
contract for dark fiber. The customer will lease twelve optical fibers with an
option to lease additional fibers. The Partnership is not currently committed to
any vendors for the capital expenditures to build the fiber network.
F-26
<PAGE>
CAPROCK FIBER NETWORK, LTD.
NOTES TO FINANCIAL STATEMENTS
(8) SUBSEQUENT EVENTS (CONTINUED)
On July 16, 1998, CapRock Communications Corp. (formerly IWL Holdings Corp.)
("Holdings"), Telecommunications and the Partnership (with IWL Communications,
Inc. ("IWL") as a guarantor of certain obligations with respect to the Notes)
sold, through a private placement under Rule 144A under the Securities Act,
senior notes (the "Notes") in the aggregate principal amount of $150.0 million.
Holdings, Telecommunications and the Partnership (with IWL as a guarantor) will
be required to make an offer to purchase the Notes at 101% of their principal
amount, plus accrued and unpaid interest to the date of repayment, in the event
that the merger is not consummated and certain other conditions are not
satisfied by August 31, 1998. In the event the merger is consummated by August
31, 1998, Telecommunications and the Partnership will be released from the Notes
(and IWL will be released from its obligations under such offer to purchase),
and Holdings will be the sole obligor thereunder.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
IWL Communications, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of IWL
Communications, Inc. and Subsidiaries (the Company) as of June 30, 1996 and
1997, and as of December 31, 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended June 30, 1997 and for the six months ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IWL Communications, Inc. and Subsidiaries as of June 30, 1996 and 1997 and
December 31, 1997 and the results of their operations and their cash flows for
each of the years in the three-year period ended June 30, 1997 and for the six
months ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Houston, Texas
April 3, 1998,
except as to the
second paragraph of
Note 1 which is as of May 7, 1998
F-28
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1997 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 360,930 $ 7,659,983 $ 3,345,312
Accounts receivable:
Trade, less allowance for doubtful accounts of $74,513, $100,936
and $140,613, respectively...................................... 5,501,317 5,710,344 6,342,127
Affiliate......................................................... 73,234 67,074 30,344
Other............................................................. 7,172 116,020 239,298
Notes receivable-trade, current portion............................. 230,429 -- --
Inventory........................................................... 851,380 1,856,617 1,022,927
Costs and estimated earnings in excess of billings on uncompleted
contracts......................................................... 135,675 242,862 --
Deferred tax asset-current.......................................... 74,659 242,317 107,750
Prepaid expenses and deposits....................................... 132,266 388,272 447,067
------------ ------------ ------------
Total current assets............................................ 7,367,062 16,283,489 11,534,825
------------ ------------ ------------
Property, plant and equipment......................................... 8,385,538 14,281,182 20,387,102
Accumulated depreciation............................................ (3,894,863) (5,164,829) (6,039,032)
------------ ------------ ------------
Net property, plant and equipment............................... 4,490,675 9,116,353 14,348,070
------------ ------------ ------------
Investment in unconsolidated subsidiary............................... 297,153 428,374 --
Other assets.......................................................... 254,448 233,527 400,681
------------ ------------ ------------
Total assets.................................................... $ 12,409,338 $ 26,061,743 $ 26,283,576
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable-current portion....................................... $ 997,904 $ 963,595 $ 6,035,069
Trade accounts payable and accrued expenses......................... 3,907,185 5,436,445 3,626,519
Customer deposits................................................... 388,993 23,365 171,972
Federal income taxes payable........................................ 37,418 -- 264,964
Deferred revenue-current portion.................................... 175,977 53,480 14,667
Billings in excess of costs and estimated earnings on uncompleted
contracts......................................................... 48,892 85,553 92,022
------------ ------------ ------------
Total current liabilities....................................... 5,556,369 6,562,438 10,205,213
------------ ------------ ------------
Notes payable, noncurrent portion..................................... 2,943,837 7,692,332 3,588,308
Deferred revenue, noncurrent portion.................................. 66,748 -- --
Deferred income taxes................................................. 144,034 413,071 323,913
------------ ------------ ------------
Total liabilities............................................... 8,710,988 14,667,841 14,117,434
------------ ------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 100,000,000 authorized, issued and
outstanding 2,225,008, 3,677,816 and 3,754,230 shares,
respectively...................................................... 22,250 36,778 37,542
Additional paid-in capital.......................................... 259,626 7,251,600 7,601,589
Retained earnings................................................... 3,416,474 4,105,524 4,527,011
------------ ------------ ------------
Total stockholders' equity...................................... 3,698,350 11,393,902 12,166,142
------------ ------------ ------------
Commitment and contingencies
Total liabilities and stockholders' equity...................... $ 12,409,338 $ 26,061,743 $ 26,283,576
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30, ENDED
------------------------------------------------- DECEMBER 31,
1995 1996 1997 1997
------------ ------------------- -------------- SIX MONTHS ------------
ENDED
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales:
Telecommunication services............ $ 5,789,570 $ 6,530,887 $ 7,993,104 $ 3,645,771 $ 4,855,428
Project/other revenue................. 10,004,504 10,711,346 14,707,698 7,303,096 7,107,213
Product resales....................... -- 10,553,846 7,640,788 4,695,225 --
------------ ------------------- -------------- ------------ ------------
Total sales......................... 15,794,074 27,796,079 30,341,590 15,644,092 11,962,641
Cost of sales (exclusive of items shown
separately below)..................... (9,639,347) (10,743,266) (14,709,249) (7,004,414) (6,556,544)
Cost of sales-product resales........... -- (9,672,078) (7,027,061) (4,680,001) --
------------ ------------------- -------------- ------------ ------------
Gross profit............................ 6,154,727 7,380,735 8,605,280 3,959,677 5,406,097
Selling expenses........................ 862,183 842,038 1,140,953 494,702 792,667
General and administrative expenses..... 3,537,004 4,257,067 4,704,302 2,240,224 2,838,058
Depreciation and amortization........... 820,957 1,003,296 1,403,036 635,415 981,733
------------ ------------------- -------------- ------------ ------------
Income from operations.................. 934,583 1,278,334 1,356,989 589,336 793,639
------------ ------------------- -------------- ------------ ------------
Other income and (expense):
Interest income....................... 52,036 46,300 20,374 17,764 130,024
Interest expense...................... (296,299) (316,412) (534,218) (231,490) (347,844)
Gain from sale of investment in
unconsolidated subsidiary........... -- -- -- -- 66,266
Equity in earnings (loss) of
unconsolidated subsidiary........... 105,829 (25,873) 81,221 776 34,662
Gain from sale of assets.............. 24,926 67,021 47,690 18,148 9,240
Other................................. 8,123 -- -- 28 --
------------ ------------------- -------------- ------------ ------------
Total other income (expense)............ (105,385) (228,964) (384,933) (194,774) (107,652)
------------ ------------------- -------------- ------------ ------------
Income before income taxes.............. 829,198 1,049,370 972,056 394,562 685,987
Income tax expense...................... 293,557 315,708 283,006 134,154 264,500
------------ ------------------- -------------- ------------ ------------
Net income.............................. $ 535,641 $ 733,662 $ 689,050 $ 260,408 $ 421,487
------------ ------------------- -------------- ------------ ------------
------------ ------------------- -------------- ------------ ------------
Net income per share:
Basic................................. $ 0.24 $ 0.33 $ 0.30 $ 0.12 $ 0.11
------------ ------------------- -------------- ------------ ------------
------------ ------------------- -------------- ------------ ------------
Diluted............................... $ 0.24 $ 0.33 $ 0.30 $ 0.11 $ 0.11
------------ ------------------- -------------- ------------ ------------
------------ ------------------- -------------- ------------ ------------
Weighted average shares outstanding:
Basic................................. 2,222,200 2,222,416 2,298,377 2,225,939 3,736,967
Diluted............................... 2,232,751 2,232,967 2,323,330 2,261,149 3,907,877
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND
SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1994..................... 2,222,200 $ 22,222 $ 249,658 $ 2,147,171 $ 2,419,051
Net income.................................... -- -- -- 535,641 535,641
---------- --------- ------------ ------------ -------------
Balances at June 30, 1995..................... 2,222,200 22,222 249,658 2,682,812 2,954,692
Issuance of stock............................. 2,808 28 9,968 -- 9,996
Net income.................................... -- -- -- 733,662 733,662
---------- --------- ------------ ------------ -------------
Balances at June 30, 1996..................... 2,225,008 22,250 259,626 3,416,474 3,698,350
Issuance of stock............................. 2,808 28 9,969 -- 9,997
Proceeds from initial public common stock
offering, net of expenses................... 1,450,000 14,500 6,982,005 -- 6,996,505
Net income.................................... -- -- -- 689,050 689,050
---------- --------- ------------ ------------ -------------
Balances at June 30, 1997..................... 3,677,816 36,778 7,251,600 4,105,524 11,393,902
Issuance of stock............................. 76,414 764 386,260 -- 387,024
Additional expenses from initial public
offering.................................... -- -- (36,271) -- (36,271)
Net income.................................... -- -- -- 421,487 421,487
---------- --------- ------------ ------------ -------------
Balance at December 31, 1997.................. 3,754,230 $ 37,542 $ 7,601,589 $ 4,527,011 $ 12,166,142
---------- --------- ------------ ------------ -------------
---------- --------- ------------ ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS
SIX MONTHS ENDED
YEARS ENDED JUNE 30, ENDED DECEMBER 31,
1995 1996 1997 DECEMBER 31, 1997
-------------- -------------- -------------- 1996 --------------
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 535,641 $ 733,662 $ 689,050 $ 260,408 $ 421,487
Adjustments to reconcile net income to
net cash provided by operating
activities: Depreciation and
amortization........................... 820,957 1,003,296 1,403,036 635,415 981,733
Gain from sale of KSG.................... -- -- -- -- (66,266)
Gain from sale of assets................. (24,926) (67,021) (47,690) (18,148) (9,240)
Deferred income taxes.................... 78,903 (9,528) 101,379 34,509 45,409
Equity in (earnings) loss of
unconsolidated subsidiary.............. (105,829) 25,873 (81,221) (776) (34,662)
Changes in operating assets and
liabilities:
Accounts receivable...................... (296,166) (3,903,405) (311,715) 468,269 (718,331)
Inventory................................ 374,297 (253,022) (70,003) (868,242) 833,690
Costs and estimated earnings in excess of
billings............................... (2,881) (132,794) (107,187) 52,410 242,862
Prepaid expenses and deposits............ (43,997) (58) (256,006) (232,870) (58,795)
Other assets............................. 32,274 (101,611) (91,197) (151,430) (205,805)
Trade accounts payable and accrued
expenses............................... (640,238) 2,762,020 1,871,807 (34,128) (1,809,926)
Customer deposits........................ (118,485) 327,692 (365,628) (274,894) 148,607
Deferred revenue......................... 177,296 (130,359) (189,245) 378,151 (38,813)
Billings in excess of costs and estimated
earnings............................... -- 48,892 36,661 86,609 6,469
Federal income taxes payable............. (90,559) 37,418 (37,418) (1,643) 264,964
-------------- -------------- -------------- -------------- --------------
Net cash provided by operating
activities............................. 696,287 341,055 2,544,623 333,640 3,383
-------------- -------------- -------------- -------------- --------------
Cash flows from investing activities:
Purchase of property, plant, and
equipment.............................. (1,585,103) (1,492,487) (6,987,778) (2,431,532) (6,189,659)
Proceeds from disposal of property,
plant, and equipment................... 70,525 201,550 119,210 28,776 24,140
Proceeds from notes receivable........... 283,755 659,972 -- -- --
Proceeds from sale of KSG................ -- -- -- -- 529,262
Investment in unconsolidated
subsidiary............................. -- -- (50,000) (50,000) --
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities.... $ (1,230,823) $ (630,965) $ (6,918,568) $ (2,452,756) $ (5,636,257)
-------------- -------------- -------------- -------------- --------------
</TABLE>
F-32
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS
SIX MONTHS ENDED
YEARS ENDED JUNE 30, ENDED DECEMBER 31,
1995 1996 1997 DECEMBER 31, 1997
-------------- -------------- -------------- 1996 --------------
------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Proceeds from debt........................ $ 2,350,729 $ 8,352,398 $ 5,902,612 $ 2,684,377 $ 14,280,634
Debt payments............................. (1,496,470) (8,002,183) (1,236,116) (654,706) (13,313,184)
Proceeds from issuance of common stock.... -- 9,996 7,006,502 9,997 350,753
Decrease in cash overdraft................ (29,094) -- -- --
-------------- -------------- -------------- ------------ --------------
Net cash provided by financing
activities.............................. 825,165 360,211 11,672,998 2,039,668 1,318,203
-------------- -------------- -------------- ------------ --------------
Net increase (decrease) in cash for
period.................................. 290,629 70,301 7,299,053 (79,448) (4,314,671)
Cash and cash equivalents at beginning of
period.................................. -- 290,629 360,930 360,930 7,659,983
-------------- -------------- -------------- ------------ --------------
Cash and cash equivalents at end of
period.................................. $ 290,629 $ 360,930 $ 7,659,983 $ 281,482 $ 3,345,312
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for
interest................................ $ 317,404 $ 298,546 $ 509,931 $ 220,185 $ 347,759
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
Cash paid during the year for income
taxes................................... $ 367,267 $ 150,866 $ 320,424 $ 57,500 $ --
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
Supplemental schedule of noncash investing
activities:
Conversion of accounts receivable to notes
receivable.............................. $ 331,983 $ 395,637 $ -- $ -- $ --
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
Offset of notes receivable in lieu of
accounts payable to vendor.............. $ -- $ -- $ 342,547 $ -- $ --
-------------- -------------- -------------- ------------ --------------
-------------- -------------- -------------- ------------ --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1995, 1996 AND
1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company provides communications solutions to customers with operations
in remote, difficult-access regions and in areas around the world where
government deregulation has created new market opportunities. The Company
delivers communications services to its customers by utilizing a broad range of
analog and digital technologies, including satellite, microwave radio,
conventional two-way radio and fiber optic cable. The Company has operations in
Friendswood and Houston, Texas, New Orleans and Lafayette, Louisiana and Moscow,
Russia.
CHANGE IN FISCAL YEAR-END
The Company changed its fiscal year end from June 30 to December 31 on May
7, 1998. These audited consolidated financial statements reflect the results of
operations and statement of cash flows for the transition six-month period ended
December 31, 1997. The results of operations and statement of cash flows for the
comparable six-month period ended December 31, 1996 are derived from unaudited
consolidated financial statements of IWL which in the opinion of IWL's
management, contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation thereof.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of IWL
Communications, Inc. and its wholly-owned subsidiaries, Spacelink Systems, Inc.,
Spacelink Systems FSC, Inc. and IWL Communications Ltd. (Russia). All material
intercompany accounts and transactions have been eliminated. The Company's
investment in and operating results of Kenwood Systems Group, which was a 50%
owned entity for the years ended June 30, 1995, 1996 and 1997 and for the six
months ended December 31, 1997 until the date of sale are included in the
accompanying financial statements on the basis of the equity method of
accounting.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company performs credit evaluations of its customers, but does not
require collateral.
MAJOR CUSTOMERS AND SUPPLIERS
For the years ended June 30, 1996 and 1997, approximately $11,688,251 (42%)
and $9,818,000 (32%), respectively of the Company's sales were from one
customer. None of the Company's sales to customers accounted for more than 10%
of sales for the year ended June 30, 1995 or the six months ended December 31,
1997. At June 30, 1997, accounts receivable-trade included balances of
approximately $880,100 and $594,200 from two of the Company's major customers.
At December 31, 1997, no customer balances accounted for more than 10% of
accounts receivable-trade.
F-34
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND
1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The majority of the sales to the major customer for the year ended June 30,
1996 and 1997 ($10,553,846 and $7,640,800, respectively) were attributable to a
one-time project, which included a significant equipment resale component, that
the Company substantially completed in 1997, and, therefore, is not expected to
contribute in a material manner to the Company's revenue in future periods.
Customers in the oil and gas industry account for substantially all of the
Company's offshore and project related sales. Price decreases in oil and gas and
other market forces which negatively affect the oil and gas industry as a whole,
could affect funding for drilling activities in the Gulf of Mexico, North Sea
and elsewhere, and could impact the Company's financial condition, results of
operations and cash flows.
The Company purchases substantially all of its telecommunications equipment
for use in the oil and gas industry from one supplier pursuant to an exclusive
distributorship agreement.
INVENTORY
Inventory substantially consists of parts and equipment held for resale.
Inventory that can be specifically identified using a unique identification
number is stated at the lower of specific cost or market. Inventory that cannot
be specifically identified is stated at the lower of cost or market where cost
is determined using the first in-first out method. Market value, in all cases,
represents the lower of replacement cost or net realizable value.
PROPERTY, PLANT AND EQUIPMENT/DEPRECIATION
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as indicated
below:
<TABLE>
<S> <C>
Buildings and improvements...................................... 7-31 years
Vehicles........................................................ 5 years
Furniture and fixtures.......................................... 5-7 years
Leasehold improvements.......................................... Lease term
Equipment for rent/lease........................................ 7-10 years
Computers, office and test equipment............................ 5-7 years
</TABLE>
Significant expenditures that add materially to the utility or useful lives
of property, plant and equipment are capitalized. All other maintenance and
repair costs are charged to current operations. The cost and related accumulated
depreciation of assets replaced, retired or otherwise disposed of are eliminated
from the property accounts and any gain or loss is reflected as other income and
expense.
REVENUE RECOGNITION
The Company provides services such as telecommunication services whose
revenue is recognized based on the monthly service provided. Lease revenues from
equipment rentals are recorded over the life of the lease contract.
Communication systems contracts are typically fixed price and revenue is
recognized based on the percentage-of-completion method, primarily based on
contract cost incurred to date compared with total estimated contract costs.
Costs and estimated earnings or losses, if any, recognized in
F-35
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND
1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
excess of amounts billed are classified as current assets. It is anticipated
that the incurred costs associated with work in progress at the end of the
respective periods will be billed and collected within the next year. Amounts
received from clients in excess of revenues recognized to date are classified as
current liabilities.
STOCK OPTION PLAN
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provision of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
July 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants made in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123
commencing in its June 30, 1997 financial statements.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rate and laws that will be in effect when
the differences are expected to reverse.
The provision for income taxes includes federal, foreign, state and local
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities.
FAIR VALUE
The Company believes that the carrying amounts of its financial instruments
included in current assets and current liabilities approximate the fair value of
such items due to their short-term nature. The carrying amount of long-term
notes payable approximates their fair value because interest rates approximate
market.
ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare this balance sheet in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
F-36
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND
1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, Earnings per Share ("SFAS 128"). SFAS 128 establishes new
standards for computing and presenting earnings per share ("EPS") amounts for
companies with publicly held common stock. The new standards require the
presentation of both basic and diluted EPS amounts for companies with complex
capital structures. Basic EPS is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period, and excludes the effect of potentially dilutive securities (such as
options, warrants and convertible securities) which are converted into common
stock. Dilutive EPS reflects the potential dilution related to the incremental
shares from such convertible securities. Incremental shares resulting from
dilutive employee stock options of 10,551, 10,551, and 24,953 for the years
ended June 30, 1995, 1996, and 1997, respectively were used in the calculation
of diluted EPS. Incremental shares of 35,210 and 170,910 for the six-month
periods ended December 31, 1996 and 1997, respectively, were used in the
calculation of diluted EPS.
Effective October 1, 1997, the Company adopted the requirements of SFAS 128
and has presented basic and diluted EPS for all periods presented.
On November 1, 1995, the Board of Directors declared a two hundred- for-one
common stock split effective November 1, 1995. All share amounts and numbers of
shares have been restated to reflect the stock split.
(2) COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
---------- ------------- ------------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts................................. $ 271,100 $ 958,295 $ 381,074
Estimated earnings...................................................... 127,332 315,106 281,869
---------- ------------- ------------
398,432 1,273,401 662,943
Less billings to date................................................... 311,649 1,116,092 754,965
---------- ------------- ------------
$ 86,783 $ 157,309 $ (92,022)
---------- ------------- ------------
---------- ------------- ------------
</TABLE>
Included in accompanying balance sheets under the following captions:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
---------- ----------- ------------
<S> <C> <C> <C>
Costs and estimated earnings in excess of billings on uncompleted
contracts............................................................... $ 135,675 $ 242,862 $ --
Billings in excess of costs and estimated earnings on uncompleted
contracts............................................................... (48,892) (85,553) (92,022)
---------- ----------- ------------
$ 86,783 $ 157,309 $ (92,022)
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
F-37
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(3) INVESTMENT IN KENWOOD SYSTEMS GROUP
In September 1997, the Company sold its ownership in Kenwood Systems Group,
Inc. (KSG), a California corporation. Prior to the date of sale, the Company
owned 50% of the voting common stock, with the remaining 50% of the voting
common stock owned by Kenwood Americas Corporation (KAC). The results of
operations from July 1, 1997 through the date of sale (September 30, 1997) of
KSG have been reflected in the Company's operating results. The Company and KAC
were the original owners of KSG, which began operations on May 1, 1994. The
Company recorded a gain on the sale of KSG of $66,226.
The investment was recorded using the equity method in which the original
investment, adjusted for the Company's proportionate share of KSG's income,
losses and dividend distributions, was recorded as a long-term investment. The
Company's original investment in KSG was $200,000. An additional investment of
$50,000 was made during the year ended June 30, 1997. The Company's
proportionate share of KSG's (losses)/earnings for the years ended June 30,
1995, 1996 and 1997 and for the six months ended December 31, 1997 were
$105,829, $(25,873), $81,221 and $34,662, respectively.
The Company received a management fee from KSG equal to 2% of gross sales
that was paid quarterly. For the years ended June 30, 1995, 1996 and 1997 and
the six months ended December 31, 1997, the Company earned a management fee of
$59,995, $58,253, $82,476 and $25,406, respectively. In addition, KSG was
covered by worker's compensation, property, medical, dental and general
liability insurance policies maintained by the Company. KSG also purchased
various supplies and computer equipment from the Company from time to time.
Employees of KSG were eligible to participate in a 401(k) plan maintained by the
Company. Billings by the Company to KSG for the years ended June 30, 1996 and
1997 and the six months ended December 31, 1997 for insurance, supplies,
equipment and management fees totaled approximately $128,178, $199,000 and
$75,000, respectively. At June 30, 1995, 1996 and 1997, $22,849, $73,234 and
$67,074, respectively, is included on the accompanying balance sheet as account
receivable-affiliate which is due from KSG.
Pertinent financial data (unaudited) of KSG, for the years ended June 30,
1995, 1996 and 1997 and the six months ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS
---------------------------------------- ENDED
1995 1996 1997 DECEMBER 31, 1997
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Total assets at period end................ $ 1,095,449 $ 1,248,217 $ 1,812,491 $ --
------------ ------------ ------------ -----------------
------------ ------------ ------------ -----------------
Stockholders' equity at period end........ $ 646,053 $ 594,307 $ 869,745 $ --
------------ ------------ ------------ -----------------
------------ ------------ ------------ -----------------
Revenues.................................. $ 2,999,745 $ 2,912,637 $ 4,121,335 $ 1,206,966
------------ ------------ ------------ -----------------
------------ ------------ ------------ -----------------
Net earnings (loss)....................... $ 211,660 $ (51,746) $ 159,115 $ 69,324
------------ ------------ ------------ -----------------
------------ ------------ ------------ -----------------
</TABLE>
F-38
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(4) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND NET OF THE END OF
PERIOD EXPENSES RECOVERIES PERIOD
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended June 30, 1995............................. $ 85,000 $ 29,510 $ (86,529) $ 27,981
Year ended June 30, 1996............................. 27,981 46,532 -- 74,513
Year ended June 30, 1997............................. 74,513 26,423 -- 100,936
Six months ended December 31, 1997................... 100,936 39,677 -- 140,613
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30, 1996 and 1997 and December 31,
1997 was as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1996 1997 1997
------------ ------------- -------------
<S> <C> <C> <C>
Assets:
Land..................................................... $ 41,046 $ 41,046 $ 41,046
Equipment for rent/lease................................. 6,355,557 9,743,043 12,003,374
Building and improvements................................ 456,355 767,327 796,198
Computer, office and test equipment...................... 889,326 1,919,700 2,321,238
Vehicles................................................. 475,353 570,716 516,693
Furniture and fixtures................................... 167,901 304,116 335,054
Construction in process.................................. -- 935,234 4,373,499
------------ ------------- -------------
8,385,538 14,281,182 20,387,102
Accumulated depreciation and amortization:
Equipment for rent/lease................................. 3,316,813 4,285,492 4,989,079
Building and improvements................................ 144,548 170,631 187,598
Computer, office and test equipment...................... 100,283 268,159 396,380
Vehicles................................................. 234,601 306,219 310,635
Furniture and fixtures................................... 98,618 134,328 155,340
------------ ------------- -------------
3,894,863 5,164,829 6,039,032
------------ ------------- -------------
Net property, plant and equipment.......................... $ 4,490,675 $ 9,116,353 $ 14,348,070
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
(6) SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: provision of advanced
communication solutions. The Company markets and sells its products and services
in the United States and in foreign countries through its direct sales
organization.
The following table presents information about the Company by geographic
area. Export sales and certain income and expense items are reported in the
geographic area where the transaction originates. Substantially all identifiable
assets of the Company are held in the United States.
F-39
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(6) SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
All significant transactions and agreements of the Company are conducted in
U.S. dollars; therefore, no foreign currency translation gains or losses are
included in the accompanying financial statements.
<TABLE>
<CAPTION>
NORTH
AMERICA RUSSIA OTHER TOTAL
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
For the year ended June 30,
1995:
Revenues............................................................ $ 11,956 $ 3,262 $ 576 $ 15,794
Operating income (loss)............................................. 520 190 225 935
Identifiable assets................................................. 8,232 -- -- 8,232
1996:
Revenues............................................................ 25,306 2,281 209 27,796
Operating income (loss)............................................. 908 436 (66) 1,278
Identifiable assets................................................. 12,409 -- -- 12,409
1997:
Revenues............................................................ 27,457 2,323 562 30,342
Operating income (loss)............................................. 578 555 224 1,357
Identifiable assets................................................. 26,062 -- -- 26,062
For the six months ended December 31, 1997:
Revenues.............................................................. 9,701 780 1,482 11,963
Operating income (loss)............................................... 397 123 274 794
Identifiable Assets................................................... 26,284 -- -- 26,284
</TABLE>
(7) NOTES PAYABLE AND FINANCING ARRANGEMENTS
Borrowing under the Company's credit facility and long-term notes payable
consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Borrowing under a revolving credit facility, bearing interest at LIBOR
plus 2.4% (8.12% at December 31, 1997), due in October 1998, secured
by specific underlying accounts receivable, equipment and inventory.
Maximum borrowings are $5,000,000 under the facility. The weighted
average interest rate was 8.12% for the six months ended December 31,
1997................................................................. $ -- $ -- $4,123,279
Borrowings under a revolving credit facility, bearing interest at prime
plus .75%. Facility was fully paid and closed in August 1997......... 1,426,598 4,521,024 --
Note payable to bank, principal and interest due monthly in the amount
of $25,707, interest at 30-day LIBOR plus 2.4% (8.12% at December 31,
1997), due in December 1999, secured by underlying lease equipment... -- -- 539,589
</TABLE>
F-40
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(7) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Note payable to bank, principal and interest due monthly in the amount
of $36,053, interest at 30-day LIBOR plus 2.4% (8.12% at December 31,
1997), due in May 2000, secured by underlying lease equipment........ -- -- 745,939
Note payable to bank, principal and interest due in the amount of
$46,939, interest at 8.5%, due in June 2000, secured by underlying
lease equipment...................................................... -- -- 987,000
Note payable to bank, varying principal and interest due monthly
($29,567 at December 31, 1997), interest at 30-day LIBOR plus 2.4%
(8.12% at December 31, 1997), due in September 2001, secured by
underlying lease equipment........................................... -- -- 989,062
Note payable to bank, principal and interest due monthly in the amount
of $22,500, interest at 9.0%, due in November 2001, secured by
specific underlying equipment........................................ -- 1,192,500 979,561
Note payable to financing company, principal and interest due monthly
in the amount of $9,200, interest at 6.75%, due in June 2007, secured
by specific underlying equipment..................................... -- 801,248 772,690
Note payable to bank, principal due monthly in the amount of $15,833,
plus interest at prime plus .75%. Note was fully paid in August
1997................................................................. 870,835 680,839 --
Note payable to bank, principal due monthly in the amount of $24,306,
plus interest at prime plus 1%. Note was fully paid in December
1997................................................................. 440,233 101,598 --
Note payable to leasing company, principal and interest due monthly in
the amount of $13,699, interest at 10.7%, due in February 1998,
secured by specific underlying equipment............................. 247,040 102,428 24,260
Note payable to mortgage company, varying principal and interest due
monthly ($1,955 at December 31, 1997), principal and interest
adjusted quarterly to prime plus 2.5% (11.0% at December 31, 1997),
due in April 2015, secured by specific underlying property........... 185,462 182,702 180,328
Note payable to leasing company, principal and interest due monthly in
the amount of $5,595, interest at 9%, due in December 1998, secured
by specific underlying equipment..................................... 149,963 94,069 64,214
Note payable to finance company, principal and interest due monthly in
the amount of $3,180, interest at 10.2%, due in February 2000,
secured by specific underlying equipment............................. 108,657 81,655 64,482
Note payable to bank, principal due monthly in the amount of 2.1% of
the amount outstanding plus interest at prime plus .75%. Note was
fully paid in August 1997............................................ 90,473 500,000 --
</TABLE>
F-41
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(7) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- DECEMBER 31,
1996 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
Note payable to bank, principal due monthly in the amount of $10,556
plus interest at prime plus 1%. Note was fully paid in February
1997................................................................. 84,444 -- --
Note payable to leasing company, principal and interest due monthly in
the amount of $4,831, interest at 10%. Note was fully paid in
December 1997........................................................ 84,210 32,272 --
Note payable to finance company, principal and interest due monthly in
the amount of $1,916, interest at 8.8%, due in June 1999, secured by
specific underlying equipment........................................ 56,203 37,258 27,168
Notes payable to individuals, who are employees and relatives of the
principal shareholder, principal and interest due monthly in the
amount of $4,296, interest rates ranging from 9%-12%, due in August
2001, unsecured...................................................... 54,818 43,693 39,460
Note payable to bank, principal and interest due monthly in the amount
of $8,959, interest at 6.98%. Note was fully paid in December 1996... 52,694 -- --
Note payable to benefit plan, principal and interest due monthly in the
amount of $5,500, interest at 10%. Note was fully paid in February
1997................................................................. 43,399 -- --
Notes payable to bank, principal and interest due monthly in the amount
of $1,090, interest at 8.5%, due in March 1998, secured by
vehicles............................................................. 19,735 7,885 2,113
Note payable to finance company, principal and interest due monthly in
the amount of $499, interest at 12.1%, due in June 1999, secured by
specific underlying equipment........................................ 14,777 10,652 8,213
Notes payable to finance company, principal and interest due monthly in
the amount of $3,520, interest at 8.5%, due in September 1999,
secured by specific underlying equipment............................. -- 83,589 65,706
Note payable to bank, principal and interest due monthly in the amount
of $1,220, interest at prime plus .75%. Note was fully paid in August
1997................................................................. -- 168,198 --
Other.................................................................. 12,200 14,317 10,313
------------ ------------ ------------
3,941,741 8,655,927 9,623,377
Less current portion................................................... 997,904 963,595 6,035,069
------------ ------------ ------------
Total long-term debt................................................. $ 2,943,837 $ 7,692,332 $3,588,308
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-42
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(7) NOTES PAYABLE AND FINANCING ARRANGEMENTS (CONTINUED)
The following is a summary of maturities of notes payable and financing
arrangements at December 31, 1997 during the next five years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------------------------------------------------------------------------------------
<S> <C>
1998...................................................................................... $ 6,035,069
1999...................................................................................... 1,766,429
2000...................................................................................... 722,406
2001...................................................................................... 431,754
2002...................................................................................... 84,610
Thereafter................................................................................ 583,109
------------
Total................................................................................... $ 9,623,377
------------
------------
</TABLE>
The Company's secured revolving line of credit allows the Company to borrow
up to a maximum of $5.0 million subject to a borrowing base based on accounts
receivable and inventory. The Company also has a secured guidance line of credit
that allows the Company to borrow up to $5.0 million to finance the Company's
purchase and subsequent lease of communication equipment. The interest rate on
both lines is at the Company's option, the lending bank's base rate or 30, 60 or
90 day adjusted LIBOR plus 2.4% (8.12% at December 31, 1997). The lines of
credit are secured by specific underlying accounts receivable, equipment and
inventory. The lines of credit provide for certain reporting and financial
covenants including minimum net worth and maximum debt to net worth
requirements. The Company was in violation of the financial covenant requiring
maintenance of a current ratio at December 31, 1997. The Company has obtained a
waiver of this covenant violation. The guidance line of credit is due on May 1,
1998. The Company had $5.0 million available under the guidance line of credit
at December 31, 1997.
Under the terms of the Company's revolving credit facility, the Company may
not pay dividends without prior consent of the lending bank.
The Company capitalized financing costs of $79,981 for the six months ended
December 31, 1997 and is amortizing such costs over the life of the respective
loan. These financing costs are included in other assets on the balance sheet.
Amortization expense for the six months ended December 31, 1997 amounted to
$38,651.
(8) INCOME TAXES
Income tax expense attributable to income consists of:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED
---------------------------------- DECEMBER 31,
1995 1996 1997 1997
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
United States Federal
Current income tax expense.................... $ 214,654 $ 175,404 $ 59,989 $ 115,080
Deferred income tax expense................... 78,903 (9,528) 81,607 65,181
Foreign--current income tax expense............. -- 149,832 141,410 84,239
---------- ---------- ---------- --------
$ 293,557 $ 315,708 $ 283,006 $ 264,500
---------- ---------- ---------- --------
---------- ---------- ---------- --------
</TABLE>
F-43
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(8) INCOME TAXES (CONTINUED)
Foreign income tax expense results from taxes withheld on sales related to
the Russian operations. Operating income from such operations for the years
ended June 30, 1995, 1996 and 1997 and the six months ended December 31, 1997
were $190,000, $436,000, $555,000 and $123,000, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1996 and 1997 and December 31, 1997 are presented below:
<TABLE>
<CAPTION>
JUNE 30
------------------------ DECEMBER 31,
1996 1997 1997
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts............ $ 25,335 $ 34,317 $ 47,808
Accrued vacation pay................................................... 30,497 27,200 27,200
Deferred revenue....................................................... 41,521 12,467 7,142
Alternative minimum tax credit carryforward............................ 74,918 105,267 116,958
Foreign tax credit..................................................... -- 63,066 25,600
Equity in losses of affiliates......................................... 8,796 -- --
----------- ----------- ------------
Total deferred tax assets............................................ 181,067 242,317 224,708
Deferred tax liabilities:
Property, plant and equipment.......................................... (250,442) (381,170) (440,871)
Equity in income of affiliates......................................... -- (12,130) --
----------- ----------- ------------
Total deferred tax liabilities....................................... (250,442) (393,300) (440,871)
----------- ----------- ------------
Net deferred tax liability........................................... $ (69,375) $ (150,983) $ (216,163)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
There was no valuation allowance on deferred tax assets as of June 30, 1996
and 1997 and December 31, 1997, as management has determined that it is more
likely than not that these tax assets will be realized.
The Company also has alternative minimum tax credit carryforwards of
$116,958 at December 31, 1997 which are available to reduce future federal
regular income taxes, if any, over an indefinite period.
F-44
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(8) INCOME TAXES (CONTINUED)
The difference between the actual income tax provision and the tax provision
computed by applying the statutory Federal income tax rate to income before
taxes is attributable to the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30 ENDED
---------------------------------- DECEMBER 31,
1995 1996 1997 1997
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Income tax provision at 34%.................................... $ 281,927 $ 356,789 $ 330,499 $ 235,582
Expenses not deductible for tax purposes....................... 11,630 11,990 6,463 16,547
Effect of foreign operations, including foreign tax credits.... -- (53,071) (53,956) (19,451)
Sale of KSG.................................................... -- -- -- 31,822
---------- ---------- ---------- ------------
Actual income tax provision.................................... $ 293,557 $ 315,708 $ 283,006 $ 264,500
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Effective tax rate............................................. 35.4% 30.1% 29.1% 38.6%
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
(9) EMPLOYEE BENEFITS
The Company has a 401(k) profit sharing plan covering employees with six or
more months of tenure. The plan allows employee contributions of zero to 15% of
applicable employee wages. The Company makes matching contributions to the plan
as a percentage of the employee's contribution. The Company's contribution is
subject to the employee meeting certain vesting requirements. The Company's net
contributions to the plan (after forfeitures) for the years ended June 30, 1995,
1996, and 1997 the six months ended December 31, 1997 were $23,367, $30,287,
$15,035 and $31,035, respectively.
(10) INCENTIVE STOCK OPTION PLANS
During the year ended June 30, 1996, the Company adopted an Employee
Incentive Stock Option Plan (the Plan). The Plan provides for the granting of a
maximum of 258,600 options to purchase shares of common stock to key employees
of the Company. The option price per share may not be less than the fair market
value of a share on the date the option is granted. Options generally vest at
the rate of 20% per year over a five year period, however, the Board at its
discretion may accelerate the vesting schedule. All options under the Plan
granted on or prior to the IPO date, June 12, 1997, vested in full on the
offering date. Stock options will expire ten years from the date of grant.
As of December 31, 1997, there were options for 146,695 shares granted under
the Plan with option prices ranging from $3.56 to $4.49. All options granted
were outstanding and exercisable at December 31, 1997. On December 31, 1997,
there were 111,905 additional shares available for grant under the plan.
The Company adopted a 1997 Stock Option Plan and a 1997 Director Stock
Option Plan in February 1997 (the Plans). Options granted under the 1997 Stock
Option Plan may be either Incentive Stock Options or non-statutory stock options
under the Code. Incentive Stock Options may be granted under the 1997 Stock
Option Plan to any person who is an officer or other employee of the Company or
any of its subsidiaries. The 1997 Director Stock Option Plan was adopted to
encourage ownership of the Company by eligible non-employee directors. All
options granted will be non-qualified and not eligible for treatment as
Incentive Stock Options under Section 422 of the Code. A total of 300,000 and
100,000 shares
F-45
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(10) INCENTIVE STOCK OPTION PLANS (CONTINUED)
of Common Stock have been reserved for issuance upon the exercise of options
which may be granted under the 1997 Stock Option Plan and the 1997 Director
Stock Opiton Plan, respectively.
As of December 31, 1997, there were options for 197,350 shares granted under
the 1997 Stock Option and 1997 Director Stock Option Plans with option prices
ranging from $6.00 to $9.50. All options granted were outstanding and none were
exercisable at December 31, 1997. On December 31, 1997, there were 202,650
additional shares available for grant under the Plans.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1997
---------------------------- ---------------------------- ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year............ -- $ -- 152,836 $ 3.59 310,514 $ 4.77
Options granted................ 152,836 3.59 157,678 5.91 47,750 6.16
Options exercised.............. -- -- -- -- (13,919) 3.56
Options forfeited.............. -- -- -- -- (300) 6.00
----------- ----- ----------- ----- ----------- -----
Options outstanding at end of
year......................... 152,836 $ 3.59 310,514 $ 4.77 344,045 $ 5.01
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
Options exercisable at end of
year......................... -- $ -- 160,614 $ 3.62 146,695 $ 3.63
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
</TABLE>
A summary of options outstanding as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE NUMBER OF
EXERCISE OPTIONS REMAINING CONTRACTUAL OPTIONS
PRICE OUTSTANDING LIFE EXERCISABLE
- ----------- ----------- ------------------------- -----------
<S> <C> <C> <C>
$3.56 136,140 8.0 136,140
4.49 10,555 8.4 10,555
6.00 186,600 9.5 --
6.25 5,000 9.7 --
6.75 5,000 9.8 --
9.50 750 9.8 --
--
----------- -----------
344,045 8.9 146,695
--
--
----------- -----------
----------- -----------
</TABLE>
The per share weighted-average value of stock options granted during the
years ended June 30, 1996 and 1997 and the six months ended December 31, 1996
(unaudited) and 1997 were $.24, $.35, $.79 and $2.61, respectively, on the date
of grant, using the Black Scholes model with the following assumptions:
risk-free interest rate of 5.77% for the 1996 options and 5.89% for the 1997
options, expected life of 2 to 3 years, expected volatility of 55%, and no
expected dividend yield.
F-46
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(10) INCENTIVE STOCK OPTION PLANS (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
JUNE 30 DECEMBER 31,
---------------------- ----------------------------
1996 1997 1997
--------- ----- 1996 -----
---------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income
As reported......................................... $ 734 689 260 421
Pro Forma........................................... $ 729 592 247 364
Earnings per share (diluted)
As reported......................................... $ .33 .30 .12 .11
Pro Forma........................................... $ .33 .25 .11 .09
</TABLE>
(11) LEASE CONTRACTS
The Company provides telecommunications services to various customers under
operating leases with typical terms of one to five years. The services may
include communications equipment, line/satellite charges and/or maintenance
charges. These leases impose certain obligations on both the lessor and lessee
which must be met during the term of the lease.
A significant portion of these services requires that the Company have
access to international communication satellites. The Company has contracted
with a Russian entity for rights to access its portion of an international
communications satellite. The Company has agreed to pay a recurring monthly fee
to the entity based on the amount of satellite space segment utilized by each
lessee. Additionally, the Company has sold communication equipment to the
entity. The Company utilizes those facilities to provide communication services
to various United States energy oil and gas companies and other customers doing
business in Russia.
The following is a summary of the expected revenue to be earned during the
next five years by the Company on lease agreements executed on or before
December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 3,821,383
1999............................................................................ 2,420,810
2000............................................................................ 2,033,177
2001............................................................................ 908,116
2002............................................................................ 247,552
Thereafter...................................................................... --
------------
Total......................................................................... $ 9,431,038
------------
------------
</TABLE>
F-47
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(12) COMMITMENTS
The Company leases office space, equipment and communication services for
its operations under leases expiring through 2005. Rental expense under the
leases for the years ended June 30, 1995, 1996 and 1997 and the six months ended
December 31, 1997 was $348,184, $555,033, $896,354 and $699,497, respectively.
Future minimum lease payments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 2,669,054
1999............................................................................ 1,772,903
2000............................................................................ 1,304,659
2001............................................................................ 1,116,553
2002............................................................................ 665,595
Thereafter...................................................................... 568,250
------------
Total......................................................................... $ 8,097,014
------------
------------
</TABLE>
(13) STOCKHOLDERS' EQUITY
(a) Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock which may be
issued by the Board of Directors in one or more series and the Board is
authorized to fix the designations, relative powers, preferences, rights,
qualifications, limitations and restrictions of all shares of each of such
series, including without limitation dividend rates, preemptive rights,
conversion rights, voting rights, redemption and sinking fund provisions,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the shareholders. The Company's Articles
of Incorporation grant the Board of Directors power to establish the rights,
preferences and privileges of authorized and unissued preferred stock. The
issuance of shares of preferred stock pursuant to the Board of Director's
authority described above could decrease the amount of earnings and assets
available for distribution to holders of common stock.
(b) Common Stock
The Company amended and restated its Articles of Incorporation in March,
1997 to restate the common stock authorized, issued and outstanding from no par
value to a $0.01 par value per common share. All share amounts have been
restated to reflect this amendment.
The Company completed an initial public offering (IPO) of common stock on
June 12, 1997, issuing 1,450,000 shares at $6.00 per share. The proceeds, net of
commissions and expenses, from this IPO totaled $6,996,505. In July 1997 the
Underwriters exercised an overallotment option and purchased an additional
62,496 shares resulting in net proceeds of $337,473.
F-48
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND SIX MONTHS ENDED DECEMBER 31, 1997
(13) STOCKHOLDERS' EQUITY (CONTINUED)
(c) Representative's Warrant
The Company agreed to sell to the Representative or its designees, for
nominal consideration, the Representative's Warrant to purchase up to 145,000
shares of Common Stock at an exercise price equal to 120% of the IPO price. The
Representative has certain demand and "piggy-back" registration rights that may
require the Company to register for resale the shares of Common Stock issuable
under the Representative's Warrant. The Representative's Warrant is exercisable
for a period of four years, beginning June 12, 1998.
(14) SUBSEQUENT EVENTS
The Company acquired Integrated Communications and Engineering Ltd. ("ICEL")
in January 1998 in a business combination accounted for under the purchase
method of accounting. The acquisition was for approximately $2.7 million which
consisted of IWL common stock and cash.
The Company announced in February 1998 that it had entered into a definitive
agreement to merge with CapRock Telecommunications Corp. (formerly CapRock
Communications Corp.) ("Telecommunications") and CapRock Fiber Network, Ltd.
("Partnership"). The merger is subject to, among other matters, approval by the
shareholders of the Company and Telecommunications.
F-49
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents........................................................... $3,345,312 $ 719,906
Accounts receivable:
Trade, less allowance for doubtful accounts of $140,613 and $157,293,
respectively..................................................................... 6,342,127 7,590,388
Affiliate......................................................................... 30,344 68,816
Other............................................................................. 239,298 395,996
Inventory........................................................................... 1,022,927 998,036
Deferred tax asset-current.......................................................... 107,750 242,317
Prepaid expenses and deposits....................................................... 447,067 924,068
------------ -----------
Total current assets............................................................ 11,534,825 10,939,527
------------ -----------
Property, plant and equipment......................................................... 20,387,102 23,243,370
Accumulated depreciation............................................................ (6,039,032) (6,573,100)
------------ -----------
Net property, plant and equipment............................................... 14,348,070 16,670,270
------------ -----------
Other assets.......................................................................... 400,681 2,223,752
------------ -----------
Total assets.................................................................... $26,283,576 $29,833,549
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable-current portion....................................................... $6,035,069 $ 6,354,081
Trade accounts payable and accrued expenses......................................... 3,626,519 3,974,432
Customer deposits................................................................... 171,972 360,347
Federal income taxes payable........................................................ 264,964 489,814
Deferred revenue-current portion.................................................... 14,667 15,549
Billings in excess of costs and estimated earnings on uncompleted contracts......... 92,022 143,592
------------ -----------
Total current liabilities....................................................... 10,205,213 11,337,815
------------ -----------
Notes payable, noncurrent portion..................................................... 3,588,308 3,947,862
Deferred revenue, noncurrent portion.................................................. -- --
Deferred income taxes................................................................. 323,913 413,071
------------ -----------
Total liabilities............................................................... 14,117,434 15,698,748
------------ -----------
Stockholders' equity:
Common stock, $.01 par value; 100,000,000 authorized, issued and outstanding
3,754,230 and 3,968,607 shares, respectively...................................... 37,542 39,686
Additional paid-in capital.......................................................... 7,601,589 9,172,572
Retained earnings................................................................... 4,527,011 4,917,597
Translation adjustment.............................................................. -- 4,946
------------ -----------
Total stockholders' equity...................................................... 12,166,142 14,134,801
------------ -----------
Commitment and contingencies
Total liabilities and stockholders' equity...................................... $26,283,576 $29,833,549
------------ -----------
------------ -----------
</TABLE>
See condensed notes to consolidated financial statements.
F-50
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
------------- ------------
<S> <C> <C>
Sales:
Telecommunication services......................................................... $ 2,297,732 $ 2,803,708
Project/other revenue.............................................................. 3,160,810 5,250,809
Product resales.................................................................... 2,506,455 --
------------- ------------
Total sales...................................................................... 7,964,997 8,054,517
Cost of sales (exclusive of items shown separately below)............................ 3,737,643 4,421,099
Cost of sales--product resales....................................................... 1,935,985 --
------------- ------------
Gross profit..................................................................... 2,291,369 3,633,418
Selling expenses..................................................................... 337,306 446,294
General and administrative expenses.................................................. 1,273,686 1,741,051
Depreciation and amortization........................................................ 347,185 647,330
------------- ------------
Income from operations............................................................... 333,192 798,743
------------- ------------
Other income and (expense):
Interest expense, net.............................................................. (124,655) (154,596)
Other, net......................................................................... 113,841 548
------------- ------------
Total other income (expense)......................................................... (10,814) (154,048)
------------- ------------
Income before income taxes........................................................... 322,378 644,695
Income tax expense................................................................... 94,531 254,109
------------- ------------
Net income........................................................................... $ 227,847 $ 390,586
------------- ------------
------------- ------------
Net income per share:
Basic.............................................................................. $ 0.10 $ 0.10
------------- ------------
------------- ------------
Diluted............................................................................ $ 0.10 $ 0.09
------------- ------------
------------- ------------
Weighted average shares outstanding:
Basic.............................................................................. 2,233,846 3,912,490
Diluted............................................................................ 2,297,526 4,198,922
</TABLE>
See condensed notes to consolidated financial statements.
F-51
<PAGE>
IWL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 227,947 $ 390,586
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization....................................................... 347,185 647,330
Gain from sale of assets............................................................ (46,551) (548)
Deferred income taxes............................................................... 23,434 (45,409)
Equity in (earnings) loss of unconsolidated subsidiary.............................. (67,318) --
Changes in operating assets and liabilities:
Accounts receivable................................................................. 559,479 (1,443,430)
Inventory........................................................................... (365,131) 24,891
Costs and estimated earnings in excess of billings.................................. (109,475) --
Prepaid expenses and deposits....................................................... (7,231) (477,001)
Other assets........................................................................ 84,516 128,695
Trade accounts payable and accrued expenses......................................... 358,734 347,912
Customer deposits................................................................... (11,960) 188,375
Deferred revenue.................................................................... (471,237) 882
Billings in excess of costs and estimated earnings.................................. (1,842) 51,570
Federal income taxes payable........................................................ (18,548) 224,850
------------- -------------
Net cash provided by operating activities........................................... 502,002 38,703
------------- -------------
Cash flows from investing activities:
Purchase of property, plant, and equipment.......................................... (1,049,749) (2,836,414)
Proceeds from disposal of property, plant, and equipment............................ 60,125 73,300
Purchase of ICEL.................................................................... -- (609,822)
Proceeds from sale of KSG........................................................... 191,906 --
------------- -------------
Net cash used in investing activities............................................... (797,718) (3,372,936)
------------- -------------
Cash flows from financing activities:
Proceeds from debt.................................................................. 786,703 4,277,227
Debt payments....................................................................... (297,510) (3,598,661)
Proceeds from issuance of common stock.............................................. -- 25,315
Deferred offering costs............................................................. (134,825) --
------------- -------------
Net cash provided by financing activities........................................... 354,368 703,881
------------- -------------
Effect of foreign exchange rate on cash............................................. -- 4,946
Net increase (decrease) in cash for period.......................................... 58,652 (2,625,406)
Cash and cash equivalents at beginning of period.................................... 281,482 3,345,312
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 340,134 $ 719,906
------------- -------------
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid during the year for interest.............................................. $ 130,323 $ 178,361
------------- -------------
------------- -------------
Cash paid during the year for income taxes.......................................... $ -- $ 30,000
------------- -------------
------------- -------------
</TABLE>
See condensed notes to consolidated financial statements.
F-52
<PAGE>
IWL COMMUNICATIONS INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
1. GENERAL
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements, and related notes thereto, of IWL
Communications Inc., included elsewhere herein. All references to the "Company"
include IWL Communications Inc. and its subsidiary companies unless otherwise
indicated or the context indicates otherwise.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at March 31, 1998 and
the consolidated results of operations and consolidated cash flows for the three
months ended March 31, 1997 and 1998. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), "Earnings Per Share". FAS 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earning per share
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the Statement 128
requirements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Numerator:
Net income (loss)..................................................................... 227,847 390,586
------------ ------------
------------ ------------
Denominator:
Denominator for basic earnings per share--weighted-average shares outstanding......... 2,233,846 3,912,490
Effect of dilutive securities:
Employee stock options................................................................ 63,680 286,432
------------ ------------
Denominator for diluted earnings per share............................................ 2,297,526 4,198,922
------------ ------------
------------ ------------
Basic earnings per share.............................................................. .10 .10
Diluted earnings per share............................................................ .10 .09
</TABLE>
3. ACQUISITIONS
In January 1998, the Company completed the acquisition of Integrated
Communications and Engineering, Ltd. ("ICEL"), a communications systems
integrator and maintenance provider in Aberdeen,
F-53
<PAGE>
Scotland. The Company paid a total purchase price of approximately $2.7 million
comprised of approximately $380,000 in cash and 207,266 shares of the Company's
common stock.
The acquisition was accounted for as a purchase and was effective as of
January 1, 1998, therefore, the statement of operations for the three months
ended March 31, 1998 reflects the operations of ICEL. The goodwill and other
intangibles resulting from the acquisition is being amortized over 7 and 20
years.
4. COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS No. 130"), Reporting Comprehensive Income, effective for fiscal
years beginning after December 15, 1997. SFAS No. 130 requires classification of
items of other comprehensive income by nature in a financial statement and a
breakout of the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity section of a
statement of financial position. Reporting comprehensive income provides a
measure of all changes in equity that result from recognized transactions and
other economic events of the period other than transactions with owners in their
capacity as owners. Adoption of this statement did not have a material effect on
the Company's consolidated financial position or results of operation because
there are no material differences between net income and comprehensive income in
the Company's circumstances.
5. NOTES PAYABLE
The Company was in violation of the financial covenant requiring maintenance
of a specified current ratio as of March 31, 1998 and December 31, 1997 and was
in technical default of a covenant requiring the lender's consent to the
Transaction and certain actions to be taken by the Company in connection
therewith. The Company has obtained a waiver for these covenant violations and
has obtained the lender's consent to the Transaction and the taking of such
actions by Telecommunications. On June 17, 1998, the Company was extended
additional credit under a short-term facility by the lender of up to $4.0
million. The short-term facility, the term loan, and all other amounts due to
the lender will mature on August 31, 1998.
6. SUBSEQUENT EVENT
On July 16, 1998, CapRock Communications Corp. (formerly IWL Holdings Corp.)
("Holdings"), Telecommunications and the Partnership (with IWL as a guarantor of
certain obligations with respect to the Notes) sold, through a private placement
under Rule 144A under the Securities Act, senior notes (the "Notes") in the
aggregate principal amount of $150.0 million. Holdings, Telecommunications and
the Partnership (with IWL as a guarantor) will be required to make an offer to
purchase the Notes at 101% of their principal amount, plus accrued and unpaid
interest to the date of repayment, in the event that the merger is not
consummated and certain other conditions are not satisfied by August 31, 1998.
In the event the merger is consummated by August 31, 1998, Telecommunications
and the Partnership will be released from the Notes (and IWL will be released
from its obligations under such offer to purchase), and Holdings will be the
sole obligor thereunder.
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder of
CapRock Communications Corp.
(formerly IWL Holdings Corporation)
We have audited the accompanying balance sheet of CapRock Communications
Corp. (formerly IWL Holdings Corporation) (a Texas corporation) as of March 31,
1998. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit 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 of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the CapRock Communications Corp.
(formerly IWL Holdings Corporation) as of March 31, 1998, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
June 18, 1998, except as to note 2,
which is as of July 16, 1998
F-55
<PAGE>
CAPROCK COMMUNICATIONS CORP.
(FORMERLY IWL HOLDINGS CORPORATION)
BALANCE SHEET
MARCH 31, 1998
ASSETS
<TABLE>
<S> <C>
Due from IWL Communications, Inc.................................................... $ 2,000
---------
---------
SHAREHOLDER'S EQUITY
Preferred stock--$.01 par value; 20,000,000 shares authorized, none issued.......... $ --
Common stock--$.01 par value; 200,000,000 shares authorized, 1,000 shares issued and
outstanding....................................................................... 10
Additional paid-in capital.......................................................... 1,990
---------
Total shareholder's equity........................................................ $ 2,000
---------
---------
</TABLE>
See accompanying notes to balance sheet.
F-56
<PAGE>
CAPROCK COMMUNICATIONS CORP.
(FORMERLY IWL HOLDINGS CORPORATION)
NOTES TO BALANCE SHEET
MARCH 31, 1998
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
CapRock Communications Corp. (formerly IWL Holdings Corporation) (the
"Company") was incorporated as a Texas corporation on February 3, 1998, to serve
as a holding company for the operations of CapRock Telecommunications Corp.
(formerly CapRock Communications Corp.) ("Telecommunications"), CapRock Fiber
Network, Ltd. ("Partnership") and IWL Communications, Inc. ("IWL") after
completion of their merger in conformance with the provisions of their Agreement
and Plan of Merger dated February 16, 1998.
Effective February 3, 1998, IWL Communications, Inc. purchased 2,000 shares
of the common stock of the Company for an aggregate purchase price of $2,000,
for the purpose of completing the organization of the Company. On June 2, 1998,
the Company committed to purchase (i) from IWL Acquisition Corp., a Texas
corporation, 1,000 shares of the common stock, par value $.01 per share of IWL
Acquisition Corp. for an aggregate purchase price of $1,000 and (ii) from
CapRock Acquisition Corp., a Delaware corporation, 1,000 shares of the common
stock, par value $.01 per share of CapRock Acquisition Corp., Inc., for an
aggregate purchase price of $1,000.
The Company's original stock issuance consisted of 1,000 shares of $.01 par
value common stock. The amount of shares authorized were 100,000,000. On June
18, 1998, the Company amended the Articles of Incorporation to adjust the number
of authorized shares from 100,000,000 shares to 200,000,000 shares. On June 3,
1998, IWL Communications, Inc. funded the initial capital contribution of
$2,000.
The accompanying balance sheet presents the financial position of the
Company as of March 31, 1998. The Company has not commenced operations and does
not have any contingent liabilities or commitments, other than its commitments
to enter into the transactions related to the mergers described above.
(2) SUBSEQUENT EVENT
On July 16, 1998, the Company, Telecommunications and the Partnership (with
IWL as a guarantor of certain obligations with respect to the notes) sold,
through a private placement under Rule 144A under the Securities Act, senior
notes (the "Notes") in the aggregate principal amount of $150.0 million. The
Company, Telecommunications and the Partnership (with IWL as guarantor) will be
required to make an offer to purchase the Notes at 101% of their principal
amount, plus accrued and unpaid interest to the date of repayment, in the event
that the merger is not consummated and certain other conditions are not
satisfied by August 31, 1998. In the event the merger is consummated by August
31, 1998, Telecommunications and the Partnership will be released from the Notes
(and IWL will be released from its obligations under such offer to purchase) and
the Company will be the sole obligor thereunder.
F-57
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX I
AGREEMENT AND PLAN OF MERGER
AND PLAN OF EXCHANGE
AMONG
IWL HOLDINGS CORP.,
IWL COMMUNICATIONS, INCORPORATED,
IWL ACQUISITION CORP.,
CAPROCK COMMUNICATIONS CORP.,
CAPROCK ACQUISITION CORP.
AND
CAPROCK FIBER NETWORK, LTD.
FEBRUARY 16, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I--THE MERGERS AND THE INTEREST EXCHANGE......................................................... 2
1.1 The Mergers and the Interest Exchange........................................................ 2
1.2 Effective Time............................................................................... 2
1.3 Effect of the Mergers and the Interest Exchange.............................................. 3
1.4 Articles of Incorporation: Bylaws............................................................ 3
1.5 Directors and Officers....................................................................... 3
1.6 Shares to Be Issued in the Mergers and the Interest Exchange; Effect on Capital Stock........ 3
1.7 Dissenters' Shares........................................................................... 7
1.8 No Further Ownership Rights in IWL Common Stock, Company Common Stock and Partnership
Interests.................................................................................... 7
1.9 Tax Consequences and Accounting Treatment.................................................... 7
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ 8
2.1 Organization and Qualification, Subsidiaries................................................. 8
2.2 Articles of Incorporation and Bylaws......................................................... 8
2.3 Capitalization............................................................................... 8
2.4 Authority.................................................................................... 9
2.5 Company Financial Statements................................................................. 10
2.6 No Undisclosed Liabilities................................................................... 10
2.7 No Changes................................................................................... 10
2.8 Tax and Other Returns and Reports............................................................ 11
2.9 Restrictions on Business Activities.......................................................... 12
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment............... 12
2.11 Intellectual Property........................................................................ 13
2.12 Agreements, Contracts and Commitments........................................................ 14
2.13 Interested Party Transactions................................................................ 16
2.14 Governmental Authorizations.................................................................. 16
2.15 Litigation................................................................................... 16
2.16 Accounts Receivable.......................................................................... 16
2.17 Minute Books and Stock Records............................................................... 16
2.18 Environmental and OSHA....................................................................... 17
2.19 Brokers' and Finders' Fees................................................................... 17
2.20 Labor Matters................................................................................ 18
2.21 Insurance.................................................................................... 18
2.22 Inventory.................................................................................... 18
2.23 Compliance with Laws......................................................................... 18
2.24 Registration Statement; Joint Proxy Statement................................................ 19
2.25 Accounting Matters........................................................................... 19
2.26 FIRPTA....................................................................................... 19
2.27 Employee Benefit Plans....................................................................... 19
2.28 Ownership of Securities...................................................................... 21
2.29 Certain Regulatory Matters................................................................... 21
2.30 Representations Complete..................................................................... 22
ARTICLE IIA--REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP........................................... 22
2A.1 Organization and Qualification, Subsidiaries................................................. 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
2A.2 Agreement of Limited Partnership............................................................. 22
2A.3 Partnership Interests........................................................................ 22
2A.4 Authority.................................................................................... 23
2A.5 Partnership Financial Statements............................................................. 23
2A.6 No Undisclosed Liabilities................................................................... 23
2A.7 No Changes................................................................................... 23
2A.8 Tax and Other Partnership Returns and Reports................................................ 24
2A.9 Restrictions on Business Activities.......................................................... 25
2A.10 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment............... 25
2A.11 Intellectual Property........................................................................ 26
2A.12 Agreements, Contracts and Commitments........................................................ 27
2A.13 Interested Party Transactions................................................................ 28
2A.14 Governmental Authorizations.................................................................. 29
2A.15 Litigation................................................................................... 29
2A.16 Accounts Receivable.......................................................................... 29
2A.17 Environmental and OSHA....................................................................... 29
2A.18 Brokers' and Finders' Fees................................................................... 30
2A.19 Labor Matters................................................................................ 30
2A.20 Insurance.................................................................................... 30
2A.21 Inventory.................................................................................... 31
2A.22 Compliance with Laws......................................................................... 31
2A.23 Registration Statement; Joint Proxy Statement................................................ 31
2A.24 Accounting Matters........................................................................... 32
2A.25 FIRPTA....................................................................................... 32
2A.26 Employee Benefit Plans....................................................................... 32
2A.27 Ownership of Securities...................................................................... 33
2A.28 Certain Regulatory Matters................................................................... 33
2A.29 Representations Complete..................................................................... 34
ARTICLE III-- REPRESENTATIONS AND WARRANTIES OF IWL AND THE MERGER SUBSIDIARIES..........................
34
3.1 Organization, Standing and Power............................................................. 34
3.2 Capital Structure............................................................................ 34
3.3 Authority.................................................................................... 36
3.4 SEC Documents; IWL Financial Statements...................................................... 36
3.5 Brokers and Finders' Fees.................................................................... 37
3.6 Registration Statement; Joint Proxy Statement................................................ 37
3.7 Opinion of Financial Advisor................................................................. 37
3.8 Ownership of Securities...................................................................... 37
3.9 Litigation................................................................................... 37
3.10 No Undisclosed Liabilities................................................................... 37
3.11 No Changes................................................................................... 37
3.12 Tax and Other Returns and Reports............................................................ 38
3.13 Restrictions on Business Activities.......................................................... 39
3.14 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment............... 39
3.15 Intellectual Property........................................................................ 40
3.16 Agreements, Contracts and Commitments........................................................ 41
3.17 Governmental Authorizations.................................................................. 42
3.18 Accounts Receivable.......................................................................... 42
3.19 Minute Books and Stock Records............................................................... 43
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
3.20 Labor Matters................................................................................ 43
3.21 Insurance.................................................................................... 43
3.22 Inventory.................................................................................... 43
3.23 Compliance with Laws......................................................................... 43
3.24 FIRPTA....................................................................................... 44
3.25 Employee Benefit Plans....................................................................... 44
3.26 Certain Regulatory Matters................................................................... 45
3.27 Accounting Matters........................................................................... 46
3.28 Interested Party Transactions................................................................ 46
3.29 Environmental and OSHA....................................................................... 46
3.30 Representations Complete..................................................................... 47
3.31 Representations and Warranties with Respect to ICEL.......................................... 47
ARTICLE IV--CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................... 47
4.1 Conduct of Business of the Company and the Partnership....................................... 47
4.2 No Solicitation.............................................................................. 49
4.3 Conduct of Business of IWL................................................................... 49
4.4 Control of Other Party's Business; Transition Planning....................................... 51
ARTICLE V--ADDITIONAL AGREEMENTS......................................................................... 51
5.1 Joint Proxy Statement and the Registration Statement......................................... 51
5.2 IWL and Company Shareholders' Meetings, Partners' Meeting, and Consummation of the Mergers
and the Interest Exchange.................................................................... 52
5.3 Access to Information........................................................................ 53
5.4 Confidentiality.............................................................................. 53
5.5 Expenses..................................................................................... 53
5.6 Public Disclosure............................................................................ 53
5.7 Filings; Other Action........................................................................ 54
5.8 Affiliate Agreement.......................................................................... 54
5.9 Compliance................................................................................... 54
5.10 Blue Sky Laws................................................................................ 54
5.11 Best Efforts, Additional Documents and Further Assurances.................................... 54
5.12 Employment Agreements........................................................................ 55
5.13 Pooling Accounting........................................................................... 55
5.14 Nasdaq Listing............................................................................... 55
5.15 Post-Merger Board of Directors and Officers of Holdings...................................... 55
5.16 No Registration Rights....................................................................... 55
5.17 Notification of Certain Matters.............................................................. 55
ARTICLE VI--CONDITIONS TO THE MERGERS AND THE INTEREST EXCHANGE.......................................... 56
6.1 Conditions to Obligations of Each Party to Effect the Mergers and the Interest Exchange...... 56
6.2 Additional Conditions to Obligations of the Company and the Partnership...................... 57
6.3 Additional Conditions to the Obligations of IWL and the Merger Subsidiaries.................. 58
ARTICLE VII--TERMINATION, AMENDMENT AND WAIVER........................................................... 60
7.1 Termination.................................................................................. 60
7.2 Effect of Termination........................................................................ 62
7.3 Amendment.................................................................................... 62
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
7.4 Waiver....................................................................................... 62
ARTICLE VIII--GENERAL PROVISIONS......................................................................... 63
8.1 Survival of Representations and Warranties................................................... 63
8.2 Notices...................................................................................... 63
8.3 Interpretation............................................................................... 64
8.4 Counterparts................................................................................. 64
8.5 Miscellaneous................................................................................ 64
8.6 Governing Law................................................................................ 64
8.7 Attorneys' Fees.............................................................................. 64
8.8 Arbitration.................................................................................. 64
8.9 Rules of Construction........................................................................ 64
8.10 Severability................................................................................. 64
8.11 Definitions.................................................................................. 65
</TABLE>
iv
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit
1.6(a) Company Merger Consideration and Interest Exchange Consideration
Exhibit 5.12 Form of Employment Agreement
</TABLE>
LIST OF SCHEDULES
Company Disclosure Schedule
Partnership Disclosure Schedule
IWL Disclosure Schedule
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF MERGER AND PLAN OF EXCHANGE (this "Agreement") is
made and entered into as of February 16, 1998, among IWL Communications,
Incorporated, a Texas corporation ("IWL"), IWL Holdings Corp., a Texas
corporation ("Holdings"), IWL Acquisition Corp., a Texas corporation ("I-Sub")
and a wholly owned subsidiary of Holdings, CapRock Communications Corp., a Texas
corporation (the "Company"), CapRock Acquisition Corp., a Texas corporation
("C-Sub") and a wholly owned subsidiary of Holdings, and CapRock Fiber Network,
Ltd., a Texas limited partnership (the "Partnership").
RECITALS
A. The Boards of Directors of each of Holdings, the Company, IWL, I-Sub,
C-Sub and CapRock Systems, Inc., the general partner of the Partnership (the
"General Partner"), believe it is in the best interests of each company, the
Partnership and their respective shareholders and partners, as the case may be,
that (a) IWL and I-Sub combine into a single company through the statutory
merger of I-Sub with and into IWL (the "IWL Merger"), (b) that the Company and
C-Sub combine into a single company through the statutory merger of C-Sub with
and into the Company (the "Company Merger" and, together with the IWL Merger,
the "Mergers"), and (c) upon consummation of the Mergers, all of the general and
limited partnership interests (collectively, the "Partnership Interests") in the
Partnership be exchanged (the "Interest Exchange") for shares of the common
stock, par value $.01 per share, of Holdings (the "Holdings Common Stock") in
the manner and order as hereinafter set forth, and, in furtherance thereof, have
approved and adopted the Mergers, the Interest Exchange and this Agreement.
B. Pursuant to the Mergers and the Interest Exchange, among other things,
the outstanding shares of IWL Common Stock (as hereinafter defined) and Company
Common Stock (as hereinafter defined) shall be converted into shares of Holdings
Common Stock and the outstanding Partnership Interests shall be exchanged for
shares of Holdings Common Stock, all at the rates determined herein.
C. Holdings, IWL, the Company, the Partnership, I-Sub and C-Sub desire to
make certain representations and warranties and other agreements in connection
with the Mergers and the Interest Exchange.
D. IWL is unwilling to enter into this Agreement (and effect the
transactions contemplated hereby) unless, contemporaneously with the execution
and delivery hereof, (a) certain record and beneficial holders of shares of
Company Common Stock and the Partners (as hereinafter defined) enter into an
agreement (the "Owners Agreement") providing for certain matters with respect to
their shares of Company Common Stock or their Partnership Interests, as the case
may be (including, without limitation, subject to the express provisions and
conditions of that agreement, to vote such shares or Partnership Interests, as
the case may be, in favor of the Company Merger and the Interest Exchange) and
(b) certain members of the Company's management enter into employment agreements
as provided in Section 5.12 hereof.
E. The Company and the Partnership are unwilling to enter into this
Agreement (and effect the transactions contemplated hereby) unless,
contemporaneously with the execution and delivery hereof, (a) certain record and
beneficial holders of shares of IWL Common Stock enter into an agreement (the
"IWL Shareholders Agreement") providing for certain matters with respect to
their shares of IWL Common Stock (including, without limitation, subject to the
express provisions and conditions of that agreement, to vote such shares in
favor of the IWL Merger) and (b) certain members of IWL's management enter into
employment agreements as provided in Section 5.12 hereof.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
G. The parties intend that the Mergers and the Interest Exchange be treated
as a pooling of interests for accounting purposes.
<PAGE>
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGERS AND THE INTEREST EXCHANGE
1.1 THE MERGERS AND THE INTEREST EXCHANGE. At the Effective Time (as
defined in Section 1.2) and subject to and upon the terms and conditions of this
Agreement and the applicable laws of Texas,
(a) C-Sub shall be merged with and into the Company in the Company Merger, the
separate corporate existence of C-Sub shall cease, and the Company shall
continue as the surviving corporation in the Company Merger, (b) I-Sub shall be
merged with and into IWL in the IWL Merger, the separate corporate existence of
I-Sub shall cease, and IWL shall continue as the surviving corporation in the
IWL Merger, and (c) all of the outstanding Partnership Interests of the
Partnership shall be contributed to Holdings pursuant to, and in the order
contemplated by, the Interest Exchange. The Company and IWL as the surviving
corporations after the Mergers are hereinafter sometimes collectively referred
to as the "Surviving Corporations" and individually as a "Surviving
Corporation."
1.2 EFFECTIVE TIME.
(a) As promptly as practicable after the satisfaction or waiver of the
conditions set forth in Article VI and the consummation of the Closing referred
to in this Section 1.2, the parties hereto shall cause the Company Merger and
the IWL Merger to be consummated by filing Articles of Merger ("Articles of
Merger") with the Secretary of State of Texas in such form as required by, and
executed in accordance with the relevant provisions of, the laws of the State of
Texas (the time of such filings in Texas and the issuance of a certificate of
merger with respect to each of the Company Merger and the IWL Merger by the
Secretary of State of Texas being the "Effective Time").
(b) At the Effective Time, the General Partner shall execute and deliver to
Holdings a contribution agreement substantially in the form agreed upon by the
parties hereto (a "Contribution Agreement") pursuant to which the General
Partner shall contribute its general Partnership Interest in the Partnership to
Holdings. Immediately thereafter, Holdings shall contribute the general
Partnership Interest in the Partnership to the Company. Immediately following
the consummation of the contribution of the general Partnership Interest to the
Company and at the Effective Date, each of the limited partners in the
Partnership (the "Limited Partners" and, collectively with the General Partner,
the "Partners") shall execute and deliver to Holdings a Contribution Agreement
pursuant to which the Limited Partners shall contribute their respective limited
Partnership Interests in the Partnership to Holdings. The Partnership shall file
a certificate of amendment to its certificate of limited partnership to reflect
that the Company has become the new general partner of the Partnership and that
the General Partner is the withdrawing general partner. The Partnership and the
General Partner hereby consent to (and each Contribution Agreement delivered
hereunder by a Limited Partner shall include such Limited Partner's consent to)
the transfers of the Partnership Interests contemplated by this Agreement and
hereby agree (and each Contribution Agreement delivered hereunder by a Limited
Partner shall include such Limited Partner's agreement) that, effective at the
Effective Time and subject to the consummation of the transactions contemplated
hereby, Holdings shall become a substituted limited partner in the Partnership
and the Company shall become a substituted general partner in the Partnership
and the status of the Partners as partners in the Partnership shall cease. The
Company hereby elects, effective as of the Effective Time and subject to the
consummation of the transactions contemplated hereby, to reconstitute the
Partnership, to continue as the general partner of the Partnership and to
continue the Partnership and its business.
(c) The closing of the transactions contemplated hereby (the "Closing")
shall take place at the offices of Munsch Hardt Kopf Harr & Dinan, P.C., 4000
Fountain Place, 1445 Ross Avenue, Dallas, Texas 75202 at 10:00 a.m., local time,
on the date of the Effective Time (the "Closing Date").
2
<PAGE>
1.3 EFFECT OF THE MERGERS AND THE INTEREST EXCHANGE.
(a) At the Effective Time, the effect of the Mergers shall be as provided
in the applicable provisions of the laws of the State of Texas. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time (a)
all the estate, assets, property, rights, privileges, powers and franchises of
the Company and C-Sub shall vest in the Company as the Surviving Corporation,
and all debts, liabilities and obligations of the Company and C-Sub shall become
the debts, liabilities and obligations of the Company as the Surviving
Corporation and (b) all of the estate, assets, property, rights, privileges,
powers and franchises of IWL and I-Sub shall vest in IWL as the Surviving
Corporation, and all debts, liabilities and obligations of IWL and I-Sub shall
become the debts, liabilities and obligations of IWL as the Surviving
Corporation. After the consummation of the Mergers, each of the Surviving
Corporations shall be a direct, wholly owned subsidiary of Holdings.
(b) At the Effective Time, the Company shall become the sole successor
general partner of the Partnership and Holdings shall become the sole successor
limited partner of the Partnership.
1.4 ARTICLES OF INCORPORATION: BYLAWS.
(a) The Articles of Merger as to both of the Company Merger and the IWL
Merger shall be in substantially the form agreed upon by the parties hereto, and
shall provide that at the Effective Time as to the Company Merger and the IWL
Merger, as the case may be, the Articles of Incorporation of the Surviving
Corporation shall be amended as therein provided, and may thereafter be amended
as provided by law and such Articles of Incorporation.
(b) The Bylaws of the Company and IWL as in effect immediately prior to the
Effective Time as to the Company Merger and the IWL Merger, respectively, shall
be the Bylaws of the Company and IWL, respectively, each as a Surviving
Corporation, until thereafter amended.
1.5 DIRECTORS AND OFFICERS. The directors of each Surviving Corporation
shall be Ignatius W. Leonards, Jere W. Thompson, Jr. and Tim Rogers, each to
hold such position in accordance with the Articles of Incorporation and Bylaws
of such Surviving Corporation, and the officers of each Surviving Corporation
shall be Jere W. Thompson, Jr., who shall hold the office of Chief Executive
Officer, Ignatius W. Leonards, who shall hold the office of President, and Tim
Rogers, who shall hold the offices of Vice President, Treasurer and Secretary,
in each case until their respective successors are duly elected or appointed and
qualified.
1.6 SHARES TO BE ISSUED IN THE MERGERS AND THE INTEREST EXCHANGE; EFFECT ON
CAPITAL STOCK. The manner and basis of converting the shares of common stock of
Holdings, the Surviving Corporations and I-Sub and C-Sub (collectively, the
"Merged Corporations" and individually a "Merged Corporation"), and of
exchanging the Partnership Interests, at the Effective Time by virtue of the
Mergers and the Interest Exchange and without any action on the part of any of
the parties hereto or the holder of any of such securities, shall be as
hereinafter set forth in this Section 1.6.
(a) CONVERSION OF SHARES AND EXCHANGE OF PARTNERSHIP INTERESTS.
(i) Each share of the common stock, par value $.01 per share (the "IWL
Common Stock"), of IWL issued and outstanding immediately before the
Effective Time (other than those held in the treasury of IWL) and all rights
in respect thereof shall at the Effective Time, without any action on the
part of any holder thereof, forthwith cease to exist and be converted into
and become exchangeable for one share of Holdings Common Stock (the "IWL
Merger Consideration," and such ratio of IWL Common Stock to Holdings Common
Stock being herein referred to as the "IWL Exchange Ratio").
(ii) Each share of the common stock, par value $.01 per share (the
"Company Common Stock"), of the Company issued and outstanding immediately
before the Effective Time (other than those held in the treasury of the
Company and any Dissenters' Shares (as defined and to the extent provided in
Section 1.7(a)) and all rights in respect thereof shall at the Effective
Time, without any
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action on the part of any holder thereof, forthwith cease to exist and be
converted into and become exchangeable for that number of shares of Holdings
Common Stock set forth in Exhibit 1.6(a) attached hereto (the "Company
Merger Consideration," and such ratio of the Company Common Stock to
Holdings Common Stock being herein referred to as the "Company Exchange
Ratio") (the IWL Exchange Ratio and the Company Exchange Ratio being
referred to herein collectively as the "Exchange Ratios").
(iii) Commencing immediately after the Effective Time, each certificate
which, immediately prior to the Effective Time, represented issued and
outstanding shares of IWL Common Stock or Company Common Stock shall
evidence the right to receive the IWL Merger Consideration or the Company
Merger Consideration, as the case may be, on the basis hereinbefore set
forth, but subject to the limitations set forth in this Section 1.6.
(iv) Each one percent (1%) of the Partnership Interests issued and
outstanding immediately before the Effective Time and all rights in respect
thereof shall at the Effective Time, without any action on the part of the
holder thereof (other than the execution and delivery by the holder thereof
of a Contribution Agreement with respect thereto), forthwith be exchanged
for that number of shares of Holdings Common Stock set forth in Exhibit
1.6(a) attached hereto (the "Interest Exchange Consideration").
(b) CANCELLATION OF TREASURY SHARES AND OF OUTSTANDING HOLDINGS COMMON
STOCK.
(i) At the Effective Time, each share of IWL Common Stock held in the
treasury of IWL immediately prior to the Effective Time, and each share of
Company Common Stock held in the treasury of the Company immediately prior
to the Effective Time, shall be canceled and retired and no shares of stock
or other securities of Holdings or either of the Surviving Corporations
shall be issuable, and no payment shall be made or other consideration shall
be given, with respect thereto.
(ii) At the Effective Time, the shares of Holdings Common Stock held by
IWL shall be canceled and retired and no shares of stock or other securities
of Holdings or any other corporation shall be issuable, and no payment or
other consideration shall be made, with respect thereto.
(c) CONVERSION OF COMMON STOCK OF THE MERGED CORPORATIONS INTO COMMON STOCK
OF THE SURVIVING CORPORATIONS.
(i) At the Effective Time, each share of the common stock of I-Sub
issued and outstanding immediately prior to the Effective Time and all
rights in respect thereof shall, without any action on the part of Holdings,
forthwith cease to exist and be converted into 1,000 validly issued, fully
paid and nonassessable shares of IWL Common Stock, with IWL being one of the
Surviving Corporations. Immediately after the Effective Time and upon
surrender by Holdings of the certificate representing the shares of the
common stock of I-Sub, IWL as one of the Surviving Corporations shall
deliver to Holdings an appropriate certificate or certificates representing
1,000 shares of IWL Common Stock created by conversion of the common stock
of I-Sub owned by Holdings as aforesaid.
(ii) At the Effective Time, each share of the common stock of C-Sub
issued and outstanding immediately prior to the Effective Time and all
rights in respect thereof shall, without any action on the part of Holdings,
forthwith cease to exist and be converted into 1,000 validly issued, fully
paid and nonassessable shares of Company Common Stock, with the Company
being one of the Surviving Corporations. Immediately after the Effective
Time and upon surrender by Holdings of the certificate representing the
shares of the common stock of C-Sub, the Company as one of the Surviving
Corporations shall deliver to Holdings an appropriate certificate or
certificates representing 1,000 shares of Company Common Stock created by
conversion of the common stock of C-Sub owned by Holdings as aforesaid.
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(d) EXCHANGE OF SHARES OTHER THAN TREASURY SHARES. Subject to the terms
and conditions hereof, at or prior to the Effective Time, Holdings shall appoint
an exchange agent to effect the exchange of shares of IWL Common Stock and
Company Common Stock (collectively, the "Shares") and the Partnership Interests
for Holdings Common Stock in accordance with the provisions of this Section 1.6
(the "Exchange Agent"). Upon the Effective Time, Holdings shall deposit, or
cause to be deposited, certificates representing Holdings Common Stock into
which the Shares have been converted in accordance with the provisions of
Section 1.6(a) hereof (such certificates, together with any dividends or
distributions with respect thereto, being herein referred to collectively as the
"Exchange Fund"). Commencing immediately after the Effective Time and until the
appointment of the Exchange Agent shall be terminated, each holder of a
certificate or certificates theretofore representing Shares may surrender the
same to the Exchange Agent, and, after the appointment of the Exchange Agent
shall be terminated, any such holder may surrender any such certificate to
Holdings. Such holder shall be entitled upon such surrender to receive in
exchange therefor a certificate or certificates representing the number of full
shares of Holdings Common Stock into which the Shares theretofore represented by
the certificate or certificates so surrendered shall have been converted in
accordance with the provisions of Section 1.6(a) hereof. All such shares of
Holdings Common Stock issued in accordance with the immediately preceding
sentence shall be deemed to have been issued at the Effective Time. Until so
surrendered and exchanged, each outstanding certificate which, prior to the
Effective Time, represented issued and outstanding Shares shall be deemed for
all corporate purposes of IWL and the Company, other than the payment of
dividends and other distributions, if any, to represent the right to receive the
IWL Merger Consideration or the Company Merger Consideration, as the case may
be. Unless and until any such certificate theretofore representing Shares is so
surrendered, no dividend or other distribution, if any, payable to the holders
of record of Holdings Common Stock as of any date subsequent to the Effective
Time shall be paid to the holder of such certificate in respect thereof. Upon
the surrender of any such certificate theretofore representing Shares, however,
the record holder of the certificate or certificates representing shares of
Holdings Common Stock issued in exchange therefor shall receive from the
Exchange Agent or from Holdings, as the case may be, payment of the amount of
dividends and other distributions, if any, which as of any date subsequent to
the Effective Time and until such surrender shall have become payable with
respect to such number of shares of Holdings Common Stock ("Pre-Surrender
Dividends"). No interest shall be payable with respect to the payment of Pre-
Surrender Dividends upon the surrender of certificates theretofore representing
Shares. After the appointment of the Exchange Agent shall have been terminated,
such holders of Holdings Common Stock that have not received payment of
Pre-Surrender Dividends shall look only to Holdings for payment thereof.
Notwithstanding the foregoing provisions of this Section 1.6(d) neither the
Exchange Agent nor any party hereto shall be liable to a holder of Shares for
any Holdings Common Stock or dividends or distributions thereon delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law or to a transferee pursuant to Section 1.6(e) hereof.
(e) TRANSFER BOOKS. The stock transfer books of IWL with respect to the
shares of IWL Common Stock and the stock transfer books of the Company with
respect to the shares of Company Common Stock shall each be closed at the
Effective Time and no transfer of any Shares will thereafter be recorded on any
of such stock transfer books. In the event of a transfer of ownership of Shares
that is not registered in the stock transfer records of IWL or the Company, as
the case may be, at the Effective Time, a certificate or certificates
representing the number of full shares of Holdings Common Stock into which such
Shares shall have been converted in accordance with Section 1.6(a) hereof shall
be issued to the transferee together with a cash payment in the amount of
Pre-Surrender Dividends, if any, in accordance with Section 1.6(d) hereof, if
the certificate or certificates representing such Shares is or are surrendered
as provided in Section 1.6(d) hereof, accompanied by all documents required to
evidence and effect such transfer and by evidence of payment of any applicable
stock transfer tax.
(f) FRACTIONAL SHARES. No fraction of a share of Holdings Common Stock
will be issued, but in lieu thereof each holder of shares of Company Common
Stock and each holder of Partnership Interests who would otherwise be entitled
to a fraction of a share of Holdings Common Stock (after aggregating all
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fractional shares of Holdings Common Stock to be received by such holder) shall
be entitled to receive from Holdings a whole share of Holdings Common Stock.
(g) OPTIONS TO PURCHASE COMPANY COMMON STOCK AND IWL COMMON STOCK.
(i) At the Effective Time, each option granted by IWL to purchase
shares of IWL Common Stock, or by the Company to purchase shares of Company
Common Stock, which is outstanding and unexercised immediately prior to the
Effective Time (each, an "Option" and collectively, "Options"), shall be
assumed by Holdings and converted into an option (a "Holdings Option") to
purchase shares of Holdings Common Stock in such amount and at such exercise
price as provided below and otherwise having the same terms and conditions
as are in effect immediately prior to the Effective Time:
(A) the number of shares of Holdings Common Stock to be subject
to the Holdings Option into which an Option is converted shall be
equal to the product of (x) the number of shares of IWL Common Stock
or Company Common Stock subject to the Option that is converted (the
"Converted Option") immediately prior to the Effective Time and (y)
the IWL Exchange Ratio (if the Converted Option related to IWL Common
Stock) or the Company Exchange Ratio (if the Converted Option related
to Company Common Stock), respectively, each rounded down to the
nearest whole share; and
(B) the exercise price per share of Holdings Common Stock for
each particular Holdings Option shall be equal to (x) if such
Holdings Option resulted from a Converted Option to acquire IWL
Common Stock, the exercise price per share under the Converted
Option, or (y) if such Holdings Option resulted from a Converted
Option to acquire Company Common Stock, (1) the exercise price per
share under the Converted Option divided by (2) the Company Exchange
Ratio, each of which shall be rounded up to the nearest whole cent.
The adjustments provided herein with respect to any Options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be effected in a
manner consistent with Section 424(a) of the Code. No options, if any, to
acquire Partnership Interests shall be assumed by Holdings.
(ii) Holdings shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Holdings Common Stock for delivery
upon exercise of Holdings Options in accordance with this Section 1.6(g). As
soon as practicable (and in no event later than 30 days) after the Effective
Time, Holdings shall file a registration statement on Form S-8 (or any
successor or other appropriate forms) or another appropriate form with
respect to the shares of Holdings Common Stock subject to the Holdings
Options and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
any of the Holdings Options remain outstanding.
(h) CERTAIN ADJUSTMENTS. Without limiting any other provision of this
Agreement, if, between the date of this Agreement and the Effective Time, the
outstanding shares of IWL Common Stock or of Company Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock of IWL or the Company, as the case may be, shall be declared
thereon with a record date within such period, the Exchange Ratios established
pursuant to the provisions of Section 1.6(a) hereof shall be adjusted
accordingly to provide to the holders of IWL Common Stock and Company Common
Stock the same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend.
(i) MAXIMUM SHARES ISSUABLE. Notwithstanding anything to the contrary
contained herein, the maximum number of shares of Holdings Common Stock issuable
upon the conversion of shares of
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Company Common Stock hereunder and the Interest Exchange and upon the exercise
of Holdings Options that are the result of Converted Options related to Company
Common Stock that are assumed by Holdings hereunder is 10,647,918 shares of
Holdings Common Stock.
1.7 DISSENTERS' SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of capital stock of the Company ("Dissenters' Shares") with respect to
which the holder thereof ("Dissenter") ultimately receives payment pursuant to
Articles 5.11 through 5.13 of the Texas Business Corporation Act ("TBCA"), shall
not be converted into or represent a right to receive Holdings Common Stock
pursuant to Section 1.6, but the holder thereof shall only be entitled to such
rights as are granted by the TBCA. Pursuant to Article 5.11.B of the TBCA,
holders of IWL Common Stock shall not have dissenters' rights.
(b) Notwithstanding the provisions of Section 1.7(a), if after the
Effective Time a Dissenter loses the right to receive payment pursuant to
Articles 5.11 through 5.13 of the TBCA, then upon the occurrence of such event,
such holder's shares shall automatically be converted into and represent only
the right to receive Holdings Common Stock effective as of the Effective Time,
but upon surrender of the certificate representing such shares, without
prejudice to any corporate proceedings which may have been taken during the
interim period between the Effective Time and the occurrence of such event, and
such shareholder shall be entitled to receive any dividends or other
distributions made to shareholders during such interim period.
(c) With respect to any Dissenters' Shares, the Company shall give Holdings
(i) prompt notice of any written demands for appraisal of any shares of capital
stock of the Company, withdrawals of such demands, and any other instruments
served on the Company pursuant to the TBCA and received by the Company and (ii)
the opportunity to participate in all negotiations and proceedings which take
place prior to the Effective Time with respect to demands for appraisal under
the TBCA. The Company shall not, except with the prior written consent of
Holdings, voluntarily make any payment before the Effective Time with respect to
any demands for appraisal of capital stock of the Company or offer to settle or
settle any such demands.
(d) All Dissenters' Shares acquired by the Company shall be canceled after
payment therefor has been made in accordance with the TBCA.
1.8 NO FURTHER OWNERSHIP RIGHTS IN IWL COMMON STOCK, COMPANY COMMON STOCK
AND PARTNERSHIP INTERESTS. All shares of Holdings Common Stock issued upon the
conversion of shares of IWL Common Stock and Company Common Stock and upon the
Interest Exchange in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of IWL
Common Stock and Company Common Stock and to such Partnership Interests,
respectively.
1.9 TAX CONSEQUENCES AND ACCOUNTING TREATMENT. It is intended by the
parties hereto that the formation of Holdings, I-Sub and C-Sub qualify as
tax-free incorporations pursuant to Section 351 of the Code, that the Interest
Exchange shall qualify as a tax-free exchange pursuant to Section 351 of the
Code, and that the Mergers shall constitute a reorganization within the meaning
of Section 368 of the Code, and that the Mergers and the Interest Exchange shall
be accounted for as a pooling of interests. Holdings, IWL, the Company, the
Partnership, I-Sub and C-Sub each agree that it will not take or omit to take
any action at any time after the date hereof which act or omission would cause
the Mergers not to qualify as a reorganization within the meaning of Section 368
of the Code or the Interest Exchange not to qualify as a tax-free exchange
pursuant to Section 351 of the Code, including without limitation:
(a) any sale, exchange, distribution, transfer or other disposition of the
assets of IWL, the Company or the Partnership that would cause the IWL Merger or
the Company Merger, as the case may be, to fail to satisfy the "continuity of
business enterprise" requirement of Section 1.368-1(d) of the Income Tax
Regulations or the "substantially all the properties" requirement of Section
368(a)(2)(E) of the Code;
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(b) any reacquisition of shares of Holdings Common Stock by Holdings;
(c) any issuance of additional shares of IWL Common Stock or Company Common
Stock or sale of IWL Common Stock or Company Common Stock that would result in
Holdings failing to obtain or losing control of IWL or the Company, as the case
may be, within the meaning of Section 368(c) of the Code; and
(d) any issuance of additional shares of Holdings Common Stock that would
cause the owners of IWL Common Stock, Company Common Stock and Partnership
Interests immediately prior to the consummation of the transactions contemplated
by this Agreement, as a group, to fail to have control of Holdings, within the
meaning of Section 368(c) of the Code, immediately after the consummation of the
transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedule attached hereto and
incorporated by reference herein (the "Company Disclosure Schedule"), the
Company hereby represents and warrants to Holdings and IWL (and, unless the
context indicates otherwise, all of such representations and warranties shall be
deemed made with respect to the Company, its Subsidiaries and their respective
predecessors, if any) that, as of the date hereof:
2.1 ORGANIZATION AND QUALIFICATION, SUBSIDIARIES. Each of the Company and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Each of the Company and its Subsidiaries has the requisite corporate power and
authority and any necessary governmental authority, franchise, license or permit
to own, operate or lease the properties that it purports to own, operate or
lease and to carry on its business as it is now being conducted, and is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
except for such failure which, when taken together with all other such failures,
would not reasonably be expected to have a Material Adverse Effect on the
Company. The Company's Subsidiaries are listed on Section 2.1 of the Company
Disclosure Schedule.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company has heretofore
furnished, or otherwise made available, to IWL a complete and correct copy of
the Articles of Incorporation and the Bylaws (or comparable governing
documents), each as amended to the date hereof, of the Company and each of its
Subsidiaries. Such Articles of Incorporation and Bylaws (or comparable governing
documents) are in full force and effect. Neither the Company nor any of its
Subsidiaries is in violation of any of the provisions of its respective Articles
of Incorporation or Bylaws (or comparable governing documents).
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 100,000,000
shares of Company Common Stock, of which as of the date hereof 10,398,954 shares
are issued and outstanding and 208,550 shares are issuable upon the exercise of
options outstanding under the Company's stock option plans listed on Section 2.3
of the Company Disclosure Schedule. Since January 1, 1997, no shares of Company
Common Stock have been issued. Except as set forth in Section 2.3 of the Company
Disclosure Schedule, there are no outstanding Company Equity Rights. For
purposes of this Agreement, "Company Equity Rights" shall mean subscriptions,
options, warrants, calls, commitments, agreements, conversion rights or other
rights of any character (contingent or otherwise) to purchase or otherwise
acquire from the Company or any of the Company's Subsidiaries at any time, or
upon the happening of any stated event, any shares of the capital stock of the
Company.
(b) Section 2.3 of the Company Disclosure Schedule sets forth for each
outstanding Company Equity Right the name of the holder of such Company Equity
Right, the number of shares subject to such Company Equity Right, the exercise
price of such Company Equity Right, the number of shares as to
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which such Company Equity Right is exercisable, and, if the exercisability of
such Company Equity Right will be accelerated in any way by the transactions
contemplated by this Agreement, an indication of the extent of such
acceleration. Section 2.3 of the Company Disclosure Schedule also describes any
repricing of any Company Equity Rights which has taken place since January 1,
1993. The Company has made available to IWL copies of all agreements relating to
Company Equity Rights.
(c) Since January 1, 1993, the Company has not repurchased any of its
capital stock, nor has any Person other than the Company shareholders and the
holders of Company Equity Rights listed in Section 2.3 of the Company Disclosure
Schedule owned, or had any right to acquire, any capital stock of the Company.
(d) There are no outstanding obligations of the Company or any of the
Company's Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company.
(e) All of the issued and outstanding shares of Company Common Stock were
validly issued (free of preemptive rights) and are fully paid and nonassessable.
The Company shareholders and the number of shares of Company Common Stock owned
beneficially and of record by each Company shareholder are listed in Section 2.3
of the Company Disclosure Schedule. The Company shareholders are the record and
beneficial owners of all of the shares of Company Common Stock, free and clear
of any liens, encumbrances, pledges, security interests, voting agreements or
claims of any nature whatsoever.
(f) All of the outstanding capital stock of each of the Company's
Subsidiaries was duly authorized and validly issued (free of preemptive rights)
and is fully paid and nonassessable, and, except as set forth in Section 2.3 of
the Company Disclosure Schedule, is owned by the Company free and clear of any
liens, security interests, pledges, agreements, claims, charges or encumbrances.
Except as set forth in Section 2.3 of the Company Disclosure Schedule, there are
no existing subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise) to
purchase or otherwise acquire from the Company or any of the Company's
Subsidiaries at any time, or upon the happening of any stated event, any shares
of the capital stock of any of the Company's Subsidiaries, or any securities
convertible into or exercisable for shares of the capital stock of any of the
Company's Subsidiaries, whether or not presently issued or outstanding and there
are no outstanding obligations of the Company or any of the Company's
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of any of the Company's Subsidiaries. Except for equity interests
disclosed in Section 2.3 of the Company Disclosure Schedule and equity interests
in its Subsidiaries, the Company does not directly or indirectly own any equity
interest in any other Person. Each of the Company's Subsidiaries is a wholly
owned Subsidiary.
(g) Except as disclosed in Section 2.3 of the Company Disclosure Schedule,
there are no shareholder agreements, voting trusts or other agreements or
understandings to which the Company or any Subsidiary is a party or to which it
is bound relating to the voting or registration of any shares of capital stock
of the Company or any Subsidiary. The Company has not taken any action that
would result in, nor is the Company a party to any agreement, arrangement or
understanding not disclosed in Section 2.3 of the Company Disclosure Schedule
that would result in any options to purchase Company Common Stock that are
unvested becoming vested in connection with or as a result of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
2.4 AUTHORITY. The Company has all requisite corporate power and authority
to enter into this Agreement and to consummate the Company Merger and the other
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable in accordance with
its terms. The execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated hereby will not result in
any violation of, or default under (with or without notice or lapse of time, or
both), or give rise
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to a right of termination, cancellation or acceleration of any obligation or
loss of a material benefit under (a) any provision of the Articles of
Incorporation or Bylaws of the Company or (b) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets. No consent, approval,
order or authorization of, or registration, declaration or filing with any
court, administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity"), is required by or with respect to the
Company in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (a) the filing
of the Articles of Merger with the Secretary of State of Texas and (b) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required by the Nasdaq National Market or under applicable
state and federal securities laws.
2.5 COMPANY FINANCIAL STATEMENTS. Section 2.5 of the Company Disclosure
Schedule sets forth the Company's audited financial statements (balance sheets,
income statements and statements of cash flows) as of and for the fiscal years
ended December 31, 1996 and 1995, the Company's compiled financial statements
for the fiscal year ended December 31, 1994, and the Company's reviewed
financial statements for the nine months ended September 30, 1997 (collectively,
the "Company Financial Statements"). The Company Financial Statements are
complete and correct in all material respects and, except as set forth in
Section 2.5 of the Company Disclosure Schedule, have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a basis
consistent throughout the periods indicated and consistent with each other
(except that the compiled and reviewed Company Financial Statements do not
contain the notes necessary to be in accordance with GAAP and the reviewed
Company Financial Statements are subject to normal year-end adjustments). The
Company Financial Statements present fairly the financial condition and
operating results of the Company and its Subsidiaries as of the dates and for
the periods indicated therein. The reviewed balance sheet of the Company as of
September 30, 1997 is hereinafter referred to as the "Company Balance Sheet."
2.6 NO UNDISCLOSED LIABILITIES. The Company does not have any liabilities
or obligations, either accrued or contingent, whether or not required to be
reflected in financial statements prepared in accordance with GAAP, and whether
due or to become due, except: (a) liabilities reflected in the Company Balance
Sheet, (b) liabilities specifically described in this Agreement or in the
Company Disclosure Schedule or (c) liabilities not exceeding $50,000 in the
aggregate incurred in the ordinary course of business since the date of the
Company Balance Sheet.
2.7 NO CHANGES. Except as set forth in Section 2.7 of the Company
Disclosure Schedule or as expressly contemplated by this Agreement, since the
date of the Company Balance Sheet there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of business as
conducted on that date;
(b) capital expenditure or inventory purchase by the Company exceeding
$25,000 individually or $100,000 in the aggregate, except pursuant to existing
contracts listed in Section 2.12 of the Company Disclosure Schedule;
(c) destruction, damage to, or loss of any assets (including, without
limitation, intangible assets) of the Company (whether or not covered by
insurance), either individually or in the aggregate, exceeding $25,000;
(d) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(e) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates, any change in policies in making
or reversing accruals, or any change in capitalization of software development
costs) by the Company;
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(f) declaration, setting aside, or payment of a dividend or other
distribution in respect of the shares of the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company of any of its shares;
(g) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors or employees, or the
declaration, payment, or commitment or obligation of any kind for the payment by
the Company of a bonus or other additional salary or compensation to any such
person except for year-end bonuses paid in the ordinary course of business
consistent with past practice;
(h) acquisition, sale or transfer of any asset of the Company except in the
ordinary course of business;
(i) formation, amendment or termination of any material distribution
agreement or any material contract, agreement or license to which the Company is
a party, other than termination by the Company pursuant to the terms thereof;
(j) loan by the Company to any Person or guaranty by the Company of any
loan;
(k) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company except in the ordinary course of business;
(l) the commencement or notice or, to the knowledge of the Company, threat
of commencement of any governmental proceeding against or investigation of the
Company or its affairs;
(m) other event or condition of any character relating to the Company or
the Company's business that has or would be expected to have a Material Adverse
Effect on the Company;
(n) issuance, sale or redemption by the Company of any of its shares or of
any other of its securities, other than pursuant to the exercise of existing
options;
(o) change in pricing or royalties set or charged by the Company except
pursuant to the terms of existing contracts; or
(p) negotiation or agreement by the Company to do any of the things
described in the preceding clauses (a) through (o) (other than negotiations with
IWL and its representatives or any other Person regarding the transactions
contemplated by this Agreement).
2.8 TAX AND OTHER RETURNS AND REPORTS.
(a) TAX RETURNS AND AUDITS. Except as set forth in Section 2.8 of the
Company Disclosure Schedule, each of the Company and its Subsidiaries has
prepared and filed all federal, state, local and foreign returns, estimates,
information statements and reports required to be filed by any of them
relating to any and all Taxes relating or attributable to the Company, its
Subsidiaries, or the assets or operations of the Company or its Subsidiaries
("Company Returns"), and such Company Returns are true and correct in all
material respects and have been completed in accordance with applicable law.
For the purposes of this Agreement, a "Tax" or, collectively, "Taxes," means
any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and
any obligations under any agreements or arrangements with any other Person
with respect to such amounts. Except as set forth in Section 2.8 of the
Company Disclosure Schedule, each of the Company and its Subsidiaries has
paid all Taxes required to be paid with respect to such Company Returns and
has withheld with respect to its employees all federal and state income
Taxes, FICA, FUTA and other Taxes it is required to withhold. The accruals
for Taxes on the books and records of each of the Company and its
Subsidiaries are sufficient to discharge the Taxes for all periods (or the
portion of any period) ending on or prior to the Closing Date. Neither the
Company
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nor any of its Subsidiaries is delinquent in the payment of any Tax nor,
except as set forth in Section 2.8 of the Company Disclosure Schedule, to
the knowledge of the Company, is there any Tax deficiency outstanding,
proposed or assessed against the Company or any of its Subsidiaries nor has
the Company or any of its Subsidiaries executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax. The audits of each Company Return that has been audited by the
relevant authorities or for which the statute of limitations has been waived
or extended have been closed and neither the Company nor any of its
Subsidiaries has received any written or oral notification that an audit or
other examination of any Company Return is presently in progress. All such
Company Returns that have been audited or for which the statute of
limitations has been waived are listed in Section 2.8 of the Company
Disclosure Schedule. Except as set forth in Section 2.8 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has any
material liabilities for unpaid Taxes, whether asserted or unasserted, known
or unknown, contingent or otherwise and neither the Company nor any of its
Subsidiaries has any knowledge of any basis for the assertion of any such
liability attributable to the Company, its Subsidiaries or the assets or
operations of the Company or its Subsidiaries. Except as set forth in
Section 2.8 of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries is (nor have they ever been) required to join with any
other entity in the filing of a consolidated tax return for federal tax
purposes or a consolidated or combined return or report for state tax
purposes. Neither the Company nor any of its Subsidiaries is a party to or
bound by any tax indemnity, tax sharing or tax allocation agreement. There
are (and as of immediately following the Closing there will be) no liens on
the assets of the Company or any of its Subsidiaries relating to or
attributable to Taxes, except for liens for Taxes not yet due and payable or
liens for Taxes being contested by appropriate proceedings. Neither the
Company nor any of its Subsidiaries has any knowledge of any basis for the
assertion of any claim which, if adversely determined, would result in liens
on the assets of the Company or its Subsidiaries. There is no contract,
agreement, plan or arrangement, including, but not limited to, the
provisions of this Agreement, covering any employee or former employee of
the Company or any of its Subsidiaries that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to Sections 280G, 162 or 404 of the Code.
(b) NO PENALTY. Neither the Company nor any of its Subsidiaries is
subject to any penalty by reason of a violation of any order, rule or
regulation of, or a default with respect to any Company Return, report or
declaration required to be filed with, any Governmental Entity to which it
is subject.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement binding
upon, or judgment, injunction, order or decree entered against, the Company
under which the Company is prohibited from conducting or engaging in any line of
business.
2.10 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT.
(a) The Company owns no real property. Section 2.10(a) of the Company
Disclosure Schedule sets forth a true and complete list of all real property
leased by the Company and the aggregate annual rental or other fee payable under
any such lease. All such leases are in good standing, valid and effective in
accordance with their respective terms, and there is not with respect to the
Company and, to the knowledge of the Company, any other parties to such leases,
under any of such leases any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default).
(b) Except as set forth in Section 2.10(b) of the Company Disclosure
Schedule, the Company holds good and valid title to (or, in the case of leased
properties, assets and rights of way, valid leasehold interests in) all of its
tangible properties, assets and rights of way, real, personal and mixed, used in
its business, free and clear of any liens, charges, pledges, security interests
or other encumbrances. The Company has valid and subsisting rights of way to use
all real or personal property in or through which the Company's owned or leased
optic or other fiber lines are currently located or situated.
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(c) All items of equipment, including optic or other fiber lines, whether
owned or leased, having an individual value of $5,000 or more (the "Equipment")
used by the Company in the conduct of its business are listed in Section 2.10(c)
of the Company Disclosure Schedule, except individual pieces of equipment owned
by the Company with an individual value of less than $5,000. The Equipment is,
taken as a whole, (i) adequate for the conduct of the business of the Company as
presently conducted, (ii) suitable for the uses to which it is currently
employed, (iii) in good operating condition, (iv) regularly and properly
maintained, ordinary wear and tear excepted, and (v) not obsolete, dangerous or
in need of renewal or replacement.
2.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material
(excluding Company Commercial Software Rights (as defined in Section 2.11(b)
below)) that are used or currently proposed by the Company to be used in the
business of the Company as currently conducted or as currently proposed to
be conducted by the Company (the "Company Intellectual Property Rights").
Section 2.11(a) of the Company Disclosure Schedule (i) sets forth a complete
list of all patents, patent applications, registered trademarks, material
unregistered copyrights, trade names and service marks, and any applications
therefor, included in the Company Intellectual Property Rights; (ii)
specifies the jurisdictions in which each such Company Intellectual Property
Right has been issued or registered or in which an application for such
issuance and registration has been filed, including the respective
registration or application numbers and the names of all registered owners,
together with a list of all of the Company's currently marketed software
products and a list of which, if any, of such software products that have
been registered for copyright protection with the United States Copyright
Office and any foreign offices and by whom such items have been registered
and (iii) as to each such Company Intellectual Property Right, specifies
whether it is owned by the Company or licensed to the Company by another
Person and, in the cases of any license, sets forth the licensor and the
term of such license. Section 2.11(a) of the Company Disclosure Schedule
also sets forth a complete list of all licenses, sublicenses and other
agreements pursuant to which the Company has licensed any other Person to
use any Company Intellectual Property Right or other trade secret material
to the Company, and includes the identity of such licensees, provided,
however, that standard end user licenses (i.e., those licenses granted
pursuant to the form clearly marked as the Company's "standard" form and
delivered to IWL by the Company) to object code versions of the Company's
software ("End-User Licenses") need not be listed. The Company is not, nor
will it be as a result of the execution and delivery of this Agreement or
the performance of its obligations hereunder, in violation of any license,
sublicense or agreement described on such list. The Company is the sole and
exclusive owner of, with all right, title and interest in and to (free and
clear of any liens or encumbrances other than End User Licenses), those
Company Intellectual Property Rights which the Company purports to own, and
has sole and exclusive rights, and is not contractually obligated to pay any
compensation to any third party in respect thereof to the use thereof or the
material covered thereby in connection with the services or products in
respect of which such Company Intellectual Property Rights are being used.
With respect to Company Intellectual Property Rights licensed to the
Company, the Company has sufficient rights under the license agreements
relating thereto to enable the Company to use such Company Intellectual
Property Rights in its business as currently conducted and as proposed to be
conducted without payment of royalties or other compensation to the licensor
thereof. No claims with respect to the Company Intellectual Property Rights
have been asserted or, to the knowledge of the Company, are threatened by
any Person (i) to the effect that the manufacture, sale, licensing or use of
any product as, now used, sold or licensed or proposed for use, sale or
license by the Company infringes on any copyright, patent, trade mark,
service mark or trade secret, (ii) against the use by the Company of any
trademarks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and
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applications used in the Company's business as currently conducted or as
proposed by the Company to be conducted, or (iii) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property
Rights. Except as set forth in Section 2.11(a) of the Company Disclosure
Schedule, all registered and material unregistered trademarks, service marks
and copyrights held by the Company are valid and subsisting. To the
knowledge of the Company, there is no material unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company. No Company Intellectual Property Right owned exclusively by the
Company or product of the Company is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner the
licensing thereof by the Company. There is no outstanding order, judgment,
decree or stipulation on the Company, and the Company is not party to any
agreement, restricting in any manner the licensing of the Company's products
by the Company. Except for End User Licenses or as otherwise set forth in
Section 2.11(a) of the Company Disclosure Schedule, the Company has not
entered into any agreement to indemnify any Person against any charge of
infringement of any Company Intellectual Property Right.
(b) "Company Commercial Software Rights" means packaged commercially
available software programs generally available to the public through retail
dealers in computer software which have been licensed to the Company
pursuant to End-User Licenses and which are used in the Company's business
but are in no way a component of or incorporated in any of the Company's
products and related trademarks, technology and know-how. To the knowledge
of the Company, the Company has not breached or violated the terms of its
license, sublicense or other agreement relating to any Company Commercial
Software Rights and has a valid right to use such Company Commercial
Software Rights under such license and agreements. No claims with respect to
the Company Commercial Software Rights have been asserted or, to the
knowledge of the Company, are threatened by any Person against the Company.
To the knowledge of the Company, there is no material unauthorized use,
infringement or misappropriation of any of the Company Commercial Software
Rights by the Company or any employee or former employee of the Company
during the period of their employment.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Other than those listed in
Section 2.12 of the Company Disclosure Schedule, the Company does not have, is
not a party to nor is it bound by:
(a) any collective bargaining agreements,
(b) any agreements that contain any unpaid severance liabilities or
obligations,
(c) any bonus, deferred compensation, incentive compensation, option,
pension, profit-sharing or retirement plans, or any other employee benefit
plans or arrangements,
(d) any employment or consulting agreement, contract or commitment
(other than employment letters) with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or commitment with a
firm or other organization, not terminable by the Company on thirty days
notice without liability,
(e) any stock option plan, stock appreciation right plan or stock
purchase plan,
(f) any insurance policy, fidelity or surety bond or completion bond not
listed in Section 2.21 of the Company Disclosure Schedule,
(g) any lease of personal property having a value individually in excess
of $25,000,
(h) any agreement of indemnification or guaranty not entered into in the
ordinary course of business,
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(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or
compete with any Person,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $25,000,
(k) any agreement, contract or commitment relating to the disposition or
acquisition of assets not in the ordinary course of business or any
ownership interest in any corporation, partnership, joint venture or other
business enterprise,
(l) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit, including guaranties referred to in clause (h)
hereof,
(m) any purchase order or contract for the purchase of raw materials or
acquisition of assets involving $25,000 or more in any single instance or
$100,000 or more in the aggregate,
(n) any construction contracts involving $25,000 or more in any single
instance or $100,000 or more in the aggregate,
(o) any distribution, joint marketing or development agreement,
(p) any lease for switches or any other machinery, equipment or other
personal property involving payment of aggregate rentals in excess of
$25,000,
(q) any contract pursuant to which the Company has access to the
telephone network of another Person other than the Company's internal
commercial telephone service and any contracts for the resale of any network
capacity of the Company,
(r) any agreement, contract, lease or easement pursuant to which the
Company has the right of way to use any premises or real property to locate
and/or install fiber lines on, under or through such premises or real
property,
(s) any agreement or commitment obligating the Company to deliver any
product or service at a price which does not cover the cost (including
labor, materials and production overhead), plus a reasonable profit margin,
for such product or service,
(t) any joint venture, partnership or other cooperative arrangement or
agreement involving a sharing of profits or losses,
(u) any other agreement, contract or commitment which involves $25,000
or more and is not cancelable without penalty within thirty (30) days, or
(v) any agreement which is otherwise material to the Company's business.
The Company has not breached, or received any claim or threat that it has
breached, any of the terms or conditions of any material agreement, contract or
commitment to which it is bound (including, but not limited to, those set forth
in Section 2.12 or any other section of the Company Disclosure Schedule) in such
manner as would permit any other party to cancel or terminate the same. Each
agreement, contract or commitment to which the Company is a party and that is
required to be set forth in the Company Disclosure Schedule is in full force and
effect and, except as otherwise disclosed, is not subject to any material
default thereunder by any party thereto. The Company is not bound by any
material contract, agreement, license, lease or other commitment, a copy of
which has not been previously provided or made available to IWL. The Company
after making an inquiry of all of its officers, directors, shareholders and
appropriate employees does not have any reason to expect that any change may
occur in the relationships of the Company with its suppliers or customers as a
result of the Mergers or the Interest Exchange, which change would have a
Material Adverse Effect on the Company. No supplier of or customer of the
Company has indicated within the past year that it will stop, or decrease the
rate of supplying or
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purchasing materials, products, or services to or from the Company, as a result
of the Mergers or the Interest Exchange. Except as described in Section 2.4, no
consents, waivers or approvals under any of the Company's material agreements,
contracts, licenses or leases are necessary in order to preserve the benefits
thereunder for the Surviving Corporation or otherwise to avoid any breach,
default or right of termination or other right as a result of the Mergers or the
Interest Exchange.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section 2.13 of
the Company Disclosure Schedule, no officer, director or shareholder of the
Company (nor any parent, sibling, descendant or spouse of any of such persons,
or any trust, partnership, corporation or other entity in which any of such
persons has or has had an interest), has or has had, directly or indirectly, (a)
an interest in any entity which furnished or sold, or furnishes or sells,
services or products which the Company furnished or sells, or proposes to
furnish or sell, or (b) any interest in any entity which purchases from or sells
or furnishes to the Company any goods or services, or (c) a beneficial interest
in any contract or agreement required to be set forth in Section 2.12 of the
Company Disclosure Schedule; provided, that ownership of no more than five
percent (5%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed an "interest in any entity" for purposes of this Section
2.13.
2.14 GOVERNMENTAL AUTHORIZATIONS. Section 2.14 of the Company Disclosure
Schedule accurately lists each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization issued to
the Company (a) pursuant to which the Company currently operates or holds any
interest in any of its properties or (b) which is required for the operation of
its business as currently conducted or the holding of any such interest as
currently held (herein collectively called the "Company Authorizations"). The
Company Authorizations are in full force and effect and constitute all the
authorizations required to permit the Company to operate or conduct its business
as currently conducted or hold any interest in its properties as currently held.
2.15 LITIGATION. Section 2.15 of the Company Disclosure Schedule
accurately lists all suits, actions and legal, administrative, arbitration or
other proceedings and governmental investigations and all other claims pending
against the Company or, to the knowledge of the Company, threatened or which the
Company expects will ultimately be threatened or commenced against the Company.
None of such suits, actions, proceedings, investigations or claims seek to
prevent the consummation of the Mergers or the Interest Exchange. There is no
judgment, decree or order enjoining the Company in respect of, or the effect of
which is to prohibit, any business practice or the acquisition of any property
or the conduct of business of the Company. Section 2.15 of the Company
Disclosure Schedule also lists all suits and legal actions initiated by the
Company which are still pending or which have been concluded in the last two
years.
2.16 ACCOUNTS RECEIVABLE. All accounts receivable of the Company shown in
the Company Balance Sheet arose in the ordinary course of business and, to the
extent not previously collected, are collectible (except to the extent reserved
against as reflected in the Company Financial Statements) and are carried at
values determined in accordance with GAAP consistently applied. To the knowledge
of the Company, none of the accounts receivable of the Company outstanding as of
the date hereof is subject to any claim of offset, recoupment, set off or
counterclaim and there are no facts or circumstances (whether asserted or
unasserted) that would give rise to any such claim. No accounts receivable are
contingent upon the performance by the Company of any obligation or contract
except for the Company's maintenance obligations under its maintenance
agreements (although no customer has claimed that the Company has failed to
perform its maintenance obligations). No Person has any lien, charge, pledge,
security interest or other encumbrance on any of the Company's accounts
receivable and no agreement for deduction or discount has been made with respect
to any of such accounts receivable, except for liens granted to Bank One Texas,
N.A. under the Company's revolving line of credit.
2.17 MINUTE BOOKS AND STOCK RECORDS. The minute books of the Company and
its Subsidiaries made available to counsel for IWL contain minutes of all
meetings of directors and shareholders (or consents in
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lieu of such meetings) accurate in all material respects since the respective
times of incorporation of the Company and its Subsidiaries. The stock records of
the Company and its Subsidiaries made available to counsel for IWL contain an
accurate record of all stock issuances and stock transfers of the Company Common
Stock.
2.18 ENVIRONMENTAL AND OSHA.
(a) The Company has complied in all material respects with all laws
(including rules and regulations thereunder) of federal, state and local
Governmental Entities concerning the environment, public health and safety,
and employee health and safety, and no charge, complaint, action, suit,
proceeding, hearing, known investigation, claim, demand, or notice has been
filed or commenced against the Company alleging any failure to comply with
any such law or regulation.
(b) The Company has no obligation to take remedial action with respect
to any conditions nor does the Company have any liability, and there is no
basis related to the Company's past or present operations, for any present
charge, complaint, action, suit, proceeding, hearing, known investigation,
claim, or demand giving rise to any liability or obligation to take any
remedial action under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Resource Conservation and Recovery Act of
1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of
1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act
of 1976, or the Emergency Planning and Community Right-to-Know Act of 1986
(each as amended), or any other law (or rule or regulation thereunder) of
any federal, state or local Governmental Entity, concerning the release or
the threatened release of hazardous substances, public health and safety,
pollution or protection of the environment (collectively, the "Environmental
Laws").
(c) The Company has no liability relating to, and it has not handled or
disposed of any substance, arranged for the disposal of any substance, or
owned or operated any property or facility in violation of any Environmental
Law.
(d) The Company has no liability for, and there is no basis for, any
present charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand against the Company giving rise to any material liability
under the Occupational Safety and Health Act, as amended, or any other law
(or rule or regulation thereunder) of any federal, state or local
Governmental Entity concerning employee health and safety (collectively,
"Employee Safety Laws").
(e) The Company has no liability relating to, and, to the knowledge of
the Company, the Company has not exposed any of the Company's employees to
any substances or conditions that could form the basis for, any present
charge, complaint, action, suit, proceeding, hearing, investigation, claim,
or demand (under the common law or pursuant to statute) against the Company
giving rise to material liability for any illness of or personal injury to
any employee.
(f) The Company has been in compliance with all the terms and conditions
of all permits, licenses, and other authorizations of Governmental Entities
which are required under any Environmental Law or Employee Safety Law.
(g) All properties and equipment used by the Company are free of
asbestos, PCB's and other Extremely Hazardous Substances (as defined in
Section 302 of the Emergency Planning and Community Right-to-Know Act of
1986, as amended). To the knowledge of the Company, no pollutant,
contaminant, chemical, or industrial, hazardous, or toxic material or waste
has been buried, stored, spilled, leaked, discharged, emitted, or released
on any real property that the Company has ever owned, or that the Company
now leases or has ever leased.
2.19 BROKERS' AND FINDERS' FEES. Except pursuant to an advisory agreement
with Hoak, Breedlove & Wesneski, Inc. (the arrangements with which have been
disclosed to IWL prior to the date hereof), the Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders,
fees
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or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.20 LABOR MATTERS. The Company is in compliance with all currently
applicable laws and regulations respecting employment, discrimination in
employment, terms and conditions of employment and wages and hours and
employment practices, and is not engaged in any unfair labor practice. The
Company has not received any notice from any Governmental Entity of, and to the
knowledge of the Company there has not been asserted before any Governmental
Entity, any claim, action or proceeding to which the Company is a party or
involving the Company, and there is neither pending nor, to the knowledge of the
Company, threatened any investigation or hearing concerning the Company arising
out of or based upon any such laws, regulations or practices. There are no
pending claims against the Company under any workers compensation plan or policy
or for long term disability. The Company has complied in all material respects
with all applicable health care benefit continuation provisions of Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and has no obligations with
respect to any former employees or qualified beneficiaries thereunder. Section
2.20 of the Company Disclosure Schedule lists all current employees of the
Company and their current salary and vacation accruals.
2.21 INSURANCE. Section 2.21 of the Company Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, software errors and omissions, employees, officers and
directors of the Company as well as all claims made under any insurance policy
by the Company since January 1, 1993 (other than claims under the Company's
medical and dental insurance plans). There is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds (other than
claims made under the Company's medical and dental insurance plans). The Company
has provided or made available to IWL copies of all such insurance policies and
fidelity bonds and all claims made by the Company under its insurance policies
(other than claims under the Company's medical and dental plans). All premiums
payable under all such policies and bonds have been paid and the Company is
otherwise in compliance in all material respects with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). Such policies of insurance and bonds are of the type and in amounts
customarily carried by Persons conducting businesses similar to those of the
Company. The Company does not know of any threatened termination of or proposed
material premium increase with respect to any of such policies. The Company has
never been denied insurance coverage nor has any insurance policy of the Company
ever been canceled for any reason.
2.22 INVENTORY. The inventory appearing on the Company Financial
Statements, or thereafter acquired or produced, conforms in all material
respects with the Company's applicable specifications and warranties and have
been produced in compliance with the Company's quality control procedures and
consist only of items of a quality and quantity useable or saleable by the
Company in the ordinary course of business. All such inventory is merchantable
and fit for the purpose for which it was procured or manufactured, and none of
which is obsolete, damaged or defective in any amount. Such inventory is owned
by the Company and is not subject to any liens, charges, pledges, security
interests or other encumbrances.
2.23 COMPLIANCE WITH LAWS.
(a) The Company has complied in all material respects with, is not in
violation of, and has not received any notices of violation with respect to
any federal, state or local statute, law or regulation with respect to the
conduct of its business or the ownership or operation of its business,
assets or properties. No charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or commenced
against alleging any failure to comply with any such law or regulation.
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(b) The Company has not violated in any respect, or received a notice or
charge asserting any violation of the Sherman Act, the Clayton Act, the
Robinson-Patman Act, or the Federal Trade Commission Act, each as amended.
(c) The Company has not, and none of the officers, directors,
shareholders or employees of the Company have, on behalf of the Company:
(i) made or agreed to make any contribution, payment or gift of
funds or property to any governmental official, employee, or agent where
either the contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state or local jurisdiction; or
(ii) established or maintained any unrecorded fund or asset for any
purpose, or intentionally made any false or inaccurate entries on any of
its books and/or records; or
(iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other Person, to any candidate
for federal, state or local public office; or
(iv) been involved in the disbursement or receipt of funds outside
of the normal internal control systems of accountability or been involved
in the improper or inaccurate recording of material payments,
disbursements or receipts.
2.24 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference, and reviewed by the Company prior to
such inclusion or incorporation by reference, in the registration statement to
be filed with the SEC by Holdings in connection with the issuance of shares of
Holdings Common Stock in the Mergers and the Interest Exchange (the
"Registration Statement") will, at the time the Registration Statement becomes
effective under the Securities Act of 1933, as amended (the "Securities Act"),
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. None
of the information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference, and reviewed by the Company prior to
such inclusion or incorporation by reference, in the joint proxy statement, in
definitive form, relating to the meetings of the IWL and the Company
shareholders to be held in connection with the Mergers, or in the related proxy
and notice of meeting, or soliciting material used in connection therewith
(referred to herein collectively as the "Joint Proxy Statement") will, at the
dates mailed to shareholders and at the times of the IWL shareholders' meeting
and the Company shareholders' meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company, its officers and
directors or any of its Subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the Registration Statement or
the Joint Proxy Statement, the Company shall promptly so advise IWL and
Holdings. The Company will promptly disseminate any such amendment or supplement
to the shareholders of the Company.
2.25 ACCOUNTING MATTERS. Neither the Company nor, to its best knowledge,
any of its affiliates has through the date hereof taken or agreed to take any
action that would prevent the business combination to be effected by the Mergers
and the Interest Exchange from being accounted for as a "pooling of interests."
2.26 FIRPTA. The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
2.27 EMPLOYEE BENEFIT PLANS.
(a) Section 2.27 of the Company Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
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and other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment or executive compensation or severance
agreements, written or otherwise, for the benefit of, or relating to, any
employee of the Company, any trade or business (whether or not incorporated)
which is a member or which is under common control with the Company (a "Company
ERISA Affiliate") within the meaning of Section 414 of the Code, or any
Subsidiary of the Company (together, the "Company Employee Plans"), and a copy
of each such Company Employee Plan has been provided or made available to IWL.
(b) (i) None of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person except as required by
applicable law, including, but not limited to, COBRA; (ii) all Company Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all applicable statutes (including ERISA and the Code),
orders, or governmental rules and regulations currently in effect with respect
thereto (including all applicable requirements for notification to participants
or beneficiaries or the Department of Labor, Internal Revenue Service (the
"IRS") or Secretary of the Treasury), and the Company has performed in all
material respects all obligations required to be performed by it under, is not
in default under or violation of, and has no knowledge of any default or
violation by any other party to, any of the Company Employee Plans; (iii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust intended to qualify under Section 501(a) of the Code either has
received a favorable determination letter with respect to each such Company
Employee Plan from the IRS or still has a remaining period of time under
applicable Treasury Regulations or IRS pronouncements in which to apply for such
a determination letter and to make any amendments necessary to obtain a
favorable determination; and (iv) no Company Employee Plan is or within the
prior six (6) years has been subject to, and the Company has not incurred and
does not expect to incur any liability under, Title IV of ERISA or Section 412
of the Code and (v) nothing in any Company Employee Plan precludes or interferes
with Holdings' ability to cause the Company to terminate (or consolidate, at
Holdings' option) any Company Employee Plan after the Closing, provided that (A)
the Company Employee Plans may be terminated prospectively only, subject to
rights accrued by the Company's employees at the time of such termination and
(B) not more than sixty days notice may be required to terminate certain Company
Employee Plans.
(c) None of the following now exists or has existed within the six-year
period ending on the date hereof with respect to any Company Employee Plan: (i)
any act or omission by the Company constituting a violation of Section 402 or
403 or, to the knowledge of the Company, Section 404 or 405 of ERISA; (ii) to
the knowledge of the Company, any act or omission by the Company which
constitutes a violation of Sections 406 and 407 of ERISA and is not exempted by
Section 408 of ERISA or which constitutes a violation of Section 4975(c) of the
Code and is not exempted by Section 4975(d) of the Code; (iii) any act or
omission by the Company constituting a violation of Section 503 or 511 or, to
the knowledge of the Company, Section 510 of ERISA; or (iv) any act or omission
by the Company which could give rise to liability under Section 502 of ERISA or
under Sections 4979 or 4975 through 4980 of the Code or any other provisions of
ERISA or the Code.
(d) Each Company Employee Plan has been maintained in substantial
compliance with its terms, and all contributions, premiums or other payments due
from the Company or any of its Subsidiaries to (or under) any such Company
Employee Plan have been fully paid or adequately provided for on the Company
Financial Statements for the most recently ended fiscal year. All accruals
thereon (including, where appropriate, proportional accruals for partial
periods) have been made in accordance with GAAP consistently applied on a
reasonable basis. There has been no amendment, written interpretation or
announcement (whether or not written) by the Company with respect to, or change
in employee participation or coverage under, any Company Employee Plan that
would increase materially the expense of maintaining such plans or arrangements,
individually or in the aggregate, above the level of expense incurred with
respect thereto for the most recently ended fiscal year.
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(e) The Company has made available to IWL complete, accurate and current
copies of all Company Employee Plans and all amendments, documents,
correspondence addressed to the Company and filings relating thereto, including
but not limited to any statements, filings, reports or returns filed with any
governmental agency with respect to the Company Employee Plans at any time
within the three-year period ending on the date hereof.
2.28 OWNERSHIP OF SECURITIES. As of the date hereof, none of the Company
or any of its affiliates or associates (as such terms are defined under the
Exchange Act), (a)(i) beneficially owns, directly or indirectly, or (ii) is
party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of IWL that in the aggregate represent 10% or more of the outstanding
shares of IWL Common Stock, or (b) is an "affiliated shareholder" of IWL within
the meaning of Article XIII of the TBCA. Neither the Company nor any of its
Subsidiaries owns any shares of IWL Common Stock.
2.29 CERTAIN REGULATORY MATTERS.
(a) Except as disclosed in Section 2.29 of the Company Disclosure Schedule,
and except for billing disputes with customers arising in the ordinary course of
business that in the aggregate involve immaterial amounts, there are no
proceedings or, to the Company's knowledge, investigations pending or threatened
before any domestic or foreign court, administrative, governmental or regulatory
body in which any of the following matters are being considered which could
reasonably be expected to have a Material Adverse Effect on the Company, nor has
the Company or any of its Subsidiaries received written notice or inquiry from
any such body, government official, consumer advocacy or similar organization or
any private party indicating that any of such matters should be considered or
may become the object of consideration or investigation which could reasonably
be expected to have a Material Adverse Effect on the Company: (i) reduction of
rates charged to customers; (ii) reduction of earnings; (iii) refunds of amounts
previously charged to customers; (iv) failure to meet any expense,
infrastructure, service quality or other commitments previously made to or
imposed by any administrative, governmental or regulatory body; or (v) increase
in termination or access charges or other rates paid or payable by the Company
to its suppliers.
(b) Except as disclosed in Section 2.29 of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any outstanding commitments
(and no such obligations have been imposed upon the Company and remain
outstanding) regarding (i) reduction of rates charged to customers; (ii)
reduction of earnings; (iii) refunds of amounts previously charged to customers;
or (iv) expenses, infrastructure expenditures, service quality or other
regulatory requirements to or by any domestic or foreign court, administrative,
governmental or regulatory body, government official, consumer advocacy or
similar organization, in each case which could reasonably be expected to have a
Material Adverse Effect on the Company.
(c) The Company has not transferred, sold any interest in, or otherwise
diluted its control over any federal or state regulatory licenses, certificates,
approvals or other authorizations under which it operates, and the transfer of
such authorizations, subject to regulatory approval, would not violate the terms
of any agreement to which the Company is a party or by which the Company is
bound, or impinge the rights of any third party.
(d) The Company has no current liability (and there is no basis for any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Company giving rise to any
liability) arising out of any injury to persons or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Company. Any such claims would be fully covered to the extent
of the dollar limitations of the Company's product liability insurance. There
are no recalls, threatened or pending, and no federal investigative reports have
been filed or were required to have been filed with respect to any of the
Company's products.
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2.30 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company in this Agreement, nor any statement made in any Schedule,
Exhibit or certificate furnished by the Company pursuant to this Agreement, when
read in their entirety, contains or will contain any untrue statement of a
material fact at the Effective Time, or omits or will omit to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading. No warranty or
representation shall be deemed to have been made by the Company except for the
warranties and representations set forth in this Agreement and the Exhibits,
Schedules and certificates delivered pursuant hereto.
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP
Except as set forth in the Partnership Disclosure Schedule attached hereto
and incorporated by reference herein (the "Partnership Disclosure Schedule"),
the Partnership hereby represents and warrants to Holdings and IWL (and, unless
the context indicates otherwise, all of such representations and warranties
shall be deemed made with respect to the Partnership and its predecessor, if
any) that, as of the date hereof:
2A.1 ORGANIZATION AND QUALIFICATION, SUBSIDIARIES. The Partnership is a
limited partnership duly formed and validly existing under the laws of the State
of Texas. The Partnership has the requisite partnership power and authority and
any necessary governmental authority, franchise, license or permit to own,
operate or lease the properties that it purports to own, operate or lease and to
carry on its business as it is now being conducted, and is duly qualified as a
foreign partnership to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or leased or
the nature of its activities makes such qualification necessary, except for such
failure which, when taken together with all other such failures, would not
reasonably be expected to have a Material Adverse Effect on the Partnership. The
Partnership does not have any Subsidiaries.
2A.2 AGREEMENT OF LIMITED PARTNERSHIP. The Partnership has heretofore
furnished, or otherwise made available to IWL, a complete and correct copy of
the Agreement of Limited Partnership (or comparable governing documents), as
amended to the date hereof, of the Partnership and its Certificate of Limited
Partnership. The Agreement of Limited Partnership (or comparable governing
documents) is in full force and effect.
2A.3 PARTNERSHIP INTERESTS.
(a) Section 2A.3 of the Partnership Disclosure Schedule sets forth all of
the outstanding Partnership Interests, all of which were validly issued in
accordance with the terms of the Agreement of Limited Partnership of the
Partnership and are fully paid and nonassessable. Except as set forth in Section
2A.3 of the Partnership Disclosure Schedule, there are no outstanding
Partnership Equity Rights. For purposes of this Agreement, "Partnership Equity
Rights" shall mean subscriptions, options, warrants, calls, commitments,
agreements, conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from the Partnership at any time, or
upon the happening of any stated event, any interest in the Partnership.
(b) There are no outstanding obligations of the Partnership to repurchase,
redeem or otherwise acquire any Partnership Interest.
(c) Except as set forth in section 2A.3 of the Partnership Disclosure
Schedule, there are no liens, security interests, pledges, agreements, claims,
charges or encumbrances on any of the Partnership Interests. Except for equity
interests disclosed in Section 2A.3 of the Partnership Disclosure Schedule, the
Partnership does not directly or indirectly own any equity interest in any other
Person.
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(d) Except as disclosed in Section 2A.3 of the Partnership Disclosure
Schedule, there are no partner agreements, voting trusts or other agreements or
understandings to which the Partnership is a party or to which it is bound
relating to the voting of any Partnership Interest.
2A.4 AUTHORITY. The Partnership has all requisite partnership power and
authority to enter into this Agreement and to consummate the Interest Exchange
and the other transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the General Partner on behalf of the Partnership. This
Agreement has been duly executed and delivered by the General Partner on behalf
of the Partnership and constitutes the valid and binding obligation of the
Partnership enforceable in accordance with its terms. The execution and delivery
of this Agreement by the Partnership does not and the consummation of the
transactions contemplated hereby will not result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a material benefit under (a) any provision of the Agreement of Limited
Partnership of the Partnership or (b) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Partnership or its properties or assets. No consent, approval,
order or authorization of, or registration, declaration or filing with any
Governmental Entity is required by or with respect to the Partnership in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (a) the filing of an
amendment to the Partnership's certificate of limited partnership with the
Secretary of State of Texas and (b) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required by
the Nasdaq National Market or under applicable state and federal securities
laws.
2A.5 PARTNERSHIP FINANCIAL STATEMENTS. Section 2A.5 of the Partnership
Disclosure Schedule sets forth the Partnership's audited financial statements
(balance sheets, income statements and statements of cash flows) as of and for
the fiscal years ended December 31, 1996 and 1994 and for the six months ended
June 30, 1995, and the Partnership's reviewed financial statements for the nine
months ended September 30, 1997 (collectively, the "Partnership Financial
Statements"). The Partnership Financial Statements are complete and correct in
all material respects and, except as set forth in Section 2A.5 of the
Partnership Disclosure Schedule, have been prepared in accordance with GAAP
applied on a basis consistent throughout the periods indicated and consistent
with each other (except that the reviewed Partnership Financial Statements do
not contain the notes necessary to be in accordance with GAAP and are subject to
normal year-end adjustments). The Partnership Financial Statements present
fairly the financial condition and operating results of the Partnership and its
Subsidiaries as of the dates and for the periods indicated therein. The reviewed
balance sheet of the Partnership as of September 30, 1997 is hereinafter
referred to as the "Partnership Balance Sheet."
2A.6 NO UNDISCLOSED LIABILITIES. The Partnership does not have any
liabilities or obligations, either accrued or contingent, whether or not
required to be reflected in financial statements prepared in accordance with
GAAP, and whether due or to become due, except: (a) liabilities reflected in the
Partnership Balance Sheet, (b) liabilities specifically described in this
Agreement or in the Partnership Disclosure Schedule or (c) liabilities not
exceeding $50,000 in the aggregate incurred in the ordinary course of business
since the date of the Partnership Balance Sheet.
2A.7 NO CHANGES. Except as set forth in Section 2A.7 of the Partnership
Disclosure Schedule or as contemplated by this Agreement, since the date of the
Partnership Balance Sheet there has not been, occurred or arisen any:
(a) transaction by the Partnership except in the ordinary course of
business as conducted on that date;
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(b) capital expenditure or inventory purchase by the Partnership exceeding
$25,000 individually or $100,000 in the aggregate, except pursuant to existing
contracts listed in Section 2A.12 of the Partnership Disclosure Schedule;
(c) destruction, damage to, or loss of any assets (including without
limitation intangible assets) of the Partnership (whether or not covered by
insurance), either individually or in the aggregate, exceeding $25,000;
(d) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(e) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates, any change in policies in making
or reversing accruals, or any change in capitalization of software development
costs) by the Partnership;
(f) declaration, setting aside, or payment of a distribution in respect of
the Partnership Interests, or any direct or indirect redemption, purchase or
other acquisition by the Partnership of any of its interests;
(g) increase in the salary or other compensation payable or to become
payable by the Partnership to any of its employees, or the declaration, payment,
or commitment or obligation of any kind for the payment by the Partnership of a
bonus or other additional salary or compensation to any person except for
year-end distributions and bonuses paid in the ordinary course of business
consistent with past practice;
(h) acquisition, sale or transfer of any asset of the Partnership except in
the ordinary course of business;
(i) formation, amendment or termination of any material distribution
agreement or any material contract, agreement or license to which the
Partnership is a party, other than termination by the Partnership pursuant to
the terms thereof,
(j) loan by the Partnership to any Person or guaranty by the Partnership of
any loan;
(k) waiver or release of any material right or claim of the Partnership,
including any write-off or other compromise of any account receivable of the
Partnership except in the ordinary course of business;
(l) the commencement or notice or, to the knowledge of the Partnership,
threat of commencement of any government proceeding against or investigation of
the Partnership or its affairs;
(m) other event or condition of any character relating to the Partnership
or the Partnership's business that has or would be expected to have a Material
Adverse Effect on the Partnership;
(n) issuance, sale or redemption by the Partnership of any interest in the
Partnership;
(o) change in pricing or royalties set or charged by the Partnership except
pursuant to the terms of existing contracts; or
(p) negotiation or agreement by the Partnership to do any of the things
described in the preceding clauses (a) through (o) (other than negotiations with
parent and its representatives or any other Person regarding the transactions
contemplated by this Agreement).
2A.8 TAX AND OTHER PARTNERSHIP RETURNS AND REPORTS.
(a) TAX PARTNERSHIP RETURNS AND AUDITS. Except as set forth in Section 2A.8
of the Partnership Disclosure Schedule, the Partnership has prepared and filed
all federal, state, local and foreign returns, estimates, information statements
and reports required to be filed by any of them relating to any and all Taxes
relating or attributable to the Partnership or the assets or operations of the
Partnership ("Partnership Returns"), and such Partnership Returns are true and
correct in all material respects and have been completed in accordance with
applicable law. Except as set forth in Section 2A.8 of the Partnership
Disclosure Schedule, the Partnership has paid all Taxes required to be paid by
the Partnership with respect to such Partnership Returns and has withheld with
respect to its employees all federal and state income
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Taxes, FICA, FUTA and other Taxes it is required to withhold. The accruals for
Taxes on the books and records of the Partnership are sufficient to discharge
the Taxes payable by the Partnership for all periods (or the portion of any
period) ending on or prior to the Closing Date. The Partnership is not
delinquent in the payment of any Tax nor, except as set forth in Section 2A.8 of
the Partnership Disclosure Schedule, is there any Tax deficiency outstanding, to
the knowledge of the Partnership, proposed or assessed against the Partnership
nor has the Partnership executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax. The audits of
each Partnership Return that has been audited by the relevant authorities or for
which the statute of limitations has been waived or extended have been closed
and the Partnership has not received any written or oral notification that an
audit or other examination of any Partnership Return is presently in progress.
All such Partnership Returns that have been audited or for which the statute of
limitations has been waived are listed in Section 2A.8 of the Partnership
Disclosure Schedule. Except as set forth in Section 2A.8 of the Partnership
Disclosure Schedule, the Partnership does not have any material liabilities for
unpaid Taxes, whether asserted or unasserted, known or unknown, contingent or
otherwise and the Partnership has no knowledge of any basis for the assertion of
any such liability attributable to the Partnership or the assets or operations
of the Partnership. The Partnership is not (nor has it ever been) required to
join with any other entity in the filing of a consolidated tax return for
federal tax purposes or a consolidated or combined return or report for state
tax purposes. Except as set forth in Section 2A.8 of the Partnership Disclosure
Schedule, the Partnership is not a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement. There are (and as of immediately following
the Closing there will be) no liens on the assets of the Partnership relating to
or attributable to Taxes, except for liens for Taxes not yet due and payable or
liens for Taxes being contested by appropriate proceedings. The Partnership has
no knowledge of any basis for the assertion of any claim which, if adversely
determined, would result in liens on the assets of the Partnership. There is no
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Partnership that, individual or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G, 162A or 404
of the Code.
(b) NO PENALTY. The Partnership is not subject to any penalty by reason of
a violation of any order, rule or regulation of, or a default with respect to
any Partnership Return, report or declaration required to be filed with any
Governmental Entity to which it is subject.
2A.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement binding
upon, or judgment, injunction, order or decree entered against, the Partnership
under which the Partnership is prohibited from conducting or engaging in any
line of business.
2A.10 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT.
(a) The Partnership owns no real property except as set forth in Section
2A.10(a) of the Partnership Disclosure Schedule. Section 2A.10(a) of the
Partnership Disclosure Schedule sets forth a true and complete list of all real
property leased by the Partnership and the aggregate annual rental or other fee
payable under any such lease. All such leases are in good standing, valid and
effective in accordance with their respective terms, and there is not with
respect to the Partnership and, to the knowledge of the Partnership, any other
parties to such leases, under any of such leases any existing default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default).
(b) Except as set forth in Section 2A.10(b) of the Partnership Disclosure
Schedule, the Partnership holds good and valid title to (or, in the case of
leased properties, assets and rights of way, valid leasehold interests in) all
of its tangible properties, assets and rights of way, real, personal and mixed,
used in its business, free and clear of any liens, charges, pledges, security
interests or other encumbrances. The Partnership has valid and subsisting rights
of way to use all real or personal property in or through which the
Partnership's owned or leased optic or other fiber lines are currently located
or situated.
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(c) The Equipment used by the Partnership in the conduct of its business is
listed in Section 2A.10(c) of the Partnership Disclosure Schedule, except
individual pieces of equipment owned by the Partnership with an individual value
of less than $5,000. The Equipment is, taken as a whole, (i) adequate for the
conduct of the business of the Partnership as currently conducted, (ii) suitable
for the uses to which it is currently employed, (iii) in good operating
condition, (iv) regularly and properly maintained, ordinary wear and tear
excepted, and (v) not obsolete, dangerous or in need of renewal or replacement.
2A.11 INTELLECTUAL PROPERTY.
(a) The Partnership owns, or is licensed to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, schematics, technology, know-how, computer software programs or
applications and tangible or intangible proprietary information or material
(excluding Partnership Commercial Software Rights (as defined in Section
2A.11(b) below)) that are used or currently proposed by the Partnership to be
used in the business of the Partnership as currently conducted or as currently
proposed to be conducted by the Partnership (the "Partnership Intellectual
Property Rights"). Section 2A.11(a) of the Partnership Disclosure Schedule (i)
sets forth a complete list of all patents, patent applications, registered
trademarks, material unregistered copyrights, trade names and service marks, and
any applications therefor, included in the Partnership Intellectual Property
Rights; (ii) specifies the jurisdictions in which each such Partnership
Intellectual Property Right has been issued or registered or in which an
application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners, together with a list of all of the Partnership's currently marketed
software products and a list of which, if any, of such software products that
have been registered for copyright protection with the United States Copyright
Office and any foreign offices and by whom such items have been registered and
(iii) as to each such Partnership Intellectual Property Right, specifies whether
it is owned by the Partnership or licensed to the Partnership by another Person
and, in the cases of any licenses, sets forth the licensor and the term of such
license. Section 2A.11(a) of the Partnership Disclosure Schedule also sets forth
a complete list of all licenses, sublicenses and other agreements pursuant to
which the Partnership has licensed any other Person to use any Partnership
Intellectual Property Right or other trade secret material to the Partnership,
and includes the identity of such licensees, provided, however, that End-User
Licenses need not be listed. The Partnership is not, nor will it be as a result
of the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any license, sublicense or agreement
described on such list. The Partnership is the sole and exclusive owner of, with
all right, title and interest in and to (free and clear of any liens or
encumbrances other than End-User Licenses), those Partnership Intellectual
Property Rights which the Partnership purports to own, and has sole and
exclusive rights, and is not contractually obligated to pay any compensation to
any third party in respect thereof to the use thereof or the material covered
thereby in connection with the services or products in respect of which such
Partnership Intellectual Property Rights are being used. With respect to
Partnership Intellectual Property Rights licensed to the Partnership, the
Partnership has sufficient rights under the license agreements relating thereto
to enable the Partnership to use such Partnership Intellectual Property Rights
in its business as currently conducted and as proposed to be conducted without
payment of royalties or other compensation to the licensor thereof. No claims
with respect to the Partnership Intellectual Property Rights have been asserted
or, to the knowledge of the Partnership, are threatened by any Person, (i) to
the effect that the manufacture, sale, licensing or use of any product as now
used, sold or licensed or proposed for use, sale or license by the Partnership
infringes on any copyright, patent, trade mark service mark or trade secret,
(ii) against the use by the Partnership of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Partnership's business as currently conducted or as
proposed by the Partnership to be conducted, or (iii) challenging the ownership,
validity or effectiveness of any of the Partnership Intellectual Property
Rights. Except as set forth in Section 2A.11(a) of the Partnership Disclosure
Schedule, all registered and material unregistered trademarks, service marks and
copyrights held by the Partnership are valid and subsisting. To the knowledge of
the Partnership, there is no material unauthorized use, infringement or
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misappropriation of any of the Partnership Intellectual Property Rights by any
third party, including any employee or former employee of the Partnership. No
Partnership Intellectual Property Right owned exclusively by the Partnership or
product of the Partnership is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting in any manner the licensing thereof
by the Partnership. There is no outstanding order, judgment, decree or
stipulation on the Partnership, and the Partnership is not a party to any
agreement, restricting in any manner the licensing of the Partnership's products
by the Partnership. Except for End-User Licenses or as otherwise set forth in
Section 2A.11(a) of the Partnership Disclosure Schedule, the Partnership has not
entered into any agreement to indemnify any Person against any charge of
infringement of any Partnership Intellectual Property Right.
(b) "Partnership Commercial Software Rights" means packaged commercially
available software programs generally available to the public through retail
dealers in computer software which have been licensed to the Partnership
pursuant to End-User Licenses and which are used in the Partnership's business
but are in no way a component of or incorporated in any of the Partnership's
products and related trademarks, technology and know-how. To the knowledge of
the Partnership, the Partnership has not breached or violated the terms of its
license, sublicense or other agreement relating to any Partnership Commercial
Software Rights and has a valid right to use such Partnership Commercial
Software Rights under such license and agreements. No claims with respect to the
Partnership Commercial Software Rights have been asserted or, to the knowledge
of the Partnership, are threatened by any Person against the Partnership. To the
knowledge of the Partnership, there is no material unauthorized use,
infringement or misappropriation of any of the Partnership Commercial Software
Rights by the Partnership or any employee or former employee of the Partnership
during the period of their employment.
2A.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Other than those listed in
Section 2A.12 of the Partnership Disclosure Schedule, the Partnership does not
have, is not a party to nor is it bound by:
(a) any collective bargaining agreements,
(b) any agreements that contain any unpaid severance liabilities or
obligations,
(c) any bonus, deferred compensation, incentive compensation, option,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements,
(d) any employment or consulting agreement, contract or commitment (other
than employment letters) with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or commitment with a firm
or other organization, not terminable by the Partnership on thirty days notice
without liability,
(e) any insurance policy, fidelity or surety bond or completion bond not
listed in Section 2A.20 of the Partnership Disclosure Schedule,
(f) any lease of personal property having a value individually in excess of
$25,000,
(g) any agreement of indemnification or guaranty not entered into in the
ordinary course of business,
(h) any agreement, contract or commitment containing any covenant limiting
the freedom of the Partnership to engage in line of business or compete with any
Person,
(i) any agreement, contract or commitment relating to capital expenditures
and involving future obligations in excess of $25,000,
(j) any agreement, contract or commitment relating to the disposition or
acquisition of assets not in the ordinary course of business or any ownership
interest in any corporation, partnership, joint venture or other business
enterprise,
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(k) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (g) hereof,
(l) any purchase order or contract for the purchase of raw materials or
acquisition of assets involving $25,000 or more in any single instance or
$100,000 or more in the aggregate,
(m) any construction contracts involving $25,000 or more in any single
instance or $100,000 or more in the aggregate,
(n) any distribution, joint marketing or development agreement,
(o) any lease for switches or any other machinery, equipment or other
personal property involving payment of aggregate rentals in excess of $25,000,
(p) any contract pursuant to which the Partnership has access to the
telephone network of another Person other than the Partnership's internal
commercial telephone service and any contracts for the resale of any network
capacity of the Partnership,
(q) any agreement, contract, lease or easement pursuant to which the
Partnership has the right of way to use any premises or real property to locate
and/or install fiber lines on, under or through such premises or real property,
(r) any agreement or commitment obligating the Partnership to deliver any
product or service at a price which does not cover the cost (including labor,
materials and production overhead), plus a reasonable profit margin, for such
product or service,
(s) any joint venture, partnership or other cooperative arrangement or
agreement involving a sharing or profits or losses,
(t) any other agreement, contract or commitment which involves $25,000 or
more and is not cancelable without penalty within thirty (30) days, or
(u) any agreement which is otherwise material to the Partnership's
business.
The Partnership has not breached, or received any claim or threat that it
has breached, any of the terms or conditions of any material agreement, contract
or commitment to which it is bound (including, but not limited to, those set
forth in Section 2A.12 or any other section of the Partnership Disclosure
Schedule) in such manner as would permit any other party to cancel or terminate
the same. Each agreement, contract or commitment to which the Partnership is a
party and that is required to be set forth in the Partnership Disclosure
Schedule is in full force and effect and, except as otherwise disclosed, is not
subject to any material default thereunder by any party thereto. The Partnership
is not bound by any material contract, agreement, license, lease or other
commitment, a copy of which has not been previously provided or made available
to IWL. The Partnership, after making an inquiry of all of its employees and
Partners and their respective officers, directors, shareholders and appropriate
employees, does not have any reason to expect that any change may occur in the
relationships of the Partnership with its suppliers or customers as a result of
the Interest Exchange, which change would have a Material Adverse Effect on the
Partnership. No supplier of or customer of the Partnership has indicated within
the past year that it will stop, or decrease the rate of supplying or purchasing
materials, products, or services to or from the Partnership, as a result of the
Mergers or the Interest Exchange. Except as described in Section 2A.4, no
consents, waivers or approvals under any of the Partnership's material
agreements, contacts, licenses or leases are necessary in order to preserve the
benefits thereunder for the Surviving Corporation or otherwise to avoid any
breach, default or right of termination or other right as a result of the
Mergers or the Interest Exchange.
2A.13 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section 2A.13
of the Partnership Disclosure Schedule, no Partner or any officer, director or
shareholder of such Partner (nor any parent, sibling,
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descendant or spouse of any of such persons, or any trust, partnership,
corporation or other entity in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (a) an interest in any entity
which furnished or sold, or furnishes or sells, services or products which the
Partnership furnished or sells, or proposes to furnish or sell, or (b) any
interest in any entity which purchases from or sells or furnishes to the
Partnership any goods or services, or (c) a beneficial interest in any contract
or agreement required to be set forth in Section 2A.12 of the Partnership
Disclosure Schedule; provided, that ownership of no more than five percent (5%)
of the outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest of any entity" for purposes of this Section 2A.13.
2A.14 GOVERNMENTAL AUTHORIZATIONS. Section 2A.14 of the Partnership
Disclosure Schedule accurately lists each federal, state, county, local or
foreign governmental consent, license, permit, grant, or other authorization
issued to the Partnership (a) pursuant to which the Partnership currently
operates or holds any interest in any of its properties or (b) which is required
for the operation of its business as currently conducted or the holding of any
such interest as currently held (herein collectively called the "Partnership
Authorizations"). The Partnership Authorizations are in full force and effect
and constitute all the authorizations required to permit the Partnership to
operate or conduct its business as currently conducted or hold any interest in
its properties as currently held.
2A.15 LITIGATION. Section 2A.15 of the Partnership Disclosure Schedule
accurately lists all suits, actions and legal, administrative, arbitration or
other proceedings and governmental investigations and all other claims pending
against the Partnership or, to the knowledge of the Partnership, threatened or
which the partnership expects will ultimately be threatened or commenced against
the Partnership. None of such suits, actions, proceedings, investigations or
claims seek to prevent the consummation of the Mergers or the Interest Exchange.
There is no judgment, degree or order enjoining the Partnership in respect of,
or the effect of which is to prohibit, any business practice or the acquisition
of any property or the conduct of business of the Partnership. Section 2A.15 of
the Partnership Disclosure Schedule also lists all suits and legal actions
initiated by the Partnership which are still pending or which have been
concluded in the last two years.
2A.16 ACCOUNTS RECEIVABLE. All accounts receivable of the Partnership
shown in the Partnership Balance Sheet arose in the ordinary course of business
and, to the extent not previously collected, are collectible (except to the
extent reserved against as reflected in the Partnership's Partnership Financial
Statements) and are carried at values determined in accordance with GAAP
consistently applied. To the knowledge of the Partnership, none of the accounts
receivable of the Partnership outstanding as of the date hereof is subject to
any claim of offset, recoupment, set off or counterclaim, and there are no facts
or circumstances (whether asserted or unasserted) that would give rise to any
such claim. No accounts receivable are contingent upon the performance by the
Partnership of any obligation or contract except for the Partnership's
maintenance obligations under its maintenance agreements (although no customer
has claimed that the Partnership has failed to perform its maintenance
obligations). No Person has any lien, charge, pledge, security interest or other
encumbrance on any of the Partnership's accounts receivable and no agreement for
deduction or discount has been made with respect to any of such accounts
receivable, except for liens granted to Bank One Texas, N.A. under the
Partnership's revolving line of credit.
2A.17 ENVIRONMENTAL AND OSHA.
(a) The Partnership has complied in all material respects with all
Environmental Laws and Employee Safety Laws, and no charge, action, suit,
proceeding, hearing, known investigation, claim, damage, or notice has been
filed or commenced against the Partnership alleging any failure to comply with
any such law or regulation.
(b) The Partnership has no obligation to take remedial action with respect
to any conditions nor does the Partnership have any liability, and there is no
basis related to the Partnership's past or present operations, for any present
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand giving rise to any liability or obligation to take any remedial action
under any Environmental Law.
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(c) Except as set forth in Section 2A.17(c) of the Partnership Disclosure
Schedule, the Partnership has no liability relating to, and it has not handled
or disposed of any substance, arranged for the disposal of any substance, or
owned or operated any property or facility in violation of any Environmental
Law.
(d) The Partnership has no liability for, and there is no basis for, any
present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Partnership giving rise to any
material liability under any Employee Safety Laws.
(e) The Partnership has no liability relating to, and to the knowledge of
the Partnership, the Partnership has not exposed any of the Partnership's
employees to any substances or conditions that could form the basis for, any
present charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand (under the common law or pursuant to statute) against the
Partnership giving rise to material liability for any illness of or personal
injury to any employee.
(f) The Partnership has been in compliance with all the terms and
conditions of all permits, licenses, and other authorizations of Governmental
Entities which are required under any Environmental Law or Employee Safety Law.
(g) All properties and equipment used by the Partnership are free of
asbestos, PCB's and other Extremely Hazardous Substances (as defined in Section
302A of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended). To the knowledge of the Partnership, no pollutant, contaminant,
chemical, or industrial, hazardous, or toxic material or waste has been buried,
stored, spilled, leaked, discharged, emitted, or released on any real property
that the Partnership has ever owned, or that the Partnership now leases or has
ever leased.
2A.18 BROKERS' AND FINDERS' FEES. The Partnership has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders,
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2A.19 LABOR MATTERS. The Partnership is in compliance in all material
respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment and
wages and hours and employment practices, and is not engaged in any unfair labor
practice. The Partnership has not received any notice from any Governmental
Entity of, and to the knowledge of the Partnership there has not been asserted
before any Governmental Entity, any claim of action or proceeding to which the
Partnership is a party or involving the Partnership, and there is neither
pending nor, to the knowledge of the Partnership, threatened any investigation
or hearing concerning the Partnership arising out of or based upon any such
laws, regulations or practices. There are no pending claims against the
Partnership under any workers compensation plan or policy or for long term
disability. The Partnership has complied in all material respects with all
applicable health care benefit continuation provisions of COBRA and has no
obligations with respect to any former employees or qualified beneficiaries
thereunder. Section 2A.19 of the Partnership Disclosure Schedule lists all
current employees of the Partnership and their current salary and vacation
accruals.
2A.20 INSURANCE. Section 2A.20 of the Partnership Disclosure Schedule
lists all insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, software errors and omissions, employees,
officers and directors of the Partnership as well as all claims made under any
insurance policy by the Partnership since January 1, 1993 (other than claims
under the Partnership's medical and dental insurance plans). There is no claim
by the Partnership pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds as to which coverage has been questions, denied or disputed by
the underwriters of such policies or bonds (other than claims made under the
Partnership's medical and dental insurance plans). The Partnership has provided
or made available to IWL copies of all such insurance policies and fidelity
bonds and all claims made by the Partnership under its insurance policies (other
than claims under the Partnership's medical and dental plans). All premiums
payable under all such policies and bonds have been
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paid and the Partnership is otherwise in compliance in all material respects
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). Such policies of insurance and bonds
are of the type and in amounts customarily carried by Persons conducting
businesses similar to those of the Partnership. The Partnership does not know of
any threatened termination of or proposed material premium increase with respect
to any of such policies. The Partnership has never been denied insurance
coverage nor has any insurance policy of the Partnership ever been canceled for
any reason.
2A.21 INVENTORY. The inventory appearing on the Partnership Financial
Statements, or thereafter acquired or produced, conforms in all material
respects with the Partnership's applicable specifications and warranties and
have been produced in compliance with the Partnership's quality control
procedures and consist only of items of a quality and quantity useable or
saleable by the Partnership in the ordinary course of business. All such
inventory is merchantable and fit for the purpose for which it was procured or
manufactured, and none of which is obsolete, damaged or defective in any amount.
Such inventory is owned by the Partnership and is not subject to any liens,
charges, pledges, security interests or other encumbrances.
2A.22 COMPLIANCE WITH LAWS.
(a) The Partnership has complied in all material respects with, is not in
violation of, and has not received any notices of violation with respect to any
federal, state or local statute, law or regulation with respect to the conduct
of its business or the ownership or operations of its business, assets or
properties. No charge, complaint, action, suit, proceeding, hearing, known
investigation, claim, demand, or notice has been filed or commenced against
alleging any failure to comply with any such law or regulation.
(b) The Partnership has not violated in any respect, or received a notice
or charge asserting any violation of the Sherman Act, the Clayton Act, the
Robinson-Patman Act, or the Federal Trade Commission Act, each as amended.
(c) The Partnership has not, and none of the Partners or employees of the
Partnership have, on behalf of the Partnership:
(i) made or agreed to make any contribution, payment or gift of funds
or property to any governmental official, employee, or agent where either
the contribution, payment, or gift or the purpose thereof was illegal under
the laws of any federal, state or local jurisdiction; or
(ii) established or maintained any unrecorded fund or asset for any
purpose, or intentionally made any false or inaccurate entries on any of its
books and/or records; or
(iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other Person, to any candidate
for federal, state or local public office; or
(iv) been involved in the disbursement or receipt of funds outside
of the normal internal control systems of accountability or been involved
in the improper or inaccurate recording of material payments,
disbursements or receipts.
2A.23 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. None of the
information supplied or to be supplied by or on behalf of the Partnership for
inclusion or incorporation by reference, and reviewed by the Partnership prior
to such inclusion or incorporation by reference, in the Registration Statement
will, at the time the Registration Statement becomes effective under the
Securities Act, 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. None of the information supplied or to be supplied by or on
behalf of the Partnership for inclusion or incorporation by reference, and
reviewed by the Partnership prior to such inclusion or incorporation by
reference, in the Joint Proxy Statement will, at the dates mailed to
shareholders and at the times of the IWL shareholders' meeting and the Partners'
meeting, contain any untrue statement of a material fact or
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omit to state any material fact required to be stated therein a necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event with respect to the Partnership or its Partners should occur which is
required to be described in an amending of, or a supplement to, the Registration
Statement or the Joint Proxy Statement, the Partnership shall promptly so advise
IWL. The Partnership will promptly disseminate any such amendment or supplement
to the Partners of the Partnership.
2A.24 ACCOUNTING MATTERS. Neither the Partnership nor, to its knowledge,
any of its affiliates has through the date hereof taken or agreed to take any
action that would prevent the business combination to be effected by the Mergers
and the Interest Exchange from being accounted for as a "pooling of interests."
2A.25 FIRPTA. The Partnership is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2A) of the Code.
2A.26 EMPLOYEE BENEFIT PLANS.
(a) Section 2A.26 of the Partnership Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
incentive, deferred compensation, supplemental retirement, severance and
other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment or executive compensation or severance
agreements, written or otherwise, for the benefit of, or relating to, any
employee of the Partnership (together, the "Partnership Employee Plans"),
and a copy of each such Partnership Employee Plan has been provided or made
available to IWL.
(b) (i) None of the Partnership Employee Plans promises to provides
retiree medical or other retiree welfare benefits to any person except as
required by applicable law, including but not limited to COBRA; (ii) all
Partnership Employee Plans are in compliance in all material respects with
the requirements prescribed by any and all applicable statues (including
ERISA and the Code), orders, or governmental rules and regulations currently
in effect with respect thereto (including all applicable requirements for
the notification to participants or beneficiaries or the Department of
Labor, IRS or Secretary of the Treasury), and the Partnership has performed
in all material respects all obligations required to be performed by it
under, is not in default under or violation of, and has no knowledge of any
default or violation by any other party to, any of the Partnership Employee
Plans; (iii) each Partnership Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code either has received a favorable determination letter and
to make any amendments necessary to obtain a favorable determination; and
(iv) no Partnership Employee Plan is or within the prior six (6) years has
been subject to, and the Partnership has not incurred and does not expect to
incur any liability under, Title IV or ERISA or Section 412A of the Code and
(v) nothing in any Partnership Employee Plan precludes or interferes with
Holdings' ability to cause the Partnership to terminate (or consolidate, at
Holdings' option) any Partnership Employee Plan after the Closing, provided
that (A) the Partnership Employee Plan may be terminated prospectively only,
subject to rights accrued by the Partnership's employees at the time of such
termination and (B) not more than sixty days notice may be required to
terminate certain Partnership Employee Plans.
(c) None of the following now exists or has existed within the six-year
period ending on the date hereof with respect to any Partnership Employee
Plan: (i) any act or omission by the Partnership constituting a violation of
Section 402A or 403 or, to the knowledge of the Partnership, Section 404 or
405 of ERISA; (ii) to the knowledge of the Partnership, any act or omission
by the Partnership which constitutes a violation of Sections 406 and 407 of
ERISA and is not exempted by Section 408 of ERISA or which constitutes a
violation of Section 4975(c) of the Code and is not exempted by Section
4975(d) of the Code; (iii) any act or omission by the Partnership
constituting a violation of Section 503 or 511, to the knowledge of the
Partnership, Section 510 of ERISA; or (iv) any act or
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omission by the Partnership which could give rise to liability under Section
502A of ERISA or under Sections 4979 or 4975 through 4980 of the Code or any
other provisions of ERISA or the Code.
(d) Each Partnership Employee Plan has been maintained in substantial
compliance with its terms, and all contributions, premiums or other payments
due from the Partnership to (or under) any such Partnership Employee Plan
have been fully paid or adequately provided for on the Partnership Financial
Statements for the most recently ended fiscal year. All accruals thereon
(including, where appropriate proportional accruals for partial periods have
been made in accordance with GAAP consistently applied on a reasonable
basis. There has been no amendment, written interpretation or announcement
(whether or not written) by the Partnership with respect to, or change in
employee participation or coverage under, any Partnership Employee Plan that
would increase materially the expense of maintaining such plans or
arrangements, individually or in the aggregate, above the level of expense
incurred with respect thereto for the most recently ended fiscal year.
(e) The Partnership has made available to IWL complete, accurate and
current copies of all Partnership Employee Plans and all amendments,
documents, correspondence addressed to the Partnership and filings relating
thereto, including but not limited to any statements, filings, reports or
returns filed with any governmental agency with respect to the Partnership
Employee Plans at any time within the three-year period ending on the date
hereof.
2A.27 OWNERSHIP OF SECURITIES. As of the date hereof, none of the
Partnership or any of its affiliates or associates (as such terms are defined
under the Exchange Act), (a)(i) beneficially owns, directly or indirectly, or
(ii) is party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of IWL that in the aggregate represent 10% or more of the outstanding
shares of IWL Common Stock, or (b) is an "affiliated shareholder" of IWL within
the meaning of Article XIII of the TBCA. Neither the Partnership nor any of its
Partners own any shares of IWL Common Stock.
2A.28 CERTAIN REGULATORY MATTERS.
(a) Except as disclosed in Section 2A.28 of the Partnership Disclosure
Schedule and except for billing disputes with customers arising in the
ordinary course of business that in the aggregate involve immaterial
amounts, there are no proceedings or, to the Partnership's knowledge,
investigations pending or threatened before any domestic or foreign court,
administrative, governmental or regulatory body in which any of the
following matters are being considered which could reasonably be expected to
have a Material Adverse Effect on the Partnership, nor has the Partnership
received written notice or inquiry from any such body, government official,
advocacy or similar organization or any private party indicating that any of
such matters should be considered or may become the object of consideration
or investigation which could reasonably be expected to have a Material
Adverse Effect on the Partnership: (i) reduction of rates charged to
customers; (ii) reduction of earnings; (iii) refunds of amounts previously
charged to customers; (iv) failure to meet any expense, infrastructure,
service quality or other commitments previously made to or imposed by any
administrative, governmental or regulatory body; or (v) increase in
termination or access charges or other rates paid or payable by the
Partnership to its suppliers.
(b) Except as disclosed in Section 2A.28 of the Partnership Disclosure
Schedule, the Partnership has no outstanding commitments (and no such
obligations have been imposed upon the Partnership and remain outstanding)
regarding (i) reduction of rates charged to customers; (ii) reduction of
earnings; (iii) refunds of amounts previously charged to customers; or (iv)
expenses, infrastructure expenditures, service quality or other regulatory
requirements to or by any domestic or foreign court, administrative,
governmental or regulatory body, government official, consumer advocacy or
similar organization, in each case which could reasonably be expected to
have a Material Adverse Effect on the Partnership.
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(c) The Partnership has not transferred, sold any interest in, or
otherwise diluted its control over any federal or state regulatory licenses,
certificates, approvals or other authorizations under which it operates, and
the transfer of such authorizations, subject to regulatory approval, would
not violate the terms of any agreement to which the Partnership is a party
or by which the Partnership is bound, or impinge the rights of any third
party.
(d) The Partnership has no current liability (and there is no basis for
any present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Partnership giving rise to any
liability) arising out of any injury to persons or property as a result of
the ownership, possession, or use of any product manufactured, sold, leased,
or delivered by the Partnership. Any such claims would be fully covered to
the extent of the dollar limitations of the Partnership's product liability
insurance. There are no recalls, threatened or pending, and no federal
investigative reports have been filed or were required to have been filed
with respect to any of the Partnership's products.
2A.29 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Partnership in this Agreement, nor any statement made in any
Schedule, Exhibit or certificate furnished by the Partnership pursuant to this
Agreement, when read in their entirety, contains or will contain any untrue
statement of a material fact at the Effective Time, or omits or will omit to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading. No warranty or representation shall be deemed to have been made by
the Partnership except for the warranties and representations set forth in this
Agreement and the Exhibits, Schedules and certificates delivered pursuant
hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF IWL AND THE MERGER SUBSIDIARIES
Except as set forth in the IWL Disclosure Schedule attached hereto and
incorporated by reference herein (the "IWL Disclosure Schedule"), and subject to
Section 3.31, IWL and I-Sub and C-Sub (collectively, the "Merger Subsidiaries")
hereby jointly and severally represent and warrant to the Company and the
Partnership (and, unless the context indicates otherwise, all of such
representations and warranties shall be deemed made with respect to IWL and the
Merger Subsidiaries, their respective Subsidiaries (other than as set forth in
Section 3.31) and their respective predecessors, if any) that, as of the date
hereof:
3.1 ORGANIZATION, STANDING AND POWER. Each of IWL and its Subsidiaries
(including each Merger Subsidiary) is a corporation duly organized, validly
existing and in good standing under the laws of its state or other jurisdiction
of incorporation. Each of IWL and its Subsidiaries has the corporate power to
own its properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a Material Adverse Effect on IWL and its Subsidiaries taken as a whole. IWL has
made available a true and correct copy of the Articles of Incorporation and
Bylaws of each of IWL and its Subsidiaries, as amended to date, to counsel for
the Company and the Partnership.
3.2 CAPITAL STRUCTURE.
(a) The authorized stock of IWL consists of 100,000,000 shares of common
stock, par value $0.01 per share, of which 3,754,230 shares were issued and
outstanding as of December 31, 1997, and 10,000,000 shares of preferred
stock, par value $.01 per share, of which no shares are issued or
outstanding as of the date hereof. The authorized capital stock of Holdings
consists of 100,000,000 shares of common stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $.01 per share. The
authorized capital stock of each Merger Subsidiary consists of 1,000 shares
of common stock, par value $0.01 per share. Holdings has 1,000 shares of
common stock issued and outstanding as of the date hereof, which are held by
IWL, and I-Sub and C-Sub each have 1,000 shares
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of common stock issued and outstanding as of the date hereof, which are held
by Holdings. All such shares have been duly authorized, and all such issued
and outstanding shares have been validly issued (free of preemptive rights),
are fully paid and nonassessable and are free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof. IWL has also reserved (i) 146,695 shares of IWL Common Stock for
issuance to employees and consultants pursuant to IWL's Employee Incentive
Stock Option Plan, (ii) 300,000 shares of IWL Common Stock for issuance to
employees and consultants pursuant to IWL's 1997 Stock Option Plan, and
(iii) 100,000 shares of Common Stock for issuance to outside directors of
IWL under IWL's 1997 Director Stock Option Plan. Except as set forth in the
preceding sentence and except as set forth in Section 3.2 of the IWL
Disclosure Schedule, IWL has not reserved any shares of its capital stock
for future issuance.
(b) Except as set forth in Section 3.2 of the IWL Disclosure Schedule,
there are no outstanding IWL Equity Rights. For purposes of this Agreement,
"IWL Equity Rights" shall mean subscriptions, options, warrants, calls,
commitments, agreements, conversion rights or other rights of any character
(contingent or otherwise) to purchase or otherwise acquire from IWL or any
of IWL's Subsidiaries at any time, or upon the happening or any stated
event, any shares of the capital stock of IWL.
(c) Section 3.2 of the IWL Disclosure Schedule sets forth for each
outstanding IWL Equity Right the name of the holder of such IWL Equity
Right, the number of shares subject to such IWL Equity Right, the exercise
price of such IWL Equity Right and the number of shares as to which such IWL
Equity Right is exercisable, and, if the exercisabilty of such IWL Equity
Right will be accelerated in any way by the transactions contemplated by
this Agreement, an indication of the extent of such acceleration. Section
3.2 of the IWL Disclosure Schedule also describes any repricing of any IWL
Equity Rights which has taken place since January 1, 1993. IWL has made
available to the Company and the Partnership copies of all agreements
relating to IWL Equity Rights.
(d) Since January 1, 1993, IWL has not repurchased any of its capital
stock.
(e) There are no outstanding obligations of IWL or any of IWL's
Subsidiaries or of ICEL to repurchase, redeem or otherwise acquire any
shares of capital stock of IWL.
(f) All of the outstanding capital stock of each of IWL's Subsidiaries
was duly authorized and validly issued (free of preemptive rights) and is
fully paid and nonassessable, and, except as set forth in Section 3.2 of the
IWL Disclosure Schedule or in Section 3.2(a), is owned by IWL free and clear
of any liens, security interests, pledges, agreements, claims, charges or
encumbrances. IWL owns all of the issued and outstanding shares of capital
stock of ICEL. Except as set forth in Section 3.2 of the IWL Disclosure
Schedule, there are no existing subscriptions, options, warrants, calls,
commitments, agreements, conversion rights or other rights of any character
(contingent or otherwise) to purchase or otherwise acquire from IWL, any of
IWL's Subsidiaries or ICEL at any time, or upon the happening of any stated
event, any shares of the capital stock of any IWL's Subsidiaries or of ICEL,
or any securities convertible into or exercisable for shares of capital
stock of any of IWL's Subsidiaries or of ICEL, whether or not presently
issued or outstanding and there are no outstanding obligations of IWL or of
any of IWL's Subsidiaries or of ICEL to repurchase, redeem or otherwise
acquire any shares of capital stock of any of IWL's Subsidiaries or of ICEL.
Except for equity interests disclosed in Section 3.2 of the IWL Disclosure
Schedule and equity interests in its Subsidiaries, IWL does not directly or
indirectly own any equity interest in any other Person. Each of IWL's
Subsidiaries is a wholly owned Subsidiary.
(g) Except as disclosed in Section 3.2 of the IWL Disclosure Schedule,
there are no shareholder agreements, voting trusts or other agreements or
understandings to which IWL, any Subsidiary or ICEL is a party or to which
it is bound relating to the voting or registration of any shares of capital
stock of IWL or any Subsidiary. IWL has not taken any action that would
result in, nor is IWL a party to any agreement, arrangement or understanding
not disclosed in Section 3.2 of the IWL Disclosure Schedule that would
result in, any options to purchase IWL Common Stock that are unvested
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becoming vested in connection with or as a result of the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(h) The shares of Holdings Common Stock to be issued pursuant to the
Mergers and in the Interest Exchange will be duly authorized, validly
issued, fully paid, and nonassessable.
3.3 AUTHORITY. IWL and the Merger Subsidiaries have all requisite
corporate power and authority to enter into this Agreement and to consummate the
Mergers and the Interest Exchange and the other transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of IWL and the Merger Subsidiaries. This Agreement
has been duly executed and delivered by IWL and the Merger Subsidiaries and
constitutes the valid and binding obligations of IWL and the Merger Subsidiaries
enforceable in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, result in any violation of, or default under (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of a material benefit under (a) any
provision of the Articles of Incorporation or Bylaws of IWL and the Merger
Subsidiaries or (b) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to IWL or its properties
or assets, other than any such violations, defaults, terminations, cancellations
or accelerations which individually or in the aggregate would not have a
Material Adverse Effect on the ability of IWL to consummate the transactions
contemplated hereby (or which have been consented to or waived on or prior to
the Closing Date). Except as set forth in Section 3.3 of the IWL Disclosure
Schedule, no consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to IWL and the Merger Subsidiaries in connection with the execution and
delivery of this Agreement by IWL and the Merger Subsidiaries or the
consummation by IWL and the Merger Subsidiaries of the transactions contemplated
hereby, except for (a) the filing of the Articles of Merger with the Secretary
of State of Texas, (b) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required by the Nasdaq
National Market or under applicable state and federal securities laws, (c) any
consents or approvals required by the Federal Communications Commission ("FCC")
or any state public utility commissions, and (d) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not have a Material Adverse Effect on the ability of IWL and the
Merger Subsidiaries to consummate the transactions contemplated hereby.
3.4 SEC DOCUMENTS; IWL FINANCIAL STATEMENTS. IWL has furnished or made
available to the Company and the Partnership a true and complete copy of its
Form 10-K for the fiscal year ended June 30, 1997, and its Form 10-Q for the
quarter ended September 30, 1997 (collectively, the "SEC Documents"), which IWL
filed under the Exchange Act with the SEC. As of their respective filing dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange Act, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, except to the extent corrected by a
subsequently filed document with the SEC. The financial statements of IWL,
including the notes thereto, included in the SEC Documents (the "IWL Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP consistently
applied (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
the consolidated financial position of IWL at the dates thereof and of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, recurring audit adjustments).
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3.5 BROKERS AND FINDERS' FEES. Except for Cruttenden Roth Incorporated
(the arrangements with which have been disclosed to the Company prior to the
date hereof), IWL has not incurred, and will not incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions, advisory
fees or any similar charges in connection with this Agreement, the Mergers, the
Interest Exchange or any other transaction contemplated hereby.
3.6 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. None of the information
supplied or to be supplied by or on behalf of IWL for inclusion or incorporation
by reference, and reviewed by IWL prior to such inclusion or incorporation by
reference, in the Registration Statement will, at the time the Registration
Statement becomes effective under the Securities Act, 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. None of the
information supplied or to be supplied by or on behalf of IWL for inclusion or
incorporated by reference, and reviewed by IWL prior to such inclusion or
incorporation by reference, in the Joint Proxy Statement will, at the dates
mailed to shareholders and at the times of the IWL shareholders' meeting and the
Company shareholders' meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time, any
event with respect to IWL, its officers and directors or any of its Subsidiaries
should occur which is required to be described in an amendment of, or a
supplement to, the Registration Statement or the Joint Proxy Statement, IWL
shall promptly so advise the Company. IWL will promptly disseminate any such
amendment or supplement (which the Company shall have a reasonable opportunity
to review) to the shareholders of IWL.
3.7 OPINION OF FINANCIAL ADVISOR. IWL has received the oral opinion of
Cruttenden Roth Incorporated on the date hereof, to the effect that, as of the
date hereof, the IWL Exchange Ratio is fair from a financial point of view to
the shareholders of IWL and that the Company Merger Consideration is fair from a
financial point of view to IWL, and will, within two business days of the date
hereof, have received the written opinion of Cruttenden Roth Incorporated to
such effect.
3.8 OWNERSHIP OF SECURITIES. As of the date hereof, neither IWL nor, to
IWL's knowledge, any of its affiliates or associates (as such terms are defined
under the Exchange Act), (a)(i) beneficially owns, directly or indirectly, or
(ii) is party to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of, in each case, shares of capital
stock of the Company that in the aggregate represent 10% or more of the
outstanding shares of Company Common Stock, nor (b) is an "affiliated
shareholder" of the Company within the meaning of Article XIII of the TBCA.
Neither IWL nor any of the Merger Subsidiaries owns any shares of Company Common
Stock.
3.9 LITIGATION. Except as set forth in the SEC Documents or in Section 3.9
of the IWL Disclosure Schedule, there are no suits, actions or legal,
administrative, arbitration or other proceedings or governmental investigations
against IWL or any of the Merger Subsidiaries pending or, to IWL's knowledge,
threatened which (a) if determined adversely to IWL, could be expected to result
in a Material Adverse Effect on IWL, or (b) seek to prevent the consummation of
the Mergers or the Interest Exchange.
3.10 NO UNDISCLOSED LIABILITIES. IWL does not have any liabilities or
obligations, either accrued or contingent, whether or not required to be
reflected in financial statements prepared in accordance with GAAP, and whether
due or to become due, except: (a) liabilities reflected in the SEC Documents,
(b) liabilities specifically described in this Agreement or in the IWL
Disclosure Schedule or (c) liabilities not exceeding $50,000 in the aggregate
incurred in the ordinary course of business since September 30, 1997.
3.11 NO CHANGES. Except as set forth in Section 3.11 of the IWL Disclosure
Schedule or as contemplated by this Agreement, since September 30, 1997 there
has not been, occurred or arisen any:
(a) transaction by IWL except in the ordinary course of business as
conducted on that date;
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(b) capital expenditure or inventory purchase by IWL exceeding $25,000
individually or $100,000 in the aggregate, except pursuant to existing contracts
listed in Section 3.16 of the IWL Disclosure Schedule;
(c) destruction, damage to, or loss of any assets (including without
limitation intangible assets) of IWL (whether or not covered by insurance),
either individually or in the aggregate, exceeding $25,000;
(d) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(e) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates, any change in policies in making
or reversing accruals, or any change in capitalization of software development
costs) by IWL;
(f) declaration, setting aside, or payment of a dividend or other
distribution in respect of the shares of IWL, or any direct or indirect
redemption, purchase or other acquisition by IWL of any of its shares;
(g) increase in the salary or other compensation payable or to become
payable by IWL to any of its officers, directors or employees, or the
declaration, payment, or commitment or obligation of any kind for the payment by
IWL of a bonus or other additional salary or compensation to any such person
except for year-end bonuses paid in the ordinary course of business consistent
with past practice;
(h) acquisition, sale or transfer or any asset of IWL except in the
ordinary course of business;
(i) formation, amendment or termination of any material distribution
agreement or any material contract, agreement or license to which IWL is a
party, other than termination by IWL pursuant to the terms thereof;
(j) loan by IWL to any Person or guaranty by IWL of any loan;
(k) waiver or release of any material right or claim of IWL, including any
write-off or other compromise of any account receivable of IWL except in the
ordinary course of business;
(l) the commencement or notice or, to the knowledge of IWL, threat of
commencement of any governmental proceeding against or investigation of IWL or
its affairs;
(m) other event or condition of any character relating to IWL or IWL's
business that has or would be expected to have a Material Adverse Effect on IWL;
(n) issuance, sale or redemption by IWL of any of its shares or of any
other of its securities, other than pursuant to the exercise of existing
options;
(o) change in pricing or royalties set or charged by IWL except pursuant to
the terms of existing contracts; or
(p) negotiation or agreement by IWL to do any of the things described in
the preceding clauses (a) through (o) (other than negotiations with IWL and its
representatives or any other Person regarding the transactions contemplated by
this Agreement).
3.12 TAX AND OTHER RETURNS AND REPORTS.
(a) TAX RETURNS AND AUDITS. Except as set forth in Section 3.12 of the IWL
Disclosure Schedule, each of IWL and its Subsidiaries has prepared and filed all
federal, state, local and foreign returns, estimates, information statements and
reports required to be filed by any of them relating to any and all Taxes
relating or attributable to IWL, its Subsidiaries, or the assets or operations
of IWL or its Subsidiaries ("IWL Returns"), and such IWL Returns are true and
correct in all material respects and have been completed in accordance with
applicable law. Except as set forth in Section 3.12 of the IWL Disclosure
Schedule, each of IWL and its Subsidiaries has paid all Taxes required to be
paid with respect to such IWL Returns and has withheld with respect to its
employees all federal and state income Taxes, FICA, FUTA and other Taxes it is
required to withhold. The accruals for Taxes on the books and records of each of
IWL and its Subsidiaries are sufficient to discharge the Taxes for all periods
(or the portion of any period)
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ending on or prior to the Closing Date. Neither IWL nor any of its Subsidiaries
is delinquent in the payment of any Tax nor, except as set forth in Section 3.12
of the IWL Disclosure Schedule, to the knowledge of IWL is there any Tax
deficiency outstanding, proposed or assessed against IWL or any of its
Subsidiaries nor has IWL or any of its Subsidiaries executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax. The audits of each IWL Return that has been audited by
the relevant authorities or for which the statute of limitations has been waived
or extended have been closed, and neither IWL nor any of its Subsidiaries has
received any written or oral notification that an audit or other examination of
any Return of IWL or any of its Subsidiaries is presently in progress. All such
IWL Returns that have been audited or for which the statute of limitations has
been waived are listed in Section 3.12 of the IWL Disclosure Schedule. Except as
set forth in Section 3.12 of the IWL Disclosure Schedule, neither IWL nor any of
its Subsidiaries has any material liabilities for unpaid Taxes, whether asserted
or unasserted, known or unknown, contingent or otherwise and neither IWL nor any
of its Subsidiaries has any knowledge of any basis for the assertion of any such
liability attributable to IWL, its Subsidiaries or the assets or operations of
IWL or its Subsidiaries. Neither IWL nor any of its Subsidiaries is (nor have
they ever been) required to join with any other entity in the filing of a
consolidated tax return for federal tax purposes or a consolidated or combined
return or report for state tax purposes. Except as set forth in Section 3.12 of
the IWL Disclosure Schedule, neither IWL nor any of its Subsidiaries is a party
to or bound by any tax indemnity, tax sharing or tax allocation agreement. There
are (and as of immediately following the Closing there will be) no liens on the
assets of IWL or any of its Subsidiaries relating to or attributable to Taxes,
except for liens for Taxes not yet due and payable or liens for Taxes being
contested by appropriate proceedings. Neither IWL nor any of its Subsidiaries
has any knowledge of any basis for the assertion of any claim which, if
adversely determined, would result in liens on the assets of IWL or
Subsidiaries. There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any employee or
former employee of IWL or any of its Subsidiaries that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 162 or 404 of the Code.
(b) NO PENALTY. Neither IWL nor any of its Subsidiaries is subject to any
penalty by reason of a violation of any order, rule or regulation of, or a
default with respect to any IWL Return, report or declaration required to be
filed with, any Governmental Entity to which it is subject.
3.13 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement binding
upon, or judgment, injunction, order or decree entered against, IWL under which
IWL is prohibited from conducting or engaging in any line of business.
3.14 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT.
(a) IWL owns no real property other than as set forth in Section 3.14(a) of
the IWL Disclosure Schedule. Section 3.14(a) of the IWL Disclosure Schedule also
sets forth a true and complete list of all real property leased by IWL and the
aggregate annual rental or other fee payable under any such lease. All such
leases are in good standing, valid and effective in accordance with their
respective terms, and there is not with respect to IWL and, to the knowledge of
IWL, any other parties to such leases, under any of such leases any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) Except as set forth in Section 3.14(b) of the IWL Disclosure Schedule,
IWL holds good and valid title to (or, in the case of leased properties, assets
and rights of way, valid leasehold interests in) all of its tangible properties,
assets and rights of way, real, personal and mixed, used in its business, free
and clear of any liens, charges, pledges, security interests or other
encumbrances.
(c) The Equipment used by IWL in the conduct of its business is listed in
Section 3.14(c) of the IWL Disclosure Schedule, except individual pieces of
equipment owned by IWL with an individual value of less than $5,000. The
Equipment is, taken as a whole, (i) adequate for the conduct of the business of
IWL as presently conducted, (ii) suitable for the uses to which it is currently
employed, (iii) in good operating
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condition, (iv) regularly and properly maintained, ordinary wear and tear
excepted, and (v) not obsolete, dangerous or in need of renewal or replacement.
3.15 INTELLECTUAL PROPERTY.
(a) IWL owns, or is licensed to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskwork, schematics,
technology, know-how, computer software programs or applications and tangible or
intangible proprietary information or material (excluding IWL Commercial
Software Rights (as defined in Section 3.15(b) below)) that are used or
currently proposed by IWL to be used in the business of IWL as currently
conducted or as currently proposed to be conducted by IWL (the "IWL Intellectual
Property Rights"). Section 3.15(a) of the IWL Disclosure Schedule (i) sets forth
a complete list of all patents, patent applications, registered trademarks,
material unregistered copyrights, trade names and service marks, and any
applications therefor, included in IWL Intellectual Property Rights; (ii)
specifies the jurisdictions in which each such IWL Intellectual Property Right
has been issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners, together with a list
of all of IWL's currently marketed software products and list of names of all
registered owners, if any, of such software products that have been registered
for copyright protection with the United States Copyright Office and any foreign
offices and by whom such items have been registered and (iii) as to each such
IWL Intellectual Property Right, specifies whether it is owned by IWL or
licensed to IWL by another Person and, in the cases of any license, sets forth
the licensor and the term of such license. Section 3.15(a) of the IWL Disclosure
Schedule also sets forth a complete list of all licenses, sublicenses and other
agreements pursuant to which IWL has licensed any other Person to use any IWL
Intellectual Property Right or other trade secret material to IWL, and includes
the identity of such licenses; provided, however, that IWL's End-User Licenses
need not be listed. IWL is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any license, sublicense or agreement described on such list. IWL is
the sole and exclusive owner of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), those IWL Intellectual Property
Rights which IWL purports to own, and has sole and exclusive rights, and is not
contractually obligated to pay any compensation to any third party in respect
thereof to the use thereof or the material covered thereby in connection with
the services or products in respect of which such IWL Intellectual Property
Rights are being used. With respect to IWL Intellectual Property Rights licensed
to IWL, IWL has sufficient rights under the license agreements relating thereto
to enable IWL to use such IWL Intellectual Property Rights in its business as
currently conducted and as proposed to be conducted without payment of royalties
or other compensation to the licensor thereof. No claims with respect to IWL
Intellectual Property Rights have been asserted or, to the knowledge of IWL, are
threatened by any Person, (i) to the effect that the manufacture, sale,
licensing or use of any product as, now used, sold or licensed or proposed for
use, sale or license by IWL infringes on any copyright, patent, trade mark
service mark or trade secret, (ii) against the use by IWL of any trademarks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in IWL's business as currently
conducted or as proposed by IWL to be conducted, or (iii) challenging the
ownership, validity or effectiveness of any IWL Intellectual Property Rights.
Except as set forth in Section 3.15(a) of the IWL Disclosure Schedule, all
registered and material unregistered trademarks, service marks and copyrights
held by IWL are valid and subsisting. To the knowledge of IWL, there is no
material unauthorized use, infringement or misappropriation of any of IWL
Intellectual Property Rights by any third party, including any employee or
former employee of IWL. No IWL Intellectual Property Right owned exclusively by
IWL or product of IWL is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting in any manner the licensing thereof by IWL.
There is no outstanding order, judgment, decree or stipulation on IWL, and IWL
is not party to any agreement, restricting in any manner the licensing of IWL's
products by IWL. Except for End User Licenses or as otherwise set forth in
Section 3.15(a) of the IWL Disclosure Schedule, IWL has not entered into any
agreement to indemnify any Person against any charge of infringement of any IWL
Intellectual Property Rights.
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(b) "IWL Commercial Software Rights" means packaged commercially available
software programs generally available to the public through retail dealers in
computer software which have been licensed to IWL pursuant to End-User Licenses
and which are used in IWL's business but are in no way a component of or
incorporated in any of IWL's products and related trade markets, technology and
know-how. To the knowledge of IWL, IWL has not breached or violated the terms of
its license, sublicense or other agreement relating to any IWL Commercial
Software Rights and has a valid right to use such IWL Commercial Software Rights
under such license and agreements. No claims with respect to the IWL Commercial
Software Rights have been asserted or, to the knowledge of IWL, are threatened
by any Person against IWL. To the knowledge of IWL, there is no material
unauthorized use, infringement or misappropriation of any of the IWL Commercial
Software Rights by IWL or any employee or former employee of IWL during the
period of their employment.
3.16 AGREEMENTS, CONTRACTS AND COMMITMENTS. Other than those listed in
Section 3.16 of the IWL Disclosure Schedule, IWL does not have, is not a party
to nor is it bound by:
(a) any collective bargaining agreement;
(b) any agreements that contain any unpaid severance liabilities or
obligations;
(c) any bonus, deferred compensation, incentive compensation, option,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements;
(d) any employment or consulting agreement, contract or commitment (other
than employment letters) with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or commitment with a firm
or other organization, not terminable by IWL on thirty days notice without
liability;
(e) any stock option plan, stock appreciation right plan or stock purchase
plan;
(f) any insurance policy, fidelity or surety bond or completion bond not
listed in Section 3.21 of the IWL Disclosure Schedule;
(g) any lease of personal property having a value individually in excess of
$25,000;
(h) any agreement of indemnification or guaranty not entered into in the
ordinary course of business;
(i) any agreement, contract or commitment containing any covenant limiting
the freedom of IWL to engage in any line of business or compete with any Person;
(j) any agreement, contract or commitment relating to capital expenditures
and involving future obligations in excess of $25,000;
(k) any agreement, contract or commitment relating to the disposition or
acquisition of assets not in the ordinary course of business or any ownership
interest in any corporation, partnership, joint venture or other business
enterprise;
(l) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to the clause (h) hereof;
(m) any purchase order or contract for the purchase of raw materials or
acquisition of assets involving $25,000 or more in any single instance or
$100,000 or more in the aggregate;
(n) any construction contracts involving $25,000 or more in any single
instance or $100,000 or more in the aggregate;
(o) any distribution, joint marketing or development agreements;
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(p) any lease for switches or any other machinery, equipment or other
personal property involving payment of aggregate rentals in excess of $25,000;
(q) any contract pursuant to which IWL has access to the telephone network
of another Person other than IWL's internal commercial telephone service and any
contracts for the resale of any network capacity of IWL;
(r) any agreement, contract, lease or easement pursuant to which IWL has
the right of way to use any premises or real property to locate and/or install
fiber lines on, under or through such premises or real property;
(s) any agreement or commitment obligating IWL to deliver any product or
service at a price which does not cover the cost of (including labor, materials
and production overhead), plus a reasonable profit margin, for such product or
service;
(t) any joint venture, partnership or other cooperative arrangement or
agreement involving a sharing of profits or losses;
(u) any other agreement contract or commitment which involves $25,000 or
more and is not cancelable without penalty within thirty (30) days; or
(v) any agreement which is otherwise material to IWL's business.
IWL has not breached, or received any claim or threat that it has breached,
any of the terms or conditions of any material agreement, contract or commitment
to which it is bound (including, but not limited to, those set forth in Section
3.16 or any other section of the IWL Disclosure Schedule) in such manner as
would permit any other party to cancel or terminate the same. Each agreement,
contract or commitment to which IWL is party and that is required to be set
forth in the IWL Disclosure Schedule is in full force and effect and, except as
otherwise disclosed, is not subject to any material default thereunder by any
party thereto. IWL is not bound by any material contract, agreement, license,
lease or other commitment, a copy of which has not been previously provided or
made available to the Company and the Partnership. IWL after making an inquiry
of all of its officers, directors, shareholders and appropriate employees does
not have any reason to expect that any change may occur in the relationships of
IWL with its suppliers or customers as a result of the Mergers or the Interest
Exchange, which change would be a Material Adverse Effect on IWL. No supplier of
or customer of IWL has indicated within the past year that it will stop, or
decrease the rate of supplying or purchasing materials, products, or services to
or from IWL, as a result of the Mergers or the Interest Exchange. Except as
described in Section 3.3, no consents, waivers or approvals under any of IWL's
material agreements, contracts, licenses or leases are necessary in order to
preserve the benefits thereunder for the Surviving Corporation or otherwise to
avoid any breach, default or right of termination or other right as a result of
the Mergers or the Interest Exchange.
3.17 GOVERNMENTAL AUTHORIZATIONS. Section 3.17 of the IWL Disclosure
Schedule accurately lists each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization issued to
IWL or statute, regulation, private treaty or agreement adopted or made for the
benefit for IWL or to which IWL is a party (a) pursuant to which IWL currently
operates or holds any interest in any of its properties or (b) which is required
for the operation of its business as currently conducted or the holding of any
such interest as currently held (herein collectively called the "IWL
Authorizations"). The IWL Authorizations are in full force and effect and
constitute all the authorizations required to permit IWL to operate or conduct
its business as currently conducted or hold any interest in its properties as
currently held.
3.18 ACCOUNTS RECEIVABLE. All accounts receivable shown in the IWL
Financial Statements arose in the ordinary course of business and, to the extent
not previously collected, are collectible (except to the extent reserved against
as reflected in the IWL Financial Statements) and are carried at values
determined in accordance with GAAP consistently applied. To the knowledge of
IWL, none of the accounts receivable
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of IWL outstanding as of the date hereof is subject to any claim of offset,
recoupment, set off or counterclaim and there are no facts or circumstances
(whether asserted or unasserted) that would give rise to any such claim. No
accounts receivable are contingent upon the performance by IWL of any obligation
or contract except for IWL's maintenance obligations under its maintenance
agreements (although no customer has claimed that IWL has failed to perform its
maintenance obligations). No Person has any lien, charge, pledge, security
interest or other encumbrance on any of IWL's accounts receivable and no
agreement for deduction or discount has been made with respect to any of such
accounts receivable, except for liens granted to Bank One Texas, N.A. under
IWL's line of credit.
3.19 MINUTE BOOKS AND STOCK RECORDS. The minute books of IWL and its
Subsidiaries made available to counsel for the Company and the Partnership
contain minutes of all meetings of directors and shareholders (or consents in
lieu of such meetings) accurate in all material respects since the respective
times of incorporation of IWL and its Subsidiaries.
3.20 LABOR MATTERS. IWL is in compliance with all currently applicable
laws and regulations respecting employment, discrimination in employment, terms
and conditions of employment and wages and hours and employment practices, and
is not engaged in any unfair labor practice. IWL has not received any notice
from any Governmental Entity of, and to the knowledge of IWL there has not been
asserted before any Governmental Entity, any claim, action or proceeding to
which IWL is a party or involving IWL, and there is neither pending nor, to the
knowledge of IWL, threatened any investigation or hearing concerning IWL arising
out of or based upon any such laws, regulations or practices. There are no
pending claims against IWL under any workers compensation plan or policy or for
long term disability. IWL has complied in all material respects with all
applicable health care benefit continuation provisions of COBRA and has no
obligations with respect to any former employees or qualified beneficiaries
thereunder. Section 3.20 of the IWL Disclosure Schedule lists all current
employees of IWL and their current salary and vacation accruals.
3.21 INSURANCE. Section 3.21 of the IWL Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, equipment,
properties, operations, software errors and omissions, employees, officers and
directors of IWL as well as all claims made under any insurance policy by IWL
since January 1, 1993 (other than claims under IWL's medical and dental
insurance plans and claims made with respect to insured losses which did not, in
the aggregate, have a Material Adverse Effect on IWL). There is no claim by IWL
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds
(other than claims made under IWL's medical and dental insurance plans). IWL has
provided or made available to the Company and the Partnership copies of all such
insurance policies and fidelity bonds and all claims made by IWL under its
insurance policies (other than claims under IWL's medical and dental plans). All
premiums payable under all such policies and bonds have been paid and IWL is
otherwise in compliance in all material respects with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). Such policies of insurance and bonds are of the type and in amounts
customarily carried by Persons conducting businesses similar to those of IWL.
IWL does not know of any threatened termination of or proposed material premium
increase with respect to any of such policies. IWL has never been denied
insurance coverage nor has any insurance policy of IWL ever been canceled for
any reason.
3.22 INVENTORY. The inventory appearing on the IWL Financial Statements,
or thereafter acquired or produced, conforms in all material respects with IWL's
applicable specifications and warranties and have been produced in compliance
with IWL's quality control procedures and consist only of items of a quality and
quantity useable or saleable by IWL in the ordinary course of business. All such
inventory is merchantable and fit for the purpose for which it was procured or
manufactured, and none of which is obsolete, damaged or defective in any amount.
Such inventory is owned by IWL and is not subject to any liens, charges,
pledges, security interests or other encumbrances.
3.23 COMPLIANCE WITH LAWS.
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(a) IWL has complied in all material respects with, is not in violation of,
and has not received any notices of violation with respect to any federal, state
or local state, law or regulation with respect to the conduct of business or the
ownership or operation of its business, assets or properties. No charge,
complaint, action, suit, proceeding, hearing, known investigation, claim,
demand, or notice has been filed or commenced against IWL alleging any failure
to comply with any such law or regulation.
(b) IWL has not violated in any respect, or received a notice or charge
asserting any violation of the Sherman Act, the Clayton Act, the Robinson-Patman
Act, or the Federal Trade Commission Act, each as amended.
(c) IWL has not, and none of the officers, directors, shareholders or
employees of IWL have, on behalf of IWL:
(i) made or agreed to make any contribution, payment or gift funds or
property to any governmental official, employee, or agent where either the
contribution, payment, or gift or the purpose thereof was illegal under the
laws of any federal, state or local jurisdiction; or
(ii) established or maintained any unrecorded fund or asset for any
purpose, or intentionally made any false or inaccurate entries on any of its
books and/or records; or
(iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other Person, to any candidate
for federal, state or local public office; or
(iv) been involved in the disbursement or receipt of funds outside of
the normal internal control systems of accountability or been involved in
the improper or inaccurate recording of material payments, disbursements or
receipts.
3.24 FIRPTA. IWL is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
3.25 EMPLOYEE BENEFIT PLANS.
(a) Section 3.25 of the IWL Disclosure Schedule lists all employee benefit
plans (as defined in Section 3(3) of ERISA) and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment or executive compensation or severance
agreements, written or otherwise, for the benefit of, or relating to, any
employee of IWL, any trade or business (whether or not incorporated) which is a
member or which is under common control with IWL (an "IWL ERISA Affiliate")
within the meaning of Section 414 of the Code, or any Subsidiary of IWL
(together, the "IWL Employee Plans"), and a copy of each such IWL Employee Plan
has been provided or made available to the Company and the Partnership.
(b) (i) None of the IWL Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person except as required by applicable
law, including but not limited to COBRA; (ii) all IWL Employee Plans are in
compliance in all material respects with the requirements prescribed by any and
all applicable statutes (including ERISA and the Code), orders, or governmental
rules and regulations currently in effect with respect thereto (including all
applicable requirements for notification to participants or beneficiaries or the
Department of Labor, IRS or Secretary of the Treasury), and IWL has performed in
all material respects all obligations required to be performed by it under, is
not in default under or violation of, and has no knowledge of any default or
violation by any other party to, any of the IWL Employee Plans; (iii) each IWL
Employee Plan intended to qualify under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code either has received a
favorable determination letter with respect to each such IWL Employee Plan from
the IRS or still has a remaining period of time under applicable Treasury
Regulations or IRS pronouncements in which to apply for such a determination
letter and to make any amendments necessary to obtain a favorable determination;
and
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(iv) no IWL Employee Plan is or within the prior six (6) years has been subject
to, and IWL has not incurred and does not expect to incur any liability under,
Title IV of ERISA or Section 412 of the Code.
(c) None of the following now exists or has existed within the six-year
period ending on the date hereof with respect to any IWL Employee Plan: (i) any
act or omission by IWL constituting a violation of Section 402 or 403 or, to the
knowledge of IWL, Section 404 or 405 of ERISA; (ii) to the knowledge of IWL, any
act or omission by IWL which constitutes a violation of Sections 406 and 407 of
ERISA and is not exempted by Section 408 of ERISA or which constitutes a
violation of Section 4975(c) of the Code and is not exempted by Section 4975(d)
of the Code; (iii) any act or omission by IWL constituting a violation of
Section 503 or 511 or, to the knowledge of IWL, Section 510 of ERISA; or (iv)
any act or omission by IWL which could give rise to liability under Section 502
of ERISA or under Sections 4979 or 4975 through 4980 of the Code or any other
provisions of ERISA or the Code.
(d) Each IWL Employee Plan has been maintained in substantial compliance
with its terms, and all contributions, premiums or other payments due from IWL
or any of its Subsidiaries to (or under) any such IWL Employee Plan have been
fully paid or adequately provided for on IWL Financial Statements for the most
recently ended fiscal year. All accruals thereon (including, where appropriate
proportional accruals for partial periods) have been made in accordance with
GAAP consistently applied on a reasonable basis. There has been no amendment,
written interpretation or announcement (whether or not written) by IWL with
respect to, or change in employee participation or coverage under, any IWL
Employee Plan that would increase materially the expense of maintaining such
plans or arrangements, individually or in the aggregate, above the level of
expense incurred with respect thereto for the most recently ended fiscal year.
(e) IWL has made available to the Company and the Partnership complete,
accurate and current copies of all IWL Employee Plans and all amendments,
documents, correspondence addressed to IWL and filings relating thereto,
including but not limited to any statements, filings, reports or returns filed
with any governmental agency with respect to the IWL Employee Plans at any time
within the three-year period ending on the date hereof.
3.26 CERTAIN REGULATORY MATTERS.
(a) Except as disclosed in Section 3.26 of the IWL Disclosure Schedule and
except for billing disputes with customers arising in the ordinary course of
business that in the aggregate involve immaterial amounts, there are no
proceedings or, to IWL's knowledge, investigations pending or, to IWL's
knowledge, threatened before any domestic or foreign court, administrative,
governmental or regulatory body in which any of the following matters are being
considered which could reasonably be expected to have a Material Adverse Effect
on IWL, nor has IWL or any of its Subsidiaries received written notice or
inquiry from any such body, government official, advocacy or similar
organization or any private party indicating that any of such matters should be
considered or may become the object of consideration or investigation which
could reasonably be expected to have a Material Adverse Effect on IWL: (i)
reduction of rates charged to customers; (ii) reduction of earnings; (iii)
refunds of amounts previously charged to customers; (iv) failure to meet any
expense, infrastructure, service quality or other commitments previously made to
or imposed by any administrative, governmental or regulatory body; or (v)
increase in termination or access charges or other rates paid or payable by IWL
to its suppliers.
(b) Except as disclosed in Section 3.26 of the IWL Disclosure Schedule,
neither IWL nor any of its Subsidiaries has any outstanding commitments (and no
such obligations have been imposed upon IWL and remain outstanding) regarding
(i) reduction of rates charged to customers; (ii) reduction of earnings; (iii)
refunds of amounts previously charged to customers; or (iv) expenses,
infrastructure expenditures, service quality or other regulatory requirements to
or by any domestic or foreign court, administrative, governmental or regulatory
body, government official, consumer advocacy or similar organization, in each
case which could reasonably be expected to have a Material Adverse Effect on
IWL.
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(c) IWL has not transferred, sold any interest in, or otherwise diluted its
control over any federal or state regulatory licenses, certificates, approvals
or other authorizations under which it operates, and the transfer of such
authorizations, subject to regulatory approval, would not violate the terms of
any agreement to which IWL is a party or by which is bound, or impinge the
rights of any third party.
(d) IWL has no current liability (and there is no basis for any present or
future charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand against IWL giving rise to any liability) arising out of any
injury to persons or property as a result of the ownership, possession, or use
of any product manufactured, sold, leased, or delivered by IWL. Any such claims
would be fully covered to the extent of the dollar limitations of IWL's product
liability insurance. There are no recalls, threatened or pending, and no federal
investigative reports have been filed or were required to have been filed with
respect to any of IWL's products.
3.27 ACCOUNTING MATTERS. Neither IWL nor, to its knowledge, any of its
affiliates has through the date hereof taken or agreed to take any action that
would prevent the business combination to be effected by the Mergers and the
Interest Exchange from being accounted for as a "pooling of interests."
3.28 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section 3.28 of
the IWL Disclosure Schedule, since June 30, 1994, no executive officer or
director of IWL (nor any parent, sibling, descendant or spouse of any of such
persons, or any trust, partnership, corporation or other entity in which any of
such persons has or has had an interest), has or has had, directly or
indirectly, (a) an interest in any entity which furnished or sold, or furnishes
or sells, services or products which IWL furnished or sells, or proposes to
furnish or sell, or (b) any interest in any entity which purchases from or sells
or furnishes to IWL any goods or services, or (c) a beneficial interest in any
contract or agreement required to be set forth in Section 3.16 of the IWL
Disclosure Schedule; provided, that ownership of no more than five percent (5%)
of the outstanding voting stock of a publicly traded corporation shall not be
deemed an "interest in any entity" for purposes of this Section 3.28.
3.29 ENVIRONMENTAL AND OSHA.
(a) IWL has complied in all material respects with all Environmental Laws
and Employee Safety Laws, and no charge, action, suit, proceeding, hearing,
known investigation, claim, damage, or notice has been filed or commenced
against IWL alleging any failure to comply with any such law or regulation.
(b) IWL has no obligation to take remedial action with respect to any
conditions nor does IWL have any liability, and there is no basis related to
IWL's past or present operations, for any present charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand giving rise to any
liability or obligation to take any remedial action under any Environmental Law.
(c) IWL has no liability relating to, and it has not handled or disposed of
any substance, arranged for the disposal of any substance, or owned or operated
any property or facility in violation of any Environmental Law.
(d) IWL has no liability for, and there is no basis for, any present or
future charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand against IWL giving rise to any material liability under any
Employee Safety Laws.
(e) IWL has no liability relating to, and to the knowledge of IWL, IWL has
not exposed any of IWL's employees to any substances or conditions that could
form the basis for, any present charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand (under the common law or pursuant to
statute) against IWL giving rise to material liability for any illness of or
personal injury to any employee.
(f) IWL has been in compliance with all the terms and conditions of all
permits, licenses, and other authorizations of Governmental Entities which are
required under any Environmental Law or Employee Safety Law.
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(g) All properties and equipment used by IWL are free of asbestos, PCB's
and other Extremely Hazardous Substances (as defined in Section 302A of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended). To the
knowledge of IWL, no pollutant, contaminant, chemical, or industrial, hazardous,
or toxic material or waste has been buried, stored, spilled, leaked, discharged,
emitted, or released on any real property that IWL has ever owned, or that IWL
now leases or has ever leased.
3.30 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by IWL in this Agreement, nor any statement made in any Schedule, Exhibit
or certificate furnished by IWL pursuant to this Agreement, when read in their
entirety, contains or will contain any untrue statement of a material fact at
the Effective Time, or omits or will omit to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading. No warranty or representation
shall be deemed to have been made by IWL except for the warranties and
representations set forth in this Agreement and the Exhibits, Schedules and
certificates delivered pursuant hereto.
3.31 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO ICEL. IWL hereby makes
for the benefit of the Company and the Partnership all of the representations
and warranties made by NERA Limited, Thomas Norman Blair and Margery Helen Blair
to IWL under the ICEL Stock Purchase Agreement (as defined below), which relates
to the acquisition by IWL of all of the stock of Integrated Communications and
Engineering Limited, a limited company incorporated in Scotland ("ICEL"),
including without limitation those set forth in Schedule 2 and Section 5 of the
ICEL Stock Purchase Agreement, but subject to the same limitations (including
limitations on liability), exclusions and exceptions as set forth in the ICEL
Stock Purchase Agreement; and IWL further represents and warrants that each of
such representations and warranties, as subject to such limitations, are true,
complete and correct in all material respects as of the date hereof.
Notwithstanding anything to the contrary contained in this Agreement, the
representations and warranties set forth in this Section 3.31 shall be subject
to the provisions relating to survivability of representations and warranties
set forth in Section 8.1 hereof. Notwithstanding anything to the contrary
contained herein, except for those instances in which express reference is made
to ICEL, none of the representations and warranties contained in Sections 3.1
through 3.30 shall be deemed made with respect to ICEL, and no warranty or
representation shall be deemed to have been made by IWL or the Merger
Subsidiaries herein with respect to ICEL except for the warranties and
representations set forth in this Section 3.31.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY AND THE PARTNERSHIP. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of the Company and the
Partnership agrees (except to the extent that IWL shall otherwise consent in
writing), to carry on its business in the usual regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent with such business, use all commercially reasonable efforts
consistent with past practice and policies to preserve intact the Company's and
the Partnership's respective present business organizations, keep available the
services of its present officers and respective key employees, and preserve
their respective relationships with customers, suppliers, distributors,
licensors, licensees and others having business dealings with it. The Company
and the Partnership shall promptly notify IWL of any event or occurrence not in
the ordinary course of business of the Company and the Partnership which could
have a Material Adverse Effect on the Company and the Partnership, respectively.
Except as expressly contemplated by this Agreement or as set forth in Section
4.1 of the Company and Partnership Disclosure Schedule, the Company and the
Partnership shall not, without the prior written consent of IWL (which consent
shall not require the approval of the Board of Directors of IWL):
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(a) Enter into any commitment or transaction involving more than $500,000
of products and services of the Company and the Partnership;
(b) Grant any severance or termination pay in excess of $10,000 (i) to any
director or (ii) to any employees, except payments made pursuant to written
agreements outstanding on the date hereof;
(c) Except for End-User Licenses, transfer to any Person any rights to the
Company Intellectual Property Rights or the Partnership Intellectual Property
Rights;
(d) Enter into or amend any agreements pursuant to which any other party is
granted exclusive marketing or other rights of any type or scope with respect to
any products of the Company or the Partnership, or the Company or the
Partnership terminates or assigns any such agreement;
(e) Violate, amend or otherwise modify the terms of any of the contracts or
agreements required to be set forth in the Company or the Partnership Disclosure
Schedule except in the ordinary course of business;
(f) Commence any litigation except for normal collection actions;
(g) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of the Company's capital
stock, or split, combine or reclassify any of the Company's capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital stock of the Company, or repurchase
or otherwise acquire, directly or indirectly, any shares of its capital stock;
(h) Issue, deliver, sell, grant (whether or not there are shares available
for grant under any stock option plans) or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of the
Company's capital stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such shares or other convertible
securities, except for the issuance of shares pursuant to the exercise of
employee stock options granted prior to the date hereof;
(i) Except as provided in the Articles of Merger, cause or permit any
amendments to the Company's Articles of Incorporation or Bylaws or the
Partnership's Agreement of Limited Partnership;
(j) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company or the Partnership;
(k) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material individually or in the aggregate, to the business of
the Company or the Partnership, except in the ordinary course of business;
(l) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or the
Partnership or guarantee any debt securities of others in excess of $10,000,
except pursuant to existing bank credit facilities or lines of credit;
(m) Adopt or amend any employee benefit or option plan, grant any
additional options to acquire shares of capital stock of the Company or any
Subsidiary under any employee benefit or option plans (whether or not the
issuance of such options is authorized by such plans), or enter into any
employment contract, pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees
other than raises in compensation payable to employees that are granted on their
respective anniversary dates and are consistent with the Company's or the
Partnership's, as the case may be, past practice;
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(n) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business;
(o) Pay, discharge or satisfy in an amount in excess of $25,000 in any one
case (or $100,000 in the aggregate) any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against the Company Financial Statements or
the Partnership Financial Statements;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Take any action which the Company or the Partnership, as the case may
be, knows or should know would jeopardize the ability of the parties hereto to
account for the Mergers and the Interest Exchange as a pooling of interests; or
(r) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (q) above, or any action which would make
any of the representations or warranties or covenants of the Company or the
Partnership contained in this Agreement materially untrue or incorrect.
4.2 NO SOLICITATION. Prior to the Effective Time, the Company and the
Partnership will not (and will not permit any of the Company's officers,
directors, shareholders affiliated with any officer or director or the Company's
agents, representatives or affiliates to) directly or indirectly, take any of
the following actions with any party other than IWL and its designees:
(a) Solicit, encourage, initiate, accept or participate in any negotiations
or discussions with respect to, any offer or proposal to acquire all or
substantially all of the Company's or the Partnership's business and properties,
or capital stock or Partnership Interests, as the case may be, whether by
merger, purchase of assets, tender offer or otherwise, or agree to any such
offer or proposal,
(b) Except for disclosures made to financial institutions and others in the
ordinary course of business, disclose any information not customarily disclosed
to any Person other than its attorneys or financial advisors concerning the
Company's or the Partnership's business and properties or afford to any Person
or entity access to its properties, books or records, or
(c) Assist or cooperate with any Person to make any proposal to purchase
all or any part of the Company's capital stock or assets or agree to any such
proposal, other than selling its products and licensing of software in the
ordinary course of business.
4.3 CONDUCT OF BUSINESS OF IWL. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, IWL agrees (except to the extent that the Company and the
Partnership shall otherwise consent in writing), to carry on its business in the
usual regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such business, use all commercially
reasonable efforts consistent with past practice and policies to preserve intact
IWL's present business organizations, keep available the services of its present
officers and key employees and preserve their relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it. IWL shall promptly notify the Company and the Partnership of
any event or occurrence not in the ordinary course of business of IWL which
could have a Material Adverse Effect on IWL. Except as expressly contemplated by
this Agreement or as set forth in Section 4.3 of the IWL Disclosure Schedule,
IWL shall not, without the prior written consent of the Company and the
Partnership (which consent shall not require the approval of the Board of
Directors of the Company or the General Partner):
(a) Enter into any commitment or transaction involving more than $500,000
of products and services of IWL;
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(b) Grant any severance or termination pay in excess of $10,000 (i) to any
director or (ii) to any employee, except payments made pursuant to written
agreements outstanding on the date hereof;
(c) Except for End-User Licenses, transfer to any Person any rights to the
IWL Intellectual Property Rights;
(d) Enter into or amend any agreements pursuant to which any other party is
granted exclusive marketing or other rights of any type or scope with respect to
any products of IWL, or IWL terminates or assigns any such agreement;
(e) Violate, amend or otherwise modify the terms of any of the contracts or
agreements required to be set forth in the IWL Disclosure Schedule except in the
ordinary course of business;
(f) Commence any litigation except for normal collection actions, other
than litigation with IEX Corporation or CLG, Inc. arising out of or resulting
from the dispute described in Section 3.9 of the IWL Disclosure Schedule;
(g) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu or in substitution for
shares of capital stock of IWL, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock.
(h) Issue, deliver, sell, grant (whether or not there are shares available
for grant under any stock option plans) or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, except
for the issuance of shares pursuant to the exercise of employee stock options
granted prior to the date hereof;
(i) Except as provided in the Articles of Merger, cause or permit any
amendments to its Articles of Incorporation or Bylaws;
(j) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
IWL;
(k) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material individually or in the aggregate, to the business of
IWL, except in the ordinary course of business;
(l) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of IWL or guarantee any debt
securities of others in excess of $10,000, except pursuant to existing bank
credit facilities, existing lines of credit or other existing agreements
referred to in Section 3.16 of the IWL Disclosure Schedule;
(m) Adopt or amend any employee benefit or option plan, grant any
additional options to acquire shares of capital stock of IWL or any Subsidiary
under any employee benefit or option plans (whether or not the issuance of such
options is authorized by such plans), or enter into any employment contract, pay
any special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates of its employees other than raises in
compensation payable to employees that are granted on their respective
anniversary dates and are consistent with IWL's past practice;
(n) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business;
(o) Pay, discharge or satisfy in an amount in excess of $25,000 in any one
case (or $100,000 in the aggregate) any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or
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otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the IWL
Financial Statements;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Take any action which IWL knows or should know would jeopardize the
ability of the parties hereto to account for the Mergers or the Interest
Exchange as a pooling of interests; or
(r) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.3(a) through (q) above, or any action which would make
any of the representations or warranties or covenants of IWL contained in this
Agreement materially untrue or incorrect.
4.4 CONTROL OF OTHER PARTY'S BUSINESS; TRANSITION PLANNING. Nothing
contained in this Agreement shall give IWL, directly or indirectly, the right to
control or direct the Company's or the Partnership's operations prior to the
Effective Time. Nothing contained in this Agreement shall give the Company or
the Partnership, directly or indirectly, the right to control or direct IWL's
operations prior to the Effective Time. Prior to the Effective Time, each of the
Company, the Partnership, and IWL shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
respective operations. Subject to the foregoing, Ignatius W. Leonards, as Chief
Executive Officer of IWL, and Jere W. Thompson, Jr., as President of the
Company, jointly shall be responsible for coordinating all aspects of transition
planning and implementation relating to the Mergers and the Interest Exchange
and the other transactions contemplated hereby. If either such person ceases to
be chief executive officer of his company for any reason, such person's
successor shall assume his predecessor's responsibilities under this Section
4.4. During the period between the date of this Agreement and the Effective
Time, Messrs. Leonards and Thompson jointly shall (i) examine various
alternatives regarding the manner in which to best organize and manage the
businesses of IWL, the Partnership and the Company after the Effective Time and
(ii) coordinate policies and strategies with respect to regulatory authorities
and bodies, in all cases subject to applicable and regulation.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 JOINT PROXY STATEMENT AND THE REGISTRATION STATEMENT.
(a) Holdings shall register the issuance of the shares of Holdings Common
Stock to be issued in the Mergers and the Interest Exchange under the Securities
Act and any blue sky law under which registration or a qualification is
required. In connection therewith, as promptly as practicable after the
execution and delivery of this Agreement, the parties hereto shall prepare and
file with the SEC the Registration Statement, which (i) shall be a Registration
Statement on Form S-4, (ii) shall register the issuance of the shares of
Holdings Common Stock to be issued in the Mergers and the Interest Exchange, and
(iii) shall contain a joint proxy statement/prospectus for IWL, the Company and
the Partnership. The parties shall use commercially reasonable efforts to have
the Registration Statement declared effective by the SEC. Upon the SEC declaring
the Registration Statement effective, IWL, the Company and the Partnership shall
mail to the holders of record of shares of IWL Common Stock, Company Common
Stock and Partnership Interests, the Joint Proxy Statement/Prospectus, provided,
however, that IWL, the Partnership and the Company shall not mail or otherwise
furnish the Joint Proxy Statement/Prospectus to their respective shareholders or
to the Partners unless and until:
(i) IWL shall have received (and included as an exhibit or appendix to
the Joint Proxy Statement/Prospectus) a letter from Cruttenden Roth
Incorporated, dated as of, or within two
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business days preceding, the date of the first mailing of the Joint Proxy
Statement, to the effect set forth in Section 3.7 hereof;
(ii) IWL shall have received a letter of KPMG Peat Marwick, LLP, dated
a date within two business days prior to the date of the first mailing of
the Joint Proxy Statement, and addressed to IWL, in form and substance
reasonably satisfactory to IWL and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in
connection with registration statements on Form S-4 with respect to the
financial statements of the Company and the Partnership included in the
Joint Proxy Statement and the Registration Statement;
(iii) the Company and the Partnership shall have received a letter of
KPMG Peat Marwick, LLP, dated a date within two business days prior to the
date of the first mailing of the Joint Proxy Statement, and addressed to the
Company and the Partnership, in form and substance reasonably satisfactory
to the Company and the Partnership and customary in scope and substance for
"cold comfort" letters delivered by independent public accountants in
connection with registration statements on Form S-4 with respect to the
financial statements of IWL included in the Joint Proxy Statement and the
Registration Statement;
(iv) each of the IWL Shareholders Agreement and the Owners Agreement
shall have been fully executed and delivered by all signatories thereto;
(v) each of Ignatius W. Leonards, Byron M. Allen, Jere W. Thompson,
Sr., Jere W. Thompson, Jr., Mark Langdale, Tim Rogers, Tim Terrell and Scott
Roberts shall have executed and delivered to Holdings a lock-up agreement in
form and substance reasonably satisfactory to Holdings (provided that the
lock-up period shall expire on or prior to the date that Holdings publicly
announces financial results covering at least 30 days of combined operations
of IWL, the Partnership and the Company); and
(vi) such Joint Proxy Statement/Prospectus shall include audited
financial statements (balance sheets, income statements and statements of
cash flows) for the Company and the Partnership as of and for the fiscal
years ended December 31, 1997, 1996 and 1995 (which shall have been audited
by KPMG Peat Marwick, LLP).
(b) The parties hereto will use their respective best efforts to cause the
letters referred to in clauses (ii) and (iii) above to be delivered and will
cooperate in the preparation of the Joint Proxy Statement and the Registration
Statement and in having the Registration Statement declared effective as soon as
practicable.
5.2 IWL AND COMPANY SHAREHOLDERS' MEETINGS, PARTNERS' MEETING, AND
CONSUMMATION OF THE MERGERS AND THE INTEREST EXCHANGE.
(a) At the earliest reasonably practicable time following the execution and
delivery of this Agreement, each of IWL and the Company shall promptly take all
action necessary in accordance with the TBCA and its Articles of Incorporation
and Bylaws to convene a meeting of their respective shareholders (each, a
"Shareholders Meeting"). Each of IWL and the Company shall use all commercially
reasonable efforts to solicit from its respective shareholders proxies to be
voted at its Shareholders Meeting in favor of this Agreement pursuant to the
Joint Proxy Statement and each of IWL and the Company shall include in the Joint
Proxy Statement the recommendation of its Board of Directors in favor of this
Agreement and the Mergers. Each of the parties hereto shall take all other
action necessary or, in the opinion of the other parties, reasonably advisable
to promptly and expeditiously secure any vote or consent of shareholders
required by the TBCA and such party's Articles of Incorporation and Bylaws to
effect the Mergers. At the earliest reasonably practicable time following the
execution and delivery of this Agreement, the Partnership shall promptly take
all action necessary in accordance with the Texas Revised Limited Partnership
Act ("TRLPA") and its Agreement of Limited Partnership to convene a meeting of
the Partners. The
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Partnership shall use all commercially reasonable efforts to solicit from its
Partners proxies to be voted at such meeting in favor of this Agreement and the
Interest Exchange pursuant to the Joint Proxy Statement.
(b) Upon the terms and subject to the conditions hereof and as soon as
practicable after the conditions set forth in Article VI hereof have been
fulfilled or waived, each of the parties shall execute in the manner required by
the TBCA and TRLPA and deliver to and file with the Secretary of State of the
State of Texas, such instruments and agreements as may be required by the TBCA
and TRLPA, and the parties shall take all such other and further actions as may
be required by law to make the Mergers and the Interest Exchange effective.
5.3 ACCESS TO INFORMATION. Each of the parties hereto shall afford the
other parties and their respective accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (a) all of its properties, books,
contracts, commitments and records, and (b) all other information concerning the
business, properties and personnel of such party as may be reasonably requested.
IWL, the Partnership and the Company agree to provide to the other parties'
respective accountants, counsel and other representatives copies of internal
financial statements promptly upon reasonable request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Mergers and
the Interest Exchange.
5.4 CONFIDENTIALITY. From the date hereof to and including the Effective
Time, the parties hereto shall maintain, and cause their directors, officers,
employees, agents and advisors to maintain, in confidence and not disclose or
use for any purpose, except the evaluation of the transactions contemplated
hereby and the accuracy of the respective representations and warranties of the
parties hereto contained herein, information concerning the other parties hereto
and obtained directly or indirectly from such parties, or their directors,
officers, employees, agents or advisors, except such information as is or
becomes (a) available to the non-disclosing party from third parties not subject
to an undertaking of confidentiality or secrecy; (b) generally available to the
public other than as a result of a breach by the non-disclosing party hereunder;
or (c) required to be disclosed under applicable law; and except such
information as was in the possession of such party prior to obtaining such
information from such other party as to which the fact of prior possession such
possessing party shall have the burden of proof. Each of IWL, the Company and
the Partnership agrees that all information so received from the other party
shall be deemed received pursuant to the confidentiality agreement, dated
December 2, 1997, heretofore executed and delivered by IWL and the Company (the
"Confidentiality Agreement") and such party shall, and shall cause its
Subsidiaries and each of its and their respective officers, directors,
employees, financial advisors and agents, to comply with the provisions of the
Confidentiality Agreement with respect to such information and the provisions of
the Confidentiality Agreement are hereby incorporated herein by reference with
the same effect as if fully set forth herein. In the event that the transactions
contemplated hereby shall not be consummated, all such information which shall
be in writing shall be returned to the party furnishing the same, including to
the extent reasonably practicable, copies or reproductions thereof which may
have been prepared.
5.5 EXPENSES. Subject to Section 5.12, whether or not the Mergers and the
Interest Exchange are consummated, all expenses incurred in connection with this
Agreement shall be the obligation of the party incurring such expenses, except
that expenses incurred in connection with the printing of the Joint Proxy
Statement and the Registration Statement shall be shared equally by IWL and the
Company.
5.6 PUBLIC DISCLOSURE. Unless otherwise required by law or the
requirements of the Nasdaq National Market, prior to the Effective Time, no
disclosure (whether or not in response to an inquiry) of the subject matter of
this Agreement shall be made by any party hereto unless approved by IWL, the
Company and the Partnership prior to release, provided that such approval shall
not be unreasonably withheld. Notwithstanding the above, the IWL may make such
public disclosures without the consent of
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the Company to the extent reasonably necessary to comply with IWL's securities
laws disclosure requirements, as determined by IWL.
5.7 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, as promptly as practicable after the date hereof, IWL, the Company and
the Partnership shall (a) use all commercially reasonable efforts to cooperate
with each other in (i) determining which filings are required to be made prior
to the Closing Date with, and which material consents, approvals, permits, or
authorizations are required to be obtained prior to the Closing Date from,
governmental or regulatory authorities of the United States, the several states
or the District of Columbia, the Commonwealth of Puerto Rico, and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
making all such filings and timely seeking all such consents, approvals,
permits, or authorizations, including without limitation all applicable state
regulatory approvals, and (b) use all commercially reasonable efforts to take,
or cause to be taken, all other actions and do, or cause to be done, all other
things necessary or appropriate to consummate the transactions contemplated by
this Agreement, as soon as practicable. The parties acknowledge that certain
actions may be necessary with respect to the foregoing in making notifications
and obtaining clearances, consents, approvals, waivers, or similar third party
actions that are material to the consummation of the transactions contemplated
hereby, and each party agrees to take all commercially reasonable actions as are
necessary to complete such notifications and obtain such clearances, approvals,
waivers, or third party actions except where such consequence, event, or
occurrence would not have a Material Adverse Effect on IWL, the Company or the
Partnership, as the case may be.
5.8 AFFILIATE AGREEMENT. Each of the Company and IWL shareholders and each
of the Partners designated by Holdings as an "Affiliated Shareholder " (the
"Affiliated Shareholders") agrees to execute, on or prior to the Effective Time,
an Affiliate Agreement with respect to Rule 145 under the Securities Act in the
form agreed upon by the parties hereto. Holdings shall be entitled to place on
the certificates evidencing any Holdings Common Stock to be received by any
Affiliated Shareholder pursuant to the terms of this Agreement the legends set
forth in the Affiliate Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Holdings Common Stock, consistent with
the terms of such Affiliate Agreement.
5.9 COMPLIANCE.
(a) In consummating the Mergers, the Interest Exchange and the other
transactions contemplated hereby, the Company and the Partnership shall comply
in all material respects with the provisions of the Exchange Act and the
Securities Act and shall comply, and/or cause its Subsidiaries to comply or to
be in compliance, in all material respects, with all other applicable laws.
(b) In consummating the Mergers, the Interest Exchange and the other
transactions contemplated hereby, IWL shall comply in all material respects with
the provisions of the Exchange Act and the Securities Act and shall comply,
and/or cause its Subsidiaries (including the Merger Subsidiaries) to comply or
to be in compliance, in all material respects, with all other applicable laws.
5.10 BLUE SKY LAWS. Holdings shall take such steps as may be necessary to
comply with the federal securities laws and with the securities and blue sky
laws of all other jurisdictions which are applicable to the issuance of Holdings
Common Stock pursuant hereto (such determination shall be made based on the
shareholder and optionee addresses furnished to Holdings by IWL and the
Company). IWL, the Company and the Partnership shall use commercially reasonable
efforts to assist Holdings as may be necessary to comply with the federal
securities laws and with the securities and blue sky laws of all other
jurisdictions which are applicable in connection with the issuance of Holdings
Common Stock pursuant hereto.
5.11 BEST EFFORTS, ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each of
the parties to this Agreement shall use commercially reasonable efforts to
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement. Each party hereto, at
the
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request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.12 EMPLOYMENT AGREEMENTS. On or prior to the date hereof, each of
Ignatius W. Leonards, Byron M. Allen, Errol Olivier, Richard H. Roberson and
Bryan Olivier, who are currently IWL employees, and Jere W. Thompson, Jr., Scott
Roberts, Tim Rogers and Tim Terrell, who are currently Company employees, shall
enter into an employment agreement (which shall include covenants not to
compete) in substantially the form attached hereto as Exhibit 5.12 with Holdings
(the "Employment Agreements"). None of such employees shall have any right,
remedy or cause of action under this Section 5.12, nor shall they be third party
beneficiaries of this Section 5.12. Prior to the Effective Time, the Company
shall bear and be responsible for the performance of all of Holdings'
obligations under the Employment Agreements with the Company employees and IWL
shall bear and be responsible for the performance of all of Holdings'
obligations under the Employment Agreements with the IWL employees, in each case
including without limitation obligations to pay base compensation and bonus (if
any), tax withholding and payment obligations (including with respect to FICA,
Medicare and all other similar taxes) and employee expense reimbursement
obligations. Prior to the Effective Time, each of IWL and the Company shall
reimburse the other for any expenses incurred by the other that were the
responsibility hereunder of IWL or the Company, as the case may be.
5.13 POOLING ACCOUNTING. IWL, the Partnership and the Company shall each
use commercially reasonable efforts to cause the business combination to be
effected by the Mergers and the Interest Exchange to be accounted for as a
pooling of interests. Each of IWL, the Partnership and the Company shall use
commercially reasonable efforts to cause its "affiliates" (within the meaning of
Rule 145 promulgated under the Securities Act) not to take any action that would
adversely affect the ability of the parties hereto to account for the business
combination to be effected by the Mergers and the Interest Exchange as a pooling
of interests. The Affiliate Agreements to be entered into by the Affiliated
Shareholders shall require the Affiliated Shareholders not to sell, exchange,
transfer, pledge, dispose of, offer for sale or grant an option to purchase any
shares of the Holdings Common Stock during the period which begins on the date
hereof and ends on the third day after Holdings publicly announces financial
results covering at least 30 days of combined operations of IWL, the Partnership
and the Company.
5.14 NASDAQ LISTING. Holdings agrees to use its best efforts to authorize
for listing on the Nasdaq National Market the shares of Holdings Common Stock
issuable, and those required to be reserved for issuance, in connection with the
Mergers and the Interest Exchange, upon official notice of issuance.
5.15 POST-MERGER BOARD OF DIRECTORS AND OFFICERS OF HOLDINGS. Following
the Effective Time, Holdings shall use commercially reasonable efforts to (a)
cause the Board of Directors of Holdings to consist of Ignatius W. Leonards,
Byron M. Allen, Jere W. Thompson, Jr., Mark Langdale, Tim Rogers, one outside
director designated by IWL and one outside director designated by the Company
(provided that IWL and the Company shall each have the right to veto the other's
designee) and (b) cause the officers of Holdings to consist of Jere W. Thompson,
Jr., Chief Executive Officer, Ignatius W. Leonards, President, Byron M. Allen,
Executive Vice President, and Richard H. Roberson, Controller, Treasurer and
Secretary. Holdings shall take all action necessary to amend its Articles of
Incorporation as of the Effective Time to change its name to "CapRock
Communications Corp." or such other name as may be agreed upon by the parties.
5.16 NO REGISTRATION RIGHTS. Holdings shall not be required to amend or
maintain the effectiveness of the Registration Statement for any purposes,
including without limitation for the purpose of permitting resale of the shares
of Holdings Common Stock received pursuant hereto by the Persons who may be
deemed to be "affiliates" of Holdings, IWL, the Company or the Partnership
within the meaning of Rule 145 promulgated under the Securities Act.
5.17 NOTIFICATION OF CERTAIN MATTERS. Each of IWL, the Partnership and the
Company shall give prompt notice to the other of the following:
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(a) the occurrence or nonoccurrence of any event whose occurrence or
nonoccurrence would be likely to cause either (i) any representation or warranty
of such party contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time, or (ii)
directly or indirectly, any Material Adverse Effect with respect to such party;
(b) any material failure of such party, or any officer, director, employee
or agent of any thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder;
(c) any facts relating to such party which would make it necessary or
advisable to amend the Joint Proxy Statement or the Registration Statement in
order to make the statements therein not misleading or to comply with applicable
law;
(d) any notice of, or other communication relating to, a default or event
which, with notice or lapse of time or both, would become a default, received by
it or any of its Subsidiaries subsequent to the date of this Agreement and prior
to the Effective Time, under any contract or agreement material to the financial
condition, properties, businesses or results of operations of it and its
Subsidiaries taken as a whole to which it or any of its Subsidiaries is a party
or is subject; and
(e) any notice or other communication from any third party alleging that
the consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement; provided, however, that the
delivery of any notice pursuant to this Section 5.17 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
ARTICLE VI
CONDITIONS TO THE MERGERS AND THE INTEREST EXCHANGE
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGERS AND THE
INTEREST EXCHANGE. The respective obligations of each party to this Agreement
to effect the Mergers and the Interest Exchange shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) SHAREHOLDER APPROVAL. The Mergers and the Interest Exchange and
this Agreement shall have been approved and adopted by the requisite vote of
the shareholders of each of IWL and the Company in accordance with the TBCA
and of the Partners in accordance with TRLPA and/or the Agreement of Limited
Partnership of the Partnership;
(b) LEGALITY. No federal, state or foreign statute, rule, regulation,
executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which is in
effect and has the effect of making the Mergers and the Interest Exchange
illegal or otherwise prohibiting the consummation of the Mergers and the
Interest Exchange;
(c) REGULATORY MATTERS. All authorizations, consents, orders or
approvals of, or declarations or filings with, and all expirations of
waiting periods imposed by, any governmental body, agency or official (all
of the foregoing, "Consents") which are necessary for the consummation of
the transactions contemplated hereby (including any consents or approvals
required by the FCC or any state public utility commissions), other than
immaterial Consents the failure to obtain which would have no material
adverse effect on the consummation of the transactions contemplated hereby
and no Material Adverse Effect on Holdings or the Surviving Corporations,
shall have been filed, have occurred or have been obtained (all such
permits, approvals, filings and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals") and all
such Requisite Regulatory Approvals shall be in full force and effect,
provided, however, that a Requisite Regulatory Approval shall not be deemed
to have been obtained if in connection with the grant thereof there shall
have been an imposition by any state or federal governmental body, agency or
official of any condition, requirement, restriction or change of regulation,
or any other action directly
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or indirectly related to such grant taken by such governmental body, which
would reasonably be expected to either (i) have a Material Adverse Effect on
Holdings or the Surviving Corporations, or (ii) prevent the parties hereto
from realizing in all material respects the economic benefits of the
transactions contemplated by this Agreement that such parties currently
anticipate receiving therefrom; provided further, however, that until such
time as the Requisite Regulatory Approvals have been obtained, there shall
be no change in the ownership or management of IWL, the Company or the
Partnership and no transfer of control whatsoever over the governmental
authorizations held by IWL, the Company or the Partnership except insofar as
such change in ownership or management or transfer of control may be
completed without obtaining regulatory approval in order to comply with
applicable federal, state and local laws, rules, regulations and policies;
(d) REGISTRATION STATEMENT EFFECTIVE. The Registration Statement shall
have become effective prior to the mailing by IWL, the Company and the
Partnership of the Joint Proxy Statement to their respective shareholders
and Partners, as applicable, no stop order suspending the effectiveness of
the Registration Statement shall then be in effect, and no proceedings for
that purpose shall then be threatened by the SEC or shall have been
initiated by the SEC and not concluded or withdrawn;
(e) BLUE SKY. All state securities or blue sky permits or approvals
required to carry out the transactions contemplated hereby shall have been
received;
(f) NASDAQ LISTING. The shares of Holdings Common Stock into which the
shares of IWL Common Stock, Company Common Stock and Partnership Interests
will be converted pursuant to Article II hereof and the shares of Holdings
Common Stock issuable upon the exercise of Holdings Options pursuant to
Section 1.6 hereof shall have been duly approved for listing on the Nasdaq
National Market, subject to official notice of issuance; and
(g) LOCK-UP AGREEMENTS. All of the lock-up agreements required to be
executed pursuant to Section 5.1(a) shall have been executed and delivered
to Holdings.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
PARTNERSHIP. The obligations of the Company and the Partnership to consummate
and effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by the
Company and the Partnership:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of IWL and the Merger Subsidiaries in this Agreement shall be
true and correct in all material respects on and as of the Effective Time as
though such representations and warranties were made on and as of such time
and IWL and the Merger Subsidiaries shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the
Effective Time.
(b) CERTIFICATE OF IWL. Each of the Company and the Partnership shall
have been provided with a certificate executed on behalf of IWL by its Chief
Executive Officer or its Chief Financial Officer to the effect that, as of
the Effective Time:
(i) all representations and warranties made by IWL and the Merger
Subsidiaries under this Agreement are true and complete in all material
respects; and
(ii) all covenants, obligations and conditions of this Agreement to be
performed by IWL and the Merger Subsidiaries on or before such date have
been so performed in all material respects.
(c) LEGAL OPINIONS. (i) The Company and the Partnership shall have
received a legal opinion from Munsch Hardt Kopf Harr & Dinan, P.C. and from
IWL's regulatory counsel as to corporate and regulatory matters, each dated
as of the Closing Date and each in form and substance reasonably
satisfactory to the Company and the Partnership; (ii) the Company and the
Partnership shall have received an opinion from Hughes & Luce, L.L.P.,
counsel to the Company and the Partnership, dated
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as of the Closing Date, in form and substance reasonably satisfactory to the
Company and the Partnership, substantially to the effect that, on the basis
of the facts, representations and assumptions set forth in such opinion: (A)
no gain or loss will be recognized for federal income tax purposes by
Holdings, the Company or C-Sub as a result of the formation of Holdings and
C-Sub and the Merger of C-Sub with and into the Company; (B) no gain or loss
will be recognized for federal income tax purposes by the shareholders of
the Company upon their exchange of Company Common Stock for the Company
Merger Consideration pursuant to such Company Merger; and (C) no gain or
loss will be recognized for federal income tax purposes by the Partners upon
their exchange of Partnership Interests for shares of Holdings Common Stock
pursuant to the Interest Exchange; and (iii) IWL shall have received the
opinion described in Section 6.3(e)(ii) hereof, in form and substance
reasonably satisfactory to the Company.
(d) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
event, fact or condition that has had or reasonably would be expected to
have a Material Adverse Effect on IWL.
(e) SATISFACTORY FORM OF LEGAL AND ACCOUNTING MATTERS. The form, scope
and substance of all legal, tax and accounting matters contemplated hereby
and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to the Company's and the Partnership's counsel and
accountants.
(f) AFFILIATE AGREEMENTS. The Company and the Partnership shall have
received from each IWL Affiliated Shareholder an executed Affiliate
Agreement, which shall be in full force and effect.
(g) EMPLOYMENT AGREEMENTS. The Employment Agreements shall have been
duly executed and delivered and shall be in full force and effect.
(h) IWL SHAREHOLDERS AGREEMENT. The IWL Shareholders Agreement shall
have been executed and delivered to the Company and the Partnership on or
prior to the date hereof.
(i) POOLING OF INTERESTS LETTER. Each of the Company and the
Partnership shall have received a letter from KPMG Peat Marwick, LLP to the
effect that the Mergers and the Interest Exchange qualify for "pooling of
interests" accounting treatment under Accounting Principles Board Opinion
No. 16 if consummated in accordance with this Agreement.
(j) RELEASE OF GUARANTIES. The guaranties made by Mr. Jere W.
Thompson, Jr. and Mr. Mark Langdale of the indebtedness of the Partnership
to Bank One Texas, N.A. shall have been released and terminated.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF IWL AND THE MERGER
SUBSIDIARIES. The obligations of IWL and the Merger Subsidiaries to consummate
and effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
IWL:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of the Company and the Partnership in this Agreement shall be
true and correct in all material respects on and as of the Effective Time as
though such representations and warranties were made on and as of such time,
and the Company and the Partnership shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the
Effective Time.
(b) CERTIFICATE OF THE COMPANY AND THE PARTNERSHIP. IWL and the Merger
Subsidiaries shall have been provided with certificates executed on behalf
of the Company by its President and the Partnership by its General Partner
to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company and the
Partnership under this Agreement are true and complete in all material
respects; and
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(ii) all covenants, obligations and conditions of this Agreement to be
performed by the Company or the Partnership, as the case may be, on or
before such date have been so performed in all material respects.
(c) THIRD PARTY CONSENTS. The Company and the Partnership shall have
obtained the consents listed in Section 6.3(c) of the Company and
Partnership Disclosure Schedule, as well as the consent or approval of each
other Person whose consent or approval shall be required under any agreement
or instrument in order to permit the consummation of the transactions
contemplated hereby except those which the failure to obtain would not,
individually or in the aggregate, have a Material Adverse Effect on Holdings
or the Surviving Corporations.
(d) SATISFACTORY FORM OF LEGAL AND ACCOUNTING MATTERS. The form, scope
and substance of all legal, tax and accounting matters contemplated hereby
and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to IWL's counsel and accountants.
(e) LEGAL OPINIONS. (i) IWL and the Merger Subsidiaries shall have
received a legal opinion from Hughes & Luce, L.L.P. and from regulatory
counsel to the Company and the Partnership as to corporate and regulatory
matters, each dated as of the Closing Date and each in form and substance
reasonably satisfactory to IWL; (ii) IWL shall have received an opinion from
Munsch Hardt Kopf Harr & Dinan, P.C., dated as of the Closing Date in form
and substance reasonably satisfactory to the Company and the Partnership,
substantially to the effect that, on the basis of the facts, representations
and assumptions set forth in such opinion: (A) no gain or loss will be
recognized for federal income tax purposes by Holdings, IWL or I-Sub as a
result of the formation of Holdings and I-Sub and the Merger of I-Sub with
and into IWL; and (B) no gain or loss will be recognized for federal income
tax purposes by the shareholders of IWL upon their exchange of IWL Common
Stock solely for Holdings Common Stock pursuant to such IWL Merger; and
(iii) the Company and the Partnership shall have received the opinion
described in Section 6.2(c)(ii) hereof, in form and substance reasonably
satisfactory to IWL.
(f) NO MATERIAL ADVERSE CHANGES. There shall not have occurred any
event, fact or condition which has had or reasonably would be expected to
have a Material Adverse Effect on Holdings, the Company, the Partnership or
the Surviving Corporations since the date hereof.
(g) AFFILIATE AGREEMENTS. IWL shall have received from each Company
and Partnership Affiliated Shareholder an executed Affiliate Agreement,
which shall be in full force and effect.
(h) EMPLOYMENT AGREEMENTS. The Employment Agreements shall have been
duly executed and delivered and shall be in full force and effect.
(i) OWNERS AGREEMENT. The Owners Agreement shall have been executed
and delivered to IWL on or prior to the date hereof.
(j) CONTRIBUTION AGREEMENTS. Each Partner shall have executed and
delivered to IWL a Contribution Agreement in respect of such Partner's
Partnership Interest, shall have consented to the transfers of Partnership
Interests contemplated by the Interest Exchange and shall have consented to
the substitution of the Company as the new General Partner of the
Partnership and of Holdings as the new limited partner of the Partnership.
(k) POOLING ACCOUNTING. IWL shall have received a letter from KPMG
Peat Marwick, LLP to the effect that the Mergers and the Interest Exchange
qualify for "pooling of interests" accounting treatment under Accounting
Principles Board Opinion No. 16 if consummated in accordance with this
Agreement.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time before the
Effective Time, in each case as authorized by the respective Board of Directors
of IWL or the Company or by the General Partner:
(a) By mutual written consent of each of IWL, the Company and the General
Partner;
(b) By either IWL, on the one hand, or the Company and the Partnership, on
the other hand, if the Mergers and the Interest Exchange shall not have been
consummated on or before December 31, 1998 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date; and provided,
further, that if on the Termination Date the conditions to the Closing set forth
in Section 6.1(c) shall not have been fulfilled, but all other conditions to the
Closing shall be fulfilled or shall be capable of being fulfilled, then the
Termination Date shall be extended to a date that is one year from the date
hereof;
(c) By either IWL, the Company or the Partnership if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto shall use their commercially
reasonable efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and such
order, decree, ruling or other action shall have become final and nonappealable;
(d) By either IWL, on the one hand, or the Company and the Partnership, on
the other hand, if another party shall have breached, or failed to comply with,
in any material respect any of its obligations under this Agreement or any
representation or warranty made by such party shall have been incorrect in any
material respect when made or shall have since ceased to be true and correct in
any material respect, and such breach, failure or misrepresentation is not cured
within 30 days after notice thereof and such breaches, failures or
misrepresentations, individually or in the aggregate and without regard to
materiality qualifiers contained therein, results or would reasonably be
expected to result in a Material Adverse Effect on IWL, on the one hand, or the
Company or the Partnership, on the other hand, as the case may be;
(e) By either IWL, on the one hand, or the Company and the Partnership, on
the other hand, upon the occurrence of a Material Adverse Effect on another
party or an event which could reasonably be expected to result in a Material
Adverse Effect on the other;
(f) (i) by IWL (A) if the Board of Directors or any committee of the Board
of Directors of the Company or the General Partner (w) shall withdraw or modify
in any adverse manner its approval or recommendation of this Agreement or the
Mergers or the Interest Exchange, (x) shall fail to reaffirm such approval or
recommendation upon IWL's request, (y) shall approve or recommend any
acquisition of the Company or the Partnership or a material portion of their
respective assets or any tender offer for shares of their capital stock or
partnership interests, in each case, other than by a party hereto or an
affiliate thereof, or (z) shall resolve to take any of the foregoing specified
actions or (B) if the Board of Directors or any committee of the Board of
Directors of IWL (x) shall withdraw or modify in any adverse manner its approval
or recommendation of this Agreement or the Mergers or the Interest Exchange, (y)
shall approve or recommend any acquisition of IWL or a material portion of its
assets or any tender offer for shares of its capital stock, in each case, other
than by a party hereto or an affiliate thereof, or (z) shall resolve to take any
of the foregoing specified actions; or (ii) by the Company and the Partnership
(A) if the Board of Directors or any committee of the Board of Directors of IWL
(w) shall withdraw or modify in any adverse manner its approval or
recommendation of this Agreement or the Mergers or the Interest Exchange, (x)
shall fail to reaffirm such approval or recommendation upon the request of the
Company or the Partnership, (y) shall approve or recommend any acquisition of
IWL or a material portion of its assets or
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any tender offer for shares of its capital stock, in each case, other than by a
party hereto or an affiliate thereof, or (z) shall resolve to take any of the
foregoing specified actions or (B) if the Board of Directors or any committee of
the Board of Directors of the Company or the General Partner (x) shall withdraw
or modify in any adverse manner its approval or recommendation of this Agreement
or the Mergers or the Interest Exchange, (y) shall approve or recommend any
acquisition of the Company or the Partnership or a material portion of their
respective assets or any tender offer for shares of their capital stock or
partnership interests, in each case, other than by a party hereto or an
affiliate thereof, or (z) shall resolve to take any of the foregoing specified
actions;
(g) By either (i) IWL (A) if any of the required approvals of the
shareholders or Partners, as the case may be, of the Company and the
Partnership, as the case may be, shall fail to have been obtained at a duly held
shareholders or Partners' meeting, as the case may be, of the Company or the
Partnership, including any adjournments thereof, or (B) if the required approval
of the shareholders of IWL shall fail to have been obtained at a duly held
shareholders meeting of IWL, including any adjournments thereof; or (ii) the
Company and the Partnership (A) if any of the required approvals of the
shareholders or Partners, as the case may be, of the Company and the
Partnership, as the case may be, shall fail to have been obtained at a duly held
shareholders or Partners' meeting, as the case may be, of the Company or the
Partnership, including any adjournments thereof, or (B) if the required approval
of the shareholders of IWL shall fail to have been obtained at a duly held
shareholders meeting of IWL, including any adjournments thereof;
(h) By the Company or the Partnership, prior to the approval of this
Agreement by the shareholders of the Company or the Partners, as the case may
be, upon two business days' prior notice to IWL, if, as a result of an
Acquisition Proposal received by the Company or the Partnership from a Person
other than a party to this Agreement or any of its affiliates, the Board of
Directors of the Company or the General Partner, as the case may be, determines
in good faith, on the basis of oral or written advice of outside counsel, that
their fiduciary obligations under applicable law require that such Acquisition
Proposal be accepted; provided, however, that (i) the Board of Directors of the
Company or the General Partner shall have concluded in good faith, after
considering applicable provisions of law, on the basis of oral or written advice
of outside counsel, that such action is necessary for the Board of Directors or
the General Partner to act in a manner consistent with its fiduciary duties
under applicable law and (ii) prior to any such termination, the Company or the
Partnership shall, and shall cause its respective financial and legal advisors
to, negotiate with IWL to adjust the terms and conditions of this Agreement to
provide the opportunity for the Company or the Partnership to proceed with the
transactions contemplated hereby; or
(i) By IWL, prior to the approval of this Agreement by the shareholders of
the IWL upon two business days' prior notice to the Company and the Partnership,
if, as a result of an Acquisition Proposal received by IWL from a Person other
than a party to this Agreement or any of its affiliates, the Board of Directors
of IWL determines in good faith, on the basis of oral or written advice of
outside counsel that their fiduciary obligations under applicable law require
that such Acquisition Proposal be accepted; provided however, that (i) the Board
of Directors of IWL shall have concluded in good faith, after considering
applicable provisions of law, on the basis of oral or written advice of outside
counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable law and (ii) prior
to any such termination, IWL shall, and shall cause its respective financial and
legal advisors to, negotiate with the Company and the Partnership to adjust the
terms and conditions of this Agreement to provide the opportunity for IWL to
proceed with the transactions contemplated hereby;
provided further, however, that no termination shall be effective pursuant to
Sections 7.1(f), (g), (h) or (i) under circumstances in which a termination fee
is payable by IWL, on the one hand, or the Company and the Partnership, on the
other hand, under Section 7.2(b) or (c) unless concurrently with such
termination, such termination fee is paid in full by IWL, on the one hand, or
the Company and the Partnership, on the other hand, in accordance with the
provisions of Sections 7.2(b) or (c), as applicable.
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7.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement as provided in Section
7.1 hereof, and subject to the provisions of Section 8.1 hereof, this Agreement
shall forthwith become void and there shall be no liability on the part of any
of the parties hereto, except (i) as set forth in this Section 7.2 and in
Sections 2.19, 2.24, 2A.18, 2A.23, 3.5, 3.6 and 8.10 hereof, and (ii) nothing
herein shall relieve any party hereto from liability for any willful breach
hereof.
(b) If (i) this Agreement (A) is terminated by IWL pursuant to Section
7.1(f)(i)(A) or Section 7.1(g)(i)(A) or by the Company or the Partnership
pursuant to Section 7.1(f)(ii)(B), Section 7.1(g)(ii)(A) or Section 7.1(h)
hereof, or (B) is terminated as a result of the Company's or the Partnership's
material breach of Section 5.2 hereof which is not cured within 30 days after
notice thereof to the Company or the Partnership, as appropriate, and (ii) at
the time of such termination or prior to the meeting of the Company's
shareholders or the Partners there shall have been an Acquisition Proposal
involving the Company or any of its Subsidiaries or the Partnership (whether or
not such offer shall have been rejected or shall have been withdrawn prior to
the time of such termination or of the meeting), the Company or the Partnership,
as the case may be, shall pay to IWL a termination fee of $2.5 million, which
shall be payable in cash at the date of termination.
(c) If (i) this Agreement (A) is terminated by the Company or the
Partnership pursuant to Section 7.1(f)(ii)(A) or Section 7.1(g)(ii)(B) or by IWL
pursuant to Section 7.1(f)(i)(B), Section 7.1(g)(i)(B) or Section 7.1(i), or (B)
is terminated as a result of IWL's material breach of Section 5.2 hereof which
is not cured within 30 days after notice thereof to IWL, and (ii) at the time of
such termination or prior to the meeting of IWL's shareholders there shall have
been an Acquisition Proposal involving IWL or any of its Subsidiaries (whether
or not such offer shall have been rejected or shall have been withdrawn prior to
the time of such termination or of the meeting), IWL shall pay to the Company
and the Partnership an aggregate termination fee of $2.5 million, which shall be
payable in cash at the date of termination.
(d) The Company, the Partnership, and IWL agree that the agreements
contained in Section 7.2(b) and Section 7.2(c) above are an integral part of the
transactions contemplated by this Agreement and constitute liquidated damages
and not a penalty. If any party fails to promptly pay any fee due under Section
7.2(b) or Section 7.2(c), then such party shall pay the costs and expenses
(including reasonable legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to collect
payment, together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Bank One Texas, N.A. from the date such fee was required
to be paid.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto
pursuant to a writing adopted by action taken by all of the parties at any time
before the Effective Time; provided, however, that, after approval of the
Mergers and the Interest Exchange by the shareholders of IWL or the Company or
the Partners, whichever shall occur first, no amendment may be made which would
(a) alter or change the amount or kinds of consideration to be received by the
holders of shares of IWL Common Stock or Company Common Stock and the
Partnership Interests upon consummation of the Mergers and the Interest
Exchange, (b) alter or change any term of the Articles of Incorporation of the
Surviving Corporations, or (c) alter or change any of the terms and conditions
of this Agreement if such alteration or change would adversely affect the
holders of any class or series of securities of Holdings, IWL, the Company or
the Partnership. This Agreement may not be amended except by an instrument in
writing signed by the parties.
7.4 WAIVER. At any time before the Effective Time, any party may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party to any such extension or waiver shall be valid
only as against such party and only if set forth in an instrument in writing
signed by such party.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Effective Time, and all representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement
(including the Affiliate Agreements) shall survive the Mergers and the Interest
Exchange and continue until the earlier of (i) the date one year following the
Effective Time or (ii) the date Holdings publicly announces financial results
covering at least 30 days of combined operations of IWL, the Partnership and the
Company, provided that any representation or warranty relating or pertaining to
Company Taxes shall terminate upon the expiration of all applicable statutes of
limitations relevant to Company Taxes or Tax matters. All covenants to be
performed after the Effective Time shall continue indefinitely.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given and received if delivered personally or by
commercial delivery service, or three business days after being mailed by
registered or certified mail (return receipt requested) or sent via telecopy to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to IWL or any Merger Subsidiary, to:
IWL Communications, Inc.
12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Attn: Chief Executive Officer
Facsimile No.: (281) 929-1004
with a copy to:
Munsch Hardt Kopf Harr & Dinan, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2790
Attn: A. Michael Hainsfurther, Esq.
Facsimile No.: (214) 855-7584
(b) if to the Company, to:
CapRock Communications Corp.
Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638
Attn: Jere W. Thompson, Jr.
Facsimile No.: (972) 788-4243
or if to the Partnership, to:
CapRock Fiber Network, Ltd.
Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638
Attn: Jere W. Thompson, Jr.
Facsimile No.: (972) 788-4243
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each with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attn: Dudley W. Murrey, Esq.
Facsimile No.: (214) 939-6100
8.3 INTERPRETATION. When a reference is made in this Agreement to
Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The Disclosure Schedules and
Exhibits to this Agreement are hereby incorporated by reference into and made a
part of this Agreement for all purposes.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 MISCELLANEOUS. This Agreement and the documents and instruments and
other agreements among the parties hereto (including the Confidentiality
Agreement) (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral among the parties with respect to the subject matter
hereof, including the parties' letter of intent with respect to this
transaction, but excluding the Confidentiality Agreement; (b) are not intended
to confer upon any other Person any rights or remedies hereunder; and (c) shall
not be assigned by operation of law or otherwise except as otherwise
specifically provided.
8.6 GOVERNING LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Texas. All parties hereto agree to submit to the jurisdiction of the federal and
state courts of the State of Texas, and further agree that service of documents
commencing any suit therein may be made as provided in Section 8.2.
8.7 ATTORNEYS' FEES. If any party to this Agreement brings an action
against another party to this Agreement to enforce its rights under this
Agreement, the prevailing party shall be entitled to recover its reasonable
costs and expenses, including reasonable attorneys' fees and costs, incurred in
connection with such action, including any appeal of such action.
8.8 ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof, shall be settled by arbitration in Dallas,
Texas, in accordance with the rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the
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parties hereto as closely as possible in an acceptable manner to the end that
the transactions contemplated hereby are fulfilled to the maximum extent
possible.
8.11 DEFINITIONS. Terms used herein with initial capital letters shall
have the respective meanings set forth below:
"Acquisition Proposal" shall mean a proposal or offer for a tender or
exchange offer, merger, consolidation or other business combination involving
the Company or the Partnership or any proposal to acquire in any manner a
substantial equity interest in, or all or substantially all of the assets of the
Company or the Partnership.
"Affiliated Shareholders" has the meaning set forth in Section 5.8.
"Agreement" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"Articles of Merger" shall have the meaning set forth in Section 1.2(a).
"Closing" shall have the meaning set forth in Section 1.2(c).
"Closing Date" shall have the meaning set forth in Section 1.2(c).
"COBRA" shall have the meaning set forth in Section 2.20.
"Code" shall have the meaning set forth in Recital F to this Agreement.
"Company" shall have the meaning set forth in the introductory paragraph of
this Agreement.
"Company Authorizations" shall have the meaning set forth in Section 2.14.
"Company Balance Sheet" shall have the meaning set forth in Section 2.5.
"Company Commercial Software Rights" shall have the meaning set forth in
Section 2.11(b).
"Company Common Stock" shall have the meaning set forth in Section 1.6(a).
"Company Disclosure Schedule" shall have the meaning set forth in the
introductory paragraph of Article II.
"Company Employee Plans" shall have the meaning set forth in Section
2.27(a).
"Company Equity Rights" shall have the meaning set forth in Section 2.3(a).
"Company ERISA Affiliates" shall have the meaning set forth in Section
2.27(a).
"Company Exchange Ratio" shall have the meaning set forth in Section 1.6(a).
"Company Financial Statements" shall have the meaning set forth in Section
2.5.
"Company Intellectual Property Rights" shall have the meaning set forth in
Section 2.11(a).
"Company Merger" shall have the meaning set forth in Recital A to this
Agreement.
"Company Merger Consideration" shall have the meaning set forth in Section
1.6(a).
"Company Returns" shall have the meaning set forth in Section 2.8(a).
"Confidentiality Agreement" shall have the meaning set forth in Section 5.4.
"Consents" shall have the meaning set forth in Section 6.1(c).
"Contribution Agreement" shall have the meaning set forth in Section 1.2(b).
"Converted Option" shall have the meaning set forth in Section 1.6(g).
"C-Sub" shall have the meaning set forth in the introductory paragraph of
this Agreement.
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"Dissenter" shall have the meaning set forth in Section 1.7(a).
"Dissenters' Shares" shall have the meaning set forth in Section 1.7(a).
"Effective Time" shall have the meaning set forth in Section 1.2(a).
"Employee Safety Laws" shall have the meaning set forth in Section 2.18(d).
"Employment Agreement" shall have the meaning set forth in Section 5.12.
"End-User Licenses" shall have the meaning set forth in Section 2.11(a).
"Environmental Law" shall have the meaning set forth in Section 2.18(b).
"Equipment" shall have the meaning set forth in Section 2.10(c).
"ERISA" shall have the meaning set forth in Section 2.27(a).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 1.6(d).
"Exchange Fund" shall have the meaning set forth in Section 1.6(d).
"Exchange Ratios" shall have the meaning set forth in Section 1.6(a).
"FCC" shall have the meaning set forth in Section 3.3.
"GAAP" shall have the meaning set forth in Section 2.5.
"General Partner" shall have the meaning set forth in Recital A to this
Agreement.
"Governmental Entity" shall have the meaning set forth in Section 2.4.
"Holdings" shall have the meaning set forth in the introductory paragraph of
this Agreement.
"Holdings Common Stock" shall have the meaning set forth in Recital A to
this Agreement.
"Holdings Option" shall have the meaning set forth in Section 1.6(g).
"ICEL" shall have the meaning set forth in Section 3.31.
"ICEL Stock Purchase Agreement" shall mean that certain Agreement dated
January 21, 1998, among IWL, NERA Limited, and Thomas Norman Blair and Margery
Helen Blair for the sale and purchase of the whole of the issued share capital
of ICEL, including all schedules and exhibits attached thereto.
"Interest Exchange" shall have the meaning set forth in Recital A to this
Agreement.
"Interest Exchange Consideration" shall have the meaning set forth in
Section 1.6(a).
"IRS" shall have the meaning set forth in Section 2.27(b).
"I-Sub" shall have the meaning set forth in the introductory paragraph of
this Agreement.
"IWL" shall have the meaning set forth in the introductory paragraph of this
Agreement.
"IWL Authorizations" shall have the meaning set forth in Section 3.17.
"IWL Commercial Software Rights" shall have the meaning set forth in Section
3.15(b).
"IWL Common Stock" shall have the meaning set forth in Section 1.6(a).
"IWL Disclosure Schedule" shall have the meaning set forth in the
introductory paragraph of Article III.
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"IWL Employee Plans" shall have the meaning set forth in Section 3.25(a).
"IWL Equity Rights" shall have the meaning set forth in Section 3.2(b).
"IWL ERISA Affiliate" shall have the meaning set forth in Section 3.25(a).
"IWL Exchange Ratio" shall have the meaning set forth in Section 1.6(a).
"IWL Financial Statements" shall have the meaning set forth in Section 3.4.
"IWL Intellectual Property Rights" shall have the meaning set forth in
Section 3.15(a).
"IWL Merger" shall have the meaning set forth in Recital A to this
Agreement.
"IWL Merger Consideration" shall have the meaning set forth in Section
1.6(a).
"IWL Returns" has the meaning set forth in Section 3.12(a).
"IWL Shareholders Agreement" shall have the meaning set forth in Recital E
to this Agreement.
"Joint Proxy Statement" shall have the meaning set forth in Section 2.24.
"Limited Partners" shall have the meaning set forth in Section 1.2(b).
"Material Adverse Effect" shall mean any change in or effect on the business
of the referenced corporation or partnership or any of its Subsidiaries that is
or will be materially adverse to the business, operations (including the income
statement), properties (including intangible properties), condition (financial
or otherwise), assets, liabilities or regulatory status of such referenced
corporation and its Subsidiaries taken as a whole, but shall not include the
effects of changes that are generally applicable in (a) the United States
economy or (b) the United States securities markets if, in any of (a) or (b),
the effect on IWL, the Company or the Partnership (as the case may be) and its
respective Subsidiaries, taken as a whole, is not disproportionate relative to
the effect on the other and its Subsidiaries, taken as a whole.
"Merged Corporation" shall have the meaning set forth in Section 1.6.
"Merger Subsidiary" shall have the meaning set forth in the introductory
paragraph of Article III.
"Mergers" shall have the meaning set forth in Recital A to this Agreement.
"Options" shall have the meaning set forth in Section 1.6(g).
"Owners Agreement" shall have the meaning set forth in Recital D to this
Agreement.
"Partners" shall have the meaning set forth in Section 1.2(b).
"Partnership" shall have the meaning set forth in the introductory paragraph
of this Agreement.
"Partnership Authorizations" shall have the meaning set forth in Section
2A.14.
"Partnership Balance Sheet" shall have the meaning set forth in Section
2A.5.
"Partnership Commercial Software Rights" shall have the meaning set forth in
Section 2A.11(b).
"Partnership Disclosure Schedule" shall have the meaning set forth in the
introductory paragraph of Article IIA.
"Partnership Employee Plans" shall have the meaning set forth in Section
2A.26(a).
"Partnership Equity Rights" shall have the meaning set forth in Section
2A.3(a).
"Partnership Financial Statements" shall have the meaning set forth in
Section 2A.5.
"Partnership Intellectual Property Rights" shall have the meaning set forth
in Section 2A.11(a).
"Partnership Interests" shall have the meaning set forth in Recital A to
this Agreement.
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"Partnership Returns" shall have the meaning set forth in Section 2A.8(a).
"Person" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization, entity or group (as
defined in the Exchange Act).
"Pre-Surrender Dividends" shall have the meaning set forth in Section
1.6(d).
"Registration Statement" shall have the meaning set forth in Section 2.24.
"Requisite Regulatory Approvals" shall have the meaning set forth in Section
6.1(c).
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 3.4.
"Securities Act" shall have the meaning set forth in Section 2.24.
"Shareholders' Meeting" shall have the meaning set forth in Section 5.2(a).
"Shares" shall have the meaning set forth in Section 1.6(d).
"Subsidiary" means any corporation or other legal entity of which IWL, the
Company or the Partnership, as the case may be (either alone or through or
together with any other Subsidiary or Subsidiaries), owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity, except that
in the case of IWL, ICEL shall not, for any purposes of this Agreement, be
considered a Subsidiary of IWL.
"Surviving Corporation" shall have the meaning set forth in Section 1.1.
"Tax" or "Taxes" shall have the meaning set forth in Section 2.8(a).
"TBCA" shall have the meaning set forth in Section 1.7(a).
"Termination Date" shall have the meaning set forth in Section 7.1(b).
"TRLPA" shall have the meaning set forth in Section 5.2(a).
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IN WITNESS WHEREOF, Holdings, IWL, the Merger Subsidiaries, the Company and
the Partnership have caused this Agreement to be signed by themselves or their
duly authorized respective officers or general partners, all as of the date
first written above.
<TABLE>
<S> <C> <C>
IWL HOLDINGS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
IWL COMMUNICATIONS, INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
IWL ACQUISITION CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
CAPROCK COMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
CAPROCK ACQUISITION CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: President
-----------------------------------------
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc.
Its: General Partner
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: President
-----------------------------------------
</TABLE>
69
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND
PLAN OF MERGER AND PLAN OF EXCHANGE
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND PLAN OF EXCHANGE
(this "Amendment") is made and entered into as of April 30, 1998, among IWL
Communications, Incorporated, a Texas corporation ("IWL"), IWL Holdings Corp., a
Texas corporation ("Holdings"), IWL Acquisition Corp., a Texas corporation
("I-Sub") and a wholly owned subsidiary of Holdings, CapRock Communications
Corp., a Texas corporation (the "Company"), CapRock Acquisition Corp., a Texas
corporation ("C-Sub") and a wholly owned subsidiary of Holdings, and CapRock
Fiber Network, Ltd., a Texas limited partnership (the "Partnership").
RECITALS:
A. IWL, Holdings, I-Sub, the Company, C-Sub and the Partnership previously
entered into that certain Agreement and Plan of Merger and Plan of Exchange
dated as of February 16, 1998 (the "Merger Agreement") pursuant to which, among
other things, (a) IWL and I-Sub are to combine into a single company through the
statutory merger of I-Sub with and into IWL (the "IWL Merger"), (b) the Company
and C-Sub are to combine into a single company through the statutory merger of
C-Sub with and into the Company (the "Company Merger" and, together with the IWL
Merger, the "Mergers"), and (c) upon consummation of the Mergers, all of the
general and limited partnership interests in the Partnership are to be exchanged
for shares of the common stock, par value $.01 per share, of Holdings (the
"Holdings Common Stock") in the manner and order as set forth in the Merger
Agreement.
B. The parties hereto desire to enter into this Amendment to amend certain
terms of the Merger Agreement. Capitalized terms not otherwise defined herein
shall have the meaning given to such terms by the Merger Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
1. AMENDMENTS. Section 2.3 of the Company Disclosure Schedule is hereby
deleted in its entirety and, as of the date hereof, replaced with the
Section 2.3 of the Company Disclosure Schedule attached to this Amendment
and made a part hereof. Exhibit 1.6(a) to the Merger Agreement is hereby
deleted in its entirety and, as of the date hereof, replaced with Exhibit
1.6(a) attached to this Amendment and made a part hereof.
2. IWL OPTIONS. All references in the Merger Agreement to "Options" and to
"Holdings Options" shall include any IWL Equity Rights, including warrants,
that are listed in Section 3.2 of the IWL Dislcosure Schedule.
3. PAYMENT OF TERMINATION FEE. Section 7.2(b) of the Merger Agreement provides
that in certain events, as specified therein, the Company or the
Partnership, as the case may be, will be required to pay to IWL a
termination fee of $2,500,000 (the "Termination Fee"). In the event that the
Company and/or the Partnership is required to pay the Termination Fee under
Section 7.2(b) of the Merger Agreement, then the Company shall pay
$1,875,000 of the Termination Fee to IWL and the Partnership shall pay
$625,000 of the Termination Fee (for an aggregate of $2,500,000) to IWL.
Section 7.2(c) of the Merger Agreement provides that in certain events, as
specified therein, IWL will be required to pay to the Company and the
Partnership an aggregate Termination Fee of $2,500,000. In the event that
IWL is required to pay the Termination Fee under Section 7.2(c) of the
Merger Agreement, then IWL shall pay $1,875,000 of the Termination Fee to
the Company and shall pay $625,000 of the Termination Fee (for an aggregate
of $2,500,000) to the Partnership.
4. NO OTHER CHANGES. Except as expressly amended herein, the Merger Agreement
shall remain unchanged and shall continue in full force and effect.
<PAGE>
5. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart. Counterparts of this
Amendment, and any signatures thereon, transmitted by facsimile will be
deemed originals for all purposes.
6. GOVERNING LAW. This Amendment shall be governed in all respects, including
validity, interpretation and effect, by the laws of the Sate of Texas.
2
<PAGE>
IN WITNESS WHEREOF, Holdings, IWL, I-Sub, the Company, C-Sub, and the
Partnership have caused this Agreement to be signed by themselves or their duly
authorized respective officers or general partners, all as of the date first
written above.
<TABLE>
<S> <C> <C>
IWL HOLDINGS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
IWL COMMUNICATIONS, INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
IWL ACQUISITION CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
CAPROCK COMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: President
-----------------------------------------
CAPROCK ACQUISITION CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc.
Its: General Partner
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: President
-----------------------------------------
</TABLE>
3
<PAGE>
SECOND AMENDMENT TO AGREEMENT AND
PLAN OF MERGER AND PLAN OF EXCHANGE
This SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND PLAN OF EXCHANGE
(this "Amendment") is made and entered into as of June 20, 1998, among IWL
Communications, Incorporated, a Texas corporation ("IWL"), CapRock
Communications Corp., a Texas corporation formerly known as IWL Holdings Corp.
("Holdings"), IWL Acquisition Corp., a Texas corporation ("I-Sub") and a wholly
owned subsidiary of Holdings, CapRock Telecommunications Corp., a Texas
corporation formerly known as CapRock Communications Corp. (the "Company"),
CapRock Acquisition Corp., a Texas corporation ("C-Sub") and a wholly owned
subsidiary of Holdings, and CapRock Fiber Network, Ltd., a Texas limited
partnership (the "Partnership").
RECITALS:
A. IWL, Holdings, I-Sub, the Company, C-Sub and the Partnership previously
entered into that certain Agreement and Plan of Merger and Plan of Exchange
dated as of February 16, 1998, as amended by the First Amendment to Agreement
and Plan of Merger and Plan of Exchange dated April 30, 1998 by and among such
parties (as amended, the "Merger Agreement"), pursuant to which, among other
things, (a) IWL and I-Sub are to combine into a single company through the
statutory merger of I-Sub with and into IWL (the "IWL Merger"), (b) the Company
and C-Sub are to combine into a single company through the statutory merger of
C-Sub with and into the Company (the "Company Merger" and, together with the IWL
Merger, the "Mergers"), and (c) in connection with the Mergers, all of the
general and limited partnership interests in the Partnership are to be exchanged
for shares of the common stock, par value $.01 per share, of Holdings in the
manner and order as set forth in the Merger Agreement.
B. The parties hereto desire to enter into this Amendment to amend certain
terms of the Merger Agreement. Capitalized terms not otherwise defined herein
shall have the meaning given to such terms by the Merger Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
1. AMENDMENT TO SECTION 1.1. Section 1.1 of the Merger Agreement, titled "THE
MERGERS AND THE INTEREST EXCHANGE," is hereby amended in its entirety to
read, as of the date hereof, as follows:
"On the Closing Date and subject to and upon the terms and conditions of this
Agreement and the applicable laws of Texas, the following actions shall
occur in the following order: (a) I-Sub shall be merged with and into IWL in
the IWL Merger, the separate corporate existence of I-Sub shall cease, and
IWL shall continue as the surviving corporation in the IWL Merger, (b) after
consummation of the IWL Merger and prior to consummation of the Company
Merger, all of the outstanding Partnership Interests of the Partnership
shall be contributed to Holdings pursuant to, and in the order contemplated
by, the Interest Exchange, and (c) after consummation of the IWL Merger and
the Interest Exchange, C-Sub shall be merged with and into the Company in
the Company Merger, the separate corporate existence of C-Sub shall cease,
and the Company shall continue as the surviving corporation in the Company
Merger. The Company and IWL as the surviving corporations after the Mergers
are hereinafter sometimes collectively referred to as the "Surviving
Corporations" and individually as a "Surviving Corporation.""
2. AMENDMENT TO SECTIONS 1.2(A) AND (B). Sections 1.2(a) and (b) of the Merger
Agreement are each hereby amended in their entirety to read, as of the date
hereof, as follows:
"(a) As promptly as practicable after the satisfaction or waiver of the
conditions set forth in Article VI (and prior to the consummation of the
Interest Exchange), the parties hereto shall cause the IWL
1
<PAGE>
Merger to be consummated by filing Articles of Merger ("Articles of Merger")
with the Secretary of State of Texas in such form as required by, and
executed in accordance with the relevant provisions of, the laws of the
State of Texas and, after consummation of the Interest Exchange, the parties
hereto shall cause the Company Merger to be consummated by filing Articles
of Merger with the Secretary of State of Texas in such form as required by,
and executed in accordance with the relevant provisions of, the laws of the
State of Texas (the time at which both such filings have been made in Texas
and the Secretary of State of the State of Texas has issued a certificate of
merger with respect to both of the IWL Merger and the Company Merger is
referred to herein as the "Effective Time").
(b) On the Closing Date (and after consummation of the IWL Merger but prior
to consummation of the Company Merger), (i) the General Partner shall
execute and deliver to Holdings a contribution agreement substantially in
the form agreed upon by the parties hereto (a "Contribution Agreement")
pursuant to which the General Partner shall contribute its general
Partnership Interest in the Partnership to Holdings, (ii) immediately
thereafter, Holdings shall (pursuant to the terms of such Contribution
Agreement) contribute the general Partnership Interest in the Partnership to
C-Sub (the intention of the parties hereto being that the Company, upon
consummation of the Company Merger, will acquire by operation of law the
general Partnership Interest being contributed by Holdings to C-Sub), and
(iii) immediately following the consummation of the contribution of the
general Partnership Interest to C-Sub, each of the limited partners in the
Partnership (the "Limited Partners" and, collectively with the General
Partner, the "Partners") shall execute and deliver to Holdings a
Contribution Agreement pursuant to which the Limited Partners shall
contribute their respective limited Partnership Interests in the Partnership
to Holdings. Notwithstanding anything to the contrary contained herein, all
of the contributions of Partnership Interests referred to in the immediately
preceding sentence shall be deemed to have occurred immediately after
consummation of the IWL Merger and immediately prior to consummation of the
Company Merger. Reasonably promptly after the Effective Time, the
Partnership shall file a certificate of amendment to its certificate of
limited partnership to reflect that the Company has become the new general
partner of the Partnership and that the General Partner is the withdrawing
general partner. The Partnership and the General Partner hereby consent to
(and each Contribution Agreement delivered hereunder by a Limited Partner
shall include such Limited Partner's consent to) the transfers of the
Partnership Interests contemplated by this Agreement and hereby agree (and
each Contribution Agreement delivered hereunder by a Limited Partner shall
include such Limited Partner's agreement) that, effective at the Effective
Time and subject to the consummation of the transactions contemplated
hereby, Holdings shall become a substituted limited partner in the
Partnership and, at the Effective Time, the Company shall become a
substituted general partner in the Partnership and the status of the
Partners as partners in the Partnership shall cease. The Company hereby
elects, effective as of the Effective Time and subject to the consummation
of the transactions contemplated hereby, to reconstitute the Partnership, to
continue as the general partner of the Partnership and to continue the
Partnership and its business."
3. AMENDMENT TO SECTION 1.4(B). Section 1.4(b) of the Merger Agreement is
hereby amended in its entirety to read, as of the date hereof, as follows:
"(b) The Articles of Incorporation (as may be amended by the Articles of
Merger) and the Bylaws of the Company and IWL as in effect immediately prior
to the Effective Time as to the Company Merger and the IWL Merger,
respectively, shall be the Articles of Incorporation and Bylaws of the
Company and IWL, respectively, each as a Surviving Corporation, until
thereafter amended."
4. AMENDMENT TO SECTION 1.6(A)(I). Section 1.6(a)(i) of the Merger Agreement
is hereby amended in its entirety to read, as of the date hereof, as
follows:
"(i) Each share of the common stock, par value $.01 per share (the "IWL
Common Stock"), of IWL issued and outstanding immediately before the
Effective Time (other than those held in the treasury of IWL) and all rights
in respect thereof shall at the Effective Time, without any action on the
part of
2
<PAGE>
any holder thereof, forthwith cease to exist and be converted into and
become exchangeable for that number of shares of Holdings Common Stock set
forth on Exhibit 1.6(a) attached hereto (the "IWL Merger Consideration" and
such ratio of IWL Common Stock to Holdings Common Stock being herein
referred to as the "IWL Exchange Ratio").
5. AMENDMENT TO SECTION 1.6(A)(IV). Section 1.6(a)(iv) of the Merger Agreement
is hereby amended in its entirety to read, as of the date hereof, as
follows:
"(iv) Each one percent (1%) of the Partnership Interests issued and
outstanding immediately before the Effective Time and all rights in respect
thereof shall, upon execution and delivery to Holdings by the holder thereof
of the Contribution Agreement with respect thereto and without any further
action on the part of the holder thereof, forthwith be exchanged for that
number of shares of Holdings Common Stock set forth on Exhibit 1.6(a)
attached hereto (the "Interest Exchange Consideration")."
6. AMENDMENT TO EXHIBIT 1.6(A). Exhibit 1.6(a) to the Merger Agreement, titled
"COMPANY MERGER CONSIDERATION AND INTEREST EXCHANGE CONSIDERATION," is
hereby deleted in its entirety and, as of the date hereof, replaced with
Exhibit 1.6(a), titled "COMPANY MERGER CONSIDERATION, INTEREST EXCHANGE
CONSIDERATION AND IWL MERGER CONSIDERATION," attached to this Amendment and
made a part hereof.
7. AMENDMENT TO SECTION 1.6(F). Section 1.6(f) of the Merger Agreement is
hereby amended in its entirety to read, as of the date hereof, as follows:
"(f) FRACTIONAL SHARES. No fraction of a share of Holdings Common Stock will
be issued, but in lieu thereof each holder of shares of IWL Common Stock,
each holder of shares of Company Common Stock and each holder of Partnership
Interests who would otherwise be entitled to a fraction of a share of
Holdings Common Stock (after aggregating all fractional shares of Holdings
Common Stock to be received by such holder) shall be entitled to receive
from Holdings a whole share of Holdings Common Stock."
8. AMENDMENT TO SECTION 1.6(G)(I)(B). Section 1.6(g)(i)(B) of the Merger
Agreement is hereby amended in its entirety to read, as of the date hereof,
as follows:
"(B) the exercise price per share of Holdings Common Stock for each
particular Holdings Option shall be equal to, respectively, (x) the exercise
price per share under the Converted Option divided by (y) the IWL Exchange
Ratio (if the Converted Option related to IWL Common Stock) or the Company
Exchange Ratio (if the Converted Option related to the Company Common
Stock), each of which shall be rounded up to the nearest whole cent."
9. AMENDMENT TO SECTION 1.6(I). Section 1.6(i) of the Merger Agreement is
hereby amended in its entirety to read, as of the date hereof, as follows:
"(i) MAXIMUM SHARES ISSUABLE. Notwithstanding anything to the contrary
contained herein, the maximum number of shares of Holdings Common Stock
issuable upon the conversion of shares of Company Common Stock hereunder and
the Interest Exchange and upon the exercise of Holdings Options that are the
result of Converted Options related to Company Common Stock that are assumed
by Holdings hereunder is 25,277,816 shares of Holdings Common Stock."
10. AMENDMENTS TO ARTICLE VI. Article VI of the Merger Agreement, titled
"CONDITIONS TO THE MERGERS AND THE INTEREST EXCHANGE," is hereby amended as
set forth in this Section 10 of this Amendment. First, the parties hereby
agree that the Requisite Regulatory Approvals referred to in Section 6.1(c)
of the Merger Agreement shall, with respect to any approvals the parties are
seeking to obtain from the FCC and state public utility commissions, include
any approvals required to be obtained from the FCC and the state public
utility commissions or other authority which governs the provision of
telecommunications services in the States of Texas, Louisiana, Arkansas and
Oklahoma and shall not include the approvals of any other state public
utility commissions (such other approvals hereby being deemed to be
immaterial Consents for purposes of Section 6.1(c) of the Merger Agreement
and the term
3
<PAGE>
"Requisite Regulatory Approvals" to include only those required to be
obtained by this Amendment). Second, the conditions set forth in Sections
6.1(g), 6.2(b), (e), (f), (g), (h) and (j) of the Merger Agreement shall no
longer be conditions to the obligations of the Company and the Partnership
to consummate and effect the Merger Agreement and the transactions
contemplated thereby; the parties who are required to perform such
conditions shall still be required to perform such conditions (including
without limitation executing and delivering any documents or instruments
required thereby), provided that any failure of any party to so perform any
such condition shall no longer excuse the Company or the Partnership from
their respective obligations to consummate and effect the Merger Agreement
and the transactions contemplated thereby. Third, the conditions set forth
in Sections 6.1 (g), 6.3(b), (c) (other than the consent of Bank One Texas,
N.A.), (d), (g), (h) and (i) of the Merger Agreement shall no longer be
conditions to the obligations of IWL and the Merger Subsidiaries to
consummate and effect the Merger Agreement and the transactions contemplated
thereby; the parties who are required to perform such conditions shall still
be required to perform such conditions (including without limitation
executing and delivering any documents or instruments required thereby),
provided that any failure of any party to so perform any such condition
shall no longer excuse IWL and the Merger Subsidiaries from their respective
obligations to consummate and effect the Merger Agreement and the
transactions contemplated thereby. Fourth, the parties hereto agree that
neither an increase or decrease in the price of the shares of IWL Common
Stock as reported on the NASDAQ National Market System nor any litigation
arising therefrom or as a result of the modification of the exchange ratio
in this amendment shall ever be deemed to be an event that has a Material
Adverse Effect on any of the parties to the Merger Agreement. Finally, the
Company and the Partnership hereby agree that the modifications of the
Company Exchange Ratio and the Interest Exchange Consideration made to the
Merger Agreement in this Amendment address and take into account all factors
of which they are aware, including, but not limited to, IWL's failure to
meet earnings or income projections or models, that could be deemed to be or
give rise to a Material Adverse Effect, including any Material Adverse
Effect that could be deemed to arise from any representation or warranty of
IWL not being true and correct as of the date hereof or at the Effective
Time or any failure of IWL to perform and comply with all covenants,
obligations and conditions required to be performed and complied with by it
as of the Effective Time.
11. AMENDMENT TO SECTION 6.3(J). Section 6.3(j) of the Merger Agreement is
hereby amended in its entirety to read, as of the date hereof, as follows:
"(j) CONTRIBUTION AGREEMENTS. The General Partner and Limited Partners
holding, in the aggregate, at least 80% of the limited Partnership Interests
in the Partnership each shall have executed and delivered to Holdings a
Contribution Agreement in respect of such Partner's Partnership Interest
(and shall not have withdrawn such contribution), shall have consented to
the transfers of Partnership Interests contemplated by the Interest Exchange
and shall have consented to the substitution of the Company as the new
General Partner of the Partnership and of Holdings as the new limited
partner of the Partnership."
12. AMENDMENTS TO SECTION 7.1. Sections 7.1(f), (g), (h) and (i) of the Merger
Agreement are each hereby deleted in their entirety and new Sections 7.1(f)
and (g) are hereby added to the Merger Agreement to read, as of the date
hereof, as follows:
"(f) by IWL (i) if the Board of Directors or any committee of the Board of
Directors of the Company or the General Partner shall withdraw or modify in
any adverse manner its approval or recommendation of this Agreement or the
Mergers or the Interest Exchange; (ii) (A) if any of the required approvals
of the shareholders or Partners, as the case may be, of the Company and the
Partnership, as the case may be, shall fail to have been obtained at a duly
held shareholders or Partners' meeting, as the case may be, of the Company
or the Partnership, including any adjournments thereof, or (B) if the
Partnership Interest of the General Partner and at least 80% of the
Partnership Interests of the Limited Partners are not properly tendered in
the Interest Exchange without being withdrawn; (iii) if
4
<PAGE>
the required approval of the shareholders of IWL shall fail to have been
obtained at a duly held shareholders meeting of IWL, including any
adjournments thereof; or (iv) prior to the approval of this Agreement by the
shareholders of IWL upon two business days' prior notice to the Company and
the Partnership, if, as a result of an Acquisition Proposal received by IWL
from a Person other than a party to this Agreement or any of its affiliates,
the Board of Directors of IWL determines in good faith, on the basis of oral
or written advice of outside counsel that their fiduciary obligations under
applicable law require that such Acquisition Proposal be accepted, provided
however, that (A) the Board of Directors of IWL shall have concluded in good
faith, after considering applicable provisions of law, on the basis of oral
or written advice of outside counsel, that such action is necessary for the
Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law and (B) prior to any such termination, IWL shall, and
shall cause its respective financial and legal advisors to, negotiate with
the Company and the Partnership to adjust the terms and conditions of this
Agreement to provide the opportunity for IWL to proceed with the
transactions contemplated hereby; or
(g) by the Company and the Partnership (i) if the Board of Directors or any
committee of the Board of Directors of IWL shall withdraw or modify in any
adverse manner its approval or recommendation of this Agreement or the
Mergers or the Interest Exchange; (ii) if the required approval of the
shareholders of IWL shall fail to have been obtained at a duly held
shareholders meeting of IWL, including any adjournments thereof; (iii) if
any of the required approvals of the shareholders or Partners, as the case
may be, of the Company and the Partnership, as the case may be, shall fail
to have been obtained at a duly held shareholders or Partners' meeting, as
the case may be, of the Company or the Partnership, including any
adjournments thereof (or if the General Partner and Limited Partners
holding, in the aggregate, at least 80% of the limited Partnership Interests
in the Partnership shall have failed to execute and deliver to Holdings, and
not withdraw, Contribution Agreements in respect of such Partners'
Partnership Interests); or (iv) prior to the approval of this Agreement by
the shareholders of the Company or the Partners, as the case may be, upon
two business days' prior notice to IWL, if, as a result of an Acquisition
Proposal received by the Company or the Partnership from a Person other than
a party to this Agreement or any of its affiliates, the Board of Directors
of the Company or the General Partner, as the case may be, determines in
good faith, on the basis of oral or written advice of outside counsel, that
their fiduciary obligations under applicable law require that such
Acquisition Proposal be accepted, provided, however, that (A) the Board of
Directors of the Company or the General Partner shall have concluded in good
faith, after considering applicable provisions of law, on the basis of oral
or written advice of outside counsel, that such action is necessary for the
Board of Directors or the General Partner to act in a manner consistent with
its fiduciary duties under applicable law and (B) prior to any such
termination, the Company or the Partnership shall, and shall cause its
respective financial and legal advisors to, negotiate with IWL to adjust the
terms and conditions of this Agreement to provide the opportunity for the
Company or the Partnership to proceed with the transactions contemplated
hereby;
provided further, however, that no termination shall be effective pursuant to
Sections 7.1(f) or (g) under circumstances in which a termination fee is
payable by IWL, on the one hand, or the Company and the Partnership, on the
other hand, under Section 7.2(b) or (c) unless concurrently with such
termination, such termination fee is paid in full by IWL, on the one hand,
or the Company and the Partnership, on the other hand, in accordance with
the provisions of Sections 7.2(b) or (c), as applicable."
13. AMENDMENTS TO SECTION 7.2. Sections 7.2(b) and (c) of the Merger Agreement
are each hereby amended in their entirety to read, as of the date hereof, as
follows:
"(b) If this Agreement (i) is terminated by IWL pursuant to Section 7.1(f)(i)
or (ii) or by the Company or the Partnership pursuant to Section 7.1(g)(iii)
or (iv), or (ii) is terminated as a result of the Company's or the
Partnership's material breach of Section 5.2 hereof which is not cured
within 30
5
<PAGE>
days after notice thereof to the Company or the Partnership, as appropriate,
the Company shall pay to IWL a termination fee of $1,875,000 and the
Partnership shall pay to IWL a termination fee of $625,000 (for an aggregate
termination fee of $2.5 million), which shall be payable in cash at the date
of termination.
(c) If this Agreement (i) is terminated by the Company or the Partnership
pursuant to Section 7.1(g)(i) or (ii) or by IWL pursuant to Section
7.1(f)(iii) or (iv), or (ii) is terminated as a result of IWL's material
breach of Section 5.2 hereof which is not cured within 30 days after notice
thereof to IWL, IWL shall pay to the Company a termination fee of $1,875,000
and shall pay to the Partnership a termination fee of $625,000 (for an
aggregate termination fee of $2.5 million), which shall be payable in cash
at the date of termination."
14. AMENDMENT TO DISCLOSURE SCHEDULES. Section 2.3 of the Company Disclosure
Schedule is hereby deleted in its entirety and, as of the date hereof,
replaced with the Section 2.3 of the Company Disclosure Schedule attached to
this Amendment and made a part hereof. Section 2A.3 of the Partnership
Disclosure Schedule is hereby deleted in its entirety and, as of the date
hereof, replaced with the Section 2A.3 of the Partnership Disclosure
Schedule attached to this Amendment and made a part hereof. Section 3.2 of
the IWL Disclosure Schedule is hereby deleted in its entirety and, as of the
date hereof, replaced with Section 3.2 of the IWL Disclosure Schedule
attached to this Amendment and made a part hereof.
15. TIMING OF TRANSACTIONS. Notwithstanding anything to the contrary contained
in the Merger Agreement, it is the intent of the parties hereto that on the
Closing Date, the IWL Merger shall be deemed to be consummated first, the
Interest Exchange shall be deemed to be consummated after consummation of
the IWL Merger and prior to consummation of the Company Merger, and the
Company Merger shall be deemed to be consummated after consummation of the
IWL Merger and the Interest Exchange, and to the extent any provision of the
Merger Agreement conflicts with or is inconsistent with this Section 15 of
this Amendment, this Section 15 of this Amendment shall control and such
provision of the Merger Agreement is hereby deemed to be modified to the
extent necessary to make such provision consistent with this Section 15 of
this Amendment.
16. CERTAIN WAIVERS. Each of the parties hereby consents to the following
actions (and to the extent any such action was taken prior to the date
hereof, hereby waives any breach or violation of the Merger Agreement that
may have resulted from the taking of such action), which consent and waiver
shall be valid for all purposes under the Merger Agreement, including
Sections 4.1 and 4.3 thereof: (i) the change by Holdings of its name from
IWL Holdings Corp. to CapRock Communications Corp., the increase in
Holdings' authorized capital stock to 220 million shares, of which 200
million shares shall be common stock and 20 million shares shall be
preferred stock, and any amendments to the Articles of Incorporation of
Holdings required to effectuate such name change and increase in capital
stock, (ii) the change by the Company of its name from CapRock
Communications Corp. to CapRock Telecommunications Corp. and any amendments
to the Articles of Incorporation of the Company required to effectuate such
name change, (iii) the election by the Partnership to be taxed, effective as
of January 1, 1998, as a corporation for federal income tax purposes, (iv)
the incurrence of indebtedness by Holdings, the Company, the Partnership and
IWL in an aggregate amount not to exceed $300,000,000 whether as obligor,
co-obligor, guarantor or co-guarantor pursuant to that certain Rule 144A
offering of notes being sold initially to various investment banks as
initial purchasers to be described an Offering Memorandum (the "Offering
Memorandum"), (v) the consummation by Holdings, the Company and/or the
Partnership of the transactions described in the Offering Memorandum (and
the execution and delivery of documents in connection therewith) with
respect to the development and ownership of the proprietary software
platform ("System") that is being jointly developed by the Company and
Thompson Technology, Inc., a Texas corporation ("TTI") that is owned by
David Thompson, including with respect to the continued funding and the
future licensing and ownership of the System, (vi) the employment by
Holdings and/or the Company of Kevin W.
6
<PAGE>
McAleer as Senior Vice President and Chief Financial Officer and the
execution and delivery of an employment agreement with Mr. McAleer in
connection therewith, and (vii) the sale by IWL of its digital radio
telephone (DRT) products to one or more purchasers and on terms and
conditions, satisfactory to IWL in its sole and unreviewable discretion (and
take any foreclosure or related action in connection therewith). The consent
and waiver granted hereby shall not extend to or be valid with respect to
any other action taken or proposed to be taken by any party to the Merger
Agreement which requires the consent of any other party or parties to the
Merger Agreement.
17. NO OTHER CHANGES. Except as expressly amended herein, the Merger Agreement
shall remain unchanged and shall continue in full force and effect.
18. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart. Counterparts of this
Amendment, and any signatures thereon, transmitted by facsimile will be
deemed originals for all purposes.
19. GOVERNING LAW. This Amendment shall be governed in all respects, including
validity, interpretation and effect, by the laws of the Sate of Texas.
IN WITNESS WHEREOF, Holdings, IWL, I-Sub, the Company, C-Sub, and the
Partnership have caused this Agreement to be signed by themselves or their duly
authorized respective officers or general partners, all as of the date first
written above.
<TABLE>
<S> <C> <C>
CAPROCK COMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
IWL COMMUNICATIONS, INCORPORATED
By: /s/ IGNATIUS W. LEONARDS
-----------------------------------------
Its: President
-----------------------------------------
IWL ACQUISITION CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
CAPROCK TELECOMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: President
-----------------------------------------
CAPROCK ACQUISITION CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: Chief Executive Officer
-----------------------------------------
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc.
Its: General Partner
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Its: President
-----------------------------------------
</TABLE>
8
<PAGE>
THIRD AMENDMENT, AGREEMENT AND ACKNOWLEDGMENT OF
RECEIPT OF REGULATORY APPROVALS
This THIRD AMENDMENT, AGREEMENT AND ACKNOWLEDGMENT OF RECEIPT OF REGULATORY
APPROVALS (this "Agreement") is made and entered into as of July 8, 1998, among
IWL Communications, Incorporated, a Texas corporation ("IWL"), CapRock
Communications Corp., a Texas corporation formerly known as IWL Holdings Corp.
("Holdings"), IWL Acquisition Corp., a Texas corporation ("I-Sub") and a wholly
owned subsidiary of Holdings, CapRock Telecommunications Corp., a Texas
corporation formerly known as CapRock Communications Corp. (the "Company"),
CapRock Acquisition Corp., a Texas corporation ("C-Sub") and a wholly owned
subsidiary of Holdings, and CapRock Fiber Network, Ltd., a Texas limited
partnership (the "Partnership").
RECITALS:
A. IWL, Holdings, I-Sub, the Company, C-Sub and the Partnership previously
entered into that certain Agreement and Plan of Merger and Plan of Exchange
dated as of February 16, 1998, as amended by the First Agreement to Agreement
and Plan of Merger and Plan of Exchange dated April 30, 1998 and the Second
Agreement to Agreement and Plan of Merger and Plan of Exchange dated June 20,
1998, by and among such parties (as amended, the "Merger Agreement"), pursuant
to which, among other things, (a) IWL and I-Sub are to combine into a single
company through the statutory merger of I-Sub with and into IWL (the "IWL
Merger"), (b) the Company and C-Sub are to combine into a single company through
the statutory merger of C-Sub with and into the Company (the "Company Merger"
and, together with the IWL Merger, the "Mergers"), and (c) in connection with
the Mergers, all of the general and limited partnership interests in the
Partnership are to be exchanged for shares of the common stock, par value $.01
per share, of Holdings in the manner and order as set forth in the Merger
Agreement ("Interest Exchange").
B. The parties hereto desire to enter into this Agreement to confirm the
receipt of all Requisite Regulatory Approvals as defined in the Merger Agreement
from the FCC and state public utility commissions and to confirm the receipt of
an opinion of the financial advisor to IWL. Capitalized terms not otherwise
defined herein shall have the meaning given to such terms by the Merger
Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
1. Section 3.7 of the Merger Agreement is hereby amended and restated as
follows:
"3.7 OPINION OF FINANCIAL ADVISOR. IWL has received the written
opinion of Cruttenden Roth Incorporated on the date thereof, to the
effect that, as of the date thereof, the relative exchange ratios
whereby the current holders of IWL Common Stock would hold approximately
15%, and the current holders of the Company Common Stock and the
Partnership Interests together would hold approximately 85% of the
outstanding shares of Holdings Common Stock on a diluted basis after the
Mergers and the Interest Exchange was fair from a financial point of
view to the shareholders of IWL."
2. Article VI of the Merger Agreement, titled "CONDITIONS TO THE MERGERS AND
THE INTEREST EXCHANGE" provides that Requisite Regulatory Approvals were to
be obtained from the FCC and the state public utility commissions or other
authority which governs the provision of telecommunications services in the
States of Texas, Louisiana, Arkansas and Oklahoma ("Specified States"). The
parties hereby agree that all of the Requisite Regulatory Approvals have
been obtained from the FCC and the Specified States and that no other
Requisite Regulatory Approvals are required in order for the combined
business (following the Mergers and the Interest Exchange) to provide
telecommunications services in the states of Texas, Louisiana, Arkansas and
Oklahoma. The parties specifically waive the receipt of any regulatory
approvals in the state of Texas regarding CapRock's SPCOA status and waive
the receipt of any other regulatory approvals from the FCC or the Specified
States not already obtained
<PAGE>
for the provision of telecommunications services and amend the Merger
Agreement to the extent necessary to provide that no Requisite Regulatory
Approvals are to be obtained except those listed on Exhibit A attached
hereto and incorporated herein by reference, all of which have been
obtained.
3. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart. Counterparts of this
Agreement, and any signatures thereon, transmitted by facsimile will be
deemed originals for all purposes.
4. GOVERNING LAW. This Agreement shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Texas.
IN WITNESS WHEREOF, Holdings, IWL, I-Sub, the Company, C-Sub, and the
Partnership have caused this Agreement to be signed by themselves or their duly
authorized respective officers or general partners, all as of the date first
written above.
CAPROCK COMMUNICATIONS CORP.
By: /s/ Jere W. Thompson, Jr.
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
IWL COMMUNICATIONS, INCORPORATED
By: /s/ Ignatius W. Leonards
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
IWL ACQUISITION CORP.
By: /s/ Jere W. Thompson, Jr.
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
CAPROCK TELECOMMUNICATIONS CORP.
By: /s/ Jere W. Thompson, Jr.
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
2
<PAGE>
CAPROCK ACQUISITION CORP.
By: /s/ Jere W. Thompson, Jr.
--------------------------------------
Its: Chief Executive Officer
--------------------------------------
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc.
Its: General Partner
By: /s/ Jere W. Thompson, Jr.
--------------------------------------
Its: President
--------------------------------------
3
<PAGE>
APPENDIX II
[FORM OF CRUTTENDEN ROTH FAIRNESS OPINION]
July 20, 1998
Board of Directors
IWL Communications, Incorporated
12000 Aerospace Avenue, Suite 200
Houston, TX 77034
Members of the Board:
We understand that IWL Communications, Incorporated ("IWL"), CapRock
Communications Corp. (formerly known as IWL Holdings Corp.) ("Holdings"), IWL
Acquisition Corp. ("I-Sub), CapRock Telecommunications Corp. (formerly known as
CapRock Communications Corp.) ("Telecommunications"), CapRock Acquisition Corp.
("C-Sub") and CapRock Fiber Network, Ltd. (the "Partnership") have entered into
an Agreement and Plan of Merger and Plan of Exchange dated as of February 16,
1998, as amended, (as so amended, the "Merger Agreement"), pursuant to which (a)
IWL and I-Sub will combine into a single company through the statutory merger of
I-Sub with and into IWL (the "IWL Merger"), with IWL to become a direct
wholly-owned subsidiary of Holdings, and (b) all of the general and at least 80%
of the limited partnership interests (collectively, the "Partnership Interests")
in the Partnership will be exchanged (the "Interest Exchange") for shares of the
Common Stock of Holdings, and (c) Telecommunications and C-Sub will combine into
a single company through the statutory merger of
C-Sub with and into Telecommunications with Telecommunications to become a
direct wholly-owned subsidiary of Holdings (the "Telecommunications Merger" and
together with the IWL Merger, the "Mergers").
We further understand that, pursuant to the Mergers and the Interest Exchange,
among other things, the outstanding shares of IWL Common Stock and
Telecommunications Common Stock shall be converted into shares of Holdings
Common Stock and outstanding Partnership Interests shall be exchanged for shares
of Holdings Common Stock (collectively, the "Proposed Transaction"). Based on
the Merger Agreement, current holders of IWL Common Stock would hold
approximately 15%, and current holders of Telecommunications Common Stock and
the Partnership Interests, together, would hold approximately 85% (together, the
"Relative Exchange Ratios"), of the outstanding shares of Holdings Common Stock
on a diluted basis after consummation of the Proposed Transaction. The terms and
conditions of the Proposed Transaction are set forth in more detail in the
Merger Agreement.
We have been requested by the Board of Directors of the IWL to render our
opinion with respect to the fairness from a financial point of view, to the
shareholders of the IWL, of the Relative Exchange Ratios and of the
consideration to be paid by Holdings to holders of IWL Common Stock in the
Proposed Transaction. We have not been requested to opine as to, and our opinion
does not in any manner address, IWL's underlying business decision to proceed
with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger Agreement,
as amended, and the specific terms of the Proposed Transaction, (2) such
publicly available information relating to IWL, Telecommunications and the
Partnership which we believe to be relevant to our analysis, (3) historical and
projected financial and operating information with respect to the business,
operations and prospects of IWL furnished to us by IWL, (4) historical and
projected financial and operating information with respect to the business,
operations and prospects of Telecommunications and the Partnership furnished to
us by Telecommunications, the Partnership and IWL, (5) the trading history of
IWL's common stock from its initial public offering date to the present and a
comparison of that trading history with those of other companies that we deemed
relevant, (6) a comparison of the historical financial results and present
<PAGE>
financial condition of IWL with those of other companies that we deemed
relevant, (7) a comparison of the historical financial results and the present
financial condition of Telecommunications and the Partnership with those of
other companies that we deemed relevant, (8) a comparison of the quarterly and
annual earnings estimates of our research analyst for IWL with IWL's actual and
projected results, (9) the potential pro forma financial effects of the Proposed
Transaction, (10) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other transactions that we
deemed relevant, and (11) the projections of IWL, Telecommunications and the
Partnership on a combined basis and the relative contribution of the business of
IWL to projected combined operating results in relation to the Relative Exchange
Ratios. In addition, we have had discussions with the management teams of IWL,
Telecommunications and the Partnership concerning their respective businesses,
operations, assets, financial conditions and prospects and the potential
strategic benefits of the Proposed Transaction and have undertaken such other
studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of management teams of IWL,
Telecommunications and the Partnership that they are not aware of any facts that
would make such information inaccurate or misleading. With respect to the
financial projections of IWL, Telecommunications and the Partnership we have,
upon advice of IWL, assumed that such projections have been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
the respective management teams of IWL, Telecommunications and the Partnership
as to the future financial performance of IWL, Telecommunications and the
Partnership and the combined company (not including the cost savings and
operating synergies, if any, which may result from a combination of IWL,
Telecommunications and the Partnership). In arriving at our opinion, we have
conducted a limited physical inspection of the properties and facilities of IWL,
Telecommunications and the Partnership and have not made or obtained any
evaluations or appraisals of the assets or liabilities of IWL,
Telecommunications and the Partnership. Upon advice of IWL, we have assumed that
the Proposed Transaction will qualify as a tax-free transaction to the
shareholders of IWL. Our opinion necessarily is based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that, from a financial point of view, the Relative Exchange Ratios are
fair to the shareholders of IWL and the consideration to be paid by Holdings to
the shareholders of IWL is fair to shareholders of IWL in the Proposed
Transaction.
We have acted as financial advisor to IWL in connection with the Proposed
Transaction and will receive a fee for our services which is contingent upon the
consummation of the Proposed Transaction. In addition, IWL has agreed to
indemnify us for certain liabilities that may arise out of the rendering of this
opinion. In the ordinary course of our business, we may trade in the equity
securities of IWL for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of IWL and is
rendered to the Board of Directors in connection with its consideration of the
Proposed Transaction. This opinion is not intended to be and does not constitute
a recommendation to any shareholder of IWL as to how such shareholder should
vote with respect to the Proposed Transaction.
Very truly yours,
<PAGE>
APPENDIX III
ARTICLES OF INCORPORATION
OF
IWL HOLDINGS CORP.
The undersigned natural person of the age of eighteen (18) years or more,
acting as an incorporator of a corporation under the Texas Business Corporation
Act, hereby adopts the following Articles of Incorporation for such corporation:
ARTICLE I
NAME
The name of the corporation (the "Corporation") is IWL Holdings Corp.
ARTICLE II
DURATION
The period of its duration is perpetual.
ARTICLE III
PURPOSE
The purposes for which the Corporation is organized are to buy, sell, lease
and deal in goods, services, personal property and real property of every nature
and description, and to transact any or all lawful business for which
corporations may be incorporated under the Texas Business Corporation Act.
ARTICLE IV
SHARES
A. CAPITALIZATION. The aggregate number of shares that the Corporation is
authorized to issue is One Hundred Ten Million (110,000,000) shares, consisting
of:
1. One Hundred Million (100,000,000) shares of Common Stock having a
par value of One Cent ($.01) per share; and
2. Ten Million (10,000,000) shares of Preferred Stock having a par
value of One Cent ($.01) per share.
B. SERIES OF SHARES ESTABLISHED BY BOARD OF DIRECTORS.
The Preferred Stock may be issued from time to time in one (1) or more
series. The Board of Directors is hereby authorized, by filing a statement
pursuant to Article 2.13 of the Texas Business Corporation Act, to fix or
determine from time to time the designations, preferences, limitations and
relative rights including voting rights of the shares of any series to the same
extent that such designations, preferences, limitations, and relative rights
could be stated if fully set forth in the articles of incorporation, but subject
to and within the limitations set forth in the articles of incorporation. Such
authority includes, without limitation, the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then issued. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status of authorized, but unissued shares
<PAGE>
of the class of shares from which such series was established that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
C. COMMON STOCK.
1. Shares of Common Stock may be issued by the Corporation from time to
time for such consideration as may lawfully be fixed by the Board of
Directors.
2. The Common Stock shall be entitled to one (1) vote per share on all
matters.
3. Subject to the prior rights and preferences of the Preferred Stock
and subject to the provisions and conditions set forth in the foregoing
Section B of this Article IV, or in any resolution or resolutions providing
for the issue of a series of Preferred Stock, and to the extent permitted by
the laws of the State of Texas, the holders of Common Stock shall be
entitled to receive such cash dividends as may be declared and made payable
by the Board of Directors.
4. After payment shall have been made in full to the holders of any
series of Preferred Stock having preferred liquidation rights, upon any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the remaining assets and funds of the
Corporation shall be distributed among the holders of the Common Stock
according to their respective shares.
ARTICLE V
DENIAL OF PREEMPTIVE RIGHTS
No holder of any shares of any class of stock of the Corporation shall,
solely as a result of being such holder, have any preemptive or preferential
right to receive, purchase or subscribe to (a) any unissued or treasury shares
of any class of stock (whether now or hereafter authorized) of the Corporation,
(b) any obligations or evidences of indebtedness or other securities of the
Corporation convertible into or exchangeable for, or carrying or accompanied by
any rights to receive, purchase or subscribe to any such unissued or treasury
shares, (c) any right of subscription to or to receive, or any warrant or option
for the purchase of, any thereof, or (d) any other securities that may be issued
or sold by the Corporation other than such (if any) as the Board of Directors of
the Corporation, in its sole and absolute discretion, may determine from time to
time. Notwithstanding the above, the Corporation may by contract grant
preemptive rights from time to time.
ARTICLE VI
ACTION WITHOUT A MEETING
Any action required by the Texas Business Corporation Act to be taken at any
annual or special meeting of shareholders, or any action that may be taken at
any annual or special meeting of shareholders, may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holder or holders of
shares having not less than the minimum number of votes that would be necessary
to take such action at a meeting at which the holders of all shares entitled to
vote on the action were present and voted.
ARTICLE VII
NONCUMULATIVE VOTING
Directors shall be elected by majority vote. No shareholder of the
Corporation shall have the right to cumulate his votes.
2
<PAGE>
ARTICLE VIII
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done, or property actually received.
ARTICLE IX
REGISTERED OFFICE AND AGENT
The street address of the initial registered office of the Corporation is
350 N. St. Paul, Suite 2900, Dallas, Texas 75201, and the name of its initial
registered agent at such address is CT Corporation System.
ARTICLE X
INITIAL DIRECTORS
The number of directors constituting the initial Board of Directors is five
(5), and the name and address of each person who is to serve as director until
the first annual meeting of the shareholders or until such person's successor is
elected and qualified are:
<TABLE>
<S> <C>
Ignatius W. Leonards 12000 Aerospace Avenue
Suite 200
Houston, Texas 77034
Byron M. Allen 12000 Aerospace Avenue
Suite 200
Houston, Texas 77034
Jere W. Thompson, Two Galleria Tower, Suite 1925
Jr. 13455 Noel Road
Dallas, Texas 75240-6638
Mark Langdale Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638
Tim Rogers Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638
</TABLE>
ARTICLE XI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The directors and officers of the Corporation shall be indemnified by the
Corporation in a manner and to the maximum extent permitted by applicable state
or federal law as in effect from time to time.
ARTICLE XII
LIMITATION OF DIRECTORS' LIABILITY
A director of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this Article shall not authorize the
elimination or limitation of the liability of a director to the extent the
director is found liable for:
3
<PAGE>
(1) a breach of the director's duty of loyalty to the Corporation or its
shareholders;
(2) an act or omission not in good faith that constitutes a breach of
duty of the director to the Corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law;
(3) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of
the director's office; or
(4) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
ARTICLE XIII
LIMITATION OF SHAREHOLDERS' LIABILITY
A holder of shares, an owner of any beneficial interest in the shares, or a
subscriber for shares whose subscription has been accepted shall be under no
obligation to the Corporation or to its obligees with respect to:
(1) such shares other than the obligation to pay the Corporation the
full amount of the consideration fixed in compliance with Article 2.15 of
the Texas Business Corporation Act, for which such shares were or are to be
issued;
(2) any contractual obligation of the Corporation on the basis of actual
or constructive fraud, or a sham to perpetrate a fraud, unless the obligee
demonstrates that the holder, owner, or subscriber caused the Corporation to
be used for the purpose of perpetrating, and did perpetrate, an actual fraud
on the obligee primarily for the direct personal benefit of the holder,
owner, or subscriber; or
(3) any contractual obligation of the Corporation on the basis of the
failure of the Corporation to observe any corporate formality, including,
without limitation:
(a) the failure to comply with any requirement of the Texas Business
Corporation Act or the Articles of Incorporation or Bylaws of the
Corporation;
(b) the failure to observe any requirement prescribed by the Texas
Business Corporation Act or by the Articles of Incorporation or Bylaws
for acts to be taken by the Corporation, its Board of Directors, or
shareholders.
ARTICLE XIV
VOTING REQUIREMENTS
With respect to any matter for which the affirmative vote of the holders of
a specified portion of the shares entitled to vote is required by the Texas
Business Corporation Act, the act of the shareholders on that matter shall be
the affirmative vote of the holders of a majority of the shares entitled to vote
on that matter, rather than the affirmative vote otherwise required by the Texas
Business Corporation Act. In addition, with respect to any matter for which the
affirmative vote of the holders of a specified portion of the shares of any
class is required by the Texas Business Corporation Act, the act of the holders
of shares of that class on that matter shall be the affirmative vote of the
holders of a majority of shares of that class, rather than the affirmative vote
of the holders of shares of that class otherwise required by the Texas Business
Corporation Act.
4
<PAGE>
ARTICLE XV
ANTI-TAKEOVER STATUTE
The Corporation hereby expressly elects to not be governed by Part Thirteen
(the Business Combination Law) of the Texas Business Corporation Act.
ARTICLE XVI
INCORPORATOR
The name and address of the incorporator are:
Mark A. Kopidlansky
1445 Ross Avenue, Suite 4000
Dallas, Texas 75202-2790
IN WITNESS WHEREOF, I have hereunto set my hand this the 2nd day of
February, 1998.
/s/ MARK A. KOPIDLANSKY
--------------------------------------
Mark A. Kopidlansky, Incorporator
5
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
IWL HOLDINGS CORP.
(THE "CORPORATION")
Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act, the Corporation adopts the following Articles of Amendment to its Articles
of Incorporation.
ARTICLE ONE
The name of the Corporation is IWL Holdings Corp.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by the
shareholders of the Corporation on February 16, 1998, so as to amend the name of
the Corporation.
Article I of the Articles of Incorporation is hereby amended to read in its
entirety as follows:
"ARTICLE I
NAME
The name of the Corporation is CapRock Communications Corp."
Article IV of the Articles of Incorporation is hereby amended to read in its
entirety as follows:
"ARTICLE IV
SHARES
A. CAPITALIZATION. The aggregate number of shares that the Corporation is
authorized to issue is Two Hundred Twenty Million (220,000,000) shares,
consisting of:
1. Two Hundred Million (200,000,000) shares of Common Stock having a par
value of One Cent ($.01) per share; and
2. Twenty Million (20,000,000) shares of Preferred Stock having a par value
of One Cent ($.01) per share.
B. SERIES OF SHARES ESTABLISHED BY BOARD OF DIRECTORS.
The Preferred Stock may be issued from time to time in one (1) or more
series. The Board of Directors is hereby authorized, by filing a statement
pursuant to Article 2.13 of the Texas Business Corporation Act, to fix or
determine from time to time the designations, preferences, limitations and
relative rights including voting rights of the shares of any series to the same
extent that such designations, preferences, limitations, and relative rights
could be stated if fully set forth in the articles of incorporation, but subject
to and within the limitations set forth in the articles of incorporation. Such
authority includes, without limitation, the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issuance of shares of that series, but
not below the number of shares of such series then issued. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status of authorized, but unissued shares of the class
of shares from which such series was established that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
<PAGE>
C. COMMON STOCK.
1. Shares of Common Stock may be issued by the Corporation from time to
time for such consideration as may lawfully be fixed by the Board of Directors.
2. The Common Stock shall be entitled to one (1) vote per share on all
matters.
3. Subject to the prior rights and preferences of the Preferred Stock and
subject to the provisions and conditions set forth in the foregoing Section B of
this Article IV, or in any resolution or resolutions providing for the issue of
a series of Preferred Stock, and to the extent permitted by the laws of the
State of Texas, the holders of Common Stock shall be entitled to receive such
cash dividends as may be declared and made payable by the Board of Directors.
4. After payment shall have been made in full to the holders of any series
of Preferred Stock having preferred liquidation rights, upon any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the remaining assets and funds of the Corporation shall be
distributed among the holders of the Common Stock according to their respective
shares."
ARTICLE THREE
The number of shares of the Corporation outstanding at the time of such
adoption was 1,000, and the number of shares entitled to vote thereon was 1,000.
ARTICLE FOUR
The holders of all shares outstanding and entitled to vote on said amendment
have signed a consent in writing adopting said amendment and any written notice
required by Article 9.10 has been given.
ARTICLE FIVE
The amendment does not involve any exchange, reclassification or
cancellation of issued shares of the Corporation.
ARTICLE SIX
The amendment does not effect a change in the amount of stated capital of
the Corporation.
<TABLE>
<S> <C> <C>
IWL HOLDINGS CORP.
A Texas Corporation
By: /s/ IGNATIUS W. LEONARDS
-----------------------------------------
Its: President
</TABLE>
Dated: May 3, 1998
2
<PAGE>
APPENDIX IV
BYLAWS
OF
IWL HOLDINGS CORP.
<PAGE>
BYLAWS
OF
IWL HOLDINGS CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I. Offices.
1.01. Principal Office.
1.02. Other Offices.
ARTICLE II. Meetings of Shareholders.
2.01. Place of Meetings.
2.02. Annual Meeting.
2.03. List of Shareholders.
2.04. Special Meetings.
2.05. Notice.
2.06. Quorum.
2.07. Voting on Matters Other than the Election of Directors.
2.08. Voting in the Election of Directors.
2.09. Voting Procedure.
2.10. Action Without a Meeting.
2.11. Telephone Meetings.
ARTICLE III. Directors.
3.01. Management.
3.02. Number; Election.
3.03. Change in Number.
3.04. Election of Directors.
3.05. Place of Meetings.
3.06. First Meetings.
3.07. Regular Meetings.
3.08. Special Meetings.
3.09. Quorum.
3.10. Removal.
3.11. Vote of Directors to Fill Vacancy.
3.12. Vote of Shareholders to Fill Vacancy.
3.13. Action Without Meeting; Telephone Meetings.
3.14. Chairman of the Board.
3.15. Compensation.
3.16. Committees.
ARTICLE IV. Notices.
4.01. Method.
4.02. Waiver.
ARTICLE V. Officers.
5.01. Officers.
5.02. Election.
5.03. Compensation.
5.04. Removal and Vacancies.
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
5.05. Chief Executive Officer.
<S> <C> <C>
5.06. President.
5.07. Vice Presidents.
5.08. Secretary.
5.09. Assistant Secretaries.
5.10. Treasurer.
5.11. Assistant Treasurers.
ARTICLE VI. Certificates Representing Shares.
6.01. Certificates.
6.02. Lost Certificates.
6.03. Transfer of Shares.
6.04. Registered Shareholders.
6.05. Fixing Record Date for Matters Other Than Consents to Action.
6.06. Fixing Record Date for Consents to Action.
6.07. Distribution Held in Suspense.
6.08. Joint Owners of Shares.
ARTICLE VII. General Provisions.
7.01. Distributions.
7.02. Reserves.
7.03. Checks.
7.04. Fiscal Year.
7.05. Seal.
7.06. Indemnification.
7.07. Transactions with Directors and Officers.
7.08. Amendments.
7.09. Table of Contents; Headings.
</TABLE>
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<PAGE>
BYLAWS
OF
IWL HOLDINGS CORP.
(THE "CORPORATION")
ARTICLE I.
OFFICES
Section 1.01. PRINCIPAL OFFICE. The principal business office of the
Corporation shall be at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034.
Section 1.02. OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of Texas, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE OF MEETINGS. Meetings of shareholders for all purposes
may be held at such time and place, within or without the State of Texas, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2.02. ANNUAL MEETING. An annual meeting of the shareholders,
commencing with the year 1997, shall be held in each year on a date to be
determined by the Board of Directors, at which meeting the shareholders shall
elect a Board of Directors, and transact such other business as may properly be
brought before the meeting.
Section 2.03. LIST OF SHAREHOLDERS. The officer or agent having charge of
the share transfer records shall make, at least ten (10) days before each
meeting of the shareholders, a complete list of the shareholders entitled to
vote at said meeting, arranged in alphabetical order with the address of and the
number of voting shares held by each, which list, for a period of ten (10) days
prior to such meeting, shall be kept on file at the registered office or
principal place of business of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall be produced and kept open at the time and place of the meeting during the
whole time thereof, and shall be subject to the inspection of any shareholder
who may be present. The original share transfer records shall be prima facie
evidence as to the shareholders who are entitled to examine such list or
transfer records or to vote at any such meeting of shareholders.
Section 2.04. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation or by these Bylaws, may be called by the Chief
Executive Officer, the President, the Board of Directors, or the holders of not
less than ten percent (10%) of all shares entitled to vote at the meetings.
Business transacted at all special meetings shall be confined to the purposes
stated in the notice of the meeting.
Section 2.05. NOTICE. Written or printed notice stating the place, day and
hour of the meeting, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of the meeting, either personally or
by mail by or at the direction of the Chief Executive Officer, the President,
the Secretary or the officer or person calling the meeting, to each shareholder
entitled to vote at the meeting; provided, however, in the event of a merger or
consolidation, such notice shall be delivered not less than twenty (20) days
before the meeting.
Section 2.06. QUORUM. Unless otherwise provided in the Articles of
Incorporation, a quorum shall be present at a meeting of shareholders if the
holders of a majority of the shares entitled to vote are
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represented at the meeting in person or by proxy. Unless otherwise provided in
the Articles of Incorporation or these Bylaws, once a quorum is present at a
meeting of shareholders, the shareholders represented in person or by proxy at
the meeting may conduct such business as may be properly brought before the
meeting until it is adjourned, and the subsequent withdrawal from the meeting of
any shareholder or the refusal of any shareholder represented in person or by
proxy to vote shall not affect the presence of a quorum at the meeting. Unless
otherwise provided in the Articles of Incorporation, the shareholders
represented in person or by proxy at a meeting of shareholders at which a quorum
is not present may adjourn the meeting until such time and to such place as may
be determined by a vote of the holders of a majority of the shares represented
in person or by proxy at that meeting.
Section 2.07. VOTING ON MATTERS OTHER THAN THE ELECTION OF DIRECTORS. With
respect to any matter other than the election of directors or a matter for which
the affirmative vote of the holders of a specified portion of the shares
entitled to vote is required by law, the affirmative vote of the holders of a
majority of the shares entitled to vote on that matter and represented in person
or by proxy at a meeting of shareholders at which a quorum is present shall be
the act of the shareholders unless otherwise provided in the Articles of
Incorporation or these Bylaws.
Section 2.08. VOTING IN THE ELECTION OF DIRECTORS. Directors shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a quorum
is present unless otherwise provided in the Articles of Incorporation or these
Bylaws.
Section 2.09. VOTING PROCEDURE. Each outstanding share of common stock
shall be entitled to one (1) vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation. At any meeting of the shareholders, every shareholder having the
right to vote shall be entitled to vote either in person or by proxy executed in
writing subscribed by the shareholder. A telegram, telex, cablegram or similar
transmission by the shareholder, or a photographic, photostatic, facsimile or
similar reproduction of a writing executed by the shareholder shall be treated
as an execution in writing for purposes of this section. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Each proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and the proxy is coupled with
an interest.
Section 2.10. ACTION WITHOUT A MEETING. Except as otherwise provided
below, any action required or permitted to be taken at a meeting of the
shareholders of the Corporation may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof, and
such consent shall have the same force and effect as a unanimous vote of the
shareholders.
The Articles of Incorporation may provide that any action required by the
Texas Business Corporation Act to be taken at any annual or special meeting of
shareholders, or any action that may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holder or holders of shares having not less than
the minimum number of votes that would be necessary to take such action at a
meeting at which the holders of all shares entitled to vote on the action were
present and voted. If the Articles of Incorporation make such a provision, then
such written consent shall bear the date of signature of each shareholder who
signs the consent. No written consent shall be effective to take the action that
is the subject of the consent unless, within sixty (60) days after the date of
the earliest dated consent delivered to the Corporation in the manner required
by the Texas Business Corporation Act, a consent or consents signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take the action that is the subject of the consent
are delivered to the Corporation by delivery to its registered office, its
principal place of business, or an officer or agent of the Corporation having
custody of the books in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or certified or registered mail, return
receipt requested. Delivery to the
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<PAGE>
Corporation's principal place of business shall be addressed to the president or
principal executive officer of the Corporation.
A telegram, telex, cablegram, or similar transmission by a shareholder, or a
photographic, photostatic, facsimile or similar reproduction of a writing signed
by a shareholder shall be regarded as signed by the shareholder for purposes of
this section. Prompt notice of the taking of any action by shareholders without
a meeting by less than unanimous written consent shall be given to those
shareholders who did not consent in writing to the action.
Section 2.11. TELEPHONE MEETINGS. Subject to applicable notice provisions
and unless otherwise restricted by the Articles of Incorporation, shareholders
may participate in and hold a meeting by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in such meeting shall
constitute presence in person at such meeting, except where a person's
participation is for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE III.
DIRECTORS
Section 3.01. MANAGEMENT. The powers of the Corporation shall be exercised
by or under the authority of, and the business affairs of the Corporation shall
be managed under the direction of the Board of Directors that may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Articles of Incorporation or by these Bylaws directed or
required to be exercised or done by the shareholders. The Board of Directors
shall keep regular minutes of its proceedings.
Section 3.02. NUMBER; ELECTION. The directors of the Corporation shall
consist of not less than one (1) director, as determined from time to time by
resolution of the shareholders or the Board of Directors of the Corporation.
Directors need not be shareholders or residents of the State of Texas. The
directors shall be elected at the annual meeting of the shareholders by the
holders of shares entitled to vote in the election of directors and, except as
hereinafter provided, each director elected shall hold office for the term for
which such director is elected and until such director's successor shall have
been elected and shall qualify.
Section 3.03. CHANGE IN NUMBER. The number of directors may be increased
or decreased from time to time by resolution of the shareholders or the Board of
Directors of the Corporation, but no decrease shall have the effect of
shortening the term of any incumbent director.
Section 3.04. ELECTION OF DIRECTORS. Directors shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is present
unless otherwise provided in the Articles of Incorporation or these Bylaws. At
every election of directors, each shareholder shall have the right to vote in
person or by proxy the number of voting shares owned by such shareholder for as
many persons as there are directors to be elected and for whose election such
shareholder has a right to vote. Cumulative voting shall be prohibited.
Section 3.05. PLACE OF MEETINGS. The directors of the Corporation may hold
their meetings, both regular and special, either inside or outside of the State
of Texas.
Section 3.06. FIRST MEETINGS. The first meeting of each newly elected
Board shall be held without further notice immediately following the annual
meeting of shareholders, and at the same place, unless by unanimous consent of
the directors then elected and serving, such time or place shall be changed.
Section 3.07. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board.
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<PAGE>
Section 3.08. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chief Executive Officer or the President on three (3) days'
notice to each director, either personally or by mail or by telegram and shall
be called by the Chief Executive Officer or the President or any officer in like
manner and on like notice on the written request of two (2) or more of the
directors. Except as may be otherwise expressly provided by law or by the
Articles of Incorporation or by these Bylaws, neither the business to be
transacted at nor the purpose of any special meeting need be specified in a
notice or waiver of notice of such meeting.
Section 3.09. QUORUM. At all meetings of the Board of Directors, the
presence of a majority of the number of the directors fixed by or in the manner
provided in the Articles of Incorporation or these Bylaws shall constitute a
quorum for the transaction of business unless a greater number is required by
law, the Articles of Incorporation or the Bylaws. The act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors unless the act of a greater number is required by law,
the Articles of Incorporation or by these Bylaws. If a quorum shall not be
present at any meeting of directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 3.10. REMOVAL. At any meeting of the shareholders called expressly
for such purpose, any director or the entire Board of Directors may be removed
either with or without cause by the affirmative vote of the holders of a
majority of the shares entitled to vote at an election of such directors.
Section 3.11. VOTE OF DIRECTORS TO FILL VACANCY. Any vacancy occurring in
the initial Board of Directors before the issuance of shares may be filled by
the affirmative vote or written consent of a majority of the incorporators or by
the affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. Any vacancy subsequently occurring in the
Board of Directors after the issuance of shares may be filled in accordance with
Section 3.12 of this Article III or may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected for the
unexpired term of such director's predecessor in office. A directorship to be
filled by reason of an increase in the number of directors may be filled in
accordance with Section 3.12 of this Article III or, subject only to any
limitations then contained in the Texas Business Corporation Act relating to the
number of directors that may be elected by the Board of Directors to fill
newly-created directorships, may be filled by the Board of Directors for a term
of office continuing only until the next election of one (1) or more directors
by the shareholders.
Section 3.12. VOTE OF SHAREHOLDERS TO FILL VACANCY. Any vacancy occurring
in the Board of Directors or any directorship to be filled by reason of an
increase in the number of directors may be filled by election at any annual or
special meeting of shareholders called for that purpose.
Section 3.13. ACTION WITHOUT MEETING; TELEPHONE MEETINGS. Unless otherwise
restricted by the Articles of Incorporation or these Bylaws, any action required
or permitted to be taken at a meeting of the Board of Directors or of any
committee designated by the Board of Directors may be taken without a meeting if
a consent in writing, setting forth the action so taken is signed by all the
members of the Board of Directors or committee, as the case may be. Such consent
shall have the same force and effect as a unanimous vote at a meeting and may be
stated as such in any document or instrument filed with the Secretary of State.
Subject to applicable notice provisions and unless otherwise restricted by the
Articles of Incorporation or these Bylaws, members of the Board of Directors or
members of any committee designated by the Board of Directors may participate in
and hold a meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 3.14. CHAIR OF THE BOARD. The Board of Directors may elect a Chair
of the Board to preside at their meetings and perform such other duties as the
Board may from time to time assign to the Chair.
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Section 3.15. COMPENSATION. Directors, as such, shall not receive any
stated salary for their services, but, by resolution of the Board a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board; provided that nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of any committee
designated by the Board may, by resolution of the Board of Directors, be allowed
like compensation for attending committee meetings.
Section 3.16. COMMITTEES. The Board of Directors, by resolution adopted by
a majority of the full Board of Directors, may designate from among its members
one (1) or more committees, each of which shall be comprised of one (1) or more
of its members and may designate one (1) or more of its members as alternate
members of any committee, who may, subject to any limitations imposed by the
Board of Directors, replace absent or disqualified members at any meeting of
that committee. Any such committee, except to the extent provided in said
resolution, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation,
except where action of the full Board of Directors is required by law or by the
Articles of Incorporation. Any member of the committees may be removed by the
Board of Directors by the affirmative vote of a majority of the Board of
Directors, whenever in its judgment the best interests of the Corporation will
be served thereby. The committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
ARTICLE IV.
NOTICES
Section 4.01. METHOD. Whenever by statute, the Articles of Incorporation
or these Bylaws, notice is required to be given to any director or shareholder,
and no provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing,
either personally or by mail, postage prepaid, addressed to such director or
shareholder at such address as appears on the share transfer records of the
Corporation or in any other method permitted by law. Any notice required or
permitted to be given by mail shall be deemed to be given at the time when the
same shall be thus deposited in the United States mail as aforesaid.
Section 4.02. WAIVER. Whenever any notice is required to be given to any
shareholder or director of the Corporation by law, the Articles of Incorporation
or these Bylaws, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated in such notice,
shall be deemed equivalent to the giving of such notice. Attendance of a
shareholder or director at a meeting shall constitute a waiver of notice of such
meeting, except where a shareholder or director attends for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened. Consent in writing by a shareholder or
director to any action taken or resolution adopted by the shareholders or
directors of the Corporation shall constitute a waiver of any and all notices
required to be given in connection with such action or resolution.
ARTICLE V.
OFFICERS
Section 5.01. OFFICERS. The officers of the Corporation shall be elected
by the Board of Directors and shall be at least a President and a Secretary. The
Board of Directors may also choose a Chair of the Board, a Chief Executive
Officer, a Treasurer, and one (1) or more Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents, Assistant Vice Presidents, Assistant Secretaries,
Assistant Treasurers, or such other officers as the Board of Directors shall
elect. Any two or more offices may be held by the same person.
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Section 5.02. ELECTION. The Board of Directors at its first meeting after
each annual meeting of shareholders shall choose a President and a Secretary and
may choose a Chair of the Board, a Chief Executive Officer, a Treasurer and one
(1) or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents,
Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers, none
of whom need be a member of the Board of Directors, a shareholder or a resident
of the State of Texas. The Board of Directors may appoint such other officers
and agents as it shall deem necessary, who shall be appointed for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors.
Section 5.03. COMPENSATION. The compensation of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
Section 5.04. REMOVAL AND VACANCIES. Each officer of the Corporation shall
hold office until such officer's successor is chosen and qualified in such
officer's stead or until such officer's death or until such officer's
resignation or removal from office. Any officer or agent or member of a
committee elected or appointed by the Board of Directors may be removed by a
majority of the members of the Board of Directors represented at a meeting of
the Board of Directors at which a quorum is represented, whenever in its
judgment the best interests of the Corporation will be served thereby; but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
Section 5.05. CHIEF EXECUTIVE OFFICER. The Board of Directors may, but
shall not be required to, elect a Chief Executive Officer. If so elected, the
Chief Executive Officer shall preside at all meetings of the shareholders and
the Board of Directors unless the Board shall choose to elect a Chair of the
Board, in which event the Chief Executive Officer shall preside at shareholders'
and Board of Directors' meetings in the absence of the Chair of the Board of
Directors. The Chief Executive Officer shall have general and active management
of the business and affairs of the Corporation, shall see that all orders and
resolutions of the Board are carried into effect, and shall perform such other
duties as the Board of Directors shall prescribe. Such duties shall be performed
by the President of the Corporation if the Board of Directors does not elect a
Chief Executive Officer.
Section 5.06. PRESIDENT. The President shall preside at all meetings of
the shareholders and the Board of Directors unless the Board shall choose to
elect a Chair of the Board or a Chief Executive Officer, in which event the
President shall preside at shareholders' and Board of Directors' meetings in the
absence of the Chair of the Board of Directors or the Chief Executive Officer,
as the case may be. The President shall have general and active management of
the day-to-day operations of the Corporation and such other duties as the Board
of Directors or the Chief Executive Officer shall prescribe.
Section 5.07. VICE PRESIDENTS. Each Vice President shall have only such
powers and perform only such duties as the Board of Directors may from time to
time prescribe or as the Chief Executive Officer or the President may from time
to time delegate to such Vice President.
Section 5.08. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the shareholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the Executive Committee when required. The Secretary
shall give, or cause to be given, notice of all meetings of the share-holders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or the Chief Executive
Officer or the President, under whose supervision the Secretary shall be. The
Secretary shall keep in safe custody the seal of the Corporation and affix the
same to any instrument requiring it, and, when so affixed, it shall be attested
by the Secretary's signature or by the signature of the Treasurer or an
Assistant Secretary.
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Section 5.09. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe or as the Chief Executive Officer or the President may
from time to time delegate.
Section 5.10. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements of the Corporation and shall deposit all monies and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer or the President and directors, at the regular
meetings of the Board, or whenever they may require it, an account of all the
Treasurer's transactions as Treasurer and of the financial condition of the
Corporation, and shall perform such other duties as the Board of Directors may
prescribe. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such form in such sum, and with surety or sureties as
shall be satisfactory to the Board for the faithful performance of the duties of
the Treasurer's office and for the restoration to the Corporation, in case of
the Treasurer's death, resignation, retirement or removal from office, of all
books, papers, vouchers, money, and other property of whatever kind in the
Treasurer's possession or under the Treasurer's control belonging to the
Corporation.
Section 5.11. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
only such powers and perform only such duties as the Board of Directors may from
time to time prescribe.
ARTICLE VI.
CERTIFICATES REPRESENTING SHARES
Section 6.01. CERTIFICATES. Certificates in such form as may be determined
by the Board of Directors shall be delivered representing all shares to which
shareholders are entitled. Such certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued. Each
certificate shall state on the face thereof the holder's name, the number and
class of shares, and the par value of such shares or a statement that such
shares are without par value. They shall be signed by the Chief Executive
Officer, the President or a Vice President and the Secretary or an Assistant
Secretary and may be sealed with the seal of the Corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent, or an
assistant transfer agent or registered by a registrar, other than the
Corporation or an employee of the Corporation, the signature of any such officer
may be facsimile. Shares may not be issued until the full amount of the
consideration, fixed as provided by law, has been paid.
Section 6.02. LOST CERTIFICATES. The Board of Directors may direct a new
certificate representing shares to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost or
destroyed certificate, or such owner's legal representative, to advertise the
same in such manner as it shall require and/or give the Corporation a bond in
such form, in such sum, and with such surety or sureties as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost or destroyed.
Section 6.03. TRANSFER OF SHARES. Except as is otherwise provided in these
Bylaws, shares of stock shall be transferable only on the books of the
Corporation by the holder thereof in person or by such holder's duly authorized
attorney. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation or the transfer agent
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of the Corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
Section 6.04. REGISTERED SHAREHOLDERS. Unless otherwise provided by
statute, the Corporation may regard the person in whose name any shares issued
by the Corporation are registered in the share transfer records of the
Corporation at any particular time (including, without limitation as of a record
date fixed pursuant to Sections 6.05 and 6.06) as the owner of those shares at
that time for purposes of voting those shares, receiving distributions thereon
or notices in respect thereof, transferring those shares, exercising rights of
dissent with respect to those shares, exercising or waiving any preemptive right
with respect to those shares, entering into agreements with respect to those
shares in accordance with the Texas Business Corporation Act or giving proxies
with respect to those shares. Neither the Corporation nor any of its officers,
directors, employees or agents shall be liable for regarding that person as the
owner of those shares at that time for those purposes, regardless of whether
that person possesses a certificate for those shares.
Section 6.05. FIXING RECORD DATE FOR MATTERS OTHER THAN CONSENTS TO
ACTION. For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or entitled to
receive a distribution by the Corporation (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a share
dividend, or in order to make a determination of shareholders for any other
proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors may provide that the share transfer records shall be
closed for a stated period but not to exceed, in any case, sixty (60) days. If
the share transfer records shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
records shall be closed for at least ten (10) days immediately preceding such
meeting. In lieu of closing the share transfer records, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty (60) days, and, in
the case of a meeting of shareholders, not less than ten (10) days, prior to the
date on which the particular action requiring such determination of shareholders
is to be taken. If the share transfer records are not closed and no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, the date on which such notice of
the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such distribution or share dividend is adopted, as the case
may be, shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section, such determination shall apply to any
adjournment thereof, except where the determination has been made through the
closing of the share transfer records and the stated period of closing has
expired.
Section 6.06. FIXING RECORD DATE FOR CONSENTS TO ACTION. Unless a record
date shall have previously been fixed or determined pursuant to this Article VI,
whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action,
which record date shall not precede, and shall not be more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors and the prior action of the Board of Directors is not required by the
Texas Business Corporation Act, the record date for determining shareholders
entitled to consent to action in writing without a meeting shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office, its principal place of business, or an officer or agent of
the Corporation having custody of the books in which proceedings of meetings of
shareholders are recorded. Delivery shall be by hand or by certified or
registered mail, return receipt requested. Delivery to the Corporation's
principal place of business shall be addressed to the
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President or the principal executive officer of the Corporation. If no record
date shall have been affixed by the Board of Directors and prior action of the
Board of Directors is required by statute, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
at the close of business on the date on which the Board of Directors adopts
resolution taking such prior action.
Section 6.07. DISTRIBUTION HELD IN SUSPENSE. Distributions made by the
Corporation, including those that were payable but not paid to a holder of
shares or to such holder's heirs, successors or assigns, and have been held in
suspense by the Corporation or were paid or delivered by it into an escrow
account or to a trustee or custodian, shall be payable by the Corporation,
escrow agent, trustee or custodian to the holder of the shares as of the record
date determined for that distribution as provided in Section 6.05, or to such
holder's heirs, successors or assigns.
Section 6.08. JOINT OWNERS OF SHARES. When shares are registered on the
books of the Corporation in the names of two (2) or more persons as joint owners
with the right of survivorship, after the death of a joint owner and before the
time that the Corporation receives actual written notice that parties other than
the surviving joint owner or owners claim an interest in the shares or any
distributions thereon, the Corporation may record on its books and otherwise
effect the transfer of those shares to any person, firm, or Corporation
(including that surviving joint owner individually) and pay any distributions
made in respect of those shares, in each case as if the surviving joint owner or
owners were the absolute owners of the shares. The Corporation permitting such a
transfer by and making any distribution to such a surviving joint owner or
owners before the receipt of written notice from other parties claiming an
interest in those shares or distributions is discharged from all liability for
the transfer or payment so made; provided, however, that the discharge of the
Corporation from liability and the transfer of full legal and equitable title of
the shares in no way affects, reduces, or limits any cause of action existing in
favor of any owner of an interest in those shares or distributions against the
surviving owner or owners.
ARTICLE VII.
GENERAL PROVISIONS
Section 7.01. DISTRIBUTIONS. Distributions upon the outstanding shares of
the Corporation, subject to the provisions of the Articles of Incorporation, may
be declared by the Board of Directors at any regular or special meeting.
Distributions may be paid in cash, in property or in shares of the Corporation,
subject to the provisions of the statutes and the Articles of Incorporation.
Section 7.02. RESERVES. There may be created by resolution of the Board of
Directors out of the surplus of the Corporation such reserve or reserves as the
directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize distributions, or to repair or maintain any
property of the Corporation, or for such other purposes as the Board of
Directors shall think beneficial to the Corporation, and the Board of Directors
may modify or abolish any such reserve in the manner in which it was created.
Section 7.03. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 7.04. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 7.05. SEAL. The corporate seal shall be kept in the safe custody
of the Secretary of the Corporation and shall have inscribed thereon the name of
the Corporation and may be in such form as the Board of Directors may determine.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
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Section 7.06. INDEMNIFICATION. The Corporation shall have the authority to
and shall indemnify and advance expenses to the directors, officers, employees,
agents of the Corporation or any other persons serving at the request of the
Corporation in such capacities in a manner and to the maximum extent permitted
by applicable state or federal law. The Corporation may purchase and maintain
liability insurance or make other arrangements for such obligations to the
extent permitted by the Texas Business Corporation Act.
Section 7.07. TRANSACTIONS WITH DIRECTORS AND OFFICERS. No contract or
transaction between the Corporation and one (1) or more of its directors or
officers, or between the Corporation and any other Corporation, partnership,
association, or other organization in which one (1) or more of its directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for this reason, solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof that authorizes the contract or transaction, or solely because his, her,
its or their votes are counted for such purpose, if:
(1) The material facts as to such person's relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(2) The material facts as to such person's relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee that authorizes
the contract or transaction.
Section 7.08. AMENDMENTS. The Board of Directors may amend or repeal the
Bylaws of the Corporation or adopt new Bylaws, unless: (1) the Articles of
Incorporation or the Texas Business Corporation Act reserves the power
exclusively to the shareholders in whole or part; or (2) the shareholders in
amending, repealing or adopting a particular bylaw expressly provide that the
Board of Directors may not amend or repeal that bylaw. Unless the Articles of
Incorporation or a bylaw adopted by the shareholders provides otherwise as to
all or some portion of the Bylaws, the shareholders may amend, repeal or adopt
the Bylaws even though the Bylaws may also be amended, repealed or adopted by
the Board of Directors.
Section 7.09. TABLE OF CONTENTS; HEADINGS. The Table of Contents and
headings used in these Bylaws have been inserted for convenience only and do not
constitute matters to be construed in interpretation.
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CERTIFICATE BY SECRETARY
The undersigned, being the Secretary of the Corporation, hereby certifies
that the foregoing code of Bylaws was duly adopted by the directors of said
Corporation effective on February 3, 1998.
/s/ RICHARD H. ROBERSON
--------------------------------------
Secretary
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APPENDIX V
ART. 5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the shareholder
holds shares of a class or series that was entitled to vote thereon as a class
or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided in
the articles of incorporation) of all, or substantially all, the property and
assets, with or without good will, of a corporation if special authorization of
the shareholders is required by this Act and the shareholders hold shares of a
class or series that was entitled to vote thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the
shares of the corporation of the class or series held by the shareholder are to
be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if:
(1) the shares held by the shareholder are part of a class or series, shares
of which are on the record date fixed to determine the shareholders entitled to
vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation system) or
designated as a national market security on an interdealer quotation system by
the National Association of Securities Dealers, Inc., or successor entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger or
plan of exchange to accept for the shareholder's shares any consideration that
is different than the consideration (other than cash in lieu of fractional
shares that the shareholder would otherwise be entitled to receive) to be
provided to any other holder of shares of the same class or series of shares
held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger or
the plan of exchange to accept for the shareholder's shares any consideration
other than:
(a) shares of a domestic or foreign corporation that, immediately after the
effective time of the merger or exchange, will be part of a class or series,
shares of which are:
(i) listed, or authorized for listing upon official notice of issuance, on a
national securities exchange;
(ii) approved for quotation as a national market security on an interdealer
quotation system by the National Association of Securities Dealers, Inc., or
successor entity; or
(iii) held of record by not less than 2,000 holders;
(b) cash in lieu of fractional shares otherwise entitled to be received; or
(c) any combination of the securities and cash described in Subdivisions (a)
and (b) of this subsection.
ART. 5.12 PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
<PAGE>
(1)(a) With respect to proposed corporate action that is submitted to a vote
of shareholders at a meeting, the shareholder shall file with the corporation,
prior to the meeting, a written objection to the action, setting out that the
shareholder's right to dissent will be exercised if the action is effective and
giving the shareholder's address, to which notice thereof shall be delivered or
mailed in that event. If the action is effected and the shareholder shall not
have voted in favor of the action, the corporation, in the case of action other
than a merger, or the surviving or new corporation (foreign or domestic) or
other entity that is liable to discharge the shareholder's right of dissent, in
the case of a merger, shall, within ten (10) days after the action is effected,
deliver or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery or
mailing of the notice, make written demand on the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, for
payment of the fair value of the shareholder's shares. The fair value of the
shares shall be the value thereof as of the day immediately preceding the
meeting, excluding any appreciation or depreciation in anticipation of the
proposed action. The demand shall state the number and class of the shares owned
by the shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the ten (10) day
period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to
Section A of Article 9.10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or domestic)
or other entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the date the action
is effected, mail to each shareholder of record as of the effective date of the
action notice of the fact and date of the action and that the shareholder may
exercise the shareholder's right to dissent from the action. The notice shall be
accompanied by a copy of this Article and any articles or documents filed by the
corporation with the Secretary of State to effect the action. If the shareholder
shall not have consented to the taking of the action, the shareholder may,
within twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the value thereof as of the date
the written consent authorizing the action was delivered to the corporation
pursuant to Section A of Article 9.10 of this Act, excluding any appreciation or
depreciation in anticipation of the action. The demand shall state the number
and class of shares owned by the dissenting shareholder and the fair value of
the shares as estimated by the shareholder. Any shareholder failing to make
demand within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action
was effected, the value of the shares is agreed upon between the shareholder and
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, payment for the shares shall be made within ninety
(90) days after the date on which the action was effected and, in the case of
shares represented by certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder shall cease to have
any interest in the shares or in the corporation.
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B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
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G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13 PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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APPENDIX VI
CAPROCK COMMUNICATIONS CORP.
1998 EQUITY INCENTIVE PLAN
Adopted , 1998
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide a means by which selected Employees of
and Consultants to the Company and its Affiliates may be given an opportunity to
acquire a proprietary interest in the Company. Under the Plan, the Company may
provide various types of long-term incentive awards, including Stock Options,
Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Reload
Options and Other Stock-Based Awards, in order to retain the services of persons
who are now Employees of or Consultants to the Company and its Affiliates, to
secure and retain the services of new Employees and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates. Stock Options granted under the Plan may be
Incentive Stock Options or Nonqualified Stock Options, as determined by the
Committee at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code and the regulations promulgated
thereunder.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Affiliate" means, with respect to any Person, any Parent or Subsidiary
of such Person, whether such Parent or Subsidiary is now or hereafter existing.
(b) "Agreement" means the agreement between the Company and the Holder
setting forth the terms and conditions of an Award under the Plan.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options are, or will be, granted under the
Plan.
(d) "Award" means an award of Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Reload Options or Other Stock-Based
Awards under the Plan.
(e) "Beneficial Owner" means a "beneficial owner" as defined in Rule 13d-3
of the Exchange Act.
(f) "Board" means the Board of Directors of the Company.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Change of Control" means the occurrence at any time after the
effective time of the Mergers of (i) any Person or Group of Persons becoming for
the first time the Beneficial Owner, directly or indirectly, of more than fifty
percent (50%) of the total combined voting power of all classes of capital stock
of the Company normally entitled to vote for the election of directors of the
Company ("Voting Stock"), other than as a result of a transfer or series of
related transfers of Voting Stock from a Person or Group of Persons who
immediately prior to such transfer or transfers was the Beneficial Owner, and
who after giving effect to such transfer or transfers continues to be the
Beneficial Owner, of more than fifty percent (50%) of the Voting Stock of the
Company; (ii) a merger (other than the Mergers) or consolidation of the Company
with or into another Person or the merger of another Person into the Company as
a consequence of which those Persons who held all of the Voting Stock of the
Company immediately prior to such merger or consolidation do not hold either
directly or indirectly a majority of the Voting Stock of the Company (or, if
applicable, the surviving company of such merger or consolidation) after the
consummation of such merger or consolidation; (iii) the sale of all or
substantially all of the assets of the Company to any Person or Group of Persons
(other than to an entity which owns a majority or more of the Common Stock of
the Company, a Subsidiary of the Company, or to an entity whose equity interests
are owned directly or indirectly by the Company or by an entity which owns
directly or indirectly a majority or more of the
<PAGE>
Common Stock of the Company); or (iv) any event or series of events (which event
or series of events must include a proxy fight or proxy solicitation with
respect to the election of directors of the Company made in opposition to the
nominees recommended by the Continuing Directors) during any period of 12
consecutive months all or any portion of which is after the effective time of
the Mergers, as a result of which a majority of the Board of Directors of the
Company consists of individuals other than Continuing Directors; provided,
however, that a "Change of Control" shall not be deemed to have occurred as a
result of the Mergers.
(i) "Committee" means the Compensation Committee of the Board of Directors.
(j) "Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
(k) "Company" means CapRock Communications Corp.
(l) "Consultant" means (i) any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services and (ii) any Director of the Company, whether such
Director is compensated for such services or not.
(m) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company or any Affiliate is not
interrupted or terminated. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the case of (i) any leave of absence approved
by the Company or (ii) transfers between locations of the Company or between the
Company or any Affiliate or any successor. A leave of absence approved by the
Company shall include sick leave, military leave, or any other personal leave
approved by an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed 90 days, unless reemployment
upon expiration of such leave is guaranteed by statute or contract. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 91st day of such leave any Incentive Stock Option held
by the Holder shall cease to be treated for tax purposes as an Incentive Stock
Option and shall be treated for tax purposes as a Nonqualified Stock Option.
(n) "Deferred Stock" means Stock to be received at the end of a specified
deferral period under an Award made pursuant to Section 10 below.
(o) "Director" means a member of the Board of Directors of the Company.
(p) "Employee" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. The payment of a Director's fee
by the Company shall not be sufficient to constitute "employment" by the
Company.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(r) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system for the
last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Committee deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be
the mean between the high bid and low asked prices for the Common Stock on
the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock, the
Fair Market Value thereof shall be determined in good faith by the
Committee.
(s) "Group" means a "group" as such term is used in Section 13(d)(3) of the
Exchange Act.
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(t) "Holder" means a person who has received an Award under the Plan.
(u) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(v) "Mergers" means the proposed combination of the businesses of CapRock
Telecommunications Corp., CapRock Fiber Network, Ltd., and IWL Communications
contemplated by the Agreement and Plan of Merger and Plan of Exchange entered
into on February 16, 1998.
(w) "Nonqualified Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(x) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(y) "Option" means a Stock Option granted pursuant to the Plan.
(z) "Option Agreement" shall mean the written option agreement,
substantially in the form attached hereto as EXHIBIT A(or such other form as may
be approved by the Committee for use under the Plan pursuant to Section 3(b)(v)
hereof), between the Company and Holder evidencing the grant of an Option.
(aa) "Optioned Stock" means the Common Stock subject to an Option.
(bb) "Other Stock-Based Awards" means awards (other than Stock Options,
Stock Appreciation Rights, Restricted Stock, Deferred Stock and Stock Reload
Options) denominated or payable in, valued in whole or in part by reference to,
or otherwise based on, or related to shares of Common Stock.
(cc) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(dd) "Person" means an individual or entity.
(ee) "Plan" means this 1998 Equity Incentive Plan.
(ff) "Restricted Stock" means Stock, received under an Award made pursuant
to Section 9 below, that is subject to restrictions under said Section 9.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor rule thereto.
(hh) "Section 16(b)" means Section 16(b) of the Exchange Act.
(ii) "SAR Value" means the excess of the Fair Market Value of one share of
Common Stock over the exercise price per share specified in a related Stock
Option in the case of a Stock Appreciation Right granted in tandem with a Stock
Option and the Stock Appreciation Right price per share in the case of a Stock
Appreciation Right awarded on a free standing basis, in each case multiplied by
the number of shares in respect of which the Stock Appreciation Right shall be
exercised, on the date of exercise.
(jj) "Share" means a share of the Common Stock of the Company.
(kk) "Stock" means the Common Stock of the Company.
(ll) "Stock Appreciation Right' means the right, pursuant to an Award
granted under Section 8 hereof, to recover an amount equal to the SAR Value.
(mm) "Stock Option" means any Option to purchase shares of Stock which is
granted pursuant to the Plan.
(nn) "Stock Reload Option" means any option granted under Section 7(e) as a
result of the payment of the exercise price of a Stock Option and/or the
withholding tax related thereto in the form of Stock owned by the Holder or the
withholding of Stock by the Company.
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(oo) "Subsidiary" "Subsidiary" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code, including
without limitation, in the case of the Company, IWL Communications, Incorporated
and CapRock Telecommunications Corp. (f/k/a CapRock Communications Corp.) and
including without limitation CapRock Fiber Network, Ltd.
(pp) "Tandem Stock Appreciation Right" means a Stock Appreciation Right
granted in tandem with all or part of any Stock Option granted under the Plan.
3. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATION. The Plan at all times shall be administered by
the Committee, which shall be comprised solely of not less than two members who
shall be (i) "Non-Employee Directors" within the meaning of Rule 16b-3 and (ii)
unless otherwise determined by the Board of Directors, "outside directors"
within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section
162(m) of the Code.
(b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan and
subject to the approval of any relevant authorities, including the approval, if
required, of any stock exchange upon which the Common Stock is listed, the
Committee shall have the full authority to award: (i) Stock Options, (ii) Stock
Appreciation Rights, (iii) Restricted Stock, (iv) Deferred Stock, (v) Stock
Reload Options and/or (vi) Other Stock-Based Awards. For purposes of
illustration and not of limitation, the Committee shall have the authority
(subject to the express provisions of the Plan):
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Consultants and Employees to whom Awards may from
time to time be granted hereunder;
(iii) to determine whether and to what extent Awards or any combination
thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each such Award
granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price of an Option; any
specified performance goals or other criteria which must be attained for the
vesting of an Award; any restrictions or limitations; and any vesting,
exchange, surrender, cancellation, acceleration, termination, exercise or
forfeiture provisions; and
(vii) to construe and interpret the terms of the Plan and Awards granted
pursuant to the Plan.
(c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Holders of
any Awards. No member of the Board or any Committee administering the Plan shall
be liable for any action taken or determination made in good faith with respect
to the Plan or any Option granted hereunder.
4. STOCK SUBJECT TO THE PLAN.
The maximum aggregate number of Shares that may be acquired by Holders of
any Awards granted under the Plan is 5,000,000 Shares and the maximum number of
Shares that may be acquired by an individual Holder under the Plan shall not
exceed 2,500,000 (in each case subject to adjustment as provided in Section 12
of the Plan). The Shares may be authorized but unissued or reacquired Common
Stock.
If any shares of Stock that have been granted pursuant to a Stock Option
cease to be subject to a Stock Option, or if any shares of Stock that are
subject to any Stock Appreciation Right, Restricted Stock, Deferred Stock award,
Reload Stock Option or Other Stock-Based Award granted hereunder are forfeited
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or any such award otherwise terminates without a payment being made to the
Holder in the form of Stock, such shares shall again be available for
distribution in connection with future grants and awards under the Plan. Only
net shares issued upon a stock-for-stock exercise (including stock used for
withholding taxes) shall be counted against the number of shares available under
the Plan.
5. ELIGIBILITY.
(a) Awards may be made or granted to key employees, officers, directors and
consultants of the Company who are deemed to have rendered or to be able to
render significant services to the Company or its Subsidiaries and who are
deemed to have contributed or to have the potential to contribute to the success
of the Company. No Incentive Stock Option shall be granted to any person who is
not an employee of the Company or a Subsidiary at the time of grant.
(b) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonqualified Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company or any Affiliate) exceeds $100,000, such Options shall be treated for
tax purposes as Nonqualified Stock Options. For purposes of this Section 5(b),
Incentive Stock Options shall be taken into account in the order in which they
were granted. For purposes of this Section 5(b), the Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.
(c) Neither the Plan nor any Award shall confer upon any Holder any right
with respect to continuation of his or her employment or consulting relationship
with the Company or any Affiliate, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued upon exercise
of an Option shall be such price as is determined by the Committee, but in the
case of an Incentive Stock Option:
(i) granted to an Employee who, at the time of grant of such Option,
owns stock representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any Affiliate, the per Share exercise
price shall not be less than 110% of the Fair Market Value per Share on the
date of grant; and
(ii) granted to any other Employee, the per Share exercise price shall
not be less than 100% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Committee (and, in the case of an Incentive Stock Option, shall be determined at
the time of grant). Such consideration shall be paid, to the extent permitted by
applicable statutes and regulations at the time the Option is exercised, either
(i) in cash or check, or (ii) at the discretion of the Committee, in one or a
combination of the following ways (which may be in combination with or in lieu
of payment by cash or check): (A) by delivery to the Company of other Shares of
Common Stock of the Company to be valued at their Fair Market Value on the
exercise date, (B) according to a deferred payment or other arrangement with the
Person to whom the Option is granted or to whom the Option is transferred
pursuant to Section 15, (C) withholding of Shares that would otherwise be issued
upon the exercise of the Option, valued at their Fair Market Value on the
exercise date, or (D) in any other form of legal consideration that may be
acceptable to the Committee. In making its determination as to the type of
consideration to accept, the Committee shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company. In addition,
such consideration shall be accompanied by the delivery by the Optionee of a
properly executed exercise notice together with
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such other documentation as the Committee and a broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
7. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Committee, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan. The total number of Shares subject to an Option may, but need not, be
allotted in periodic installments (which may, but need not, be equal). The
Option Agreement may provide that from time to time during each of such
installment periods, the Option may become exercisable with respect to some or
all of the Shares allotted to that period and may be exercised with respect to
some or all of the Shares allotted to such period and/or any prior period as to
which the Option became vested but was not fully exercised.
An Option may not be exercised for a fraction of a Share. Exercise of an
Option in any manner shall result in a decrease in the number of Shares that
thereafter may be available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
Subject to Section 18, an Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option Agreement by the Person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. To the extent required by applicable federal,
state, local or foreign law, an Optionee shall make arrangements satisfactory to
the Company for the satisfaction of any withholding tax obligations that arise
by reason of an Option exercise or any sale of Shares, which obligations may, as
authorized by the Committee, consist of any consideration and method of payment
allowable under Section 6(b) hereof. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote, receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment shall be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 hereof.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Subject to
paragraph (c) below, in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant, such Optionee may exercise his or her
Option to the extent that the Optionee was entitled to exercise it at the date
of such termination; provided, however, that such Option may be exercised only
within such period of time as is determined by the Committee at the date of
grant. Such time period shall not, in the case of an Incentive Stock Option,
exceed three (3) months after the date of such termination and shall not, in any
case, be later than the expiration date of the term of such Option as set forth
in the Option Agreement. To the extent that the Optionee was not entitled to
exercise the Option at the date of such termination, or if the Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan. An Optionee's Continuous Status as an Employee or Consultant shall
not be terminated in the event of Optionee's change of status from an Employee
to a Consultant or from a Consultant to an Employee; provided, however, that in
the event of an Optionee's change of status from an Employee to a Consultant,
any Incentive Stock Option granted to such Employee shall automatically cease to
be treated for tax purposes as an Incentive Stock Option and shall be treated
for tax purposes as a Nonqualified Stock Option on the day three months and one
day following such change of status.
(c) DISABILITY OF OPTIONEE. In the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the date
of such termination (and in no event later than the expiration date of the term
of
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such Option as set forth in the Option Agreement), exercise the Option to the
extent he or she otherwise was entitled to exercise it at the date of such
termination. If such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code, then in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated for tax purposes
as an Incentive Stock Option and shall be treated for tax purposes as a
Nonqualified Stock Option on the day three months and one day following such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement) by the Optionee's estate or by any
Person who acquired the right to exercise the Option by bequest or inheritance
(the "Option Beneficiary"), but only to the extent that the Optionee was
entitled to exercise the Option on the date of death. To the extent that, at the
time of death, the Optionee was not entitled to exercise the Option, or if the
Option Beneficiary does not exercise the Option within the time specified
herein, the Option shall terminate and the Shares covered by such Option shall
revert to the Plan.
(e) STOCK RELOAD OPTION. The Committee may also grant to the Holder
(concurrently with the grant of an Incentive Stock Option and at or after the
time of grant in the case of a Non-Qualified Stock Option) a Stock Reload Option
up to the amount of shares of Stock held by the Holder for at least six months
and used to pay all or part of the exercise price of an Option and, if any,
withheld by the Company as payment for withholding taxes. Such Stock Reload
Option shall have an exercise price of the Fair Market Value as of the date of
the Stock Reload Option grant. Unless the Committee determines otherwise, a
Stock Reload Option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the Option to which the Stock Reload
Option is related.
8. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in tandem
with (i.e., Tandem Stock Appreciation Right) or in conjunction with all or part
of any Stock Option granted under the Plan or may be granted on a free-standing
basis. In the case of a Non-Qualified Stock Option, a Tandem Stock Appreciation
Right may be granted either at or after the time of the grant of such
Non-Qualified Stock Option. In the case of an Incentive Stock Option, a Tandem
Stock Appreciation Right may be granted only at the time of the grant of such
Incentive Stock Option.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
the following terms and conditions:
(i) EXERCISABILITY. Tandem Stock Appreciation Rights shall be
exercisable only at such time or times and to the extent that the Stock
Options to which they relate shall be exercisable in accordance with the
provisions of Section 7 hereof and this Section 8 and may be subject to the
Code with respect to related Incentive Stock Options and such additional
limitations on exercisability as shall be determined by the Committee and
set forth in the Agreement. Other Stock Appreciation Rights shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee and set forth in the Agreement.
(ii) TERMINATION. A Tandem Stock Appreciation Right shall terminate
and shall no longer be exercisable upon the termination or exercise of the
related Stock Option, except that, unless otherwise determined by the
Committee at the time of grant, a Tandem Stock Appreciation Right granted
with respect to less than the full number of shares covered by a related
Stock Option shall not be reduced until after the number of shares remaining
under the related Stock Option equals the number of shares covered by the
Tandem Stock Appreciation Right.
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(iii) METHOD OF EXERCISE. A Tandem Stock Appreciation Right may be
exercised by a Holder by surrendering the applicable portion of the related
Stock Option. Upon such exercise and surrender, the Holder shall be entitled
to receive such amount in the form determined pursuant to Section 8(b)(iv)
below. Stock Options which have been so surrendered, in whole or in part,
shall no longer be exercisable to the extent the related Tandem Stock
Appreciation Rights have been exercised.
(iv) RECEIPT OF SAR VALUE. Upon the exercise of a Stock Appreciation
Right, a Holder shall be entitled to receive up to, but not more than, an
amount in cash and/or shares of Stock equal to the SAR Value with the
Committee having the right to determine the form of payment.
(v) SHARES AFFECTED UPON PLAN. Upon the exercise of a Tandem Stock
Appreciation Right, the Stock Option or part thereof to which such Tandem
Stock Appreciation Right is related shall be deemed to have been exercised
for the purpose of the limitation set forth in Section 4 hereof on the
number of shares of Common Stock to be issued under the Plan, but only to
the extent of the number of shares, if any, issued under the Tandem Stock
Appreciation Right at the time of exercise based upon the SAR Value.
9. RESTRICTED STOCK.
(a) GRANT. Shares of Restricted Stock may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be awarded, the number of shares to be awarded, the price
(if any) to be paid by the Holder, the time or times within which such Awards
may be subject to forfeiture ("Restriction Period"), the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
Awards.
(b) TERMS AND CONDITIONS. Each Restricted Stock Award shall be subject to
the following terms and conditions:
(i) CERTIFICATES. Restricted Stock, when issued, will be represented
by a stock certificate or certificates registered in the name of the Holder
to whom such Restricted Stock shall have been awarded. During the
Restriction Period, certificates representing the Restricted Stock and any
securities constituting Retained Distributions (as defined below) shall bear
a legend to the effect that ownership of the Restricted Stock (and such
Retained Distributions), and the enjoyment of all rights appurtenant
thereto, are subject to the restrictions, terms and conditions provided in
the Plan and the Agreement. Such certificates shall be deposited by the
Holder with the Company, together with stock powers or other instruments of
assignment, each endorsed in blank, which will permit transfer to the
Company of all or any portion of the Restricted Stock and any securities
constituting Retained Distributions that shall be forfeited or that shall
not become vested in accordance with the Plan and the Agreement.
(ii) RIGHTS OF HOLDER. Restricted Stock shall constitute issued and
outstanding shares of Common Stock for all corporate purposes. The Holder
will have the right to vote such Restricted Stock, to receive and retain all
regular cash dividends and other cash equivalent distributions as the Board
may in its sole discretion designate, pay or distribute on such Restricted
Stock and to exercise all other rights, powers and privileges of a holder of
Common Stock with respect to such Restricted Stock, with the exceptions that
(A) the Holder will not be entitled to delivery of the stock certificate or
certificates representing such Restricted Stock until the Restriction Period
shall have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled; (B) the Company will retain custody of
the stock certificate or certificates representing the Restricted Stock
during the Restriction Period; (C) other than regular cash dividends and
other cash equivalent distributions as the Board may in its sole discretion
designate, pay or distribute, the Company will retain custody of all
distributions ("Retained Distributions") made or declared with respect to
the Restricted Stock (and
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such Retained Distributions will be subject to the same restrictions, terms
and conditions as are applicable to the Restricted Stock) until such time,
if ever, as the Restricted Stock with respect to which such Retained
Distributions shall have been made, paid or declared shall have become
vested and with respect to which the Restriction Period shall have expired;
(D) a breach of any of the restrictions, terms or conditions contained in
this Plan or the Agreement or otherwise established by the Committee with
respect to any Restricted Stock or Retained Distributions will cause a
forfeiture of such Restricted Stock and any Retained Distributions with
respect thereto.
(iii) VESTING: FORFEITURE. Upon the expiration of the Restriction
Period with respect to each Award of Restricted Stock and the satisfaction
of any other applicable restrictions, terms and conditions (A) all or part
of such Restricted Stock shall become vested in accordance with the terms of
the Agreement, and (B) any Retained Distributions with respect to such
Restricted Stock shall become vested to the extent that the Restricted Stock
related thereto shall have become vested. Any such Restricted Stock and
Retained Distributions that do not vest shall be forfeited to the Company
and the Holder shall not thereafter have any rights with respect to such
Restricted Stock and Retained Distributions that shall have been so
forfeited.
10. DEFERRED STOCK.
(a) GRANT. Shares of Deferred Stock may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the eligible persons to whom and the time or times at which grants of Deferred
Stock shall be awarded, the number of shares of Deferred Stock to be awarded to
any person, the duration of the period ("Deferral Period") during which, and the
conditions under which receipt of the shares will be deferred, and all the other
terms and conditions of the Awards.
(b) TERMS AND CONDITIONS. Each Deferred Stock Award shall be subject to
the following terms and conditions:
(i) CERTIFICATES. At the expiration of the Deferral Period (or the
Additional Deferral Period referred to in Section 10(b)(iii) below, where
applicable), share certificates shall be delivered to the Holder, or his
legal representative, representing the number equal to the shares covered by
the Deferred Stock Award.
(ii) VESTING; FORFEITURE. Upon the expiration of the Deferral Period
(or the Additional Deferral Period, where applicable) with respect to each
Award of Deferred Stock and the satisfaction of any other applicable
limitations, terms or conditions, such Deferred Stock shall become vested in
accordance with the terms of the Agreement. Any Deferred Stock that does not
vest shall be forfeited to the Company and the Holder shall not thereafter
have any rights with respect to such Deferred Stock that has been so
forfeited.
(iii) ADDITIONAL DEFERRAL PERIOD. A Holder may request to, and the
Committee may at any time, defer the receipt of an Award (or an installment
of an Award) for an additional specified period or until a specified event
("Additional Deferral Period"). Subject to any exceptions adopted by the
Committee, such request must generally be made at least one year prior to
expiration of the Deferral Period for such Deferred Stock Award (or such
installment).
11. OTHER STOCK-BASED AWARDS.
(a) GRANT AND EXERCISE. Other Stock-Based Awards may be awarded, subject
to limitations under applicable law, that are denominated or payable in, valued
in whole or in part by reference to, or otherwise based on, or related to,
shares of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, purchase rights, shares of
Common Stock awarded which are not subject to any restrictions or conditions,
convertible or exchangeable debentures, or other rights convertible into shares
of Common Stock and Awards valued by reference to the value of securities
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of or the performance of specified Subsidiaries. Other Stock-Based Awards may be
awarded either alone or in addition to or in tandem with any other Awards under
this Plan or any other plan of the Company.
(b) ELIGIBILITY FOR OTHER STOCK-BASED AWARDS. The Committee shall
determine the eligible persons to whom and the time or times at which grants of
such Other Stock-Based Awards shall be made, the number of shares of Common
Stock to be awarded pursuant to such Awards, and all other terms and conditions
of the Awards.
(c) TERMS AND CONDITIONS. Each Other Stock-Based Award shall be subject to
such terms and conditions as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Award, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Award, as well as the price per share of Common Stock covered by each such
outstanding Award, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company.
The conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible or
exchangeable into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or exercise price of
shares of Common Stock subject to an Award.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, the Committee shall notify the Holder at least
fifteen (15) days prior to such proposed action. To the extent it has not been
previously exercised, the Award shall terminate immediately prior to the
consummation of such proposed action; provided, however, that the Committee may,
in the exercise of its sole discretion in such instances, declare that any Award
shall terminate as of an earlier date fixed by the Committee and give each
Holder the right to exercise his or her rights as to all or any part of the
Award, including Shares as to which the Award would not otherwise be
exercisable.
(c) MERGER OR ASSET SALE. Subject to Section 12(d), in the event of the
merger of the Company into, or the consolidation of the Company with, another
corporation in which the shareholders of the Company receive cash or securities
of another issuer, or any combination thereof, in exchange for their shares of
Common Stock, or the sale of all or substantially all of the assets of the
Company, each outstanding Award shall be assumed or an equivalent option or
right substituted by the successor corporation or an Affiliate of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Award, the Holder shall fully vest in and have the right to
exercise the Award (provided it has not already terminated), including Shares as
to which it would not otherwise be vested or exercisable. If an Award becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger, consolidation or sale of assets, the Committee shall notify the
Holder that the Award shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Award shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Award shall
be considered assumed if, following the merger, consolidation or sale of assets,
the option substituted for such Award confers the right to purchase or receive,
for each Share of Stock subject to the Award immediately prior to the merger,
consolidation or sale of assets, the per Share consideration (whether stock,
cash, or other securities or property) received in the merger, consolidation or
sale of assets by holders of Common Stock (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a
10
<PAGE>
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger, consolidation or sale of assets is not
solely common stock of the successor corporation or its Parent (if any), the
Committee may, with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Award, for each Share of
Stock subject to the Award, to be solely common stock of the successor
corporation or its Parent (if any) equal in fair market value to the per Share
consideration received by holders of Common Stock in the merger, consolidation
or sale of assets.
(d) CHANGE OF CONTROL. Notwithstanding anything to the contrary, the
Committee may grant Awards which provide for the acceleration of the vesting of
Shares subject to the Award upon a Change of Control. Such provisions shall be
set forth in the Agreement.
(e) FURTHER ADJUSTMENTS. In the event of any change of a type described in
paragraphs (a) or (c) above, the Committee shall make any further adjustment to
the maximum number of Shares which may be acquired under the Plan pursuant to
the exercise of Awards, the maximum number of Shares for which Awards may be
granted to any one Employee and the number of Shares and price per Share subject
to outstanding Awards as shall be equitable to prevent dilution or enlargement
of rights under such Awards, and the determination of the Committee as to these
matters shall be conclusive and binding on the Holder; provided, however, that
(i) each such adjustment with respect to an Incentive Option shall comply with
the rules of Section 424(a) of the Code (or any successor provision) and (ii) in
no event shall any adjustment be made which would render any Incentive Stock
Option granted hereunder other than an "incentive stock option" as defined in
Section 422 of the Code.
(f) NO LIMITATION ON RIGHT TO MERGE, ETC. The grant of Awards pursuant to
the Plan shall not restrict in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve, liquidate, or sell or
transfer all or any part of its business or assets.
13. TERM OF PLAN.
The Plan shall become effective upon the earlier to occur of its adoption by
the Committee or its approval by the shareholders of the Company, as described
in Section 21 of the Plan. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 17 of the Plan.
14. TERM OF OPTIONS.
The term of each Option shall be the term stated in the Option Agreement;
provided, however, that the term shall be no more than ten (10) years from the
date of grant thereof; and provided further that in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Affiliate, the term of the Option shall
be no more than five (5) years from the date of grant thereof.
15. NON-TRANSFERABILITY OF AWARDS.
An Incentive Stock Option shall not be transferrable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Person to whom the Incentive Stock Option is granted only by
such Person. Any other Award, including a Nonqualified Stock Option, shall not
be transferrable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order, as defined by the Code or by
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of
the Person to whom the Option is granted only by such Person or any transferee
pursuant to a QDRO.
11
<PAGE>
16. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the date on which
the Committee makes the determination granting such Award, or such other date as
is determined by the Committee. Notice of the determination shall be given to
each Employee or Consultant to whom an Award is so granted within a reasonable
time after the date of such grant.
17. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may amend or terminate the Plan in any respect whatsoever,
provided that any such amendment or termination of the Plan shall not affect
Award already granted and such Award shall remain in full force and effect as if
the Plan had not been amended or terminated. In addition, to the extent
necessary and desirable to comply with Rule 16b-3 (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
18. CONDITIONS UPON ISSUANCE OF SHARES.
Shares shall not be issued pursuant to an Award unless the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
Applicable Laws, including, without limitation, the Securities Act of 1933, as
amended (the "Securities Act"), the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed or any automatic quotation system upon which the
Shares may then be quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
The Company may require any Optionee or other Holder, as a condition of
receiving Shares pursuant to an Award, (i) to give written assurances
satisfactory to the Company as to the Holder's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matter, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Award; (ii) to give written assurances satisfactory to the
Company stating that such Person is acquiring the Shares subject to the Award
for such Person's own account and not with any present intention of selling or
otherwise distributing such Shares; and (iii) to deliver such other
documentation as may be necessary to comply with federal and state securities
laws. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the Shares upon the
exercise of the Award has been registered under a then currently effective
registration statement under the Securities Act and all applicable state
securities laws, or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Shares, and may enter stop-transfer orders
against the transfer of the Shares issued upon the exercise of an Award.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
19. RESERVATION OF SHARES.
The Company, during the term of the Plan, shall at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
12
<PAGE>
20. AGREEMENTS.
Options shall be evidenced by Option Agreements in such form as the
Committee shall approve from time to time. Other Awards shall be evidenced by
similar Agreements.
21. SHAREHOLDER APPROVAL.
Continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months before or after the date the Plan is
adopted. Such shareholder approval shall be obtained to the extent and in manner
required under Applicable Laws and the rules of any stock exchange upon which
the Common Stock is listed or any automatic quotation system upon which the
Common Stock is quoted.
22. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options or other Awards shall
constitute general funds of the Company.
23. MISCELLANEOUS.
(a) ACCELERATION OF VESTING. The Committee shall have the power to
accelerate the time at which an Award may first be exercised or the time during
which an Award or any part thereof will vest, notwithstanding the provisions in
the Award Agreement stating the time at which it may first be exercised or the
time during which it will vest.
(b) RULE 16B-3. With respect to Persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 and with respect to such Persons all
transactions shall be subject to such conditions regardless of whether they are
expressly set forth in the Plan or the Award Agreement. To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall
not apply to such Persons or their transactions and shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
(c) GRANTS EXCEEDING ALLOTTED SHARES. If the number of shares of Stock
subject to an Award granted pursuant to the Plan exceeds, as of the date of
grant, the number of Shares that may be issued under the Plan without additional
shareholder approval, such Award shall be void with respect to such excess
Shares, unless shareholder approval of an amendment sufficiently increasing the
number of Shares subject to the Plan is timely obtained in accordance with
Section 17 of the Plan.
(d) NOTICE. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Secretary of the Company and
shall become effective when it is received. Any written notice to Holders
required by any provisions of the Plan shall be addressed to the Holder at the
address on file with the Company and shall become effective three days after it
is mailed by certified mail, postage prepaid to such address or at the time of
delivery if delivered sooner by messenger or overnight courier.
(e) SAVINGS CLAUSE. Notwithstanding any other provision hereof, the Plan
is intended to qualify as a plan pursuant to which Incentive Stock Options may
be issued under Section 422 of the Code. If the Plan or any provision of the
Plan shall be held to be invalid or to fail to meet the requirements of Section
422 of the Code or the regulations promulgated thereunder, such invalidity or
failure shall not affect the remaining parts of the Plan, but rather it shall be
construed and enforced as if the Plan or the affected provision thereof, as the
case may be, complied in all respects with the requirements of Section 422 of
the Code.
(f) GOVERNING LAW. The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the laws of the State of
Texas without regard to its conflict of laws rules.
13
<PAGE>
EXHIBIT A
CAPROCK COMMUNICATIONS CORP.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's name and address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of this Option Agreement and the Plan,
including the provisions thereof relating to increases in the number of shares
covered by this Option upon the occurrence of certain specified events, as
follows:
<TABLE>
<S> <C>
Grant Number.................................
Date of Grant................................
Vesting Commencement Date....................
Exercise Price per Share..................... $
Total Number of Shares Granted...............
Total Exercise Price......................... $
Type of Option: Incentive Stock Option
Nonqualified Stock Option
Term/Expiration Date:
(No more than 10 years from date of grant, 5
years for certain grants)
</TABLE>
VESTING SCHEDULE
This Option may be exercised, in whole or in part, in accordance with the
following schedule. Except only as specifically provided elsewhere herein or in
the Plan, this Option shall be exercisable in the following cumulative
installments:
[NOTE: TO BE COMPLETED UPON GRANT OF OPTIONS]
TERMINATION PERIOD
You may exercise this Option for three months (or such shorter period
provided for elsewhere herein) after your employment or consulting relationship
with the Company terminates, or for such longer period upon your death or
disability as provided in the Plan. If your status changes from Employee to
Consultant or Consultant to Employee, this Option Agreement shall remain in
effect. In no case may you exercise this Option after the Term/Expiration Date
as provided above. Notwithstanding the foregoing, in the event the Company
terminates your employment for Cause (as defined below), this Option will
terminate on the date of the termination of your employment and will not be
exercisable thereafter. For purposes of this Agreement, "Cause" means the
occurrence of any of the following events or reasons:
(a) Optionee's conviction for a felony offense or commission by Optionee of
any act abhorrent to the community that the Company considers materially
damaging to or tending to discredit the reputation of the Company;
(b) Dishonesty, fraud, willful misconduct, unlawful discrimination or theft
on the part of Optionee;
14
<PAGE>
(c) Optionee's using for his or her own benefit any confidential or
proprietary information of the Company, or willfully or negligently divulging
any such information to third parties without the prior written consent of the
Company;
(d) Optionee's public drunkenness, public use of illegal substances or drugs
or the use, possession, distribution or being under the influence of alcohol or
illegal substances or drugs in the workplace (the only exception is that
Optionee may consume alcohol reasonably and responsibly, if he or she so
chooses, at legitimate business events and functions where alcohol is legally
available); or
(e) the determination by the Company that Optionee has continually failed or
refused to comply, after notice of and a reasonable opportunity to cure such
failure or refusal, with the policies, standards, regulations, instructions, or
directions of the Company as they currently exist or as they may be modified
from time to time.
II. AGREEMENT
1. GRANT OF OPTION. CapRock Communications Corp. (the "Company") hereby
grants to the Optionee named in Section I hereof (the "Optionee") an option
(the"Option") to purchase the total number of shares of Common Stock (the
"Shares") set forth in Section I hereof, at the exercise price per share set
forth in Section I hereof (the "Exercise Price") subject to the terms,
definitions and provisions of the 1998 Stock Option Plan (the "Plan") adopted by
the Company, which is incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option Agreement.
If designated in Section I hereof as an Incentive Stock Option, this Option
is intended (subject to Section 5(b) of the Plan) to qualify as an Incentive
Stock Option as defined in Section 422 of the Code.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in Section I hereof and with the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written notice
(in the form attached hereto as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
The Optionee shall, upon notification of the amount due (if any) as a result
of the exercise of the Option and prior to or concurrent with delivery of the
certificate representing the Shares, pay to the Company as provided in the Plan
amounts necessary to satisfy applicable federal, state and local tax withholding
requirements.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed
or any automatic quotation system upon which the Shares may then be quoted.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
15
<PAGE>
3. METHOD OF PAYMENT. The purchase price of Optioned Shares acquired
pursuant to the Option shall be paid as set forth in the Plan. THE USE OF SHARES
OF STOCK ACQUIRED OR TO BE ACQUIRED TO PAY FOR EXERCISED SHARES MAY HAVE INCOME
TAX CONSEQUENCES FOR THE OPTIONEE.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, and may
not be exercised if the issuance of such Shares upon such exercise or the method
of payment of consideration for such shares would constitute a violation of any
applicable federal or state securities or other law or regulation, including any
rule under Part 207 of Title 12 of the Code of Federal Regulations as
promulgated by the Federal Reserve Board.
5. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution or
as otherwise set forth in the Plan and may be exercised during the lifetime of
Optionee only by Optionee or a permitted transferee as set forth in the Plan.
The terms of the Plan and this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
6. TERM OF OPTION. This Option may be exercised only within the term set
out in Section I hereof, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Sections 5 and 6 of the Plan regarding Options designated as Incentive Stock
Options and Options granted to more than ten percent (10%) shareholders shall
apply to this Option.
7. TAX CONSEQUENCES. The grant and/or exercise of the Option will have
federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THE OPTION OR
DISPOSING OF THE SHARES ACQUIRED UPON EXERCISE, PARTICULARLY WITH RESPECT TO HIS
OR HER STATE'S TAX LAWS.
8. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and this Option Agreement may not be
amended except by means of a writing signed by the Company and Optionee. This
Option Agreement is governed by Texas law except for that body of law pertaining
to conflict of laws.
9. WARRANTIES, REPRESENTATIONS AND COVENANTS. The undersigned Optionee
warrants and represents that he or she has reviewed the Plan and this Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option Agreement and fully understands all
provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Committee
upon any questions relating to the Plan and Option Agreement. Optionee further
agrees to notify the Company upon any change in the residence address indicated
below. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS OPTION AGREEMENT, NOR IN THE PLAN, WHICH IS INCORPORATED
HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO
CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE
IN ANY
16
<PAGE>
WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
<TABLE>
<S> <C> <C>
CAPROCK COMMUNICATIONS CORP.
By:
-----------------------------------------
Name: --------------------------------------
Title: ---------------------------------------
</TABLE>
OPTIONEE:
--------------------------------------
Signature
--------------------------------------
Print Name
--------------------------------------
Residence Address
--------------------------------------
Area Code/Telephone Number
17
<PAGE>
EXHIBIT A
CAPROCK COMMUNICATIONS CORP.
1998 EQUITY INCENTIVE PLAN
EXERCISE NOTICE
CapRock Communications Corp.
Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, , 199 , the
undersigned ("Purchaser") hereby elects to purchase shares (the
"Shares") of the Common Stock of CapRock Communications Corp. (the "Company")
under and pursuant to the 1998 Stock Option Plan (the "Plan") and the Stock
Option Agreement dated , 199 (the "Option Agreement"). The purchase
price for the Shares shall be $ , as specified in the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares of . THE USE OF SHARES OF
STOCK ACQUIRED OR TO BE ACQUIRED FOR EXERCISED SHARES MAY HAVE INCOME TAX
CONSEQUENCES FOR THE OPTIONEE.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. The Purchaser shall not be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any Shares
subject for which such Option is exercised including, but not limited to, rights
to vote or to receive dividends unless and until the Purchaser has satisfied all
requirements for exercise of the Option pursuant to its terms, the certificates
evidencing such Shares have been issued and the Purchaser has become a record
holder of such Shares. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment will be made for a dividend or other right for which the
record date is prior to the date all the conditions set forth above are
satisfied, except as provided in Section 12 of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and this Agreement
18
<PAGE>
may not be amended except by means of a writing signed by the Company and
Purchaser. This Agreement is governed by Texas law except for that body of law
pertaining to conflict of laws.
<TABLE>
<S> <C>
Submitted by: Accepted by:
PURCHASER: CAPROCK COMMUNICATIONS CORP.
Signature By:
Print Name Its:
Address: Address:
Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638
- --------------------------------------------
- --------------------------------------------
</TABLE>
19
<PAGE>
APPENDIX VII
CAPROCK COMMUNICATIONS CORP.
1998 DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1998 Director Stock Option Plan (the
"Plan") of CapRock Communications Corp., a Texas corporation (the "Company"), is
to encourage ownership in the Company by outside directors of the Company whose
continued services are considered essential to the Company's future progress and
to provide them with a further incentive to remain as directors of the Company.
2. ELIGIBILITY. Options (each, an "Option") to purchase shares ("Shares")
of the Company's common stock, par value $.01 per share ("Common Stock"), may be
granted only to Outside Directors. An "Outside Director" is a member of the
Board of Directors of the Company ("Board of Directors") that is not an Employee
(each, an "Optionee"). "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient to
constitute "employment" by the Company. A "Parent" means a "parent corporation,"
whether now or hereafter existing, as defined in Section 424(e) of the Internal
Revenue Code of 1986, as amended to date and as it may be hereafter amended from
time to time (the "Code"), and a "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. ADMINISTRATION
(a) BOARD OF DIRECTORS. The Board of Directors of the Company shall
supervise and administer the Plan in compliance with the rules under Rule
16b-3 or any successor rule thereto ("Rule 16b-3") promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
questions of interpretation of the Plan or of any Options issued under it
shall be determined by the Board of Directors and such determination shall
be final and binding upon all persons having an interest in the Plan. In the
event the Board of Directors so determines, a committee designated by the
Board of Directors will administer the Plan, which committee shall be
constituted to comply with the rules under Rule 16b-3 relating to the
administration of employee benefit plans for Outside Directors, and all
references in the Plan to the Board of Directors shall be deemed to be a
reference to such committee.
(b) POWERS OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan and subject to the approval of any relevant authorities, including the
approval, if required, of any national market system or established stock
exchange upon which the Common Stock is quoted or listed, the Board of
Directors shall have the authority in its discretion to, among other things:
(i) determine the Fair Market Value of the Common Stock. For
purposes of the Plan, the "Fair Market Value" means, as of any date, the
value of Common Stock determined as follows: (A) if the Common Stock is
listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last
market trading day prior to the time of determination, as reported in The
Wall Street Journal or such other source as the Board of Directors deems
reliable; (B) if the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of
determination; or (C) in the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board of Directors.
(ii) determine the recipients of Options and the number of Shares to
be covered by each Option granted hereunder, including the number of
Shares to be covered by Options to be granted to any Optionee;
<PAGE>
(iii) determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time
or times when Options may be exercised, any vesting, acceleration or
waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or the Shares relating thereto, based in each case
on such factors as the Board of Directors, in its sole discretion, shall
determine; and
(iv) construe and interpret the terms of the Plan and awards granted
pursuant to the Plan, and to amend or terminate the Plan as provided for
in Section 10 hereof.
4. STOCK SUBJECT TO THE PLAN
(a) MAXIMUM NUMBER OF SHARES. The maximum number of Shares which may
be issued under the Plan shall be 400,000 shares of Common Stock, subject to
adjustment as provided in Section 9 below.
(b) TERMINATION OF OPTIONS. If any Option shall for any reason expire
or otherwise terminate without having been exercised in full, the Shares not
purchased under such Option shall revert to and again become available for
issuance under the Plan unless the Plan shall have terminated; provided,
however, that shares of Common Stock that have been actually issued under
the Plan shall not be returned to the Plan and shall not become available
for future issuance under the Plan. Shares that are withheld as payment of
the Exercise Price of any Options (as set forth in Section 5(e)) shall be
deemed issued for purposes of this Section.
(c) STOCK SUBJECT TO THE PLAN. The stock subject to the Plan may be
unissued shares or reacquired Shares, bought on the market or otherwise.
5. TERMS, CONDITIONS AND FORM OF OPTIONS
(a) OPTION AGREEMENT
Each option agreement governing an Option ("Option Agreement") shall be
substantially in the form attached hereto as EXHIBIT A. In the event any
provisions of the Option Agreement and the Plan conflict, the provisions of
the Plan shall control. The provisions of separate Options need not be
identical, but each Option Agreement shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of
each of the following provisions set forth in this Section 5.
(b) OPTIONS NON-TRANSFERABLE. No Option shall be transferred,
assigned, pledged or hypothecated by the Optionee or be made subject to
execution, attachment or similar process otherwise than by will, by the laws
of descent and distribution, or pursuant to a qualified domestic relations
order, as defined in the Code or Title I of the Employee Retirement Security
Act of 1974, as amended ("ERISA"), or the rules thereunder ("QDRO"), and
shall be exercised during the lifetime of the Optionee only by such person
or any transferee pursuant to a QDRO.
(c) EXERCISE PERIOD. Subject to Section 7, each Option granted
hereunder shall be exercisable at such times and under such conditions as
determined by the Board of Directors and as shall be permissible under the
terms of the Plan. The total number of Shares subject to an Option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each
of such installment periods, the Option may become exercisable with respect
to some or all of the Shares allotted to that period and may be exercised
with respect to some or all of the Shares allotted to such period and/or any
prior period as to which the Option became vested but was not fully
exercised. In the event an Optionee ceases to serve as a director of the
Company, each such Option may be exercised by the Optionee or by a permitted
transferee (or, in the event of such person's death, by such person's
administrator, executor or heirs) at any time within 3 months after the
Optionee ceases to serve as a director, but only to the extent
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<PAGE>
such Option was exercisable at the time of such cessation of service.
Notwithstanding the foregoing, no Option shall be exercisable after the
expiration of 10 years from the date of grant.
(d) EXERCISE PROCEDURE. Subject to Section 12, an Option shall be
deemed to be exercised when written notice ("Exercise Notice") of such
exercise has been given to the Company in accordance with the terms of the
Option Agreement by the person or entity entitled to exercise the Option and
full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Each person or entity who exercises an
Option shall, upon notification of the amount due (if any) and prior to or
concurrent with delivery of the certificate representing the Shares, pay by
cash or check to the Company all amounts necessary to satisfy applicable
federal, state and local tax withholding requirements. No Option may at any
time be exercised with respect to a fractional share.
(e) PAYMENT OF EXERCISE PRICE. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations at the time the Option is exercised, either (i) in
cash or check, or (ii) at the discretion of the Board of Directors, in one
or a combination of the following ways (which may be in combination with or
in lieu of payment by cash or check): (A) by delivery to the Company of
other Shares of Common Stock of the Company to be valued at their Fair
Market Value on the exercise date, (B) according to a deferred payment or
other arrangement with the person to whom the Option is granted or to whom
the Option is transferred pursuant to Section 5(b), (C) withholding of
Shares that would otherwise be issued upon the exercise of the Option,
valued at their Fair Market Value on the exercise date, or (D) in any other
form of legal consideration that may be acceptable to the Board of
Directors. In making its determination as to the type of consideration to
accept, the Board of Directors shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company. In
addition, such consideration shall be accompanied by the delivery by the
Optionee of a properly executed exercise notice together with such other
documentation as the Board of Directors and a broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
6. NONSTATUTORY OPTIONS. All Options granted under the Plan shall be
nonqualified Options not entitled to special tax treatment under Section 422 of
the Code.
7. EFFECTIVE DATE AND TERM
The Plan was adopted by the Board of Directors of the Company on
, 1998 and by the shareholders of the Company on , 1998
and became effective upon its adoption. The Plan shall continue in effect until
it is terminated by action of the Board, but such termination shall not affect
the terms of any outstanding Options.
8. LIMITATION OF RIGHTS
(a) NO RIGHT TO CONTINUE AS DIRECTOR. Neither the Plan, nor the
granting of an Option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain a director for any period of time.
(b) NO SHAREHOLDERS' RIGHTS FOR OPTIONEES. Neither an Optionee nor any
person to whom an Option is transferred pursuant to the Plan shall be deemed
to be the holder of, or to have any of the rights of a holder with respect
to, any Shares subject to such Option including, but not limited to, rights
to vote or to receive dividends, unless and until such person has satisfied
all requirements for exercise of the Option pursuant to its terms, the
certificates evidencing such Shares have been issued and such person has
become a record holder of such Shares.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the
3
<PAGE>
number of shares of Common Stock that have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option,
as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board of Directors,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible or exchangeable into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board of Directors shall
notify the Optionee at least fifteen (15) days prior to such proposed
action. To the extent it has not been previously exercised, the Option shall
terminate immediately prior to the consummation of such proposed action;
provided, however, that the Board of Directors may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate
as of an earlier date fixed by the Board of Directors and give each Optionee
the right to exercise his or her Option as to all or any part of the Shares
covered by such Option, including Shares as to which the Option would not
otherwise be exercisable.
(c) MERGER OR ASSET SALE. Subject to Section 9(d), in the event of the
merger of the Company into, or the consolidation of the Company with,
another corporation in which the shareholders of the Company receive cash or
securities of another issuer, or any combination thereof, in exchange for
their shares of Common Stock, or the sale of all or substantially all of the
assets of the Company, each outstanding Option shall be assumed or an
equivalent option or right substituted by the successor corporation or an
Affiliate of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee
shall fully vest in and have the right to exercise the Option (provided it
has not already terminated) as to all of the Shares covered by such Option,
including Shares as to which it would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger, consolidation or sale
of assets, the Board of Directors shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date
of such notice, and the Option shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, consolidation or sale of assets, the
option substituted for such Option confers the right to purchase or receive,
for each Share subject to the Option immediately prior to the merger,
consolidation or sale of assets, the per Share consideration (whether stock,
cash, or other securities or property) received in the merger, consolidation
or sale of assets by holders of Common Stock (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of
a majority of the outstanding Shares); provided, however, that if such
consideration received in the merger, consolidation or sale of assets is not
solely common stock of the successor corporation or its Parent (if any), the
Board of Directors may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the
Option, for each Share subject to the Option, to be solely common stock of
the successor corporation or its Parent (if any) equal in fair market value
to the per Share consideration received by holders of Common Stock in the
merger, consolidation or sale of assets. For purposes of this subsection
(c), "Affiliate" means, with respect to any individual or entity, any Parent
or Subsidiary of such individual or entity, whether such Parent or
Subsidiary is now or hereafter existing.
4
<PAGE>
(d) FURTHER ADJUSTMENTS. In the event of any change of a type
described in paragraphs (a) or (c) above, the Board of Directors shall make
any further adjustment to the maximum number of shares which may be acquired
under the Plan pursuant to the exercise of Options, the maximum number of
Shares for which Options may be granted to any one employee and the number
of Shares and price per Share subject to outstanding Options as shall be
equitable to prevent dilution or enlargement of rights under such Options,
and the determination of the Board of Directors as to these matters shall be
conclusive and binding on the Optionee.
(e) NO LIMITATION ON RIGHT TO MERGE, ETC. The grant of Options
pursuant to the Plan shall not restrict in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structure or to merge, consolidate, dissolve,
liquidate, or sell or transfer all or any part of its business or assets.
10. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board of Directors may at any time amend, alter, suspend or
discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. No amendment
of the Plan shall, without approval of the shareholders of the Company, (i)
increase the maximum number of Shares which may be subject to Options under
the Plan or the maximum number of Shares subject to Options that may be
granted to any individual Optionee under the Plan, (ii) modify the
requirements as to eligibility for Options under the Plan or (iii)
materially increase the benefits to Optionees under the Plan. In addition,
to the extent necessary and desirable to comply with Rule 16b-3, Section 422
of the Code or Section 162(m) of the Code (or any other Applicable Laws,
including the requirements of the NASD or any stock exchange upon which the
Shares may then be listed or any automatic quotation system upon which the
Shares may then be quoted), the Company shall obtain shareholder approval of
any Plan amendment in such a manner and to such a degree as required. For
purposes of this subsection (a), "Applicable Laws" means the legal
requirements relating to the administration of stock option plans under U.S.
state corporate laws, U.S. federal and state securities laws, the Code and
the applicable laws of any foreign country or jurisdiction where Options
are, or will be, granted under the Plan.
(b) Any amendment or termination of the Plan shall not affect Options
already granted, and such Options shall remain in full force and effect as
if the Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Board of Directors, which agreement
must be in writing and signed by the Optionee and the Company.
11. NOTICE
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received. Any written notice to Optionees required by any
provisions of the Plan shall be addressed to the Optionee at the address on file
with the Company and shall become effective three days after it is mailed by
certified mail, postage prepaid to such address or at the time of delivery if
delivered sooner by messenger or overnight courier.
12. REGULATORY APPROVAL, COMPLIANCE AND OTHER MATTERS.
(a) Options shall not be exercised, and Shares shall not be issued upon
such exercise, unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended ("the Securities Act"), the Exchange Act,
the rules and regulations thereunder and the requirements of any stock
exchange upon which such Shares may then be listed or approved for listing
upon notice of issuance, and such issuance shall be further subject to the
approval of counsel for the Company with respect to such compliance,
including the availability of an exemption from registration for the
issuance and sale of such Shares. The inability of the Company to obtain
5
<PAGE>
from any regulatory body the authority deemed by the Company to be necessary
for the lawful issuance and sale of any Shares under this Plan, or the
unavailability of an exemption from registration for the issuance and sale
of any Shares under this Plan, shall relieve the Company of any liability
with respect to the non-issuance or sale of such Shares.
(b) OTHER CONDITIONS. The Company may require any Optionee, or any
person or entity to whom an Option is transferred pursuant to the Plan, as a
condition to exercising any such Option, (i) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced
in financial and business matters, and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits
and risks of exercising the Option; (ii) to give written assurances
satisfactory to the Company stating that such person is acquiring the Shares
subject to the Option for such person's own account and not with any present
intention of selling or otherwise distributing the Shares; and (iii) to
deliver such other documentation as may be necessary to comply with federal
and state securities laws. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of
the Shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act and all
applicable state securities laws, or (ii) as to any particular requirement,
a determination is made by counsel for the Company that such requirement
need not be met in the circumstances under the then applicable securities
laws. The Company may, upon advice of counsel to the Company, place legends
on stock certificates issued under the Plan as such counsel deems necessary
or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the
Shares and may enter stop transfer orders against the transfer of the Shares
issuable upon the exercised Options. The Company has no obligation to
undertake registration of Options or the Shares issuable upon the exercise
of Options.
(c) RULE 16B-3. With respect to persons subject to Section 16 of the
Exchange Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 and with respect to such persons all
transactions shall be subject to such conditions regardless of whether they
are expressly set forth in the Plan or the Option Agreement. To the extent
any provision of the Plan or action by the Board of Directors fails to so
comply, it shall not apply to such persons or their transactions and shall
be deemed null and void, to the extent permitted by law and deemed advisable
by the Board of Directors.
13. GOVERNING LAW. The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the laws of the State of
Texas without regard to its conflict of laws rules.
6
<PAGE>
EXHIBIT A
CAPROCK COMMUNICATIONS CORP.
DIRECTOR STOCK OPTION AGREEMENT
THIS DIRECTOR STOCK OPTION AGREEMENT (this "Agreement") is entered into
between CapRock Communications Corp., a Texas corporation (the "Company"), and
the person named on the signature page hereof ("Optionee") with the date of
grant of the option as set forth on such signature page.
To carry out the purposes of the CAPROCK COMMUNICATIONS CORP. 1998 DIRECTOR
STOCK OPTION PLAN (the "Plan"), by affording Optionee the opportunity to
purchase shares of common stock of the Company ("Common Stock"), and in
consideration of the mutual agreements and other matters set forth herein and in
the Plan, the Company and Optionee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Optionee the
right and option ("Option") to purchase all or any part of the number of shares
of Common Stock as set forth on the signature page hereto, on the terms and
conditions set forth herein and in the Plan. The Optionee may review a copy of
the Plan at the office of the Secretary of the Company at Two Galleria Tower,
Suite 1925, 13455 Noel Road, Dallas, Texas 75240-6638. This Option shall not be
treated as an incentive stock option within the meaning of Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code").
2. VESTING SCHEDULE. Except only as specifically provided elsewhere
herein, the Option shall be exercisable in the following cumulative
installments:
[Note: To be completed upon grant of Options.]
3. PURCHASE PRICE. The purchase price of Common Stock purchased pursuant
to the exercise of this Option is set forth on the signature page hereto.
4. EXERCISE OF OPTION. This Option is exercisable by delivery of an
exercise notice, in the form attached as EXHIBIT A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares.
5. METHOD OF PAYMENT. The purchase price of Exercised Shares acquired
pursuant to an Option shall be paid as set forth in the Plan.
6. NONTRANSFERABLE AND TERMINATION. This Option is not transferable by
Optionee otherwise than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order, and may be exercised only by
Optionee during Optionee's lifetime, except as provided in the Plan.
7. TERM. This Option shall not be exercisable in any event after the
expiration of ten years from the date of grant hereof. The purchase price of
shares as to which this Option is exercised shall be paid in full at the time of
exercise for the consideration set forth in the Plan. No fraction of a share of
Common Stock shall be issued by the Company upon exercise of an Option or
accepted by the Company in payment of the purchase price thereof.
8. WITHHOLDING OF TAX. To the extent that the exercise of this Option or
the disposition of shares of Common Stock acquired by exercise of this Option
obligates the Company to withhold federal, state or local taxes the Optionee
shall pay such amounts to the Company upon request by delivery of cash or check
or in such other manner as is permitted by the Plan.
9. COMPLIANCE WITH SECURITIES LAWS. Optionee agrees that the shares of
Common Stock which Optionee may acquire by exercising this Option will not be
sold or otherwise disposed of in any manner which would constitute a violation
of any applicable securities laws, whether federal or state. Optionee also
<PAGE>
agrees (i) that the certificates representing the shares of Common Stock
purchased under this Option may bear such legend or legends as the Board of
Directors of the Company deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Common Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel to the Company constitute a violation of any applicable securities
law and (iii) that the Company may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the shares of Common
Stock purchased under this Option.
10. TAX CONSEQUENCES. The grant and/or exercise of the Option will have
federal and state income tax consequences. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER UPON THE GRANT OF THE OPTION AND BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES, PARTICULARLY WITH RESPECT TO HIS OR HER STATE'S TAX
LAWS.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
Optionee.
12. ENTIRE AGREEMENT AND GOVERNING LAW. The Plan is incorporated herein by
reference as a part of this Agreement. The Plan and this Agreement constitute
the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and this
Agreement may not be amended except by means of a writing signed by the Company
and Optionee. In the event of a conflict between the terms and conditions of
this Agreement and the Plan, the terms and conditions of the Plan shall control.
This Agreement is governed by Texas law except for that body of law pertaining
to conflict of laws.
13. MISCELLANEOUS. Optionee acknowledges receipt of a copy of the Plan and
hereby warrants and represents that he or she has reviewed the Plan and this
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Agreement and fully understands all of the
provisions of the Plan and this Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors upon any questions relating to the Plan and this Agreement. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Optionee has executed
this Agreement, all as of the day and year first above written.
<TABLE>
<S> <C>
CAPROCK COMMUNICATIONS CORP.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
----------------------------------------
--------------------- , Optionee
Address:
----------------------------------------
----------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Date of Grant:
-----------
Exercise Price Per Share:
-----------
Total Number of Optioned
Shares:
-----------
Total Exercise Price:
-----------
Type of Option: Nonqualified
Stock Option
Expiration Date:
-----------
</TABLE>
3
<PAGE>
CAPROCK COMMUNICATIONS CORP.
1998 DIRECTOR STOCK OPTION PLAN
EXERCISE NOTICE
CapRock Communications Corp.
Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240-6638
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, , 199 , the
undersigned ("Purchaser") hereby elects to purchase shares (the "Shares")
of the Common Stock of CapRock Communications Corp. (the "Company") under and
pursuant to the 1998 Director Stock Option Plan (the "Plan") and the Director
Stock Option Agreement dated , 199 (the "Option Agreement"). The
per share exercise price for the Shares shall be $ , as specified in the
Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares or .
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares covered by such Option, notwithstanding the exercise
of the Option. A share certificate for the number of Shares so acquired shall be
issued to the Purchaser as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 9 of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchaser or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and the Option Agreement are
incorporated herein by reference. This Exercise Notice, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and this Exercise
<PAGE>
Notice may not be amended except by means of a writing signed by the Company and
Purchaser. This Exercise Notice is governed by Texas law except for that body of
law pertaining to conflict of laws.
<TABLE>
<S> <C>
Submitted by: Accepted by:
PURCHASER CAPROCK COMMUNICATIONS CORP.
By:
- ------------------------------------ ------------------------------------
Signature
Its:
- ------------------------------------ ------------------------------------
Print Name
ADDRESS: ADDRESS:
Two Galleria Tower, Suite 1925
- ------------------------------------
13455 Noel Road
Dallas, Texas 75240-6638
- ------------------------------------
</TABLE>
2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XII of the Registrant's Amended and Restated Articles of
Incorporation provides the following:
"A director of the Corporation shall not be liable to the Corporation or
its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that this Article shall not
authorize the elimination or limitation of the liability of a director to
the extent the director is found liable for:
(1) a breach of the director's duty of loyalty to the Corporation or
its shareholders;
(2) an act or omission not in good faith that constitutes a breach of
duty of the director to the Corporation or an act or omission that
involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office;
(4) an act or omission for which the liability of a director is
expressly provided by an applicable statute."
Article XI of the Registrant's Amended and Restated Articles of
Incorporation provides the following:
"The directors and officers of the Corporation shall be indemnified by
the Corporation in a manner and to the maximum extent permitted by
applicable state or federal law as in effect from time to time."
Section 7.06 of the Registrant's Amended and Restated Bylaws provides the
following:
"The Corporation shall have the authority to and shall indemnify and
advance expenses to the Directors, officers, employees, and agents of the
Corporation or any other persons serving at the request of the
Corporation in such capacities in a manner and to the maximum extent
permitted by applicable state or federal law. The Corporation may
purchase and maintain liability insurance or make other arrangements for
such obligations to the extent permitted by the Texas Business
Corporation Act."
The Texas Business Corporation Act permits, and in some cases requires,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses under certain circumstances.
The Note Purchase Agreement (Exhibit 10.49 hereto) for the sale of the Notes
provides for indemnification by the initial purchasers specified therein of the
Company and its officers and directors, and by the Company of the initial
purchasers specified therein, for certain liabilities arising under the
Securities Act or otherwise.
II-1
<PAGE>
ITEM 21. EXHIBITS
The following exhibits are filed herewith.
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Merger and Plan of Exchange, dated as of February 16, 1998,
by and among IWL Communications, Incorporated, the Registrant, IWL Acquisition
Corp., CapRock Communications Corp., CapRock Acquisition Corp., and CapRock Fiber
Network, Ltd. (collectively, the "Parties"). The schedules to the Agreement and
Plan of Merger and Plan of Exchange and the appendices thereto have been omitted.
The Company will furnish supplementally to the Securities and Exchange Commission
any of the schedules or appendices upon request. (Included as Appendix I to the
Joint Proxy Statement/Prospectus.)
2.2 --First Amendment to Agreement and Plan of Merger and Plan of Exchange, dated as of
April 30, 1998, by and among the Parties. (Included in Appendix I to the Joint
Proxy Statement/Prospectus.)
2.3 --Second Amendment to Agreement and Plan of Merger and Plan of Exchange, dated as of
June 19, 1998, by and among the Parties. (Included in Appendix I to the Joint Proxy
Statement/Prospectus.)
2.4 --Third Amendment to Agreement and Plan of Merger and Plan of Exchange, dated as of
July 8, 1998, by and among the Parties. (Included in Appendix I to the Joint Proxy
Statement/Prospectus.)
3.1 --Articles of Incorporation of the Registrant. (Included as Appendix III to the Joint
Proxy Statement/Prospectus.)
3.2 --Bylaws of the Registrant. (Included as Appendix IV to the Joint Proxy
Statement/Prospectus.)
4.1 --Form of Indenture.
4.2 --Form of Registration Rights Agreement.
4.3 --Common Stock Specimen for shares of Common Stock of the Registrant.+
4.4 --Form of Warrant Agreement between IWL and Cruttenden Roth Incorporated.
(Incorporated by reference to Exhibit 1.2 to the IWL Communications, Incorporated
("IWL") Registration Statement on Form S-1, as amended, File No. 333-22801.)
4.5 --Registration Rights Agreement dated January 22, 1998 between IWL and Nera Limited.+
4.6 --Registration Rights Agreement dated January 22, 1998 by and among IWL, Thomas
Norman Blair and Margaret Helen Blair.+
5.1 --Opinion of Munsch Hardt Kopf Harr & Dinan, P.C. regarding validity of securities
being registered.
8.1 --Opinion of Munsch Hardt Kopf Harr & Dinan, P.C. regarding certain federal income
tax matters.
8.2 --Opinion of Hughes & Luce, L.L.P. regarding certain federal income tax matters.
10.1 --CapRock Communications Corp. 1998 Equity Incentive Plan. (Included as Appendix V to
the Joint Proxy Statement/Prospectus.)
10.2 --CapRock Communications Corp. 1998 Director Stock Option Plan. (Included as Appendix
VI to the Joint Proxy Statement/Prospectus.)
10.3 --Form of IWL Shareholders Agreement, dated February 16, 1998, by and among CapRock
Communications Corp. and each of the shareholders party thereto. (Incorporated by
reference to Exhibit No. 99.2 to Form 8-K, dated February 16, 1998, as filed with
the Commission on March 3, 1998.)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.4 --CapRock Owners Agreement, dated February 16, 1998, by and among the Registrant and
each of the owners party thereto. (Incorporated by reference to Exhibit No. 99.3 to
Form 8-K, dated February 16, 1998, as filed with the Commission on March 3, 1998.)
10.5 --Employment Agreement between the Registrant and Ignatius W. Leonards.+
10.6 --Employment Agreement between the Registrant and Byron M. Allen.+
10.7 --Employment Agreement between the Registrant and Errol Olivier.+
10.8 --Employment Agreement between the Registrant and Richard H. Roberson.+
10.9 --Employment Agreement between the Registrant and Bryan Olivier.+
10.10 --Employment Agreement between the Registrant and Jere W. Thompson, Jr.+
10.11 --Employment Agreement between the Registrant and Scott L. Roberts.+
10.12 --Employment Agreement between the Registrant and Timothy W. Rogers.+
10.13 --Employment Agreement between the Registrant and Timothy M. Terrell.+
10.14 --Employment Agreement between the Registrant and Kevin W. McAleer.+
10.15 --Office Lease Agreement dated May 22, 1996, by and between Ellington Field, Ltd., a
Texas limited partnership and IWL. (Incorporated by reference to Exhibit 10.5 to
the IWL Communications, Incorporated ("IWL") Registration Statement on Form S-1, as
amended, File No. 333-22801.)
10.16 --Satellite Information Network Service Agreement dated May 1, 1994, by and between
IWL and the Information Telegraphy Agency of Russia ITAR-TASS.# (Incorporated by
reference to Exhibit 10.9 to IWL's Registration Statement on Form S-1, as amended,
File No. 333-22801.)
10.17 --Reseller Agreement dated December 31, 1996, by and between Alcatel Network Systems,
Inc. and IWL. (Incorporated by reference to Exhibit 10.10 to IWL's Registration
Statement on Form S-1, as amended, File No. 333-22801.)#
10.18 --Form of Service Agreement. (Incorporated by reference to Exhibit 10.12 to IWL's
Registration Statement on Form S-1, as amended, File No. 333-22801.)
10.19 --Lease Agreement dated November 18, 1996, by and between IWL and CLG, Inc.
(Incorporated by reference to Exhibit 10.13 to IWL's Registration Statement on Form
S-1, as amended, File No. 333-22801.)
10.20 --Promissory Note dated September 20, 1996 payable by IWL to First Bank and Trust,
Cleveland, Texas. (Incorporated by reference to Exhibit 10.15 to IWL's Registration
Statement on Form S-1, as amended, File No. 333-22801.)
10.21 --Loan Agreement and Security Agreement dated December 20, 1995 between IWL and
Marine Midland Business Loans, Inc. (Incorporated by reference to Exhibit 10.16 to
IWL's Registration Statement on Form S-1, as amended, File No. 333-22801.)
10.22 --Second Amendment to Loan and Security Agreement dated as of May 7, 1997, between
IWL and Marine Midland Business Loans, Inc. (Incorporated by reference to Exhibit
10.9 to IWL's Registration Statement on Form S-1, as amended, File No. 333-22801.)
10.23 --Promissory Note dated May 4, 1995 payable by IWL to Byron M. Allen. (Incorporated
by reference to Exhibit 10.17 to IWL's Registration Statement on Form S-1, as
amended, File No. 333-22801.)
10.24 --Letter Agreement dated February 28, 1997, by and between IWL and Marine Midland
Bank as successor-in-interest to Marine Midland Business Loans, Inc. (Incorporated
by reference to Exhibit 10.18 to IWL's Registration Statement on Form S-1, as
amended, File No. 333-22801.)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.25 --Credit Agreement, dated August 1, 1997, executed by and between IWL and Bank One,
Texas, N.A. ("Bank One"). (Incorporated by reference to Exhibit 10.22 to IWL's Form
10K for the year ending June 30, 1997, File No. 0-22293.)
10.26 --Promissory Note, dated August 1, 1997, in the principal amount of $822,000.00,
executed by IWL, and made payable to Bank One. (Incorporated by reference to
Exhibit 10.23 to IWL's Form 10K for the year ending June 30, 1997, File No.
0-22293.)
10.27 --Promissory Note, dated August 1, 1997, in the principal amount of $605,000.00,
executed by IWL, and made payable to Bank One. (Incorporated by reference to
Exhibit 10.24 to IWL's Form 10K for the year ending June 30, 1997, File No.
0-22293.)
10.28 --Collateral Assignment and Security Agreement, dated August 1, 1997, executed by
IWL, as assignor, and Bank One, as assignee. (Incorporated by reference to Exhibit
10.25 to IWL's Form 10K for the year ending June 30, 1997, File No. 0-22293.)
10.29 --Revolving Credit Agreement, dated August 1, 1997, executed by and between IWL and
Bank One. (Incorporated by reference to Exhibit 10.26 to IWL's Form 10K for the
year ending June 30, 1997, File No. 0-22293.)
10.30 --Promissory Note, dated August 1, 1997, in the principal amount of $5,000,000.00,
executed by IWL, and made payable to Bank One. (Incorporated by reference to
Exhibit 10.27 to IWL's Form 10K for the year ending June 30, 1997, File No.
0-22293.)
10.31 --Security Agreement, dated August 1, 1997, executed by IWL, as debtor, and Bank One,
as secured party. (Incorporated by reference to Exhibit 10.28 to IWL's Form 10K for
the year ending June 30, 1997, File No. 0-22293.)
10.32 --Amended and Restated Credit Agreement, dated August 28, 1997, executed by and
between IWL and Bank One. (Incorporated by reference to Exhibit 10.29 to IWL's Form
10K for the year ending June 30, 1997, File No. 0-22293.)
10.33 --Promissory Note, dated August 28, 1997, in the principal amount of $1,055,000.00,
executed by IWL, and made payable to Bank One. (Incorporated by reference to
Exhibit 10.30 to IWL's Form 10K for the year ending June 30, 1997, File No.
0-22293.)
10.34 --Telecommunications Equipment Lease Agreement dated as of June 1, 1997 between IWL
and Diamond Offshore Company. (Incorporated by reference to Exhibit 10.4 to IWL's
Form 10K for the year ending June 30, 1997, File No. 0-22293.)#
10.35 --Sublease dated November 22, 1994 by and between CapRock Communications Corp. (n/k/a
CapRock Telecommunications Corp. ("CapRock")) and Arkwright Mutual Insurance
Company.+
10.36 --Loan and Security Agreement dated March 14, 1996 by and between CapRock and Bank
One, as amended.+
10.37 --Sixth Renewal Extension $2,500,000 Promissory Note dated December 31, 1997 payable
by CapRock to Bank One.+
10.38 --Promissory Note dated April 1, 1994, in the principal amount of $50,000 by CapRock
payable to Timothy M. Terrell.+
10.39 --Promissory Note dated April 1, 1994, in the principal amount of $50,000 by CapRock
payable to Timothy W. Rogers.+
10.40 --Promissory Note dated April 1, 1994, in the principal amount of $50,000 by CapRock
payable to Scott L. Roberts.+
10.41 --Form of CapRock Communications Commercial Application.+
10.42 --Form of CapRock Communications Commercial Agent Application.+
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.43 --Unlimited Guaranty dated March 9, 1996 by Jere W. Thompson, Jr. for the benefit of
Bank One.+
10.44 --Loan Agreement dated July 1, 1996 by and between CapRock Fiber Network, Ltd. (the
"Partnership") and Bank One.+
10.45 --$10,000,000 Promissory Note dated July 1, 1996 by and between the Partnership and
Bank One.+
10.46 --Guaranty dated July 1, 1996 by CapRock Systems, Inc. in favor of Bank One.+
10.47 --Guaranty dated July 1, 1996 by Mark Langdale in favor of Bank One.+
10.48 --Guaranty dated July 1, 1996 by Jere W. Thompson, Jr. in favor of Bank One.+
10.49 --Form of Note Purchase Agreement by and among the Registrant and various initial
purchasers.
10.50 --Form of Contribution Agreement by the General Partner of the Partnership.+
10.51 --First Amendment to Loan Agreement dated July 1, 1996 by and between the Partnership
and Bank One.+
10.52 --Second Amendment to Loan Agreement dated April 29, 1998 by and between the
Partnership and Bank One.+
10.53 --License Agreement dated June 16, 1998 by and between Telecommunications and
RiverRock Systems, Ltd.+
10.54 --Modification Agreement dated as of June 17, 1998 by and between IWL and Bank One.
10.55 --Promissory Note dated June 17, 1998 executed by IWL payable to the order of Bank
One, in the principal amount of $4,000,000.00.
10.56 --Eighth Amendment to Loan and Security Agreement dated as of June 18, 1998 by and
between CapRock and Bank One.
10.57 --Renewal and Extension Promissory Note dated as June 18, 1998 executed by CapRock
payable to the order of Bank One, in the principal amount of $7,000,000.00.
10.58 --Intercompany Promissory Note dated as of June 18, 1998 originally executed by the
Partnership payable to the order of CapRock in the principal amount of
$2,500,000.00 and endorsed by CapRock in favor of Bank One.
10.59 --Ninth Amendment to Loan and Security Agreement dated as July 9, 1998 by and between
the Partnership and Bank One.
10.60 --Third Amendment to Loan Agreement dated as of June 18, 1998 by and between the
Partnership and Bank One.
10.61 --Fourth Amendment to Loan Agreement dated as of July 9, 1998 by and between the
Partnership and Bank One.
10.62 --Form of Escrow Agreement.
16.1 --Letter re: Change in Accountants.+
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of KPMG Peat Marwick LLP.
23.3 --Consent of KPMG Peat Marwick LLP.
23.4 --Consent of KPMG Peat Marwick LLP.
23.5 --Consent of Burds Reed & Mercer, P.C.
23.6 --Consent of Munsch Hardt Kopf Harr & Dinan, P.C. (Included in the opinion filed as
Exhibit 5.1 to this Registration Statement).
</TABLE>
II-5
<PAGE>
<TABLE>
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23.7 --Consent of Hughes & Luce, L.L.P.+
23.8 --Consent of Cruttenden Roth Incorporated.+
24.1 --Power or Attorney.+
27.1 --Financial Data Schedule.+
99.1 --IWL Communications, Incorporated Proxy/Voting Instruction Card.+
99.2 --CapRock Telecommunications Corp. Proxy/Voting Instruction Card.+
99.3 --Consent of John R. Harris.+
</TABLE>
- ------------------------
+ Previously filed.
# Confidential treatment was granted.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of
II-6
<PAGE>
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas, on the 17th day of July, 1998.
<TABLE>
<S> <C> <C>
CAPROCK COMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------------
Jere W. Thompson, Jr.
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chief Executive Officer,
/s/ JERE W. THOMPSON, JR. Chairman of the Board,
- ------------------------------ and Director (Principal July 17, 1998
Jere W. Thompson, Jr. Executive Officer)
Senior Vice President and
* Chief Financial Officer
- ------------------------------ (Principal Accounting July 17, 1998
Kevin W. McAleer Officer)
* President, Vice Chairman
- ------------------------------ of the Board, and July 17, 1998
Ignatius W. Leonards Director
*
- ------------------------------ Executive Vice President July 17, 1998
Byron M. Allen and Director
*
- ------------------------------ Director July 17, 1998
Mark Langdale
*
- ------------------------------ Director July 17, 1998
Timothy W. Rogers
*
- ------------------------------ Director July 17, 1998
Christopher J. Amenson
*By: /s/ JERE W.
THOMPSON, JR.
- ------------------------------
Jere W. Thompson, Jr.
Attorney-in-Fact
II-8
<PAGE>
- --------------------------------------------------------------------------------
CAPROCK COMMUNICATIONS CORP.,
CAPROCK TELECOMMUNICATIONS CORP. AND
CAPROCK FIBER NETWORK, LTD., as Issuer
and
IWL COMMUNICATIONS, INCORPORATED,
as Limited Guarantor
and
PNC BANK, NATIONAL ASSOCIATION, as Trustee
---------------------
INDENTURE
Dated as of July 16, 1998
--------------------
$150,000,000 Aggregate Principal Amount
12% Senior Notes due 2008, Series A
12% Senior Notes due 2008, Series B
- --------------------------------------------------------------------------------
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and Indenture, dated as of July 16, 1998
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
ss.310 (a)(1) . . . . . . . . . . . . . . . . . 6.09
(a)(2) . . . . . . . . . . . . . . . . . 6.09
(a)(3) . . . . . . . . . . . . . . . . . Not applicable
(a)(4) . . . . . . . . . . . . . . . . . Not applicable
(b). . . . . . . . . . . . . . . . . . . 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). . . . . . . . . . . . . . . . . . . 7.04, 10.09
(b). . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . 1.04, 4.02, 4.03,
11.01(c)
(c)(2) . . . . . . . . . . . . . . . . . 1.04, 4.02, 4.03,
11.01(c)
(c)(3) . . . . . . . . . . . . . . . . . Not Applicable
(d). . . . . . . . . . . . . . . . . . . Not Applicable
(e). . . . . . . . . . . . . . . . . . . 1.04, 10.09
ss.315 (a). . . . . . . . . . . . . . . . . . . 6.01(a)
(b). . . . . . . . . . . . . . . . . . . 6.02
(c). . . . . . . . . . . . . . . . . . . 6.01(b)
(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
i
<PAGE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
ss.317 (a)(1) . . . . . . . . . . . . . . . . . 5.03
(a)(2) . . . . . . . . . . . . . . . . . 5.04
(b). . . . . . . . . . . . . . . . . . . 10.03
ss.318 (a). . . . . . . . . . . . . . . . . . . 1.08
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION. . . . . . . . . . . . . . . . . . . . . . .2
Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . .2
Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . 34
Section 1.03. Rules of Construction. . . . . . . . . . . . . . . . . . 35
Section 1.04. Form of Documents Delivered to Trustee . . . . . . . . . 35
Section 1.05. Acts of Holders. . . . . . . . . . . . . . . . . . . . . 36
Section 1.06. Notices, etc., to the Trustee and the Issuer . . . . . . 37
Section 1.07. Notice to Holders; Waiver. . . . . . . . . . . . . . . . 37
Section 1.08. Conflict with Trust Indenture Act. . . . . . . . . . . . 38
Section 1.09. Effect of Headings and Table of Contents . . . . . . . . 38
Section 1.10. Successors and Assigns . . . . . . . . . . . . . . . . . 38
Section 1.11. Separability Clause. . . . . . . . . . . . . . . . . . . 38
Section 1.12. Benefits of Indenture. . . . . . . . . . . . . . . . . . 38
Section 1.13. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 39
Section 1.14. No Recourse Against Others . . . . . . . . . . . . . . . 39
Section 1.15. Independence of Covenants. . . . . . . . . . . . . . . . 39
Section 1.16. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 1.17. Counterparts . . . . . . . . . . . . . . . . . . . . . . 39
Section 1.18. Duplicate Originals. . . . . . . . . . . . . . . . . . . 39
ARTICLE 2 NOTE FORMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 3 THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 3.01. Title and Terms. . . . . . . . . . . . . . . . . . . . . 41
Section 3.02. Registrar and Paying Agent . . . . . . . . . . . . . . . 41
Section 3.03. Execution and Authentication . . . . . . . . . . . . . . 42
Section 3.04. Temporary Notes. . . . . . . . . . . . . . . . . . . . . 43
Section 3.05. Transfer and Exchange. . . . . . . . . . . . . . . . . . 43
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes. . . . . . . 45
Section 3.07. Payment of Interest; Interest Rights Preserved . . . . . 45
Section 3.08. Persons Deemed Owners. . . . . . . . . . . . . . . . . . 46
--
<PAGE>
Section 3.09. Cancellation . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.10. Computation of Interest. . . . . . . . . . . . . . . . . 47
Section 3.11. Legal Holidays . . . . . . . . . . . . . . . . . . . . . 47
Section 3.12. CUSIP and CINS Numbers . . . . . . . . . . . . . . . . . 48
Section 3.13. Paying Agent To Hold Money in Trust. . . . . . . . . . . 48
Section 3.14. Treasury Notes . . . . . . . . . . . . . . . . . . . . . 48
Section 3.15. Deposits of Monies . . . . . . . . . . . . . . . . . . . 48
Section 3.16. Book Entry Provisions for Global Notes . . . . . . . . . 49
Section 3.17. Special Transfer Provisions. . . . . . . . . . . . . . . 50
ARTICLE 4 DEFEASANCE OR COVENANT DEFEASANCE . . . . . . . . . . . . . . . . 53
Section 4.01. Termination of Issuer's Obligations. . . . . . . . . . . 54
Section 4.02. Defeasance and Discharge of Indenture. . . . . . . . . . 54
Section 4.03. Defeasance and Certain Obligations . . . . . . . . . . . 57
Section 4.04. Application of Trust Money . . . . . . . . . . . . . . . 59
Section 4.05. Repayment to Issuer. . . . . . . . . . . . . . . . . . . 59
Section 4.06. Reinstatement. . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 5 REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.01. Events of Default. . . . . . . . . . . . . . . . . . . . 59
Section 5.02. Acceleration of Maturity, Rescission and Annulment . . . 61
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 5.04. Trustee May File Proofs of Claims. . . . . . . . . . . . 63
Section 5.05. Trustee May Enforce Claims Without Possession of Notes . 64
Section 5.06. Application of Money Collected . . . . . . . . . . . . . 64
Section 5.07. Limitation on Suits. . . . . . . . . . . . . . . . . . . 64
Section 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest . . . . . . . . . . . . . . . . . . 65
Section 5.09. Restoration of Rights and Remedies . . . . . . . . . . . 65
Section 5.10. Rights and Remedies Cumulative . . . . . . . . . . . . . 66
Section 5.11. Delay or Omission Not Waiver . . . . . . . . . . . . . . 66
Section 5.12. Control by Majority. . . . . . . . . . . . . . . . . . . 66
Section 5.13. Waiver of Past Defaults. . . . . . . . . . . . . . . . . 67
Section 5.14. Undertaking for Costs. . . . . . . . . . . . . . . . . . 67
Section 5.15. Waiver of Stay, Extension or Usury Laws. . . . . . . . . 67
Section 5.16. Unconditional Right of Holders To Receive Payment. . . . 68
ARTICLE 6 THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
-i-
<PAGE>
Section 6.01. Certain Duties and Responsibilities. . . . . . . . . . . 68
Section 6.02. Notice of Defaults . . . . . . . . . . . . . . . . . . . 69
Section 6.03. Certain Rights of Trustee. . . . . . . . . . . . . . . . 69
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of
Notes or Application of Proceeds Thereof . . . . . . . . 71
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc. . . 71
Section 6.06. Money Held in Trust. . . . . . . . . . . . . . . . . . . 71
Section 6.07. Compensation and Indemnification of Trustee and Its
Prior Claim. . . . . . . . . . . . . . . . . . . . . . . 71
Section 6.08. Conflicting Interests. . . . . . . . . . . . . . . . . . 72
Section 6.09. Corporate Trustee Required; Eligibility. . . . . . . . . 72
Section 6.10. Resignation and Removal; Appointment of Successor
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 6.11. Acceptance of Appointment by Successor . . . . . . . . . 74
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business . . . . . . . . . . . . . . . . . 75
ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER. . . . . . . . . 76
Section 7.01. Preservation of Information; Issuer To Furnish Trustee
Names and Addresses of Holders . . . . . . . . . . . . . 76
Section 7.02. Communications of Holders. . . . . . . . . . . . . . . . 76
Section 7.03. Reports by Trustee . . . . . . . . . . . . . . . . . . . 77
Section 7.04. Reports by Issuer. . . . . . . . . . . . . . . . . . . . 77
ARTICLE 8 CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. . . . . . . . . . . . 78
Section 8.01. Issuer May Consolidate, etc., Only on Certain Terms. . . 78
Section 8.02. Successor Substituted. . . . . . . . . . . . . . . . . . 79
ARTICLE 9 SUPPLEMENTAL INDENTURES AND WAIVERS . . . . . . . . . . . . . . . 79
Section 9.01. Supplemental Indentures, Agreements and Waivers Without
Consent of Holders . . . . . . . . . . . . . . . . . . . 79
Section 9.02. Supplemental Indentures, Agreements and Waivers With
Consent of Holders . . . . . . . . . . . . . . . . . . . 80
Section 9.03. Execution of Supplemental Indentures, Agreements and
Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.04. Effect of Supplemental Indentures. . . . . . . . . . . . 82
Section 9.05. Conformity with Trust Indenture Act. . . . . . . . . . . 82
Section 9.06. Reference in Notes to Supplemental Indentures. . . . . . 82
Section 9.07. Record Date. . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.08. Revocation and Effect of Consents. . . . . . . . . . . . 83
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ARTICLE 10 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 10.01. Payment of Principal, Premium and Interest . . . . . . . 83
Section 10.02. Maintenance of Office or Agency. . . . . . . . . . . . . 83
Section 10.03. Money for Note Payments To Be Held In Trust. . . . . . . 84
Section 10.04. Corporate Existence. . . . . . . . . . . . . . . . . . . 85
Section 10.05. Payment of Taxes and Other Claims. . . . . . . . . . . . 86
Section 10.06. Maintenance of Properties. . . . . . . . . . . . . . . . 86
Section 10.07. Insurance. . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.08. Books and Records. . . . . . . . . . . . . . . . . . . . 87
Section 10.09. Compliance Certificates and Opinions . . . . . . . . . . 87
Section 10.10. Repurchase of Notes Upon a Change of Control . . . . . . 88
Section 10.11. Limitation on Indebtedness . . . . . . . . . . . . . . . 88
Section 10.12. Statement by Officers as to Default. . . . . . . . . . . 88
Section 10.13. Limitation on Restricted Payments. . . . . . . . . . . . 89
Section 10.14. Limitation on Transactions with Stockholders and
Affiliates . . . . . . . . . . . . . . . . . . . . . . . 93
Section 10.15. Limitation on Asset Sales. . . . . . . . . . . . . . . . 94
Section 10.16. Limitation on Liens. . . . . . . . . . . . . . . . . . . 95
Section 10.17. Business Activities Prior to the Transaction . . . . . . 96
Section 10.18. Limitation on the Issuance and Sale of Capital Stock
of Restricted Subsidiaries . . . . . . . . . . . . . . . 97
Section 10.19. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. . . . . . . . . . . . 98
Section 10.20. Limitation on Sale Leaseback Transactions. . . . . . . .100
Section 10.21. Special Offer to Purchase. . . . . . . . . . . . . . . .100
Section 10.22. Commission Reports and Reports to Holders. . . . . . . .101
Section 10.23. Limitation on Issuances of Guarantees by Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . .101
ARTICLE 11 SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . .102
Section 11.01. Satisfaction and Discharge of Indenture. . . . . . . . .102
Section 11.02. Application of Trust Money . . . . . . . . . . . . . . .103
ARTICLE 12 REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Section 12.01. Right of Redemption; Mandatory Redemption. . . . . . . .104
Section 12.02. Notice to the Trustee. . . . . . . . . . . . . . . . . .104
Section 12.03. Selection of Notes to be Redeemed. . . . . . . . . . . .104
Section 12.04. Notice of Redemption . . . . . . . . . . . . . . . . . .105
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Section 12.05. Effect of Notice of Redemption . . . . . . . . . . . . .106
Section 12.06. Deposit of Redemption Price. . . . . . . . . . . . . . .106
Section 12.07. Notes Redeemed in Part . . . . . . . . . . . . . . . . .106
ARTICLE 13 LIMITED GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . .107
Section 13.01. Limited Guarantee of Notes . . . . . . . . . . . . . . .107
</TABLE>
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<PAGE>
INDENTURE, dated as of July 16, 1998, among CAPROCK
COMMUNICATIONS CORP. ("Communications" or the "Company"), CAPROCK
TELECOMMUNICATIONS CORP. ("Telecommunications"), CAPROCK FIBER NETWORK, LTD.
(the "Partnership"), IWL COMMUNICATIONS, INCORPORATED ("IWL" or the "Limited
Guarantor") and PNC BANK, NATIONAL ASSOCIATION, (the "Trustee").
RECITALS
Each of the Company, Telecommunications and the Partnership
has duly authorized the creation of an issue of (i) 12% Senior Notes due 2008,
Series A (the "Initial Notes"), and (ii) 12% Senior Notes due 2008, Series B, to
be issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement (the "Exchange Notes" and, together with the Initial Notes and the
Private Exchange Notes, the "Notes", treated as a single class of securities
under this Indenture), of substantially the tenor and amount hereinafter set
forth, and to provide therefor each of the Company, Telecommunications and the
Partnership has duly authorized the execution and delivery of this Indenture.
IWL has duly authorized its limited guarantee of the
Company's, Telecommunications' and the Partnership's obligations in connection
with the Special Offer to Purchase set forth in Section 10.21 of this Indenture
and in connection therewith has duly authorized the execution and delivery of
this Indenture.
All things necessary have been done to make the Notes, when
executed by each of the Company, Telecommunications and the Partnership and
authenticated and delivered hereunder and duly issued by each of the Company,
Telecommunications and the Partnership, the valid obligations of each of the
Company, Telecommunications and the Partnership and to make this Indenture a
valid agreement of each of the Company, Telecommunications, the Partnership, IWL
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 (as hereinafter defined) thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of all Holders of
the Notes, as follows:
<PAGE>
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. DEFINITIONS.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by the Issuer or 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 the
transaction by which such Person becomes a Restricted Subsidiary or such Asset
Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Issuer and its Restricted Subsidiaries for
such period (which calculation shall include the combined aggregate consolidated
net income (or loss) of Telecommunications, the Partnership and IWL and their
respective Restricted Subsidiaries during the Transition Period in the event the
Transaction is consummated) determined in conformity with GAAP; PROVIDED that
the following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication):
(i) the net income (or loss) of any Person (other than a
Restricted Subsidiary) in which any Person (other than the Issuer or
any of its Restricted Subsidiaries) has a joint interest and the net
income (or loss) of any Unrestricted Subsidiary, except
(x) with respect to net income, to the extent of
the amount of dividends or other distributions actually paid
in cash to the Issuer or any of its Restricted Subsidiaries by
such other Person or such Unrestricted Subsidiary during such
period and
(y) with respect to net losses, to the extent of
the amount of cash contributed by the Issuer or any Restricted
Subsidiary to such Person during such period;
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(ii) the net income (or loss) of any Person acquired by
the Issuer or any of its Restricted Subsidiaries in a
pooling-of-interests transaction for any period prior to the date of
the related acquisition;
(iii) the net income of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary;
(iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales;
(v) any net after-tax extraordinary or non-recurring
gains or losses;
(vi) any gain or loss, net of taxes, realized upon the
termination of any employee benefit plan; and
(vii) any compensation or other expense paid or payable
solely with Capital Stock (other than Redeemable Stock) of the Issuer
or any options, warrants or other rights to acquire such Capital Stock.
"Adjusted Consolidated Net Tangible Assets" means the total
amount of assets of the Issuer and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), minus (i) all current
liabilities of the Issuer and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recent quarterly or annual consolidated balance sheet of the
Issuer and its Restricted Subsidiaries, prepared in conformity with GAAP and
filed with the Commission or provided to the Trustee pursuant to Section 10.22
hereof.
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<PAGE>
"Affiliate" means, with respect to any specified Person, any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person. For the purposes of this
definition, "control," when used with respect to any specified Person, means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Acquisition" means (i) an investment by the Issuer or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary or shall be merged into or
consolidated with the Issuer or any of its Restricted Subsidiaries; provided
that such Person's primary business is related, ancillary or complementary to
the businesses of the Issuer and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Issuer or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Issuer or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Issuer and its Restricted Subsidiaries on the date of such acquisition. The
term does not include the Transaction or the Special Partnership Transaction.
"Asset Disposition" means the sale or other disposition by the
Issuer or any of its Restricted Subsidiaries (other than to the Issuer or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary or (ii) all or substantially all of the
assets of a division or line of business of the Issuer or any of its Restricted
Subsidiaries. The term does not include the Transaction or the Special
Partnership Transaction.
"Asset Sale" means any direct or indirect sale, transfer or
lease or other disposition (including by way of merger, consolidation or
sale-leaseback transaction) in one transaction or a series of related
transactions by the Issuer or any of its Restricted Subsidiaries to any Person
other than the Issuer or any of its Restricted Subsidiaries of:
(i) all or any of the Capital Stock of any Restricted
Subsidiary,
(ii) all or substantially all of the property and assets
of an operating unit or business of the Issuer or any of its Restricted
Subsidiaries, or
(iii) any other property and assets of the Issuer or any of
its Restricted Subsidiaries outside the ordinary course of business of
the Issuer or such Restricted
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<PAGE>
Subsidiary other than the Capital Stock of or Investment in an
Unrestricted Subsidiary
that, with respect to each of (i), (ii) and (iii), is not governed Article Eight
hereof; provided that "Asset Sale" shall not include:
(a) sales, transfers or other dispositions of
assets, whether in one transaction or a series of related
transactions occurring within one year, involving assets with
a fair market value not in excess of $1.0 million in any
transaction or series of related transactions,
(b) contemporaneous exchanges by the Issuer or
any Restricted Subsidiary of Telecommunications Assets for
other Telecommunications Assets in the ordinary course of
business, including fiber swaps and partitioning of switches;
provided that the applicable Telecommunications Assets
received by the Issuer or such Restricted Subsidiary have at
least substantially equal fair market value to the
Telecommunications Assets disposed of,
(c) sales, transfers or other dispositions of
assets that have become uneconomic, obsolete or worn-out, or
(d) the Transaction or the Special Partnership
Transaction.
"Average Life" means, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Bankruptcy Law" means Title 11, United States Code, or any
similar federal or state law relating to bankruptcy, insolvency, receivership,
or relief of debtors or the law of any other jurisdiction relating to
bankruptcy, insolvency, or relief of debtors or any amendment to, succession to
or change in any such law.
"Board of Directors" means, with respect to any Person, its
Board of Directors, general partner(s), manager(s), or similar governing body.
"Board Resolution" means a copy of a resolution delivered to
the Trustee that is certified by the Secretary or an Assistant Secretary of the
Issuer (or the general partner of
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<PAGE>
the Issuer) to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification.
"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 in Philadelphia, Pennsylvania are authorized or obligated by
law, regulation or executive order to close.
"Calculation Date" means, with respect to the Incurrence of
any Indebtedness by the Issuer or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether outstanding on
the Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present
value of the rental obligations under a Capitalized Lease.
"Cedel" means Cedel Bank, Societe Anonyme.
"Change of Control" shall be deemed to occur if, after the
Transaction occurs:
(i) the sale, conveyance, transfer or lease of all or
substantially all of the assets of the Issuer to any Person or "group"
(as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act, including any group acting for the purpose of acquiring, holding
or disposing of securities within the meaning of Rule 13d-5(b)(1) under
the Exchange Act), other than to one or more Permitted Holders and/or
one or more Restricted Subsidiaries, shall have occurred,
(ii) any Person or "group" (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act including any group
acting for the purpose of
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<PAGE>
acquiring, holding or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act), other than any Permitted
Holder (or group that includes a Permitted Holder), becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 50% of the total voting power of all classes of the Voting
Stock of the Issuer (including any warrants, options or rights to
acquire such Voting Stock), calculated on a fully diluted basis,
(iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors of the Issuer (together with any directors whose election
or appointment by the Board of Directors of the Issuer 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 of Directors of the Issuer
then in office or
(iv) the merger, amalgamation or consolidation of the
Issuer with or into another Person or the merger of another Person with
or into the Issuer shall have occurred, and the securities of the
Issuer that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock
of the Issuer are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving Person that represent, immediately after
giving effect to such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving Person.
"Closing Date" means the date on which the Notes are
originally issued under this Indenture.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's equity, other than Preferred
Stock of such Person, whether outstanding on the Closing Date or issued
thereafter, including, without limitation, all series and classes of such common
stock.
"Consolidated EBITDA" means, for any period, Adjusted
Consolidated Net Income for such period plus, to the extent such amount was
deducted in calculating such Adjusted Consolidated Net Income,
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<PAGE>
(i) Consolidated Interest Expense,
(ii) income taxes (other than income taxes (either
positive or negative) attributable to extraordinary and non-recurring
gains or losses or sales of assets),
(iii) depreciation expense,
(iv) amortization expense,
(v) all other non-cash items reducing Adjusted
Consolidated Net Income (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP
to be, made), and
(vi) costs directly related to the Transaction, the
Special Partnership Transaction or the offering of the Notes and
expensed by the Issuer in accordance with GAAP on or prior to December
31, 1998,
less all non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for the Issuer and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding Common Stock of such Restricted Subsidiary
not owned on the last day of such period by the Issuer or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, without
duplication, the aggregate amount of interest in respect of Indebtedness,
including, without limitation:
(i) amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method
of accounting;
(ii) all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance
financing;
(iii) the net costs associated with Interest Rate
Agreements;
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<PAGE>
(iv) Preferred Stock dividends of the Issuer's Restricted
Subsidiaries (other than dividends paid in shares of Preferred Stock
that are not Redeemable Stock) declared and paid or payable;
(v) accrued Redeemable Stock dividends of the Issuer and
its Restricted Subsidiaries, whether or not declared or paid; and
(vi) the interest component of rentals in respect of
Capitalized Lease Obligations paid, accrued or scheduled to be paid or
to be accrued by the Issuer and its Restricted Subsidiaries during such
period;
EXCLUDING, HOWEVER, (a) any amount of such interest of any Restricted Subsidiary
if the net income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof) and (b) any premiums, fees
and expenses (and any amortization thereof) payable in connection with the
offering of the Notes and the Transaction and the Special Partnership
Transaction, all as determined on a consolidated basis (without taking into
account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Calculation Date,
the ratio of (i) the aggregate amount of Indebtedness of the Issuer and its
Restricted Subsidiaries on a consolidated basis outstanding on such Calculation
Date to (ii) the aggregate amount of Consolidated EBITDA for the then most
recent four fiscal quarters for which financial statements of the Issuer have
been filed with the Commission or provided to the Trustee pursuant to Section
10.22 hereof or, if such financial statements do not cover the most recent four
fiscal quarters, then the most recent four fiscal quarters for (x) the Company
(if the Transaction has occurred) giving pro forma effect to the Transaction as
if it occurred at the beginning of such four fiscal quarter period or (y)
Telecommunications and the Partnership on a combined basis (if the Special Offer
to Purchase has occurred), prepared in accordance with GAAP, (such four fiscal
quarter period being the "Four Quarter Period"); provided that, in making the
foregoing calculation, (A) PRO FORMA effect shall be given to any Indebtedness
to be Incurred or repaid on the Calculation Date; (B) PRO FORMA effect shall be
given to Asset Dispositions and Asset Acquisitions (including giving PRO FORMA
effect to the application of proceeds of any Asset Disposition) that occur from
the beginning of the Four Quarter Period through the Calculation Date (the
"Reference Period"), as if they had occurred and such proceeds had been applied
on the first day of such Reference Period; and (C) PRO FORMA effect shall be
given to asset dispositions and asset acquisitions (including giving PRO FORMA
effect to the application of proceeds of any asset disposition) that have been
made by any
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<PAGE>
Person that has become a Restricted Subsidiary or has been merged with or into
the Issuer or any Restricted Subsidiary during such Reference Period and that
would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if such
asset dispositions or asset acquisitions had occurred on the first day of such
Reference Period; provided that to the extent that clause (B) or (C) of this
sentence requires that PRO FORMA effect be given to an Asset Acquisition or
Asset Disposition, such PRO FORMA calculation shall be based upon the four full
fiscal quarters immediately preceding the Calculation Date of the Person, or
division or line of business of the Person, that is acquired or disposed of for
which financial information is available.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Issuer and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Redeemable Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the outstanding principal amount of any promissory notes receivable from the
sale of the Capital Stock of the Issuer or any of its Restricted Subsidiaries,
each item to be determined in conformity with GAAP (excluding the effects of
foreign currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Corporate Trust Office" means the principal 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 1600 Market Street, 30th Floor, Philadelphia,
Pennsylvania 19103, Attention: Corporate Trust Department, or at any other time
at such other address as the Trustee may designate from time to time by notice
to the Holders.
"Credit Facilities" means any senior commercial term loan
and/or revolving credit or working capital facility or any letter of credit
facility entered into principally with commercial banks and/or other financial
institutions typically party to commercial loan agreements.
"Currency Agreement" means any spot or forward foreign
exchange contract, currency swap agreement, currency option or other similar
financial agreement or arrangement entered into by the Issuer or any of its
Subsidiaries designed solely to protect against or manage exposure to
fluctuations in currency exchange rates.
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"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.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default. The Issuer is in "Default"
during the continuance of such an event.
"Depository" means The Depository Trust Company and its
nominees and successors.
"Disinterested Director" means, with respect to any matter, a
member of the Board of Directors who does not have any material direct or
indirect financial interest in or with respect to such matter.
"Escrow Account" shall have the meaning set forth in the
Escrow Agreement.
"Escrow Agreement" means the Escrow and Security Agreement,
dated as of the Closing Date, among the Company, Telecommunications, the
Partnership, IWL and the Trustee.
"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 12% Senior Notes due 2008, 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 the price that would be paid in an
arm's-length transaction between a willing seller under no compulsion to sell
and a willing buyer under no compulsion to buy, as determined in good
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faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of clause (viii) of
the definition of "Permitted Indebtedness", (x) the fair market value of any
security registered under the Exchange Act shall be the average of the closing
prices, regular way, of such security for the 20 consecutive trading days
immediately preceding the capital contribution or sale of Capital Stock and (y)
in the event the aggregate fair market value of any other property (other than
cash or cash equivalents) received by the Issuer exceeds $10 million, the fair
market value of such property shall be determined by a nationally recognized
investment banking firm (selected by the Board of Directors of the Issuer) and
set forth in their written opinion which shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the
United States of America in effect on the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Global Notes" means one or more of the Regulation S Global
Notes and/or the 144A Global Notes.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services (unless such purchase arrangements are on arm's-length
and are entered into in the ordinary course of business), to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
purposes of assuring in any other manner the obligee of such Indebtedness 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
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in the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guaranteed Indebtedness" has the meaning given it under
Section 10.23 hereof.
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness. The terms "Incurrence" and
"Incurred" shall have corresponding meanings.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication):
(i) all indebtedness of such Person for borrowed money,
(ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(iii) all obligations of such Person in respect of letters
of credit, acceptance facilities or other similar instruments
(including reimbursement obligations with respect thereto),
(iv) all obligations of such Person to pay the deferred
and unpaid purchase price of property or services, which purchase price
is due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services,
(v) all Capitalized Lease Obligations of such Person,
(vi) all Indebtedness of other Persons secured by a Lien
on any asset of such Person, whether or not such Indebtedness is
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assumed by such Person; provided that the amount of such Indebtedness
shall be the lesser of (A) the fair market value of such asset at such
date of determination and (B) the amount of such Indebtedness,
(vii) all Indebtedness of other Persons and all dividends
and distributions of another Person the payment of which, in either
case, such Person has Guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise,
(viii) all Redeemable Stock of such Person valued at its
maximum fixed repurchase price plus (to the extent not otherwise
included in such repurchase price) accrued and unpaid dividends
payable prior to the Stated Maturity of the Notes in connection with a
mandatory redemption or in connection with a redemption at the option
of the holder thereof unless such Redeemable Stock has actually been
called for redemption but not yet redeemed, in which case it shall be
valued at the redemption price therefor plus such accrued and unpaid
dividends unless the holder thereof can require redemption or
repurchase at any higher price, and
(ix) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements.
The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation.
Notwithstanding anything herein to the contrary:
(A) the amount outstanding at any time of any
Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at the time of its
issuance, as determined in conformity with GAAP,
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(B) money borrowed and set aside at the time of the
Incurrence of any Indebtedness or thereafter in order to refund the
payment of the interest on such Indebtedness shall not be deemed to be
"Indebtedness,"
(C) Indebtedness shall not include any liability for
federal, state, local or other taxes,
(D) Indebtedness shall not include any Trade Payable or
amounts due under leases that are not Capitalized Lease Obligations,
(E) Indebtedness shall not include amounts due with
respect to any customer advance payments and customer deposits in the
ordinary course of business with the Issuer or any Restricted
Subsidiary, and
(F) Indebtedness shall not include overdrafts.
For purposes hereof, the "maximum fixed repurchase price" of
any Redeemable Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock as if such
Redeemable Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to this Indenture, and if such price is based
upon, or measured by, the fair market value of such Redeemable Stock, such fair
market value shall be determined in good faith by the Board of Directors of the
issuer of such Redeemable Stock.
"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 Issuer,
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 to pay 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
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Section 6.07 hereof) and the Holders of the Notes under this Indenture and the
Notes, according to the terms hereof and thereof.
"Initial Notes" means the 12% Senior Notes due 2008, Series A,
of the Issuer.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and Banc
One 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.
"interest," when used with respect to any Note, means 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(g) and (h) hereof or which would have accrued but for any such
event, whether or not claims for such interest are allowable under applicable
law.
"Interest Payment Date" means, when used with respect to any
Note, the Stated Maturity of an installment of interest on such Note, as set
forth in such Note.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement.
"Investment" in any Person means 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 way of Guarantee or similar arrangement) or any capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other
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Investment), held by the Issuer or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary at the time it so
ceases to be a Restricted Subsidiary, including, without limitation, by reason
of any transaction permitted by clause (c) of Section 10.18 hereof. For
purposes of the definition of "Unrestricted Subsidiary" and Section 10.13
hereof, (i) "Investment" shall include the fair market value of the assets (net
of liabilities (other than liabilities to the Issuer or any of its
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the Issuer or any
of its Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from any Person shall be valued at its fair market value at
the time of such transfer.
"Issue Date" means the original date of issuance of the Notes.
"Issuer" shall initially mean, collectively, the Company,
Telecommunications and the Partnership and shall mean (i) the Company after the
Transaction is consummated, or (ii) Telecommunications and the Partnership after
the payment of all Notes tendered in the Special Offer to Purchase pursuant to
Section 10.21 hereof, if any Notes remain outstanding. To the extent financial
calculations are made with respect to the Issuer following the closing of the
Transaction for any period or as of any date prior to the closing of the
Transaction, those calculations should include the transactions, financial
results or financial status of Telecommunications, the Partnership and IWL for
such period or as of such date.
"Issuer Request" or "Issuer Order" means a written request or
order delivered to the Trustee that is signed in the name of the Issuer by its
(or its general partner's) Chairman of the Board, Vice-Chairman, Chief Executive
Officer, President or Vice President, and by its (or its general partner's)
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien (statutory or other) or charge of any kind (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof or any agreement to give any security interest). The term
"Lien" does not include any lease or grant of rights to use any fiber or other
asset under an arrangement that does not qualify as
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a conditional sale or other title retention agreement or lease in the nature
thereof or a switch partition.
"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.
"Merger Agreement" means that certain Agreement and Plan of
Merger and Plan of Exchange dated as of February 16, 1998 among the Company,
Telecommunications, the Partnership, IWL and certain other parties thereto, as
amended through the Closing Date and thereafter as amended in accordance with
the terms of this Indenture.
"Moody's" means Moody's Investors Service.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Issuer or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Issuer and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Issuer or any Restricted Subsidiary as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP, and
(b) with respect to any capital contribution or issuance or sale of Capital
Stock, options, warrants or other rights to acquire Capital Stock or
Indebtedness, the proceeds of such capital contribution or issuance or sale in
the form of cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Issuer or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement
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agents' fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes payable as a
result thereof.
"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.
"Offer to Purchase" means an offer by the Issuer to purchase
Notes from the Holders commenced by mailing a notice to the Trustee and each
Holder stating:
(i) the covenant pursuant to which the offer is being
made and that all Notes validly tendered will be accepted for payment
on a pro rata basis;
(ii) the purchase price and the date of purchase (which
shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed);
(iii) that any Note not tendered will continue to accrue
interest pursuant to its terms;
(iv) that, unless the Issuer defaults in the payment of
the purchase price, any Note accepted for payment pursuant to the Offer
to Purchase shall cease to accrue interest on and after the Payment
Date;
(v) that Holders electing to have a Note purchased
pursuant to the Offer to Purchase will be required to surrender the
Note, together with the form entitled "Option of the Holder to Elect
Purchase" on the reverse side of the Note completed, to the Paying
Agent at the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment Date;
(vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the third Business Day immediately preceding the Payment
Date, a facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such
Notes purchased; and
(vii) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered; PROVIDED that each Note
purchased and each new Note issued shall be in a principal amount of
$1,000 or integral multiples thereof.
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On the Payment Date, the Issuer shall (i) accept for payment
on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Issuer. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; PROVIDED that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Issuer will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Issuer will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Issuer is
required to repurchase Notes pursuant to an Offer to Purchase.
"Offering Memorandum" means the Offering Memorandum dated July
10, 1998 pursuant to which the Notes were offered.
"Officer" means, with respect to the Issuer, its (or its
general partner's) Chairman of the Board, Vice Chairman, President, Vice
President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer.
"Officers' Certificate" means a certificate delivered to the
Trustee that is signed by the Chairman of the Board, a Vice Chairman, the
President or a Vice President, and by the Secretary, an Assistant Secretary, the
Treasurer or an Assistant Treasurer of the Issuer (or its general partner).
"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 Issuer or the Trustee, 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:
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(a) Notes theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) 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 Issuer or any Affiliate thereof) in
trust or set aside and segregated in trust by the Issuer or any Affiliate
thereof (if the Issuer or such Affiliate shall act as Paying Agent) for the
Holders of such 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 reasonably satisfactory to the Trustee has been made;
(c) Notes with respect to which the Issuer has effected
defeasance or covenant defeasance as provided in Article Four, to the extent
provided in Sections 4.02 and 4.03 hereof; and
(d) 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 reasonably satisfactory to it that such Notes are held by a bona fide
purchaser in whose hands the Notes are valid obligations of the Issuer;
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 Issuer or any other obligor upon the Notes or any Affiliate of the Issuer 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 actually knows to be so owned
shall be so disregarded. The Issuer shall notify the Trustee, in writing, when
it repurchases 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 reasonable satisfaction of the Trustee the pledgee's right so to act with
respect to such Notes and that the pledgee is not the Issuer or any other
obligor upon the Notes or any Affiliate of the Issuer 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.
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"Payment Date" means the date on which any Note is purchased
pursuant to an Offer to Purchase or the Special Offer to Purchase.
"Permitted Holders" means Jere W. Thompson, Sr., Jere W.
Thompson, Jr., Mark Langdale, Timothy W. Rogers, Scott L. Roberts, Timothy M.
Terrell and Ignatius W. Leonards and any corporation, limited liability company,
partnership, joint venture or other entity controlled by any one or more of
them.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Issuer pursuant to the Notes;
(ii) Indebtedness owed (A) to the Issuer and evidenced by
an unsubordinated promissory note or (B) to any Restricted
Subsidiaries; provided that such Indebtedness to any Restricted
Subsidiary is subordinated in right of payment from and after such time
as the Notes shall become due and payable (whether at Stated Maturity,
by acceleration or otherwise); provided further any event which results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any subsequent transfer of such Indebtedness (other than to the
Issuer or another Restricted Subsidiary) shall be deemed, in each case,
to constitute an Incurrence of such Indebtedness not permitted by this
clause (ii);
(iii) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then outstanding
Indebtedness (other than Indebtedness Incurred under clause (ii), (iv),
(vi) or (xii) of this definition of "Permitted Indebtedness") and any
refinancings of such new Indebtedness in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees
and expenses); provided that Indebtedness the proceeds of which are
used to refinance or refund the Notes or Indebtedness that is PARI
PASSU in right of payment with, or subordinated in right of payment to,
the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be
refinanced is PARI PASSU in right of payment with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is
expressly made PARI PASSU in right of payment with, or subordinate in
right of payment to, the remaining Notes, (B) in case the Indebtedness
to be refinanced is subordinated in right of payment to the Notes, such
new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the
Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such new Indebtedness, determined as
of the date of Incurrence of such new Indebtedness, does
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not mature prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness
is at least equal to the remaining Average Life of the Indebtedness to
be refinanced or refunded; and provided further that in no event may
Indebtedness of the Issuer be refinanced by means of any Indebtedness
of any Restricted Subsidiary pursuant to this clause (iii);
(iv) Indebtedness (A) to reimburse workers' compensation
insurance companies for claims paid by such companies on behalf of the
Issuer or any Restricted Subsidiary in accordance with the policies
issued to the Issuer and the Restricted Subsidiaries, (B) in respect of
performance, surety or appeal bonds or similar obligations provided in
the ordinary course of business, or (C) under Currency Agreements and
Interest Rate Agreements; provided that such agreements (I) are
designed solely to protect the Issuer or its Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and
(II) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder or (D) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Issuer or any of its
Restricted Subsidiaries pursuant to such agreements, in each case
Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary (other than Guarantees of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition),
in a principal amount not to exceed the gross proceeds actually
received by the Issuer or any Restricted Subsidiary in connection with
such disposition;
(v) Indebtedness of the Issuer, to the extent the net
proceeds thereof are promptly used to purchase Notes tendered in the
Special Offer to Purchase or in an Offer to Purchase made as a result
of a Change of Control or Indebtedness of the Issuer or any Restricted
Subsidiary to the extent the net proceeds thereof are promptly
deposited to defease all of the Notes as described in Article Four
hereof;
(vi) Guarantees of the Notes and Guarantees of
Indebtedness of the Issuer by any Restricted Subsidiary; provided that
the Guarantee of such Indebtedness is permitted by and made in
accordance with Section 10.23 hereof.
(vii) Acquired Indebtedness and any Indebtedness issued in
exchange for, or the net proceeds of which are used to refinance or
refund, such Acquired Indebtedness in an amount not to exceed the
amount so refinanced or refunded (plus premium, accrued
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interest, and reasonable fees and expenses) in an aggregate amount not
to exceed at any one time outstanding $25 million;
(viii) (A) Indebtedness of the Issuer not to exceed, at any
one time outstanding, two times the Net Cash Proceeds received by the
Issuer after the Closing Date (and, in the event the Transaction is
consummated, the aggregate Net Cash Proceeds received by
Telecommunications, the Partnership and IWL during the Transition
Period) as a capital contribution or from the issuance and sale of its
Capital Stock (other than Redeemable Stock) or options, warrants or
other rights to acquire Capital Stock (other than Redeemable Stock) to
a Person that is not a Subsidiary of the Issuer (or Telecommunications,
the Partnership or IWL, if applicable), to the extent such Net Cash
Proceeds have not been used pursuant to Section 10.13(a)(iii)(2) or
Sections 10.13(b)(iii), (iv) or (vi) hereof to make a Restricted
Payment less any Indebtedness Incurred pursuant to clause (B), (B)
Indebtedness Incurred by (x) the Issuer and/or (y) any of the
Restricted Subsidiaries in an aggregate amount not to exceed, at any
one time outstanding, the Net Cash Proceeds received by the Issuer
after the Closing Date (and, in the event the Transaction is
consummated, the aggregate Net Cash Proceeds received by
Telecommunications, the Partnership and IWL during the Transition
Period) as a capital contribution or from the issuance and sale of its
Capital Stock (other than Redeemable Stock) or options, warrants or
other rights to acquire Capital Stock (other than Redeemable Stock) to
a Person that is not a Subsidiary of the Issuer (or Telecommunications,
the Partnership or IWL, if applicable), to the extent such Net Cash
Proceeds have not been used pursuant to Section 10.13(a)(iii)(2) or
Sections 10.13(b)(iii), (iv) or (vi) hereof to make a Restricted
Payment; provided that the Incurrence of Indebtedness pursuant to this
clause (B) will only be permitted to the extent that such Incurrence
does not cause the amount of Indebtedness Incurred pursuant to clause
(A) to exceed the amount permitted thereunder, and (C) Indebtedness of
the Issuer not to exceed, at any one time outstanding, 100% of the fair
market value of property (other than cash and cash equivalents)
received by the Issuer after the Closing Date (and, in the event the
Transaction is consummated, by Telecommunications, the Partnership or
IWL during the Transition Period) from a contribution of capital or the
proceeds from the sale of its Capital Stock (other than Redeemable
Stock) or options, warrants or other rights to acquire Capital Stock
(other than Redeemable Stock) to a Person that is not the Issuer (or
Telecommunications, the Partnership or IWL, if applicable) or a
Restricted Subsidiary, to the extent such capital contribution or sale
of Capital Stock or options, warrants or rights have not been used
pursuant to Section 10.13(b)(iii), (iv) or (ix) hereof to make a
Restricted Payment; provided that such Indebtedness does not mature
prior to the Stated Maturity of the Notes and has an Average Life
longer than the Notes;
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(ix) Indebtedness under one or more Credit Facilities or
Vendor Credit Facilities; provided that the aggregate principal amount
of any Indebtedness incurred pursuant to this clause (ix) (including
any amounts refinanced or refunded under this clause (ix)) does not
exceed at any time outstanding the greater of (x) 85% of eligible
accounts receivable and 65% of eligible inventory of the Issuer and its
Restricted Subsidiaries as of the last fiscal quarter for which
financial statements are prepared or (y) $100 million less any amount
of such Indebtedness permanently repaid as provided under Section 10.15
hereof;
(x) Indebtedness existing as of the Closing Date and
Indebtedness existing as of the date of consummation of the Transaction
or the Special Partnership Transaction (to the extent such Indebtedness
is incurred without violation of this Indenture);
(xi) Capitalized Lease Obligations in an aggregate
principal amount outstanding at any time not to exceed $10 million; and
(xii) Indebtedness of the Issuer (in addition to
Indebtedness permitted under clauses (i) through (xi) above) in the
aggregate principal amount outstanding at any time not to exceed $50
million, less any amount of such Indebtedness permanently repaid as
provided under Section 10.15 hereof.
"Permitted Investment" means any of the following:
(i) an Investment in the Issuer or a Restricted
Subsidiary or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the
Issuer or a Restricted Subsidiary; provided that such Person's primary
business is related, ancillary or complementary to the businesses of
the Issuer and its Restricted Subsidiaries on the date of such
Investment;
(ii) a Temporary Cash Investment;
(iii) commission, payroll, travel, relocation and similar
advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses in accordance with GAAP;
(iv) stock, obligations or securities received in
satisfaction of judgments or settlement of disputed accounts receivable
that arose in the ordinary course of business;
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(v) Investments in prepaid expenses, negotiable
instruments held for collection, and lease, utility and workers'
compensation, performance and other similar deposits;
(vi) Interest Rate Agreements and Currency Agreements to
the extent permitted under clause (iv) of the definition of "Permitted
Indebtedness;" and
(vii) loans and advances to employees of the Issuer or any
Subsidiary in an aggregate amount not to exceed $1 million at any time
outstanding.
"Permitted Liens" means any of the following:
(i) Liens for taxes, fees, assessments, governmental
charges or claims that are not yet due and payable, or, if delinquent,
are payable without penalty or are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provisions, if
any, as shall be required in conformity with GAAP shall have been made;
(ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other similar Liens arising in the ordinary course of business and with
respect to amounts not yet delinquent, or, if delinquent, are payable
without penalty or are or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security;
(iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of money bonds and other obligations
of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(v) easements, rights-of-way, restrictions, municipal and
zoning ordinances, reservations, permits and similar charges,
encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of the Issuer
or any of its Restricted Subsidiaries;
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(vi) Liens securing Acquired Indebtedness created prior to
(and not in connection with or in contemplation of) the Incurrence of
such Indebtedness by the Issuer or any Restricted Subsidiary; provided
that such Lien does not extend to any property or assets of the Issuer
or any Restricted Subsidiary other than the asset acquired in
connection with the Incurrence of such Acquired Indebtedness;
(vii) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the Issuer
and its Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under
construction arising from progress or partial payments by a customer of
the Issuer or its Restricted Subsidiaries relating to such property or
assets;
(ix) any interest or title of a lessor in the property
subject to any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code
financing statements regarding leases;
(xi) Liens on property of, or on shares of Capital Stock
or Indebtedness of, any Person existing at the time such Person
becomes, or becomes a part of, any Restricted Subsidiary; provided that
such Liens do not extend to or cover any property or assets of the
Issuer or any Restricted Subsidiary other than the property or assets
acquired and any proceeds thereof;
(xii) Liens in favor of the Issuer or any Restricted
Subsidiary;
(xiii) Liens arising from the rendering of a final judgment
or order against the Issuer or any Restricted Subsidiary that does not
give rise to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect
to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds
thereof;
(xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(xvi) Liens encumbering customary initial deposits and
margin deposits, and other Liens that are either within the general
parameters customary in the industry or
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incurred in the ordinary course of business, in each case securing
Indebtedness under Interest Rate Agreements and Currency Agreements and
forward contracts, options, future contracts, futures options or
similar agreements or arrangements designed solely to protect the
Issuer or any of its Restricted Subsidiaries from fluctuations in
interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods
entered into by the Issuer or any of its Restricted Subsidiaries in the
ordinary course of business in accordance with the past practices of
the Issuer and its Restricted Subsidiaries prior to the Closing Date;
(xviii) Liens on or sales of receivables, including related
intangible assets and proceeds thereof;
(xix) Liens securing Indebtedness incurred under clauses
(iv)(A), (iv)(B), (vii), (viii)(B), (ix), (x) or (xii) of the
definition of "Permitted Indebtedness";
(xx) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off, or
similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution;
(xxi) Liens securing Capitalized Lease Obligations on
assets subject to such Capitalized Leases;
(xxii) Liens the Issuer (which term shall include
Telecommunications, the Partnership and IWL if the Transaction is
consummated) or any Restricted Subsidiary securing Indebtedness in
effect at the Closing Date or at the date on which the Transaction or
the Special Partnership Transaction, as the case may be, is consummated
(to the extent such Indebtedness Incurred after the Closing Date was
incurred without violation of this Indenture);
(xxiii) Liens granted after the Closing Date on any assets or
Capital Stock of the Issuer or its Restricted Subsidiaries created in
favor of the Holders;
(xxiv) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Issuer or a
Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the
Issuer or such other Restricted Subsidiary;
(xxv) Liens securing Indebtedness that is Incurred to
refinance secured Indebtedness permitted to be Incurred under clause
(iii) of the definition of "Permitted Indebtedness"; provided that such
Liens do not extend to or cover any property or assets
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of the Issuer or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced; or
(xxvi) any extension, renewal or replacement, in whole or in
part, of any Lien described in the foregoing clauses (i) through (xxv),
provided that any such extension, renewal or replacement shall be no
more restricted in any material respect than the Lien so extended,
renewed or replaced and shall not extend to any additional property or
assets.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference equity,
whether outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"Private Exchange Notes" shall have the meaning given to
"Private Exchange Securities" 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.
"pro forma" means, with respect to the preparation of
financial statements to show the effect of any particular transaction, the
preparation of such financial statements in accordance with Article 11 of
Regulation S-X.
"Purchase Agreement" means the Purchase Agreement, dated July
10, 1998, among the Company, Telecommunications, the Partnership, IWL and the
Initial Purchasers.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to
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in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior to
the Stated Maturity of the Notes; provided that any Capital Stock that would not
constitute Redeemable Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes shall not constitute Redeemable Stock if the "asset
sale" or "change of control" provisions applicable to such Capital Stock are no
more favorable in any material respect to the holders of such Capital Stock than
the provisions contained in Sections 10.10 and 10.15 hereof are to the holders
of the Notes and such Capital Stock specifically provides that such Person will
not repurchase or redeem any such stock pursuant to such provision prior to the
Issuer's repurchase of such Notes as are required to be repurchased pursuant to
Sections 10.10 and 10.15 hereof.
"Redemption Date" means, with respect to any Note to be
redeemed, the date fixed by the Issuer 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.
"Registrable Securities" shall have the meaning specified in
the Registration Rights Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, by and among the Company,
Telecommunications and the Partnership 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, when used with respect to the
Trustee, any officer within the Corporate Trust Office including any Vice
President, Managing Director, Assistant Vice President, Secretary, Assistant
Secretary or Assistant Treasurer or any other officer of the
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Trustee customarily performing functions similar to those performed by any of
the above designated officers and also, with respect to a particular matter, any
other officer to whom such matter is referred because of such officer's
knowledge 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
(i) a declaration or payment of any dividend or the
making of any distribution on or with respect to the Issuer's Capital
Stock (other than (x) dividends or distributions payable solely in
shares of the Issuer's Capital Stock (other than Redeemable Stock) or
in options, warrants or other rights to acquire shares of such Capital
Stock and (y) dividends or distributions payable to the Issuer or any
Wholly Owned Restricted Subsidiary),
(ii) a payment made by the Issuer or any Restricted
Subsidiary used to purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (A) of the Issuer or an
Unrestricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by any Affiliate of the
Issuer (other than a Wholly Owned Restricted Subsidiary) or any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital
Stock of the Issuer (including options, warrants or other rights to
acquire such shares of Capital Stock) (other than (x) payments payable
solely in shares of Capital Stock) (other than Redeemable Stock) of the
Issuer or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) payments payable to the Issuer or any
Wholly-Owned Restricted Subsidiary),
(iii) any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other
acquisition or retirement for value, of Indebtedness of the Issuer that
is subordinated in right of payment to the Notes (other than, in each
case, the purchase,
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\ repurchase or acquisition of Indebtedness either in anticipation of
satisfying a sinking fund obligation, principal installment or final
maturity that in any case is due within one year after the date of such
purchase, repurchase or acquisition), or
(iv) any Investment, other than a Permitted Investment, in
any Person.
The consummation of the transactions contemplated by the
Transaction or the Special Partnership Transaction shall not constitute
"Restricted Payments".
"Restricted Subsidiary" means any Subsidiary of the Issuer
other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Rating Services, a division of
McGraw Hill, Inc..
"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 Commission 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.
"Special Offer to Purchase" means the Offer to Purchase that
the Company, Telecommunications and the Partnership may be required to
consummate in accordance with Section 10.21 hereof.
"Special Partnership Transaction" means the statutory merger
or interest exchange between Telecommunications and the Partnership that would
be required to be consummated in the event the Special Offer to Purchase is made
and any Notes remain outstanding after the payment of all Notes tendered in such
Special Offer to Purchase.
"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.
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"Stated Maturity" means (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" means, with respect to any Person, any
corporation, association or other business entity of which more than 50% of the
voting power of the outstanding Voting Stock is owned, directly or indirectly,
by such Person and one or more other Subsidiaries of such Person.
"Subsidiary Guarantee" has the meaning given it in Section
10.23 hereof.
"Telecommunications Assets" means, with respect to any Person,
assets (including, without limitation, rights of way, trademarks and licenses)
that are utilized by such Person, directly or indirectly, in the
Telecommunications Business and including any computer systems used in a
Telecommunications Business. Telecommunications Assets shall also include a
majority of the Voting Stock of another Person, if such Voting Stock is acquired
by the Issuer or a Restricted Subsidiary and all or substantially all the assets
of such other Person comprise Telecommunications Assets; and such other Person
either is, or immediately following the relevant transaction shall become, a
Restricted Subsidiary of the Issuer pursuant to this Indenture. The
determination of what constitutes Telecommunications Assets shall be made by the
Board of Directors of the Issuer and evidenced by a Board Resolution delivered
to the Trustee.
"Telecommunications Business" means the business of (i)
transmitting or providing services relating to the transmission of voice, video,
signals, data or Internet services; (ii) constructing, creating, developing,
owning, operating, and marketing one or more communications networks, related,
ancillary or complementary network transmission equipment, information systems,
software, and other related, ancillary or complementary assets and services;
(iii) planning, designing, and consulting with respect to the matters described
in clauses (i) and (ii); and (iv) evaluating, participating and pursuing any
other activity or opportunity that is related, ancillary, or complementary to
those identified in clauses (i), (ii) and (iii) above, as determined in good
faith by the Board of Directors of the Issuer.
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"Temporary Cash Investment" means any of the following:
(i) direct obligations of the United States of America or
any agency thereof or obligations fully and unconditionally guaranteed
by the United States of America or any agency thereof with a maturity
of 365 days or less,
(ii) time deposit accounts, certificates of deposit and
money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any state
thereof or any foreign country recognized by the United States of
America, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than
30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in
clause (ii) above,
(iv) commercial paper, maturing not more than one year
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Issuer) organized and in existence under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States of America with a rating at the time as
of which any investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P, and
(v) securities with maturities of six months or less from
the date of acquisition issued or fully and unconditionally guaranteed
by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any of its
Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods or services.
"Transaction" means the transactions contemplated by the
Merger Agreement.
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"Transition Period" means the period between the Closing Date
and the consummation of the Transaction or the payment date for Notes tendered
in the Special Offer to Purchase, as the case may be.
"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.
"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-1, including, without limitation, the Exchange Notes.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of the Issuer, as provided below) and (b) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Issuer may designate
any Subsidiary (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary so long as (i) neither the Issuer nor any other
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Issuer or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity, (iii) any Investment in such Subsidiary
made as a result of designating such Subsidiary an Unrestricted Subsidiary will
not violate the provisions of Section 10.13 hereof, (iv) neither the Issuer nor
any Restricted Subsidiary has a contract, agreement, arrangement, understanding
or obligation of any kind, whether written or oral, with such Subsidiary on
terms more favorable to such Subsidiary than those that might be obtained at the
time from persons who are not Affiliates of the Issuer, and (v) neither the
Issuer nor any other Subsidiary has any obligation (1) to subscribe for
additional shares of Capital Stock or other equity interests in such Subsidiary,
or (2) to maintain or preserve such Subsidiary's financial condition or to cause
such Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Issuer shall be evidenced to the
Trustee by filing a Board Resolution with the Trustee giving effect to such
designation. The Board of Directors of the Issuer may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation, there would be no Default or Event of Default under
this Indenture and the Issuer could incur $1.00 of additional Indebtedness under
clause (i) of Section 10.11(a) hereof.
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"U.S. Government Securities" means securities that are direct
non-callable obligations of the United States of America or securities the
timely payment of whose principal and interest is unconditionally guaranteed by
the full faith and credit of the United States of America.
"Vendor Credit Facility" means any agreement entered into with
one or more vendors, suppliers or lessors of telecommunications equipment or
assets (including any agreement entered into with any such vendor, supplier or
lessor or any financial institution acting on behalf of any such vendor,
supplier or lessor) in order to finance the acquisition or construction of
telecommunications equipment or assets, as such agreement may be amended,
modified, supplemented, refunded, refinanced, restructured, renewed or replaced
from time to time; PROVIDED that (i) any equipment or other assets acquired or
leased under or pursuant to such Vendor Credit Facility are received by the
Issuer or a Restricted Subsidiary and (ii) all obligations with respect to or
under such Vendor Credit Facility or any amendment, modification, supplement,
refunding, refinancing, restructuring, renewal or replacement thereof are owed,
whether directly or indirectly, as the case may be, to a Person who is not an
Affiliate of the Issuer or any of its Subsidiaries and no such Affiliate shall
act as a facilitator or conduit or in a similar capacity with respect thereto.
"Voting Stock" means with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
or other shares issued to Persons as mandated by applicable law) by such Person
or one or more Wholly Owned Subsidiaries of such Person.
Section 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Act" 1.05
"Agent Member" 3.16
"Defaulted Interest" 3.07
"Event of Default" 5.01
"Excess Proceeds" 10.15
"Note Register" 3.05
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<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Paying Agent" or "Agent" 3.02
"Physical Notes" 3.03
"Registrar" 3.02
"Restricted Period" 3.17
----------------------------------------------
</TABLE>
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;
(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.
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Any certificate or opinion of an officer of any Issuer or the
Limited 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 an Issuer or the
Limited Guarantor stating that the information with respect to such factual
matters is in the possession of such Issuer or the Limited 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.
(a) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Indenture to be given
or taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Issuer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution (as provided below in
subsection (b) of 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 and the
Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any person of
any such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note
Register.
(d) 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
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done by the Trustee, any Paying Agent or the Issuer in reliance thereon, whether
or not notation of such action is made upon such Note.
Section 1.06. NOTICES, ETC., TO THE TRUSTEE AND THE ISSUER.
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 Issuer or the
Limited Guarantor shall be sufficient for every purpose hereunder if made,
given, furnished or filed, in writing, to or with the Trustee at 1600 Market
Street, 30th Floor, Philadelphia, Pennsylvania 19103, Attention: Corporate Trust
Department, or at any other address previously furnished in writing to the
Holders and the Issuer and the Limited Guarantor by the Trustee; or
(b) the Issuer or the Limited 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 Issuer addressed to such Issuer in care of CapRock
Communications Corp., at Two Galleria Towers, Suite 1925, 13455 Noel Road,
Dallas, Texas 75240-6638, Attention: Jere W. Thompson, Jr., or to the Limited
Guarantor at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034, Attention:
Ignatius W. Leonards, or at any other address previously furnished in writing to
the Trustee by the Issuer or the Limited Guarantor.
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 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.
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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
foregoing paragraph 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 Issuer
and the Limited Guarantor 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.
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.
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Section 1.13. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 1.14. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Issuer or the Limited Guarantor shall not have any liability for any obligations
of the Issuer or the Limited Guarantor under the Notes 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.
Section 1.19. RELEASE OF CERTAIN PARTIES TO THIS
INDENTURE.
If the Transaction is consummated on or prior to August 31,
1998, without any further action by any Person, Telecommunications and the
Partnership shall automatically be
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released from their respective obligations under the Notes and this Indenture
and the Limited Guarantor shall be released from its obligations under this
Indenture. In the event the Transaction is not consummated by August 31, 1998
and any Notes remain outstanding after the payment for Notes tendered pursuant
to the Special Offer to Purchase, without any further action by any Person, the
Company shall be released as an obligor under the Notes and the Company and the
Limited Guarantor shall be released from their obligations under this Indenture.
ARTICLE 2
NOTE FORMS
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 shall constitute, and are expressly made, a part of this Indenture.
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ARTICLE 3
THE NOTES
Section 3.01. TITLE AND TERMS.
The aggregate principal amount of the Notes which may be
authenticated and delivered under this Indenture is limited to $150,000,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Sections 3.03, 3.04,
3.05, 3.06, 9.06, 10.10, 10.15 or 10.21 hereof.
The Notes will mature on July 15, 2008. The Notes shall bear
interest payable in cash at a rate of 12% per annum, semi-annually in arrears
from the most recent Interest Payment Date to which interest has been paid or,
if no interest has been paid from July 16, 1998. Interest on any overdue
principal, interest (to the extent lawful) or premium, if any, shall be payable
on demand.
Section 3.02. REGISTRAR AND PAYING AGENT.
The Issuer 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 Issuer 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 Issuer 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 Issuer 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, 10.15 and 10.21 hereof.
The Issuer 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 Issuer shall notify
the Trustee of the name and address of any such Agent. If the Issuer 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 Issuer initially appoints the Trustee as the Registrar and
Paying Agent and agent for service of notices and demands in connection with the
Notes.
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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 Issuer shall 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 Exhibits A-1 and A-2 shall constitute, and are hereby expressly made, a part
of this Indenture and, to the extent applicable, the Issuer, the Limited
Guarantor 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 Issuer and authenticated by the Trustee as hereinafter provided and shall
bear the legend set forth in Exhibit B. 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 shall sign, or one Officer shall sign, and one
Officer (each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to, the Notes for the Issuer by manual
or facsimile signature.
If an Officer whose signature is on a Note was an Officer at
the time of such execution but no longer holds that office or position at the
time the Trustee authenticates the Note, the Note shall nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for aggregate
principal amount of not to exceed $150,000,000 at anytime, (ii) Private Exchange
Notes from time to time only in exchange for a like principal amount of Initial
Notes and (iii) Unrestricted Notes from time to time only in exchange for (A) a
like principal amount of Initial Notes or (B) a like principal amount of Private
Exchange Notes, in each case upon a written order of the Issuer in the form of
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an Officers' Certificate of the Issuer. Each such written order shall specify
the amount of Notes 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 amount of the Notes
outstanding at any time may not exceed $150,000,000, 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 Issuer 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 Issuer and Affiliates of the Issuer.
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 Issuer may execute and upon an Issuer 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 Issuer reasonably considers appropriate for temporary Notes as
conclusively evidenced by the Issuer's execution of such temporary Notes.
If temporary Notes are issued, the Issuer 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 Issuer
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 Issuer 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.
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The Issuer 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 Issuer shall provide
for the 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 Issuer
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
Issuer shall execute, and the Trustee shall authenticate and deliver, the Notes
which the Holder making the exchange is entitled to receive. No service charge
shall be made to the Holder for any registration of transfer or exchange. The
Issuer may require from the Holder 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, 10.21 or 9.06 hereof (in which events the
Issuer 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 Issuer, 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.
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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 Issuer shall execute and upon an Issuer 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 Issuer 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 of the
Issuer or the Trustee, as the case may be, to protect the Issuer, the Trustee or
any Agent from any loss that any of them may suffer if such Note is replaced.
The Issuer may charge such Holder for the Issuer's expenses in replacing such
Note (including (i) expenses of the Trustee charged to the Issuer and (ii) any
tax or other governmental charge that may be imposed) and the Trustee may charge
the Issuer 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 Issuer, 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 Issuer, at its election in each case, as provided in subsection (a) or
(b) below:
(a) The Issuer 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
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close of business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Issuer 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
Issuer shall deposit with the Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to the
date of the proposed payment, such money when deposited to be held in trust for
the benefit of the persons entitled to such Defaulted Interest as provided in
this subsection (a). Not later than the second Business Day after the Trustee
receives the notice from the Issuer referred to in the preceding sentence, 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 Issuer in writing of such Special Record Date. In the name and at the
expense of the Issuer, 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 Issuer 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 Issuer
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 Issuer, the Trustee and any agent of the Issuer 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
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neither the Issuer, the Trustee nor any agent of the Issuer 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 Issuer may at any time deliver
to the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Issuer 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 Issuer unless by an Issuer Order the Issuer shall timely direct
that the canceled Notes be returned to it. The Trustee shall provide the Issuer
a list of all Notes that have been canceled from time to time as requested by
the Issuer.
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.
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.
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Section 3.12. CUSIP AND CINS NUMBERS.
The Issuer 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 Issuer shall promptly notify the Trustee in writing of any change in
the CUSIP or CINS number of any type of Notes.
Section 3.13. PAYING AGENT TO HOLD MONEY IN TRUST.
Each Paying Agent shall hold in trust for the benefit of the
Holders 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 Issuer in making any such payment. Money held
intrust 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 Issuer 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 an Issuer 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.
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 Issuer or an Affiliate of the Issuer 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, consent or notice, only Notes which a Responsible Officer of
the Trustee actually knows are so owned shall be so considered. The Issuer 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.
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Section 3.15. DEPOSITS OF MONIES.
Prior to 1:00 p.m. New York City time on each Interest Payment
Date, maturity date, the Payment Date made with respect to an Offer to Purchase
made pursuant to Sections 10.10, 10.15 or 10.21 hereof, the Issuer 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
and Payment 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 and Payment 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 B.
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 Issuer, the
Trustee and any agent of the Issuer or the Trustee as the absolute owner of the
Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Issuer, the Trustee or any agent of the Issuer or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or nominee of such 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 in Global Notes, if (i) the
Depository notifies the Issuer 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 Issuer 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
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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 Issuer shall execute, and the Trustee shall authenticate
and deliver, one or more Physical Notes of like tenor and principal amount of
authorized denominations.
(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 Issuer
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 of Physical
Notes of like tenor of authorized denominations.
(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 Issuer nor any
Affiliate of the Issuer 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 the
Registrar a certificate substantially in the form of Exhibit C hereto
and any legal opinions and certifications required thereby; and
(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
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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 Issuer shall execute and upon an Issuer
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 Issuer nor any
Affiliate of the Issuer 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 C 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 a 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 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) 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
(B) an increase in the principal amount of the
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Regulation S Global Note in an amount equal to the principal amount of
the Global Note to be transferred; and
(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 Issuer nor any
Affiliate of the Issuer 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 Issuer 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 Issuer 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 Issuer as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that
the transferor and the Issuer 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
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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 a 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 Global Note from which
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 144A Global Note in an amount equal to the
principal amount of the Global Note to be transferred.
(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 paragraphs (a)(i)(x) or (b)(i)(x) of this Section 3.17 exist, (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Issuer 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) or (b) hereof, the Registrar shall only register such transfer
or exchange if such transferor delivers an Opinion of Counsel satisfactory to
the Issuer and the Registrar that such transfer is in compliance with the
Securities Act and the terms of this Indenture; provided, however, that the
Issuer may, based upon the opinion of its counsel, instruct the Registrar by an
Issuer Order not to register such transfer in any case where the proposed
transferee is not a QIB, a Non-U.S. Person or an 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 Issuer shall have the right to inspect and make copies of all
such letters, notices or other written
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communications at any reasonable time upon the giving of reasonable prior
written notice to the Registrar.
ARTICLE 4
DEFEASANCE OR COVENANT DEFEASANCE
Section 4.01. TERMINATION OF ISSUER'S OBLIGATIONS.
Except as otherwise provided in this Section 4.01, the Issuer
may terminate its obligations under the Notes and this Indenture if:
(a) all Notes previously authenticated and delivered
(other than destroyed, lost or stolen Notes that have been replaced or
Notes that are paid pursuant to Section 10.01 or Notes for whose
payment money or securities have theretofore been held in trust and
thereafter repaid to the Issuer, as provided in Section 4.05) have been
delivered to the Trustee for cancellation and the Issuer has paid all
sums payable by it hereunder other than those that could become payable
under Sections 4.06 or 6.07; or
(b) (i) the Notes mature within one year or all of them
are to be called for redemption within one year under arrangements
reasonably satisfactory to the Trustee for giving the notice of
redemption, (ii) the Issuer irrevocably deposits in trust with the
Trustee during such one-year period, under the terms of an irrevocable
trust agreement in form and substance reasonably satisfactory to the
Trustee, as trust funds solely for the benefit of the Holders for that
purpose, money or U.S. Government Securities sufficient (in the opinion
of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee),
without consideration of any reinvestment of any interest thereon, to
pay principal, premium, if, any, and interest on the Notes to maturity
or redemption, as the case may be, and to pay all other sums payable by
it hereunder other than those that could become payable under Sections
4.06 or 6.07, (iii) no Default or Event of Default with respect to the
Notes shall have occurred and be continuing on the date of such
deposit, (iv) such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other agreement or
instrument to which the Issuer or any of its Subsidiaries is a party or
by which the Issuer or any of its Subsidiaries is bound and (v) the
Issuer has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
relating to the satisfaction and discharge of this Indenture set forth
herein have been complied with.
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With respect to the foregoing clause (a), the Issuer's
obligations under Section 6.07 shall survive. With respect to the foregoing
clause (b), the provisions of Sections 3.02, 3.03, 3.05, 3.06, 3.07, 3.08, 3.09,
3.13, 4.04, 4.05, 4.06, 10.01 and 10.02 hereof shall survive until the Notes are
no longer Outstanding. Thereafter, only the provisions of Sections 4.05, 4.06
and 6.07 hereof shall survive. After any such irrevocable deposit, the Trustee
upon request shall acknowledge in writing the discharge of the Issuer's
obligations under the Notes and this Indenture except for those surviving
obligations specified above.
4.02. DEFEASANCE AND DISCHARGE OF INDENTURE.
The Issuer will be deemed to have paid and will be discharged
from any and all obligations in respect of the Notes on the 123rd day after the
date of the deposit referred to in clause (a) of this Section 4.02, and the
provisions of this Indenture will no longer be in effect with respect to the
Notes, and the Trustee, except as to (i) rights of registration of transfer and
exchange, (ii) substitution of apparently mutilated, defaced, destroyed, lost or
stolen Notes, (iii) rights of Holders to receive payments of principal thereof
and interest thereon, (iv) the Issuer's obligations under Section 10.02, (v) the
rights, obligations and immunities of the Trustee hereunder and (vi) the rights
of the Holders as beneficiaries of this Indenture with respect to the property
so deposited with the Trustee payable to all or any of them; provided that the
following conditions shall have been satisfied:
(a) with reference to this Section 4.02, the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
6.09) and conveyed all right, title and interest for the benefit of the
Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and
interest, if any, on the Notes, and dedicated solely to, the benefit of
the Holders, in and to (i) money in an amount, (ii) U.S. Government
Securities that, through the payment of interest, premium, if any, and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (a), money in an amount, or (iii) a
combination thereof in an amount, 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, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and accrued interest an the Outstanding
Notes at the Stated Maturity of such principal or interest; provided
that the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government
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Securities to the payment of such principal, premium, if any, and
interest with respect to the Notes;
(b) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Issuer or any of its Subsidiaries
is a party or by which the Issuer or any of its Subsidiaries is bound;
(c) immediately after giving effect to such deposit on a
pro forma basis, no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or during the period ending
on the 123rd day after such date of deposit;
(d) the Issuer shall have delivered to the Trustee (i)
either (x) a ruling directed to the Trustee received from the Internal
Revenue Service to the effect that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Issuer's exercise of its option under this Section 4.02 and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such option had
not been exercised or (y) an Opinion of Counsel to the same effect as
the ruling described in clause (x) above accompanied by a ruling to
that effect published by the Internal Revenue Service, unless there has
been a change in the applicable federal income tax law since the date
of this Indenture such that a ruling from the Internal Revenue Service
is no longer required and (ii) an Opinion of Counsel to the effect that
the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and (y) after the passage of 123 days following the
deposit (except, with respect to any trust funds for the account of any
Holder who may be deemed to be an "insider" for purposes of the
Bankruptcy Law, after one year following the deposit), the trust funds
will not be subject to the effect of Section 547 of the Bankruptcy Law
or Section 15 of the New York Debtor and Creditor Law in a case
commenced by or against the Issuer under either such statute, and
either (i) the trust funds will no longer remain the property of the
Issuer (and therefore will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors, rights generally) or (ii) if a court were to rule
under any such law in any case or proceeding that the trust funds
remained property of the Issuer, (A) assuming such trust funds remained
in the possession of the Trustee prior to such court ruling to the
extent not paid to the Holders, the Trustee will hold, for the benefit
of the Holders, a valid and perfected security interest in such trust
funds that is not avoidable in bankruptcy or otherwise except for the
effect of Section 552(b) of the Bankruptcy Law on interest on the trust
funds accruing after the commencement of a case under such statute and
(B) the Holders will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used in
such case or proceeding;
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(e) if the Notes are then listed on a national securities
exchange, the Issuer shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit, defeasance and discharge will
not cause the Notes to be delisted; and
(f) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 4.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day
(or one year) period referred to in clause (d)(ii)(y) of this Section 4.02 none
of the Issuer's obligations under this Indenture shall be discharged subsequent
to the end of such 123-day (or one year) period with respect to this Section
4.02, the provisions of Sections 3.02, 3.03, 3.05, 3.06, 3.07, 3.13, 3.16, 3.17,
4.05, 4.06, 6.07, 6.10, 10.01 and 10.02 hereof shall survive until the Notes are
no longer Outstanding. Thereafter, only the provisions of Sections 4.05, 4.06
and 6.07 hereof shall survive. If and when a ruling from the Internal Revenue
Service or an Opinion of Counsel referred to in clause (d)(i) of this Section
4.02 is able to be provided specifically without regard to, and not in reliance
upon, the continuance of the Issuer's obligations under Section 10.01, the
Issuer's obligations under such Section 10.01 shall cease upon delivery to the
Trustee of such ruling or Opinion of Counsel and compliance with the other
conditions precedent provided for herein relating to the defeasance contemplated
by this Section 4.02.
After any such irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Issuer's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
Section 4.03. DEFEASANCE OF CERTAIN OBLIGATIONS.
The Issuer may omit to comply with (i) any term, provision or
condition set forth in clauses (c) and (d) of Section 8.01 and Sections 10.10
through 10.11 and Sections 10.13 through 10.23, (ii) clause (d) of Section 5.01
with respect to defaults or breaches of Sections 10.10 through 10.11 and
Sections 10.13 through 10.23 and (iii) clauses (c) and (d) of Section 8.01, and
clauses (e) and (f) of Section 5.01 shall be deemed not to be Events of Default,
in each case with respect to the outstanding Notes if:
(a) with reference to this Section 4.03, the Issuer has
irrevocably deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 6.09) and conveyed all
right, title and interest to the Trustee for the benefit of the Holders, under
the terms of an irrevocable trust agreement in form and substance satisfactory
to the Trustee as trust funds in trust, specifically pledged to the Trustee for
the benefit of the Holders as security for payment of the principal of, premium,
if any, and interest, if any, on the Notes, and
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dedicated solely to, the benefit of the Holders, in and to (i) money in an
amount, (ii) U.S. Government Securities that, through the payment of interest
and principal in respect thereof in accordance with their terms, will provide,
not later than one day before the due date of any payment referred to in this
clause (a), money in an amount or (iii) a combination thereof in an amount
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, without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the principal
of, premium, if any, and interest on the Notes Outstanding at the Stated
Maturity of such principal or interest; provided that the Trustee shall have
been irrevocably instructed to apply such money or the proceeds of such U.S.
Government Securities to the payment of such principal, premium, if any, and
interest with respect to the Notes;
(b) such deposit will not result in a breach or violation
of, or constitute a default under, this Indenture or any other agreement or
instrument to which the Issuer or any of its Subsidiaries is a party or by which
the Issuer or any of its Subsidiaries is bound;
(c) immediately after giving effect to such deposit on a
pro forma basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or during the period ending on the 123rd
day after such date of deposit;
(d) the Issuer has delivered to the Trustee an Opinion of
Counsel to the effect that (i) the creation of the defeasance trust does not
violate the Investment Company Act of 1940, (ii) the Trustee, for the benefit of
the Holders, has a valid first priority security interest in the trust funds,
(iii) the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain covenants and
Events of Default and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred and (iv) after the passage of 123 days
following the deposit (except, with respect to any trust funds for the account
of any Holder who may be deemed to be an "insider" for purposes of the
Bankruptcy Law, after one year following the deposit), the trust funds will not
be subject to the effect of Section 547 of the Bankruptcy Law or Section 15 of
the New York Debtor and Creditor Law in a case commenced by or against the
Issuer under either such statute, and either (A) the trust funds will no longer
remain the property of the Issuer (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors, rights generally) or (B) if a court were to rule under any
such law in any case or proceeding that the trust funds remained property of the
Issuer, (x) assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to the Holders, the Trustee
will hold, for the benefit of the Holders, a valid and perfected security
interest in such trust funds that is not avoidable in bankruptcy or otherwise
(except for the effect of Section 552(b) of the
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Bankruptcy Law on interest on the trust funds accruing after the commencement of
a case under such statute) and (y) the Holders will be entitled to receive
adequate protection of their interests in such trust funds if such trust funds
are used in such case or proceeding;
(e) if the Notes are then listed on a national securities
exchange, the Issuer shall have delivered to the Trustee an Opinion of Counsel
to the effect that such deposit, defeasance and discharge will not cause the
Notes to be delisted; and
(f) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by this
Section 4.03 have been complied with.
Section 4.04. APPLICATION OF TRUST MONEY. Subject to Section
4.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government
Securities deposited with it pursuant to Section 4.01, 4.02 or 4.03, as the case
may be, and shall apply the deposited money and the money from U.S. Government
Securities in accordance with the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes; but such money need
not be segregated from other funds except to the extent required by law.
Section 4.05. REPAYMENT TO ISSUER. Subject to Sections 4.01,
4.02, 4.03 and 6.07, the Trustee and the Paying Agent shall promptly pay to the
Issuer upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Issuer
upon request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years. After payment to the
Issuer, Holders entitled to such money must look to the Issuer for payment as
general creditors, unless an applicable law designates another Person, and all
liability of the Trustee and such Paying Agent with respect to such money shall
cease.
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 4.01, 4.02 or 4.03, as the case may be, by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Issuer's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 4.01, 4.02 or
4.03, as the case my be, until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Securities in accordance
with Section 4.01, 4.02 or 4.03, as the case may be; provided that, if the
Issuer has made any payment of principal of, premium, if any, or interest on any
Notes because of the reinstatement of its obligations, the Issuer shall be
subrogated to the rights of the Holders
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of such Notes to receive such payment from the money or U.S. Government
Securities held by the Trustee or Paying Agent.
ARTICLE 5
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):
(a) default in the payment of the principal of, or
premium, if any, on any Note when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise; or
(b) default in the payment of interest on any Note when
the same becomes due and payable, which default continues for a period of 30
days; or
(c) default in the performance or breach of the
provisions of Article Eight or the failure to make or consummate an Offer to
Purchase in accordance with Section 10.10, Section 10.15 or Section 10.21; or
(d) defaults in the performance or breach of any covenant
or agreement of the Issuer in this Indenture or under the Notes (other than
defaults specified in clause (a), (b) or (c) above), which default or breach
continues (i) for a period of 30 consecutive days or (ii) in the event such
default or breach cannot be cured in such 30-day period and the Issuer is
diligently and in good faith attempting to cure such default or breach, for a
period of 60 consecutive days in the case of both clauses (i) and (ii), after
written notice by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then Outstanding; or
(e) there occurs with respect to any issue or issues of
Indebtedness of the Issuer or any Restricted Subsidiary having an outstanding
principal amount of $7.5 million or more in the aggregate for such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be created
(i) an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days of such acceleration and/or (ii) the
failure to make a principal payment at the final (but not any
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interim) fixed maturity and such defaulted payment shall not have been made,
waived or extended within 30 days of such payment default; or
(f) any final judgment or order (not covered by
insurance) for the payment of money in excess of $7.5 million in the aggregate
for all such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be rendered
against the Issuer or any Restricted Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following entry
of the final judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged against all
such Persons to exceed $7.5 million during which a stay or enforcement of such
final judgement or order, by reason of a pending appeal or otherwise, shall not
be in effect; or
(g) a court having jurisdiction in the premises enters a
decree or order for (i) relief in respect of the Issuer or any Restricted
Subsidiary in an involuntary case under any applicable Bankruptcy Law, (ii)
appointment of a Custodian of the Issuer or any Restricted Subsidiary or for all
or substantially all of the property and assets of the Issuer or any Restricted
Subsidiary or (C) the winding up or liquidation of the affairs of the Issuer or
any Restricted Subsidiary and, in each case, such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days.
(h) the Issuer or any Restricted Subsidiary (i) commences
a voluntary case under any applicable Bankruptcy Law, or consents to the entry
of an order for relief in an involuntary case under any Bankruptcy Law, (ii)
consents to the appointment of or taking possession by a Custodian of the Issuer
or any Restricted Subsidiary or for all or substantially all of the property and
assets of the Issuer or any Restricted Subsidiary or (iii) effects any general
assignment for the benefit of creditors; or
(i) there occurs a default by the Issuer or IWL under the
Escrow Agreement or the Escrow Agreement shall cease to be in full force and
effect or enforceable in accordance with its terms, other than in accordance
with its terms or prior to the termination of such agreement, the lien of the
Trustee under such agreement ceases to be a first priority perfected security
interest in any portion of the collateral purported to be pledged thereunder.
Section 5.02. ACCELERATION OF MATURITY, RESCISSION AND
ANNULMENT.
If an Event of Default (other than an Event of Default
specified in clause (g) or (h) of Section 5.01 hereof with respect to the
Issuer) occurs and is continuing, then the Trustee or the Holders of at least
25% in aggregate principal amount of the Outstanding Notes may, by written
notice to the Issuer (and to the Trustee, if such notice is given by the
Holders) may, and the Trustee upon the request of the Holders of not less
than 25% in aggregate principal amount of the
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Outstanding Notes shall, declare the principal of, premium, if any, and accrued
interest on all Outstanding Notes to be immediately due and payable and upon any
such declaration such amounts shall become immediately due and payable. If an
Event of Default specified in clause (g) or (h) of Section 5.01 hereof with
respect to the Issuer occurs and is continuing, then the principal of, premium,
if any, and accrued interest on 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. In the event of a declaration of
acceleration because an Event of Default set forth in clause (e) of Section 5.01
hereof has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the Issuer
or the relevant Restricted Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto.
After an acceleration, the Holders of at least a majority in
aggregate principal amount of the Outstanding Notes may, by written notice to
the Issuer and the Trustee, waive all past defaults and rescind and annul such
acceleration and its consequences if all existing Events of Default, other than
nonpayment of the principal of and 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 of a court of competent jurisdiction.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
The Issuer covenants that if an Event of Default specified in
Section 5.01(a), 5.01(b) or 5.01(c) (to the extent relating to a payment
required by Section 10.10, 10.15 or 10.21) shall have occurred and be
continuing, the Issuer will, upon demand of the Trustee, pay to the Trustee, for
the benefit of the Holders of Notes tendered for payment pursuant to such
provisions of this Indenture, the whole amount then due and payable on Notes
tendered for payment pursuant to such provisions of this Indenture for
principal, premium, if any, and interest, with interest upon the overdue
principal, 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 Issuer 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 Issuer or any
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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 Issuer 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 Issuer 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 Issuer or any other obligor upon the
Notes or the property of the Issuer 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 Issuer 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 Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee as administrative expenses associated with any such proceeding, and in
the event that the Trustee shall consent to the making of such payments directly
to Holders, 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.
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To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 6.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise.
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:
(a) first, to the Trustee for amounts due under
Section 6.07;
(b) 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;
(c) third, to Holders for principal and premium, if any,
owing under the Notes, ratably, without preference or priority of any
kind, according to the aggregate amounts due and payable on the Notes
for principal and premium, if any; and
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(d) fourth, the balance, if any, to the Issuer.
The Trustee, upon prior written notice to the Issuer, may fix
a record date and payment date for any payment to Holders pursuant to this
Section 5.06.
Section 5.07. LIMITATION ON SUITS.
No Holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(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 aggregate
principal amount of the Outstanding Notes shall have made written request to the
Trustee to pursue the remedy;
(c) Holders described in (b) above have offered to the
Trustee indemnity satisfactory to it against the costs, expenses and liabilities
to be incurred in compliance with such request;
(d) the Trustee does not comply with the request within
60 days after its receipt of the request and offer of indemnity; 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 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 or any Note to affect, disturb or prejudice the rights of any
other Holder, or to obtain or to seek to obtain priority or preference over any
other Holder or to enforce any right under this Indenture or any Note, 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
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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.
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
Issuer, 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 at least a majority in aggregate principal
amount of the Outstanding Notes shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee; provided, 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 or be determined by the Trustee
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in good faith as unduly prejudicial to the rights of any Holder of Notes not
joining in the giving of such direction; and
(b) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.
Section 5.13. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Notes may on behalf of the Holders of all the Notes
waive any past Default hereunder and its consequences, except a Default
(a) in the payment of the principal of, or interest on
any Outstanding Note or
(b) 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 aggregate principal 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.
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The Issuer 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 Issuer 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 Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 5.16. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PAYMENT.
Notwithstanding any other provision in this Indenture and any
other 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 6
THE TRUSTEE
Section 6.01. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(i) the Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; 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.
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(b) During the existence of an Event of Default, the
Trustee is required to exercise such rights and powers vested in it under this
Indenture using 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.
(c) 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 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.
(d) 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 actually
known to a Responsible Officer of the Trustee, the Trustee shall transmit by
mail to all Holders in the manner and to the extent provided in TIA Section
313(c), as their names and addresses appear in the Note Register, notice of such
Default hereunder 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 the case of any Default
arising from the occurrence of a Change of Control, 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 conclusively rely and shall be fully
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;
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(b) any request or direction of the Issuer mentioned
herein shall be sufficiently evidenced by an Issuer Request or Issuer Order and
any resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution thereof;
(c) the Trustee may consult with counsel and any 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 satisfactory
to it against the costs, expenses and liabilities which might be incurred by the
Trustee in compliance with such request or direction;
(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, bad faith or willful misconduct;
(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 indemnity
satisfactory to it against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such investigation shall be paid by
the Issuer or, if paid by the Trustee or any predecessor Trustee, shall be
repaid by the Issuer 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 appropriate, 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 Issuer, 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, attorneys, custodian or nominees and the Trustee shall not be
responsible for any misconduct or negligence on the part of any agent, attorney,
custodian or nominee appointed with due care by it hereunder;
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(h) except with respect to Section 10.01, the Trustee
shall have no duty to inquire as to the performance of the Issuer'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(a), 5.01(b) and 10.01 or (ii) any Default or Event of
Default of which the Trustee shall have received written notification from the
Issuer or the Holders of at least 10% in aggregate principal amount of the Notes
or a Responsible Officer shall have obtained actual knowledge; and
(i) if the Trustee is acting in the capacity of Registrar
and/or Paying Agent, then the rights afforded to the Trustee under this Section
6.03 shall also be afforded to such Registrar and/or Paying Agent.
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 certificate of authentication, shall be taken as the statements of the
Issuer, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility and Qualification on Form T-1, if any, to be supplied
to the Issuer are true and accurate subject to the qualifications set forth
therein. The Trustee shall not be accountable for the use or application by the
Issuer of Notes or the proceeds thereof.
Section 6.05. TRUSTEE AND AGENTS MAY HOLD NOTES; COLLECTIONS;
ETC.
The Trustee, any Paying Agent, Registrar or any other agent of
the Issuer, 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
Issuer and receive, collect, hold and retain collections from the Issuer 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
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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 Issuer 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, bad faith or willful misconduct; and (c) to indemnify the
Trustee and any of its officers, directors, employees and agents and each
predecessor Trustee for, and to hold it harmless against any loss, liability or
expense (including attorneys' fees and expenses incurred in defending
themselves) incurred without negligence, bad faith or willful misconduct 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.
To secure the Issuer's payment obligations in this Section
6.07, the Trustee shall have a Lien prior to the Notes on all money or property
held or collected by the Trustee in such capacity, except that held in trust to
pay principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
The obligations of the Issuer 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, disbursements and
advances shall constitute an additional obligation hereunder and shall survive
the satisfaction and discharge of this Indenture or the rejection or termination
of this Indenture under bankruptcy law. Such additional indebtedness shall be a
senior claim to that of the Notes upon all property and funds held or collected
by the Trustee as such, except funds held in trust for the benefit of the
Holders of particular Notes, and the Notes are hereby subordinated to such
senior claim. If the Trustee renders services and incurs expenses following an
Event of Default under Section 5.01(g) or (h) hereof, the parties hereto and the
Holders by their acceptance of the Notes hereby agree that such expenses are
intended to constitute expenses of administration under any bankruptcy law.
Section 6.08. CONFLICTING INTERESTS.
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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
a corporation 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 $50,000,000. 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 may at any time resign by giving written
notice thereof to the Issuer at least 20 Business Days prior to the date of such
proposed resignation. Upon receiving such notice of resignation, the Issuer
shall, after all monies due and owing have been paid to the Trustee, promptly
appoint a successor trustee by written instrument executed by authority of the
Board of Directors, 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 any Holder who has been a bona fide Holder of a Note for at
least six consecutive months immediately prior to such date 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 Issuer.
(d) If at any time:
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(i) 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 Issuer
or by any Holder who has been a bona fide Holder of a Note for at least
six consecutive months immediately prior to such date, or
(ii) the Trustee shall cease to be eligible under
Section 6.09 hereof and shall fail to resign after written request
therefor by the Issuer or by any Holder who has been a bona fide Holder
of a Note for at least six consecutive months immediately prior to such
date, or
(iii) 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, (x) the Issuer by a Board Resolution may remove the Trustee,
or (y) subject to Section 5.14, the Holder of any Note who has been a bona fide
Holder of a Note for at least six consecutive months immediately prior to such
date 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
disqualified from or incapable of acting, or if a vacancy shall occur in the
office of Trustee for any cause, the Issuer, 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 Issuer 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 Issuer. If no successor Trustee shall have
been so appointed by the Issuer 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 consecutive months immediately prior to
such date 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 Issuer 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
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in the Note Register. Each notice shall include the name of the successor
Trustee and the address of its Corporate Trust Office.
Section 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Issuer and to the retiring (which term includes
any Trustee who resigns, is removed, becomes disqualified or incapable of acting
or otherwise ceases to be a Trustee hereunder) 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 Issuer or the successor
Trustee, upon payment of amounts due to 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 Issuer 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 Issuer shall give notice thereof to the
Holders, by mailing a 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, removal, disqualification or incapacity to
act, then the notice called for by the preceding sentence may be combined with
the notice called for by Section 6.10 hereof. If the Issuer 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
Issuer.
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,
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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 by the Trustee then in
office, any such successor to the Trustee may adopt such authentication of any
predecessor Trustee and deliver such Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee 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. In all
such cases, such certificate of authentication shall be of full force and effect
and shall be deemed to have been duly authenticated in accordance with this
Indenture.
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER
Section 7.01. PRESERVATION OF INFORMATION; ISSUER TO
FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.
(a) The Trustee shall preserve the names and addresses of
the Holders and otherwise comply with TIA Section 312(a). If the Trustee is not
the Registrar, the Issuer 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 Holders.
Neither the Issuer nor the Trustee shall be under any responsibility with regard
to the accuracy of such list.
(b) The Issuer 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
Issuer 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;
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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 Issuer and the Trustee and any and all other
persons intended to be beneficiaries of this Indenture shall have the protection
afforded by Section 312(c) of the Trust Indenture Act.
Section 7.03. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the
first May 15 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 15, 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
Issuer, the SEC and with each stock exchange on which the Notes are listed, if
any. The Issuer shall notify the Trustee when the Notes are listed on any stock
exchange, if ever.
Section 7.04. REPORTS BY ISSUER.
The Issuer shall:
(a) file with the SEC the copies of annual reports and of
the information, documents and other reports (or copies of such portions of any
of the foregoing as the SEC may from time to time by rules and regulations
prescribe) that would be required to be filed with the SEC pursuant to Section
13 or Section 15 of the Exchange Act if the Issuer had a class of securities
registered under the Exchange Act, whether or not the Issuer has a class of
securities registered under the Exchange Act;
(b) file with the Trustee within 15 days after it files
or would be required to file the information specified in subsection (a) of this
Section 7.04 reports and documents with the SEC copies of such information;
(c) file with the Trustee and the SEC, in accordance with
rules and regulations prescribed from time to time by the SEC, such additional
information, documents and reports with respect to compliance by the Issuer with
the conditions and covenants of this Indenture as may be required from time to
time by such rules and regulations; and
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(d) transmit by mail to all Holders, as their names and
addresses appear in the Note Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to subsections (a) and (c) of this
Section as may be required by rules and regulations prescribed from time to time
by the SEC.
Notwithstanding anything to the contrary herein, the Trustee
shall have no duty to review information provided pursuant to subsection (b) of
this Section 7.04 for purposes of determining compliance with any provisions of
this Indenture.
ARTICLE 8
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
Section 8.01. ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN
TERMS.
The Issuer will not consolidate with, or merge with or into or
sell, convey, transfer, lease or otherwise dispose of all or substantially all
of its property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to any Person or permit any
Person to merge with or into the Issuer, other than in connection with the
Transaction or the Special Partnership Transactions, unless:
(a) the Issuer shall be the continuing Person, or the
Person (if other than the Issuer) formed by such consolidation or into which the
Issuer is merged or that acquired or leased such property and assets of the
Issuer shall be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof, and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Issuer on all of the Notes and under the Indenture;
(b) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing;
(c) immediately after giving effect to such transaction
on a PRO FORMA basis, the Issuer, or any Person becoming the successor obligor
of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness
under clause (i) of Section 10.11(a) hereof; PROVIDED, HOWEVER, that this clause
(c) shall not apply to a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth, PROVIDED that in connection
with any such merger or consolidation, no consideration (except Capital Stock
(other than Redeemable Stock)
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in the surviving Person or the Issuer (or a Person that owns directly or
indirectly all of the Capital Stock of the surviving Person or the Issuer
immediately following such transaction) or cash paid to satisfy dissenter or
appraisal rights; PROVIDED that such rights are exercised with respect to no
more than 5% of the outstanding Capital Stock of the Issuer or other Person)
shall be issued or distributed to the stockholders of the Issuer; and
(d) the Issuer delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clause (c) above) and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture comply with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; PROVIDED, HOWEVER, that clauses (b)
and (c) above do not apply if, in the good faith determination of the Board of
Directors of the Issuer, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the state of
incorporation of the Issuer; and PROVIDED FURTHER that any such transaction
shall not have as one of its purposes the evasion of the foregoing limitations.
Section 8.02. SUCCESSOR SUBSTITUTED.
Upon any consolidation or merger or any sale, 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 is not the
continuing corporation, the successor corporation formed by such a consolidation
or into which the Issuer 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 under this Indenture and the Notes with the same effect as if such
successor corporation had been named as the Issuer herein and therein; and
thereafter, except in the case of (i) any consolidation or merger with, or (ii)
any sale, conveyance, transfer, lease or other disposition to a Restricted
Subsidiary, the Issuer shall be discharged from all obligations and covenants
under this Indenture and the Notes.
For all purposes of this Indenture and the Notes (including
the provision of this Article Eight and Section 10.11, Section 10.13 and Section
10.16), Subsidiaries of any successor entity will, upon such transaction or
series of related transactions, become Restricted Subsidiaries unless designated
an Unrestricted Subsidiary in accordance with the provisions of this Indenture
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.
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ARTICLE 9
SUPPLEMENTAL INDENTURES AND WAIVERS
Section 9.01. SUPPLEMENTAL INDENTURES, AGREEMENTS AND WAIVERS
WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder, the Issuer, when authorized
by a Resolution of the Board of Directors, and the Trustee, at any time and from
time to time, may amend, waive, modify or supplement this Indenture, the Notes,
the Merger Agreement or the Escrow Agreement for the following specified
purposes:
(a) to evidence the succession of another person to the
Issuer, and the assumption by any such successor of the covenants of the Issuer
in the Notes;
(b) to add to the covenants of the Issuer for the benefit
of the Holders, or to surrender any right or power herein conferred upon the
Issuer, herein, in the Notes;
(c) to cure any ambiguity, to correct or supplement any
provision herein, 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 materially 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 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;
(f) to make any other change that does not materially
adversely affect the legal rights of any Holder; or
(g) to add Guarantors with respect to the Notes;
provided, however, that the Issuer has delivered to the Trustee an Opinion of
Counsel stating that such amendment, waiver, modification or supplement does not
materially adversely affect the legal rights of any Holder.
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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 of the aggregate principal amount of the Outstanding Notes delivered to
the Issuer and the Trustee, the Issuer when authorized by a Board Resolution,
together with the Trustee, may amend, waive, modify or supplement any other
provision of this Indenture, the Notes, the Merger Agreement or the Escrow
Agreement; PROVIDED, HOWEVER, that no such amendment, waiver, modification or
supplement may, without the written consent of the Holder of each Outstanding
Note affected thereby:
(a) change the Stated Maturity of the principal of, or
any installment of interest on, any Note,
(b) reduce the principal of, or premium, if any, or
interest on, any Note,
(c) change the place or currency of payment of principal
of, or premium, if any, or interest on, any Note,
(d) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note,
(e) reduce the above-stated percentage of outstanding
Notes the consent of whose Holders is necessary to modify or amend this
Indenture,
(f) waive a default in the payment of principal of,
premium, if any, or interest on the Notes,
(g) reduce the percentage or aggregate principal amount
of outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of this Indenture or for waiver of certain
defaults,
(h) release any lien created by the Escrow Agreement,
except in accordance with the terms thereof, or
(i) amend, change or otherwise modify the obligation of
the Issuer to make and consummate the Special Offer to Purchase contemplated by
Section 10.21 hereof.
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Upon the written request of the Issuer accompanied by a copy of a Board
Resolution of the Board of Directors authorizing the execution of any such
supplemental indenture or other instrument effecting an amendment, waiver,
modification or supplement authorized by this Section 9.02, and an Officers'
Certificate and an Opinion of Counsel upon which the Trustee shall be fully
protected in relying as conclusive evidence that such amendment, waiver,
modification or supplement is permitted by this Indenture and upon the filing
with the Trustee of evidence of the consent of Holders as aforesaid, the Trustee
shall join with the Issuer in the execution of such supplemental indenture or
other instrument.
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 instrument or amendment, modification, waiver or supplement, 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, instrument or amendment, modification, waiver or
supplement permitted by this Article Nine or the modifications thereby of the
trusts created by this Indenture, the Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate from each obligor under the Notes entering into such supplemental
indenture, instrument or amendment, modification, waiver or supplement, each
stating that the execution of such supplemental indenture, instrument or
amendment, modification, waiver or supplement (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 Issuer or any other
Subsidiary of the Issuer. The Trustee may, but shall not be obligated to, enter
into any such supplemental indenture, instrument or amendment modification,
waiver or supplement which affects the Trustee's own rights, duties or
immunities under this Indenture, the Notes, the Escrow Agreement or otherwise.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture, instrument
or amendment, modification, waiver or supplement under this Article Nine, this
Indenture, the Notes and/or the Escrow Agreement, if applicable, shall be
modified in accordance therewith, and such supplemental indenture, instrument,
amendment, waiver or supplement shall form a part of this Indenture, the Notes,
the Merger Agreement and/or the Escrow Agreement, 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.
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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, instrument, amendment, modification, waiver or
supplement 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, instrument, amendment, modification, waiver or
supplement. If the Issuer shall so determine, new Notes so modified as to
conform, in the opinion of the Trustee and the Board of Directors, to any such
supplemental indenture, instrument, amendment, modification, waiver or
supplement may be prepared and executed by the Issuer and authenticated and
delivered by the Trustee upon an Issuer Order in exchange for Outstanding Notes.
Section 9.07. RECORD DATE.
The Issuer 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, instrument, amendment, modification, waiver or
supplement, 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, instrument, amendment, modification,
waiver or supplement 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 a supplemental indenture, instrument, amendment,
modification, waiver or supplement 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 a supplement indenture becomes effective. A
supplemental Indenture, instrument, amendment, modification, waiver or
supplement shall become effective in accordance with its terms and thereafter
bind every Holder.
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ARTICLE 10
COVENANTS
Section 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Issuer shall duly and punctually pay the principal of,
premium, if any, and interest on the Notes in accordance with the terms of the
Notes and this Indenture.
Section 10.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer shall 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 Issuer in respect of the Notes and this Indenture may be served. The
Depository Trust Company, 55 Water Street, New York, New York 10041, Transfer
Agent Drop, 1st Floor, Attention: Vinnie Brown will be such office or agency of
the Issuer, unless the Issuer shall designate and maintain some other office or
agency for one or more of such purposes. The Issuer 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 Issuer 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 Issuer hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Issuer 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 Issuer of
its obligation to maintain an office or agency in The City of New York, State of
New York for such purposes. The Issuer 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 Issuer 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
Trustee or 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
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persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act and of any Default by the Issuer (or
any other obligor upon the Notes) in the making of any payment of principal,
premium, if any, or interest on the Notes.
If the Issuer is not acting as Paying Agent, the Issuer 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 Issuer will promptly
notify the Trustee of such action or any failure so to act.
If the Issuer is not acting as Paying Agent, the Issuer 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 Issuer
(or any 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.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Issuer Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Issuer 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 Issuer 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 Issuer, in trust for the payment of the principal of, premium,
if any, or interest on any Note and
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remaining unclaimed for two years after such principal, premium, if any, or
interest has become due and payable shall be paid to the Issuer upon receipt of
an Issuer Request therefor or (if then held by the Issuer) will be discharged
from such trust; and the Holder of such Note will thereafter, as an unsecured
general creditor, look only to the Issuer for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Issuer 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 Issuer cause to be published once,
at the option of the Issuer 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 Issuer.
Section 10.04. CORPORATE EXISTENCE.
Subject to Article Eight, the Issuer shall do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate or partnership existence, rights (charter and statutory), licenses and
franchises of the Issuer and each of the Restricted Subsidiaries; provided,
however, that the Issuer will not be required to preserve any such right,
license or franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Issuer 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 Subsidiary
of the Issuer or any of its assets in compliance with the terms of this
Indenture.
Section 10.05. PAYMENT OF TAXES AND OTHER CLAIMS.
The Issuer shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed (i) upon the Issuer or
any of its Restricted Subsidiaries or (ii) upon the income, profits or property
of the Issuer 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 Issuer or any of the
Restricted Subsidiaries; provided, however, that the Issuer 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 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 defined in the Purchase Agreement).
Section 10.06. MAINTENANCE OF PROPERTIES.
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The Issuer shall cause all material properties owned by the
Issuer 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 Issuer 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 Issuer from discontinuing the
maintenance of any of such properties if such discontinuance is, in the judgment
of the Issuer, 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 Issuer shall at all times keep all of its and the
Restricted Subsidiaries' properties which are of an insurable nature insured
with insurers, believed by the Issuer 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 and partnerships
similarly situated and owning like properties.
Section 10.08. BOOKS AND RECORDS.
The Issuer shall 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 Issuer and each Restricted Subsidiary (including
Acquired Indebtedness) in material compliance with GAAP.
Section 10.09. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Issuer to the Trustee
to take any action under any provision of this Indenture and, in any event on at
least an annual basis, the Issuer will furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, 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.
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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 10.10. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL.
The Issuer shall commence, within 30 days after the
occurrence of a Change of Control, an Offer to Purchase for all Notes then
Outstanding in whole or in part in integral multiples of $1,000, at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the Payment Date.
Section 10.11. LIMITATION ON INDEBTEDNESS.
(a) The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (including Acquired
Indebtedness) other than Permitted Indebtedness; provided that the Issuer may
Incur Indebtedness, in addition to Permitted Indebtedness, if, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds thereof, (i) the Consolidated Leverage Ratio would be less than or
equal to 7.0 to 1, for Indebtedness Incurred on or prior to June 30, 2000, or
less than or equal to 5.0 to 1, for Indebtedness Incurred thereafter and (ii) no
Default or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions set forth in this Section 10.11.
(b) Notwithstanding any other provision of this Section
10.11, the maximum amount of Indebtedness that the Issuer or a Restricted
Subsidiary may Incur pursuant to this Section 10.11 shall not be deemed to be
exceeded due solely to the result of fluctuations in the exchange rates of
currencies.
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(c) For purposes of determining any particular amount of
Indebtedness under this Section 10.11, (i) Guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (ii) any Liens
granted pursuant to the equal and ratable provisions referred to in Section
10.16 shall not be treated as Indebtedness. For purposes of determining
compliance with this Section 10.11, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the definition of "Indebtedness", the Issuer, in its sole discretion, shall
classify such item of Indebtedness and only be required to include the amount
and type of such Indebtedness in one of such clauses.
Section 10.12. STATEMENT BY OFFICERS AS TO DEFAULT.
The Issuer will deliver to the Trustee, within 90 days after
the end of each fiscal year of the Issuer ending after the date hereof, a
written statement signed by the chairman or a chief executive officer, the
principal financial officer or principal accounting officer of the Issuer (or
its general partner), stating (i) that a review of the activities of the Issuer
and its Restricted Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing officers with a view to determining whether
the Issuer has kept, observed, performed and fulfilled its obligations under
this Indenture, and (ii) that, to the knowledge of each officer signing such
certificate, the Issuer has kept, observed, performed and fulfilled each and
every covenant and condition contained in this Indenture and is not in Default
in the performance or observance of any of the terms, provisions, conditions and
covenants hereof (or, if a Default shall have occurred, describing all such
Defaults of which such officers may have knowledge, their status and what action
the Issuer is taking or proposes to take with respect thereto). When any Default
under this Indenture 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 Issuer or any 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 $7.5 million), the Issuer 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 Issuer becomes
aware of such occurrence and what action the Issuer is taking or proposes to
take with respect thereto.
Section 10.13. LIMITATION ON RESTRICTED PAYMENTS.
(a) The Issuer will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, make any Restricted Payment
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
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continuing, (ii) the Issuer could not Incur at least $1.00 of Indebtedness under
Section 10.11(a)(i) or (iii) the aggregate amount of all Restricted Payments
(the amount, if other than in cash, to be determined in good faith by the Board
of Directors of the Issuer, whose determination shall be conclusive and
evidenced by a Board Resolution) made after the Closing Date shall exceed the
sum of:
(1) 50% of the aggregate amount of the Adjusted
Consolidated Net Income (or, if the Adjusted Consolidated Net Income is
a loss, minus 100% of the amount of such loss) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter commencing immediately following
the Closing Date and ending on the last day of the last fiscal quarter
preceding the Calculation Date for which reports have been filed with
the Commission or provided to the Trustee pursuant to Section 10.22,
plus
(2) the aggregate Net Cash Proceeds received by
the Issuer after the Closing Date (and, in event the Transaction is
consummated, the aggregate Net Cash Proceeds received by
Telecommunications, the Partnership or IWL during the Transition
Period), from a capital contribution from, or the issuance and sale
permitted by this Indenture to, a Person who is not a Subsidiary of the
Issuer (or Telecommunications, the Partnership or IWL, if applicable)
of (a) its Capital Stock (other than Redeemable Stock), (b) any
options, warrants or other rights to acquire its Capital Stock (in
each case, exclusive of any Redeemable Stock 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) and
(c) Indebtedness of the Issuer (and Telecommunications, the
Partnership or IWL during the Transition Period) or a Restricted
Subsidiary that has been exchanged for or converted into Capital Stock
of the Issuer (or Telecommunications, the Partnership or IWL, if
applicable) (other than Redeemable Stock) or such options, warrants or
other rights, in each case except to the extent such Net Cash Proceeds
are used to Incur Indebtedness permitted under clause (viii) of the
definition of "Permitted Indebtedness," plus
(3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments and
reductions in Investments made pursuant to clause (vi) of subsection
(b) of this Section 10.13) in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances,
or other transfers of assets, in each case to the Issuer (or
Telecommunications, the Partnership or IWL during the Transition
Period) or any Restricted Subsidiary or from the Net Cash Proceeds from
the sale of any such Investment (except, in each case, to the extent
any such payment or proceeds is included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case
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as provided in the definition of "Investments"), not to exceed, in each
case, the amount of Investments previously made by the Issuer (or
Telecommunications, the Partnership or IWL, if applicable) or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
(b) The foregoing provision shall not be violated by
reason of:
(i) the payment of any dividend within 60 days
after the date of declaration thereof if, at such date of declaration,
such payment would comply with the foregoing paragraph;
(ii) the purchase, redemption, defeasance or
other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes, including premium, if
any, and accrued and unpaid interest thereon to the date of payment,
with the proceeds of, or in exchange for, Indebtedness Incurred under
clause (iii) of the definition of "Permitted Indebtedness";
(iii) the purchase, redemption or other
acquisition or retirement for value of Capital Stock of the Issuer (or
options, warrants or other rights to acquire such Capital Stock) in
exchange for, or out of the proceeds of a substantially concurrent
offering to a Person who is not a Subsidiary of the Issuer of, shares
of Capital Stock (other than Redeemable Stock) of the Issuer (or
options, warrants or other rights to acquire such Capital Stock
(exclusive of 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)) including in connection with a
"cashless" exercise of an option, warrant or right;
(iv) the making of any principal payment or the
purchase, redemption, retirement, defeasance or other acquisition for
value of Indebtedness of the Issuer which is subordinated in right of
payment to the Notes, including premium, if any, and accrued and unpaid
interest thereon to the date of payment, in exchange for, or out of the
proceeds of, a substantially concurrent offering to a Person who is not
a Subsidiary of the Issuer of, shares of the Capital Stock (other than
Redeemable Stock) of the Issuer (or options, warrants or other rights
to acquire such Capital Stock (exclusive of 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));
(v) payments or distributions to dissenting
stockholders pursuant to applicable law in connection with the
Transaction or the Special Partnership Transaction or any
consolidation, merger or transfer of assets that complies with the
provisions of this Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of the
Issuer;
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(vi) Investments in any Person that is in the
Telecommunications Business on the date of such Investments; PROVIDED
that the aggregate amount of Investments made pursuant to this clause
(vi) does not exceed the sum of (x) $50 million plus (y) the amount of
Net Cash Proceeds received by the Issuer after the Closing Date (and,
in the event the Transaction is consummated, the aggregate Net Cash
Proceeds received by Telecommunications, the Partnership or IWL during
the Transition Period)as a capital contribution or from the sale of
Capital Stock (other than Redeemable Stock) of the Issuer (or options,
warrants or other rights to acquire such Capital Stock (exclusive of
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)) to a Person who is not a Subsidiary of the
Issuer (or Telecommunications, the Partnership or IWL, if applicable),
except to the extent such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (viii) under the definition of
"Permitted Indebtedness" or to make Restricted Payments pursuant to
subsection (a)(iii)(2) of this Section 10.13, or clauses (iii) or (iv)
of Section 10.13(b), plus (z) the net reduction in Investments made
pursuant to this clause (vi) resulting from distributions on or
repayments of such Investments or from the Net Cash Proceeds from the
sale of any such Investment (except in each case to the extent any such
payment or proceeds is included in the calculation of Adjusted
Consolidated Net Income) or from such Person becoming a Restricted
Subsidiary (valued in each case as provided in the definition of
"Investments"); PROVIDED that the net reduction in any Investment shall
not exceed the amount of such Investment;
(vii) the purchase, redemption or other retirement
or acquisition for value of shares of Capital Stock of the Issuer to
the extent necessary, in the judgment of the Board of Directors of the
Issuer, to prevent the loss or secure the renewal or reinstatement of
any license or franchise held by the Issuer or any Restricted
Subsidiary from any governmental agency;
(viii) the purchase, redemption or other retirement
or acquisition for value of shares of Capital Stock of the Issuer, or
options, warrants or other rights to purchase such shares, held by
directors, employees, or former directors or employees of the Issuer or
any Restricted Subsidiary (or their estates or beneficiaries under
their estates) upon their death, disability, retirement or termination
of employment or pursuant to the terms of any agreement under which
such shares of Capital Stock or options were issued; PROVIDED that the
aggregate consideration paid for such purchase, redemption or other
retirement or acquisition for value of such shares of Capital Stock or
options, warrants or rights after the Closing Date does not exceed $2
million in any calendar year, or $5 million in the aggregate;
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(ix) Investments acquired (x) as a capital
contribution to the Issuer or a Restricted Subsidiary or (y) in
exchange for Capital Stock (other than Redeemable Stock) of the Issuer
(or options, warrants or other rights to acquire such Capital Stock
(exclusive of 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)) so long as immediately after giving
effect to such transaction described in clause (y) above no Default or
Event of Default shall have occurred and be continuing;
(x) the purchase, redemption, defeasance or
other acquisition or retirement for value of Indebtedness of the Issuer
which is subordinated in right of payment to the Notes, including
premium, if any, and accrued and unpaid interest thereon to the date of
payment, at a price not greater than 101% of the principal amount
thereof plus any accrued and unpaid interest thereon to the date of
repayment in the event of a Change of Control in accordance with
provisions similar to Section 10.10 hereof; PROVIDED that prior to such
purchase, redemption, defeasance or other acquisition or retirement,
the Issuer has made the Change of Control Offer as provided in such
covenant with respect to the Notes and has purchased all Notes validly
tendered for payment in connection with such Change of Control Offer;
or
(xi) any payment, distribution, repurchase or
other transaction that, but for this provision, would constitute a
Restricted Payment but only to the extent that the aggregate amount of
such payments, distributions, repurchases and other transactions do not
exceed $10 million.
(c) The actions described in clauses (i), (v), (vi),
(vii), (viii), (x) and (xi) of subsection (b) above will be Restricted Payments
that will be permitted in accordance with the immediately preceding paragraph
but will reduce the amount that would otherwise be available for Restricted
Payments under Section 10.13(a)(iii). The actions described in clauses (ii),
(iii), (iv) and (ix) of subsection (b) above will be Restricted Payments that
will be permitted in accordance with the immediately preceding paragraph and
will not reduce the amount that would otherwise be available for Restricted
Payments under Section 10.13(a)(iii).
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Section 10.14. LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS
AND AFFILIATES.
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or extend any
transaction (including, without limitation, the purchase, sale, lease or
exchange of property or assets, or the rendering of any service) with any holder
(or any Affiliate of such holder) of 5% or more of any class of Capital Stock,
of the Issuer or with any Affiliate of the Issuer or any Restricted Subsidiary
except (a) in writing (other than the payment of salaries and bonuses to
officers of the Issuer or any Restricted Subsidiary in the ordinary course of
business which need not be in writing) upon fair and reasonable terms no less
favorable in any material respect to the Issuer or such Restricted Subsidiary
than could be obtained, at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate, (b) with respect to any transaction or series of
related transactions involving an aggregate value in excess of $5 million, if
the Issuer delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (a) above,
and (c) with respect to any transaction or series of related transactions
involving an aggregate value in excess of $10 million, if either (1) such
transaction or series of related transactions has been approved by a majority of
the Disinterested Directors of the Issuer, or in the event there is only one
Disinterested Director, by such Disinterested Director, or (2) the Issuer
delivers to the Trustee a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Issuer or such
Subsidiary from a financial point of view.
The foregoing limitation does not limit, and shall not apply
to:
(i) any transaction solely between the Issuer
and any of its Wholly Owned Restricted Subsidiaries or solely between
Wholly Owned Restricted Subsidiaries;
(ii) the payment of reasonable and customary
regular fees to directors of the Issuer who are not employees of the
Issuer;
(iii) any payments or other transactions pursuant
to any tax-sharing agreement between the Issuer and any other Person
with which the Issuer files a consolidated tax return or with which the
Issuer is part of a consolidated group for tax purposes;
(iv) any Restricted Payments not prohibited by
Section 10.13 hereof;
(v) the Transaction or the Special Partnership
Transaction; or
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(vi) any transaction or agreement as described in
the Offering Memorandum and as in effect as of the date of the Offering
Memorandum
Section 10.15. LIMITATION ON ASSET SALES.
The Issuer will not, and will not permit any Restricted
Subsidiary to, consummate any Asset Sate, unless (i) the consideration received
by the Issuer or such Restricted Subsidiary is at least equal to the fair market
value of the assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash Investments (with the
amount of Indebtedness and liabilities of the Issuer or a Restricted Subsidiary
that are unconditionally assumed by the transferee being deemed to be cash for
the purposes of this Section 10.15). In the event and to the extent that the
Net Cash Proceeds received by the Issuer or any of its Restricted Subsidiaries
from one or more Asset Sales occurring on or after the Closing Date in any
period of 12 consecutive months exceed the greater of $10 million and 10% of
Adjusted Consolidated Net Tangible Assets (determined as of the date closest to
the commencement of such 12-month period for which a consolidated balance sheet
of the Issuer and its Subsidiaries has been filed with the Commission or
provided to the Trustee pursuant to Section 10.22 hereof (or, if such
determination date is prior to the date of the consummation of the Transaction
or Special Partnership Transaction, then the balance sheet of the Issuer as of
such date shall be adjusted to give PRO FORMA effect to the Transaction or
Special Partnership Transaction, as the case may be, as if such transaction had
occurred on such determination date, together with an Officers' Certificate
certifying that such balance sheet has been prepared in accordance with GAAP and
is true and correct in all material respects), then the Issuer shall or shall
cause the relevant Restricted Subsidiary to (i) within 12 months after the date
Net Cash Proceeds so received exceed the greater of $10 million and 10% of
Adjusted Consolidated Net Tangible Assets (A) apply an amount equal to such
excess Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the
Issuer or any Restricted Subsidiary providing a Subsidiary Guarantee pursuant to
Section 10.23 hereof or Indebtedness of any other Restricted Subsidiary, in each
case owing to a Person other than the Issuer or any of its Subsidiaries, or (B)
invest an amount equal to such excess Net Cash Proceeds, or the amount of such
Net Cash Proceeds not so applied pursuant to clause (A) (or enter into a
definitive agreement committing to so invest within 12 months after the date of
such agreement), in Telecommunications Assets and (ii) apply (no later than the
end of the 12-month period referred to in clause (i)) such excess Net Cash
Proceeds (to the extent not applied pursuant to clause (i)) as provided in the
following paragraph of this Section 10.15. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds." Pending the final application of any such Net Cash Proceeds, the
Issuer or such
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Restricted Subsidiary may invest such funds in Temporary Cash Investments or
temporarily reduce revolving Indebtedness under any Credit Facility or any
Vendor Credit Facility.
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to Purchase
pursuant to this Section 10.15 totals at least $10 million, the Issuer shall
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes plus, in
each case, accrued interest to the Payment Date. To the extent that the
aggregate purchase price for the Notes tendered pursuant to an Offer to Purchase
is less than the Excess Proceeds, the Issuer or any Restricted Subsidiary may
use such deficiency for general corporate purposes. Upon completion of such
Offer to Purchase, the amount of Excess Proceeds shall be reset to zero.
Section 10.16. LIMITATION ON LIENS.
The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien on any of its assets or properties of any character, or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the Notes and all other amounts due under this
Indenture to be directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right of payment to
the Notes, prior to) the obligation or liability secured by such Lien. The
foregoing limitation does not apply to Permitted Liens.
Section 10.17. BUSINESS ACTIVITIES PRIOR TO THE TRANSACTION.
(a) The Company will not engage in any business or other
activities prior to the consummation of the Transaction other than activities
related to (i) the consummation of the Transaction and (ii) the offering
contemplated by the Offering Memorandum, including the execution and delivery of
this Indenture, the Notes, the Registration Rights Agreement, the Escrow
Agreement and related instruments and the performance of its obligations under
such agreements and instruments.
(b) Prior to the consummation of the Transaction or the
payment of all Notes tendered in the Special Offer to Purchase, each of
Telecommunications, the Partnership and IWL will not be permitted to, and will
not permit any of their respective Subsidiaries to, directly or indirectly:
(i) Incur any Indebtedness other than (a)
Indebtedness that constitutes Permitted Indebtedness pursuant to clause
(iv) of the definition of "Permitted
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Indebtedness" contained herein, (b) Indebtedness Incurred under one or
more Credit Facilities not to exceed, in addition to amounts
outstanding on the Closing Date, $15 million in the aggregate and (c)
intercompany Indebtedness owed by the Partnership to
Telecommunications;
(ii) make any Restricted Payment outside the
ordinary course of business, other than loans by Telecommunications to
the Partnership;
(iii) enter into any agreement or engage in any
transaction that would violate Sections 10.14, 10.18, 10.19 or 10.20.
(iv) create, incur, assume or suffer to exist any
Lien on its assets or properties of any character other than Liens that
constitute Permitted Liens pursuant to clauses (i) through (v), (vii)
through (x), (xii), (xiii), (xiv) through (xx), (xxii), (xxiii) or
(xxiv) of the definition of "Permitted Liens";
(v) enter into any agreement or engage in any
transaction that would constitute an Asset Sale;
(vi) merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety in one transaction or a series of
related transactions) to, any Person, other than in connection with the
Transaction or the Special Partnership Transaction; or
(vii) amend, waive or otherwise modify the terms
and provisions of the Merger Agreement in any material respect.
(c) Approximately $145.0 million of the net proceeds from
the offering of the Notes will be deposited into the Escrow Account and held by
the Trustee for the benefit of the Holders pursuant to the terms of the Escrow
Agreement. Each of the Company, Telecommunications and the Partnership agrees
that all funds in the Escrow Account shall be invested in Temporary Cash
Investments.
(d) In the event any Notes remain outstanding after the
payment of all Notes tendered in the Special Offer to Purchase made pursuant to
Section 10.21 hereof, the Partnership and Telecommunications shall effect either
a statutory merger or interest exchange within 60 days after completion of the
Special Offer to Purchase.
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Section 10.18. LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL
STOCK OF RESTRICTED SUBSIDIARIES.
The Issuer will not sell, pledge, hypothecate or otherwise
convey or dispose of any Capital Stock of a Restricted Subsidiary or permit any
Restricted Subsidiary, directly or indirectly, to issue, sell pledge,
hypothecate or otherwise convey or dispose of, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except:
(a) to the Issuer or a Wholly Owned Restricted
Subsidiary,
(b) issuances of director's qualifying shares or other
issuances or sales to the extent required by applicable law or regulation,
(c) issuances or sales of 100% of the Capital Stock of a
Restricted Subsidiary; PROVIDED that the Issuer or such Restricted Subsidiary
applies the Net Cash Proceeds, if any, of any such sale pursuant to this clause
(c) in accordance with clause (A) or (B) of the first paragraph of Section 10.15
hereof;
(d) issuances or sales in a transaction if, immediately
after giving effect thereto, such Restricted Subsidiary would no longer be a
Restricted Subsidiary if (i) such transaction does not violate Section 10.15
hereof and (ii) any Investment in such Person remaining after giving effect to
such transaction would not violate Section 10.13 hereof if made at the date of
such issuance or sale,
(e) pursuant to a Credit Facility or a Vendor Credit
Facility,
(f) issuances or sales of Redeemable Stock in exchange
for, or upon conversion of, or the proceeds from the issuance or sale of which
are used to refinance, shares of Redeemable Stock of such Restricted Subsidiary
if the amounts payable with respect to the redemption of such newly issued or
sold Redeemable Stock do not exceed the amount payable with respect to the
redemption of the Redeemable Stock being exchanged, converted or refinanced and
such newly issued or sold Redeemable Stock does not require any redemption
earlier than the date on which the Redeemable Stock being exchanged, converted
or refinanced required a redemption,
(g) issuances or sales of Redeemable Stock (other than
Redeemable Stock convertible into or exchangeable for Common Stock of any
Restricted Subsidiary) that does not otherwise violate the provisions of this
Indenture, or
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(h) in the Transaction or the Special
PartnershipTransaction.
Section 10.19. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
(a) The Issuer will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (i) pay dividends, in
cash or otherwise, or make any other distributions permitted by applicable law,
on any Capital Stock or any other interest or participation in, or measured by,
its profits of such Restricted Subsidiary owned by the Issuer or any other
Restricted Subsidiary, (ii) pay any Indebtedness owed to the Issuer or any other
Restricted Subsidiary, (iii) make loans or advances to the Issuer or any other
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Issuer or any other Restricted Subsidiary.
(b) The provisions of subsection (a) above shall not
restrict any encumbrances or restrictions:
(i) existing on the Closing Date in this
Indenture or any other agreements in effect on the Closing Date, and
any extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less
favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable
law;
(iii) existing with respect to any Person or the
property or assets of such Person acquired by the Issuer or any
Restricted Subsidiary and existing at the time of such acquisition and
not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or assets
of any Person other than such Person or the property or assets of such
Person so acquired;
(iv) in the case of Section 10.19(a)(iv) above,
(A) that restrict in a customary manner the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance
or contract or similar property or asset, (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Issuer or any Restricted
Subsidiary not otherwise prohibited by this Indenture or (C) arising or
agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate,
detract from the
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value of property or assets of the Issuer or any Restricted Subsidiary
in any manner material to the Issuer or any Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and
imposed pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock
of, or property and assets of, such Restricted Subsidiary; or
(vi) pursuant to (x) a Credit Facility, (y) a
Vendor Credit Facility or (z) any agreement which amends, extends,
renews, refinances, replaces or refunds a Credit Facility or Vendor
Credit Facility PROVIDED, HOWEVER, that in the case of subclauses (x),
(y) and (z), the provisions of the Credit Facility or Vendor Credit
Facility (A) permit (whether explicitly or as a result of the relative
maturities of the Credit Facility, the Vendor Credit Facility and the
Notes) distributions to the Issuer for the purposes of, and in an
amount sufficient to fund, the payment of principal due at stated
maturity and interest in respect of the Notes (PROVIDED, in either
case, that such payment is due or to become due within 30 days from the
date of such distribution) at a time when there does not exist an event
which after notice or passage of time or both would permit the lenders
under the Credit Facility or Vendor Credit Facility to declare all
amounts thereunder due and payable, and (B) provide that in no event
shall any encumbrance or restriction pursuant to the Credit Facility or
Vendor Credit Facility prohibit distributions to the Issuer for such
purposes for more than 180 days in any consecutive 360 day period,
unless (1) there exists a default under the Credit Facility or Vendor
Credit Facility resulting from any payment default under the Credit
Facility or Vendor Credit Facility or (2) the maturity of the Credit
Facility or Vendor Credit Facility has been accelerated.
(c) Nothing contained in this Section 10.19 shall prevent
the Issuer or any Restricted Subsidiary from (i) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in Section 10.16 hereof or
(ii) restricting the sale or other disposition of property or assets of the
Issuer or any of its Restricted Subsidiaries subject to such Liens.
Section 10.20. LIMITATION ON SALE-LEASEBACK TRANSACTIONS.
(a) The Issuer will not, and will not permit any
Restricted Subsidiary to, enter into any sale-leaseback transaction involving
any of its assets or properties whether now owned or hereafter acquired, whereby
the Issuer or a Restricted Subsidiary sells or transfers such assets or
properties and then or thereafter leases such assets or properties or any part
thereof or any other assets or properties which the Issuer or such Restricted
Subsidiary, as the case may be, intends to use for substantially the same
purpose or purposes as the assets or properties sold or transferred.
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(b) The foregoing restriction in subsection (a) above
does not apply to any sale-leaseback transaction if (i) the lease is for a
period, including renewal rights, of not in excess of three years; (ii) the
lease secures or relates to industrial revenue or pollution control bonds; (iii)
the transaction is solely between the Issuer and any Wholly Owned Restricted
Subsidiary or solely between Wholly Owned Restricted Subsidiaries; or (iv) the
Issuer or such Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, applies an amount not less
than the net proceeds received from such sale in accordance with clause (A) or
(B) of the first paragraph of Section 10.15 hereof.
Section 10.21. SPECIAL OFFER TO PURCHASE.
In the event that (i) by August 31, 1998 the Trustee has not
received an Officers' Certificate from each of the Company, Telecommunications,
the Partnership and IWL and an Opinion of Counsel to the Company that (x) the
Transaction has been consummated, (y) all regulatory approvals required by the
Merger Agreement have been received and are in effect except for such approvals
the failure of which to receive or have in effect will not have a material
adverse effect on the Company's financial condition, results of operations or
cash flow and (z) consummation of the Transaction has not violated or conflicted
with or given rise to a right to terminate any agreement or instrument that
would have a material adverse effect on the Company's financial condition,
results of operations and cash flow to which the Company, IWL,
Telecommunications or the Partnership is a party (which, in the case of such
Opinion of Counsel, shall be given to the best of such counsel's knowledge) or
(ii) the Trustee receives an Officers' Certificate from each of the Company,
Telecommunications, the Partnership and IWL stating that the Transaction will
not be consummated and such conditions will not be satisfied by August 31, 1998,
the Company, Telecommunications and the Partnership shall commence, within 30
days after the occurrence of an event described in clause (i) or (ii) above, and
consummate an Offer to Purchase for all Notes, in whole or in part in whole or
in part in integral multiples of $1,000, at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest to the Payment
Date.
Section 10.22. COMMISSION REPORTS AND REPORTS TO HOLDERS.
At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of a Shelf Registration
Statement (the "Registration") and (ii) the date that is six months after the
Closing Date, in either case, whether or not the Issuer is then required to file
reports with the Commission, the Issuer shall file with the Commission all such
reports and other information as it would be required to file with the
Commission by Section 13(a) or 15(d) under the Exchange Act if it were subject
thereto. The Issuer shall supply the Trustee and each Holder or shall supply to
the Trustee for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information; PROVIDED HOWEVER, that
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the copies of such reports and information mailed to Holders need not contain
the exhibits thereto, but the Issuer agrees to furnish any such exhibits to any
Holder upon written request therefor. In addition, at all times prior to the
earlier of the date of the Registration and the date that is six months after
the Closing Date, the Issuer shall, at its cost, deliver to each Holder of the
Notes quarterly and annual reports substantially equivalent to those which would
be required by the Exchange Act; it being understood that the financial
statements included in such reports shall be prepared in accordance with
generally accepted accounting principles in effect at such time. The financial
information contained in the Offering Memorandum will be deemed to have been
delivered to the Trustee pursuant to this section. In addition, at all times
prior to the Registration, upon the request of any Holder or any prospective
purchaser of the Notes designated by a Holder, the Issuer shall supply to such
Holder or such prospective purchaser the information required under Rule 144A
under the Securities Act.
Section 10.23. LIMITATION ON ISSUANCES OF GUARANTEES BY
RESTRICTED SUBSIDIARIES.
The Issuer will not permit any Restricted Subsidiary, directly
or indirectly, to Guarantee any Indebtedness of the Issuer which is PARI PASSU
in right of payment with, or subordinate in right of payment to, the Notes
("Guaranteed Indebtedness"), unless:
(i) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to this Indenture
providing for a Guarantee (a "Subsidiary Guarantee") of payment of the
Notes by such Restricted Subsidiary and
(ii) such Restricted Subsidiary waives, and will
not in any manner whatsoever claim or take the benefit or advantage of,
any rights of reimbursement, indemnity or subrogation or any other
rights against the Issuer or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee;
PROVIDED that this paragraph shall not be applicable to (x) any Guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary and was not Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or (y) any Guarantee of any Restricted
Subsidiary of Indebtedness Incurred under Credit Facilities or Vender Credit
Facilities pursuant to clause (ix) of the definition of "Permitted
Indebtedness". If the Guaranteed Indebtedness is (A) PARI PASSU in right of
payment with the Notes, then the Guarantee of such Guaranteed Indebtedness shall
be PARI PASSU in right of payment with, or subordinated in right of payment to,
the Subsidiary Guarantee or (B) subordinated in right of payment to the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated in
right of payment to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated in right of payment to the Notes.
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Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Issuer, of all of the Issuer's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
ARTICLE 11
SATISFACTION AND DISCHARGE
Section 11.01. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as
to surviving rights or registration of transfer or exchange of Notes herein
expressly provided for) and the Trustee, on written demand of and at the expense
of the Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(a) either (i) all Notes theretofore authenticated and
delivered (other than (x) Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 3.06 hereof and (y)
Notes for whose payment money has theretofore been irrevocably deposited or
caused to be deposited in trust or segregated and held in trust by the Issuer
and thereafter repaid to the Issuer or discharged from such trust, as provided
in Section 10.03) have been delivered to the Trustee for cancellation; or (ii)
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 in trust an amount of money in dollars sufficient to
pay and discharge the entire Indebtedness on such issue of Notes not theretofore
delivered to the Trustee for cancellation, for the principal of, premium, if
any, and interest to the date of such deposit or maturity date of redemption;
and
(b) the Issuer has paid or caused to be paid all other
sums payable hereunder by the Issuer (other than amounts that could become
payable under Sections 4.06 or 6.07); and
(c) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this Indenture
have been complied with; provided, that such Opinion of Counsel may rely, as to
matters of fact, upon an Officers' Certificate.
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Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Sections 4.06 and 6.07 and, if
money shall have been deposited with the Trustee pursuant to subclause (a)(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 Issuer acting as its own Paying Agent) as the Trustee may
determine, to the 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 12
REDEMPTION
Section 12.01. RIGHT OF REDEMPTION; MANDATORY REDEMPTION.
The Notes will be redeemable, at the Issuer's option, in whole or in part, at
any time or from time to time, on or after July 15, 2003 and prior to maturity,
upon not less than 30 nor more than 60 days' prior notice mailed by first-class
mail to each Holder's last address, as it appears in the Note Register, at the
following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date), if
redeemed during the 12 month period commencing July 15 of the years set forth
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
2003 . . . . . . . . . . . . . . 106.000%
2004 . . . . . . . . . . . . . . 104.000%
2005 . . . . . . . . . . . . . . 102.000%
2006 and thereafter. . . . . . . 100.000%
</TABLE>
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Section 12.02. NOTICE TO THE TRUSTEE.
If the Issuer elects to redeem Notes pursuant to Paragraph 3
of the Initial Notes or Paragraph 2 of the Exchange Notes, it shall notify the
Trustee of the Redemption Date and principal amount of Notes to be redeemed.
The Issuer 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 12.03. 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 no Notes of a principal amount of $1,000 or less shall be redeemed
in part.
The Trustee shall promptly notify the Issuer 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 principal amount of such Note which has been or is to be redeemed.
Section 12.04. 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;
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(b) the Redemption Price and the amount of accrued
interest, if any, to be paid;
(c) that, unless the Issuer defaults in making the
redemption payment, interest on Notes called for redemption ceases to accrue 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 plus unpaid interest on
the Notes through the Redemption Date, 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 amount at maturity (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 amount at maturity equal to the unredeemed
portion thereof will be issued without charge to the Holder of such Note;
(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 Issuer shall be given by the Issuer or, at the Issuer's written request,
by the Trustee in the name and at the expense of the Issuer.
Section 12.05. 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 plus accrued interest, if any, to the
Redemption Date, but interest installments whose 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 Record Dates referred
to in the Notes.
Section 12.06. DEPOSIT OF REDEMPTION PRICE.
On or prior to any Redemption Date, the Issuer shall deposit
with the Paying Agent an amount of money in same day funds sufficient to pay the
Redemption Price of, and any accrued interest on, all the Notes or portions
thereof which are to be redeemed on that date, other than Notes or portions
thereof called for redemption on that date which have been delivered by the
Issuer to the Trustee for cancellation.
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If the Issuer complies with the preceding paragraph, then,
unless the Issuer 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 plus 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 12.07. NOTES REDEEMED IN PART.
Upon surrender to the Paying Agent of a Note which is to be
redeemed in part, the Issuer shall execute and the Trustee shall authenticate
and deliver to the Holder of such Note without service charge, a new Note or
Notes, of any authorized denomination as requested by such Holder in aggregate
principal amount equal to, and in exchange for, the unredeemed portion of the
principal of the Note so surrendered that is not redeemed.
ARTICLE 13
LIMITED GUARANTEE
Section 13.01. LIMITED GUARANTEE OF NOTES.
Subject to the provisions of this Article Thirteen, the
Limited Guarantor hereby, on a joint and several basis with the Company,
Telecommunications and the Partnership, unconditionally guarantees to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Notes or the obligations of the Company,
Telecommunications or the Partnership to the Holders or the Trustee, the
obligations of the Company, Telecommunications and the Partnership in connection
with the Special Offer to Purchase, if required, made in accordance with the
provisions of Section 10.21 hereof.
The Limited Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
Telecommunications or the Partnership, any action to enforce the same, or any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of the
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Limited Guarantor except by complete performance of the obligations guaranteed
hereunder. The Limited Guarantor hereby waives the benefit of diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, Telecommunications or the Partnership,
any right to require a proceeding first against the Company, Telecommunications
or the Partnership, protest, notice and all demands whatsoever and covenants
that the Limited Guarantee will not be discharged except by complete performance
of the obligations guaranteed hereunder. If any Holder or the Trustee is
required by any court or otherwise to return to the Company, Telecommunications
or the Partnership or to the Limited Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company,
Telecommunications or the Partnership or the Limited Guarantor, any amount paid
by the Company, Telecommunications or the Partnership or the Limited Guarantor
to the Trustee or such Holder, this Limited Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
This Limited Guarantee shall remain in full force and effect
and continue to be effective should any petition be filed by or against the
Company, Telecommunications and/or the Partnership for liquidation or
reorganization, should the Company, Telecommunications and/or the Partnership
become insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of the
Company's, Telecommunications' and/or the Partnership's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Notes are,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee on the Notes, whether as a "voidable
preference," "fraudulent transfer" or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Limited Guarantee
shall, to the fullest extent permitted by law, be reinstated and deemed reduced
only by such amount paid and not so rescinded, reduced, restored or returned.
The Limited Guarantor, and by its acceptance hereof each
Holder, hereby confirms that it is the intention of all such parties that the
guarantee by the Limited Guarantor pursuant to this Article Thirteen not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar Federal or state law. To effectuate the foregoing intention, the
Holders and the Limited Guarantor hereby irrevocably agree that the obligations
of the Limited Guarantor hereunder shall be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of the
Limited Guarantor, result in the obligations of the Limited Guarantor hereunder
not constituting such fraudulent transfer or conveyance.
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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 written above.
ISSUER:
CAPROCK COMMUNICATIONS CORP.
By:
-----------------------------
Name:
Title:
CAPROCK TELECOMMUNICATIONS CORP.
By:
-----------------------------
Name:
Title:
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc., its General Partner
By:
-----------------------------
Name:
Title:
LIMITED GUARANTOR:
IWL COMMUNICATIONS, INCORPORATED
(executing for the limited purposes set forth in
Article Thirteen)
By:
-----------------------------
Name:
Title:
<PAGE>
TRUSTEE:
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------
Name:
Title:
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EXHIBIT A-1
FORM 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 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(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
DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS
SECURITY AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS
(THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER, (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, 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 ISSUER AND
THE TRUSTEE, 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
<PAGE>
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.
<PAGE>
CAPROCK COMMUNICATIONS CORP.
CAPROCK TELECOMMUNICATIONS CORP.
CAPROCK FIBER NETWORK, LTD.
12% SENIOR NOTES DUE 2008, SERIES A
CUSIP No.
No. 140667 AA 4 $
CAPROCK COMMUNICATIONS CORP., a corporation incorporated under
the laws of the State of Texas ("Communications" or the "Company"), CAPROCK
TELECOMMUNICATIONS CORP., a corporation incorporated under the laws of the State
of Texas ("Telecommunications"), and CAPROCK FIBER NETWORK, LTD., a limited
partnership organized under the laws of the State of Texas (the "Partnership";
together with Communications and Telecommunications, the "Issuer," which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby, jointly and severally, promise to pay to _______________
or registered assigns, the principal sum of _______________ Dollars on July 15,
2008, at the office or agency of the Issuer referred to below, and to pay
interest thereon on January 15 and July 15 (each an "Interest Payment Date"), of
each year, commencing on January 15, 1999, accruing from July 16, 1998 or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of 12% 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 January 1
and July 1 (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 the Indenture.
<PAGE>
Payment of the principal of, premium, if any, and interest on
this Note will be made at the office or agency of the Issuer 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 Issuer 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 Issuer 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 the Indenture or be valid
or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed.
CAPROCK COMMUNICATIONS CORP.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
CAPROCK TELECOMMUNICATIONS CORP.
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc.,
its General Partner
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12% Senior Notes due 2008, Series A,
referred to in the within-mentioned Indenture.
PNC Bank, National Association, as Trustee
By:
------------------------------
Authorized Signatory
<PAGE>
REVERSE OF NOTE
1. Indenture. This Note is one of a duly authorized
issue of Notes of the Issuer designated as the 12% Senior Notes due 2008, Series
A (herein called the "Initial Notes"). The Notes are limited (except as
otherwise provided in the Indenture referred to below) in aggregate principal
amount to $150,000,000, which may be issued under an indenture (herein called
the "Indenture") dated as of July 16, 1998, by and among the Company,
Telecommunications, the Partnership and IWL Communications, Incorporated and PNC
Bank, 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 Issuer, 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 Exchange 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. Sections 77aaa-77bbb) (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 Issuer,
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.
2. Registration Rights. Pursuant to the Registration
Rights Agreement by and among the Company, Telecommunications and the
Partnership and the Initial Purchasers, each of the Company, Telecommunications
and the Partnership will be obligated to consummate an exchange offer pursuant
to which the Holder of this Note shall have the right to exchange this Note for
12% Senior Notes due 2008, Series B, of the Issuer (herein called the "Exchange
Notes"),which have been registered under the Securities Act, in like principal
amount and having identical terms as the Notes (other than as set forth in this
paragraph). The Holders of Notes shall be entitled to receive certain additional
interest payments in the event such exchange offer is not
<PAGE>
consummated and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.
3. Redemption. The Notes will be redeemable, at the
option of the Issuer, in whole or in part, on or after July 15, 2003 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 July 15 of each of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . 106.000%
2004 . . . . . . . . . . . . . . . . . . . . . . . 104.000%
2005 . . . . . . . . . . . . . . . . . . . . . . . 102.000%
2006 and thereafter. . . . . . . . . . . . . . . . 100.000%
</TABLE>
4. 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 Issuer shall make an offer to purchase all or a portion of the
Notes in accordance with the procedures set forth in the Indenture.
5. Special Offer to Purchase. Section 10.21 of the
Indenture provides that upon the circumstances described therein, the Company,
Telecommunications and the Partnership shall make an offer to purchase all of
the Notes in accordance with the procedures set forth in the Indenture. The
Limited Guarantor shall be liable, on a joint and several basis, to repay all
amounts owed to Holders who tender Notes pursuant to the Special Offer to
Purchase as provided in Article Thirteen of the Indenture.
6. Defaults and Remedies. If an Event of Default occurs
and is continuing, the principal of all of the Outstanding Notes, plus all
accrued and unpaid interest, if any, to and including the date the Notes are
paid, may be declared due and payable in the manner and with the effect provided
in the 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 Issuer on this Note and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance by the
Issuer with certain conditions set forth therein.
-2-
<PAGE>
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 Issuer and the rights of the
Holders under the Indenture at any time by the Issuer and the Trustee with the
consent of the Holders of not less than a majority of the aggregate principal
amount of the Notes at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages of aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Issuer 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
principal amount at maturity 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 of the Issuer, upon surrender of this Note for registration of
transfer at the office or agency of the Issuer 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 Issuer as may be maintained for such purpose, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Registrar duly executed by, the Holder hereof
or his attorney duly authorized in writing, and thereupon one or more new Notes,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Issuer 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 Issuer, the
Trustee and any agent of the Issuer 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 Issuer, the Trustee nor any
agent shall be affected by notice to the contrary.
-3-
<PAGE>
11. If the Transaction is consummated on or prior to
August 31, 1998, without any further action by any Person, Telecommunications
and the Partnership shall automatically be released from their respective
obligations under this Note and the Indenture and the Limited Guarantor shall be
released from its obligations under the Indenture. In the event the Transaction
is not consummated by August 31, 1998 and any Notes remain outstanding after the
payment for Notes tendered pursuant to the Special Offer to Purchase, without
any further action by any Person, the Company shall be released as an obligor
under this Note and the Company and the Limited Guarantor shall be released from
their obligations under the Indenture.
12. GOVERNING LAW. THE INDENTURE AND THIS NOTE 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 Issuer will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture. Requests may be made to:
CapRock Communications Corp., Two Galleria Tower, 13455 Noel Road, Suite 1925,
Dallas, Texas 75240.
-4-
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Note on the books of the Issuer. The Agent may
substitute another to act for him.
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 Issuer or
any Affiliate of the Issuer 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:
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 C to the
Indenture in the case of a transfer to a non-QIB Accredited
Investor or (ii) a transfer certificate substantially in the
form of Exhibit D to the
<PAGE>
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 Section 3.16 and Section
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
-2-
<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 Issuer 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 and Issuer are relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Date: By:
--------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Issuer pursuant
to Section 10.10, 10.15 or 10.21 of the Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ] Section 10.21 [ ]
If you wish to have a portion of this Note purchased by the
Issuer pursuant to Section 10.10, 10.15 or 10.21 of the Indenture, state the
amount:
$
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
<PAGE>
EXHIBIT A-2
[NAME OF ISSUER]
12% SENIOR NOTES DUE 2008, SERIES B
CUSIP No. 140667 AB 2
No. $
[INSERT NAME OF ISSUER] the "Issuer," which term includes any
successor person under the Indenture hereinafter referred to), for value
received, hereby, jointly and severally, promise to pay to _______________ or
registered assigns, the principal sum of _______________ Dollars on July 15,
2008, at the office or agency of the Issuer referred to below, and to pay
interest thereon on January 15 and July 15 (each an "Interest Payment Date"), of
each year, commencing on January 15, 1999, accruing from July 16, 1998 or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of 12% 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 January 1
and July 1 (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 the Indenture.
Payment of the principal of, premium, if any, and interest on
this Note will be made at the office or agency of the Issuer 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 Issuer 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;
<PAGE>
provided, however, that payment of interest may be made at the option of the
Issuer 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 the Indenture or be valid
or obligatory for any purpose.
[Remainder of Page Intentionally Left Blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed.
[NAME OF ISSUER]
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
-3-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 12% Senior Notes due 2008, Series B,
referred to in the within-mentioned Indenture.
PNC Bank, National Association, as Trustee
By:
---------------------------------
Authorized Signatory
<PAGE>
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized
issue of Notes of the Issuer designated as its 12% Senior Notes due 2008, Series
B (herein called the "Exchange Notes"). The Notes are limited (except as
otherwise provided in the Indenture referred to below) in aggregate principal
amount to $150,000,000, which may be issued under an indenture (herein called
the "Indenture") dated as of July 16, 1998, by and among the Company,
Telecommunications, the Partnership and IWL Communications, Incorporated and PNC
Bank, 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 Issuer, 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 Exchange 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. Sections 77aaa-77bbb) (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 Issuer,
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.
2. Redemption. The Notes will be redeemable, at the
option of the Issuer, in whole or in part, on or after July 15, 2003 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 July 15 of each of the
years indicated below:
<PAGE>
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003 . . . . . . . . . . . . . . . . . . . . . . . 106.000%
2004 . . . . . . . . . . . . . . . . . . . . . . . 104.000%
2005 . . . . . . . . . . . . . . . . . . . . . . . 102.000%
2006 and thereafter. . . . . . . . . . . . . . . . 100.000%
</TABLE>
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 Issuer shall make an offer to purchase all or a portion of the
Notes in accordance with the procedures set forth in the Indenture.
4. Defaults and Remedies. If an Event of Default occurs
and is continuing, the principal of all of the Outstanding Notes, plus all
accrued and unpaid interest, if any, to and including the date the Notes are
paid, may be declared due and payable in the manner and with the effect provided
in the 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 Issuer on this Note and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance by the
Issuer 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 Issuer and the rights of the
Holders under the Indenture at any time by the Issuer and the Trustee with the
consent of the Holders of not less than a majority of the aggregate principal
amount of the Notes at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages of aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Issuer 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.
7. Denominations, Transfer and Exchange. The Notes are
issuable only in registered form without coupons in denominations of $1,000
principal amount at maturity and any integral multiple thereof. As provided in
the Indenture and subject to certain limitations therein
-2-
<PAGE>
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 of the Issuer, upon surrender of this Note for registration of
transfer at the office or agency of the Issuer 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 Issuer as may be maintained for such purpose, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Registrar duly executed by, the Holder hereof
or his attorney duly authorized in writing, and thereupon one or more new Notes,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Issuer 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 Issuer, the
Trustee and any agent of the Issuer 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 Issuer, the Trustee nor any
agent shall be affected by notice to the contrary.
9. GOVERNING LAW. THE INDENTURE AND THIS NOTE 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 Issuer will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture. Requests may be made to:
CapRock Communications Corp., Two Galleria Tower, 13455 Noel Road, Suite 1925,
Dallas, Texas 75240.
-3-
<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 name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Note on the books of the Issuer. The Agent may
substitute another to act for him.
Date: Your signature:
(Sign exactly as your name appears
on the other side of this note)
By:
--------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Issuer pursuant
to Section 10.10 or 10.15 of the Indenture, check the appropriate box:
Section 10.10 [ ] Section 10.15 [ ]
If you wish to have a portion of this Note purchased by the
Issuer pursuant to Section 10.10 or 10.15 of the Indenture, state the amount:
$
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:
<PAGE>
EXHIBIT B
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 THIS
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 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.
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE TO BE
DELIVERED IN CONNECTION WITH
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
Ladies and Gentlemen:
In connection with the proposed purchase of $__________
aggregate principal amount of the 12% Senior Notes due 2008 (the "Notes") of
CapRock Communications Corp., CapRock Telecommunications Corp. and CapRock Fiber
Network, Ltd. (collectively, the "Issuer"), the undersigned confirms that:
1. It understands and acknowledges that the Notes have
not been registered under the Securities Act or any other applicable securities
laws, are being offered for resale in transactions not requiring registration
under the Securities Act or any other securities laws, including sales pursuant
to Rule 144A under the Securities Act, and may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of
Securities Act or any other applicable securities law, pursuant to an exemption
therefrom or in a transaction not subject thereto and in each case in compliance
with the conditions for transfer set forth in paragraph (4) below.
2. It is not an "affiliate" (as defined in Rule 144
under the Securities Act) of Issuer or acting on behalf of the Issuer and it is
either:
(a) a QIB and is aware that any sale of Notes
to it will be made in reliance on Rule 144A. Such acquisition will be
for its own account or for the account of another QIB; or
(b) an institution that, at the time the buy
order for the Notes was originated, was outside the United States and
was not a U.S. person (and was not purchasing for the account or
benefit of a U.S. person) within the meaning of Regulation S under the
Securities Act.
3. It acknowledges that none of the Issuer, the Initial
Purchasers or any person representing the Issuer or the Initial Purchasers has
made any representation to it with respect to the Issuer or the offering or sale
of any Notes, other than the information contained in the Offering Memorandum,
which Offering Memorandum has been delivered to it and upon which it is relying
in making its investment decision with respect to the Notes. Accordingly, it
acknowledges that no representation or warranty is made by the Initial
Purchasers as to the
<PAGE>
accuracy or completeness of such materials. It has had access to such financial
and other information concerning the Issuer and the Notes as it has deemed
necessary in connection with its decision to purchase any of the Notes,
including an opportunity to ask questions of and request information from the
Issuer and the Initial Purchasers.
4. It is purchasing the Notes for its own account, or
for one or more investor accounts for which it is acting as a fiduciary or
agent, in each case for investment, and not with a view to, or for offer or sale
in connection with, any distribution thereof in violation of the Securities Act,
subject to any requirement of law that the disposition of its property or the
property of such investor account or accounts be at all times within its or
their control and subject to its or their ability to resell Notes pursuant to
Rule 144A, Regulation S or any exemption from registration available under the
Securities Act. It agrees on its own behalf and on behalf of any investor
account for which it is purchasing the Notes, and each subsequent holder of the
Notes by its acceptance thereof will agree, to offer, sell or otherwise transfer
such Notes 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 date of the original issue of the
Notes and the last date on which the Issuer or any affiliate of the Issuer was
the owner of such Notes or (y) such later date, if any, as may be required by
applicable law (the "Resale Restriction Termination Date") only (a) to the
Issuer, (b) pursuant to a registration statement which has been declared
effective under the Securities Act, (c) for so long as the Notes are eligible
for resale pursuant to Rule 144A, to a person it reasonably believes is a QIB
that purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales to non-U.S. persons that occur outside the United States within
the meaning of Regulation S under the Securities Act or (e) pursuant to any
other available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirements of law that the
disposition of its property or the property of such investor account or accounts
be at all times within its or their control and to compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date (as defined). Each
purchaser acknowledges that the Issuer and the Trustee reserve the right prior
to any offer, sale or other transfer prior to the Resale Restriction Termination
Date of the Notes pursuant to clauses (d) or (e) above to require the delivery
of an opinion of counsel, certifications and/or other information satisfactory
to the Issuer and the Trustee. Each purchaser acknowledges that each Note will
contain a legend substantially to the following effect:
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
C-1
<PAGE>
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 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(k) UNDER THE SECURITIES
ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF OR THE LAST DAY ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY AND (y) SUCH
LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESALE
RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE ISSUER, (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-US PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND; PROVIDED THAT THE ISSUER AND THE TRUSTEE 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.
C-2
<PAGE>
It acknowledges that the foregoing restrictions apply to
holders of beneficial interest in the Notes, as well as to holders of
the Notes.
5. It acknowledges that the Trustee will not be required
to accept for registration of transfer any Notes acquired by it, except upon
presentation of evidence satisfactory to the Issuer and the Trustee that the
restrictions set forth herein have been complied with.
6. It acknowledges that Issuer, the Trustee, the
Initial Purchasers and others will rely upon the truth and accuracy of the
foregoing acknowledgments, representations and agreements and agrees that if any
of the acknowledgments, representations or agreements deemed to have been made
by its purchase of the Notes are no longer accurate, it shall promptly notify
the Issuer, the Trustee and the Initial Purchasers. If it is acquiring the
Notes as a fiduciary or agent for one or more investor accounts, it represents
that it has sole investment discretion with respect to each such account and it
has full power to make the foregoing acknowledgments, representations and
agreements on behalf of each account; and that each such investor account is
eligible to purchase the Notes.
7. It agrees that it will give to each person to whom it
transfers Notes notice of any restrictions or transfer of such Notes.
As used herein, the terms "offshore transaction," "United
States" and "U.S. person" have the respective meanings given to them in
Regulation S under the Securities Act.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
Very truly yours,
(Name of Purchaser)
By:
Date:
Upon transfer, the Notes would be registered in the name of
the new beneficial owner as follows:
By:
Address:
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
PNC Bank, National Association
1600 Market Street
30th Floor
Philadelphia, Pennsylvania 19103
Attention: Corporate Trust Department
Re: CapRock Communications Corp ("Communications"),
CapRock Telecommunications Corp.
("Telecommunications") and CapRock Fiber Network,
Ltd. (the "Partnership and, together with
Communications and Telecommunications, the "Issuer")
12% Senior Notes due 2008 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $_______________
aggregate principal amount at maturity of the Securities, 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 Securities 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;
<PAGE>
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities;
(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 Securities 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 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 Issuer 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
D-5
<PAGE>
EXHIBITS
Exhibit A-1 Form of Series A Note
Exhibit A-2 Form of Series B Notes
Exhibit B Form of Legend for Book-Entry Securities
Exhibit C Form of Certificate To Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors
Exhibit D Form of Certificate To Be Delivered in Connection with
Transfers Pursuant to Regulation S
-viii-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made and
entered into this 16th day of July, 1998, by and among CapRock Communications
Corp., a Texas corporation (the "COMPANY"), CapRock Telecommunications Corp., a
Texas corporation ("TELECOMMUNICATIONS"), and CapRock Fiber Network, Ltd., a
Texas limited partnership (the "PARTNERSHIP"), and Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities
Corporation and Banc One Capital Markets, Inc. (each, an "INITIAL PURCHASER" and
collectively, the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement, dated
July 10, 1998, by and among the Company, Telecommunications, the Partnership,
IWL Communications, Incorporated ("IWL") and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Company,
Telecommunications and the Partnership to the Initial Purchasers of an aggregate
of $150 million aggregate principal amount of their 12% Senior Notes due 2008,
Series A (the "SECURITIES"). In order to induce the Initial Purchasers to enter
into the Purchase Agreement, the Company, Telecommunications and the Partnership
have agreed to provide to the Initial Purchasers and their direct and indirect
transferees 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 capitalized defined terms
shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
"ADDITIONAL INTEREST" shall have the meaning set forth in Section
2.5(a).
<PAGE>
"CLOSING DATE" shall mean the Closing Time as defined in the Purchase
Agreement.
"COMBINATION" shall have the meaning set forth for such term 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, or any other
depositary appointed by the Issuer; PROVIDED, HOWEVER, that such depositary
must have an address in the Borough of Manhattan, in the City of New York.
"EVENT DATE " shall have the meaning set forth in Section 2.5(c).
"EXCHANGE OFFER" shall mean the exchange offer by the Issuer of
Exchange Securities for Registrable Securities pursuant to Section 2.1
hereof
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2.1 hereof
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, 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(b)(ii) hereof.
"EXCHANGE SECURITIES" shall mean the 12% Senior Notes due 2008, Series
B issued by the Issuer under the Indenture containing terms identical to
the Securities in all material respects (except for references to certain
interest rate provisions, restrictions on transfers and restrictive
legends), to be offered to Holders of Securities in exchange for
Registrable Securities pursuant to the Exchange Offer.
"HOLDER" shall mean an Initial Purchaser, for so long as it owns any
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture and each Participating Broker-Dealer that holds
Exchange Securities for so long as such Participating Broker-Dealer is
required to deliver a Prospectus
-2-
<PAGE>
meeting the requirements of the 1933 Act in connection with any resale of
such Exchange Securities.
"INDENTURE" shall mean the Indenture relating to the Securities, dated
as of July 16, 1998 among the Company, Telecommunications, the Partnership,
IWL and PNC Bank, 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.
"ISSUER" shall initially mean, collectively, the Company,
Telecommunications and the Partnership and shall mean (i) the Company,
after the Combination is consummated, or (ii) Telecommunications and the
Partnership after the payment of all Securities tendered pursuant to the
offer to purchase contemplated by Section 10.21 of the Indenture has been
made, if any Securities remain outstanding.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; PROVIDED
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Issuer and other obligors on the Securities or any Affiliate
(as defined in the Indenture) of the Issuer 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, Donaldson, Lufkin & Jenrette Securities
Corporation and Banc One Capital Markets, Inc. and any other broker-dealer
which makes a market in the Securities and exchanges Registrable Securities
in the Exchange Offer for Exchange Securities.
"PARTNERSHIP" shall mean CapRock Fiber Network, Ltd., a Texas limited
partnership, and shall also include its successors.
"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(c)
hereof.
-3-
<PAGE>
"PRIVATE EXCHANGE SECURITIES" shall have the meaning set forth in
Section 2.1(c) 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 Securities 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 SECURITIES" shall mean the Securities and, if issued, the
Private Exchange Securities; PROVIDED, HOWEVER, that Securities and, if
issued, the Private Exchange Securities, shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such
Securities shall have been declared effective under the 1933 Act and such
Securities shall have been disposed of pursuant to such Registration
Statement, (ii) such Securities have been sold to the public pursuant to
Rule 144 (or any similar provision then in force, but not Rule 144A) under
the 1933 Act, (iii) such Securities shall have ceased to be outstanding or
(iv) the Exchange Offer is consummated (except in the case of Securities
purchased from the Issuer and continued to be held by any one of the
Initial Purchasers and except for Private Exchange Securities).
"REGISTRATION DEFAULT " shall have the meaning set forth in Section
2.5(a).
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Issuer with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees,
including, if applicable, the fees and expenses of any "qualified
independent underwriter" (and its counsel) that is required to be retained
by any holder of Registrable Securities in accordance with the rules and
regulations of the NASD, (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 Securities or Registrable Securities
and any filings with the NASD), (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and
distributing any Registration
-4-
<PAGE>
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 Securities on any securities exchange or exchanges, (v)
all rating agency fees, (vi) the fees and disbursements of counsel for the
Issuer and of the independent public accountants of the Issuer 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, including its counsel, 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 Paul, Hastings, Janofsky & Walker LLP, counsel to the Initial
Purchasers in connection therewith, (ix) the reasonable fees and
disbursements of Paul, Hastings, Janofsky & Walker LLP special counsel
representing the Holders of Registrable Securities and the Initial
Purchasers 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 Issuer 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 Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Issuer which covers any of the Exchange Securities or 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.
"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.
"SECURITIES" shall have the meaning set forth in the preamble.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2.2 hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Issuer pursuant to the provisions of Section 2.2 of this
Agreement which covers all of the Registrable Securities or all of the
Private Exchange Securities 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
-5-
<PAGE>
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"TELECOMMUNICATIONS" means CapRock Telecommunications Corp, a Texas
corporation, and shall also include its successors.
"TIA " shall have the meaning set forth in Section 2.1(d).
"TRANSFER RESTRICTED SECURITIES" shall mean each Security and each
Private Exchange Security until:
(i) the date on which such Security has been exchanged by a
Person other than a broker-dealer for an Exchange Security in the
Exchange Offer;
(ii) following the exchange by a broker-dealer in the
Exchange Offer of a Security for an Exchange Security, the date on
which such Exchange Security 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 Security or Private Exchange
Security has been effectively registered under the 1933 Act and
disposed of in accordance with the Shelf Registration Statement;
(iv) the date on which such Security or Private Exchange
Security is distributed to the public pursuant to Rule 144(k) under
the 1933 Act (or any similar provision then in force, but not Rule
144A under the 1933 Act);
(v) such Security or Private Exchange Security shall have
been otherwise transferred by the holder thereof and a new Security
not bearing a legend restricting further transfer shall have been
delivered by the Issuer and subsequent disposition of such Security
shall not require registration or qualification under the 1933 Act or
any similar state law then in force; or
(vi) such Security or Private Exchange Security ceases to be
outstanding.
-6-
<PAGE>
"TRUSTEE" shall mean the trustee with respect to the Securities and
the Exchange Securities under the Indenture.
"UNDERWRITER " shall have the meaning set forth in Section 4(a).
2. REGISTRATION UNDER THE 1933 ACT.
2.1 EXCHANGE OFFER. (a) To the extent not prohibited by any
applicable law or applicable interpretation of the staff of the SEC, the Issuer
shall, for the benefit of the Holders, at the Issuer's cost, (i) prepare and, as
soon as practicable but not later than 120 days after the date of this
Agreement, file with the SEC an Exchange Offer Registration Statement on an
appropriate form under the 1933 Act with respect to a proposed Exchange Offer
and the issuance and delivery to the Holders, in exchange for the Registrable
Securities (other than Securities purchased from the Issuer and continued to be
held by any one of the Initial Purchasers and except for Private Exchange
Securities), of a like principal amount of Exchange Securities, (ii) use its
best efforts to cause the Exchange Offer Registration Statement to be declared
effective under the 1933 Act within 180 days after the date of this Agreement,
(iii) use its best efforts to keep the Exchange Offer Registration Statement
effective until the closing of the Exchange Offer or (iv) use its best efforts
to cause the Exchange Offer to be consummated not later than 215 days after the
date of this Agreement. The Exchange Securities will be issued under the
Indenture. Upon the effectiveness of the Exchange Offer Registration Statement,
the Issuer shall promptly commence the Exchange Offer, it being the objective of
such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder (i) is
not an affiliate of the Issuer within the meaning of Rule 405 under the 1933
Act, (ii) is not a broker-dealer tendering Registrable Securities acquired
directly from the Issuer or an affiliate of the Issuer for its own account,
(iii) acquired the Exchange Securities in the ordinary course of such Holder's
business and (iv) has no arrangements or understandings with any Person to
participate in the Exchange Offer for the purpose of distributing the Exchange
Securities) to transfer such Exchange Securities from and after their receipt
without any limitations or restrictions under the 1933 Act and under state
securities or blue sky laws.
(b) In connection with the Exchange Offer, the Issuer shall:
(i) 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;
(ii) keep the Exchange Offer open for acceptance for a
period of not less than 20 business days after the date notice thereof is mailed
to the Holders (or
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longer if required by applicable law) (such period referred to herein as the
"EXCHANGE PERIOD");
(iii) utilize the services of the Depositary for the Exchange
Offer;
(iv) permit Holders to withdraw tendered Registrable
Securities 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
notice, a telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Registrable Securities delivered
for exchange, and a statement that such Holder is withdrawing such Holder's
election to have such Securities exchanged;
(v) 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
(vi) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
(c) If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Securities acquired by them that have the status of an
unsold allotment in the initial distribution, the Issuer upon the request of any
Initial Purchaser shall, simultaneously with the delivery of the Exchange
Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in
exchange (the "PRIVATE EXCHANGE") for the Securities held by such Initial
Purchaser, a like principal amount of debt securities of the Issuer on a senior
basis, that are identical (except that such securities shall bear appropriate
transfer restrictions) to the Exchange Securities (the "PRIVATE EXCHANGE
SECURITIES").
(d) The Exchange Securities and the Private Exchange Securities
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"), or is exempt from
such qualification and shall provide that the Exchange Securities shall not be
subject to the transfer restrictions set forth in the Indenture but that the
Private Exchange Securities shall be subject to such transfer restrictions. The
Indenture or such indenture shall provide that the Exchange Securities, the
Private Exchange Securities and the Securities shall vote and consent together
on all matters as one class and that none of the Exchange Securities, the
Private Exchange Securities or the Securities will have the right to vote or
consent as a separate class on any matter. The Private Exchange Securities
shall be of the same series as the Exchange
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Securities and the Issuer shall use all commercially reasonable efforts to have
the Private Exchange Securities bear the same CUSIP number as the Exchange
Securities. The Issuer shall not have any liability under this Agreement solely
as a result of such Private Exchange Securities not bearing the same CUSIP
number as the Exchange Securities.
(e) As soon as practicable after the close of the Exchange Offer
and/or the Private Exchange, as the case may be (to the extent not prohibited by
any applicable law or applicable interpretation of the staff of the SEC, the
Issuer shall use its best efforts to issue, on or prior to the 35th day
following the date the Exchange Offer Registration Statement is declared
effective by the SEC), the Issuer shall:
(i) accept for exchange all Registrable Securities duly
tendered and not validly withdrawn pursuant to the Exchange Offer in
accordance with the terms of the Exchange Offer Registration Statement and
the letter of transmittal which shall be an exhibit thereto;
(ii) accept for exchange all Securities properly tendered
pursuant to the Private Exchange;
(iii) deliver to the Trustee for cancellation all Registrable
Securities so accepted for exchange; and
(iv) cause the Trustee promptly to authenticate and deliver
Exchange Securities or Private Exchange Securities, as the case may be, to
each Holder of Registrable Securities so accepted for exchange in a
principal amount equal to the principal amount of the Registrable
Securities of such Holder so accepted for exchange.
(f) Interest on each Exchange Security and Private Exchange
Security will accrue from the last date on which interest was paid on the
Registrable Securities surrendered in exchange therefor or, if no interest has
been paid on the Registrable Securities, from the date of original issuance.
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 Securities in accordance with the Exchange Offer and the Private
Exchange, (iii) that each Holder of Registrable Securities exchanged in the
Exchange Offer shall have represented that it is not an affiliate (as defined in
Rule 405 promulgated under the 1933 Act) of the Issuer or if it is an affiliate,
it will comply with the registration and prospectus delivery requirements of the
1933 Act to the extent applicable, that all Exchange Securities 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
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arrangement or understanding with any person to participate in the distribution
(within the meaning of the 1933 Act) of the Exchange Securities 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 Issuer's judgment, would reasonably be expected to impair
the ability of the Issuer to proceed with the Exchange Offer or the Private
Exchange. To the extent permitted by law and ascertainable by the Issuer, the
Issuer 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 Securities in the Exchange Offer.
2.2 SHELF REGISTRATION. (i) If, because of any changes in law, SEC
rules or regulations or applicable interpretations thereof by the staff of the
SEC, the Issuer is not permitted to effect the Exchange Offer as contemplated by
Section 2.1 hereof, (ii) if for any other reason the Exchange Offer Registration
Statement is not declared effective within 180 days following the date of this
Agreement or the Exchange Offer is not consummated within 215 days after the
date of this Agreement, (iii) any Holder of Securities notifies the Issuer
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 Securities 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 Securities acquired directly from the Issuer or an
affiliate of the Issuer for its own account or (iv) the holders of a majority of
the Securities may not resell the Exchange Securities acquired or that would be
acquired by them in the Exchange Offer to the public without restriction under
the 1933 Act and without restriction under applicable blue sky or state
securities laws, the Issuer will file with the Commission the Shelf Registration
Statement to cover resales of the Transfer Restricted Securities by the holders
thereof.
(x) As promptly as practicable, but in any event prior to
the later of (1) 120 days after the date of this Agreement or (2) 30 days
after the obligation to file the Shelf Registration Statement arises, file
with the SEC, and thereafter shall use its best efforts to cause to be
declared effective as promptly as practicable but no later than 60 days
after such filing obligation arises, a Shelf Registration Statement
relating to the offer and sale of the Registrable Securities 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
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forth in such Shelf Registration Statement; provided that, with respect to
Exchange Securities received by a broker-dealer in exchange for any
securities that were acquired by such broker-dealer as a result of market
making or other trading activities, the Issuer may, if permitted by current
interpretations by the Commission's staff, file a post-effective amendment
to the Exchange Offer Registration Statement containing the information
required by Regulation S-K Items 507 and/or 508, as applicable, in
satisfaction of its obligations under this Section solely with respect to
broker-dealers who acquired their Securities as a result of market making
or other trading activities, and any such Exchange Offer Registration
Statement, as so amended, shall be referred to herein as, and governed by
the provisions herein applicable to, a Shelf Registration Statement. In
the event that the Issuer is required to file a Shelf Registration
Statement upon the request of any Holder (including an Initial Purchaser)
not eligible to participate in the Exchange Offer pursuant to clause (iii)
or (iv) above, the Issuer shall file and use its best efforts to have
declared effective by the SEC both an Exchange Offer Registration Statement
pursuant to Section 2.1 with respect to all Registrable Securities and a
Shelf Registration Statement (which may be a combined Registration
Statement with the Exchange Offer Registration Statement) with respect to
offers and sales of Registrable Securities held by such Holder or such
Initial Purchaser, as applicable, after completion of the Exchange Offer.
(y) Use its best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus forming
part thereof to be usable by Holders for a period of two years from the
date the Shelf Registration Statement is declared effective by the SEC, or
for such shorter period that will terminate when all Registrable Securities
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 Securities (the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER,
that the Effectiveness Period in respect of the Shelf Registration
Statement shall be extended to the extent required to permit dealers to
comply with the applicable prospectus delivery requirements of Rule 174
under the 1933 Act and as otherwise provided herein; and
(z) 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
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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 Issuer shall not permit any securities other than Registrable
Securities to be included in the Shelf Registration Statement. The Issuer
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 Securities copies of any such supplement or amendment promptly after
its being used or filed with the SEC.
2.3 EXPENSES. The Issuer shall pay all Registration Expenses in
connection with the 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 Securities
pursuant to the Shelf Registration Statement and the fees and expenses of
counsel other than the one counsel set forth in the definition of Registration
Expenses.
2.4 EFFECTIVENESS.
(a) The Issuer will be deemed not to have used its best
efforts to cause the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, to become, or to remain, effective
during the requisite period if the Issuer 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 Securities covered thereby not being able to exchange or offer and
sell such Registrable Securities during that period as and to the extent
contemplated hereby, unless (i) such action is required by applicable law or
(ii) such action is taken by the Issuer in good faith pursuant to Section
2.4(c).
(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 Registrable Securities pursuant to an Exchange Offer
Registration Statement or 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 Registrable Securities pursuant to such Registration Statement may legally
resume.
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(c) During any 365-day period, the Issuer may suspend the
availability of a Shelf Registration Statement and the use of the related
Prospectus, should an event or discovery occur as described in Section 3(h)(v)
or (vi), for up to two periods of up to 45 consecutive days (except for the
consecutive 45-day period immediately prior to maturity of the Security), but no
more than an aggregate 60 days during any 365-day period, if any event shall
occur as a result of which it shall be necessary, in the good faith
determination of the board of directors of the Issuer, to amend the Shelf
Registration Statement or amend or supplement any Prospectus or prospectus
supplement thereunder in order that each such document not include any untrue
statement of fact or omit the state a material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made.
2.5 INTEREST. (a) The Indenture executed in connection with the
Securities provides that in the event that either (i) the Exchange Offer
Registration Statement is not filed with the SEC on or prior to the 120th
calendar day after the date of this Agreement, (ii) the Exchange Offer
Registration Statement has not been declared effective on or prior to the 180th
calendar day after the date of this Agreement, (iii) the Exchange Offer is not
consummated or, if required, a Shelf Registration Statement is not declared
effective, in either case, on or prior to the 215th calendar day after the date
of this Agreement or (iv) the Exchange Offer Registration Statement is declared
effective but thereafter ceased to be effective or usable (each such event
referred to in clauses (i) through (iv) above, a "REGISTRATION DEFAULT"), the
interest rate borne by the Securities shall be increased ("ADDITIONAL INTEREST")
by one-half of one percent (0.50%) per annum 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 under any such
circumstance; PROVIDED that the maximum aggregate increase in the interest rate
will in no event exceed one percent (1%) per annum. Upon (w) the filing of the
Exchange Offer Registration Statement after the 120-day period described in
clause (i) above, (x) the effectiveness of the Exchange Offer Registration
Statement after the 180-day period described in clause (ii) above, (y) the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, after the 215-day period described in clause
(iii) above, or (z) the cure of any Registration Default described in clause
(iv) above, such additional interest shall cease to accrue from date of such
filing, effectiveness, consummation or cure, as the case may be, if the Issuer
is otherwise in compliance with this paragraph; provided, however, that if,
after any such additional interest ceases to accrue, a different event specified
in clause (i), (ii), (iii) or (iv) above occurs, such additional interest will
again accrue pursuant to the foregoing provision.
(b) The Issuer shall notify the Trustee within five business days
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "EVENT DATE"). Additional
Interest shall be paid by depositing
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with the Trustee, in trust, for the benefit of the Holders of Registrable
Securities before the applicable semiannual interest payment date, immediately
available funds in sums sufficient to pay the Additional Interest then due. The
Additional Interest due shall be payable on each interest payment date to the
record Holder of Securities entitled to receive the interest payment to be paid
on such date as set forth in the Indenture. Each obligation to pay Additional
Interest shall be deemed to accrue from and including the day following the
applicable Event Date.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Issuer with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Issuer
shall:
(a) prepare and file with the SEC a Registration Statement, within
the relevant time period specified in Section 2, on the appropriate form under
the 1933 Act, which form (i) shall be selected by the Issuer, (ii) shall, in the
case of a Shelf Registration, be available for the sale of the Registrable
Securities by the selling Holders thereof, (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, and (iv) shall comply in
all respects with the requirements of Regulation S-T under the 1933 Act, and use
its best efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary
under applicable law to keep such Registration Statement effective for the
applicable period; 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 Securities, at least five business days prior to filing, that a
Shelf Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
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 Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of
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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 Securities; and (iii) subject to the third from
the last paragraph of this Section 3, hereby consent to the use of the
Prospectus or any amendment or supplement thereto by each of the selling Holders
of Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities 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 Securities owned by such Holder; PROVIDED, HOWEVER, that the Issuer
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) if, following the date hereof there has been announced a change
in SEC policy with respect to exchange offers such as the Exchange Offer, that
in the reasonable opinion of counsel to the Issuer raises a substantial question
as to whether the Exchange Offer is permitted by applicable federal law, the
Issuer hereby agrees to seek a no-action letter or other favorable decision from
the SEC allowing the Issuer to consummate an Exchange Offer for such Registrable
Securities. The Issuer hereby agrees to pursue the issuance of such a decision
to the SEC staff level. In connection with and subject to the foregoing, the
Issuer hereby agrees to take all such other actions as may be reasonably
requested by the SEC or otherwise required in connection with the issuance of
such decision, including, without limitation, (A) participating in telephonic
conferences with the SEC, (B) delivering to the SEC staff an analysis prepared
by counsel to the Issuer setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted and (C)
diligently pursuing a resolution (which need not be favorable) by the SEC staff;
(f) as a condition to its participation in the Exchange Offer, each
Holder of Registrable Securities (including, without limitation, any Holder who
is a Participating Broker-Dealer) shall furnish, upon the request of the Issuer,
prior to the consummation of the Exchange Offer, a written representation to the
Issuer (which may
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be contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of the
Issuer, (B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Securities to be issued in the Exchange Offer and (C) it is
acquiring the Exchange Securities in its ordinary course of business. In
addition, all such Holders of Registrable Securities shall otherwise reasonably
cooperate to the extent necessary in the Issuer's preparations for the Exchange
Offer. Each Holder using the Exchange Offer to participate in a distribution of
the Exchange Securities hereby acknowledges and agrees that, if the resales are
of Exchange Securities obtained by such Holder in exchange for Securities
acquired directly from the Issuer or an affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this Agreement, rely on the
position of the SEC enunciated in MORGAN STANLEY AND CO., INC. (available June
5, 1991) and EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), as
interpreted in the SEC's letter to SHEARMAN & STERLING dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action letter
obtained pursuant to clause (e) above), and (2) must comply with the
registration and prospectus delivery requirements of the 1933 Act in connection
with a secondary resale transaction and that such a secondary resale transaction
must be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K;
(g) prior to effectiveness of the Exchange Offer Registration
Statement, the Issuer shall, to the extent requested or required by the SEC,
provide a supplemental letter to the SEC (A) stating that the Issuer is
registering the Exchange Offer in reliance on the position of the SEC enunciated
in EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1988), MORGAN STANLEY
AND CO., INC. (available June 5, 1991) as interpreted in the SEC's letter to
SHEARMAN & STERLING dated July 2, 1993, and, if applicable, any no-action letter
obtained pursuant to clause (e) above, (B) including a representation that the
Issuer has not entered into any arrangement or understanding with any Person to
distribute the Exchange Securities to be received in the Exchange Offer, and to
the extent that the Issuer is capable of so representing, to the best of the
Issuer's information and belief, each Holder participating in the Exchange Offer
is acquiring the Exchange Securities in its ordinary course of business and has
no arrangement or understanding with any Person to participate in the
distribution of the Exchange Securities received in the Exchange Offer and (C)
any other undertaking or representation required by the SEC as set forth in any
no-action letter obtained pursuant to clause (e) above, if applicable;
(h) notify promptly each Holder of Registrable Securities under a
Shelf Registration or any Participating Broker-Dealer who has notified the
Issuer that it is utilizing the Exchange Offer Registration Statement as
provided in paragraph (f) above and, if requested by such Holder or
Participating Broker-Dealer, confirm such advice in
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writing promptly (i) when a Registration Statement has become effective and when
any post-effective amendments and supplements thereto become effective, (ii) of
any request by the SEC or any state securities authority for post-effective
amendments and supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become effective,
(iii) of the issuance by the SEC or any state securities authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) in the case of a Shelf Registration,
if, between the effective date of a Registration Statement and the closing of
any sale of Registrable Securities covered thereby, the representations and
warranties of the Issuer 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 Issuer of any notification with respect to the suspension of the
qualification of the Registrable Securities or the Exchange Securities, 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 Issuer
that a post-effective amendment to such Registration Statement would be
appropriate;
(i) 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 Securities 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 l3d-3 under the 1934 Act) of Exchange Securities 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 Securities for Registrable Securities 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 Securities, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Issuer the notice referred to in Section 3(c), 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
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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 Securities 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 not a broker-dealer, it hereby represents
that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Securities. If the exchange offeree is a
broker-dealer that will receive Exchange Securities for its own
account in exchange for Registrable Securities that were acquired 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 Securities received in respect
of such Registrable Securities 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 Securities, the broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the 1933 Act;
(j) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Issuer agrees to deliver to the Initial Purchasers on
behalf of the Participating Broker-Dealers upon the effectiveness of the
Exchange Offer Registration Statement, (i) officers' certificates substantially
in the form customarily delivered in a public offering of debt securities and
(ii) 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 Accountants (or if such a comfort letter is not permitted, an
agreed upon procedures letter in customary form) from the Issuer's independent
certified public accountants (and, if necessary, any other independent certified
public accountants of any subsidiary of the Issuer or of any business acquired
by the Issuer 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 Securities to the Initial Purchasers;
(k) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel
for the Holders of Registrable Securities, copies of any comment letters
received from the SEC or any other
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request by the SEC or any state securities authority for amendments or
supplements to a Registration Statement and Prospectus or for additional
information;
(l) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(m) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, 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 (without
documents incorporated therein by reference and all exhibits thereto, unless
requested);
(n) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities 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 three business days prior to the closing of any sale
of Registrable Securities;
(o) 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(h)(v)
and 3(h)(vi) hereof, as promptly as practicable after the occurrence of such an
event, use its best efforts to prepare a supplement or post-effective amendment
to the Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities 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 Issuer 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 Issuer 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;
(p) in the case of a Shelf Registration, a reasonable time prior to
the filing of any Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus or any
document which is to be incorporated by reference into a Registration Statement
or a Prospectus after initial filing of a Registration Statement, provide copies
of such document to the Initial Purchasers on behalf of such Holders; and make
such representatives of the Issuer as shall be reasonably
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requested by the Holders of Registrable Securities, or the Initial Purchasers,
on behalf of such Holders, available for discussion of such document;
(q) obtain a CUSIP number for all Exchange Securities, Private
Exchange Securities or Securities, 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 Securities, Private Exchange Securities or the
Securities, as the case may be, in a form eligible for deposit with the
Depositary;
(r) (i) cause the Indenture to be qualified under the TIA in
connection with the registration of the Exchange Securities or Registrable
Securities, as the case may be, (ii) cooperate with the Trustee and the Holders
to effect such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and (iii) execute, and
use its best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(s) 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 such Registrable
Securities and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders
of such Registrable Securities 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 Issuer and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the
holders of a majority in principal amount of the Registrable Securities
being sold) addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested in sales of
securities or underwritten offerings and such other matters as may be
reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Issuer's independent certified public accountants (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Issuer or of any business acquired by the Issuer for which financial
statements are, or are required
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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 Securities (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) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement shall be in
form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is 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
Securities 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;
(t) 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 Securities, 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 Issuer
reasonably requested by any such persons, and cause the respective officers,
directors, employees, and any other agents of the Issuer to supply all
information reasonably requested by any such representative, underwriter,
special counsel or accountant in connection with a Registration Statement, and
make such representatives of the Issuer available for discussion of such
documents as shall be reasonably requested by the Initial Purchasers; provided
that any such records, documents, properties and such
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information that is designated in writing by the Issuer, in good faith, as
confidential at the time of delivery of such records, documents, properties or
information shall be kept confidential by any such representative, underwriter,
special counsel or accountant and shall be used only in connection with such
Shelf Registration Statement, unless disclosure thereof is made in connection
with a court proceeding or required by law, or such information has become
available (not in violation of this agreement) to the public generally or
through a third party without an accompanying obligation of confidentiality, and
the Issuer shall be entitled to request that such representative, underwriter,
special counsel or accountant sign a confidentiality agreement to the foregoing
effect;
(u) (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 document to the Initial Purchasers and to counsel to the
Holders of Registrable Securities and make such changes in any such document
prior to the filing thereof as the Initial Purchasers or counsel to the Holders
of Registrable Securities may reasonably request and, except as otherwise
required by applicable law, not file any such document in a form to which the
Initial Purchasers on behalf of the Holders of Registrable Securities and
counsel to the Holders of Registrable Securities shall not have previously been
advised and furnished a copy of or to which the Initial Purchasers on behalf of
the Holders of Registrable Securities or counsel to the Holders of Registrable
Securities shall reasonably object, and make the representatives of the Issuer
available for discussion of such documents as shall be reasonably requested by
the Initial Purchasers, 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 or amendment or
supplement to such Prospectus, provide copies of such document to the Holders of
Registrable Securities, to the Initial Purchasers, to counsel for the Holders
and to the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any, make such changes in any such document prior to
the filing thereof as the Initial Purchasers, the counsel to the 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 on behalf of the
Holders of Registrable Securities, counsel for the Holders of Registrable
Securities or any underwriter shall not have previously been advised and
furnished a copy of or to which the Majority Holders, the Initial Purchasers of
behalf of the Holders of Registrable Securities, counsel to the Holders of
Registrable Securities or any underwriter shall reasonably object, and make the
representatives of the Issuer available for discussion of such document as shall
be reasonably requested by the Holders of Registrable Securities, the Initial
Purchasers on behalf of such Holders, counsel for the Holders of Registrable
Securities or any underwriter;
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(v) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange on
which similar debt securities issued by the Issuer are then listed if requested
by the Majority Holders, or if requested by the underwriter or underwriters of
an underwritten offering of Registrable Securities, if any;
(w) in the case of a Shelf Registration, use its best efforts to
cause the Registrable Securities to be rated by the appropriate rating agencies,
if so requested by the Majority Holders, or if requested by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any;
(x) otherwise comply with all applicable rules and regulations of
the SEC and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering at least 12 months which shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
and
(y) 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).
In the case of a Shelf Registration Statement, the Issuer may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to furnish to the Issuer such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Issuer 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 Issuer of the happening of any event
or the discovery of any facts, each of the kind described in Section 3(h)(v)
hereof, such Holder will keep such information confidential and will forthwith
discontinue disposition of Registrable Securities pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(o) hereof, and, if so directed by
the Issuer, such Holder will deliver to the Issuer (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 Securities
current at the time of receipt of such notice.
In the event that the Issuer fails to effect the Exchange Offer or
file any Shelf Registration Statement and maintain the effectiveness of any
Shelf Registration Statement as provided herein, the Issuer shall not file any
Registration Statement with
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respect to any securities (within the meaning of Section 2(l) of the 1933 Act)
of the Issuer other than Registrable Securities.
If any of the Registrable Securities 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 of such Registrable Securities included in such
offering and shall be acceptable to the Issuer. No Holder of Registrable
Securities may participate in any underwritten registration hereunder unless
such Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
4. INDEMNIFICATION; CONTRIBUTION.
(a) The Issuer 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 losses, liabilities, claims,
damages and expenses 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 Exchange Securities or Registrable Securities were registered under
the 1933 Act, including all documents incorporated therein by reference, or
the omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein 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 losses, liabilities, claims,
damages and expenses 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 Issuer; and
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(iii) against any and all expenses whatsoever, as incurred
(including the 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 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 (A) 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 Issuer 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) or
(B) result from the use of the Prospectus during a period when the use of the
Prospectus has been suspended in accordance with Section 2.4(c); provided, in
each case, that Holders received reasonable prior notice of such suspension.
(b) Each Holder severally, but not jointly, agrees to indemnify and
hold harmless the Issuer, 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 Issuer, the Initial Purchasers, 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 Issuer 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
Securities pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give notice in writing 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
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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 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 Issuer 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 Issuer 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 Issuer,
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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 Issuer, 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 Securities sold by it were offered exceeds the amount
of any damages which such Initial Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 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 Issuer, and each Person,
if any, who controls the Issuer 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
Issuer. 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 Issuer is subject
to the reporting requirements of Section 13 or 15 of the 1934 Act, the Issuer
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 Issuer ceases to be so
required to file such reports, the Issuer covenants that it will upon
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the request of any Holder of Registrable Securities (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 it will
take such further action as any Holder of Registrable Securities may reasonably
request, 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 Securities 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 Securities, the Issuer will deliver to such Holder a
written statement as to whether it has complied with such requirements.
5.2 TERMINATION OF CERTAIN PARTIES' OBLIGATIONS UNDER THIS
AGREEMENT. Upon the consummation of the Combination, Telecommunications and the
Partnership will automatically, and without any further action by any person, be
released from their obligations under this Agreement. In the event the offer to
purchase referred to in Section 10.21 of the Indenture is made and Securities
remain outstanding thereafter, the Company will automatically, and without any
further action by any person, be released from its obligations under this
Agreement.
5.3 NO INCONSISTENT AGREEMENTS. The Issuer has not entered into
and the Issuer will not after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. 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 granted
to the holders of the Issuer's other issued and outstanding securities under any
such agreements.
5.4 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 Issuer has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or departure.
5.5 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 Issuer by means of a notice given in accordance with the provisions of this
Section 5.5, which address initially is the address
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set forth in the Purchase Agreement with respect to the Initial Purchasers; and
(b) if to the Issuer, initially at the Issuer'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 5.5.
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.
5.6 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
Securities in violation of the terms of the Purchase Agreement or the Indenture.
If any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities such person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, including the restrictions on resale set forth in this Agreement
and, if applicable, the Purchase Agreement, and such person shall be entitled to
receive the benefits hereof.
5.7 THIRD PARTY BENEFICIARIES. The Initial Purchasers (even if the
Initial Purchasers are not Holders of Registrable Securities) shall be third
party beneficiaries to the agreements made hereunder between the Issuer, 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 Securities shall be a third party
beneficiary to the agreements made hereunder between the Issuer, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights hereunder.
5.8 SPECIFIC ENFORCEMENT. Without limiting the remedies available
to the Initial Purchasers and the Holders, the Issuer acknowledges that any
failure by the Issuer to comply with its obligations under Sections 2.1 through
2.4 hereof may result in
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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 Issuer's obligations under Sections 2.1 through 2.4
hereof
5.9 RESTRICTION ON RESALES. Until the expiration of two years
after the original issuance of the Securities, the Issuer 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 Securities which are "restricted securities" (as such
term is defined under Rule 144(a)(3) under the 1933 Act) that have been
reacquired by any of them and shall immediately upon any purchase of any such
Securities submit such Securities to the Trustee for cancellation.
5.10 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.
5.11 HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
5.12 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.
5.13 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.
-30-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CAPROCK COMMUNICATIONS CORP.
By:
-----------------------------
Name:
Title:
CAPROCK TELECOMMUNICATIONS CORP.
By:
-----------------------------
Name:
Title:
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc., its general partner
By:
-----------------------------
Name:
Title:
<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC ONE CAPITAL MARKETS, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
-------------------------
Name:
Title:
For itself and as Representative of the other Initial Purchasers named in this
Agreement.
<PAGE>
Exhibit 5.1
July 8, 1998
CapRock Communications Corp.
Two Galleria Tower, Suite 1925
13455 Noel Road
Dallas, Texas 75240
Gentlemen:
We have acted as counsel to CapRock Communications Corp., a Texas
corporation (the "Company"), and IWL Communications, Incorporated, a Texas
corporation ("IWL"), in connection with the preparation, authorization,
execution and delivery of, and the consummation of the transactions contemplated
by, the Agreement and Plan of Merger and Plan of Exchange (the "Agreement"),
dated as of February 16, 1998, by and among IWL, the Company, IWL Acquisition
Corp., CapRock Telecommunications Corp. ("Telecommunications"), CapRock
Acquisition Corp., and CapRock Fiber Network, Ltd. Pursuant to the Agreement,
the Company has filed with the Securities and Exchange Commission a Registration
Statement on Form S-4 (the "Registration Statement") in connection with the
issuance of shares of common stock, par value $.01 per share, of the Company
("Common Stock"). The Registration Statement contains the Joint Proxy Statement
of IWL and Telecommunications and the Prospectus with respect to the Common
Stock (the "Joint Proxy/Prospectus").
In our capacity as counsel to the Company and IWL and for the purpose of
rendering the opinions hereinafter expressed, we have relied solely upon the
documents, certificates and other items described on Exhibit A attached hereto
and have made no other investigation or inquiry. In delivering this opinion, we
have assumed the genuineness of all signatures; the authenticity of all
documents submitted to us as originals; the conformity to the originals of all
documents submitted to us as certified, photostatic or conformed copies; the
authenticity of the originals of all such latter documents; and the correctness
of statements and certificates submitted to us by officers and representatives
of the Company
Based solely upon the foregoing, and subject to the qualifications,
limitations, and assumptions set forth below, we are of the opinion that the
shares of Common Stock to be issued pursuant to the Registration Statement have
been duly authorized and, when issued as contemplated by the Agreement, will be
validly issued, fully paid and nonassessable.
The opinion set forth above is limited to the substantive laws of the State
of Texas and no opinion is expressed herein as to matters governed by any other
law.
<PAGE>
CapRock Communications Corp.
July 8, 1998
Page 2
This opinion is rendered solely to you in connection with the foregoing
matters. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person (other than any shareholder of
the Company) without our prior written consent.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and also to the use of our name in the Registration
Statement and the prospectus that is deemed to be a part thereof under the
caption "Legal Matters" as having passed upon certain legal matters in
connection with the shares of Common Stock to be issued pursuant to the
Registration Statement. By so consenting, we do not thereby admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
MUNSCH HARDT KOPF
HARR & DINAN, P.C.
<PAGE>
EXHIBIT A
1. Articles of Incorporation of the Company, as amended, as certified by the
Secretary of State of Texas on July 3, 1998.
2. Bylaws of the Company.
3. Certificate of Existence for the Company issued by the Secretary of State
of Texas on July 3, 1998.
4. Certificate of Good Standing for the Company issued by the Texas
Comptroller's Office on July 6, 1998.
5. Telephone confirmation by the Secretary of State of Texas on the date
hereof that the Company is validly existing under the laws of the State of
Texas and telephone confirmation by the Texas Comptroller's Office on the
date hereof that the Company is in good standing.
6. Officers' Certificate of the Company in support of this opinion executed by
duly authorized officers of the Company, dated as of the date hereof,
certifying that the matters set forth therein are true and correct.
7. The Registration Statement together with all appendices and exhibits
thereto.
<PAGE>
Exhibit 8.1
July 17, 1998
IWL Communications, Incorporated
12000 Aerospace Avenue, Suite 200
Houston, TX 77034
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of IWL Acquisition Corp.
("I-Sub"), a Texas corporation and a direct wholly-owned subsidiary of
CapRock Communications Corp., a Texas corporation formerly known as IWL
Holdings Corp. ("Holdings"), with and into IWL Communications, Incorporated,
a Texas corporation ("IWL").
In formulating our opinion, we examined such documents as we deemed
appropriate, including the Agreement and Plan of Merger and Plan of Exchange
dated as of February 16, 1998, as amended, by and among IWL, Holdings, I-Sub,
CapRock Telecommunications Corp., a Texas corporation formerly known as
CapRock Communications Corp. ("Telecommunications"), CapRock Acquisition
Corp. ("C-Sub"), a Texas corporation and a direct wholly-owned subsidiary of
Holdings, and CapRock Fiber Network, Ltd., a Texas limited partnership (the
"Partnership") (the "Merger Agreement"), and the Joint Proxy
Statement/Prospectus dated July 16, 1998 (the "Joint Proxy Statement")
included in the Registration Statement on Form S-4 (the "Registration
Statement"), as filed by Holdings with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended, (the
"Securities Act") on July 16, 1998. Unless otherwise indicated, any defined
terms used herein have the same meaning as in the Joint Proxy Statement.
Our opinion set forth below assumes (1) the consummation of the Merger in
the manner contemplated by, and in accordance with the terms set forth in, the
Merger Agreement, the Joint Proxy Statement and the Registration Statement and
(2) the accuracy and completeness of (i) the statements and facts concerning the
Merger set forth in the Merger Agreement, the Joint Proxy Statement, and the
Registration Statement, (ii) the facts that are the subject of the
representations of Holdings and I-Sub set forth in the certificate delivered to
us by Holdings and dated the date hereof, and (iii) the facts that are the
subject of the representations of IWL set forth in the certificate delivered to
us by IWL and dated the date hereof.
<PAGE>
IWL Communications, Incorporated
Page 2
July 17, 1998
Based upon the facts and statements set forth above, our examination and
review of the documents referred to above and subject to the assumptions set
forth above, as of the date hereof we are of the opinion that, the material
federal income tax consequences of the Transaction to the holders of IWL Common
Stock, Holdings, IWL, and I-Sub are as follows:
1. no gain or loss will be recognized for federal income tax
purposes by holders of IWL Common Stock upon their exchange of IWL Common
Stock solely for Holdings Common Stock pursuant to the Merger;
2. the aggregate tax basis of Holdings Common Stock received by a
holder of IWL Common Stock as a result of the Merger will be the same as
such stockholder's aggregate tax basis in the IWL Common Stock surrendered
in the exchange;
3. assuming that the shares of IWL Common Stock surrendered in the
exchange constitute capital assets in a stockholder's hands, the holding
period of the Holdings Common Stock held by former holders of IWL Common
Stock as a result of the exchange will include the period during which such
stockholder held the IWL Common Stock exchanged; and
4. no gain or loss will be recognized for federal income tax
purposes by Holdings, IWL or I-Sub as a result of the formation of Holdings
or I-Sub or as a result of the Merger.
We express no opinion concerning any tax consequences of the Merger, other than
those specifically set forth herein.
Our opinion is based on current provisions of the Internal Revenue Code of
1986, as amended, Treasury Regulations promulgated thereunder, pertinent
judicial authorities, interpretive rulings of the Internal Revenue Service and
such other authorities as we have considered relevant all as in effect on the
date hereof, any of which may be changed at any time with retroactive effect.
Any change after the date hereof in applicable laws or in the facts and
circumstances surrounding the Merger, or any inaccuracy in the statements,
facts, assumptions and representations on which we have relied, may affect the
continuing validity of the opinion set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur or
come to our attention.
In accordance with the requirements of Item 601(b)(23) of Regulation S-K
under the Securities Act, we hereby consent to the use of our name under the
headings "THE TRANSACTION--Certain United States Federal Income Tax Consequences
of the
<PAGE>
IWL Communications, Incorporated
Page 3
July 17, 1998
Mergers" and "LEGAL MATTERS" in the Joint Proxy Statement and to the
filing of this opinion as an Exhibit to the Registration Statement. In giving
this consent we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
MUNSCH HARDT KOPF HARR & DINAN, P.C.
<PAGE>
[LETTERHEAD]
July 17, 1998
Writer's Direct Dial Number Other Offices
Austin
Houston
214/939-5500
CapRock Telecommunications Corp.
CapRock Fiber Network, Ltd.
Two Galleria Tower
13455 Noel Road, Suite 1925
Dallas, Texas 75240
Ladies and Gentlemen:
We have acted as counsel for CapRock Telecommunications Corp.
("TELECOMMUNICATIONS") and CapRock Fiber Network, Ltd. (the "PARTNERSHIP") in
connection with, and you have requested our opinion with respect to certain
federal income tax consequences of, the transaction in which the businesses of
Telecommunications, the Partnership, and IWL Communications, Incorporated
("IWL") will be combined (the "TRANSACTION"), as described in the Joint Proxy
Statement/Prospectus (the "PROXY STATEMENT") included in the Registration
Statement on Form S-4 (the "REGISTRATION STATEMENT"), as filed with the
Securities and Exchange Commission (the "COMMISSION") under the Securities Act
of 1933, as amended (the "SECURITIES ACT"). All capitalized terms used herein,
unless otherwise specified, have the meanings assigned to them in the Proxy
Statement.
In rendering this opinion, we have examined executed originals,
counterparts or copies identified to our satisfaction as being true copies of
the Proxy Statement, the Agreement and Plan of Merger (the "MERGER AGREEMENT"),
dated as of February 16, 1998, as amended, among IWL Holdings Corp., IWL, IWL
Acquisition Corp., Telecommunications, CapRock Acquisition Corp. ("C-SUB"), the
Partnership, and each of the other documents and agreements specifically
referenced in both the Merger Agreement and the Proxy Statement (collectively,
the "COMBINATION DOCUMENTS"). In addition, we have relied upon certain
representations made by officers and employees of Telecommunications, the
Partnership and IWL, including those contained in the certificates of certain
officers of Telecommunications, the Partnership and IWL dated as of the date
hereof. Where such representations are made to the best knowledge and belief of
the person making such representations, we have assumed the facts to be as so
represented. Among other representations and assumptions, we have relied on (i)
representations from IWL, Telecommunications and the Partnership that they have
no knowledge of contracts entered into by the holders of IWL Common Stock, the
holders of Telecommunications Common Stock, or the Partners to sell Holdings
Common Stock that would cause them as a group not to have control of Holdings
(as defined in Section 368(c) of the Internal Revenue Code of 1986, as
A Registered Limited Liability Partnership Including Professional Corporations
<PAGE>
CapRock Telecommunications Corp.
CapRock Fiber Network, Ltd.
July 17, 1998
Page
amended (the "CODE")) immediately after the Closing and (ii) the assumption that
any such contracts now existing or entered into prior to the Closing are not and
will not be of an aggregate magnitude that would cause the holders of IWL Common
Stock, the holders of Telecommunications Common Stock, or the Partners as a
group not to have control of Holdings (as defined in Section 368(c) of the Code)
immediately after the Closing. Our opinion is conditioned on the initial and
continuing accuracy of the statements, representations, and covenants referred
to above and we have not independently verified the accuracy or completeness of
such statements, representations, and covenants.
Based upon the foregoing and subject to the assumptions, qualifications and
limitations set forth herein, we are of the opinion that the material federal
income tax consequences of the Transaction to the holders of Telecommunications
Common Stock, Telecommunications, Holdings, the Partners and the Partnership are
as follows:
1. No gain or loss will be recognized for federal income tax consequences
by holders of Telecommunications Common Stock upon their exchange of
Telecommunications Common Stock solely for Holdings Common Stock pursuant to the
Merger.
2. The aggregate tax basis of Holdings Common Stock received by a holder
of Telecommunications Common Stock as a result of the Merger will be the same as
such stockholder's aggregate tax basis in the Telecommunications Common Stock
surrendered in the exchange.
3. Assuming that the shares of Telecommunications Common Stock
surrendered in the exchange constitute capital assets in a stockholder's hands,
the holding period of the Holdings Common Stock held by former holders of
Telecommunications Common Stock as a result of the exchange will include the
period during which such shareholder held the Telecommunications Common Stock
exchanged.
4. No gain or loss will be recognized for federal income tax purposes by
Holdings, Telecommunications or C-Sub as a result of the formation of Holdings
or C-Sub or as a result of the Merger.
5. No gain or loss will be recognized for federal income tax purposes by
the Partners upon their exchange of Partnership Interests for Holdings Common
Stock in the Interest Exchange.
6. The aggregate tax basis of Holdings Common Stock received by a Partner
as a result of the Interest Exchange will be the same as such Partner's
aggregate tax basis in the Partnership Interest surrendered in the exchange.
<PAGE>
CapRock Telecommunications Corp.
CapRock Fiber Network, Ltd.
July 17, 1998
Page 3
7. Assuming that the Partnership Interest surrendered in the Interest
Exchange constitutes a capital asset in a Partner's hands, the holding period of
the Holdings Common Stock held by the former Partner as a result of the Interest
Exchange will include the period during which such former Partner held the
Partnership Interest exchanged.
8. No gain or loss will be recognized for federal income tax purposes by
Holdings or the Partnership as a result of the Interest Exchange.
The foregoing opinions are subject to the following additional assumptions,
qualifications, and limitations:
(a) We have assumed: (i) that each transaction contemplated by the
Combination Documents will be closed in accordance with the terms of such
Combination Documents without modification or waiver; (ii) that the Combination
Documents constitute the only documents containing the substantive terms of such
transactions; and (iii) that the Combination Documents have been duly
authorized, executed and delivered by all the parties thereto and are valid and
legally enforceable obligations of each of the parties thereto.
(b) This opinion is based upon present Federal income tax law, including
relevant statutes, regulations, and interpretations thereof by the Internal
Revenue Service and relevant courts, all of which are subject to change,
including effectively retroactive change.
(c) This opinion letter is limited to the matters stated herein as of the
date hereof. We disavow any obligation to update this opinion letter or advise
you of any changes in our opinions in the event of changes in applicable law or
facts becoming effective after the date hereof or of any additional or newly
discovered information that is brought to our attention.
In accordance with the requirements of Item 601(b)(23) of Regulation S-K
under the Securities Act, we hereby consent to the use of our name under the
headings "THE TRANSACTION--Certain United States Federal Income Tax
Consequences of the Mergers," "THE TRANSACTION--Certain United States Federal
Income Tax Consequences of the Interest Exchange" and "LEGAL MATTERS" in the
Proxy Statement and to the filing of this opinion as an Exhibit to the
Registration Statement. In giving this consent we do not thereby admit that
we are within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
HUGHES & LUCE, L.L.P.
<PAGE>
$150,000,000 Aggregate Principal Amount of 12% Senior Notes due 2008
CAPROCK COMMUNICATIONS CORP.
CAPROCK TELECOMMUNICATIONS CORP.
CAPROCK FIBER NETWORK, LTD.
PURCHASE AGREEMENT
July 10, 1998
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BANC ONE CAPITAL MARKETS, INC.
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
CapRock Communications Corp., a Texas corporation ("COMMUNICATIONS" or the
"COMPANY"), CapRock Telecommunications Corp., a Texas corporation
("TELECOMMUNICATIONS"), and CapRock Fiber Network, Ltd., a Texas limited
partnership (the "PARTNERSHIP"; together with Communications and
Telecommunications, the "ISSUERS") confirm their agreement with Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL LYNCH"),
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Banc One Capital
Markets, Inc. ("BANC ONE") (collectively, the "INITIAL PURCHASERS", which term
shall also include any initial purchaser substituted as hereinafter provided in
Section 11 hereof), with respect to the issue and sale by the Issuers and the
purchase by the Initial Purchasers, acting severally and not jointly, of the
respective principal amounts set forth in SCHEDULE A attached hereto of
$150,000,000 aggregate principal amount of the Issuers' 12% Senior Notes due
2008 (the "SECURITIES"). The Securities are to be issued pursuant to an
indenture dated as of July 16, 1998 (the "INDENTURE") among each of the Issuers,
IWL Communications, Incorporated, a Texas corporation ("IWL"), and PNC Bank,
National Association, as trustee (the "TRUSTEE"). Securities issued in
book-entry form will be issued to Cede & Co. as nominee of The
<PAGE>
Depository Trust Company ("DTC") pursuant to a letter agreement, to be dated as
of the Closing Time (as defined in Section 2(b)) (the "DTC AGREEMENT"), among
each of the Issuers, the Trustee and DTC.
The Issuers understand that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agree that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("SUBSEQUENT
PURCHASERS") at any time after the date of this Agreement. The Securities are
to be offered and sold through the Initial Purchasers without being registered
under the Securities Act of 1933, as amended (the "1933 ACT"), in reliance upon
exemptions therefrom. Pursuant to the terms of the Securities and the
Indenture, investors that acquire Securities may only resell or otherwise
transfer such Securities if such Securities are hereafter registered under the
1933 Act or if an exemption from the registration requirements of the 1933 Act
is available (including the exemption afforded by Rule 144A ("RULE 144A") or
Regulation S ("REGULATION S") of the rules and regulations promulgated under the
1933 Act by the Securities and Exchange Commission (the "COMMISSION").
The Issuers have prepared and delivered to each Initial Purchaser copies
of a preliminary offering memorandum dated June 24, 1998 (the "PRELIMINARY
OFFERING MEMORANDUM") and have prepared and delivered to each Initial Purchaser,
on the date hereof or the next succeeding day, copies of a final offering
memorandum dated July 10, 1998 (the "FINAL OFFERING MEMORANDUM") each for use by
such Initial Purchaser in connection with its solicitation of offers and
purchases of the Securities. "Offering Memorandum" means with respect to any
date or time referred to in this Agreement the most recent offering memorandum
(whether the Preliminary Offering Memorandum or the Final Offering Memorandum,
as the same may have been amended or supplemented through such date or time,
including exhibits thereto, which has been prepared and delivered by the Company
to the Initial Purchasers in connection with their solicitation of purchases of
or offering of the Securities.
Each of the Issuers is a party to a certain Agreement and Plan of Merger
and Plan of Exchange dated as of February 16, 1998 (as amended, the "MERGER
AGREEMENT") among each of the Issuers, IWL and certain other parties thereto
pursuant to which, among other things, (i) IWL and Telecommunications shall
become wholly-owned subsidiaries of the Company through various merger
transactions (the "MERGERS") and (ii) the partners of the Partnership may agree
to exchange their partnership interests in the Partnership in exchange for
shares of the Company's common stock (the "INTEREST EXCHANGE") and
Telecommunications shall become the sole general partner of the Partnership and
the Company shall become the holder of 80% or more of the limited partnership
interests of the Partnership. The consummation of the Combination (as herein
defined) is subject to (a) the receipt of various regulatory approvals and
consents, including the consent of the Federal Communications Commission (the
"FCC") and (b)
2
<PAGE>
fulfillment of all the other conditions specified in the Merger Agreement. The
Company has filed a Registration Statement on Form S-4 (the "S-4 REGISTRATION
STATEMENT") with respect to the shares of its common stock that are to be issued
to the existing shareholders of IWL and Telecommunications and to the partners
of the Partnership, which S-4 Registration Statement includes a Joint Proxy
Statement/Prospectus (the Joint Proxy Statement included in the S-4 Registration
Statement when it is declared effective by the Commission is hereinafter
referred to as the "JOINT PROXY STATEMENT") of IWL and Telecommunications with
respect to the special meetings of the shareholders of such companies to be held
to approve, among other matters, the transactions contemplated by the Merger
Agreement. The consummation of the transactions contemplated by the Merger
Agreement, including the Mergers and the Interest Exchange, are herein referred
to collectively as the "COMBINATION."
$145 million of the net proceeds from the sale of the Securities will be
placed in a segregated escrow account with the Trustee and will be released only
in accordance with the terms of an Escrow and Security Agreement (the "ESCROW
AGREEMENT") to be dated the date of the Closing Time among each of the Issuers,
IWL and the Trustee. If the Combination is not consummated by August 31, 1998,
the Issuers will be required to offer to purchase the Notes (the "SPECIAL OFFER
TO PURCHASE") at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date of such repurchase. To the
extent the amounts held in such escrow account are insufficient to repurchase
all Notes tendered pursuant to the Special Offer to Purchase, each of the
Company, Telecommunications and the Partnership shall be jointly and severally
liable to fund any such deficiency, and IWL has agreed to guarantee, on a joint
and several basis with the Issuers, the repayment of the amounts owed with
respect to Notes tendered pursuant to such Special Offer to Purchase. Following
the payment of amounts owed with respect to Notes tendered pursuant to the
Special Offer to Purchase, if any Notes remain outstanding, (i) the remaining
proceeds in the escrow account will be released to Telecommunications, (ii) the
Company will no longer be an obligor under the Securities and IWL will be
released from its obligations under the Indenture automatically and without any
further action by any person, (iii) the Partnership will be required to enter
into either a statutory merger or interest exchange transaction with
Telecommunications and (iv) IWL and Communications will automatically and
without any further action by any person be released from all obligations
hereunder. In the event the Combination is consummated, (a) the proceeds in the
aforementioned escrow account will be released to the Company for the benefit of
the other Issuers and IWL, (b) Telecommunications and the Partnership will
automatically and without any further action by any person be released as
co-obligors under the Securities, (c) IWL will automatically and without any
further action by any person be released from its obligations under the
Indenture and (d) Telecommunications, the Partnership and IWL will automatically
and without any further action by any person be released from all obligations
hereunder.
The holders of the Securities will be entitled to the benefits of a
registration rights agreement (the "REGISTRATION RIGHTS AGREEMENT"). Pursuant
to the Registration Rights
3
<PAGE>
Agreement, the applicable Issuer (as set forth therein) will agree to file with
the Commission under the circumstances set forth therein, either (i) a
registration statement under the 1933 Act registering the "Exchange Notes" (as
such term is defined in the Registration Rights Agreements) to be offered in
exchange for the Securities and use its best efforts to cause such registration
statement to be declared effective or (ii) under certain circumstances set forth
therein, a shelf registration statement pursuant to Rule 415 under the 1933 Act
relating to the resale of the Securities, and use their best efforts to cause
such shelf registration statement to be declared effective.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE ISSUERS AND IWL. Each of
the Issuers and IWL, jointly and severally, represents and warrants to each
Initial Purchaser as of the date hereof and as of the Closing Time referred to
in Section 2(b) hereof, and agrees with each Initial Purchaser as follows:
(i) SIMILAR OFFERINGS. The Issuers have not, directly
or indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in the United
States or to any United States citizen or resident, any security which is or
would be integrated with the sale of the Securities in a manner that would
require the Securities to be registered under the 1933 Act.
(ii) OFFERING MEMORANDUM. (A) GENERAL. The Offering
Memorandum does not, and at the Closing Time will not, include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided that this representation, warranty and
agreement shall not apply to statements in or omissions from the Offering
Memorandum made in reliance upon and in conformity with information furnished to
the Issuers or IWL in writing by any Initial Purchaser expressly for use in the
Offering Memorandum.
(B) DOCUMENTS. All contracts which are described in the
Offering Memorandum to which the Issuers, IWL or any of their respective
subsidiaries is a party have been duly authorized, executed and delivered by
them or their subsidiaries, constitute valid and binding agreements of such
Issuer, IWL or such subsidiary and are enforceable against such Issuer, IWL or
such subsidiary in accordance with the terms thereof except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium or
similar laws affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
4
<PAGE>
(C) CERTAIN TRANSACTIONS. No relationship, direct or
indirect, exists between or among any of the Issuers, IWL or any of their
respective subsidiaries, on the one hand, and the directors, officers,
securityholders, customers or suppliers of any of the Issuers, IWL or any of
their respective subsidiaries, on the other hand, that is of a character that
would be required to be described in the Offering Memorandum if it were a
prospectus filed as part of a registration statement on Form S-1 under the 1933
Act, that is not described as would be so required.
(D) DATA. The statistical and market-related data
included in the Offering Memorandum are based on or derived from sources which
the Issuers and IWL believe to be reliable and accurate in all material respects
or represents the Issuers' and IWL's good faith estimates that are made on the
basis of data derived from such sources.
(iii) S-4 REGISTRATION STATEMENT; JOINT PROXY STATEMENT.
The S-4 Registration Statement, when declared effective by the Commission, will
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein. The Joint Proxy Statement, as of its date,
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(iv) INDEPENDENT ACCOUNTANTS. The accountants who
certified the financial statements and supporting schedules included in the
Offering Memorandum are independent certified public accountants with respect to
each of the Issuers, IWL and their respective subsidiaries within the meaning of
Regulation S-X under the 1933 Act.
(v) FINANCIAL STATEMENTS. The financial statements of
each of Telecommunications, the Partnership and IWL, together with the related
schedules and notes, included in the Offering Memorandum present fairly the
financial position of each of Telecommunications, the Partnership and IWL,
respectively, and their respective consolidated subsidiaries at the dates
indicated and the statements of operations, stockholders' equity (or partners'
equity) and cash flows of each of Telecommunications, the Partnership and IWL,
respectively, and their respective consolidated subsidiaries for the periods
specified; and said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved, except as disclosed therein. The selected
financial data and the summary financial information included in the Offering
Memorandum present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited financial statements included in
the Offering Memorandum. The pro forma financial statements of the Company and
its subsidiaries and the related notes thereto included in the Offering
Memorandum present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly compiled on the
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bases described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein.
(vi) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Offering Memorandum,
except as otherwise stated therein, (a) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of any one of the Issuers, IWL and their
respective subsidiaries considered as one enterprise (a "MATERIAL ADVERSE
EFFECT"), whether or not arising in the ordinary course of business, (b) there
have been no transactions entered into by the Issuers, IWL or any of their
respective subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Issuers, IWL and their respective
subsidiaries considered as one enterprise, and (c) there has been no dividend or
distribution of any kind declared, paid or made by any one of the Issuers, IWL
or any of their respective subsidiaries on any class of its capital stock or
other equity interests.
(vii) GOOD STANDING OF THE ISSUERS AND IWL. Each of the
Issuers and IWL has been duly organized and is validly existing as a corporation
or limited partnership, as the case may be, in good standing under the laws of
the State of Texas and has corporate or partnership power and authority to own,
lease and operate its properties and to conduct its business as described in the
Offering Memorandum and to enter into and perform its obligations under this
Agreement, and each of the Issuers and IWL is duly qualified as a foreign
corporation or limited partnership, as the case may be, to transact business and
is in good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(viii) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of
any of the Issuers or IWL has been duly organized and is validly existing as a
corporation or limited partnership, as the case may be, in good standing under
the laws of the jurisdiction of its incorporation or organization, has corporate
or partnership power and authority to own, lease and operate its properties and
to conduct its business as described in the Offering Memorandum and is duly
qualified as a foreign corporation or limited partnership, as the case may be,
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect. None of
the Issuers or IWL has any "significant subsidiary" (as defined in Rule 1.02(w)
of Regulation S-X of the Commission). Except as otherwise disclosed in the
Offering Memorandum, all of the issued and outstanding capital stock or other
equity interests of each such subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable.
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(ix) CAPITALIZATION. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Offering
Memorandum under the caption "Description of Capital Stock," subject to
subsequent issuances of common stock of the Company under employee stock option
plans and the issuance of common stock of the Company pursuant to the
Combination as described in the Offering Memorandum.
(x) AUTHORIZATION OF AGREEMENT. This Agreement has been
duly authorized, executed and delivered by each of the Issuers and IWL.
(xi) AUTHORIZATION OF THE ESCROW AGREEMENT. The Escrow
Agreement has been duly authorized by each of the Issuers and IWL and, at the
Closing Time, will have been duly executed and delivered by each of the Issuers
and IWL and will constitute a valid and binding agreement of each of the Issuers
and IWL, enforceable against each of them in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting enforcement of
creditors' rights generally, or by general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
(xii) SECURITY INTERESTS. On and after the date of
execution and delivery thereof, the Escrow Agreement creates or will create, as
security for the obligations purported to be secured thereby, a valid and
enforceable first priority perfected security interest in favor of the Trustee
in and to the collateral pledged thereunder.
(xiii) AUTHORIZATION OF THE INDENTURE. The Indenture
has been duly authorized by the each of the Issuers and IWL and, at the
Closing Time, will have been duly executed and delivered by each of the
Issuers and IWL and will constitute a valid and binding agreement of each of
the Issuers and IWL, enforceable against them in accordance with its terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws relating to or affecting
enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(xiv) AUTHORIZATION OF THE SECURITIES AND THE EXCHANGE
NOTES. The Securities have been duly authorized and, at the Closing Time, will
have been duly executed by each of the Issuers and, when authenticated in the
manner provided for in the Indenture and delivered against payment of the
purchase price therefor, will constitute valid and binding obligations of each
of the Issuers, enforceable against them in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or other similar laws relating to or affecting
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enforcement of creditors' rights generally, or by general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law), and will be in the form contemplated by, and entitled to
the benefits of, the Indenture.
The Exchange Notes have been duly authorized by each of the
Issuers, and, when executed and delivered by the appropriate Issuer and when
authenticated in the manner provided for in the Indenture, will constitute valid
and binding obligations of the applicable Issuer, enforceable against the
applicable Issuer in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without limitation,
all laws relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law), and will be in the form
contemplated by, and entitled to the benefits of, the Indenture.
(xv) AUTHORIZATION OF THE REGISTRATION RIGHTS AGREEMENT.
The Registration Rights Agreement has been duly authorized by each of the
Issuers, and, when executed and delivered by the Issuers and the other parties
thereto in accordance with the terms thereof, will constitute a valid and
binding agreement of the Issuers, enforceable against the Issuers in accordance
with its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting creditors'
rights generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law) and the enforceability of any right to
indemnification provided therein violates the public policy of any law, rule or
regulation.
(xvi) DESCRIPTION OF THE SECURITIES AND THE INDENTURE.
The Securities and the Indenture will conform in all material respects to the
respective statements relating thereto contained in the Offering Memorandum and
will be in substantially the respective forms previously delivered to the
Initial Purchasers.
(xvii) ABSENCE OF DEFAULTS AND CONFLICTS. None of the
Issuers, IWL or any of their respective subsidiaries is in violation of its
charter or by-laws (or other equivalent organizational document) or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which any of
the Issuers, IWL or any of their respective subsidiaries is a party or by which
or any of them may be bound, or to which any of their properties or assets is
subject (collectively, "AGREEMENTS AND INSTRUMENTS"), except for such defaults
that would not result in a Material Adverse Effect, and the execution, delivery
and performance of this Agreement, the Escrow Agreement, the Registration Rights
Agreement, the Indenture and the Securities and any other agreement or
instrument
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entered into or issued or to be entered into or issued by the Issuers or IWL in
connection with the transactions contemplated hereby or thereby (collectively,
the "TRANSACTION DOCUMENTS") and the consummation of the transactions
contemplated pursuant to the Transaction Documents (including the issuance and
sale of the Securities, and the use of the proceeds from the sale of the
Securities as described in the Offering Memorandum under the caption "Use of
Proceeds"), and compliance by the Issuers and IWL with their obligations
hereunder or any other Transaction Document have been duly authorized by all
necessary corporate or partnership action and do not and will not, except as is
set forth in the Offering Memorandum, whether with or without the giving of
notice or passage of time or both, constitute a breach of, or default or a
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance (except as set forth in the Escrow
Agreement) upon any property or assets of any of the Issuers, IWL or their
respective subsidiaries pursuant to, the Agreements and Instruments except for
such breaches or defaults or Repayment Events or liens, charges or encumbrances
that, singly or in the aggregate, would not result in a Material Adverse Effect,
nor will such action result in any violation of the provisions of the charter or
by-laws (or other equivalent organizational document) of any of the Issuers, IWL
or any of their respective subsidiaries or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over any of
the Issuers, IWL or any of their respective subsidiaries or any of their assets
or properties. As used herein, a "Repayment Event" means any event or condition
which gives the holder of any note, debenture or other evidence of indebtedness
(or any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such indebtedness by
any of the Issuers, IWL or any of their respective subsidiaries.
(xviii) THE COMBINATION. No consent, approval,
authorization or order of any court or governmental agency or body (except
for (w) such consents, approvals or authorizations as are required by (i) the
FCC and relevant state regulatory authorities, (ii) state securities or Blue
Sky laws of various states and (iii) the Texas Secretary of State with
respect to the filing of certificates of merger in connection with the
transactions contemplated by the Merger Agreement, (x) approval of the
listing of the Company's common stock on the Nasdaq National Market, (y) the
S-4 Registration Statement and the Company's Registration Statement on Form
8-A being declared effective by the Commission and (z) such other consents,
approvals or authorizations that have not been obtained but which
individually or in the aggregate might not reasonably be expected to result
in a Material Adverse Effect), is required for the performance by any of the
Issuers, IWL or any of their respective subsidiaries of the transactions
contemplated by the Merger Agreement, and none of the Issuers or IWL has a
reasonable basis to believe that the conditions to consummating the
Combination will not be satisfied or that the Combination contemplated by the
Merger Agreement will not be consummated in accordance with its terms.
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<PAGE>
(xix) ABSENCE OF LABOR DISPUTES. No labor dispute with
the employees of any of the Issuers or any of their respective subsidiaries
exists or, to the knowledge of the Issuers and IWL, is imminent, and the Issuers
and IWL are not aware of any existing or imminent labor disturbance by the
employees of any of their subsidiaries' principal suppliers, manufacturers,
customers or contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xx) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry, complaint or
investigation before or by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of any Issuer or IWL, threatened,
against or affecting or of their respective subsidiaries or any licenses,
permits or authorizations held by any of the Issuers, IWL or their respective
subsidiaries which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely affect
the properties or assets of any of the Issuers, IWL or any of their respective
subsidiaries or the validity or enforceability of any material provisions of any
Transaction Document or the rights and remedies of the Initial Purchasers, the
Securities or the holders of the Securities. The aggregate of all pending legal
or governmental proceedings to which any of the Issuers, IWL or their respective
subsidiaries is a party or of which any of their respective properties or assets
is the subject which are not described in the Offering Memorandum, including
ordinary routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xxi) POSSESSION OF INTELLECTUAL PROPERTY. Except as is
set forth in the Offering Memorandum, each of the Issuers, IWL and their
respective subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names or other intellectual property (collectively, "INTELLECTUAL
PROPERTY") necessary to carry on the business now operated by them, and none of
the Issuers, IWL or any of their respective subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict with asserted rights of
others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or inadequate
to protect the interest of the Issuers, IWL or any of their subsidiaries
therein, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in a Material Adverse Effect.
(xxii) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of any court or governmental authority, or agency (including, without
limitation, the FCC) is necessary or required for the performance by any of the
Issuers or IWL of its obligations hereunder, in connection with the offering,
issuance or sale of the Securities hereunder, or
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<PAGE>
the consummation of the transactions provided for by this Agreement or any other
Transaction Document (except (i) such as have been obtained or made, (ii) such
as may be required under securities or Blue Sky laws of various states and (iii)
such as may be required under securities laws in connection with the Exchange
Offer or the Shelf Registration Statement).
(xxiii) POSSESSION OF LICENSES AND PERMITS. Each of the
Issuers, IWL and their respective subsidiaries possess such permits, licenses,
certificates, registrations, approvals, consents and other authorizations
(collectively, "GOVERNMENTAL LICENSES") issued by the appropriate federal,
state, local or foreign regulatory agencies or bodies necessary or required to
conduct the business now operated by them including, but not limited to, any
licences, certificates, authorizations or registrations issued by the FCC or
from state agencies having jurisdiction over interstate or intrastate
telecommunications, except to the extent that any failure to so possess such
Governmental Licenses, either singly or in the aggregate, would not have a
Material Adverse Effect. Each of the Issuers, IWL and their respective
subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not have a
Material Adverse Effect. To the Issuers' and IWL's knowledge, such Governmental
Licenses contain no materially burdensome conditions or restrictions not
customarily imposed by the FCC on telecommunications operators operating under
the same type of licenses as the Issuers, IWL and their respective subsidiaries.
All of the Governmental Licenses are valid and in full force and effect, except
when the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a Material
Adverse Effect. None of the Issuers, IWL or any of their respective
subsidiaries has received any notice of proceedings relating to the revocation,
suspension or modification of any such Governmental Licenses which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect. None of the Issuers, IWL or any of
their respective subsidiaries has failed to obtain and maintain in effect, any
Governmental License required or necessary for the ownership or lease of its
property or the conduct of its business except to the extent that such failure
to obtain or maintain such Governmental Licenses, either singly or in the
aggregate, would not have a Material Adverse Effect. All Governmental Licenses
held by the Issuers, IWL or any of their respective subsidiaries have been duly
and validly issued to the Issuers, IWL or their respective subsidiaries, are not
subject to any conditions outside of the ordinary course. No event has occurred
which permits (nor has an event occurred which with notice or lapse of time or
both would permit) the revocation or termination of such Governmental Licenses
except to the extent such revocation or termination, either singly or in the
aggregate, would not have a Material Adverse Effect, or the imposition of any
material adverse restriction or condition thereon or which might result in a
Material Adverse Effect.
(xxiv) COMPLIANCE WITH LAWS AND REGULATIONS. Each of the
Issuers, IWL and their respective subsidiaries have operated in compliance with,
and are not in
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violation of, all statutes (including, but not limited to, the Communications
Act of 1934, as amended, including the Telecommunications Act of 1996) laws,
rules, regulations, judgments, orders, decisions or decrees of any court,
regulatory body, administrative body, administrative agency, governmental body,
arbitrator or other authority having jurisdiction over the Issuers, IWL or such
subsidiaries or any of their assets or properties, as applicable, including, but
not limited to, the FCC and any state authority having jurisdiction over the
Issuers, IWL or their respective subsidiaries or over their respective assets or
properties except for such noncompliance or violations which would not have a
Material Adverse Effect.
(xxv) REQUIRED FILINGS. The Issuers, IWL and their
respective subsidiaries have filed with all administrative bodies,
administrative agencies, governmental bodies, arbitrators or other authorities
having jurisdiction over the Issuers, IWL or such subsidiaries or any of their
assets or its properties, as applicable, all applications, statements, reports,
tariffs, information, forms, or any other documents required under all statutes,
laws, rules, regulations, judgments, orders, decisions or decrees, except where
the failure to file would not have a Material Adverse Effect on any Issuer's,
IWL's or any of their respective subsidiaries' ability to provide its services
as described in the Offering Memorandum. To each of the Issuers' and IWL's
knowledge, such filings or submissions were in compliance with applicable laws
or regulations when filed or submitted and no deficiencies have been asserted by
any administrative bodies, administrative agencies, governmental bodies,
arbitrators or other authorities with respect to such filings or submissions,
except where the deficiency is of such a nature that failure to cure any such
deficiency would not have a Material Adverse Effect on any of the Issuers' or
IWL's ability to provide its services as described in the Offering Memorandum.
To each of the Issuer's and IWL's knowledge, the information contained in such
filings or submissions was and continues to be in all material respects,
accurate, complete and up-to-date at the time the filings or submissions were
made.
(xxvi) NO ADVERSE JUDGMENTS OR OTHER ORDERS. There is no
outstanding adverse judgment, injunction, decision, decree or order that has
been issued by any court, regulatory body, administrative agency, governmental
body, arbitrator or other foreign, federal, state or local authority having
jurisdiction over any of the Issuers, IWL or any of their respective
subsidiaries or any of their properties or assets, as applicable, which, either
singly or in the aggregate, would have a Material Adverse Effect.
(xxvii) TITLE TO PROPERTY. The Issuers, IWL and their
respective subsidiaries have good and marketable title to all real property
owned by the Issuers, IWL and their respective subsidiaries and good title to
all other properties owned by them, in each case, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the Offering
Memorandum or (b) do not singly or in the aggregate have a Material Adverse
Effect. All leases and subleases material to the businesses of the Issuers, IWL
and their
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respective subsidiaries, considered as one enterprise, and under which the
Issuers, IWL or any of their respective subsidiaries holds properties described
in the Offering Memorandum, are in full force and effect, and none of the
Issuers, IWL nor any of their respective subsidiaries has any notice of any
material claim of any sort that has been asserted by anyone adverse to the
rights of the Issuers, IWL or any of their respective subsidiaries under any of
the title leases or subleases mentioned above, or affecting or questioning the
rights of the Issuers, IWL or any their respective subsidiaries thereof to the
continued possession of the leased or subleased premises under any such lease or
sublease.
(xxviii) TAX RETURNS. The Issuers, IWL and their
respective subsidiaries have filed all federal, state, local and foreign tax
returns that are required to be filed or have duly requested extensions thereof
and have paid all taxes required to be paid by any of them and any related
assessments, fines or penalties, except for any such tax, assessment, fine or
penalty that is being contested in good faith and by appropriate proceedings;
and adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(v) above in respect of all
federal, state, local and foreign taxes for all periods as to which the tax
liability of the Issuers, IWL or any of their respective subsidiaries has not
been finally determined or remains open to examination by applicable taxing
authorities.
(xxix) ENVIRONMENTAL LAWS. Except as described in the
Offering Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse Effect, (a) none of the Issuers, IWL or
any of their respective subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code, policy or rule
of common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "HAZARDOUS MATERIALS") or to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "ENVIRONMENTAL
LAWS"), (b) to the Issuers' and IWL's best knowledge after due inquiry, the
Issuers, IWL and their respective subsidiaries have all permits, authorizations
and approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, (c) to the Issuers' and IWL's best knowledge
after due inquiry, there are no pending or threatened administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Issuers, IWL or any their respective subsidiaries
and (d) to the Issuers' and IWL's best knowledge after due inquiry, there are no
events or circumstances that
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might reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Issuers, IWL or any of
their respective subsidiaries relating to Hazardous Materials or Environmental
Laws.
(xxx) REGISTRATION RIGHTS. Except as described in the
Offering Memorandum, there are no persons with registration rights or other
similar rights to have any securities registered by the Issuers, IWL or any of
their respective subsidiaries under the 1933 Act.
(xxxi) PORTAL. The Issuers have been advised by the
National Association of Securities Dealers, Inc. (the "NASD") Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market that the
Securities have been designated PORTAL eligible securities in accordance with
the rules and regulations of the NASD.
(xxxii) INVESTMENT COMPANY ACT. None of the Issuers is,
and upon the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 ACT").
(xxxiii) RULE 144A ELIGIBILITY. The Securities are
eligible for resale pursuant to Rule 144A and will not be, at the Closing Time,
of the same class as securities listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), or quoted in a U.S. automated interdealer quotation system.
(xxxiv) MARKET ACTIVITIES. None of the Issuers nor IWL
have, directly or indirectly, (A) taken any action designed to cause or to
result in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the Securities to facilitate
the sale or resale of the Securities or (B) (x) sold (except pursuant to this
Agreement), bid for, purchased, or paid anyone any compensation for soliciting
purchases of, the Securities or (y) paid or agreed to pay to any person and
compensation for soliciting another to purchase any other securities of any of
the Issuers or IWL other than underwriting commissions paid to Cruttenden Roth
Incorporated in connection with IWL's initial public offering of its common
stock.
(xxxv) ERISA. To the Issuers' and IWL's best knowledge
after due inquiry, the Issuers, IWL and each of their respective subsidiaries
are in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder ("ERISA")
except where such noncompliance would not have
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a Material Adverse Effect. No "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for which the
Issuers, IWL or any of their respective subsidiaries would have any liability.
The Issuers, IWL and each of their respective subsidiaries have not incurred and
do not expect to incur liability under (A) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (B) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "CODE"). Each "pension plan" for
which any of the Issuers, IWL and each of their respective subsidiaries would
have liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(xxxvi) INSURANCE. The Issuers, IWL and each of their
respective subsidiaries carry, or are covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and is customary for
companies engaged in similar businesses in similar industries.
(xxxvii) NO GENERAL SOLICITATION. None of Issuers, IWL,
their affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("AFFILIATES"), or any person acting on its or any of their behalf (other than
the Initial Purchasers, as to whom the Issuers and IWL make no representation)
has engaged or will engage, in connection with the offering of the Securities,
in any form of general solicitation or general advertising within the meaning of
Rule 502(c) under the 1933 Act.
(xxxviii) NO REGISTRATION REQUIRED. Subject to compliance
by the Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not necessary
in connection with the offer, sale and delivery of the Securities to the Initial
Purchasers and to each Subsequent Purchaser in the manner contemplated by this
Agreement and the Offering Memorandum to register the Securities under the 1933
Act or to qualify the Indenture under the Trust Indenture Act of 1939, as
amended (the "1939 ACT").
(xxxix) NO DIRECTED SELLING EFFORTS. With respect to
those Securities sold in reliance on Regulation S, (a) none of the Issuers, IWL,
Affiliates or any person acting on their behalf (other than the Initial
Purchasers, as to whom Issuers and IWL make no representation) has engaged or
engage in any directed selling efforts within the meaning of Regulation S and
(b) each of the Issuers, IWL and their Affiliates and any person acting on their
behalf (other than the Initial Purchasers, as to whom the Issuers and IWL make
no representation) has complied and will comply with the offering restrictions
requirement of Regulation S.
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(xl) COMPLIANCE WITH RULE 144A. Each of the Preliminary
Offering Memorandum and the Final Offering Memorandum, as of its date, contains
all the information specified in, and meeting the requirements of, Rule
144A(d)(4) under the 1933 Act.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
any of the Issuers, IWL or any of their respective subsidiaries delivered to the
Initial Purchasers or to counsel for the Initial Purchasers shall be deemed a
representation and warranty by such Issuer, IWL or such subsidiary to each
Initial Purchaser as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INITIAL PURCHASERS; CLOSING.
(a) SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Issuers agree to sell to each Initial Purchaser, severally and not jointly, and
each Initial Purchaser, severally and not jointly, agrees to purchase from the
Issuers, at the price set forth in SCHEDULE B, the aggregate principal amount of
Securities set forth in SCHEDULE A opposite the name of such Initial Purchaser,
plus any additional principal amount of Securities which such Initial Purchaser
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Paul,
Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York, or at such
other place as shall be agreed upon by the Initial Purchasers and the Issuers,
at 10:00 A.M. (New York time) on the fourth business day after the date hereof
(unless postponed in accordance with the provisions of Section 11), or such
other time not later than ten business days after such date as shall be agreed
upon by the Initial Purchasers and the Issuers (such time and date of payment
and delivery being herein called the "CLOSING TIME").
Payment shall be made to the Issuers by wire transfer of immediately
available funds, against delivery to the Initial Purchasers for the respective
accounts of the Initial Purchasers of certificates for the Securities to be
purchased by them. $145 million of the net proceeds will be delivered to the
Trustee and will be held in accordance with the terms of the Escrow Agreement.
Merrill Lynch, individually and not as representative of the Initial Purchasers,
may (but shall not be obligated to) make payment of the purchase price for the
Securities to be purchased by any Initial Purchaser whose funds have not been
received by the Closing Time, but such payment shall not relieve such Initial
Purchaser from its obligations hereunder. The certificates representing the
Securities shall be registered in the name of Cede & Co. pursuant to the DTC
Agreement and shall be made available for examination and packaging by the
Initial Purchasers in The City of New York not later than 10:00 A.M. on the last
business day prior to the Closing Time.
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(c) QUALIFIED INSTITUTIONAL BUYER. Each Initial Purchaser severally
and not jointly represents and warrants to, and agrees with, the Issuers and IWL
that it is a "qualified institutional buyer" within the meaning of Rule 144A
under the 1933 Act (a "QUALIFIED INSTITUTIONAL BUYER") and an "accredited
investor" within the meaning of Rule 501(a) under the 1933 Act (an "ACCREDITED
INVESTOR").
(d) DENOMINATIONS; REGISTRATION. Certificates for the Securities
shall be in such denominations ($1,000 or integral multiples thereof) and
registered in such names as the Initial Purchasers may request in writing at
least one full business day before the Closing Time.
SECTION 3. COVENANTS OF THE ISSUERS AND IWL. Each of the Issuers and
IWL covenants with each Initial Purchaser as follows:
(a) OFFERING MEMORANDUM. The Issuers and IWL, as promptly as
possible, will furnish to each Initial Purchaser, without charge, such number of
copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and
any amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) NOTICE AND EFFECT OF MATERIAL EVENTS. The Issuers and IWL will
immediately notify each Initial Purchaser, and confirm such notice in writing,
of (x) any filing made by the Issuers and IWL of information relating to the
offering of the Securities with any securities exchange or any other regulatory
body in the United States or any other jurisdiction other than in connection
with the filing of the S-4 Registration Statement and the Company's Registration
Statement on Form 8-A, and (y) prior to the earlier of (i) completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Issuers and IWL (which notice will
be provided to the Issuers and IWL upon their request if such placement is
complete) or (ii) 90 days after the Closing Time, any material changes in or
affecting the earnings, business affairs or business prospects of the Issuers
and IWL and their respective subsidiaries which (i) make any statement in the
Offering Memorandum false or misleading or (ii) are not disclosed in the
Offering Memorandum. In such event or if during such time any event shall occur
as a result of which it is necessary, in the reasonable collective opinion of
the Issuers and IWL, their counsel, the Initial Purchasers or counsel for the
Initial Purchasers, to amend or supplement the Final Offering Memorandum in
order that the Final Offering Memorandum not include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances then
existing, the Issuers and IWL will forthwith amend or supplement the Final
Offering Memorandum by preparing and furnishing to each Initial Purchaser an
amendment or amendments of, or a supplement or supplements to, the Final
Offering Memorandum (in form and substance
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satisfactory in the reasonable opinion of counsel for the Initial Purchasers) so
that, as so amended or supplemented, the Final Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a Subsequent Purchaser,
not misleading.
(c) AMENDMENT TO OFFERING MEMORANDUM AND SUPPLEMENTS. The Issuers and
IWL will advise each Initial Purchaser promptly of any proposal to amend or
supplement the Offering Memorandum and will not effect such amendment or
supplement to which the Initial Purchasers shall reasonably object in writing.
Neither the consent of the Initial Purchasers, nor the Initial Purchaser's
delivery of any such amendment or supplement, shall constitute a waiver of any
of the conditions set forth in Section 5 hereof.
(d) QUALIFICATION OF SECURITIES FOR OFFER AND SALE. The Issuers and
IWL will use their best efforts, in cooperation with the Initial Purchasers, to
qualify the Securities for offering and sale under the applicable securities
laws of such jurisdictions as the Initial Purchasers may designate and will
maintain such qualifications in effect as long as required for the sale of the
Securities to the Initial Purchasers and Subsequent Purchasers; provided,
however, that the Issuers and IWL shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which they are not so qualified or
to subject themselves to taxation in respect of doing business in any
jurisdiction in which they are not otherwise so subject.
(e) RATING OF SECURITIES. The Issuers and IWL shall take all
reasonable actions necessary to enable Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc. ("S&P"), and Moody's Investors Service, Inc.
("MOODY'S") to provide their respective credit ratings of the Securities.
(f) DTC. The Issuers and IWL will cooperate with the Initial
Purchasers and use their best efforts to permit the Securities to be eligible
for clearance and settlement through the facilities of DTC.
(g) PORTAL. The Issuers and IWL will use their best efforts in
cooperation with the Initial Purchasers to obtain the necessary approvals for
the Securities to be designated for trading on PORTAL in accordance with the
rules and regulations adopted by the NASD relating to trading in the PORTAL
market.
(h) USE OF PROCEEDS. The Issuers and IWL will use the net proceeds
received by them from the sale of the Securities in the manner specified in the
Offering Memorandum under "Use of Proceeds".
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(i) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days
from the date of the Offering Memorandum, the Issuers and IWL will not, without
the prior written consent of Merrill Lynch, directly or indirectly issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise dispose
of, any other debt securities of the Issuers and IWL or securities of the any of
the Issuers and IWL that are convertible into, or exchangeable for, the
Securities or such other debt securities (other than as required by the terms of
the Registration Rights Agreement).
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Issuers and IWL will pay all expenses incident to
the performance of their obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits) and of each amendment or
supplement thereto; (ii) the preparation, printing and delivery to the Initial
Purchasers of this Agreement, any agreement among Initial Purchasers, the
Indenture, the Registration Rights Agreement, the Escrow Agreement and such
other documents as may be required in connection with the offering, purchase,
sale and delivery of the Securities; (iii) the preparation, issuance and
delivery of the certificates for the Securities to the Initial Purchasers,
including any charges of DTC in connection therewith; (iv) the fees and
disbursements of the Issuers' and IWL's counsel, accountants and other advisors;
(v) the qualification of the Securities under securities laws in accordance with
the provisions of Section 3(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Initial Purchasers in connection
therewith and in connection with the preparation of the Blue Sky Survey, any
supplement thereto and any Legal Investment Survey; (vi) the fees and expenses
of the Trustee, including the fees and disbursements of counsel for the Trustee
in connection with the Escrow Agreement, the Indenture and the Securities; (vii)
any fees payable in connection with the rating of the Securities; (viii) any
fees payable to the review by the NASD in connection with the initial and
continued designation of the Securities as being eligible for trading on PORTAL
under the PORTAL Market Rules pursuant to NASD Rule 5322; and (ix) all other
costs and expenses incident to the performance of the Issuers' and IWL's
obligations hereunder that are not otherwise specifically provided for in this
Section.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Initial Purchasers in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Issuers and IWL shall be jointly and severally responsible
to reimburse the Initial Purchasers for all of their reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of one counsel for the
Initial Purchasers.
SECTION 5. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the several Initial Purchasers hereunder are subject to the
accuracy of the representations and warranties of the Issuers and IWL contained
in Section 1 hereof or in certificates of
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any officer of any of the Issuers, IWL or any of their respective subsidiaries
delivered pursuant to the provisions hereof to the performance by the Issuers
and IWL of their covenants and other obligations hereunder, and to the following
further conditions:
(a) OPINIONS OF COUNSEL FOR ISSUERS AND IWL. At the Closing Time, the
Initial Purchasers shall have received the favorable opinion, dated as of the
Closing Time, of the following counsel for the Issuers and IWL, in form and
substance satisfactory to counsel for the Initial Purchasers: (i) Munsch Hardt
Kopf Harr & Dinan, P.C., counsel for the Issuers and IWL, to the effect set
forth in EXHIBIT A-1 hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request; (ii) Shereff, Friedman, Hoffman & Goodman,
LLP, special New York counsel for the Issuers and IWL, to the effect set forth
in EXHIBIT A-2 hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request; (iii) Swidler & Berlin, Chartered, special
regulatory counsel to Telecommunications and IWL, to the effect of the
regulatory matters set forth in EXHIBIT A-3 hereto and to such further effect as
counsel for the Initial Purchasers may reasonably request; (iv) Maxwell, Baker &
McFatridge, P.C., special regulatory counsel to the Issuers, to the effect set
forth in EXHIBIT A-4 hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request; and (v) Nowalsky, Bronston & Gothard, special
regulatory counsel to Telecommunications, to the effect set forth in EXHIBIT A-5
hereto and to such further effect as counsel to the Initial Purchasers may
reasonably request.
(b) OPINION OF COUNSEL FOR INITIAL PURCHASERS. At the Closing Time,
the Initial Purchasers shall have received the favorable opinion, dated as of
the Closing Time, of Paul, Hastings, Janofsky & Walker LLP, counsel for the
Initial Purchasers, with respect to the matters set forth in clause (xi) (solely
as to the information in the Offering Memorandum under "Description of the
Notes") and the penultimate paragraph of EXHIBIT A-1 hereto and in clauses (i)
through (iv), inclusive, of EXHIBIT A-2 hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York and the federal law of the United States
and the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the Initial Purchasers. Such counsel may also state
that, insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Issuers and IWL
and their subsidiaries and certificates of public officials.
(c) OFFICERS' CERTIFICATE. At the Closing Time, there shall not have
been since the date hereof or since the respective dates as of which information
is given in the Offering Memorandum any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Issuers, IWL and their respective subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, and the Initial Purchasers shall have received a certificate of the
President or a Vice President of each of the Issuers and IWL and of the chief
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financial or chief accounting officer of each of the Issuers and IWL, dated as
of the Closing Time, to the effect that (i), there has been no such material
adverse change, (ii) the representations and warranties in Section 1 hereof are
true and correct with the same force and effect as though expressly made at and
as of the Closing Time, and (iii) each of the Issuers and IWL has compiled with
all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time.
(d) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Initial Purchasers shall have received from each of KPMG Peat
Marwick, LLP and Burds, Reed & Mercer, P.C. a letter or letters, dated such
date, in form and substance satisfactory to the Initial Purchasers containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to Initial Purchasers with respect to the financial statements
and certain financial information contained in the Offering Memorandum.
(e) BRING-DOWN COMFORT LETTER. At the Closing Time, the Initial
Purchasers shall have received from each of KPMG Peat Marwick LLP and Burds,
Reed & Mercer, P.C. a letter or letters, dated as of the Closing Time, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (d) of this Section 5, except that the specified date referred to
shall be a date not more than three business days prior to the Closing Time.
(f) TRANSACTION DOCUMENTS. At the Closing Time, each of the Issuers
and IWL shall have executed the Indenture, the Registration Rights Agreement and
the Escrow Agreement, and the Initial Purchasers shall have received an original
copy thereof, duly executed by each of the Issuers and IWL to the extent that
such person is a party to such agreements.
(g) PORTAL. At the Closing Time, the Securities shall have been
designated for trading on PORTAL.
(h) ADDITIONAL DOCUMENTS. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained, and all proceedings taken by the Issuers and IWL
in connection with the issuance and sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to the
Initial Purchasers and counsel for the Initial Purchasers.
(i) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Initial Purchasers by notice to the Issuers
and IWL at any time at or
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prior to the Closing Time, and such termination shall be without liability of an
party to any other party except as provided in Section 4 and except that
Sections 1, 7 and 8 shall survive any such termination and remain in full force
and effect.
SECTION 6. SUBSEQUENT OFFERS AND RESALES OF THE SECURITIES.
(a) OFFER AND SALE PROCEDURES. Each of the Initial Purchasers and the
Issuers and IWL hereby establish and agree to observe the following procedures
in connection with the offer and sale of the Securities:
(i) OFFERS AND SALES ONLY TO INSTITUTIONAL ACCREDITED
INVESTORS OR QUALIFIED INSTITUTIONAL BUYERS. Offers and sales of the Securities
will be made only by the Initial Purchasers or Affiliates thereof qualified to
do so in the jurisdictions in which such offers or sales are made. Each such
offer or sale shall only be made (a) to persons whom the offeror or seller
reasonably, believes to be Qualified Institutional Buyers or (b) non-U.S.
persons outside the United States to whom the offeror or seller reasonably
believes offers and sales of the Securities may be made in reliance upon
Regulation S under the 1933 Act.
(ii) NO GENERAL SOLICITATION. The Securities will be
offered by approaching prospective Subsequent Purchasers on an individual basis.
No general solicitation or general advertising (within the meaning of Rule
502(c) under the 1933 Act) will be used in the United States in connection with
the offering of the Securities.
(iii) PURCHASES BY NON-BANK FIDUCIARIES. In the case of a
non-bank Subsequent Purchaser of a Security acting as a fiduciary for one or
more third parties, in connection with an offer and sale to such purchaser
pursuant to clause (a) (i) above, each third party shall, in the reasonable
judgment of the applicable Initial Purchaser, be a Qualified Institutional Buyer
or a non-U.S. person outside the United States.
(iv) SUBSEQUENT PURCHASER NOTIFICATION. Each Initial
Purchaser will take reasonable steps to inform, and cause each of its United
States Affiliates to take reasonable steps to inform, persons acquiring
Securities from such Initial Purchaser or affiliate, as the case may be, in the
United States that the Securities (a) have not been and will not be registered
under the 1933 Act, (b) are being sold to them without registration under the
1933 Act in reliance on Rule 144A or in accordance with another exemption from
registration under the 1933 Act, as the case may be, and (c) may not be offered,
sold or otherwise transferred except (i) to any one of the Issuers or IWL (ii)
outside the United States in accordance with Rule 904 of Regulation S, or (iii)
inside the United States in accordance with (x) Rule 144A to a person whom the
seller reasonably believes is a Qualified Institutional Buyer that is purchasing
such Securities for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the offer, sale or transfer is
being made in reliance on Rule 144A or (y) the exemption from registration under
the 1933 Act provided by Rule 144, if available.
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(v) MINIMUM PRINCIPAL AMOUNT. No sale of the Securities
to any one Subsequent Purchaser will be for less than U.S. $150,000 principal
amount and no Security will be issued in a smaller principal amount. If the
Subsequent Purchaser is a non-bank fiduciary acting on behalf of others, each
person for whom it is acting must purchase at least U.S. $150,000 principal
amount of the Securities.
(vi) RESTRICTIONS ON TRANSFER. The transfer restrictions
and the other provisions set forth in Section 3.17 of the Indenture, including
the legend required thereby, shall apply to the Securities except as otherwise
agreed by the Issuers and the Initial Purchasers. Following the sale of the
Securities by the Initial Purchasers to Subsequent Purchasers pursuant to the
terms hereof, the Initial Purchasers shall not be liable or responsible to the
Issuers for any losses, damages or liabilities suffered or incurred by the
Issuers, including any losses, damages or liabilities under the 1933 Act,
arising from or relating to any subsequent resale or transfer of any Security.
(vii) DELIVERY OF OFFERING MEMORANDUM. Each Initial
Purchaser will deliver to each purchaser of the Securities from such Initial
Purchaser, in connection with its original distribution of the Securities, a
copy of the Offering Memorandum, as amended and supplemented at the date of such
delivery.
(b) COVENANTS OF THE ISSUERS AND IWL. The Issuers and IWL covenant
with each Initial Purchaser as follows:
(i) DUE DILIGENCE. In connection with the original
distribution of the Securities, the Issuers and IWL agree that, prior to any
offer or resale of the Securities by the Initial Purchasers, the Initial
Purchasers and counsel for the Initial Purchasers shall have the right to make
reasonable inquiries into the business of the Issuers, IWL and their respective
subsidiaries. The Issuers and IWL also agree to provide answers to each
prospective Subsequent Purchaser of Securities who so requests concerning the
Issuers, IWL and their respective subsidiaries (to the extent that such
information is available or can be acquired and made available to prospective
Subsequent Purchasers without unreasonable effort or expense and to the extent
the provision thereof is not prohibited by applicable law) and the terms and
conditions of the offering of the Securities, as provided in the Offering
Memorandum.
(ii) INTEGRATION. The Issuers and IWL agree that they
have not previously and they will not and will cause their Affiliates not to
make any offer or sale of securities of any of the Issuers or IWL of any class
if, as a result of the doctrine of "integration" referred to in Rule 502 under
the 1933 Act, such offer or sale would render invalid (for the purpose of (a)
the sale of the Securities by the Issuers to the Initial Purchasers, (b) the
resale of the Securities by the Initial Purchasers to Subsequent Purchasers or
(c) the resale of the Securities by such Subsequent Purchasers to others) the
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exemption from the registration requirements of the 1933 Act provided by Section
4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.
(iii) RULE 144A INFORMATION. The Issuers and IWL agree
that, in order to render the Securities eligible for resale pursuant to Rule
144A under the 1933 Act, while any of the Securities remain outstanding, they
will make available, upon request, to any holder of Securities or prospective
purchasers of Securities the information specified in Rule 144A(d)(4), unless
the Issuers and IWL furnish information to the Commission pursuant to Section 13
or 15(d) of the 1934 Act (such information, whether made available to holders or
prospective purchasers or furnished to the Commission, is herein referred to as
"ADDITIONAL INFORMATION").
(iv) RESTRICTION ON REPURCHASES. Until the expiration of
two years after the original issuance of the Securities, the Issuers and IWL
will not, and will cause their Affiliates not to, purchase or agree to purchase
or otherwise acquire any Securities which are "restricted securities" (as such
term is defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial
owner or otherwise (except as agent acting as a securities broker on behalf of
and for the account of customers in the ordinary course of business in
unsolicited broker's transactions) unless, immediately upon any such purchase,
the Issuers, IWL or any Affiliate shall submit such Securities to the Trustee
for cancellation.
(c) RESALE PURSUANT TO RULE 903 OF REGULATION S OR RULE 144A. Each
Initial Purchaser understands that the Securities have not been and will not be
registered under the 1933 Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the 1933 Act or pursuant to an exemption from
the registration requirements of the 1933 Act. Each Initial Purchaser
represents and agrees, that, except as permitted by Section 6(b) above, it has
offered and sold Securities and will offer and sell Securities (i) as part of
their distribution at any time and (ii) otherwise until forty days after the
later of the date upon which the offering of the Securities commences and the
Closing Time, only in accordance with Rule 903 of Regulation S or Rule 144A
under the 1933 Act. Accordingly, neither the Initial Purchasers, their
affiliates nor any persons acting on their behalf have engaged or will engage in
any directed selling efforts with respect to Securities, and the Initial
Purchasers their affiliates and any person acting on their behalf have complied
and will comply with the offering restriction requirements of Regulation S or
Rule 144A. Each Initial Purchaser agrees that, at or prior to confirmation of a
sale of Securities (other than a sale of Securities pursuant to Rule 144A), it
will have sent to each distributor dealer or person receiving a selling
concession, fee or other remuneration that purchases Securities from it or
through it during the restricted period a confirmation or notice to
substantially the following effect:
"The Securities covered hereby, have not been registered
under the United States Securities Act of 1933 (the
"SECURITIES ACT") and may not be offered or sold within the
United States or to or for the
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account or benefit of U.S. persons (i) as part of their
distribution at any time and (ii) other until forty days after the
later of the date upon which the offering of the Securities
commenced and the date of closing, except in either case in
accordance with Regulation S or Rule 144A under the Securities
Act. Terms used above have the meaning given to them by
Regulation S."
Terms used in the above paragraph have the meanings given to them by
Regulation S.
Each Initial Purchaser severally represents and agrees that it has not entered
and will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with its affiliates or with the prior
written consent of the Issuers.
SECTION 7. INDEMNIFICATION.
(a) INDEMNIFICATION OF INITIAL PURCHASERS. Each of the Issuers and
IWL agrees to, on a joint and several basis, indemnify and hold harmless each
Initial Purchaser and each person, if any, who controls any Initial Purchaser
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Offering Memorandum or the Final Offering Memorandum (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in 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 7(d) below) any such
settlement is effected with the written consent of the Issuers and IWL; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch),
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 statement or omission,
to the extent that any such expense is not paid under (i) or (ii) above;
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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 Issuers and IWL
by any Initial Purchaser through Merrill Lynch expressly for use in the Offering
Memorandum (or any amendment thereto); PROVIDED FURTHER, that this indemnity
agreement with respect to any Preliminary Offering Memorandum shall not inure to
the benefit of any Initial Purchaser from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Securities, if a copy of the Final
Offering Memorandum in which such untrue statement or alleged untrue statement
or omission or alleged omission was corrected had not been sent or given to such
person prior to the Closing Time, unless such failure is the result of
noncompliance by the Issuers and IWL with Section 3(a) hereof.
(b) INDEMNIFICATION OF ISSUERS, IWL, DIRECTORS AND OFFICERS. Each
Initial Purchaser severally agrees to indemnify and hold harmless the Issuers
and IWL, their directors, their officers and each person, if any, who controls
any of the Issuers or IWL within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Offering Memorandum in
reliance upon and in conformity with written information furnished to the
Issuers and IWL by such Initial Purchaser through Merrill Lynch expressly for
use in the Offering Memorandum.
(c) ACTIONS AGAINST PARTIES: NOTIFICATION. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
7(a) above, counsel to the indemnified parties shall be selected by Merrill
Lynch, and, in the case of parties indemnified pursuant to Section 7(b) above,
counsel to the indemnified parties shall be selected by the Issuers and IWL. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same, general allegations or circumstances. No
indemnifying party shall,
26
<PAGE>
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
SECTION 8. CONTRIBUTION. If the indemnification provided for in
Section 7 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Issuers and IWL on the one hand and the Initial Purchasers on the other hand
from the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Issuers and IWL on the
one hand and of the Initial Purchasers on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Issuers and IWL on the one hand and
the Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Issuers and IWL and the total underwriting discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
27
<PAGE>
The relative fault of the Issuers and IWL on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Issuers and IWL or by the Initial Purchasers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Issuers and IWL and the Initial Purchasers agree that it would not be
just and equitable if contribution pursuant to this Section 8 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 8.
The appropriate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 8 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 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser 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, and each director of any of the Issuers or IWL and each person, if
any, who controls any of the Issuers or IWL 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 Issuers and IWL. The Initial Purchasers' respective
obligations to contribute pursuant to this Section 8 are several in proportion
to the principal amount of Securities set forth opposite their respective names
in Schedule A hereto and not joint.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in
28
<PAGE>
certificates of officers of any of the Issuers or IWL submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Initial Purchaser or controlling
person, or by or on behalf of any of the Issuers or IWL, and shall survive
delivery of the Securities to the Initial Purchasers.
SECTION 10. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Initial Purchasers may terminate this
Agreement, by notice to the Issuers and IWL, at any time at or prior to the
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Offering Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Issuers, IWL and their respective subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Initial Purchasers, impracticable to market the
Securities or to enforce contracts for the sale of the Securities, or (iii) if
trading in any securities of any of the Issuers or IWL has been suspended or
limited by the Commission or the NASDAQ National Market System, or if trading
generally on the American Stock Exchange or the New York Stock Exchange or in
the NASDAQ National Market System has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York or Texas authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 7 and 8 shall survive such termination and remain in full force and effect.
SECTION 11. DEFAULT BY ONE OR MORE OF THE INITIAL PURCHASERS. If one
or more of the Initial Purchasers shall fail at the Closing Time to purchase the
Securities which it or they are obligated to purchase under this Agreement (the
"DEFAULTED SECURITIES"), within 24 hours thereafter, one or more of the
non-defaulting Initial Purchasers, or any other Initial Purchaser, may make
arrangements to purchase all, but not less than all, of the Defaulted Securities
in such amounts as may be agreed upon and upon the terms herein set forth; if,
however, the Initial Purchasers shall not have completed such arrangements
within such 24-hour period, then:
29
<PAGE>
(a) If the number of Defaulted Securities does not exceed 10% of the
aggregate principal amount of the Securities to be purchased hereunder, each of
the non-defaulting Initial Purchasers shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Initial Purchasers, or
(b) if the number of Defaulted Securities exceeds 10% of the aggregate
principal amount of the Securities to be purchased hereunder, this Agreement
shall terminate, without liability on the part of any non-defaulting Initial
Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Initial Purchasers or the Issuers shall have the
right to postpone the Closing Time for a period not exceeding seven days in
order to effect any required changes in the Offering Memorandum or in any other
documents or arrangements. As used herein, the term "Initial Purchaser"
includes any person substituted for an Initial Purchaser under this Section 11.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing, and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to them at North Tower, World Financial Center, New
York, New York 10281-1201, attention of Joe Sheehan; notices to the Issuers
shall be directed to Jere W. Thompson, Jr., CapRock Communications Corp., Two
Galleria Towers, Suite 1925, 13455 Noel Road, Dallas, Texas 75240-6638, and
notices to IWL shall be directed to Ignatius W. Leonards, IWL Communications,
Incorporated, 12000 Aerospace Ave., Suite 200, Houston, Texas 77034, with a copy
to A. Michael Hainsfurther, Munsch Hardt Kopf Harr & Dinan, P.C., 4000 Fountain
Place, 1445 Ross Avenue, Dallas Texas 75225.
SECTION 13. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Initial Purchasers and the Issuers or IWL and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Initial Purchasers, the Company and their respective successors and
the controlling persons and officers and directors referred to in Sections 7 and
8 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers, the Issuers
and IWL and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or
30
<PAGE>
corporation. No purchaser of Securities from any Initial Purchaser shall be
deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 15. EFFECT OF HEADINGS. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
SECTION 16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and in separate counterparts and, when this Agreement has been
executed by each party in multiple or separate counterparts, all such
counterparts taken togther shall constitute one and the same agreement.
31
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Issuers and IWL a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Initial Purchasers, the Issuers and IWL in accordance with
its terms.
Very truly yours,
CAPROCK COMMUNICATIONS
CORP.
By:
----------------------------
Name:
Title:
CAPROCK TELECOMMUNICATIONS
CORP.
By:
----------------------------
Name:
Title:
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc.
By:
----------------------------
Name:
Title:
IWL COMMUNICATIONS,
INCORPORATED
By:
----------------------------
Name:
Title:
<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANC ONE CAPITAL MARKETS, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
Name:
Title:
For itself and as Representative of the other Initial Purchasers named in
Schedule A hereto.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Principal
Amount of
Name of Initial Purchaser Securities
------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . $97,500,000
Donaldson, Lufkin & Jenrette Securities
Corporation. . . . . . . . . . . . . . . . . $45,000,000
Banc One Capital Markets, Inc. . . . . . . . $ 7,500,000
-------------
Total. . . . . . . . . . . . . . . . . . . . $150,000,000
-------------
-------------
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
CAPROCK COMMUNICATIONS CORP.
CAPROCK TELECOMMUNICATIONS CORP.
CAPROCK FIBER NETWORK, LTD.
$150,000,000 of 12% Senior Notes due 2008
1. The initial public offering price of the Securities shall be 100%
of the principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Securities shall be 97.25% of the principal amount thereof.
3. Interest on the Securities shall accrue at an annual rate of 12%
and will be payable on January 15 and July 15 of each year, commencing on
January 15, 1999.
4. The redemption prices to be supplied in the Offering Memorandum
under the caption "Description of the Notes - Optional Redemption" (and
correspondingly in the Indenture) shall be on or after July 15 of the years
appearing below:
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2003 106.000%
2004 104.000%
2005 102.000%
2006 and thereafter 100.000%
</TABLE>
Sch B-1
<PAGE>
Exhibit A-1
FORM OF OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) Each of the Issuers and IWL has been duly incorporated and is
validly existing as a corporation or limited partnership, as the case may be, in
good standing under the laws of the State of Texas.
(ii) Each of the Issuers and IWL has the corporate or partnership power
and authority to own, lease and operate its properties and to conduct its
business as described in the Offering Memorandum and to enter into and perform
its obligations under the Purchase Agreement, the Escrow Agreement, the
Indenture, the Securities and the Registration Rights Agreement.
(iii) Each of the Issuers and IWL is duly qualified as a foreign
corporation or limited partnership, as the case may be, to transact business and
is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(iv) The Purchase Agreement has been duly authorized, executed and
delivered by each of the Issuers and IWL.
(v) The Escrow Agreement has been duly authorized, executed and
delivered by each of the Issuers and IWL.
(vi) The Registration Rights Agreement has been duly authorized,
executed and delivered by each of the Issuers.
(vii) The Indenture has been duly authorized, executed and delivered by
each of the Issuers and IWL.
(viii) The Securities are in the form contemplated by the Indenture and
have been duly authorized by each of the Issuers.
(ix) The Securities and the Indenture conform in all material respects
to the descriptions thereof contained in the Offering Memorandum.
(x) Based on docket searches in Harris and Dallas counties, Texas, to
the best of such counsel's knowledge, there are no pending or threatened any
action, suit, proceeding, inquiry, complaint or investigation, to which any of
the Issuers, IWL or any of their respective subsidiaries is a party, or to which
the assets or properties of any of the
Exh A-1-1
<PAGE>
Issuers, IWL or any of their respective subsidiaries thereof is subject, before
or brought by any court or governmental agency or body other than as set forth
on Schedule 1 hereto and no such action, suit, proceeding, inquiry, complaint or
investigation might reasonably be expected to materially and adversely affect
the consummation of the transactions contemplated in the Purchase Agreement or
any other Transaction Document or the performance by the Issuers or IWL of their
obligations under the Merger Agreement.
(xi) The information in the Offering Memorandum under
"Business--Properties", "Business--Legal Proceedings", "Description of the
Notes", "Description of Capital Stock" (but only to the extent such information
relates to provisions of the articles of incorporation or by-laws of
Communications) and "Certain Federal Income Tax Considerations" to the extent
that it constitutes matters of law, summaries of legal matters, the Company's
charter and bylaws or legal proceedings, or legal conclusions, has been reviewed
by such counsel and is correct in all material respects.
(xii) All descriptions in the Offering Memorandum of contracts and other
documents to which any of the Issuers, IWL or Spacelink Systems, Inc. is a party
are accurate in all material respects. To the best of such counsel's knowledge,
there are no franchises, contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments that would be required to be described in the
Offering Memorandum that are not described in the Offering Memorandum.
(xiii) To the best of such counsel's knowledge, none of the Issuers or
IWL is in violation of its charter or bylaws (or equivalent organizational
documents).
(xiv) No filing with, authorization, approval, consent, license,
registration, qualification, decree or order of any court or governmental
authority or agency other than such as may be required under the applicable
securities laws of the various jurisdictions in which the Securities will be
offered or sold, as to which such counsel need express no opinion) is required
in connection with the due authorization, execution and delivery of the Purchase
Agreement or the due execution, delivery or performance of the Indenture or any
other Transaction Document by the Issuers or IWL or for the offering, issuance,
sale or delivery of the Securities to the Initial Purchasers or the resale by
the Initial Purchasers in accordance with the Purchase Agreement and as
contemplated by the Offering Memorandum.
(xv) Assuming the accuracy of the representations and warranties and
compliance with the agreements of the Issuers, IWL and the Initial Purchasers in
the Purchase Agreement and the information set forth under the captions "Plan of
Distribution" and "Notice to Investors" in the Offering Memorandum and the
compliance by Subsequent Purchasers with the transfer restrictions contained in
the Indenture, it is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchasers and to each Subsequent
Purchaser in the manner contemplated by the Purchase Agreement and the Offering
Memorandum to register the Securities under the 1933 Act or to qualify the
Indenture under the 1939 Act.
Exh A-1-2
<PAGE>
(xvi) The execution, delivery and performance of the Purchase Agreement
and each other Transaction Document and the consummation of the transactions
contemplated in the Purchase Agreement, in any other Transaction Document and in
the Offering Memorandum (including the use of the proceeds from the sale of the
Securities as described in the Offering Memorandum under the caption "Use Of
Proceeds") and compliance by the Issuers and IWL with their obligations under
the Purchase Agreement and any other Transaction Document will not, whether with
or without the giving of notice or lapse of time or both, constitute a breach
of, or default or Repayment Event (as defined in the Purchase Agreement) under
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of any of the Issuers, IWL or any subsidiaries (except as
set forth in the Escrow Agreement) thereof pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or any other
agreement or instrument, known to such counsel, to which any of the Issuers, IWL
or Spacelink Systems, Inc. is a party or by which it or any of them may be
bound, or to which any of the property or assets of any of the Issuers, IWL or
any or their respective subsidiaries is subject (except for such breaches or
defaults, Repayment Events or liens, charges or encumbrances that would not have
a Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws (or equivalent organizational document) of
any of the Issuers, IWL or any of their respective subsidiaries, or any
applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to such counsel, of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over any of the Issuers, IWL or any of
their respective subsidiaries or any of their respective properties, assets or
operations.
(xvii) None of the Issuers or IWL is an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
In addition, we have participated in conferences with officers and other
representatives of the Issuers, IWL, the Initial Purchasers, their counsel and
the independent certified public accountants of the Issuers and IWL, at which
such conferences the contents of the Offering Memorandum and related matters
were discussed, and although we have not verified and do not assume
responsibility for the accuracy or completeness of the statements contained in
the Offering Memorandum (except to the extent set forth in paragraph (xi)
above), nothing has come to our attention which leads us to believe that, at the
date of the Final Offering Memorandum and at all times subsequent thereto up to
and on the date hereof, the Final Offering Memorandum (other than the financial
statements including the notes thereto, the auditors' report thereon, other
financial information derived therefrom and other financial information included
therein and other than the information contained in the Offering Memorandum
under the captions "Risk Factors - Regulation of Long Distance and Local
Telephone Services" and "Regulations and Licenses", as to which no opinion is
expressed) contained any 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, in light of the circumstances under which they were made,
not misleading.
Exh A-1-3
<PAGE>
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Issuers and IWL and public
officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
Exh A-1-4
<PAGE>
Exhibit A-2
FORM OF OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) The Escrow Agreement constitutes a valid and binding agreement of
each of the Issuers and IWL, enforceable against each of them in accordance with
its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law).
(ii) The Registration Rights Agreement constitutes a valid and binding
agreement of the Issuers, enforceable against each of them in accordance with
its terms except as enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting creditors' rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law) and the enforceability of any right to indemnification or contribution
provided therein violates the public policy of any law, rule or regulation.
(iii) The Indenture (assuming the due authorization, execution and
delivery thereof by the Trustee) constitutes a valid and binding agreement of
each of the Issuers and IWL, enforceable against each of them in accordance with
its terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or other similar laws relating to or
affecting enforcement of creditors' rights generally, or by general principles
of equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) and the enforceability of any right to indemnification or
contribution provided therein violates the public policy of any law, rule or
regulation.
(iv) The Securities, when executed by the Issuers and authenticated by
the Trustee in the manner provided in the Indenture (assuming the due
authorization, execution and delivery of the Indenture by the Trustee) and
delivered against payment of the purchase price therefor, will constitute valid
and binding obligations of the Issuers, enforceable against the Issuers in
accordance with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium (including, without
limitation, all laws relating to fraudulent transfers), or other similar laws
relating to or affecting enforcement of creditor's rights generally or by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at
Exh A-2-1
<PAGE>
law) and the enforceability of any right to indemnification or contribution
provided therein violates the public policy of any law, rule or regulation, and
will be entitled to the benefits of the Indenture.
(v) To the extent the Collateral (as defined in the Escrow Agreement)
consists of money ("Money"), as defined in Section 1-201 of the Uniform
Commercial Code of the State of New York (the "UCC") and other instruments, as
defined in Section. 9-105(l)(i) of the UCC ("Instruments") held by the Trustee
in the Cash Collateral Account (as defined in the Escrow Agreement) pursuant to
the provisions of the Escrow Agreement, the Escrow Agreement is effective to
create valid security interests in favor of the Trustee for the ratable benefit
of the holders of the Securities in such Collateral. Such security interest
will be perfected by delivery of possession of such Money and Instruments to the
Trustee in the State of New York and will, upon such delivery, constitute a
valid perfected security interest therein and such security interest shall
continue in such Money and Instruments, or any portion thereof, so long as such
Money and Instruments, or portions thereof, remain in continuous possession of
the Collateral Agent in the State of New York and the proceeds remain on deposit
in the Cash Collateral Account.
(vi) To the extent the Collateral consists of certificated securities
(as defined in Section 8-102 of the UCC) which are delivered to, and held by,
the Trustee in the State of New York and registered in the name of, or endorsed
to, the Trustee, or its nominee or endorsed in blank and the proceeds of such
certificated securities, the provisions of the Escrow Agreement are effective to
create valid security interests in favor of the Trustee for the ratable benefit
of the holders of the Securities in such Collateral. Such security interest
will be a valid perfected security interest so long as possession of the
certificated securities is retained by the Trustee in New York and is registered
in the name of, or endorsed to, the Trustee, or its nominee or endorsed in blank
and the proceeds of the certificated securities remain on deposit in the Cash
Collateral Account. To the extent the Collateral consists of certificated
securities (as defined in Section 8-102 of the UCC) which are in the custody of
and are registered in the name of the Depository Trust Company (the
"Depositary") or its custodian (or a nominee of either) subject to the control
of the Depositary as to which appropriate entries have been made to credit the
account of the Trustee on the books of the Depositary pursuant to Section 8-320
of the UCC, and the proceeds of such certificated securities, the provisions of
the Escrow Agreement are effective to create valid security interests in favor
of the Trustee for the ratable benefit of the holders of the Securities in such
Collateral. Such security interest will be a valid perfected security interest
so long as the certificated securities remain in custody of, and are registered
in the name of the Depositary or its custodian (or the nominee of either)
subject to the control of the Depositary and the books of the Depositary
continue to reflect that the certificated securities are being held solely for
the account of the Trustee and the proceeds of these certificated securities are
held in the Cash Collateral Account. To the extent the Collateral consists of
uncertificated securities (as defined in Section 8-102 of the UCC) which are
registered in the name of the Trustee or its custodian on the books of the
issuer of such uncertificated securities, and the
Exh A-2-2
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proceeds of such uncertificated securities, the provisions of the Escrow
Agreement are effective to create valid security interests in favor the Trustee
for the benefit of the holders of the Securities in such Collateral. Such
security interest will be a valid perfected security interest so long as the
uncertificated securities remain registered in the name of the Trustee or its
custodian, on the books of the issuer of such uncertificated securities and so
long as appropriate entries have been made to credit the account of the Trustee
on the books of the Depositary pursuant to Section 8-320 of the UCC and so long
as the proceeds remain on deposit in the Cash Collateral Account.
(vii) To the extent the Collateral consists of U.S. Government
Obligations (as defined in the Escrow Agreement) and proceeds thereof, the
provisions of the Escrow Agreement are effective to create valid security
interests in favor of the Trustee for the ratable benefit of the holders of the
Securities in such Collateral. Such security interest will be a valid perfected
security interest if such U.S. Government Obligations are registered in the name
of the Trustee on the records of the Federal Reserve Bank of New York and the
proceeds thereof remain on deposit in the Cash Collateral Account.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Issuers and IWL and public
officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
Exh A-2-3
<PAGE>
EXHIBIT 10.54
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT (this "AGREEMENT") is entered into effective
as of June 17, 1998, by and between IWL COMMUNICATIONS, INC., a Texas
corporation ("BORROWER"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a
national banking association ("LENDER"). Unless otherwise defined herein or
unless the context indicates otherwise, any word herein beginning with a
capitalized letter shall have the meaning ascribed to such word in (i) that
certain Credit Agreement (the "GUIDANCE CREDIT AGREEMENT") dated August 1,
1997, between Borrower and Lender, (ii) that certain Revolving Credit
Agreement (the "REVOLVING CREDIT AGREEMENT") dated August 1, 1997, between
Borrower and Lender, and (iii) that certain Amended and Restated Credit
Agreement (the "TERM CREDIT AGREEMENT") dated August 28, 1997, between
Borrower and Lender (as amended from time to time, the Guidance Credit
Agreement, the Revolving Credit Agreement and the Term Credit Agreement,
collectively, the "CREDIT AGREEMENTS").
W I T N E S S E T H:
WHEREAS, pursuant to the Guidance Credit Agreement, Lender made available
to Borrower an advised guidance facility in an amount not to exceed
$5,000,000.00 for the purchase and subsequent lease of certain types of
communications equipment (the "GUIDANCE LOAN");
WHEREAS, pursuant to the Revolving Credit Agreement, Lender made a
revolving credit loan to Borrower in an amount not to exceed $5,000,000.00 for
working capital purposes and for other general corporate purposes (the
"REVOLVING LOAN");
WHEREAS, pursuant to the Term Credit Agreement, Lender made a term loan to
Borrower in the amount of $1,055,000.00 for the finance or refinance of the
acquisition cost of certain specified equipment (the "TERM LOAN") (the Guidance
Loan, the Revolving Loan and the Term Loan are hereinafter collectively referred
to as the "LOANS");
WHEREAS, pursuant to the Guidance Loan, Lender previously made advances to
Borrower evidenced by (i) that certain Promissory Note dated August 1, 1997 in
the principal amount of $822,000.00, (ii) that certain Promissory Note dated
August 1, 1997 in the principal amount of $605,000.00, (iii) that certain
Promissory Note dated November 3, 1997 in the principal amount of $1,234,000.00,
(iv) that certain Promissory Note dated January 28, 1998 in the principal amount
of $960,000.00, (v) that certain Promissory Note dated March 11, 1998 in the
principal amount of $933,000.00, and (vi) that certain Promissory Note dated
June 10, 1998 in the principal amount of $200,000.00 (collectively, the "AGF
NOTES"); the Revolving Loan is evidenced by that certain Promissory Note dated
August 1, 1997 in the principal amount of $5,000,000.00 (the "REVOLVING NOTE");
the Term Loan is evidenced by that certain Promissory Note dated August 28, 1997
in the principal amount of $1,055,000.00 (the "TERM NOTE"), all executed by
Borrower, payable to the order
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of Lender [the AGF Notes, the Revolving Note and the Term Note are hereinafter
collectively referred to as the "NOTES"] The Loans are further secured by,
among other things, (i) that certain Collateral Assignment and Security
Agreement dated August 1, 1997, executed by Borrower, as assignor, and
Lender, as assignee, and (ii) that certain Security Agreement dated August 1,
1997, executed by Borrower, as debtor, and Lender, as secured party
(collectively, the "SECURITY DOCUMENTS");
WHEREAS, Borrower has requested that for the period from the date hereof
until August 31, 1998 Lender make a short term loan (the "SHORT TERM
OVERLINE") to Borrower in the amount of $4,000,000.00;
WHEREAS, Lender has agreed to amend the Credit Agreements to accommodate
Borrower's request on the terms and conditions herein contained.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, That for and in
consideration of the terms and conditions contained herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, Lender and Borrower hereby agree as follows:
ARTICLE I
MODIFICATION
Section 1.01. SHORT TERM OVERLINE. Lender agrees to make available to
Borrower the Short Term Overline for the period from the date hereof until
August 31, 1998. Borrower agrees to execute the Overline Note to evidence the
Short Term Overline.
Section 1.02. MODIFICATION TO CREDIT AGREEMENTS. The Credit Agreement
and the Notes are hereby modified in all particulars necessary to provide that
all amounts outstanding thereunder (including principal, interest and other
fees, costs and expenses) shall be due and payable in full on August 31, 1998.
Section 1.03. MODIFICATION TO DEFINITION OF NOTE. The definition of
"Note" and "Notes" in the Credit Agreements are hereby modified to incorporate
the "Overline Note" as defined herein.
Section 1.04. NEW DEFINITIONS. The following definitions are hereby added
to the Credit Agreements:
"SHORT TERM OVERLINE" means the short term line of credit evidenced by
the Overline Note.
"OVERLINE NOTE" means the promissory note in the amount of
$4,000,000.00 executed by Borrower and payable to Lender.
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Section 1.05. REAFFIRMATION OF INDEBTEDNESS AND LIENS. Borrower hereby
acknowledges and agrees that the liens and security interests of the Security
Documents and the other Loan Documents secure the Notes, as modified hereby, and
the other Indebtedness, are valid and subsisting liens and security interests,
and are superior to all liens, security interests and other encumbrances.
Nothing herein contained shall impair the validity or priority of the liens and
security interests under the Security Documents or the other Loan Documents.
Section 1.06. DEFINITION OF LOAN DOCUMENTS. The term "Loan Documents", as
defined in the Credit Agreements and as used in the Credit Agreements, the other
Loan Documents and herein, shall be, and hereby is, modified to include this
Agreement and any and all other documents executed in connection with this
Agreement. All references to the term "Loan Documents" contained in the Credit
Agreements and the other Loan Documents are hereby modified and amended wherever
necessary to reflect such modification of such term.
ARTICLE II
CONDITIONS PRECEDENT
Section 2.01. CLOSING. The closing (the "CLOSING") of the transactions
contemplated by this Agreement shall occur on and as of the date that all
conditions hereto contained in Section 2.02 of this Agreement have been
satisfied.
Section 2.02. CONDITIONS TO THE CLOSING. As conditions precedent to the
Closing, all of the following shall have been satisfied:
(a) Borrower shall have executed and delivered to Lender this
Agreement;
(b) Borrower shall have executed and delivered to Lender the Overline
Note;
(c) Borrower shall have executed and delivered to Lender a Notice of
Final Agreement in form and substance satisfactory to Lender;
(d) Lender shall have received all resolutions, certificates or other
documents as Lender may request relating to the formation, existence and good
standing of Borrower, corporate authority for the execution and validity of this
Agreement, and all other documents, instruments and agreements and any other
matters relevant hereto or thereto, all in form and substance satisfactory to
Lender.
ARTICLE III
GENERAL PROVISIONS
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Section 3.01. PAYMENT OF EXPENSES. In addition to the extension fee above
required, Borrower further agrees to pay, upon demand, the reasonable
attorneys' fees and expenses of Lender's counsel, filing and recording fees and
other reasonable expenses incurred by Lender in connection with this Agreement.
Section 3.02. RATIFICATION. Except as otherwise expressly modified by
this Agreement, all terms and provisions of the Credit Agreements, the Notes,
the Security Documents and the other Loan Documents shall remain unchanged and
hereby are ratified and confirmed and shall be and shall remain in full force
and effect, enforceable in accordance with their terms. Borrower hereby
confirms that the representations and warranties of Borrower contained in the
Loan Documents are true and correct in all material respects as of the
Modification Closing Date and that no default, nor any event which with notice
or passage of time or both could cause a default, has occurred as of the
Modification Closing Date.
Section 3.03. NO DEFENSES. Borrower hereby declares that it has no
set-offs, counterclaims, defenses or other causes of action against Lender
arising out of the Loan, the renewal, extension and modification of the Loan
hereby or by any documents mentioned herein or otherwise; and, to the extent
any such setoffs, counterclaims, defenses or other causes of action may
exist, whether known or unknown, such items are hereby waived by Borrower.
Section 3.04. NONWAIVER OF EVENTS OF DEFAULT. Neither this Agreement nor
any other document executed in connection herewith constitutes or shall be
deemed (a) a waiver of, or consent by Lender to, any default or event of default
which may exist or hereafter occur under any of the Loan Documents, (b) a waiver
by Lender of any of Borrower's obligations under the Loan Documents, or (c) a
waiver by Lender of any rights, offsets, claims, or other causes of action that
Lender may have against Borrower.
Section 3.05. FURTHER ASSURANCES. The parties hereto shall execute such
other documents as may be necessary or as may be required, in the opinion of
counsel to Lender, to effect the transactions contemplated hereby and to protect
the liens and security interests of the Security Documents, the insurance
thereof and the liens and/or security interests of all other collateral
instruments, all as modified by this Agreement. Borrower also agrees to provide
to Lender such other documents and instruments as Lender reasonably may request
in connection with the modification of the Loan effected hereby.
Section 3.06. USURY SAVINGS CLAUSE. Notwithstanding anything to the
contrary in this Agreement, the Notes or any other Loan Document, or in any
other agreement entered into in connection with the Notes or securing the
indebtedness evidenced by the Notes, whether now existing or hereafter arising
and whether written or oral, it is agreed that the aggregate of all interest and
other charges constituting interest, or adjudicated as constituting interest,
and contracted for, chargeable or receivable under the Notes or otherwise in
connection with the Notes shall under no circumstances exceed the maximum rate
of interest permitted by applicable law. In the event the maturity of the Notes
is accelerated by reason of an election by the holder thereof resulting from a
default thereunder or under any other document executed as security therefor or
in connection
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therewith, or by voluntary prepayment by the maker, or otherwise, then earned
interest may never include more than the maximum rate of interest permitted
by applicable law. If from any circumstance any holder of the Notes shall
ever receive interest or any other charges constituting interest, or
adjudicated as constituting interest, the amount, if any, which would exceed
the maximum rate of interest permitted by applicable law shall be applied to
the reduction of the principal amount owing on such Notes or on account of
any other principal indebtedness of the maker to the holder of such Notes,
and not to the payment of interest, or if such excessive interest exceeds the
unpaid balance of principal thereof and such other indebtedness, the amount
of such excessive interest that exceeds the unpaid balance of principal
thereof and such other indebtedness shall be refunded to the maker. All sums
paid or agreed to be paid to the holder of the Notes for the use, forbearance
or detention of the indebtedness of the maker to the holder of such Notes
shall be amortized, prorated, allocated and spread throughout the full term
of such indebtedness until payment in full for the purpose of determining the
actual rate on such indebtedness is uniform throughout the term thereof.
The terms "maximum amount" or "maximum rate" as used in this Agreement or
the Notes, or in any other agreement entered into in connection with the Notes
or securing the indebtedness evidenced by the Notes, whether now existing or
hereafter arising and whether written or oral, include, as to Chapter 303 of the
Texas Finance Code (and as same may be incorporated by reference in other
statutes of the State of Texas), but otherwise without limitation, that rate
based upon the "weekly ceiling"; provided, however, that this designation shall
not preclude the rate of interest contracted for, charged or received in
connection with the Loan from being governed by, or construed in accordance
with, any other state or federal law.
Section 3.07. BINDING AGREEMENT. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
heirs, representatives, successors and assigns.
Section 3.08. SEVERABILITY. Borrower and Lender intend and believe that
each provision in this Agreement comports with all applicable local, state or
federal laws and judicial decisions. However, if any provision or provisions,
or if any portion of any provision or provisions, in this Agreement is found by
a court of law to be in violation of any applicable local, state or federal
ordinance, statute, law, administrative or judicial decision or public policy,
and if such court should declare such portion, provision or provisions of this
Agreement to be illegal, invalid, unlawful, void or unenforceable as written,
then it is the intent of both of Borrower and Lender that such portion,
provision or provisions shall be given force to the fullest possible extent that
they are legal, valid and enforceable, that the remainder of this Agreement
shall be construed as if such illegal, invalid, unlawful, void or unenforceable
portion, provision or provisions were not contained herein and that the rights,
obligations and interests of Borrower and Lender under the remainder of this
Agreement shall continue in full force and effect.
Section 3.09. COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which are identical, each of which shall be deemed an
original, and all of which counterparts together shall constitute one and the
same instrument, it being understood and agreed that the signature pages may be
detached from one or more of such counterparts and combined with the
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<PAGE>
signature pages from any other counterpart in order that one or more fully
executed originals may be assembled.
Section 3.10. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF TEXAS.
Section 3.11. ENTIRE AGREEMENT. This Agreement, together with the other
Loan Documents, contain the entire agreements between the parties relating to
the subject matter hereof and thereof and all prior agreements relative thereto
which are not contained herein or therein are terminated. This Agreement and
the other Loan Documents may be amended, revised, waived, discharged, released
or terminated only by a written instrument or instruments, executed by the party
against which enforcement of the amendment, revision, waiver, discharge, release
or termination is asserted. Any alleged amendment, revision, waiver, discharge,
release or termination which is not so documented shall not be effective as to
any party.
Section 3.12. CONFORMING PROVISIONS. Any and all of the terms and
provisions of the Notes, the Credit Agreements, the Security Documents and all
of the other Loan Documents, are hereby amended and modified wherever necessary,
and even though not specifically addressed herein, so as to conform to the
amendments and modifications thereto set forth in this Agreement.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first written above.
BORROWER:
IWL COMMUNICATIONS, INC.,
a Texas corporation
By: /s/ Ignatius W. Leonards
---------------------------------------
Name: Ignatius W. Leonards
-------------------------------------
Title: Chief Executive Officer
------------------------------------
LENDER:
BANK ONE, TEXAS, NATIONAL ASSOCIATION,
a national banking association
By: /s/ Mark B. Wade
---------------------------------------
Name: Mark B. Wade
-------------------------------------
Title: Vice President
------------------------------------
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CONSENT OF GUARANTORS
The undersigned Guarantors hereby consent to the modification to the Notes
and the other Loan Documents set forth in this Agreement, and acknowledge and
agree that (a) his or its Guaranty shall continue to, and does, guarantee the
Loans as amended by this Agreement, and (b) his or its Guaranty is in full force
and effect.
Executed as of June 18, 1998.
SPACELINK SYSTEMS, INC.
By: /s/ Ignatius W. Leonards
---------------------------------------
Name: Ignatius W. Leonards
-------------------------------------
Title: President
------------------------------------
SPACELINK SYSTEMS FSC, INC.
By: /s/ Ignatius W. Leonards
---------------------------------------
Name: Ignatius W. Leonards
-------------------------------------
Title: President
------------------------------------
IWL COMMUNICATIONS LTD.
By: /s/ Ignatius W. Leonards
---------------------------------------
Name: Ignatius W. Leonards
-------------------------------------
Title: President
------------------------------------
8
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Exhibit 10.55
PROMISSORY NOTE
$4,000,000.00 Dallas, Texas June 17, 1998
IWL COMMUNICATIONS, INC., a Texas corporation with its principal office
located at 12000 Aerospace Avenue, Suite 200, Houston, Texas 77034
("BORROWER"), for value received, hereby promises to pay to the order of BANK
ONE, TEXAS, N.A., a national banking association ("LENDER"), at its Dallas
Banking Center at 1717 Main Street, 3rd Floor, Dallas, Texas 75201, or at
such other address given to Borrower by Lender, in immediately available
funds and in lawful money of the United States of America, the principal sum
of FOUR MILLION and No/100 Dollars ($4,000,000.00), or such lesser sum as may
be advanced and outstanding hereunder, on August 31, 1998 (the "MATURITY
DATE"), or sooner as provided in the Credit Agreements, together with
interest on the unpaid principal balance of this Note from time to time
outstanding at the Applicable Rate. Unless prohibited by applicable law and
subject to the terms hereof limiting interest to the Maximum Lawful Rate,
interest on this Note shall be calculated on the basis of actual days
elapsed, but as if each year consisted of 360 days.
This Note is made pursuant to (i) the Credit Agreement dated August 1,
1997, between Borrower and Lender, (ii) the Revolving Credit Agreement, dated
August 1, 1997, between Borrower and Lender, and (iii) the Amended and
Restated Credit Agreement dated August 28, 1997, between Borrower and Lender
(as the same may be amended, supplemented, renewed, extended or restated from
time to time, the "CREDIT AGREEMENTS"), and is one of the "Notes" defined and
described therein, the terms and provisions of the Credit Agreements related
to this Note being incorporated herein by reference for all purposes. Each
capitalized term used but not expressly defined herein shall have the meaning
given to such term in the Credit Agreements. Reference is hereby expressly
made to the Credit Agreements for a statement of the rights and obligations
of Lender and the duties and obligations of Borrower in relation thereto; but
neither this reference to the Credit Agreements nor any provision thereof
shall affect or impair the absolute and unconditional obligation of Borrower
to pay unpaid principal of and interest on this Note when due.
This Note is secured by the Collateral Assignment, the Security
Agreement, the guaranties of Guarantors and all the other Loan Documents, and
all liens and security interests created or evidenced thereby. Any holder
shall be entitled to all benefits, remedies and security set forth in the
Credit Agreements and all the other Loan Documents.
1. INTEREST AND PAYMENT.
(a) MATURITY. The principal of this Note and all accrued but
unpaid interest hereon shall be due and payable in full on the Maturity Date
or sooner as provided in the Credit Agreements.
(b) ACCRUAL OF INTEREST. Subject to Paragraph 1(e) below,
interest on this Note shall accrue at a rate and on the terms provided in the
Credit Agreements.
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(c) AGREEMENTS CONCERNING PRICING ELECTION. Reference should be
made to the provisions of SECTION 2.3 of the Credit Agreements concerning the
terms, manner and agreements related to the interest rate elections available
to Borrower under this Note.
(d) PRINCIPAL AND INTEREST PAYMENTS. Principal and Interest
payments hereon shall be due and payable as provided in ARTICLE II of the
Credit Agreements.
(e) DEFAULT RATE. Any past due principal on, and, to the extent
permitted by applicable law, past due interest on this Note (after giving
effect to all grace periods) shall, at the option of Lender, bear interest at
the lesser of the Maximum Lawful Rate or the Default Rate, as provided in the
Credit Agreements.
2. DEFAULT. The occurrence of a Default or an Event of Default, under
and as defined in the Credit Agreements, shall constitute, respectively, a
Default or an Event of Default under this Note.
3. REMEDIES.
(a) ALL REMEDIES AVAILABLE. Upon the occurrence of an Event of
Default, the holder hereof, in accordance with the terms of the Credit
Agreements, shall have the right to declare the entire unpaid principal
balance of, and all accrued unpaid interest on, this Note at once due and
payable (and upon such declaration, the same shall be at once due and
payable), to foreclose any and all liens and security interests securing
payment hereof, to offset against this Note any sum or sums owed by it to
Borrower, and to exercise any of its other rights, powers and remedies under
this Note, under the Credit Agreements or any other Loan Document, or at law
or in equity.
(b) NO WAIVER. Neither the failure by the holder hereof to
exercise, nor delay by the holder hereof in exercising, the right to
accelerate the maturity of this Note or any other right, power or remedy upon
any Default or Event of Default shall be construed as a waiver of such
Default or Event of Default or as a waiver of the right to exercise any such
right, power or remedy at any time. No single or partial exercise by the
holder hereof of any right, power or remedy shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right, power
or remedy may be exercised at any time and from time to time. All rights and
remedies provided for in this Note and in any other Loan Document are
cumulative of each other and of any and all other rights and remedies
existing at law or in equity, and the holder hereof shall, in addition to the
rights and remedies provided herein or in any other Loan Document, be
entitled to avail itself of all such other rights and remedies as may now or
hereafter exist at law or in equity for the collection of the indebtedness
owing hereunder, and the resort to any right or remedy provided for hereunder
or under any such other Loan Document or provided for by law or in equity
shall not prevent the concurrent or subsequent employment of any other
appropriate rights or remedies. Without limiting the generality of the
foregoing provisions, the acceptance by the holder hereof from time to time
of any payment under this Note which is past due or which is less than the
payment in full of all amounts due and payable at the time of such payment,
shall not (i) constitute a waiver of or impair or extinguish the rights of
the holder hereof to accelerate the maturity of this Note or to exercise any
other right, power or remedy at the time or at any subsequent time, or
nullify any prior exercise of
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any such right, power or remedy, or (ii) constitute a waiver of the
requirement of punctual payment and performance, or a novation in any respect.
4. USURY SAVINGS PROVISIONS.
(a) GENERAL LIMITATION. Notwithstanding anything herein or in any
other Loan Documents, expressed or implied, to the contrary, in no event
shall any interest rate charged hereunder or under any of the other Loan
Documents, or any interest contracted for, collected or received by Lender or
any holder hereof, exceed the Maximum Lawful Rate.
(b) INTENT OF PARTIES. It is expressly stipulated and agreed to
be the intent of Borrower and Lender at all times to comply with the
applicable law governing the maximum rate or amount of interest payable on or
in connection with this Note. If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under this Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to this Note, or if acceleration of the
maturity of this Note, any prepayment by Borrower, or any other circumstance
whatsoever, results in Lender having been paid any interest in excess of that
permitted by applicable law, then it is the express intent of Borrower and
Lender that all excess amounts theretofore collected by Lender be credited on
the principal balance of this Note (or, if this Note has been or would
thereby be paid in full, refunded to Borrower), and the provisions of this
Note and the other applicable Loan Documents immediately be deemed reformed
and the amounts thereafter collectible hereunder and thereunder reduced,
without the necessity of the execution of any new document, so as to comply
with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder and thereunder. The right to accelerate
the maturity of this Note does not include the right to accelerate any
interest which has not otherwise accrued on the date of such acceleration,
and Lender does not intend to collect any unearned interest in the event of
acceleration. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the indebtedness evidenced hereby or by any other
Loan Document shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of
such indebtedness does not exceed the Maximum Lawful Rate. The term
"APPLICABLE LAW" as used herein shall mean the laws of the State of Texas, or
any applicable United States federal law to the extent that it permits Lender
to contract for, charge, take, reserve or receive a greater amount of
interest than under Texas law. The provisions of this paragraph shall
control all agreements between Borrower and Lender.
5. GENERAL PROVISIONS.
(a) BUSINESS DAYS. Whenever any payment shall be due under this
Note on a day which is not a Business Day, the date on which such payment is
due shall be extended to the next succeeding Business Day, and such extension
of time shall be included in the computation of the amount of interest then
payable.
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(b) MANNER OF PAYMENT. The manner in which payments are to be
made on this Note shall be governed by the provisions hereof and the Credit
Agreements, including, without limitation, ARTICLE III of the Credit
Agreements.
(c) PREPAYMENTS. Prepayments may be made on this Note subject to
and in accordance with SECTION 3.5 of the Credit Agreements.
(d) APPLICATION OF PAYMENTS. All payments made on this Note shall
be applied in accordance with SECTION 3.1 of the Credit Agreements. Nothing
herein shall limit or impair any rights of any holder hereof to apply as
provided in the Loan Documents any past due payments, any proceeds from the
disposition of any collateral by foreclosure or other collections after
default.
(e) COSTS OF COLLECTION. If any holder of this Note retains an
attorney in connection with any default or at maturity or to collect, enforce
or defend this Note or any other Loan Document in any lawsuit or in any
probate, reorganization, bankruptcy or other proceeding, or if Borrower sues
any holder of this Note in connection with this Note or any other Loan
Document and does not prevail, then Borrower agrees to pay to each such
holder, in addition to principal and interest, all costs and expenses
incurred by such holder in trying to collect this Note or in any such suit or
proceeding, including reasonable attorneys' fees as and to the extent
provided in the Credit Agreements.
(f) WAIVERS AND ACKNOWLEDGMENTS. Borrower and all sureties,
endorsers, guarantors and any other party now or hereafter liable for the
payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest,
notice of protest, notice of intent to accelerate, notice of acceleration and
all other notice (except only for any notice that is specifically required by
the terms of the Credit Agreements or any other Loan Document), filing of
suit and diligence in collecting this Note or enforcing any of the security
herefor; (ii) agree to any substitution, subordination, exchange or release
of any such security or the release of any party primarily or secondarily
liable hereon; (iii) agree that the holder hereof shall not be required first
to institute suit or exhaust its remedies against Borrower or others liable
or to become liable hereon or to enforce its rights against them or any
security herefor; (iv) consent to any extension or postponement of time of
payment of this Note for any period or periods of time and to any partial
payments, before or after maturity, and to any other indulgences with respect
hereto, without notice thereof to any of them; and (v) submit (and waive all
rights to object) to personal jurisdiction in the State of Texas, and venue
in Dallas County, Texas, for the enforcement of any and all obligations under
the Loan Documents.
(g) AMENDMENTS IN WRITING. This Note may not be changed, amended
or modified except in a writing expressly intended for such purpose and
executed by the party against whom enforcement of the change, amendment or
modification is sought.
(h) PURPOSE OF PROCEEDS. The proceeds of this Note will be used
solely for business purposes and not for personal, family, household or
agricultural purposes.
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(i) NOTICES. Any notice required or which any party desires to
give under this Note shall be given and effective as provided in SECTION 9.1
of the Credit Agreements.
(j) ASSIGNMENTS/PARTICIPATIONS. Borrower acknowledges and agrees
that the holder of this Note may, at any time and from time to time, assign
all or a portion of its interest in this Note or transfer to any Person a
participation interest in this Note, subject to and in accordance with the
terms and conditions of the Credit Agreements, including SECTION 9.11 thereof.
(k) SUCCESSORS AND ASSIGNS. All of the covenants, stipulations,
promises and agreements contained in this Note by or on behalf of Borrower
shall bind their successors and assigns and shall be for the benefit of
Lender and any holder hereof, and their successors and assigns, as and to the
extent provided in the Credit Agreements.
(l) GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY TEXAS LAW, EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER
JURISDICTION GOVERN THE CREATION, PERFECTION OR ENFORCEMENT OF INTERESTS, OR
THE REMEDIES RELATED TO ANY PART OF THE COLLATERAL, OR TO THE EXTENT THAT
UNITED STATES FEDERAL LAW APPLIES.
(m) TIME OF THE ESSENCE. Time shall be of the essence in this
Note with respect to all of Borrower's obligations hereunder.
(n) INTEGRATION. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed as of the date first written above.
BORROWER:
IWL COMMUNICATIONS, INC.,
a Texas corporation
By: /s/ Ignatius W. Leonards
-----------------------------------
Name: Ignatius W. Leonards
---------------------------------
Title: Chief Executive Officer
--------------------------------
<PAGE>
Exhibit 10.56
[EXECUTION]
EIGHTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
OF
CAPROCK COMMUNICATIONS CORP.
THIS EIGHTH AMENDMENT TO Loan and Security Agreement (this "Amendment")
is made as of June 18, 1998 by and between CapRock Communications Corp.
("Debtor") and Bank One, Texas, N.A. ("Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor and Secured Party have entered into that certain Loan
and Security Agreement dated as of March 14, 1996 (as supplemented or amended
to the date hereof, the "Original Agreement"), for the purposes and
consideration therein expressed, pursuant to which Secured Party became
obligated to make and made loans to Debtor as therein provided; and
WHEREAS, Debtor and Secured Party desire to amend the Original Agreement
for the purposes set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Secured Party to
Debtor, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
ARTICLE I. - DEFINITIONS AND REFERENCES
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"AMENDMENT" means this Eighth Amendment to Loan and Security
Agreement.
"AMENDMENT DOCUMENTS" means this Amendment, the Renewal Note and
the Guarantor Consents.
"GUARANTOR CONSENTS" means each of the Guarantor Consent and
Agreements, substantially in the form of Exhibit D hereto.
"INTERCOMPANY NOTE" means a promissory note with appropriate
insertions in the form attached hereto as Exhibit C, duly executed by
CapRock Fiber payable to the order of Debtor.
<PAGE>
"LOAN AGREEMENT" means the Original Agreement as amended hereby.
"ORIGINAL NOTE" means the promissory note referred to in Section
2(a) of the Original Agreement.
"RENEWAL NOTE" means a promissory note with appropriate insertions
in the form attached hereto as Exhibit A payable to the order of Secured
Party on or before the Maturity Date, expressly renewing the Original
Note;
ARTICLE II. - AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. BORROWING BASE. Section 1(g) of the Original Agreement is
hereby amended by deleting the present such section in its entirety and
substituting therefor the following:
"(g) 'BORROWING BASE' shall mean, as of any date of determination,
the LESSER of (i) the sum of $7,000,000 less the Letter of Credit
Exposure, or (ii) the sum of (1) the product of (A) the Accounts Advance
Rate and (B) Debtor's Eligible Accounts, PLUS, WITHOUT DUPLICATION, (2)
the lesser of (A) $500,000 and (B) 85% of Debtor's Unbilled Accounts
(PROVIDED that , notwithstanding what the calculation would otherwise
be, the amount determined under this clause (2) shall be ZERO for the
sixth day of each month through the twenty-fifth day of each month
inclusive), PLUS (3) the Fixed Asset Component LESS (4) the Letter of
Credit Exposure, LESS (5) the Reserve, all determined as of such date of
determination."
Section 2.2. MATURITY DATE. Section 1(bb) of the Original Agreement is
hereby amended by deleting the present such section in its entirety and
substituting therefor the following:
"(bb) 'MATURITY DATE' shall mean the earlier of (i) August 31, 1998
and (ii) the first date on which both of the Note Offering and the
Merger have been consummated."
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Section 2.3. REVOLVING LINE. Section 1(hh) of the Original Agreement is
hereby amended by deleting the present such section in its entirety and
substituting therefor the following:
"(hh) 'REVOLVING LINE' means $7,000,000."
Section 2.4. NEW DEFINITIONS. Section 1 of the Original Agreement is
hereby amended by adding the following Sections 1(ff) throughout 1(kk)
immediately following Section 1(ee):
"(ff) 'CAPROCK FIBER' means CapRock Fiber Network, Ltd., a
Texas limited partnership."
"(gg) 'FIXED ASSET COMPONENT' means $1,750,000."
"(hh) 'INTERCOMPANY NOTE' means the promissory note payable to the
order of Debtor in the form of Exhibit C duly executed by CapRock Fiber."
"(ii) 'MERGER' means the merger of CapRock Fiber, Debtor and IWL
Communications Incorporated with Debtor being the surviving entity."
"(jj) 'NOTE OFFERING' means the note offering by Debtor, CapRock
Fiber, and IWL Communications Incorporated in the amount of at least
$100,000,000 or more."
"(kk) 'UNBILLED ACCOUNTS' means accounts receivable of Debtor that
would constitute Eligible Accounts except for the fact they such
accounts receivable have not been invoiced."
Section 2.5. REVOLVING LOANS. Section 2(a) is hereby amended to add the
following language at the end of such section:
"Debtor must give Secured Party written notice (or telephonic
notice promptly confirmed in writing) of any new Revolving Loans to be
advanced by Secured Party. Each such notice constitutes a "Borrowing
Notice" hereunder and must specify: (i) the aggregate amount of such new
Revolving Loans and the date on which such Revolving Loans are to be
advanced, and (ii) the amount of such new Revolving Loan, if any, that
shall be advanced by Secured Party to CapRock Fiber under the
Intercompany Note. Each such written request or confirmation must be
made in the form and substance of the "Borrowing Notice" attached hereto
as Exhibit B, duly completed. Each such telephonic request shall be
deemed a representation, warranty, acknowledgment and agreement by
Debtor as to the matters which are required to be set out in such
written confirmation."
Section 2.6. AMENDMENT OF SECTION 2. Section 2 of the Original
Agreement is hereby amended by adding thereto the following as Section 2(d):
"(d) USE OF PROCEEDS. Debtor shall use all Revolving Loans (i)
to provide working capital for its operations, (ii) for other general
business purposes and (iii) to make loans to CapRock Fiber. In no event
shall the funds from any Revolving Loan or any Letter of Credit be used
directly or indirectly by Debtor or CapRock Fiber to pay breakage fees
owed by Debtor in connection with the Merger or for the repurchase of
notes issued in the Note Offering or the payment of any premium with
respect thereto.
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Section 2.7.NEGATIVE COVENANTS. The second sentence Section 12(m) is
hereby amended in its entirety to provide as follows:
"(m) As used herein, `INVESTMENT' in any Person means (i) any
investment, whether by means of share purchase, loan, advance, purchase
of debt instrument, extension of credit (other than accounts receivable
arising from the sale of goods or services in the ordinary course of
business), capital contribution or otherwise, in or to such Person, (ii)
the guaranty of any indebtedness of such Person or the subordination of
any claim against such Person to other indebtedness of such person or
entity or (iii) investments in an amount not to exceed $2,500,000 in the
aggregate to CapRock Fiber."
Section 2.8. EVENTS OF DEFAULT. The following Section 14(l) is hereby
added to Section 14 of the Original Agreement to provide as follows:
"(h) The failure of both of the Note Offering and the Merger to
have been successfully completed by August 31, 1998."
Section 2.9. EXHIBITS. Exhibit A to the Loan Agreement is hereby
amended in its entirety to read as set forth in Exhibit A to this Amendment
and is incorporated by reference herein. Exhibit B and Exhibit C are hereby
added to the Loan Agreement in the form of Exhibit B and Exhibit C attached
hereto and incorporated by reference herein.
Section 2.10.LIMITED WAIVER. Secured Party hereby waives the Default
existing as of December 31, 1997 under Section 12(o) of the Loan Agreement.
ARTICLE III. - CONDITIONS OF EFFECTIVENESS
Section 3.1. EFFECTIVE DATE. This Amendment shall become effective as
of the date first above written when and only when Secured Party shall have
received, at Secured Party's office, and executed by, if applicable, Debtor
or any Guarantor:
a. this Amendment;
b. the Renewal Note;
c. a certificate of the Secretary of Debtor dated the date of this
Amendment certifying that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of Debtor
authorizing the execution, delivery and performance of this
Amendment and the Renewal Note, certifying the names and true
signatures of the officers of Debtor authorized to sign this
Amendment and the Renewal Note and certifying that all of the
representations and warranties set forth in Article IV hereof are
true and correct at and as of the time of such effectiveness;
d. a Consent of Guarantor;
e. the Intercompany Note and an assignment by Debtor of all notes and
obligations of CapRock Fiber Network, Ltd. to Debtor; and
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f. such supporting documents as Secured Party may reasonably request.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES
Section 4.1. REPRESENTATIONS AND WARRANTIES OF DEBTOR. In order to
induce Secured Party to enter into this Amendment, Debtor represents and
warrants to Secured Party that:
(a) The representations and warranties contained in Section 7 of
the Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Debtor and each Guarantor is duly authorized to execute and
deliver each Amendment Document to which it is a party and Debtor is and
will continue to be duly authorized to borrow and to perform its
obligations under the Loan Agreement. Debtor and each Guarantor which
is a corporation has duly taken all corporate action necessary to
authorize the execution and delivery of each Amendment Document to which
it is a party and to authorize the performance of its obligations
thereunder.
(c) The execution and delivery by Debtor and each Guarantor of
each Amendment Document to which it is a party, the performance by
Debtor and each Guarantor of their obligations thereunder and the
consummation of the transactions contemplated thereby do not and will
not conflict with any provision of law, statute, rule or regulation or
any organizational document of Debtor or any Guarantor, or of any
material agreement, judgment, license, order or permit applicable to or
binding upon Debtor or any Guarantor, or result in the creation of any
lien, charge or encumbrance upon any assets or properties of Debtor or
any Guarantor. Except for those which have been duly obtained, no
consent, approval, authorization or order of any court or governmental
authority or third party is required in connection with the execution
and delivery by Debtor and each Guarantor of each Amendment Document to
which it is a party or to consummate the transactions contemplated
hereby.
(d) When duly executed and delivered, the Loan Agreement and each
Amendment Document will be a legal and binding instrument and agreement
of Debtor and each Guarantor, to the extent each is a party thereto,
enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency and similar laws applying to creditors' rights
generally and by principles of equity applying to creditors' rights
generally.
ARTICLE V. - MISCELLANEOUS
Section 5.1. RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. All Loan
Documents, as they may be amended or affected by the various Amendment
Documents, are hereby ratified and confirmed in all respects. Any reference
to the Loan Agreement in any Loan Document shall be deemed to refer to this
Amendment also. Any reference to the promissory note of Debtor shall be
deemed to be a reference to the Renewal Note. The execution, delivery and
effectiveness of the Amendment Documents shall not, except as expressly
provided herein or therein, operate as a waiver of any right, power or remedy
of Secured Party under the Loan Agreement or any other Loan Document nor
constitute a waiver of any provision of the Loan Agreement or any other Loan
Document.
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<PAGE>
Section 5.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Debtor herein shall survive the execution and
delivery of this Amendment and the Renewal Note and the performance hereof
and thereof, including without limitation the making or granting of the
Loans, and shall further survive until all of the Obligations are paid in
full. All statements and agreements contained in any certificate or
instrument delivered by Debtor or General Partner hereunder or under the Loan
Agreement to Secured Party shall be deemed to constitute representations and
warranties by, or agreements and covenants of, Debtor under this Amendment
and under the Loan Agreement.
Section 5.3. LOAN DOCUMENTS. The Amendment Documents are Loan
Documents, and all provisions in the Loan Agreement pertaining to Loan
Documents apply hereto and thereto.
Section 5.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 5.5. COUNTERPARTS. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
BANK ONE, TEXAS, N.A.
By: /s/ Gina A. Norris
------------------------------------
Gina A. Norris
Vice President
CAPROCK COMMUNICATIONS CORP.
By: /s/ Jere W. Thompson, Jr.
------------------------------------
Jere W. Thompson, Jr.
President
<PAGE>
EXHIBIT A
RENEWAL AND EXTENSION PROMISSORY NOTE
$7,000,000 June 18, 1998
FOR VALUE RECEIVED, on or before the Maturity Date (as such term is
defined in the Loan Agreement, as hereinafter defined), the undersigned and
if more than one, each of them, jointly and severally (hereinafter referred
to as "Borrower'), promises to pay to the order of BANK ONE, TEXAS, NATIONAL
ASSOCIATION ("Bank") at its offices in Dallas County, Texas, at 1717 Main
Street, 3rd Floor, Dallas, Texas 75201, the principal amount of SEVEN MILLION
AND NO/100 DOLLARS ($7,000,000.00) ("Total Principal Amount"), or such amount
less than the Total Principal Amount which is outstanding from time to time
if the total amount outstanding under this Promissory Note (this "Note") is
less than the Total Principal Amount, together with interest on such portion
of the Total Principal Amount which has been advanced to Borrower from the
date advanced until paid at a fluctuating rate per annum, which shall from
day to day be equal to the lesser of (a) the Maximum Rate (as hereinafter
defined), or (b) a rate ("Contract Rate"), calculated on the basis of the
actual days elapsed but computed as if each year consisted of 360 days, equal
to the sum of (A) the Base Rate of interest ("Base Rate") as established from
time to time by Bank (which may not be the lowest, best or most favorable
rate of interest which Bank may charge on loans to its customers) plus (B)
one and one-half percent (1.50%), each change in the rate to be charged on
this Note to become effective without notice to Borrower on the effective
date of each change in the Maximum Rate or the Base Rate, as the case may be;
provided, however, that (i) the Contract Rate shall be subject to reduction
as provided in the Loan Agreement (as hereinafter defined) and (ii) if at any
time the Contract Rate shall exceed the Maximum Rate, thereby causing the
interest on this Note to be limited to the Maximum Rate, then any subsequent
reduction in the base Rate shall not reduce the rate of interest on this Note
below the Maximum Rate until the total amount of interest accrued on this
Note equals the amount of interest which would have accrued on this Note if
the Contract Rate had at all times been in effect.
The term "Maximum Rate," as used herein, shall mean at the particular
time in question the maximum rate of interest which, under applicable law,
may then be charged on this Note. If such maximum rate of interest changes
after the date hereof and this Note provides for a fluctuating rate of
interest, the Maximum Rate shall be automatically increased or decreased, as
the case may be, without notice to Borrower from time to time as of the
effective date of each change in such maximum rate. If applicable law ceases
to provide for such a maximum rate of interest, the Maximum Rate shall be
equal to eighteen percent (18%) per annum. All capitalized terms used herein
that are not defined herein shall have the meaning given them in that certain
Loan and Security Agreement, dated as of March 14, 1996, by and between
Borrower and Bank (as the same has been and may be amended, restated,
renewed, extended, or otherwise modified, the "Loan Agreement").
The principal of and all accrued but unpaid interest on this Note shall
be due and payable as follows:
(a) interest shall be due and payable monthly as it accrues, commencing
on the first day of June, 1998, and continuing on the first day of each
successive month thereafter during the term of this Note; and
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(b) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
All mandatory prepayments of principal and accrued but unpaid interest
thereon required to be made under the Loan Agreement shall be due and payable
immediately unless otherwise provided in the Loan Agreement.
To the extent that any interest is not paid on or before the day it
becomes due and payable, Bank may, at its option, add such accrued interest
to the principal of this Note. Notwithstanding anything herein to the
contrary, upon an Event of Default (as hereinafter defined) or at maturity,
whether by acceleration or otherwise, all principal of this Note shall, at
the option of Bank, bear interest at the Default Rate until paid.
This Note evidences obligations and indebtedness from time to time owing
by Borrower to Bank pursuant to the Loan Agreement, and is secured by, inter
alia, the Collateral. The holder of this Note is entitled to the benefits
and security provided in the Loan Documents.
Under the Loan Agreement, Borrower may request advances and make
payments hereunder from time to time, provided that it is understood and
agreed that the aggregate principal amount outstanding from time to time
hereunder shall not at any time exceed the Total Principal Amount. The
unpaid balance of this Note shall increase and decrease with each new advance
or payment hereunder, as the case may be. This Note shall not be deemed
terminated or canceled prior to the Maturity Date, although the entire
principal balance hereof may from time to time be paid in full. Borrower may
borrow, repay and reborrow hereunder in accordance with the provisions of the
Loan Agreement. All regularly scheduled payments of the indebtedness
evidenced by this Note and by any of the other Loan Documents shall be
applied first to any accrued but unpaid interest then due and payable
hereunder or thereunder and then to the principal amount then due and
payable. All non-regularly scheduled payments shall be applied to such
indebtedness in such order and manner as the holder of this Note may from
time to time determine in its sole discretion. All payments and prepayments
of principal of or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the address of
Bank indicated above, or such other place as the holder of this Note shall
designate in writing to Borrower. If any payment of principal of or interest
on this Note shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and any such
extension of time shall be included in computing interest in connection with
such payment. The books and records of Bank shall be prima facie evidence of
all outstanding principal of and accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall
be used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more Events of
Default (as defined in the Loan Agreement), the holder of this Note may, at
its option, without further notice or demand, (i) declare the outstanding
principal balance of and accrued but unpaid interest on this Note at once due
and payable, (ii) refuse to advance any additional amounts under this Note,
(iii) foreclose all liens and security interests securing payment hereof,
(iv) pursue and all other rights, remedies and recourses available to the
holder hereof, including but not limited to any such rights, remedies or
recourses under the Loan Documents, at law or in equity, or (v) pursue any
combination of the foregoing.
The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy or recourse available to the holder hereof
upon the occurrence of an Event of Default shall not constitute a
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waiver of the right of the holder of this Note to exercise the same at that
time or at any subsequent time with respect to such Event of Default or any
other Event of Default. The rights, remedies and recourses of the holder
hereof, as provided in this Note and in any of the other Loan Documents,
shall be cumulative and concurrent and may be pursued separately,
successively or together as often as occasion therefore shall arise, at the
sole discretion of the holder hereof. The acceptance by the holder hereof of
any payment under this Note which is less than the payment in full of all
amounts due and payable at the time of such payment shall not (i) constitute
a waiver of or impair, reduce, release or extinguish any right, remedy or
recourse of the holder hereof, or nullify any prior exercise of any such
right, remedy or recourse, or (ii) impair, reduce, release or extinguish the
obligations of any party liable under any of the Loan Documents as originally
provided herein or therein.
This Note and all of the other Loan Documents are intended to be
performed in accordance with, and only to the extent permitted by, all
applicable usury laws. If any provision hereof or of any of the other Loan
Documents or the application thereof to any person or circumstance shall, for
any reason and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby and shall be enforced to the greatest extent permitted by
law. It is expressly stipulated and agreed to be the intent of the holder
hereof to at all times comply with the usury and other applicable laws now or
hereafter governing the interest payable on the indebtedness evidenced by
this Note. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under this Note or
under any of the other Loan Documents, or contracted for, charged, taken,
reserved or received with respect to the indebtedness evidenced by this Note,
or if Bank's exercise of the option to accelerate the maturity of this Note,
or if any prepayment by Borrower results in Borrower's having paid any
interest in excess of that permitted by law, then it is the express intent of
Borrower and Bank that all excess amounts theretofore collected by Bank be
credited on the principal balance of this Note (or, if this Note and all
other indebtedness arising under or pursuant to the other Loan Documents have
been paid in full, refunded to Borrower), and the provisions of this Note and
the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectable hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder or thereunder. All sums paid, or agreed to be
paid, by Borrower for the use, forbearance, detention, taking, charging,
receiving or reserving of the indebtedness of Borrower to Bank under this
Note or arising under or pursuant to the other Loan Documents shall, to the
maximum extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in
full so that the rate or amount of interest on account of such indebtedness
does not exceed the usury ceiling from time to time in effect and applicable
to such indebtedness for so long as such indebtedness is outstanding. To the
extent federal law permits Bank to contract for, charge or receive a greater
amount of interest, Bank will rely on federal law instead of the Texas
Finance Code, as supplemented by Texas Credit Title for the purpose of
determining the Maximum Rate. Additionally, to the maximum extent permitted
by applicable law now or hereafter in effect, Bank may, at its option and
from time to time, implement any other method of computing the Maximum Rate
under the Texas Finance Code, as supplemented by Texas Credit Title, or under
other applicable law by giving notice, if required, to Borrower as provided
by applicable law now or hereafter in effect. Notwithstanding anything to
the contrary contained herein or in any of the other Loan Documents, it is
not the intention of Bank to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned interest
at the time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to
this Note. To the extent that Chapter 303 of the Texas Finance Code is
applicable to this Note, the "weekly ceiling" specified in Chapter 303 is the
applicable
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ceiling; provided that, if any applicable law permits greater interest, the
law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all
other sums payable hereunder, all costs and expenses of collection, including
but not limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice
of protest, notice of intent to accelerate, notice of acceleration and
dishonor, diligence in enforcement and indulgences of every kind and without
further notice hereby agree to renewals, extensions, exchanges or releases of
collateral, taking of additional collateral, indulgences or partial payments,
either before or after maturity.
This Note is given in renewal and extension of, but not in
extinguishment of, that certain Sixth Renewal and Extension Promissory Note
in the original principal amount of $2,500,000.00, dated as of December 31,
1997, from Borrower to Bank (the "Prior Note"). The execution of this Note
is not intended to and shall not cause or result in a novation with regard to
the indebtedness evidenced by the Prior Note.
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THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
CAPROCK COMMUNICATIONS CORP.
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
BORROWING NOTICE
Reference is made to that certain Loan and Security Agreement dated as
of March 14, 1996 (as from time to time amended, the "Agreement"), by and
among CapRock Communications Corp. ("Debtor") and Bank One, Texas, N.A.
("Secured Party"). Terms which are defined in the Agreement are used herein
with the meanings given them in the Agreement. Pursuant to the terms of the
Agreement Debtor hereby requests Secured Party to make a Revolving Loan to
Debtor in the aggregate principal amount of $ __________ and specifies
____________, 1998, as the date Debtor desires for Secured Party to make such
Revolving Loan and to deliver to Debtor the proceeds thereof.
To induce Secured Party to make such Revolving Loan, Debtor hereby
represents, warrants, acknowledges, and agrees to and with Secured Party that:
(a) The officer of Debtor signing this instrument is the duly
elected, qualified and acting officer of Debtor as indicated below such
officer's signature hereto having all necessary authority to act for
Debtor in making the request herein contained.
(b) After the making of the Revolving Loan requested hereby, the
aggregate principal outstanding on all Revolving Loans will not be in
excess of the Borrowing Base. Each of the conditions precedent to
Revolving Loans set forth in the Agreement remains satisfied.
(c) There does not exist on the date hereof any condition or event
which constitutes a Default which has not been waived in writing as
provided in Section 14 of the Agreement; nor will any such Default exist
upon Debtor's receipt and application of the a Revolving Loan requested
hereby.
(d) The proceeds of the Revolving Loan requested hereby will be
used to make advances to CapRock Fiber Network, Ltd. in the amount of $
under the Intercompany Note. Debtor will use the Revolving Loan hereby
requested in compliance with Section 2(d) of the Agreement.
(e) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any course
of dealing, or by any other means not provided for in Section 18(h) of
the Agreement. The Agreement and the other Loan Documents are hereby
ratified, approved, and confirmed in all respects.
The officer of Debtor signing this instrument hereby certifies that, to
the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgements, and agreements of Debtor are true, correct and
complete.
<PAGE>
IN WITNESS WHEREOF, this instrument is executed as of ____________, 1998.
CAPROCK COMMUNICATIONS CORP.
By:
------------------------------------
Name:
Title:
<PAGE>
EXHIBIT D
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of June 18, 1998, by
Jere W. Thompson, Jr. ("Guarantor") in favor of Bank One, Texas, N.A.
("Secured Party"). Guarantor, who is a Guarantor under that certain Loan
Agreement (as so amended, the "Loan Agreement") dated as of March 14, 1996
between CapRock Communications Corp. ("Debtor") and Secured Party, hereby
consents and agrees to the following.
1. Guarantor hereby consents to the provisions of that certain
Eighth Amendment to Loan Agreement of even date herewith between Secured
Party and Debtor (the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations
and covenants under that certain guaranty (the "Guaranty") dated as of
March 9, 1996 made by him for the benefit of Secured Party (including
without limitation its obligation to guaranty the payment and
performance of all of the obligations and undertakings of Debtor owing
to Secured Party).
4. Guarantor hereby agrees that his obligations and covenants
under the Guaranty are unimpaired by the provisions of the Amendment and
the transactions contemplated therein and shall continue to remain in
full force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the
date first above written.
--------------------------------
Jere W. Thompson, Jr.
<PAGE>
Exhibit 10.57
RENEWAL AND EXTENSION PROMISSORY NOTE
$7,000,000 June 18, 1998
FOR VALUE RECEIVED, on or before the Maturity Date (as such term is
defined in the Loan Agreement, as hereinafter defined), the undersigned
and if more than one, each of them, jointly and severally (hereinafter
referred to as "Borrower'), promises to pay to the order of BANK ONE,
TEXAS, NATIONAL ASSOCIATION ("Bank") at its offices in Dallas County,
Texas, at 1717 Main Street, 3rd Floor, Dallas, Texas 75201, the
principal amount of SEVEN MILLION AND NO/100 DOLLARS ($7,000,000.00)
("Total Principal Amount"), or such amount less than the Total Principal
Amount which is outstanding from time to time if the total amount
outstanding under this Promissory Note (this "Note") is less than the
Total Principal Amount, together with interest on such portion of the
Total Principal Amount which has been advanced to Borrower from the date
advanced until paid at a fluctuating rate per annum, which shall from
day to day be equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) a rate ("Contract Rate"), calculated on the
basis of the actual days elapsed but computed as if each year consisted
of 360 days, equal to the sum of (A) the Base Rate of interest ("Base
Rate") as established from time to time by Bank (which may not be the
lowest, best or most favorable rate of interest which Bank may charge on
loans to its customers) plus (B) one and one-half percent (1.50%), each
change in the rate to be charged on this Note to become effective
without notice to Borrower on the effective date of each change in the
Maximum Rate or the Base Rate, as the case may be; provided, however,
that (i) the Contract Rate shall be subject to reduction as provided in
the Loan Agreement (as hereinafter defined) and (ii) if at any time the
Contract Rate shall exceed the Maximum Rate, thereby causing the
interest on this Note to be limited to the Maximum Rate, then any
subsequent reduction in the base Rate shall not reduce the rate of
interest on this Note below the Maximum Rate until the total amount of
interest accrued on this Note equals the amount of interest which would
have accrued on this Note if the Contract Rate had at all times been in
effect.
The term "Maximum Rate," as used herein, shall mean at the
particular time in question the maximum rate of interest which, under
applicable law, may then be charged on this Note. If such maximum rate
of interest changes after the date hereof and this Note provides for a
fluctuating rate of interest, the Maximum Rate shall be automatically
increased or decreased, as the case may be, without notice to Borrower
from time to time as of the effective date of each change in such
maximum rate. If applicable law ceases to provide for such a maximum
rate of interest, the Maximum Rate shall be equal to eighteen percent
(18%) per annum. All capitalized terms used herein that are not defined
herein shall have the meaning given them in that certain Loan and
Security Agreement, dated as of March 14, 1996, by and between Borrower
and Bank (as the same has been and may be amended, restated, renewed,
extended, or otherwise modified, the "Loan Agreement").
The principal of and all accrued but unpaid interest on this Note
shall be due and payable as follows:
(a) interest shall be due and payable monthly as it accrues,
commencing on the first day of June, 1998, and continuing on the first
day of each successive month thereafter during the term of this Note; and
<PAGE>
(b) the outstanding principal balance of this Note, together with
all accrued but unpaid interest, shall be due and payable on the
Maturity Date.
All mandatory prepayments of principal and accrued but unpaid
interest thereon required to be made under the Loan Agreement shall be
due and payable immediately unless otherwise provided in the Loan
Agreement.
To the extent that any interest is not paid on or before the day it
becomes due and payable, Bank may, at its option, add such accrued
interest to the principal of this Note. Notwithstanding anything herein
to the contrary, upon an Event of Default (as hereinafter defined) or at
maturity, whether by acceleration or otherwise, all principal of this
Note shall, at the option of Bank, bear interest at the Default Rate
until paid.
This Note evidences obligations and indebtedness from time to time
owing by Borrower to Bank pursuant to the Loan Agreement, and is secured
by, inter alia, the Collateral. The holder of this Note is entitled to
the benefits and security provided in the Loan Documents.
Under the Loan Agreement, Borrower may request advances and make
payments hereunder from time to time, provided that it is understood and
agreed that the aggregate principal amount outstanding from time to time
hereunder shall not at any time exceed the Total Principal Amount. The
unpaid balance of this Note shall increase and decrease with each new
advance or payment hereunder, as the case may be. This Note shall not
be deemed terminated or canceled prior to the Maturity Date, although
the entire principal balance hereof may from time to time be paid in
full. Borrower may borrow, repay and reborrow hereunder in accordance
with the provisions of the Loan Agreement. All regularly scheduled
payments of the indebtedness evidenced by this Note and by any of the
other Loan Documents shall be applied first to any accrued but unpaid
interest then due and payable hereunder or thereunder and then to the
principal amount then due and payable. All non-regularly scheduled
payments shall be applied to such indebtedness in such order and manner
as the holder of this Note may from time to time determine in its sole
discretion. All payments and prepayments of principal of or interest on
this Note shall be made in lawful money of the United States of America
in immediately available funds, at the address of Bank indicated above,
or such other place as the holder of this Note shall designate in
writing to Borrower. If any payment of principal of or interest on this
Note shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and any such extension
of time shall be included in computing interest in connection with such
payment. The books and records of Bank shall be prima facie evidence of
all outstanding principal of and accrued and unpaid interest on this
Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder
shall be used solely for business, commercial, investment or other
similar purposes.
Borrower agrees that upon the occurrence of any one or more Events
of Default (as defined in the Loan Agreement), the holder of this Note
may, at its option, without further notice or demand, (i) declare the
outstanding principal balance of and accrued but unpaid interest on this
Note at once due and payable, (ii) refuse to advance any additional
amounts under this Note, (iii) foreclose all liens and security
interests securing payment hereof, (iv) pursue and all other rights,
remedies and recourses available to the holder hereof, including but not
limited to any such rights, remedies or recourses under the Loan
Documents, at law or in equity, or (v) pursue any combination of the
foregoing.
The failure to exercise the option to accelerate the maturity of
this Note or any other right, remedy or recourse available to the holder
hereof upon the occurrence of an Event of Default shall not constitute a
2
<PAGE>
waiver of the right of the holder of this Note to exercise the same at
that time or at any subsequent time with respect to such Event of
Default or any other Event of Default. The rights, remedies and
recourses of the holder hereof, as provided in this Note and in any of
the other Loan Documents, shall be cumulative and concurrent and may be
pursued separately, successively or together as often as occasion
therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is
less than the payment in full of all amounts due and payable at the time
of such payment shall not (i) constitute a waiver of or impair, reduce,
release or extinguish any right, remedy or recourse of the holder
hereof, or nullify any prior exercise of any such right, remedy or
recourse, or (ii) impair, reduce, release or extinguish the obligations
of any party liable under any of the Loan Documents as originally
provided herein or therein.
This Note and all of the other Loan Documents are intended to be
performed in accordance with, and only to the extent permitted by, all
applicable usury laws. If any provision hereof or of any of the other
Loan Documents or the application thereof to any person or circumstance
shall, for any reason and to any extent, be invalid or unenforceable,
neither the application of such provision to any other person or
circumstance nor the remainder of the instrument in which such provision
is contained shall be affected thereby and shall be enforced to the
greatest extent permitted by law. It is expressly stipulated and agreed
to be the intent of the holder hereof to at all times comply with the
usury and other applicable laws now or hereafter governing the interest
payable on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to render
usurious any amount called for under this Note or under any of the other
Loan Documents, or contracted for, charged, taken, reserved or received
with respect to the indebtedness evidenced by this Note, or if Bank's
exercise of the option to accelerate the maturity of this Note, or if
any prepayment by Borrower results in Borrower's having paid any
interest in excess of that permitted by law, then it is the express
intent of Borrower and Bank that all excess amounts theretofore
collected by Bank be credited on the principal balance of this Note (or,
if this Note and all other indebtedness arising under or pursuant to the
other Loan Documents have been paid in full, refunded to Borrower), and
the provisions of this Note and the other Loan Documents immediately be
deemed reformed and the amounts thereafter collectable hereunder and
thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder
or thereunder. All sums paid, or agreed to be paid, by Borrower for the
use, forbearance, detention, taking, charging, receiving or reserving of
the indebtedness of Borrower to Bank under this Note or arising under or
pursuant to the other Loan Documents shall, to the maximum extent
permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such indebtedness until payment in
full so that the rate or amount of interest on account of such
indebtedness does not exceed the usury ceiling from time to time in
effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Bank to
contract for, charge or receive a greater amount of interest, Bank will
rely on federal law instead of the Texas Finance Code, as supplemented
by Texas Credit Title for the purpose of determining the Maximum Rate.
Additionally, to the maximum extent permitted by applicable law now or
hereafter in effect, Bank may, at its option and from time to time,
implement any other method of computing the Maximum Rate under the Texas
Finance Code, as supplemented by Texas Credit Title, or under other
applicable law by giving notice, if required, to Borrower as provided by
applicable law now or hereafter in effect. Notwithstanding anything to
the contrary contained herein or in any of the other Loan Documents, it
is not the intention of Bank to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to collect
unearned interest at the time of such acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which
regulates certain revolving loan accounts and revolving tri-party
accounts) apply to this Note. To the extent that Chapter 303 of the
Texas Finance Code is applicable to this Note, the "weekly ceiling"
specified in Chapter 303 is the applicable
3
<PAGE>
ceiling; provided that, if any applicable law permits greater interest,
the law permitting the greatest interest shall apply.
If this Note is placed in the hands of an attorney for collection,
or is collected in whole or in part by suit or through probate,
bankruptcy or other legal proceedings of any kind, Borrower agrees to
pay, in addition to all other sums payable hereunder, all costs and
expenses of collection, including but not limited to reasonable
attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note
severally waive presentment for payment, notice of nonpayment, protest,
demand, notice of protest, notice of intent to accelerate, notice of
acceleration and dishonor, diligence in enforcement and indulgences of
every kind and without further notice hereby agree to renewals,
extensions, exchanges or releases of collateral, taking of additional
collateral, indulgences or partial payments, either before or after
maturity.
This Note is given in renewal and extension of, but not in
extinguishment of, that certain Sixth Renewal and Extension Promissory
Note in the original principal amount of $2,500,000.00, dated as of
December 31, 1997, from Borrower to Bank (the "Prior Note"). The
execution of this Note is not intended to and shall not cause or result
in a novation with regard to the indebtedness evidenced by the Prior
Note.
4
<PAGE>
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS
SUCH LAWS ARE PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
CAPROCK COMMUNICATIONS CORP.
By: /s/ Jere W. Thompson, Jr.
---------------------------
Name: Jere W. Thompson, Jr.
Title: President
<PAGE>
EXHIBIT 10.58
INTERCOMPANY PROMISSORY NOTE
$2,500,000 June 18, 1998
FOR VALUE RECEIVED, on or before the Maturity Date (as hereinafter
defined), the undersigned (hereinafter referred to as "BORROWER"), promises to
pay to the order of CAPROCK COMMUNICATIONS CORP. ("LENDER") at its offices in
Dallas, Dallas County, Texas, the amount of Two Million Five Hundred Thousand
and No/100 Dollars ($2,500,000) (the "TOTAL PRINCIPAL AMOUNT"), or such amount
less than the Total Principal Amount which is outstanding from time to time if
the total amount outstanding under this Promissory Note ("NOTE") is less than
the Total Principal Amount, together with interest on such portion of the Total
Principal Amount which has been advanced to Borrower from the date advanced
until paid at a floating rate per annum equal to the lesser of (a) the Maximum
Rate (as hereinafter defined) or (b) the rate which is one and one-half percent
(1.5%) above the Prime Rate (as hereinafter defined), calculated on the basis of
actual days elapsed but computed as if each year consisted of 365 days.
Notwithstanding anything herein to the contrary, upon an Event of Default
(as hereinafter defined) or at maturity whether by acceleration or otherwise,
all principal of this Note shall, at the option of Lender, bear interest at the
Maximum Rate until paid.
The term "MAXIMUM RATE," as used herein, shall mean at the particular time
in question, the maximum rate of interest which, under applicable law, may then
be charged on this Note. If applicable law ceases to provide for such a maximum
rate of interest, the Maximum Rate shall be equal to eighteen percent (18%) per
annum.
The term "PRIME RATE," as used herein, shall mean at the particular time in
question, the Prime Rate of interest as established from time to time by Bank
One, Texas, N.A. (which may not be the lowest, best or most favorable rate of
interest which such bank may charge on loans to its customers).
The outstanding principal balance of this Note, together with all accrued
but unpaid interest, shall be due and payable on August 31, 1998 (the "MATURITY
DATE").
Borrower may request advances and make payments hereunder from time to
time, provided that it is understood and agreed that the aggregate principal
amount outstanding from time to time hereunder shall not at any time exceed the
Total Principal Amount. Each change in the rate to be charged on this Note
shall become effective without notice to Borrower on the effective date of each
change in the Maximum Rate or the Prime Rate, as the case may be. The unpaid
balance of this Note shall increase and decrease with each new advance or
payment hereunder, as the case may be. This Note shall not be deemed terminated
or canceled prior to the Maturity Date, although the entire principal balance
hereof may from time to time be paid in full. Borrower may borrow, repay and
reborrow hereunder. All regularly scheduled payments of the indebtedness
evidenced by this Note shall be applied first to any accrued but unpaid interest
then due and payable hereunder and then to the principal amount then due and
payable. All non-regularly scheduled payments shall be applied to such
<PAGE>
indebtedness in such order and manner as the holder of this Note may from
time to time determine in its sole discretion. All payments and prepayments
of principal of or interest on this Note shall be made in lawful money of the
United States of America in immediately available funds, at the offices of
Lender or such other place as the holder of this Note shall designate in
writing to Borrower. If any payment of principal of or interest on this Note
shall become due on a day which is not a Business Day (as hereinafter
defined), such payment shall be made on the next succeeding Business Day and
any such extension of time shall be included in computing interest in
connection with such payment. As used herein, the term "BUSINESS DAY" shall
mean any day other than a Saturday, Sunday or any other day on which national
banking associations are authorized to be closed. The books and records of
Lender shall be PRIMA FACIE evidence of all outstanding principal of and
accrued and unpaid interest on this Note.
Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall
be used solely for business, commercial, investment or other similar purposes.
Borrower agrees that upon the occurrence of any one or more of the
following events of default ("EVENT OF DEFAULT"):
(a) failure of Borrower to pay any installment of principal of or
interest on this Note or on any other indebtedness of Borrower to Lender
when due; or
(b) the bankruptcy or insolvency of, the assignment for the benefit
of creditors by, or the appointment of a receiver for any of the property
of, or the liquidation, termination, dissolution or death or legal
incapacity of, any party liable for the payment of this Note, whether as
maker, endorser, guarantor, surety or otherwise;
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid interest
on this Note at once due and payable, (ii) refuse to advance any additional
amounts under this Note, (iii) pursue any and all other rights, remedies and
recourses available to the holder hereof, at law or in equity, or (iv) pursue
any combination of the foregoing.
The failure to exercise the option to accelerate the maturity of this Note
or any other right, remedy or recourse available to the holder hereof upon the
occurrence of an Event of Default hereunder shall not constitute a waiver of the
right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourses of the holder hereof, as provided
in this Note, shall be cumulative and concurrent and may be pursued separately,
successively or together as often as occasion therefore shall arise, at the sole
discretion of the holder hereof. The acceptance by the holder hereof of any
payment under this Note which is less than the payment in full of all amounts
due and payable at the time of such payment shall not constitute a waiver of or
impair, reduce, release or extinguish any right, remedy or recourse of the
holder hereof, or nullify any prior exercise of any such right, remedy or
recourse.
<PAGE>
This Note is intended to be performed in accordance with, and only to the
extent permitted by, all applicable usury laws. If any provision hereof shall,
for any reason and to any extent, be invalid or unenforceable, the remainder of
this Note shall not be affected thereby and shall be enforced to the greatest
extent permitted by law. It is expressly stipulated and agreed to be the intent
of the holder hereof to at all times comply with the usury and other applicable
laws now or hereafter governing the interest payable on the indebtedness
evidenced by this Note. If the applicable law is ever revised, repealed or
judicially interpreted so as to render usurious any amount called for under this
Note, or contracted for, charged, taken, reserved or received with respect to
the indebtedness evidenced by this Note, or if Lender's exercise of the option
to accelerate the maturity of this Note, or if any prepayment by Borrower
results in Borrower having paid any interest in excess of that permitted by law,
then it is the express intent of Borrower and Lender that all excess amounts
theretofore collected by Lender be credited on the principal balance of this
Note (or, if this Note has been paid in full, refunded to Borrower), and the
provisions of this Note shall immediately be deemed reformed and the amounts
thereafter collectable hereunder reduced, without the necessity of the execution
of any new document, so as to comply with the then applicable law, but so as to
permit the recovery of the fullest amount otherwise called for hereunder. All
sums paid, or agreed to be paid, by Borrower for the use, forbearance,
detention, taking, charging, receiving or reserving of the indebtedness of
Borrower to Lender under this Note, shall to the maximum extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of such indebtedness until payment in full so that the rate or amount of
interest on account of such indebtedness does not exceed the usury ceiling from
time to time in effect and applicable to such indebtedness for so long as such
indebtedness is outstanding. To the extent federal law permits Lender to
contract for, charge or receive a greater amount of interest, Lender will rely
on federal law instead of Section 303 of the Texas Finance Code, as amended (the
"Finance Code"), for the purpose of determining the Maximum Rate. Additionally,
to the maximum extent permitted by applicable law now or hereafter in effect,
Lender may, at its option and from time to time, implement any other method of
computing the Maximum Rate under the Finance Code, or under other applicable law
by giving notice, if required, to Borrower as provided by applicable law now or
hereafter in effect. Notwithstanding anything to the contrary contained herein,
it is not the intention of Lender to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
In no event shall TEX. REV. CIV. STAT. ANN. art. 5069 Ch. 15 (which
regulates certain revolving loan accounts and revolving tri-party accounts)
apply to this Note. In the event applicable law provides for an interest
ceiling under the Texas Finance Code, as amended, for that day, the ceiling
shall be the "weekly ceiling" as defined in the Texas Finance Code provided that
if any applicable law permits greater interest, the law permitting the greatest
interest shall apply.
If this Note is placed in the hands of an attorney for collection, or is
collected in whole or in part by suit or through probate, bankruptcy or other
legal proceedings of any kind, Borrower agrees to pay, in addition to all other
sums payable hereunder, all costs and expenses of collection, including but not
limited to reasonable attorneys' fees.
Borrower and any and all endorsers and guarantors of this Note severally
waive presentment for payment, notice of nonpayment, protest, demand, notice of
protest, notice of intent to accelerate, notice of acceleration and dishonor,
diligence in enforcement and indulgences of every kind
<PAGE>
and without further notice hereby agree to renewals, extensions, indulgences
or partial payments, either before or after maturity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT AS SUCH LAWS ARE
PREEMPTED BY APPLICABLE FEDERAL LAWS.
BORROWER:
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc., General Partner
By: /s/ Jere W. Thompson, Jr.
-------------------------------
Jere W. Thompson, Jr.
President
PAY TO THE ORDER OF BANK ONE, TEXAS, N.A., WITHOUT RECOURSE.
CAPROCK COMMUNICATIONS CORP.
By: /s/ Kevin W. McAleer
------------------------------
Name: Kevin W. McAleer
Title: Chief Financial Officer
<PAGE>
Exhibit 10.59
[Execution]
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
OF
CAPROCK TELECOMMUNICATIONS CORP.
THIS NINTH AMENDMENT TO Loan and Security Agreement (this "Amendment") is
made as of July 9, 1998 by and between CapRock Telecommunications Corp.
(formerly known as CapRock Communications Corp.), ("Debtor") and Bank One,
Texas, N.A. ("Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor and Secured Party have entered into that certain Loan
and Security Agreement dated as of March 14, 1996 (as supplemented or amended
to the date hereof, the "Original Agreement"), for the purposes and
consideration therein expressed, pursuant to which Secured Party became
obligated to make and made loans to Debtor as therein provided; and
WHEREAS, Debtor and Secured Party desire to amend the Original Agreement
for the purposes set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Secured Party to
Debtor, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
ARTICLE I. - DEFINITIONS AND REFERENCES
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"AMENDMENT" means this Ninth Amendment to Loan and Security Agreement.
"AMENDMENT DOCUMENTS" means this Amendment and the Guarantor Consents.
"GUARANTOR CONSENT" means a Guarantor Consent and Agreement,
substantially in the form of Exhibit A hereto.
"LOAN AGREEMENT" means the Original Agreement as amended hereby.
<PAGE>
ARTICLE II. - AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. MATURITY DATE. Section 1(bb) of the Original Agreement is
hereby amended by deleting the present such section in its entirety and
substituting therefor the following:
"(bb) 'MATURITY DATE' shall mean August 31, 1998."
ARTICLE III. - CONDITIONS OF EFFECTIVENESS
Section 3.1. EFFECTIVE DATE. This Amendment shall become effective as
of the date first above written when and only when Secured Party shall have
received, at Secured Party's office, and executed by, if applicable, Debtor
or any Guarantor:
a. this Amendment;
b. a certificate of the Secretary of Debtor dated the date of this
Amendment certifying that attached thereto is a true and complete copy
of resolutions adopted by the Board of Directors of Debtor authorizing
the execution, delivery and performance of this Amendment, certifying
the names and true signatures of the officers of Debtor authorized to
sign this Amendment and certifying that all of the representations and
warranties set forth in Article IV hereof are true and correct at and
as of the time of such effectiveness;
c. a Guarantor Consent from each Guarantor;
d. such supporting documents as Secured Party may reasonably request.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES
Section 4.1. REPRESENTATIONS AND WARRANTIES OF DEBTOR. In order to induce
Secured Party to enter into this Amendment, Debtor represents and warrants to
Secured Party that:
(a) The representations and warranties contained in Section 7 of the
Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Debtor and each Guarantor is duly authorized to execute and
deliver each Amendment Document to which it is a party and Debtor is and
will continue to be duly authorized to borrow and to perform its
obligations under the Loan Agreement. Debtor and each Guarantor which is a
corporation has duly taken all corporate action necessary to authorize the
execution and delivery of each Amendment Document to which it is a party
and to authorize the performance of its obligations thereunder.
(c) The execution and delivery by Debtor and each Guarantor of each
Amendment Document to which it is a party, the performance by Debtor and
each Guarantor of their obligations thereunder and the consummation of the
transactions contemplated thereby do not and will not conflict with any
provision of law, statute, rule or regulation or any organizational
document of Debtor or any Guarantor, or of any material agreement,
judgment, license, order or permit applicable to or binding upon Debtor or
any Guarantor, or result in the creation of any lien,
2
<PAGE>
charge or encumbrance upon any assets or properties of Debtor or any
Guarantor. Except for those which have been duly obtained, no consent,
approval, authorization or order of any court or governmental authority
or third party is required in connection with the execution and delivery
by Debtor and each Guarantor of each Amendment Document to which it is a
party or to consummate the transactions contemplated hereby.
(d) When duly executed and delivered, the Loan Agreement and each
Amendment Document will be a legal and binding instrument and agreement of
Debtor and each Guarantor, to the extent each is a party thereto,
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency and similar laws applying to creditors' rights generally and by
principles of equity applying to creditors' rights generally.
ARTICLE V. - MISCELLANEOUS
Section 5.1. RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. All Loan
Documents, as they may be amended or affected by the various Amendment
Documents, are hereby ratified and confirmed in all respects. Any reference
to the Loan Agreement in any Loan Document shall be deemed to refer to this
Amendment also. The execution, delivery and effectiveness of the Amendment
Documents shall not, except as expressly provided herein or therein, operate
as a waiver of any right, power or remedy of Secured Party under the Loan
Agreement or any other Loan Document nor constitute a waiver of any provision
of the Loan Agreement or any other Loan Document.
Section 5.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Debtor herein shall survive the execution and
delivery of this Amendment and the performance hereof and thereof, including
without limitation the making or granting of the Loans, and shall further
survive until all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered by Debtor or
General Partner hereunder or under the Loan Agreement to Secured Party shall
be deemed to constitute representations and warranties by, or agreements and
covenants of, Debtor under this Amendment and under the Loan Agreement.
Section 5.3. LOAN DOCUMENTS. The Amendment Documents are Loan
Documents, and all provisions in the Loan Agreement pertaining to Loan
Documents apply hereto and thereto.
Section 5.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 5.5. COUNTERPARTS. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
3
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
BANK ONE, TEXAS, N.A.
By: /s/ Wyatt Dickson
--------------------------------
Wyatt Dickson
Assistant Vice President
CAPROCK TELECOMMUNICATIONS CORP.
(formerly known as CapRock Communications Corp.)
By: /s/ Jere W. Thompson, Jr.
--------------------------------
Jere W. Thompson, Jr.
President
4
<PAGE>
EXHIBIT A
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of July 9, 1998, by
Jere W. Thompson, Jr. ("Guarantor") in favor of Bank One, Texas, N.A.
("Secured Party"). Guarantor, who is a Guarantor under that certain Loan
Agreement (as so amended, the "Loan Agreement") dated as of March 14, 1996
between CapRock Communications Corp. ("Debtor") and Secured Party, hereby
consents and agrees to the following.
1. Guarantor hereby consents to the provisions of that certain
Ninth Amendment to Loan Agreement of even date herewith between Secured
Party and Debtor (the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations and
covenants under that certain guaranty (the "Guaranty") dated as of March 9,
1996 made by him for the benefit of Secured Party (including without
limitation its obligation to guaranty the payment and performance of all of
the obligations and undertakings of Debtor owing to Secured Party).
4. Guarantor hereby agrees that his obligations and covenants under
the Guaranty are unimpaired by the provisions of the Amendment and the
transactions contemplated therein and shall continue to remain in full
force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the date
first above written.
_________________________
Jere W. Thompson, Jr.
5
<PAGE>
Exhibit 10.60
THIRD AMENDMENT TO LOAN AGREEMENT
of
CAPROCK FIBER NETWORK , LTD.
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made as of
June 18, 1998 by and between CapRock Fiber Network, Ltd. ("Borrower") and
Bank One, Texas, N.A. ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower and Bank have entered into that certain Loan Agreement
dated as of July 1, 1996 (as supplemented or amended to the date hereof, the
"Original Agreement"), for the purposes and consideration therein expressed,
pursuant to which Bank became obligated to make and made loans to Borrower as
therein provided; and
WHEREAS, Borrower and Bank desire to amend the Original Agreement for
the purposes set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Bank to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I. - DEFINITIONS AND REFERENCES
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"AMENDMENT" means this Third Amendment to Loan Agreement.
"AMENDMENT DOCUMENTS" means this Amendment and the Guarantor Consents.
"GUARANTOR CONSENTS" means each of the Guarantor Consent and
Agreements, substantially in the form of Exhibit A hereto.
"LOAN AGREEMENT" means the Original Agreement as amended hereby.
<PAGE>
ARTICLE II. - AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. AFFIRMATIVE COVENANTS. Section 9(k) is hereby amended by
deleting the present such section in its entirety and substituting therefor the
following:
"(k) MANDATORY PREPAYMENT IN FULL. Upon the completion of both of the
Note Offering and the Merger, Borrower shall prepay the Loan in full,
together will all interest accrued thereon and unpaid. As used herein
"Note Offering" shall mean the note offering by Borrower in the amount of
at least $100,000,000 or more and "Merger" shall mean the merger of CapRock
Communications Corporation, Borrower and IWL Communications Incorporated
with CapRock Communications Corporation being the surviving entity."
Section 2.2. FINANCIAL COVENANTS. Section 11(c) of the Original
Agreement is hereby amended by deleting the present such subsection in its
entirety and substituting therefor the following:
"(c) FIXED CHARGE RATIO. Borrower will maintain, as of each fiscal
quarter after the fiscal quarter of Borrower ending on June 30, 1998, a
Fixed Charge Coverage Ratio (as defined below) of not less than 1.1 to
1.0. As used in this section "Fixed Charge Coverage Ratio" means the
ratio of (i) net income of Borrower after Tax Distributions plus
depreciation, amortization and other non-cash expenses and interest
expenses to (ii) the sum of (A) interest expense, (B) current maturities
of long-term debt of Borrower plus (C) capital expenditures permitted by
Section 11 (e) and actually made by Borrower for the maintenance of its
facilities, in each case calculated for the period from January 1, 1998,
to the end of such fiscal quarter and annualized.
Section 2.3. EVENTS OF DEFAULT. Section 13(h) is hereby amended by
deleting the present such subsection in its entirety and substituting
therefor the following:
"(h) The failure of Borrower to have successfully completed the Note
Offering and the Merger by August 31, 1998."
Section 2.4. WAIVER RE: FINANCIAL COVENANTS. Bank hereby waives any
Event of Default occurring pursuant to Section 11(c) of the Loan Agreement
for the periods ending on or prior to April 30, 1998. Such waiver is
expressly limited as set forth in this Section 2.4 and does not, and shall
not, constitute a consent to or waiver of any other, additional or future
breach of such section, or any other provision of the Loan Agreement or any
other Loan Document.
Section 2.5. NO RELEASE OF GUARANTORS. Pursuant to Section 2.5 of the
Second Amendment to Loan Agreement dated as of April 29, 1998, Bank agreed to
release Guarantors upon certain terms and conditions, as set out therein.
Effective as of the date hereof, Section 2.5 of the Second Amendment to Loan
Agreement is hereby deleted and the provisions thereof are no longer in force
or effective.
ARTICLE III. - CONDITIONS OF EFFECTIVENESS
Section 3.1. EFFECTIVE DATE. This Amendment shall become effective as
of the date first above written when and only when Bank shall have received,
at Bank's office, and executed by, if applicable, Borrower or any Guarantor:
2
<PAGE>
a. this Amendment;
b. a certificate of the Secretary of Borrower dated the date of this
Amendment certifying that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of Borrower
authorizing the execution, delivery and performance of this
Amendment, certifying the names and true signatures of the officers
of Borrower authorized to sign this Amendment and certifying that
all of the representations and warranties set forth in Article IV
hereof are true and correct at and as of the time of such
effectiveness;
c. a Consent of each Guarantor; and
d. such supporting documents as Bank may reasonably request.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES
Section 4.1. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce Bank to enter into this Amendment, Borrower represents and warrants to
Bank that:
(a) The representations and warranties contained in Section 7 of
the Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Borrower and each Guarantor is duly authorized to execute and
deliver each Amendment Document to which it is a party and Borrower is and
will continue to be duly authorized to borrow and to perform its
obligations under the Loan Agreement. Borrower and each Guarantor which is
a corporation has duly taken all corporate action necessary to authorize
the execution and delivery of each Amendment Document to which it is a
party and to authorize the performance of its obligations thereunder.
(c) The execution and delivery by Borrower and each Guarantor of
each Amendment Document to which it is a party, the performance by
Borrower and each Guarantor of their obligations thereunder and the
consummation of the transactions contemplated thereby do not and will
not conflict with any provision of law, statute, rule or regulation or
any organizational document of Borrower or any Guarantor, or of any
material agreement, judgment, license, order or permit applicable to or
binding upon Borrower or any Guarantor, or result in the creation of any
lien, charge or encumbrance upon any assets or properties of Borrower or
any Guarantor. Except for those which have been duly obtained, no
consent, approval, authorization or order of any court or governmental
authority or third party is required in connection with the execution
and delivery by Borrower and each Guarantor of each Amendment Document
to which it is a party or to consummate the transactions contemplated
hereby.
(d) When duly executed and delivered, the Loan Agreement and each
Amendment Document will be a legal and binding instrument and agreement of
Borrower and each Guarantor, to the extent each is a party thereto,
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency and similar laws applying to creditors' rights generally and by
principles of equity applying to creditors' rights generally.
3
<PAGE>
ARTICLE V. - MISCELLANEOUS
Section 5.1. RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. All Loan
Documents, as they may be amended or affected by the various Amendment
Documents, are hereby ratified and confirmed in all respects. Any reference
to the Loan Agreement in any Loan Document shall be deemed to refer to this
Amendment also. The execution, delivery and effectiveness of the Amendment
Documents shall not, except as expressly provided herein or therein, operate
as a waiver of any right, power or remedy of Bank under the Loan Agreement or
any other Loan Document nor constitute a waiver of any provision of the Loan
Agreement or any other Loan Document, including without limitation Borrower's
obligation to comply with Section 12(a) of the Loan Agreement.
Section 5.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans, and shall further survive
until all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower or General
Partner hereunder or under the Loan Agreement to Bank shall be deemed to
constitute representations and warranties by, or agreements and covenants of,
Borrower under this Amendment and under the Loan Agreement.
Section 5.3. LOAN DOCUMENTS. The Amendment Documents are Loan
Documents, and all provisions in the Loan Agreement pertaining to Loan
Documents apply hereto and thereto.
Section 5.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 5.5. COUNTERPARTS. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
BANK ONE, TEXAS, N.A.
By: /s/ Gina A. Norris
------------------------------------
Gina A. Norris
Vice President
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc., General Partner
By: /s/ Jere W. Thompson, Jr.
--------------------------
Jere W. Thompson, Jr.
President
<PAGE>
EXHIBIT A
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of June 18, 1998, by
CapRock Systems, Inc. ("Guarantor") in favor of Bank One, Texas, N.A.
("Bank"). Guarantor, who is a Guarantor under that certain Loan Agreement (as
so amended, the "Loan Agreement") dated as of July 1, 1996 between CapRock
Fiber Network, Ltd. ("Borrower") and Bank, hereby consents and agrees to the
following.
1. Guarantor hereby consents to the provisions of that certain Third
Amendment to Loan Agreement of even date herewith between Bank and Borrower
(the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations and
covenants under that certain guaranty (the "Guaranty") dated as of July 1,
1996 made by it for the benefit of Bank (including without limitation its
obligation to guaranty the payment and performance of all of the
obligations and undertakings of Borrower owing to Bank until the Guaranty
expires according to the terms set forth in Section 13 of the Guaranty).
4. Guarantor hereby agrees that its obligations and covenants under
the Guaranty are unimpaired by the provisions of the Amendment and the
transactions contemplated therein and shall continue to remain in full
force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the date
first above written.
CAPROCK SYSTEMS, INC.
By:
__________________________________
Jere W. Thompson, Jr.
President
<PAGE>
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of June 18, 1998, by
Mark Langdale ("Guarantor") in favor of Bank One, Texas, N.A. ("Bank").
Guarantor, who is a Guarantor under that certain Loan Agreement (as so
amended, the "Loan Agreement") dated as of July 1, 1996 between CapRock Fiber
Network, Ltd. ("Borrower") and Bank, hereby consents and agrees to the
following.
1. Guarantor hereby consents to the provisions of that certain Third
Amendment to Loan Agreement of even date herewith between Bank and Borrower
(the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations and
covenants under that certain guaranty (the "Guaranty") dated as of July 1,
1996 made by it for the benefit of Bank (including without limitation its
obligation to guaranty the payment and performance of all of the
obligations and undertakings of Borrower owing to Bank until the Guaranty
expires according to the terms set forth in Section 13 of the Guaranty).
4. Guarantor hereby agrees that its obligations and covenants under
the Guaranty are unimpaired by the provisions of the Amendment and the
transactions contemplated therein and shall continue to remain in full
force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the date
first above written.
___________________________
Mark Langdale
<PAGE>
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of June 18, 1998, by
Jere W. Thompson, Jr. ("Guarantor") in favor of Bank One, Texas, N.A. ("Bank").
Guarantor, who is a Guarantor under that certain Loan Agreement (as so amended,
the "Loan Agreement") dated as of July 1, 1996 between CapRock Fiber Network,
Ltd. ("Borrower") and Bank, hereby consents and agrees to the following.
1. Guarantor hereby consents to the provisions of that certain Third
Amendment to Loan Agreement of even date herewith between Bank and Borrower
(the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations and
covenants under that certain guaranty (the "Guaranty") dated as of July 1,
1996 made by it for the benefit of Bank (including without limitation its
obligation to guaranty the payment and performance of all of the
obligations and undertakings of Borrower owing to Bank until the Guaranty
expires according to the terms set forth in Section 13 of the Guaranty).
4. Guarantor hereby agrees that its obligations and covenants under
the Guaranty are unimpaired by the provisions of the Amendment and the
transactions contemplated therein and shall continue to remain in full
force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the date
first above written.
___________________________________
Jere W. Thompson, Jr.
<PAGE>
Exhibit 10.61
[EXECUTION]
FOURTH AMENDMENT TO LOAN AGREEMENT
of
CAPROCK FIBER NETWORK , LTD.
THIS FOURTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made as of
July 9, 1998 by and between CapRock Fiber Network, Ltd. ("Borrower") and Bank
One, Texas, N.A. ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower and Bank have entered into that certain Loan Agreement
dated as of July 1, 1996 (as supplemented or amended to the date hereof, the
"Original Agreement"), for the purposes and consideration therein expressed,
pursuant to which Bank became obligated to make and made loans to Borrower as
therein provided; and
WHEREAS, Borrower and Bank desire to amend the Original Agreement for the
purposes set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, in consideration
of the loans which may hereafter be made by Bank to Borrower, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I. - DEFINITIONS AND REFERENCES
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise requires,
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.
"AMENDMENT" means this Fourth Amendment to Loan Agreement.
"AMENDMENT DOCUMENTS" means this Amendment and the
Guarantor Consents.
"GUARANTOR CONSENT" means a Guarantor Consent and Agreement,
substantially in the form of Exhibit A hereto.
"LOAN AGREEMENT" means the Original Agreement as amended
hereby.
ARTICLE II. - AMENDMENTS TO ORIGINAL AGREEMENT
<PAGE>
Section 2.1. AFFIRMATIVE COVENANTS. Section 9(k) is hereby amended by
deleting the present such section in its entirety and substituting therefor the
following:
"(k) MANDATORY PREPAYMENT IN FULL. On or before August 31,
1998, with the proceeds of the Note Offering, Borrower shall prepay the
Loan in full, together will all interest accrued thereon and unpaid. As
used herein "Note Offering" shall mean the note offering by Borrower in
the amount of at least $100,000,000 or more and "Merger" shall mean the
merger of CapRock Communications Corporation, Borrower and IWL
Communications Incorporated with CapRock Communications Corporation
being the surviving entity."
ARTICLE III. - CONDITIONS OF EFFECTIVENESS
Section 3.1. EFFECTIVE DATE. This Amendment shall become effective as of
the date first above written when and only when Bank shall have received, at
Bank's office, and executed by, if applicable, Borrower or any Guarantor:
a. this Amendment;
b. a certificate of the Secretary of Borrower dated the date of this
Amendment certifying that attached thereto is a true and complete copy
of resolutions adopted by the Board of Directors of Borrower
authorizing the execution, delivery and performance of this Amendment,
certifying the names and true signatures of the officers of Borrower
authorized to sign this Amendment and certifying that all of the
representations and warranties set forth in Article IV hereof are true
and correct at and as of the time of such effectiveness;
c. a Guarantor Consent from each Guarantor; and
d. such supporting documents as Bank may reasonably request.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES
Section 4.1. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce Bank to enter into this Amendment, Borrower represents and warrants to
Bank that:
(a) The representations and warranties contained in
Section 7 of the Original Agreement are true and correct at and as of
the time of the effectiveness hereof.
(b) Borrower and each Guarantor is duly authorized to
execute and deliver each Amendment Document to which it is a party and
Borrower is and will continue to be duly authorized to borrow and to
perform its obligations under the Loan Agreement. Borrower and each
Guarantor which is a corporation has duly taken all corporate action
necessary to authorize the execution and delivery of each Amendment
Document to which it is a party and to authorize the performance of its
obligations thereunder.
2
<PAGE>
(c) The execution and delivery by Borrower and each
Guarantor of each Amendment Document to which it is a party, the
performance by Borrower and each Guarantor of their obligations
thereunder and the consummation of the transactions contemplated thereby
do not and will not conflict with any provision of law, statute, rule or
regulation or any organizational document of Borrower or any Guarantor,
or of any material agreement, judgment, license, order or permit
applicable to or binding upon Borrower or any Guarantor, or result in
the creation of any lien, charge or encumbrance upon any assets or
properties of Borrower or any Guarantor. Except for those which have
been duly obtained, no consent, approval, authorization or order of any
court or governmental authority or third party is required in connection
with the execution and delivery by Borrower and each Guarantor of each
Amendment Document to which it is a party or to consummate the
transactions contemplated hereby.
(d) When duly executed and delivered, the Loan Agreement
and each Amendment Document will be a legal and binding instrument and
agreement of Borrower and each Guarantor, to the extent each is a party
thereto, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency and similar laws applying to creditors' rights
generally and by principles of equity applying to creditors' rights
generally.
ARTICLE V. - MISCELLANEOUS
Section 5.1. RATIFICATION OF AGREEMENTS. The Original Agreement as hereby
amended is hereby ratified and confirmed in all respects. All Loan Documents,
as they may be amended or affected by the various Amendment Documents, are
hereby ratified and confirmed in all respects. Any reference to the Loan
Agreement in any Loan Document shall be deemed to refer to this Amendment also.
The execution, delivery and effectiveness of the Amendment Documents shall not,
except as expressly provided herein or therein, operate as a waiver of any
right, power or remedy of Bank under the Loan Agreement or any other Loan
Document nor constitute a waiver of any provision of the Loan Agreement or any
other Loan Document, including without limitation Borrower's obligation to
comply with Section 12(a) of the Loan Agreement.
Section 5.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans, and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower or General
Partner hereunder or under the Loan Agreement to Bank shall be deemed to
constitute representations and warranties by, or agreements and covenants of,
Borrower under this Amendment and under the Loan Agreement.
Section 5.3. LOAN DOCUMENTS. The Amendment Documents are Loan Documents,
and all provisions in the Loan Agreement pertaining to Loan Documents apply
hereto and thereto.
Section 5.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas and any applicable
laws of the United States of America in all respects, including construction,
validity and performance.
3
<PAGE>
Section 5.5. COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
BANK ONE, TEXAS, N.A.
By: /s/ Wyatt Dickson
---------------------------------------
Wyatt Dickson
Assistant Vice President
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc., General Partner
By: /s/ Jere W. Thompson, Jr.
-----------------------------
Jere W. Thompson, Jr.
President
<PAGE>
EXHIBIT A
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of July 9, 1998, by
CapRock Systems, Inc. ("Guarantor") in favor of Bank One, Texas, N.A.
("Bank"). Guarantor, who is a Guarantor under that certain Loan Agreement (as
so amended, the "Loan Agreement") dated as of July 1, 1996 between CapRock
Fiber Network, Ltd. ("Borrower") and Bank, hereby consents and agrees to the
following.
1. Guarantor hereby consents to the provisions of that certain
Fourth Amendment to Loan Agreement of even date herewith between Bank and
Borrower (the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations and
covenants under that certain guaranty (the "Guaranty") dated as of July 1,
1996 made by it for the benefit of Bank (including without limitation its
obligation to guaranty the payment and performance of all of the
obligations and undertakings of Borrower owing to Bank until the Guaranty
expires according to the terms set forth in Section 13 of the Guaranty).
4. Guarantor hereby agrees that its obligations and covenants under
the Guaranty are unimpaired by the provisions of the Amendment and the
transactions contemplated therein and shall continue to remain in full
force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the date
first above written.
CAPROCK SYSTEMS, INC.
By:
-----------------------------------
Jere W. Thompson, Jr.
President
<PAGE>
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of July 9, 1998, by
Mark Langdale ("Guarantor") in favor of Bank One, Texas, N.A. ("Bank").
Guarantor, who is a Guarantor under that certain Loan Agreement (as so amended,
the "Loan Agreement") dated as of July 1, 1996 between CapRock Fiber Network,
Ltd. ("Borrower") and Bank, hereby consents and agrees to the following.
1. Guarantor hereby consents to the provisions of that certain
Fourth Amendment to Loan Agreement of even date herewith between Bank and
Borrower (the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations and
covenants under that certain guaranty (the "Guaranty") dated as of July 1,
1996 made by it for the benefit of Bank (including without limitation its
obligation to guaranty the payment and performance of all of the
obligations and undertakings of Borrower owing to Bank until the Guaranty
expires according to the terms set forth in Section 13 of the Guaranty).
4. Guarantor hereby agrees that its obligations and covenants under
the Guaranty are unimpaired by the provisions of the Amendment and the
transactions contemplated therein and shall continue to remain in full
force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the date
first above written.
-------------------------------
Mark Langdale
<PAGE>
CONSENT AND AGREEMENT
THIS CONSENT AND AGREEMENT (this "Consent") is made of July 9, 1998, by
Jere W. Thompson, Jr. ("Guarantor") in favor of Bank One, Texas, N.A. ("Bank").
Guarantor, who is a Guarantor under that certain Loan Agreement (as so amended,
the "Loan Agreement") dated as of July 1, 1996 between CapRock Fiber Network,
Ltd. ("Borrower") and Bank, hereby consents and agrees to the following.
1. Guarantor hereby consents to the provisions of that certain
Fourth Amendment to Loan Agreement of even date herewith between Bank and
Borrower (the "Amendment").
2. Guarantor hereby consents the transactions contemplated in the
Amendment.
3. Guarantor hereby ratifies and confirms all of its obligations and
covenants under that certain guaranty (the "Guaranty") dated as of July 1,
1996 made by it for the benefit of Bank (including without limitation its
obligation to guaranty the payment and performance of all of the
obligations and undertakings of Borrower owing to Bank until the Guaranty
expires according to the terms set forth in Section 13 of the Guaranty).
4. Guarantor hereby agrees that its obligations and covenants under
the Guaranty are unimpaired by the provisions of the Amendment and the
transactions contemplated therein and shall continue to remain in full
force and effect after the date hereof.
IN WITNESS WHEREOF, this Consent and Agreement is executed as of the date
first above written.
-------------------------------
Jere W. Thompson, Jr.
<PAGE>
ESCROW AND SECURITY AGREEMENT
This ESCROW AND SECURITY AGREEMENT (this "Agreement") is made and
entered into as of July 16, 1998 by and among CAPROCK COMMUNICATIONS CORP. (the
"Company"), CAPROCK TELECOMMUNICATIONS CORP. ("Telecommunications"), CAPROCK
FIBER NETWORK, LTD. (the "Partnership"), IWL COMMUNICATIONS, INCORPORATED
("IWL") and PNC BANK, NATIONAL ASSOCIATION, as trustee for the benefit of the
holders ("Holders") of the Notes (as hereinafter defined) under the Indenture
(as hereinafter defined) (the "Trustee"). For purposes of this Agreement, the
Company, Telecommunications and the Partnership are sometimes herein
individually referred to as an "Issuer" and collectively referred to as the
"Issuers".
W I T N E S S E T H
WHEREAS, the Issuers, IWL and the Trustee have entered into that
certain indenture dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the "Indenture"), pursuant
to which the Issuers are issuing $150,000,000 aggregate principal amount of 12%
Senior Notes due 2008 (the "Notes") on the date hereof;
WHEREAS, pursuant to a Purchase Agreement dated as of July 10, 1998
(the "Purchase Agreement") among the Issuers, IWL and the initial purchasers
named therein, and the Indenture, the Issuers are required to direct that at the
Closing Time (as defined in the Purchase Agreement) $145 million (the "Funds")
be deposited with the Trustee for the benefit of the Holders of the Notes to
secure the Issuers' obligation to (i) repay the principal, premium and interest
on the Notes in the event that the Notes become due and payable prior to the
release of the Funds in accordance with the terms of this Agreement and (ii)
repurchase Notes that are tendered to the Issuers pursuant to Section 10.21 of
the Indenture in the event that the Combination (as hereinafter defined) is not
consummated or certain other conditions are not satisfied, or if it appears in
the sole judgment of the Issuers that the Combination will not be consummated or
such other conditions will not be satisfied, by 11:59 p.m. New York City time on
August 31, 1998 (the "Termination Date") (collectively, the "Obligations"); and
WHEREAS, to secure the Obligations of the Issuers, the Issuers have
agreed to (i) pledge to the Trustee, for the ratable benefit of the Holders of
the Notes, a security interest in the Funds and other Collateral (as hereinafter
defined) and (ii) execute and deliver this Agreement in order to secure the
payment and performance by the Issuers of all the Obligations.
<PAGE>
NOW, THEREFORE, in consideration of the promises herein contained, and
in order to induce the Holders of the Notes to purchase the Notes, the Issuers
and the Trustee hereby agree, for the benefit of the Trustee and for the ratable
benefit of the Holders of the Notes, as follows:
SECTION 1. DEFINITIONS; APPOINTMENT; DEPOSIT AND INVESTMENT.
1.1. DEFINITIONS.
"Account Agreement" means the Account Agreement dated as of July 16,
1998 among the Company, Telecommunications, the Partnership, the Trustee and PNC
Bank, National Association, as securities intermediary, which agreement is
attached as EXHIBIT A to this Agreement..
"Cash Collateral Account" means an account established and maintained
by the Trustee at its office at 1600 Market Street, 30th Floor, Philadelphia,
Pennsylvania, in the name of the Issuers which account shall at all times be
segregated from all other custodial or collateral accounts and be under the sole
dominion and control of the Trustee and subject to the terms and conditions of
this Agreement.
"Collateral Investment Account" means an account established and
maintained by the Trustee at its office at 1600 Market Street, 30th Floor,
Philadelphia, Pennsylvania in the name of the Issuers, which account shall at
all times be segregated from all other custodial or collateral accounts and be
under the sole dominion and control of the Trustee and subject to the terms and
conditions of this Agreement.
"Combination" means, collectively, the merger transactions and
interest exchange transaction contemplated by the Merger Agreement.
"Government Book-Entry Security" means U.S. Government Obligations
maintained in book-entry form through the United States Federal Reserve Banks
pursuant to (A) the United States Treasury Department regulations codified at
31 C.F.R. Part 357, as modified by the amendments promulgated at 61 Fed.
Reg. 43, 626-43, 638 (Aug. 23, 1996), or (B) substantially identical
regulations promulgated by any other agency or instrumentality of the United
States whose securities qualify as "U.S. Government Obligations" hereunder.
"Merger Agreement" means that certain Agreement and Plan of Merger and
Plan of Exchange dated as of February 16, 1998 among the Company,
Telecommunications, the Partnership, IWL and certain other parties thereto, as
amended on April 30, 1998, June 20, 1998, July 8, 1998 and as further amended,
restated,
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supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Officer's Certificate" shall mean a certificate signed by the
President or any Vice President of each Issuer (or its general partner) and IWL
stating that (i) the Combination has been consummated; (ii) all regulatory
approvals required by the Merger Agreement have been received and are in effect
except for such approvals the failure of which to receive or have in effect will
not have a material adverse effect on the Company's financial condition, results
of operations and cash flow and (iii) consummation of the Combination has not
violated or conflicted with or give rise to a right to terminate any agreement
or instrument that would have a material adverse effect on the Company's
financial condition, results of operations or cash flow to which the Company,
Telecommunications, the Partnership or IWL is a party.
"Opinion of Counsel" shall mean, an opinion or opinions of legal
counsel to the Company, which counsel shall be reasonably satisfactory to the
Trustee (provided that Munsch, Hardt, Kopf, Harr & Dinan, P.C. is hereby agreed
to be reasonably satisfactory to the Trustee), that opine to the matters
certified in clauses (i), (ii) and (iii) of the definition of "Officer's
Certificate"; provided that the opinion with respect to the matters referred to
in clause (iii) may be to the best of such counsel's knowledge.
"Temporary Cash Investment" means any of the following:
(a) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United States
of America or any agency thereof with a maturity of 365 days or less,
(b) time deposit accounts, certificates of deposit and money market
deposits maturing within one year of the date of acquisition thereof issued by a
bank or trust company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor,
(c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) above entered into
with a bank meeting the qualifications described in clause (b) above,
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(d) commercial paper, maturing not more than one year after the date
of acquisition, issued by a corporation (other than an Affiliate of any one of
the Issuers) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Service, and
(e) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Service or Moody's Investors Service, Inc.
"Trustee" shall mean the Person named as the "Trustee" in Section 1.2
of this Agreement until a successor Trustee shall have become such, and
thereafter "Trustee" shall mean the Person who is then the Trustee hereunder.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America.
All capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Indenture. Unless otherwise defined
herein or in the Indenture, (i) terms used in Article 8 or 9 of the Uniform
Commercial Code as in effect in the State of New York (the "U.C.C.") are used
herein as therein defined and (ii) terms used in "Revised Article 8," as such
term is defined in 31 C.F.R. (Section) 357.2, as modified by the amendments
promulgated at 61 Fed. Reg. 43, 628 (Aug. 23, 1996), are used herein as
therein defined.
1.2. APPOINTMENT OF TRUSTEE. The Issuers and IWL hereby appoint PNC
Bank, National Association, as Trustee in accordance with the terms and
conditions set forth herein, and PNC Bank, National Association, hereby accepts
such appointment. The initial purchasers under the Purchase Agreement have
delivered to the Trustee the Funds, and the Trustee shall deposit such Funds
into the Cash Collateral Account and invest such monies in accordance with the
instructions of the Issuers.
1.3. PLEDGE AND GRANT OF SECURITY INTEREST. The Issuers hereby pledge
to the Trustee for its benefit and for the ratable benefit of the Holders of the
Notes, and grant to
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the Trustee for its benefit and for the ratable benefit of the Holders of the
Notes, a continuing first priority security interest in and to all of the
Issuers' right, title and interest in, to and under the following (hereinafter
collectively referred to as the "Collateral"), whether characterized as
certificated securities, uncertificated securities, investment property, general
intangibles or otherwise: (a) the Cash Collateral Account, all funds held
therein and all certificates and instruments, if any, from time to time
representing or evidencing the Cash Collateral Account, (b) the Collateral
Investments Account and all Collateral Investments (as hereinafter defined) and
all certificates and instruments, if any, representing or evidencing the
Collateral Investments, and any and all security entitlements to the Collateral
Investments, and any and all related securities accounts in which security
entitlements to the Collateral Investments are carried, (c) all cash, notes,
certificates of deposit, deposit accounts, checks and other instruments from
time to time hereafter delivered to or otherwise possessed by the Trustee for or
on behalf of the Issuers in substitution for or in addition to any or all the
then existing Collateral, and (d) all proceeds of and other distributions on or
with respect to any of the foregoing (and any other proceeds or distributions),
including, without limitation, all dividends, interest, principal payments,
cash, options, warrants, rights, instruments, subscriptions and other property
or proceeds from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any of the foregoing or any
security entitlement thereto.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
prompt and complete payment and performance when due (whether at stated
maturity, by acceleration or otherwise) of all the Obligations.
SECTION 3. DELIVERY OF COLLATERAL. Simultaneous with the
execution and delivery of this Agreement, the parties to the Account Agreement
shall execute and deliver the Account Agreement. All certificates or
instruments representing or evidencing the Collateral, including, without
limitation, amounts invested as provided in Section 5, shall be delivered to and
held by the Trustee pursuant hereto and, in the case of Collateral Investments
referred to in Section 6(a)(iii), to the Account Agreement. Such certificates
or instruments shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance sufficient to establish and maintain in favor of the
Trustee a valid security interest in such Collateral, and shall be credited to
the Collateral Investments Account. All monies and other assets held in the
Cash Collateral Account and the Collateral Investments Account are property of
the Issuers subject to the security interests created hereby.
SECTION 4. MAINTAINING THE CASH COLLATERAL ACCOUNT. (a) So long
as any Obligation shall remain unpaid, the Cash Collateral Account shall be
maintained with the Trustee.
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(b) It shall be a term and condition of the Cash Collateral Account,
notwithstanding any term or condition to the contrary in any other agreement
relating to the Cash Collateral Account, and except as otherwise provided by the
provisions of Section 7 and Section 14, that no amount (including interest on
Collateral Investments) shall be paid or released to or for the account of, or
withdrawn by or for the account of, any of the Issuers or any other Person from
the Cash Collateral Account.
SECTION 5. INVESTING OF AMOUNTS IN THE CASH COLLATERAL ACCOUNT.
If requested by the Issuers, the Trustee will, subject to the provisions of
Section 7 and Section 14, from time to time (a) invest amounts on deposit in the
Cash Collateral Account in such Temporary Cash Investments, each in the name of
or for the account of the Trustee, as the Issuers may designate in writing and
(b) invest interest paid on the Temporary Cash Investments referred to in clause
(a) above, and reinvest other proceeds of any such Temporary Cash Investments
that may mature or be sold, in each case in such Temporary Cash Investments each
in the name of or for the account of the Trustee, as the Issuers may designate
in writing (the Temporary Cash Investments referred to in clauses (a) and (b)
above being collectively "Collateral Investments"). Interest and proceeds that
are not invested or reinvested in Collateral Investments as provided above shall
be deposited and held in the Cash Collateral Account. The Trustee shall in no
event be liable for any loss in the investment or reinvestment of amounts held
in the Cash Collateral Account in accordance with the written instructions of
the Issuers. In the event the Trustee does not receive any information as to
how to invest funds in the Cash Collateral Account it shall invest such funds in
the Provident Institutional T-Fund Dollar Shares Money Market Mutual Fund.
SECTION 6. DELIVERY OF COLLATERAL INVESTMENTS; FILING. (a) The
Trustee shall become the holder of the Collateral Investments (or applicable
security entitlements thereto) through the following delivery procedures: (i)
in the case of Collateral Investments which are certificated securities in
registered form, delivery of the applicable certificate(s), specially endorsed
to the Trustee or registered in the name of the Trustee, to the possession of
(A) the Trustee, (B) a securities intermediary or financial intermediary acting
on behalf of the Trustee, or (C) another person, other than a securities
intermediary or financial intermediary, which person acknowledges that it holds
for the Trustee; (ii) in the case of Collateral Investments which are
uncertificated securities, registration of one of the following as owner of such
uncertificated securities: the Trustee or a person designated by the Trustee,
or person other than a securities intermediary or financial intermediary, that
becomes the registered owner of such uncertificated securities and acknowledges
that it holds the same for the Trustee; and (iii) in the case of all other
Collateral Investments including, without limitation, any Collateral Investments
in commercial paper not constituting securities, interests in money market funds
and Government Book-Entry Securities, such Collateral Investments will be held
pursuant to the terms of the Account Agreement subject to the Control Agreement
referred to therein.
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(b) All Collateral shall be retained in the Cash Collateral Account
and the Collateral Investments Account pending disbursement pursuant to the
terms hereof.
(c) Concurrently with the execution and delivery of this Agreement,
the Issuers are delivering to the Trustee duly executed financing statements in
accordance with the Uniform Commercial Code as in effect in the State of New
York and the State of Texas, covering the categories of Collateral described in
this Agreement.
SECTION 7. DISBURSEMENTS. The Trustee shall hold the Collateral
and release the same, or a portion thereof, only as follows:
(a) If the Trustee receives, prior to 11:59 p.m. New York City time
on the Termination Date, an Officer's Certificate from each Issuer (or its
general partner) and IWL and the Opinion of Counsel, the Trustee shall
disburse the Collateral to, or at the written direction of, the Issuers by
wire transfer or other method agreed to by the Issuers and the Trustee. If
such Officer's Certificate and Opinion is received prior to 9:00 a.m. New
York City time on a Business Day then such disbursement shall be made by
the close of business on the date the Trustee receives such Officer's
Certificates and Opinion of Counsel; provided, however, that if the
Officer's Certificates and the Opinion of Counsel are received by the
Trustee (i) on a day other than a Business Day or (ii) after 9:00 a.m. New
York City time on such date, then, in either instance, the Trustee shall
disburse the Collateral by the close of business on the next Business Day.
(b) (i) If the conditions in Section 7(a) are not satisfied by 11:59
p.m. New York City time on the Termination Date (or, in the event the
Trustee receives certificates signed by the President or any Vice President
of each Issuer (or its general partner) and IWL stating that the Officer's
Certificates and Opinion of Counsel will not be delivered to the Trustee by
the Termination Date, on the date the Trustee receives such certificates),
if the conditions required for release of Collateral as provided in clause
(a) above have not been satisfied, the Issuers shall within thirty (30)
days of either such event make the offer to purchase the Notes as provided
by, and in accordance with Section 10.21 of the Indenture and the Trustee
shall use the Collateral held in the Cash Collateral Account and Collateral
Investments Account to satisfy the Issuers' and IWL's repurchase
obligations under Section 10.21 of the Indenture. If any Collateral
remains after the payment for all Notes tendered pursuant to such offer to
purchase, such Collateral shall be disbursed to Telecommunications.
(c) Nothing contained in Section 1, Section 5, Section 6, this
Section 7 or any other provision of this Agreement shall (i) afford the
Issuers any right to issue entitlement orders with respect to any security
entitlement to any of the Collateral
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Investments or any securities account in which any such security
entitlement may be carried, or otherwise afford the Issuers control of any
such security entitlement or (ii) otherwise give rise to any rights of the
Issuers with respect to any of the Collateral Investments, any security
entitlement thereto or any securities account in which any such security
entitlement may be carried, other than the Issuers' beneficial interest
under this Agreement in collateral pledged to and subject to the exclusive
dominion and control (consistent with this Agreement) of the Trustee in its
capacity as such (and not as a securities intermediary). The Issuers
acknowledge, confirm and agree that the Trustee holds a security
entitlement to the Collateral Investments solely as trustee for the Holders
of the Notes and not as a securities intermediary or financial
intermediary.
SECTION 8. REPRESENTATIONS AND WARRANTIES. The Issuers and IWL
hereby, on a joint and several basis, represent and warrant that:
(a) The representations and warranties contained in the Purchase
Agreement are true and correct in all material respects as of the date
hereof and are hereby incorporated into this Agreement by this reference.
(b) The execution and delivery by the Issuers and IWL of, and the
performance by the Issuers and IWL of their respective obligations under,
this Agreement will not contravene any provision of applicable law or the
Articles of Incorporation or bylaws (or equivalent organizational
documents) of any of the Issuers or IWL or any material agreement or other
material instrument binding upon the Issuers or IWL or any of their
respective subsidiaries or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Issuers or
any of their respective subsidiaries, or result in the creation or
imposition of any lien on any assets of the Issuers or IWL or any of their
respective subsidiaries, except for the security interests granted under
this Agreement; no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required (i) for the
performance by the Issuers or IWL of their obligations under this
Agreement, (ii) for the pledge by the Issuers of the Collateral pursuant to
this Agreement or (iii) except for any such consents, approvals,
authorizations or orders required to be obtained by the Trustee (or the
Holders) for reasons other than the consummation of this transaction, for
the exercise by the Trustee of the rights provided for in this Agreement or
the remedies in respect of the Collateral pursuant to this Agreement.
(c) The Issuers are the beneficial owners of the Collateral, free and
clear of any lien or claims of any person or entity (except for the
security interests granted under this Agreement). No security interest
covering the Issuers' interest in the
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Collateral currently exists which has not been released other than the
security interests granted pursuant to this Agreement.
(d) This Agreement has been duly authorized, validly executed and
delivered by each of the Issuers and IWL and constitutes a valid and
binding agreement of each of the Issuers and IWL, enforceable against each
of them in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, moratorium or other
similar laws relating to or affecting enforcement of creditors' rights
generally, or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(e) Upon the filing of financing statements, if any, required by the
U.C.C. in the appropriate offices in the State of New York and the State
of Texas, and the delivery to the Trustee of the Collateral, in accordance
with this Agreement, the pledge of and grant of a security interest in the
Collateral securing the payment of the Obligations for the benefit of the
Trustee and the Holders of the Notes will constitute a first priority
perfected security interest in such Collateral, enforceable as such against
all creditors of the Issuers (and any persons purporting to purchase any of
the Collateral from the Issuers), other than as permitted by the Indenture.
(f) The pledge of the Collateral pursuant to this Agreement is not
prohibited by law or governmental regulation (including, without
limitation, Regulations T, U and X of the Board of Governors of the Federal
Reserve System) applicable to the Issuers.
(g) No Event of Default exists.
SECTION 9. FURTHER ASSURANCES. The Issuers will, promptly upon
request by the Trustee (which request the Trustee may submit at the direction of
the Holders of a majority in principal amount of the Notes then outstanding),
execute and deliver or cause to be executed and delivered, or use their
reasonable best efforts to procure, all assignments, instruments and other
documents, deliver any instruments to the Trustee and take any other actions
that are necessary or desirable to perfect, continue the perfection of, or
protect the first priority of the Trustee's security interest in and to the
Collateral, to protect the Collateral against the rights, claims or interests of
third persons (other than any such rights, claims or interests created by or
arising through the Trustee) or to effect the purposes of this Agreement. The
Issuers also hereby authorize the Trustee to file any financing or continuation
statements in the United States with respect to the Collateral without the
signature of the Issuers (to the extent permitted by applicable law). The
Issuers will promptly pay all reasonable costs incurred in connection with any
of the
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foregoing within 15 days of receipt of an invoice therefor. The Issuers also
agree, whether or not requested by the Trustee, to take all actions that are
necessary to perfect or continue the perfection of, or to protect the first
priority of, the Trustee's security interest in and to the Collateral, including
the filing of all necessary financing and continuation statements, and to
protect the Collateral against the rights, claims or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee).
SECTION 10. COVENANTS. The Issuers and IWL covenant and agree with
the Trustee and the Holders of the Notes that from and after the date of this
Agreement until the earlier of (x) the receipt of the items referred to in
Section 7(a) hereof or (y) the completion of the offer to purchase the Notes
contemplated by Section 10.21 of the Indenture:
(a) that (i) they will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to, any
of the Collateral or their beneficial interest therein, and (ii) they will
not create or permit to exist any lien upon or other adverse interest in or
with respect to the Collateral (except for the security interests granted
under this Agreement); and
(b) that they will not (i) enter into any agreement or understanding
that restricts or inhibits or purports to restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the Trustee's
right to sell or otherwise dispose of the Collateral or (ii) fail to pay or
discharge any tax, assessment or levy of any nature with respect to its
beneficial interest in the Collateral not later than five days prior to the
date of any proposed sale under any judgment, writ or warrant of attachment
with respect to such beneficial interest.
SECTION 11. POWER OF ATTORNEY. In addition to all of the powers
granted to the Trustee pursuant to the Indenture, each of the Issuers hereby
appoints and constitutes the Trustee as such Issuer's attorney-in-fact (with
full power of substitution) to exercise to the fullest extent permitted by law
all of the following powers upon and at any time after the occurrence and during
the continuance of an Event of Default: (a) collection of proceeds of any
Collateral; (b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any liens under Section 6 hereof; and
(d) paying or discharging taxes or liens levied or placed upon the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by the Trustee in its sole reasonable discretion, and such
payments made by the Trustee to become part of the Obligations of the Issuers to
the Trustee, due and payable immediately upon demand. The Trustee's authority
under this Section 11 shall include, without limitation, the authority to
endorse and negotiate any checks or other instruments representing proceeds of
Collateral, execute and give receipt for any certificate of
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ownership or any document constituting Collateral, transfer title to any item of
Collateral, sign any Issuer's name on all financing statements (to the extent
permitted by applicable law) or any other documents deemed necessary or
appropriate by the Trustee to preserve, protect or perfect the security interest
in the Collateral and to file the same, prepare, file and sign any Issuer's name
on any notice of lien, and to take any other actions arising from or incident to
the powers granted to the Trustee in this Agreement. This power of attorney is
coupled with an interest and is irrevocable by the Issuers.
SECTION 12. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights
and powers granted to the Trustee hereunder are being granted in order to
establish, preserve and protect the security interest of the Trustee and the
Holders of the Notes in and to the Collateral granted hereby and shall not be
interpreted to and shall not impose any duties on the Trustee in connection
therewith other than those expressly provided herein or imposed under applicable
law. Except as provided by applicable law or by the Indenture, the Trustee
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Trustee accords similar property
held by the Trustee for its own account, it being understood that the Trustee
shall not have any responsibility for (a) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities or other matters relative
to any Collateral, whether or not the Trustee has or is deemed to have knowledge
of such matters, (b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral or (c) investing or reinvesting any of
the Collateral.
SECTION 13. INDEMNITY. The Issuers and IWL shall, on a joint and
several basis, indemnify, hold harmless and defend the Trustee and its
directors, officers, agents and employees, from and against any and all claims,
actions, obligations, liabilities and expenses, including reasonable defense
costs, reasonable investigative fees and costs, and reasonable legal fees and
damages arising from the Trustee's performance under this Agreement, except to
the extent that such claim, action, obligation, liability or expense is directly
attributable to the bad faith, gross negligence or wilful misconduct of such
indemnified person.
SECTION 14. REMEDIES UPON EVENT OF DEFAULT. If any Event of
Default under the Indenture or default hereunder (any such Event of Default or
default being referred to in this Agreement as an "Event of Default") shall have
occurred and be continuing:
(a) The Trustee and the Holders of the Notes shall have, in addition
to all other rights given by law or by this Agreement or the Indenture, all
of the rights and remedies with respect to the Collateral of a secured
party under the U.C.C. in effect in the State of New York at that time.
In addition, with respect to any Collateral that
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shall then be in or shall thereafter come into the possession or custody of
the Trustee, the Trustee may and, at the direction of the Holders of a
majority in principal amount of the Notes then outstanding, shall, sell or
cause the same to be sold at any broker's board or at public or private
sale, in one or more sales or lots, at such price or prices as the Trustee
may deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Collateral so
sold shall thereafter hold the same absolutely, free from any claim,
encumbrance or right of any kind whatsoever created by or through the
Issuers. Unless any of the Collateral threatens, in the reasonable
judgment of the Trustee, to decline speedily in value or is or becomes of a
type sold on a recognized market, the Trustee will give the Issuers and IWL
reasonable notice of the time and place of any public sale thereof, or of
the time after which any private sale or other intended disposition is to
be made. Any sale of the Collateral conducted in conformity with
reasonable commercial practices of banks, insurance companies, commercial
finance companies, or other financial institutions disposing of property
similar to the Collateral shall be deemed to be commercially reasonable.
Any requirements of reasonable notice shall be met if such notice is mailed
to the Issuers and IWL as provided in Section 17.1 hereof at least ten (10)
days before the time of the sale or disposition. The Trustee or any Holder
of Notes may, in its own name or in the name of a designee or nominee, buy
any of the Collateral at any public sale and, if permitted by applicable
law, at any private sale. All expenses (including court costs and
reasonable attorneys' fees, expenses and disbursements) of, or incident to,
the enforcement of any of the provisions hereof shall be recoverable from
the proceeds of the sale or other disposition of the Collateral.
(b) The Issuers and IWL further agree to use their reasonable best
efforts to do or cause to be done all such other acts as may be necessary
to make such sale or sales of all or any portion of the Collateral pursuant
to this Section 14 valid and binding and in compliance with any and all
other applicable requirements of law. The Issuers and IWL further agree
that a breach of any of the covenants contained in this Section 14 will
cause irreparable injury to the Trustee and the Holders of the Notes, that
the Trustee and the Holders of the Notes have no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant
contained in this Section 14 shall be specifically enforceable against the
Issuers and IWL, and the Issuers and IWL hereby waive and agree not to
assert any defenses against an action for specific performance of such
covenants except for a defense that no Event of Default has occurred.
SECTION 15. FEES AND EXPENSES. The Issuers and IWL will upon
demand pay to the Trustee the reasonable fees of the Trustee for its services
hereunder and the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the
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Trustee, that the Trustee may incur in connection with (a) the review,
negotiation and administration of this Agreement which is hereby agreed to be
$1,500, (b) the custody or preservation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (c) the exercise or enforcement
of any of the rights of the Trustee and the Holders of the Notes hereunder or
(d) the failure by the Issuers or IWL to perform or observe any of the
provisions hereof.
SECTION 16. SECURITY INTEREST ABSOLUTE. All rights of the Trustee
and the Holders of the Notes and security interests hereunder, and all
obligations of the Issuers and IWL hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any liens
on any other collateral for all or any of the Obligations; or
(d) to the extent permitted by applicable law, any other circumstance
which might otherwise constitute a defense available to, or a discharge of,
the Issuers in respect of the Obligations or of this Agreement.
SECTION 17. MISCELLANEOUS PROVISIONS.
17.1. NOTICES. Any notice or communication shall be sufficiently
given if in writing and delivered in person or mailed by first class mail,
commercial courier service or facsimile communication, addressed as follows:
To the Issuers:
Jere W. Thompson, Jr.
CapRock Communications Corp.
Two Galleria Tower, Suite 1925
Dallas, Texas 75240-6638
Facsimile: (972) 788-4243
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<PAGE>
To IWL:
Ignatius W. Leonards
IWL Communications, Incorporated
12000 Aerospace Avenue, Suite 200
Houston, Texas 77034
Facsimile: (281) 929-1004
To the Trustee:
PNC Bank, National Association
1600 Market Street, 30th Floor
Philadelphia, Pennsylvania 19103
Attention: Corporate Trust Department
Facsimile: (215) 585-8872
or at such other address as the specified entity most recently may have
designated in writing in accordance with this section to the others.
17.2. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This
Agreement may not be used to interpret another pledge, security or debt
agreement of the Issuers, IWL or any of their respective subsidiaries. No such
pledge, security or debt agreement (other than the Indenture) may be used to
interpret this Agreement.
17.3. SEVERABILITY. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
17.4. HEADINGS. The headings in this Agreement have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms or provisions hereof.
17.5. COUNTERPART ORIGINALS. This Agreement may be signed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same agreement.
17.6. BENEFITS OF AGREEMENT. Nothing in this Agreement, express
or implied, shall give to any person, other than the parties hereto and their
successors hereunder, and
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<PAGE>
the Holders of the Notes, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
17.7. AMENDMENTS, WAIVERS AND CONSENTS. Any amendment or waiver
of any provision of this Agreement and any consent to any departure by the
Issuers from any provision of this Agreement shall be effective only if made or
duly given in compliance with all of the terms and provisions of the Indenture,
and neither the Trustee nor any Holder of Notes shall be deemed, by any act,
delay, indulgence, omission or otherwise, to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. Consistent with the
foregoing, this Agreement may be amended, its provisions may be waived and
departures from its provisions may be consented to by action of the Issuers, IWL
and the Trustee and (if applicable) the Holders of the Notes, all as provided in
the Indenture. Failure of the Trustee, or any Holder of Notes to exercise, or
delay in exercising, any right, power or privilege hereunder shall not preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Trustee or any Holder of Notes of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy that the Trustee or such Holder of Notes would otherwise have on
any future occasion. The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
17.8. INTERPRETATION OF AGREEMENT. To the extent a term or
provision of this Agreement conflicts with the Indenture, the Indenture shall
control with respect to the subject matter of such term or provision.
Acceptance of or acquiescence in a course of performance rendered under this
Agreement shall not be relevant to determine the meaning of this Agreement even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
17.9. CONTINUING SECURITY INTEREST; TERMINATION. (a) This
Agreement shall create a continuing security interest in and to the Collateral
and shall, except as otherwise provided in the Indenture or in this Agreement,
remain in full force and effect until the payment in full in cash of the
Obligations. This Agreement shall be binding upon the Issuers, their
transferees, successors and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of the Notes and their respective successors, transferees and assigns.
(b) This Agreement and the security interest granted herein shall
terminate upon the disbursement of the Collateral in accordance with Section 7
hereof.
17.10. SURVIVAL PROVISIONS. All representations, warranties and
covenants of the Issuers contained herein shall survive the execution and
delivery of this Agreement,
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<PAGE>
and shall terminate only upon the termination of this Agreement. The
obligations of the Issuers under Sections 13 and 15 hereof shall survive the
termination of this Agreement.
17.11. WAIVERS. The Issuers and IWL waive presentment and demand
for payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Issuers might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
17.12. AUTHORITY OF THE TRUSTEE. (a) The Trustee shall have and be
entitled to exercise all powers hereunder that are specifically granted to the
Trustee by the terms hereof, together with such powers as are reasonably
incident thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Agreement or the Indenture, neither the Trustee nor any director, officer,
employee, attorney or agent of the Trustee shall be liable to the Issuers or IWL
or any other person for any action taken or omitted to be taken by the Trustee,
in its capacity as Trustee, hereunder, except for its own bad faith, gross
negligence or willful misconduct, and the Trustee shall not be responsible for
the validity, effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication, instrument
or document reasonably believed by it or them to be genuine and correct and to
have been signed or sent by the proper person or persons. The Trustee shall
have no duty to cause any financing statement or continuation statement to be
filed in respect of the Collateral.
(b) The Issuers and IWL acknowledge that the rights and
responsibilities of the Trustee under this Agreement with respect to any action
taken by the Trustee or the exercise or non-exercise by the Trustee of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Trustee and the
Holders of the Notes, be governed by the Indenture and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Trustee and the Issuers, the Trustee shall be conclusively presumed to be
acting as agent for the Holders of the Notes with full and valid authority so to
act or refrain from acting, and the Issuers and IWL shall not be obligated or
entitled to make any inquiry respecting such authority.
17.13. FINAL EXPRESSION. This Agreement, together with the
Indenture and any other agreement executed in connection herewith, is intended
by the parties as a final expression of this Agreement and is intended as a
complete and exclusive statement of the terms and conditions thereof.
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17.14. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
WAIVER OF DAMAGES. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THE
ISSUERS, IWL, THE TRUSTEE AND THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS
AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. NOTWITHSTANDING
THE FOREGOING: THE MATTERS IDENTIFIED IN 31 C.F.R. (Section)(Section) 357.10
AND 357.11 (AS IN EFFECT ON THE DATE OF THIS AGREEMENT) SHALL BE GOVERNED SOLELY
BY THE LAWS SPECIFIED THEREIN.
(b) THE ISSUERS AND IWL AGREE THAT THE TRUSTEE SHALL, IN ITS CAPACITY
AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE ISSUERS, IWL
OR THE COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH
(AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE ISSUERS, IWL OR THE
COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH
COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE TRUSTEE. THE ISSUERS AND IWL AGREE THAT THEY WILL NOT ASSERT ANY
COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE
TO REALIZE ON SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR
ASSERTED. THE ISSUERS AND IWL WAIVE ANY OBJECTION THAT THEY MAY HAVE TO THE
LOCATION OF THE COURT IN THE CITY OF NEW YORK ONCE THE TRUSTEE HAS COMMENCED A
PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(c) THE ISSUERS AND IWL AGREE THAT NEITHER ANY HOLDER OF NOTES NOR
(EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT OR THE INDENTURE) THE TRUSTEE IN
ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE ISSUERS OR IWL (WHETHER
ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE ISSUERS OR
IWL IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED
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TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE
TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH,
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
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IN WITNESS WHEREOF, the Issuers, IWL and the Trustee have each caused
this Agreement to be duly executed and delivered as of the date first above
written.
CAPROCK COMMUNICATIONS CORP.
By:
------------------------------
Name:
Title:
CAPROCK TELECOMMUNICATIONS CORP.
By:
------------------------------
Name:
Title:
CAPROCK FIBER NETWORK, LTD.
By: CapRock Systems, Inc., general
partner
By:
------------------------------
Name:
Title:
IWL COMMUNICATIONS, INCORPORATED
By:
------------------------------
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------
Name:
Title:
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
Name Jurisdiction
- ---- ------------
<S> <C>
IWL Communications, Incorporated Texas
CapRock Telecommunications Corp. Texas
CapRock Fiber Network, Ltd. Texas
</TABLE>
<PAGE>
Exhibit 23.1
The Board of Directors
CAPROCK TELECOMMUNICATIONS CORP.
(formerly CapRock Communications Corp.)
We consent to the use of our report related to CapRock Telecommunications Corp.
included herein and to the reference to our firm under the headings "Summary
Selected Historical Financial Data of Telecommunications," "Selected Historical
Financial Data of Telecommunications" and "Experts" in the joint proxy
statement/prospectus.
KPMG PEAT MARWICK LLP
Dallas, Texas
July 16, 1998
<PAGE>
Exhibit 23.2
The Partners
CapRock Fiber Network, Ltd.
We consent to the use of our report related to CapRock Fiber Network, Ltd.
included herein and to the reference to our firm under the headings "Summary
Selected Historical Financial Data of the Partnership," "Selected Historical
Financial Data of the Partnership" and "Experts" in the joint proxy
statement/prospectus.
KPMG PEAT MARWICK LLP
Dallas, Texas
July 16, 1998
<PAGE>
Exhibit 23.3
The Board of Directors
IWL Communications, Inc. and Subsidiaries
We consent to the use of our report related to IWL Communications, Inc. and
Subsidiaries included herein and to the reference to our firm under the headings
"Summary Selected Consolidated Historical Financial Data of IWL", "Selected
Historical Financial Data of IWL" and "Experts" in the joint proxy
statement/prospectus.
KPMG PEAT MARWICK LLP
Houston, Texas
July 16, 1998
<PAGE>
Exhibit 23.4
The Board of Directors
CapRock Communications Corp.
(formerly IWL Holdings Corporation)
We consent to the use of our report related to CapRock Communications Corp.
included herein and to the reference to our firm under the heading "Experts" in
the joint proxy statement/prospectus.
KPMG PEAT MARWICK LLP
Dallas, Texas
July 16, 1998
<PAGE>
Exhibit 23.5
The Board of Directors
CAPROCK TELECOMMUNICATIONS CORP.
(formerly CapRock Communications Corp.)
The Partners of CAPROCK FIBER NETWORK, LTD.
We consent to the use of our report related to CapRock Telecommunications
Corp. and CapRock Fiber Network, Ltd. included herein and to the reference to
our firm under the headings "Summary Selected Historical Financial Data of
Telecommunications," "Summary Selected Historical Financial Data of the
Partnership," "Selected Historical Financial Data of Telecommunications,"
"Selected Historical Financial Data of the Partnership," and "Experts" in the
joint proxy statement/prospectus.
Burds Reed & Mercer, P.C.
Dallas, Texas
July 16, 1998
