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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CAPROCK COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
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TEXAS 1731 75-2765572
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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15601 DALLAS PARKWAY, SUITE 700
DALLAS, TX 75248
(972) 982-9500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
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MR. JERE W. THOMPSON, JR.
CHIEF EXECUTIVE OFFICER
CAPROCK COMMUNICATIONS CORP.
15601 DALLAS PARKWAY, SUITE 700
DALLAS, TX 75248
(972) 982-9500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
A. MICHAEL HAINSFURTHER
MARK A. KOPIDLANSKY
MUNSCH HARDT KOPF & HARR, P.C.
1445 ROSS AVENUE, 4000 FOUNTAIN PLACE
DALLAS, TEXAS 75202-2790
(214) 855-7500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
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11 1/2% Senior Notes due 2009,
Series B........................ $210,000,000 100% $210,000,000 $58,380
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated in accordance with Rule 457(f)(2) based on the book value on July
8, 1999, of the securities to be received by the Registrant in the Exchange
Offer.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 9, 1999
PROSPECTUS
OFFER TO EXCHANGE
11 1/2% SENIOR NOTES DUE 2009, SERIES B
FOR ALL OUTSTANDING
11 1/2% SENIOR NOTES DUE 2009, SERIES A
OF
CAPROCK COMMUNICATIONS CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON , 1999 [20 BUSINESS DAYS AFTER EFFECTIVE DATE] UNLESS
EXTENDED.
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This is an offer to exchange the outstanding, unregistered 11 1/2% Senior
Notes due 2009 of CapRock Communications Corp. you now hold for new,
substantially identical 11 1/2% Senior Notes that will be free of the transfer
restrictions that apply to the old notes. The material terms of the exchange
offer include the following:
- - We are offering to exchange the notes we sold in a private offering for new
registered notes,
- - The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended,
- - The terms of the new notes are substantially identical to the outstanding
notes, except for the transfer restrictions and registration rights relating
to the outstanding notes,
- - Tenders of outstanding notes may be withdrawn any time prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer, and
- - We will exchange all outstanding notes that are properly tendered for exchange
and not validly withdrawn.
No public market exists for the outstanding notes or the new notes. We do
not intend to list the new notes on any securities exchange or to seek approval
for quotation through any automated quotation system. We are not soliciting a
proxy from holders of old notes, and such holders are requested not to send us a
proxy. See "The Exchange Offer."
SEE "RISK FACTORS" COMMENCING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN CONNECTION WITH
THE EXCHANGE OFFER AND AN INVESTMENT IN THE NEW NOTES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is .
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TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements.................................. 3
Summary..................................................... 5
Risk Factors................................................ 14
Use of Proceeds............................................. 23
Capitalization.............................................. 24
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 40
Regulation and Licenses..................................... 54
Management.................................................. 64
Certain Transactions........................................ 74
Principal Shareholders...................................... 76
The Exchange Offer.......................................... 78
Description of the Notes.................................... 88
Book-Entry; Delivery and Form............................... 120
Description of Certain Indebtedness......................... 122
Description of Capital Stock................................ 123
Certain Federal Income Tax Considerations................... 125
Plan of Distribution........................................ 128
Legal Matters............................................... 128
Experts..................................................... 129
Where You Can Find More Information......................... 129
Index To Consolidated Financial Statements.................. F-1
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about CapRock including:
- our anticipated growth strategies,
- anticipated trends in our business, including trends in technology and
the growth of communications network products and services,
- future expenditures for capital projects, and
- our ability to continue to control costs and maintain quality.
These statements may be found in the sections of this prospectus entitled
"Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and in
this prospectus generally. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including all the risks discussed in "Risk Factors" and elsewhere in this
prospectus and risks related to, among other things, building a fiber network
(including obtaining the necessary rights-of-way, permits and regulatory
approvals), supply and demand for data services, competition, the need for
additional capital, debt and interest payment obligations, restrictions in our
senior note indentures, rapid growth, dependence on local telephone companies
and long distance carriers, our information systems, retention of key personnel,
dependence on major customers, year 2000 problems, the continued integration of
our predecessor companies, service interruptions, potential liability as an
Internet service provider and protection of our intellectual property.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Because of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
---------------------
In making a decision about buying these securities, you should rely only on
the information contained in this prospectus. We have not authorized anyone to
provide you with information that is different from the information contained in
this prospectus. This prospectus is intended to offer no securities other than
the offer to exchange your old notes for new notes issued by CapRock. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not making an offer to exchange the old notes for new notes or
issuing or selling new notes in any jurisdiction where such an offer or sale is
not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only, regardless of the time of delivery of this prospectus or the exchange of
the old notes for the new notes. Our business, financial condition, results of
operations and prospects may have changed since that date.
---------------------
We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of this information is not
guaranteed. Similarly, we believe that the surveys and market research we or
others have performed is reliable, but we have not independently verified this
information. We do not represent that this information is accurate.
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We are a Texas corporation that was formed on February 3, 1998 to be a
holding company for our predecessor companies. Our principal executive offices
are located at 15601 Dallas Parkway, Suite 700, Dallas, Texas 75248, and our
telephone number is (972) 982-9500. We maintain a World Wide Web site at
www.caprock.com. The reference to our World Wide Web address does not constitute
incorporation by reference of the information contained at the site. In this
prospectus, the "Company," "CapRock," "we," "us" and "our" refer to CapRock
Communications Corp. and its subsidiaries, including IWL Communications,
Incorporated ("IWL Communications"), CapRock Telecommunications Corp. ("CapRock
Telecommunications") and CapRock Fiber Network Ltd. ("CapRock Fiber"), which are
our three predecessor companies, as well as CapRock Network Services, L.P.,
CapRock Telecommunications Leasing Corp. and CapRock Design Services, L.P.,
unless the context otherwise requires. CapRock and CapRock Communications are
trademarks of CapRock. All other trade names or trademarks appearing in this
prospectus are the property of their respective holders.
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SUMMARY
This summary highlights some information contained in this prospectus and
may not contain all of the information that is important to you. You should read
this summary together with the more detailed information and our financial
statements and notes appearing elsewhere in this prospectus. This summary is not
complete and may not contain all of the information that you should consider
before tendering your old notes in exchange for new notes. You should carefully
consider, among other things, the matters shown in "Risk Factors."
OUR BUSINESS
We own and operate a scalable long-haul fiber network which upon completion
is expected to cover approximately 6,100 route miles throughout the Southwest
region, which includes Texas, Louisiana, Arkansas, Oklahoma, New Mexico and
Arizona. This fiber network supports the voice, data, bandwidth and dark fiber
services we provide to our carrier and retail customers. Our 1998 revenues were
$121.8 million and earnings before interest, taxes, depreciation and
amortization ("EBITDA") (exclusive of merger related expenses of $2.3 million)
was $15.0 million, and our revenues for the quarter ended March 31, 1999 were
$37.0 million and EBITDA was $2.1 million. Over the past five years, our
revenues have grown at a compound annual growth rate of 55%.
We intend to be the premier provider of carriers' carrier services and the
leading facilities-based integrated communications provider in the Southwest
region. To measure our progress, we classify our revenues in three categories:
carriers' carrier, integrated services and systems services. Our carriers'
carrier revenues include domestic and international long distance, bandwidth and
dark fiber services sold to telecommunications carriers and other wholesale
customers. Currently, we have over 120 carrier customers, including AT&T, MCI
WorldCom, Sprint Corporation and Qwest Communications, as well as many regional
independent companies such as Century Telephone Enterprises, Inc. and Lufkin
Conroe Telephone. Our integrated services revenues reflect our local, long
distance, Internet, data and private line products provided to over 6,000 small
and medium-sized businesses on a single bundled bill. Lastly, our systems
services revenues represent the voice and data systems and services we provide
primarily to the oil and gas industry offshore in and along the Gulf of Mexico.
We are focused on the Southwest region because of this region's size and
attractive growth prospects and because we believe that as a region it is
currently underserved by other major telecommunications providers. We believe
our ability to offer integrated telecommunications services along with superior
customer service will be particularly attractive to small and medium-sized
businesses that desire simple bundled plans from a single provider. Many of the
smaller markets within our region do not have telecommunications alternatives to
the incumbent local telephone company. We also believe that a regional focus
enables us to achieve certain economies of scale due to the concentrated
deployment of network assets, our sales and marketing efforts and our
management. By maximizing the amount of traffic that remains on our network, we
can maximize our gross profit margins and returns on invested capital.
OUR STRATEGY
Our business objectives are to establish ourselves as the premier carriers'
carrier and to be the dominant integrated communications provider in the
Southwest region. To achieve these objectives, we intend to:
- build the region's most advanced, scalable and extensive fiber optic
network,
- create a strategic, regionally focused asset,
- pursue a cost-effective network build out,
- focus on high value-added local switching infrastructure,
- provide bundled communications solutions to small and medium-sized
businesses,
- pursue acquisitions and strategic alliances,
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- build market share through personalized sales and customer service, and
- leverage our advanced back office systems.
OUR NETWORK
By the end of the year 2000, we intend to build out our fiber optic network
to approximately 6,100 route miles throughout the Southwest region. We began
constructing and operating a regional fiber network in 1993. At the end of 1998,
the first 800 route miles of our scalable, regional fiber network were
substantially completed, linking San Antonio, Laredo, McAllen, Harlingen, Corpus
Christi, Victoria and Houston, Texas. Over the past two years, we have met
substantially all of our milestones with respect to our construction schedules
and budgets. We currently have approximately 1,870 route miles under
construction and expect to have approximately 3,000 route miles completed by the
end of 1999, linking south Texas, San Antonio, Houston, Austin, Waco, Dallas,
Fort Worth, and Amarillo, Texas, Oklahoma City and Tulsa, Oklahoma, Little Rock,
Arkansas and Monroe and New Orleans, Louisiana. We expect that the remainder of
the 6,100 mile fiber network will be completed by the end of the year 2000.
Given the increased demand for our fiber-based telecommunications services over
the past year, we increased our planned network build out from approximately
4,300 route miles to approximately 6,100 route miles, as discussed below under
"-- Recent Developments." We also increased the number of conduits being
deployed along certain routes from three to four.
In addition to our extensive fiber network, our network facilities also
include nine local and long distance switches (eight which we own and one which
we manage), with another three local switches scheduled to be installed by the
end of the fourth quarter of 1999. We plan to colocate our equipment in 20
central offices with incumbent local telephone companies (13 of which are
currently in process) for the provision of local services using unbundled
network elements, or UNEs, by the end of 1999. We also plan to purchase and
deploy eight asynchronous transfer mode, or ATM, data switches to support our
Internet, frame relay and ATM services in the third quarter of 1999, and plan to
purchase and deploy an additional 10 ATM data switches in the fourth quarter of
1999.
RECENT DEVELOPMENTS
In June 1999, we publicly announced that we had extended the planned build
out of our fiber network to include Arizona. When completed, this expansion will
increase our fiber network by approximately 600 route miles to approximately
6,100 route miles and connect Phoenix and Tucson, Arizona with El Paso, Texas
and our previously planned five-state network. We anticipate completion of the
Arizona portion of our network in the first half of 2000.
On May 18, 1999, we sold, through a private placement under Section 4(2)
and Rule 144A under the Securities Act of 1933, as amended (the "Securities
Act"), $210 million aggregate principal amount of our senior notes, which were
priced at an interest rate of 11 1/2%. Our net proceeds from such offering,
after deducting the initial purchasers' discount and estimated offering
expenses, was approximately $200.7 million. As required by the terms of the
registration rights agreement we entered into in connection with such offering,
we have filed the registration statement (of which this prospectus is a part) to
register our offer to exchange the new, registered notes for the outstanding
notes. In addition, in connection with that offering, we agreed, among other
things, to deliver to you this prospectus and to use our best efforts to
complete the exchange offer by November 19, 1999. The terms of the exchange
offer are summarized on Page 7.
On May 6, 1999, we entered into an underwriting agreement with various
underwriters to sell 4,000,000 shares of our common stock at a price per share
of $22.00 in a public offering. The offering closed on May 12, 1999. We received
net proceeds, after deducting underwriting discounts and expenses payable by us,
of approximately $81.5 million from the sale of our common stock.
OUR ADDRESS
The mailing address of our principal executive offices is 15601 Dallas
Parkway, Suite 700, Dallas, Texas 75248 and our telephone number at that address
is (972) 982-9500.
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THE EXCHANGE OFFER
The Exchange Offer......... We are offering to exchange $1,000 principal amount
of CapRock's 11 1/2% Senior Notes due 2009, Series
B which have been registered under the Securities
Act for each $1,000 principal amount of CapRock's
outstanding 11 1/2% Senior Notes due 2009, Series
A, which were issued in May 1999 in a private
offering. In order to be exchanged, an old note
must be properly tendered and accepted. We will
exchange all notes validly tendered and not validly
withdrawn. As of this date, there is $210.0 million
aggregate principal amount of old notes
outstanding.
Expiration and Exchange
Dates.................... This offer will expire at 5:00 p.m., New York City
time, on , 1999, unless we extend it,
and we will consummate the exchange on the next
business day.
Registration Rights
Agreement.................. You have the right to exchange the old notes that
you now hold for new notes with substantially
identical terms. This exchange offer is intended to
satisfy these rights. After the exchange offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to
your notes.
Conditions................. This offer is conditioned only upon compliance with
the securities laws. The offer applies to any and
all old notes tendered by the deadline.
Withdrawal Rights.......... You may withdraw your tender of old notes at any
time before the offer expires.
Federal Income Tax
Consequences............. The exchange will not be a taxable event for United
States Federal income tax purposes. You will not
recognize any taxable gain or loss or any interest
income as a result of such exchange. However, we
recommend that you consult your own tax advisor to
make this determination.
Resale Without Further
Registration............. We believe that the new notes may be offered for
resale, resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the Securities
Act so long as all of the following statements are
true:
- you acquire the new notes issued in the exchange
offer in the ordinary course of your business,
- you are not an "affiliate," as defined under Rule
405 of the Securities Act, of ours, and
- you are not participating, and do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the new notes issued to you
in the exchange offer.
By tendering your notes as described below, you
will be making representations to this effect.
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Transfer Restrictions on
New Notes.................. You may incur liability under the Securities Act
if:
(1) any of the representations or statements listed
above are not true, and
(2) you transfer any new note issued to you in the
exchange offer without:
- delivering a prospectus meeting the
requirements of the Securities Act, or
- an exemption from the requirements under the
Securities Act to register your new notes.
We do not assume or indemnify you against such
liability.
Each broker-dealer that is issued new notes for its
own account in exchange for old notes that were
acquired as a result of market-making or other
trading activities must acknowledge that it will
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of
the new notes. A broker-dealer may use this
prospectus for an offer to resell, a resale or
other retransfer of the new notes issued to it in
the exchange offer.
Procedures for Tendering
Old Notes.................. Each holder of old notes who wishes to accept the
exchange offer must:
- complete, sign and date the accompanying letter
of transmittal, or a facsimile thereof, or
- arrange for The Depository Trust Company to
transmit certain required information to the
exchange agent in connection with a book-entry
transfer.
You must mail or otherwise deliver such
documentation and your old notes to Chase Manhattan
Trust Company, National Association, as exchange
agent, at the address set forth under "The Exchange
Offer -- Exchange Agent."
Failure to Exchange Will
Affect You Adversely....... If you are eligible to participate in the exchange
offer and you do not tender your old notes, you
will not have any further registration or exchange
rights and your old notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the old notes could
be adversely affected.
Special Procedures for
Beneficial Owners.......... If you beneficially own old notes registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee and you wish to tender
your old notes in the exchange offer, you should
contact such registered holder promptly and
instruct it to tender on your behalf. If you wish
to tender on your own behalf, you must, before
completing and executing the letter of transmittal
for the exchange offer and delivering your old
notes, either arrange to have your old notes
registered in your name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time.
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Guaranteed Delivery
Procedures............... You may comply with the procedures described in
this prospectus under the heading "The Exchange
Offer -- Guaranteed Delivery Procedures" if you
wish to tender your old notes and:
- time will not permit your required documents to
reach the exchange agent by the expiration date
of the exchange offer,
- you cannot complete the procedure for book-entry
transfer on time, or
- your old notes are not immediately available.
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THE NEW NOTES
Notes Offered.............. We are offering $210 million aggregate principal
amount of our 11 1/2% Senior Notes due 2009. The
form and term of the new notes will be the same as
the form and terms of the outstanding notes except
that:
- the new notes will bear a different CUSIP number
from the outstanding notes,
- the new notes will have been registered under the
Securities Act and, therefore, will not bear
legends restricting their transfer, and
- you will not be entitled to any exchange or
registration rights with respect to the new
notes.
The new notes will evidence the same debt as the
outstanding notes, will be entitled to the benefits
of the indenture governing the outstanding notes
and will be treated under the indenture as a single
class with the outstanding notes. The new notes
will have the same financial terms and covenants as
the old notes.
Issuer..................... CapRock Communications Corp.
Maturity................... May 1, 2009
Interest................... Interest accrues from May 18, 1999 at the rate of
11 1/2% per year, payable semi-annually in arrears
on each May 1 and November 1, beginning on November
1, 1999.
Ranking.................... The notes will be our general unsecured senior
obligations. They will rank equally with all our
other existing and future unsecured debt and
unsubordinated debt, including our 12% Senior Notes
due 2008. They will effectively rank junior to all
of our secured debt, to the extent of the value of
the assets securing the debt. In addition, they
will effectively rank junior to all existing and
future debt (including trade payables) of our
subsidiaries.
Optional Redemption........ We may redeem the notes, in whole or in part, at
any time on or after May 1, 2004, at the redemption
prices set forth in this prospectus.
Public Equity Offering and
Strategic Equity Sale
Optional
Redemption............... Before May 1, 2002, we may redeem up to 35% of the
aggregate principal amount of the notes originally
issued with the net proceeds of certain public
equity offerings and/or certain private sales of
capital stock to strategic equity investors, at
111.50% of the principal amount thereof, plus
accrued interest, if at least 65% of the originally
issued aggregate principal amount of the notes
remains outstanding. See "Description of the
Notes -- Optional Redemption."
Change of Control.......... Upon certain change of control events, each holder
of notes may require us to repurchase all or a
portion of its notes at a purchase price equal to
101% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of
purchase. See "Description of the Notes -- Change
of Control."
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Covenants.................. The indenture under which the old notes have been
and the new notes are being issued contains
covenants for your benefit which, among other
things and subject to important exceptions,
restrict our ability and the ability of our
subsidiaries to:
- incur additional indebtedness,
- make certain investments,
- pay dividends on, redeem or repurchase our
capital stock,
- issue or sell capital stock of certain of our
subsidiaries,
- in the case of certain of our subsidiaries,
guarantee indebtedness,
- engage in transactions with affiliates,
- create certain liens,
- enter into sale-leaseback transactions,
- sell assets, and
- consolidate, merge or transfer all or
substantially all of our assets and the assets of
our subsidiaries on a consolidated basis.
These covenants are subject to important exceptions
and qualifications, which are described under the
heading "Description of the Notes" in this
prospectus.
Risk Factors............... See "Risk Factors" for a discussion of factors you
should carefully consider before deciding to
exchange your old notes for the new notes.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data as
of and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and as
of and for the three months ended March 31, 1998 and 1999. The business
combination among our predecessor companies was completed on August 26, 1998 and
was accounted for as a pooling of interests. Accordingly, the Consolidated
Balance Sheets as of December 31, 1997 and 1998 and the Consolidated Statements
of Operations, Stockholders' Equity and Comprehensive Income and Cash Flows for
each of the years in the three year period ended December 31, 1998 include our
three predecessor companies (i.e., CapRock Telecommunications, CapRock Fiber and
IWL Communications) as though these entities were always part of CapRock.
The following table also includes our summary consolidated financial data
as of and for the three months ended March 31, 1998 and 1999 derived from
unaudited financial statements for the respective periods. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year-end. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1999.
In May 1998, IWL Communications changed its fiscal year end to coincide
with the fiscal years of CapRock, CapRock Telecommunications and CapRock Fiber.
The Consolidated Statement of Operations for the year ended December 31, 1996
combines the operating activity of IWL Communications for the year ended June
30, 1996 with the operating activity of CapRock Telecommunications and CapRock
Fiber for the year ended December 31, 1996. The net income of IWL Communications
in the amount of approximately $260,000 for the six month period ended December
31, 1996 was excluded from the Consolidated Statement of Operations for the year
ended December 31, 1996 as a result of the non-conforming year ends for such
period. This amount was included as an adjustment to retained earnings in the
Consolidated Statement of Stockholders' Equity and Comprehensive Income in 1997.
The cash flow for IWL Communications for this six month period was added to the
1997 beginning balance in the Consolidated Statement of Cash Flows.
<TABLE>
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AS OF AND FOR
THE THREE MONTHS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
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1994 1995 1996 1997 1998 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenues.................................... $21,159 $29,407 $ 50,970 $ 75,349 $ 121,774 $24,412 $ 37,036
Cost of services and product resales........ 15,295 21,185 39,357 52,471 83,221 16,229 22,381
------- ------- -------- -------- --------- ------- --------
Gross profit........................ 5,864 8,222 11,613 22,878 38,553 8,183 14,655
Operating expenses:
Selling, general and administrative....... 5,565 7,326 8,983 14,074 23,528 4,435 12,551
Merger related expenses................... -- -- -- -- 2,313 -- --
Depreciation and amortization............. 631 1,186 1,536 3,346 4,887 1,064 1,480
------- ------- -------- -------- --------- ------- --------
Total operating expenses............ 6,196 8,512 10,519 17,420 30,728 5,499 14,031
------- ------- -------- -------- --------- ------- --------
Operating income (loss)..................... (332) (290) 1,094 5,458 7,825 2,684 624
Interest expense, net....................... (224) (484) (585) (1,603) (6,441) (451) (3,410)
Other income (expense)...................... 256 151 42 220 106 1 (19)
------- ------- -------- -------- --------- ------- --------
Income (loss) before income taxes and
extraordinary item........................ (300) (623) 551 4,075 1,490 2,234 (2,805)
Income tax expense (benefit)................ 77 48 227 1,513 1,267 876 (1,100)
------- ------- -------- -------- --------- ------- --------
Income (loss) before extraordinary item..... (377) (671) 324 2,562 223 1,358 (1,705)
Extraordinary item-- extinguishment of
debt...................................... -- 645 -- -- -- -- --
------- ------- -------- -------- --------- ------- --------
Net income (loss)................... $ (377) $ (26) $ 324 $ 2,562 $ 223 $ 1,358 $ (1,705)
======= ======= ======== ======== ========= ======= ========
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro forma net income (loss):
Income (loss) before income taxes and
extraordinary item...................... $ (300) $ (623) $ 551 $ 4,075 $ 1,490 $ 2,234 $ (2,805)
Pro forma income taxes, as if CapRock
Fiber were a C Corporation.............. (131) (211) 143 1,475 1,267 876 (1,100)
------- ------- -------- -------- --------- ------- --------
Income (loss) before extraordinary item... (169) (412) 408 2,600 223 1,358 (1,705)
Extraordinary item, net of taxes.......... -- 397 -- -- -- -- --
------- ------- -------- -------- --------- ------- --------
Pro forma net income (loss)......... $ (169) $ (15) $ 408 $ 2,600 $ 223 $ 1,358 $ (1,705)
======= ======= ======== ======== ========= ======= ========
Historical and pro forma income (loss) per
common share:
Income (loss) before extraordinary item... $ (0.01) $ (.002) $ 0.01 $ 0.09 $ 0.01 $ 0.05 $ (0.06)
Extraordinary item, net of tax............ -- .002 -- -- -- -- --
------- ------- -------- -------- --------- ------- --------
Basic and diluted......................... $ (0.01) $ -- $ 0.01 $ 0.09 $ 0.01 $ 0.05 $ (0.06)
======= ======= ======== ======== ========= ======= ========
Weighted average shares outstanding:
Basic..................................... 25,715 25,926 27,146 27,984 28,899 28,836 28,943
Diluted................................... 25,715 25,936 27,156 28,481 30,028 29,449 28,943
OPERATING DATA:
EBITDA(1)................................... $ 299 $ 896 $ 2,630 $ 8,804 $ 15,025 $ 3,748 $ 2,104
Cash flows provided by (used in)
operations................................ (593) 827 781 4,112 7,125 1,264 (9,689)
Cash flows provided by (used in) investing
activities................................ (1,366) (1,919) (9,350) (12,987) (134,350) (4,062) 13,781
Cash flows provided by financing
activities................................ 2,324 903 8,605 12,113 123,989 656 69
Capital expenditures........................ (1,822) (2,282) (10,212) (13,630) (36,855) (3,526) (23,819)
BALANCE SHEET DATA:
Working capital (deficit)................... $ (441) $ (797) $ (2,153) $ (305) $ 102,489 $ -- $ 65,208
Property, plant and equipment, net.......... 2,935 6,705 15,901 27,341 59,607 -- 78,862
Total assets................................ 9,596 13,198 28,522 49,389 191,966 -- 193,885
Long-term debt and capital lease
obligations............................... 1,221 2,443 13,254 21,062 145,187 -- 145,308
Stockholders' equity........................ 2,829 3,552 3,886 14,086 16,062 -- 14,439
Ratio of earnings to fixed charges(2)....... -- 1.0x 1.5x 2.6x 1.1x 4.4x --
</TABLE>
- ---------------
(1) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization and merger related expenses. EBITDA is a measure commonly used
in the communications industry to analyze companies on the basis of
operating performance. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.
(2) The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income from continuing
operations, before income taxes and fixed charges of CapRock. Fixed charges
consist of interest charges, amortization of debt issuance costs,
capitalized interest and the portion of rent expense under operating leases
representing interest (estimated to be one-third of such expense). For the
year ended December 31, 1994 and for the three months ended March 31, 1999,
earnings were inadequate to cover fixed charges by $358,000 and $2,806,000,
respectively.
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<PAGE> 15
RISK FACTORS
You should carefully consider the following risk factors and warnings
before making a decision to tender your old notes for the new ones offered
hereby. The risks described below are not the only ones facing our company.
Additional risks that we do not yet know of, or that we currently think are
immaterial, may also impair our business operations. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. You should also refer to the other
information shown in this prospectus, including our consolidated financial
statements and the related notes. These risks may be generally applicable to the
old notes as well as to the new notes.
THERE MAY BE CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES FOR NEW NOTES
If you do not exchange your old notes for new notes, you will no longer be
able to require us to register the old notes under the Securities Act. In
addition, you will not be able to offer or sell the old notes unless:
- they are registered under the Securities Act, or
- you offer or sell them under an exemption from the registration
requirements of the Securities Act. See "The Exchange Offer."
HOLDERS OF OLD NOTES MUST COMPLY WITH THE EXCHANGE OFFER PROCEDURES
The exchange agent will only issue new notes in exchange for old notes
after timely receipt of the old notes, a properly completed and duly executed
letter of transmittal and all other required documents. We are under no duty to
give notification of defects or irregularities with respect to old notes
tendered for new notes. Holders of old notes who do not participate in the
exchange will continue to be subject to the restrictions on transfer of such old
notes. See "The Exchange Offer."
WE HAVE SIGNIFICANT INDEBTEDNESS AND INTEREST PAYMENT OBLIGATIONS
We are highly leveraged. On a pro forma basis, after giving effect to the
May 1999 offering of the old notes and our use of the proceeds, at March 31,
1999, we would have had approximately $346.0 million of consolidated debt, which
as a percentage of capitalization would have been 77%.
The terms of the indenture governing our senior notes issued in July 1998
(the "1998 Senior Notes") and the indenture governing the notes that you hold
permit us and our subsidiaries to incur substantial indebtedness in the future.
If we incur additional indebtedness, the risks we now face could increase.
Our high level of indebtedness could have important consequences to us and
you such as:
- making it more difficult for us to satisfy our obligations with respect
to the notes,
- limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service
requirements or other purposes,
- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and fund debt service requirements,
- limiting our ability to compete with others who are not as highly
leveraged as we are,
- limiting our ability to react to changing market conditions, changes in
our industry and economic downturns, and
- increasing our vulnerability to general adverse economic and industry
conditions.
Our ability to pay interest on the notes and to satisfy our other
obligations will depend upon our future operating performance and our ability to
obtain additional debt or equity financing. Prevailing economic conditions and
financial, business and other factors, many of which are beyond our control,
will
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<PAGE> 16
affect our ability to make these payments. If in the future we cannot generate
sufficient cash from operations to make scheduled payments on the notes or to
meet our other obligations, we will need to refinance our debt, obtain
additional financing or sell assets. We can not assure you that our business
will generate cash flow, or that we will be able to obtain funding, sufficient
to satisfy our debt service requirements.
THE RESTRICTIONS IN OUR DEBT INSTRUMENTS LIMIT OUR ABILITY TO EFFECT
TRANSACTIONS AND RESTRICT OUR
OPERATIONS
The indenture for the 1998 Senior Notes and the indenture for the notes
that you hold impose significant operating and financial restrictions on us and
our subsidiaries. See "Description of the Notes" and "Description of Certain
Indebtedness." These restrictions may significantly limit or prohibit us from
engaging in certain transactions, including the following:
- incurring additional indebtedness,
- making investments,
- issuing or selling capital stock of certain of our subsidiaries,
- paying dividends or making other distributions to our shareholders,
- limiting the ability of subsidiaries to guaranty indebtedness,
- engaging in transactions with affiliates,
- creating certain liens on our assets,
- entering into sale-leaseback transactions, and
- engaging in certain mergers or consolidations.
We expect that the credit facility that we are currently negotiating will
contain similar restrictive covenants. These restrictions could limit our
ability to obtain future financing, make needed capital expenditures, withstand
a future downturn in our business or in the economy or otherwise conduct
necessary corporate activities.
Our failure to comply with the restrictions in the indentures and any
senior credit facilities that we have in place from time to time could lead to a
default under the terms of those agreements. We expect that the credit facility
will also require us to maintain specified financial ratios and satisfy certain
financial tests. Our ability to meet these financial ratios and tests may be
affected by events beyond our control and, as a result, we cannot assure you
that we will be able to meet such tests. In the event of a default under any of
our senior credit facilities, the applicable lenders could terminate their
commitments to lend money to us or accelerate the loans and declare all amounts
borrowed due and payable. Borrowings under other debt instruments that contain
cross-acceleration or cross-default provisions may also be accelerated and
become due and payable. If any of these events occurs, we cannot assure you that
we would be able to make the necessary payments to the lenders or be able to
find alternate financing. Even if we could obtain alternate financing, we cannot
assure you that it would be on terms that are favorable or acceptable to us.
WE ARE A HOLDING COMPANY AND HOLDERS OF THE NOTES OFFERED HEREBY WILL BE
STRUCTURALLY SUBORDINATED
The notes are the obligations of CapRock, which is a holding company. Our
subsidiaries conduct all of our consolidated operations and own substantially
all of our consolidated assets. Consequently, our cash flow and our ability to
meet our debt service obligations depends upon the cash flow of our subsidiaries
and the payment of funds by our subsidiaries to us in the form of loans,
dividends or otherwise. Our subsidiaries are not obligated to make funds
available to us for payment on the notes or otherwise. In addition, our
subsidiaries' ability to make any payments will depend on their earnings, the
terms of their indebtedness (including the terms of any credit facilities they
may enter into from time to time), business and tax considerations and legal
restrictions.
15
<PAGE> 17
The old notes do, and the new notes will, effectively rank junior to all
liabilities of our subsidiaries. In the event of a bankruptcy, liquidation or
dissolution of a subsidiary and following payment of these liabilities, our
subsidiaries may not have sufficient assets remaining to make payments to us as
a shareholder or otherwise. At March 31, 1999, our subsidiaries had no
outstanding debt (other than trade payables). See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The indenture governing the notes permits us to incur additional
indebtedness, including secured indebtedness, under certain circumstances, all
of which may be incurred by our subsidiaries.
SUCCESSFUL COMPLETION AND UTILIZATION OF OUR FIBER NETWORK DEPENDS ON MANY
FACTORS
Meeting our business objectives will largely depend on our ability to
complete and efficiently utilize our fiber network. We must also achieve
substantial traffic volume over the expanded network in order to fully realize
the expected cash flows, operating efficiencies and cost benefits. The
successful completion of our fiber network depends upon many factors, some of
which are beyond our control, including:
- gaining access to sufficient capital,
- obtaining access to rights-of-way,
- the timely granting of franchise agreements,
- the 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 we believe that our cost estimates and build out schedule are
reasonable, we cannot assure you that the actual construction costs or time
required to complete the construction of our fiber network will match our
estimates.
INCREASING SUPPLY COULD EXCEED DEMAND AND REDUCE PRICES
We expect that prices for fiber, bandwidth and data services will decline
over the next several years as the deployment of new fiber networks adds
substantially more supply than in the past. Additionally, technological advances
such as dense wave division multiplexing, high speed optical transmission
electronics and packet switching will substantially increase the transmission
capacity of fiber at much lower costs. We cannot assure you that we will be able
to achieve increased traffic volumes at acceptable prices and volumes to support
our expanded network. Our financial condition could be adversely affected if we
are unable to successfully market the capacity of our network or adequately
utilize our network capacity for internal traffic.
THE COMMUNICATIONS SERVICES INDUSTRY IS HIGHLY COMPETITIVE
The communications services industry is highly competitive, rapidly
evolving and subject to constant technological change. In particular, numerous
companies offer long distance, local, Internet, data and bandwidth services, and
we expect competition to increase in the future. We believe that existing
competitors will likely continue to expand their service offerings to appeal to
our existing or potential customers. Many of our existing competitors have
greater financial, personnel, brand and name recognition and other resources.
Moreover, we expect that new competitors will enter the communications market,
and that some of these new competitors may offer similar services to those
offered by us. In addition, the regulatory environment in which we operate is
undergoing significant change. As this regulatory environment evolves, changes
may occur that could create greater or unique competitive advantages for
16
<PAGE> 18
our current or potential competitors, or could make it easier for other new
entrants to provide services. Other providers currently offer one or more of
each of the services we offer, and many communications companies operate
generally in the same long distance, local, Internet, data and bandwidth service
submarkets as we do. As a service provider in the long distance communications
industry, we compete with several well established providers, as well as many
other long distance providers with less significant market share. See
"Business -- Competition."
WE MAY NEED ADDITIONAL CAPITAL AFTER THE YEAR 2000 TO FINANCE FURTHER EXPANSION
OF OUR FIBER NETWORK
We estimate that our total capital requirements for 1999 will be
approximately $250 million and approximately $205 million for 2000. We believe
that the net proceeds of approximately $200.7 million from the May 1999 offering
of the old notes, together with cash and marketable securities (including
approximately $81.5 million of net proceeds, after expenses, that we received
from our May 1999 equity offering), cash flow from operations and sales of dark
fiber, will be sufficient to fund our capital expenditures and working capital
requirements through the end of the year 2000. However, we cannot assure you
that the anticipated sources of working capital will continue to be available,
that we have anticipated all future costs, or that our expected financial
resources will be sufficient to cover future expenditures. Our revenues and
costs are dependent upon factors that are not within our control, such as
regulatory changes, changes in technology, and increased competition. Due to the
uncertainty of these factors, actual revenues and costs may vary from expected
amounts, and such variations are likely to affect our future capital
requirements.
We expect to use cash for, among other purposes:
- expansion and operation of our fiber network,
- installation of additional voice and data switches,
- colocating in the central offices of local telephone companies,
- opening new sales offices,
- recruiting and training new personnel,
- additional and increased marketing expenses, and
- for potential acquisitions and general corporate purposes.
We may need additional capital after the year 2000 to finance further
expansion of our fiber and switching networks. The actual amount and timing of
future capital requirements may differ from our estimates, depending on the
demand for services, regulatory, technological and competitive developments, new
market developments and new opportunities. We may also require additional
capital in the future, or sooner than we currently anticipate, for new business
activities related to our current and planned businesses or in the event we
decide to make additional acquisitions or enter into joint ventures and
strategic alliances. Sources of additional capital may include cash flow from
operations, public and private equity, debt financings, vendor financings and
sales of dark fiber. If we fail to generate or raise enough capital, some or all
of our future expansion plans may be delayed or abandoned, which could have a
material adverse effect on our company.
OUR RAPID GROWTH MAY BE DIFFICULT TO MANAGE
Our company has experienced significant growth in recent years, which has
increased the level of responsibility on our management personnel. We intend to
continue growing so that we can pursue existing and potential market
opportunities. This continued growth will place a significant strain on our
management, as well as our financial and other resources. In order to manage our
growth effectively, we must continue to implement and improve our operational
systems, procedures, and controls. If we fail to implement these systems, our
business, financial condition, and results of operations will be materially and
adversely affected. As we continue to grow, it is important that our management
information systems
17
<PAGE> 19
provide adequate, accurate and timely financial information so management can
make effective and timely business decisions. Although we believe that our
current management information systems are adequate, they may need to be
upgraded eventually. If our current management information systems fail, or we
fail to hire and retain qualified sales, marketing, administrative, operating
and technical personnel, our business operations may be adversely affected.
Although we believe we are properly anticipating our needs, we cannot assure you
that we will be able to properly manage our rapid growth.
OUR ABILITY TO PROVIDE LOCAL TELEPHONE SERVICE IS DEPENDENT ON EXISTING LOCAL
TELEPHONE COMPANIES
In addition to providing local service utilizing total service resale
provided by the existing local telephone companies, or ILECs, we intend to
significantly expand our use of unbundled network elements. Unbundled network
elements constitute the components of the services customers purchase from local
telephone companies. We expect the resale of unbundled network elements and
services of incumbent local telephone companies to play an important part in our
local service business strategy. Although the 1996 Telecommunications Act
requires the ILECs to allow such resale, we cannot guarantee either:
(1) that the 1996 Telecommunications Act, certain provisions of which
ILECs have challenged in federal court, will be implemented on a timely
basis and on favorable terms, including specifically that the rules
governing which elements ILECs must provide and the cost methodology for
providing these elements, which are currently under FCC and judicial
review, will be upheld, or
(2) that we can successfully negotiate with ILECs the necessary
colocation, interconnection and resale agreements, particularly those
agreements that govern the purchase of the unbundled network elements.
Any substantial limitation on our ability to secure reasonable and timely
access to ILEC services and unbundled network elements, to obtain agreements on
as favorable terms as our competitors, or difficulties obtaining ILEC
cooperation in migrating our local service customers from ILEC facilities to our
facilities could have a material adverse effect on our financial condition,
results of operations and cash flow. See "Regulation and Licenses."
OUR ABILITY TO PROVIDE LONG DISTANCE SERVICE IS DEPENDENT ON OTHER LONG DISTANCE
CARRIERS
Our ability to provide long distance services to certain domestic and
international locations, especially those not on our network, depends on
agreements with many other carriers. The transmission rates under some of these
agreements are lower than the rates we would charge by terminating traffic
directly with the ILEC at tariffed rates. If we lost access to the services we
receive under these contracts, if the carriers providing these services raise
their rates or if the services we receive suffer a reduction in quality, it
could have a negative effect on our financial condition, results of operations
and cash flow.
OUR INFORMATION SYSTEMS ARE VITAL TO ALL ASPECTS OF OUR BUSINESS
Sophisticated operations support systems, or OSS systems, are vital to all
aspects of our business. Internally developed and externally purchased
information and support systems help to manage our growth and operations
efficiently. As part of our business, we transfer large amounts of electronic
data to and from ILECs and other local telephone companies that compete with the
ILECs or competitive local exchange carriers, also known as CLECs. We will be at
a competitive disadvantage if we fail to establish Electronic Data Interfaces,
or EDIs, with Southwestern Bell, GTE, Bell South and other ILECs if our
competitors successfully establish EDIs with those carriers. Unanticipated
problems in any of the above areas, or our inability to implement solutions in a
timely manner or our failure to establish or upgrade systems as necessary, could
have a material adverse impact on our ability to reach our objectives and on our
financial condition, results of operations and cash flow. See
"Business -- Customer Care and Support."
18
<PAGE> 20
WE NEED TO RETAIN OUR KEY MANAGEMENT PERSONNEL AND HIRE ADDITIONAL QUALIFIED
PERSONNEL
We believe that our success largely depends on the continued involvement
and management of our executive management team and our ability to hire
additional qualified personnel. The competition for qualified managers and
employees in the telecommunications industry is intense. Accordingly, we cannot
assure you that we will be able to retain these key employees or that we will be
able to attract or retain skilled personnel in the future. The loss of the
services of any of these people could have a material adverse effect on our
business, results of operations and financial condition. See "Management --
Employment Agreements."
WE DEPEND ON OUR MAJOR CUSTOMERS
Our customers generally use more than one telecommunications service
provider. They can quickly switch from our services to other providers without
incurring significant expense. In addition, our customer agreements generally
provide that in the event of prolonged loss of service or for other good
reasons, customers may terminate our service without penalty. As a result, we
cannot assure you that we will be able to retain our customers. For the year
ended December 31, 1998, revenues from services provided to MCI WorldCom
accounted for more than 10% of our revenues. The loss or significant decrease of
business from any of our largest customers would have a material adverse effect
on our business. Customers in the oil and gas industry accounted for
substantially all of our offshore and project related sales for the fiscal year
ended December 31, 1998 and the three months ended March 31, 1999. Our oil and
gas customers could develop their own telecommunications facilities. A
corresponding reduction in the demand for our services could have a material
adverse effect on our financial condition, results of operations and cash flow.
THE REGULATORY ENVIRONMENT FOR TELECOMMUNICATIONS BUSINESSES CREATES RISKS
Significant regulations imposed at the international, federal, state and
local levels govern the provision of telecommunications services and affect our
business and our 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 our
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 we intend to operate, in ways not necessarily
to our advantage. See "Business -- Competition" and "Regulation and Licenses."
WE NEED RIGHTS-OF-WAY FRANCHISES AND PERMITS TO BUILD OUR FIBER NETWORK
We need certain rights-of-way, franchises and permits to install
underground conduits from railroads, utilities, state highway authorities, local
governments and transit authorities. We cannot assure you that we will be able
to get and keep all the additional rights, franchises and permits we need to
successfully implement our business plan. If we lose or fail to maintain certain
critical rights, franchises or permits necessary for the fiber network, there
may be a material adverse effect on our financial condition, results of
operations and cash flow.
WE MAY EXPERIENCE PROBLEMS ASSOCIATED WITH THE YEAR 2000
Some computers, software, and other equipment include computer codes in
which calendar year data is abbreviated to only two digits. Some of these
computer systems could fail to operate properly if they interpret "00" to mean
1900, rather than 2000. This problem is widely known as the "year 2000 problem."
We are highly dependent on our computer systems and those of third party
suppliers, vendors and customers. The year 2000 problem affects some of our
computers, software, and other equipment, including the computers which run our
product development and administrative functions. If we fail to properly
identify, correct and test our computer systems for the year 2000 problem, our
business operations could be adversely affected.
19
<PAGE> 21
We are taking steps to remediate our year 2000 problem. We do not believe
that the cost to remediate our year 2000 problem will have a material adverse
effect on our operations. We believe that our computer systems will be year 2000
compliant and will function adequately by, during and after the year 2000. At
this time, however, we cannot assure you that our computer systems will not be
affected to some degree by the year 2000 problem, in spite of our continuing
efforts. More importantly, we cannot assure you that the computer systems used
by our service providers such as electric companies, other telecommunications
companies, our customers and other third parties, will function properly by the
year 2000. A failure of our service providers to cause their computer systems to
be year 2000 compliant could have an adverse effect on our operations. Their
year 2000 problem could become our year 2000 problem. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
THE CONTINUED INTEGRATION OF OUR THREE PREDECESSOR COMPANIES INVOLVES
UNCERTAINTY AND RISK
In August 1998, three predecessor companies combined to form our company.
The combination of these businesses involves assimilating the operations,
services, products and personnel of each business. We cannot assure you that the
benefits and revenue growth expected from the combination will be realized. We
are still managing the integration of portions of those businesses into our
company.
We expect to continue incurring costs from the ongoing integration of the
operations, financial reporting and accounting systems, and networks of our
three predecessor companies. Additional unexpected costs or delays could have a
material adverse effect on our financial condition, results of operations and
cash flow.
SERVICE INTERRUPTIONS COULD AFFECT OUR BUSINESS
Our equipment, facilities and service operations can be adversely affected
by any of the following factors: fiber cuts, fire, equipment failures, inclement
weather, hurricanes, power loss, service outages, failures or loss of
satellites, human error, unauthorized intrusion, natural disasters, acts of
sabotage and other similar events.
We currently have switches in Houston, Dallas and Victoria, Texas and
Phoenix, Arizona and manage a switch in Jersey City, New Jersey. A substantial
portion of our long distance voice traffic currently passes through the Dallas
switch, and thus we rely heavily upon the operation of the Dallas switch. Any
event that negatively impacts the Dallas switch could have a material adverse
effect on our financial condition and our ability to continue our business.
We house a significant portion of the satellite communications equipment
and foreign circuits we use in international private-line services in a single
location in our Houston network operations center. We also lease access to a
satellite in connection with the provision of these services; however, we do not
have any back-up equipment for such satellite. In addition, the equipment we own
and lease in the Gulf of Mexico is susceptible to hurricanes.
We cannot guarantee that fire, equipment failure or other events will not
disable our equipment. Loss or impairment of some or all of our key facilities
could have a material adverse effect on our financial condition, results of
operations and cash flow. Our networks and switching facilities experience
periodic service interruptions and equipment failures, and the operation of such
networks remain subject to international, national and regional
telecommunications outages or regulatory issues from time to time. As a result,
we may, from time to time, experience service interruptions or equipment
failures that could have a material adverse effect on our financial condition,
results of operations and cash flow.
WE MAY INCUR LIABILITY AS AN INTERNET SERVICE PROVIDER
We are an Internet service provider, or an ISP. The law governing the
liability of on-line service providers and Internet access providers for
participating in the hosting or transmission of objectionable materials or
information currently remains unsettled. Under the terms of the 1996
Telecommunications
20
<PAGE> 22
Act, courts can impose civil and criminal penalties for the use of interactive
computer services for the transmission of certain indecent or obscene
communications. The United States Supreme Court in 1997 held this provision
unconstitutional as it relates to indecent, but not obscene, communications. In
October 1998, Congress enacted the Child Online Protection Act, which requires
that online material that is "harmful" to minors be restricted. This law is
currently being challenged and on February 1, 1999 a U.S. District Court judge
issued a preliminary injunction against enforcement of portions of that act. The
U.S. Justice Department has filed an appeal of the February 1999 ruling. Also,
some states have adopted or may adopt in the future similar requirements. The
constitutionality of such state requirements remains unsettled at this time. In
addition, several private parties have filed lawsuits seeking to hold Internet
service providers accountable for information that they transmit, such as
libelous material and copyrighted material. We cannot predict the outcome of
this litigation or the potential for the imposition of liability on Internet
service providers for information that they host, distribute or transport. These
suits and other regulations could materially change the way ISPs must conduct
business and could impact our determination to expand or continue this business.
To the extent that we become parties to future litigation, such litigation could
have a material adverse effect on our financial condition, results of operations
and cash flow.
OTHER COMPANIES HAVE NAMES SIMILAR TO OURS
Even though we have registered the mark "CapRock Communications" in the
United States, other companies in many different industries, particularly in
West Texas, have preexisting rights to the name "Caprock" within defined
territories. One specific company may have the right to use the name for
telecommunications services within an established area. If any of these other
companies are successful with their claims to our name, we may be required to
either obtain a license from them for the use of the name "CapRock," or be
required to change our name within certain defined territories. Either result
would cause us to incur additional expenses. If we are required to change our
name, we may lose the goodwill associated with the CapRock name in these
markets.
WE WILL BE REQUIRED TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL
Upon a change of control we will be required to offer to purchase all of
the outstanding old notes and new notes at a price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase. This purchase requirement may in certain circumstances discourage
or make more difficult a sale or takeover of our business. In particular, a
change of control may cause an acceleration of, or require an offer to
repurchase under, our indenture governing the 1998 Senior Notes and certain of
our subsidiaries' other indebtedness.
In addition, a change of control under the indenture for the notes that you
hold will also constitute a change of control for purposes of the indenture
governing the 1998 Senior Notes, which would require us to offer to repurchase
the 1998 Senior Notes.
We could, subject to limitations on additional indebtedness, in the future
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations or highly leveraged transactions that would not constitute a
change of control under our indenture, but could increase the amount of
indebtedness outstanding at such time or otherwise affect our capital structure
or credit rating or otherwise adversely affect holders of the notes. The
inability to repay such indebtedness, if accelerated, and to purchase all of the
tendered notes would constitute an event of default under the indenture.
Finally, we cannot assure you that we will have funds available to repurchase
the notes upon the occurrence of a change of control.
THERE IS NO PUBLIC MARKET FOR THE NEW NOTES, SO YOU MAY BE UNABLE TO SELL NEW
NOTES
There has not been an established trading market for the old notes.
Although each initial purchaser of the old notes informed us that it currently
makes a market in the old notes and, when issued, intends to
21
<PAGE> 23
make a market in the new notes, they have no obligation to do so and may
discontinue making a market at any time without notice.
The notes have been designated as eligible for trading in the PORTAL
market. However, we do not intend to apply for listing of the old notes or the
new notes, which will replace the old notes, on any securities exchange or for
quotation through the National Association of Securities Dealers Automated
Quotation System.
The liquidity of any market for the notes and the market price quoted for
the notes will depend upon the number of holders of the notes, our performance
or prospects or in the prospects for companies in our industry generally, the
market for similar securities, the interest of securities dealers in making a
market in the notes and other factors. A liquid trading market may not develop
for the old notes or, if issued, the new notes.
OUR OFFICERS AND DIRECTORS WILL OWN ENOUGH SHARES TO CONTROL CAPROCK AFTER THE
MAY 1999 EQUITY OFFERING
After the closing of the May 1999 equity offering, our officers and
directors together beneficially owned approximately 73% of the outstanding
shares of our Common Stock. As a result, they are able to exercise control over
matters requiring shareholder approval, including the election of directors, the
approval of mergers, consolidations and sales of all or substantially all of our
assets. This may prevent or discourage tender offers for our Common Stock.
COMMUNICATIONS LAWS AND STATE CORPORATE LAWS MAY MAKE IT HARDER FOR SOMEONE TO
ACQUIRE CONTROL OF CAPROCK
In most instances, before we transfer control or assign any of our
intrastate certification authorities, international authority or FCC licenses
and authorizations, we need regulatory approval by the FCC and various state
regulatory agencies. Certain communications laws also impose limits on foreign
ownership of radio station licenses. In addition, our Articles of Incorporation
provide that Article 13.03 of the Texas Business Corporation Act, which limits
statutory takeovers, does not apply to us. Any of these factors could have the
effect of delaying, deferring or preventing a change in control of CapRock. See
"Regulation and Licenses" and "Description of Capital Stock -- Preferred Stock"
and "-- Certain Anti-Takeover Effects."
22
<PAGE> 24
USE OF PROCEEDS
The exchange offer is intended to satisfy obligations we have under the
registration rights agreement entered into in connection with the May 1999
offering of $210.0 million aggregate principal amount of our outstanding 11 1/2%
Senior Notes dues 2009. We will not receive any cash proceeds from the issuance
of the new notes as described in this prospectus. We will receive in exchange
old notes in like principal amount. The old notes surrendered in exchange for
the new notes will be retired and canceled and cannot be reissued. Accordingly,
the issuance of the new notes will not result in any change in our indebtedness.
We received the net proceeds from the sale of the old notes in May 1999 of
approximately $200.7 million, after deducting the initial purchasers' discount
and offering expenses that we incurred. We currently intend to use the net
proceeds from the offering of the old notes (and from our May 1999 equity
offering):
- to fund additional capital expenditures for the construction and
operation of our fiber optic network,
- to fund the installation of voice and data switches, including the cost
of colocations in the central offices of local telephone companies,
- to open sales offices and add sales support and customer service
personnel in markets throughout the Southwest region, and
- for potential acquisitions, additional working capital and other general
corporate purposes.
Our use of proceeds may vary significantly and will depend on a number of
factors described under "Risk Factors." Accordingly, our management has broad
discretion in the allocation of the net proceeds. Pending such uses, the net
proceeds of the May 1999 offering of the old notes (and the net proceeds from
our May 1999 equity offering) will be invested in short-term, high grade
investment securities.
23
<PAGE> 25
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on
an actual basis and on an as adjusted basis to give effect to (i) our sale and
issuance of 4,000,000 shares of Common Stock in the May 1999 equity offering
(which closed on May 12, 1999) at a public offering price of $22.00, after
deducting the underwriting discounts and commissions and estimated offering
expenses and fees totaling approximately $6.5 million, and (ii) the May 1999
sale of 11 1/2% Senior Notes, due 2009, that you hold (after deducting the
initial purchasers' discount and estimated offering expenses totaling
approximately $6.3 million). The table shown below should be read in conjunction
with our Consolidated Financial Statements including the accompanying notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and marketable securities............ $ 51,488 $333,644
======== ========
Long-term debt:
11 1/2% Senior Notes, due 2009............................ $ -- $200,686
12% Senior Notes, due 2008................................ 145,308 145,308
-------- --------
Total long-term debt.............................. 145,308 345,994
Stockholders' equity:
Preferred Stock, $.01 par value; 20,000,000 shares
authorized; none issued................................ -- --
Common Stock, $.01 par value; 200,000,000 shares
authorized; 28,952,747 shares issued and outstanding,
actual and 32,952,747 shares issued and outstanding, as
adjusted(1)............................................ 290 330
Additional paid-in capital................................ 10,607 92,037
Retained earnings......................................... 3,903 3,903
Unearned compensation..................................... (308) (308)
Treasury stock, at cost................................... (53) (53)
-------- --------
Total stockholders' equity........................ 14,439 95,909
-------- --------
Total capitalization.............................. $159,747 $441,903
======== ========
</TABLE>
- ---------------
(1) Excludes (1) 2,402,525 shares of Common Stock issuable upon exercise of
options outstanding on March 31, 1999, with a weighted average exercise
price of $5.61 per share, (2) 3,523,414 shares available for future issuance
under our employee and director stock option plans as of March 31, 1999 and
(3) 145,000 shares of Common Stock subject to outstanding warrants. See
"Management -- Benefit Plans," "Description of Capital Stock," and Note 12
of Notes to Consolidated Financial Statements.
24
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data as
of and for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and as
of and for the three months ended March 31, 1998 and 1999. The business
combination among our predecessor companies was completed on August 26, 1998 and
was accounted for as a pooling of interests. Accordingly, the Consolidated
Balance Sheets as of December 31, 1997 and 1998 and the Consolidated Statements
of Operations, Stockholders' Equity and Comprehensive Income and Cash Flows for
each of the years in the three year period ended December 31, 1998 include our
three predecessor companies (i.e., CapRock Telecommunications, CapRock Fiber and
IWL Communications) as though these entities were always part of CapRock.
The following table also includes our summary consolidated financial data
as of and for the three months ended March 31, 1998 and 1999 derived from
unaudited financial statements for the respective periods. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year-end. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1999.
In May 1998, IWL Communications changed its fiscal year end to coincide
with the fiscal years of CapRock, CapRock Telecommunications and CapRock Fiber.
The Consolidated Statement of Operations for the year ended December 31, 1996
combines the operating activity of IWL Communications for the year ended June
30, 1996 with the operating activity of CapRock Telecommunications and CapRock
Fiber for the year ended December 31, 1996. The net income of IWL Communications
in the amount of approximately $260,000 for the six month period ended December
31, 1996 was excluded from the Consolidated Statement of Operations for the year
ended December 31, 1996 as a result of the non-conforming year ends for such
period. This amount was included as an adjustment to retained earnings in the
Consolidated Statement of Stockholders' Equity and Comprehensive Income in 1997.
The cash flow for IWL Communications for this six month period was added to the
1997 beginning balance in the Consolidated Statement of Cash Flows.
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $21,159 $29,407 $ 50,970 $ 75,349 $ 121,774 $24,412 $ 37,036
Cost of services and product resales........ 15,295 21,185 39,357 52,471 83,221 16,229 22,381
------- ------- -------- -------- --------- ------- --------
Gross profit........................ 5,864 8,222 11,613 22,878 38,553 8,183 14,655
Operating expenses:
Selling, general and administrative....... 5,565 7,326 8,983 14,074 23,528 4,435 12,551
Merger related expenses................... -- -- -- -- 2,313 -- --
Depreciation and amortization............. 631 1,186 1,536 3,346 4,887 1,064 1,480
------- ------- -------- -------- --------- ------- --------
Total operating expenses............ 6,196 8,512 10,519 17,420 30,728 5,499 14,031
------- ------- -------- -------- --------- ------- --------
Operating income (loss)..................... (332) (290) 1,094 5,458 7,825 2,684 624
Interest expense, net....................... (224) (484) (585) (1,603) (6,441) (451) (3,410)
Other income (expense)...................... 256 151 42 220 106 1 (19)
------- ------- -------- -------- --------- ------- --------
Income (loss) before income taxes and
extraordinary item........................ (300) (623) 551 4,075 1,490 2,234 (2,805)
Income tax expense (benefit)................ 77 48 227 1,513 1,267 876 (1,100)
------- ------- -------- -------- --------- ------- --------
Income (loss) before extraordinary item..... (377) (671) 324 2,562 223 1,358 (1,705)
Extraordinary item -- extinguishment of
debt...................................... -- 645 -- -- -- -- --
------- ------- -------- -------- --------- ------- --------
Net income (loss)................... $ (377) $ (26) $ 324 $ 2,562 $ 223 $ 1,358 $ (1,705)
======= ======= ======== ======== ========= ======= ========
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
AS OF AND FOR
THE THREE MONTHS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- -------- -------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro forma net income (loss):
Income (loss) before income taxes and
extraordinary item...................... $ (300) $ (623) $ 551 $ 4,075 $ 1,490 $ 2,234 $ (2,805)
Pro forma income taxes, as if CapRock
Fiber were a C Corporation.............. (131) (211) 143 1,475 1,267 876 (1,100)
------- ------- -------- -------- --------- ------- --------
Income (loss) before extraordinary item... (169) (412) 408 2,600 223 1,358 (1,705)
Extraordinary item, net of taxes.......... -- 397 -- -- -- -- --
------- ------- -------- -------- --------- ------- --------
Pro forma net income (loss)......... $ (169) $ (15) $ 408 $ 2,600 $ 223 $ 1,358 $ (1,705)
======= ======= ======== ======== ========= ======= ========
Historical and pro forma income (loss) per
common share:
Income (loss) before extraordinary item... $ (0.01) $ (.002) $ 0.01 $ 0.09 $ 0.01 $ 0.05 $ (0.06)
Extraordinary item, net of tax............ -- .002 -- -- -- -- --
------- ------- -------- -------- --------- ------- --------
Basic and diluted......................... $ (0.01) $ -- $ 0.01 $ 0.09 $ 0.01 $ 0.05 $ (0.06)
======= ======= ======== ======== ========= ======= ========
Weighted average shares outstanding:
Basic..................................... 25,715 25,926 27,146 27,984 28,899 28,836 28,943
Diluted................................... 25,715.. 25,936 27,156 28,481 30,028 29,449 28,943
OPERATING DATA:
EBITDA(1)................................... $ 299 $ 896 $ 2,630 $ 8,804 $ 15,025 $ 3,748 $ 2,104
Cash flows provided by (used in)
operations................................ (593) 827 781 4,112 7,125 1,264 (9,689)
Cash flows provided by (used in) investing
activities................................ (1,366) (1,919) (9,350) (12,987) (134,350) (4,062) 13,781
Cash flows provided by financing
activities................................ 2,324 903 8,605 12,113 123,989 656 69
Capital expenditures........................ (1,822) (2,282) (10,212) (13,630) (36,855) (3,526) (23,819)
BALANCE SHEET DATA:
Working capital (deficit)................... $ (441) $ (797) $ (2,153) $ (305) $ 102,489 $ -- $ 65,208
Property, plant and equipment, net.......... 2,935 6,705 15,901 27,341 59,607 -- 78,862
Total assets................................ 9,596 13,198 28,522 49,389 191,966 -- 193,885
Long-term debt and capital lease
obligations............................... 1,221 2,443 13,254 21,062 145,187 -- 145,308
Stockholders' equity........................ 2,829 3,552 3,886 14,086 16,062 -- 14,439
Ratio of earnings to fixed charges(2)....... -- 1.0x 1.5x 2.6x 1.1x 4.4x --
</TABLE>
- ---------------
(1) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization and merger related expenses. EBITDA is a measure commonly used
in the communications industry to analyze companies on the basis of
operating performance. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.
(2) The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income from continuing
operations, before income taxes and fixed charges of CapRock. Fixed charges
consist of interest charges, amortization of debt issuance costs,
capitalized interest and the portion of rent expense under operating leases
representing interest (estimated to be one-third of such expense). For the
year ended December 31, 1994 and for the three months ended March 31, 1999,
earnings were inadequate to cover fixed charges by $358,000 and $2,806,000,
respectively.
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto of CapRock contained
elsewhere in this prospectus. This information is not necessarily indicative of
future operating results. Except for the historical information contained below,
the matters discussed in this section are forward-looking statements that
involve a number of risks and uncertainties, including those described in "Risk
Factors." Our actual liquidity needs, capital resources and operating results
may differ materially from the discussion shown below in these forward-looking
statements.
OVERVIEW
We own and operate a scalable long-haul fiber network which upon completion
is expected to cover approximately 6,100 route miles throughout the Southwest
region, which includes Texas, Louisiana, Arkansas, Oklahoma, New Mexico and
Arizona. This fiber network supports the voice, data, bandwidth and dark fiber
services we provide to our carrier and retail customers.
In August 1998, we announced that we had completed a business combination
transaction in which our predecessor companies combined to form our company as
it exists today. The combination was accounted for as a pooling of interests.
Accordingly, our consolidated results include our three predecessor companies
(i.e., CapRock Telecommunications, CapRock Fiber and IWL Communications) as
though these entities had always been a part of CapRock.
We intend to be the premier provider of carriers' carrier services and the
leading facilities-based integrated communications provider in the Southwest
region. To measure our progress, we classify our revenues in three categories:
carriers' carrier, integrated services and systems services. Our carriers'
carrier revenues include domestic and international long distance, bandwidth and
dark fiber services sold to telecommunications carriers and other wholesale
customers. Currently, we have over 120 carrier customers, including AT&T, MCI
WorldCom, Sprint Corporation and Qwest Communications, as well as many regional
independent companies such as Century Tel, Inc. and Lufkin Conroe Telephone. Our
integrated services revenues reflect our local, long distance, Internet, data
and private line products provided to over 6,000 small and medium-sized
businesses on a single bundled bill. Lastly, our systems services revenues
represent the voice and data systems and services we provide primarily to the
oil and gas industry offshore in and along the Gulf of Mexico.
Our proximity to Mexico allows us to directly connect to the fiber networks
of multiple Mexican telecommunications carriers. Subject to compliance with
certain regulatory requirements, we are capable of providing dark fiber to these
carriers at several border crossings enabling them to close open fiber rings in
Mexico by using CapRock fiber on the U.S. side of the border. Additionally, our
direct connect agreements with foreign carriers position us to capture increased
levels of growing international traffic.
In addition, in February 1999, CapRock entered into a joint build agreement
with Enron Communications, Inc. to jointly build approximately 1,050 miles of
fiber network in Texas. Through this joint build arrangement, we will connect
Amarillo, Lubbock, Dallas, Fort Worth, Waco, Bryan, Austin, San Marcos, San
Antonio and Houston, Texas. The build plan includes four conduits to be placed
throughout the approximately 1,050 miles, with one and one-quarter conduits to
be owned and funded directly by us, one and one-quarter to be owned and funded
by Enron Communications and one and one-half to be owned and funded by a limited
partnership formed by us and Enron Communications. Our agreements with Enron
Communications provide that the partnership will install 192 fibers in the first
conduit and will sell 96 of the 192 fibers to be installed. Of the remaining 96
fibers, we will own 48 fibers and Enron Communications will own 48 fibers. The
joint build arrangement provides several benefits, including reduction of
construction costs, accelerated acquisition of right of way and franchise
agreements, the majority of which are essentially in place, and the freeing up
of resources to potentially accelerate the build of the remaining portion of the
network.
27
<PAGE> 29
RESULTS OF OPERATIONS
CapRock recognizes revenue from the following sources: carriers' carrier,
integrated services, system services and product resales.
Carriers' Carrier. Carriers' carrier revenue includes all carrier revenues
generated from the sale of domestic and international switched services, from
the sale of T-1 and DS-3 broadband capacity and from the sale and lease of dark
fiber. The revenue generated from the international switched services represent
minutes of long distance traffic terminating in foreign countries, but generated
by domestic U.S.-based long distance carriers. Such revenues are recognized when
the services are provided. The cost of revenues associated with these services
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 sales representatives or agents
to acquire customer call traffic are expensed in the period when associated call
revenues are recognized.
We account for long-term construction contracts relating to the development
of telecommunications networks for customers using the percentage-of-completion
method, which would include the sale of fiber usage rights through indefeasible
right to use contracts, or IRUs, and the related construction services
associated with building the fiber network specified in the IRUs. Our revenues
from IRUs will be generated from the amount of fiber we build on our network in
excess of that which we intend to retain for our own use. As a result, we expect
that revenues from IRUs will diminish over time as our supply of excess fiber is
sold. Progress under the percentage-of-completion method is measured based upon
costs incurred to date compared with total estimated construction costs.
Customers are billed based upon contractual milestones.
Integrated Services. Integrated services revenue includes all revenues
generated from the sale of telecommunications products to business and
residential customers. These products include local, long distance, Internet,
data and private line services.
Systems Services. Systems services revenue includes revenues generated from
the design, installation, leasing and sale of voice and data systems and
products, primarily to companies in the oil and gas industry.
Product Resales. In 1997, CapRock provided services to a subsidiary of
Shell, which included the resale of a significant amount of Alcatel products.
The Shell project was substantially completed in May 1997 and, therefore, is not
expected to contribute in a material manner to CapRock's total sales in future
years.
The following table represents the various sources of revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Carriers' carrier................. $22,405 $41,805 $ 72,165 $12,763 $24,452
Integrated services............... 1,980 8,640 17,978 4,269 4,504
Systems services.................. 16,031 21,959 31,631 7,380 8,080
------- ------- -------- ------- -------
Total service revenue..... 40,416 72,404 121,774 24,412 37,036
Product resales..................... 10,554 2,945 -- -- --
------- ------- -------- ------- -------
Total revenues............ $50,970 $75,349 $121,774 $24,412 $37,036
======= ======= ======== ======= =======
Gross margin percent:
Gross margin-- service revenue.... 27% 31% 32% 34% 40%
======= ======= ======== ======= =======
Gross margin-- product resales.... 8% 20% --% --% --%
======= ======= ======== ======= =======
Gross margin-- total.............. 23% 30% 32% 34% 40%
======= ======= ======== ======= =======
</TABLE>
28
<PAGE> 30
The following table sets forth for the periods indicated CapRock's
statement of operations as a percentage of its operating revenues:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ --------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues.................................. 100% 100% 100% 100% 100%
Cost of services.......................... 58% 67% 68% 66% 60%
Cost of product resales................... 19% 3% --% --% --%
--- --- --- --- ---
Gross profit.............................. 23% 30% 32% 34% 40%
Operating expenses:
Selling, general and administrative..... 18% 19% 19% 18% 34%
Merger related expenses................. --% --% 2% --% --%
Depreciation and amortization........... 3% 4% 4% 4% 4%
--- --- --- --- ---
Total operating expenses.................. 21% 23% 25% 22% 38%
--- --- --- --- ---
Operating income.......................... 2% 7% 7% 12% 2%
Interest expense.......................... (1)% (2)% (8)% (2)% (12)%
Interest income........................... --% --% 2% --% 2%
Other income.............................. --% --% --% --% --%
--- --- --- --- ---
Income before income taxes................ 1% 5% 1% 10% (8)%
Income tax expense........................ --% 2% 1% 4% (3)%
--- --- --- --- ---
Net income................................ 1% 3% --% 6% (5)%
=== === === === ===
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues. Total revenues increased $12.6 million, or 52%, from $24.4
million during the three months ended March 31, 1998 to $37 million during the
three months ended March 31, 1999. This increase was attributable to increases
of 92% in carriers' carrier, 6% in integrated services and 9% in systems
services revenue for the comparable periods.
Carriers' carrier revenue increased $11.7 million from $12.8 million during
the three months ended March 31, 1998 to $24.5 million during the three months
ended March 31, 1999. The 92% increase resulted primarily from the sale of IRUs
and dark fiber leases. Fiber related revenues increased $11.1 million from
$588,000 during the three months ended March 31, 1998 to $11.7 million during
the three months ended March 31, 1999. CapRock anticipates recurring fiber
related revenue relating to IRUs and dark fiber leases to continue through the
remainder of the year. However, period-to-period fluctuations can be expected as
this type of revenue is affected by the negotiation and terms of these contracts
and the build out of our network.
Integrated services revenue increased $235,000 from $4.3 million during the
three months ended March 31, 1998 to $4.5 million during the three months ended
March 31, 1999. The 6% increase was attributable to growth in the number of
business and residential customers both from increased penetration in our
existing markets and from the deployment of our network into new markets.
Additionally, CapRock recognized local telephone revenue for the three months
ended March 31, 1999 as compared to no such revenue during the three months
ended March 31, 1998.
Systems services revenue increased $700,000 from $7.4 million during the
three months ended March 31, 1998 to $8.1 million during the three months ended
March 31, 1999. The 9% increase was attributable to moderate growth associated
with the leasing and sale of voice and data systems products and projects
involving the engineering and integration of telecommunications systems and
sales, service and maintenance of telecommunications equipment. CapRock
anticipates quarterly systems services revenue for the remainder of the year to
remain at comparable levels.
29
<PAGE> 31
Costs of Services. Cost of services increased $6.2 million, or 38%, from
$16.2 million during the three months ended March 31, 1998 to $22.4 million
during the three months ended March 31, 1999. The growth in cost of services was
primarily attributable to the continued growth in all three revenue categories.
The six percentage point increase in gross margin from 34% to 40% resulted
primarily from favorable pricing attributable to the higher traffic and the sale
of dark fiber. The increase in the gross margin during the three months ended
March 31, 1999 was partially offset by lower margins attributable to Mexico and
other international traffic, which carry a lower gross margin percentage. Gross
margins may vary in future periods as a result of these and other factors.
Selling, General and Administrative Expenses. SG&A include salaries,
benefits, occupancy costs, commissions, sales and marketing expenses and
administrative expenses. SG&A increased $8.1 million, or 183%, from $4.4 million
during the three months ended March 31, 1998 to $12.6 million during the three
months ended March 31, 1999. The increase resulted primarily from the additional
personnel required to support CapRock's growth, advertising to increase name
recognition and brand awareness and additional sales commission payments.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $416,000, or 39%, from $1.1 million during the three months
ended March 31, 1998 to $1.5 million during the three months ended March 31,
1999. This increase resulted primarily from purchases of additional equipment
and other fixed assets to accommodate CapRock's growth. CapRock expects that
depreciation and amortization expense will continue to increase in subsequent
periods as CapRock continues to expand its facilities.
Interest Expense. Interest expense increased $3.8 million from $482,000
during the three months ended March 31, 1998 to $4.3 million during the three
months ended March 31, 1999. The increase resulted from interest expense related
to CapRock's senior notes. See "-- Liquidity and Capital Resources."
Interest Income. Interest income increased $813,000 from $32,000 during the
three months ended March 31, 1998 to $845,000 during the three months ended
March 31, 1999. The increase was attributable to the interest and investment
accretion associated with the marketable securities purchased with the proceeds
from CapRock's senior notes issued in July 1998. See "-- Liquidity and Capital
Resources."
Income Taxes (Benefits). During the three months ended March 31, 1998,
CapRock incurred income tax expense of $876,000 compared to an income tax
benefit of $1.1 million for the three months ended March 31, 1999. The expense
or benefit resulted from the income or loss for the respective periods. The
effective tax rate for both periods was 39%.
Net Income (Loss). Net income decreased $3.1 million, or 226%, from $1.4
million during the three months ended March 31, 1998 to a net loss of $1.7
million during the three months ended March 31, 1999 as a result of the factors
discussed above.
YEAR ENDED 1997 COMPARED TO 1998
Revenues. Total revenues increased $46.5 million, or 62%, from $75.3
million in 1997 to $121.8 million in 1998. The 62% increase was attributable to
increases of 73% in carriers' carrier, 108% in integrated services and 44% in
systems services revenue.
Carriers' carrier revenue increased $30.4 million from $41.8 million in
1997 to $72.2 million in 1998. The 73% increase resulted primarily from the
rapid growth in domestic and international switched services sold to other
carriers and as a result of $9.5 million in IRUs in 1998; no such revenue from
IRUs was recorded before 1998.
Integrated services revenue increased $9.3 million from $8.6 million in
1997 to $18.0 million in 1998. The 108% increase was attributable to growth in
the number of business customers both from increased penetration in our existing
markets and from the deployment of our network into new markets.
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Systems services revenue increased $9.7 million from $22.0 million in 1997
to $31.6 million in 1998. The 44% increase was attributable to growth associated
with the leasing and sale of voice and data systems products and projects
involving the engineering and integration of telecommunications systems and
sales, service and maintenance of telecommunications equipment.
Product resale revenue was $2.9 million in 1997 as compared to no product
resales in 1998. The product resales to a single customer were substantially
complete in May 1997 and such revenues are not expected to contribute in a
material manner in future years.
Costs of Services and Product Resales. Cost of services increased $30.7
million, or 59%, from $52.5 million in 1997 to $83.2 million in 1998. The growth
in cost of services was primarily attributable to the continued growth in all
three revenue categories. The two percentage point increase in gross margin from
30% to 32% resulted primarily from favorable pricing attributable to the higher
traffic and new vendors and the sale of dark fiber. The increase in the gross
margin in 1998 was partially offset by lower margins attributable to Mexico and
other international traffic, which carry a lower gross margin percentage. Gross
margins may vary in future periods as a result of these and other factors.
Selling, General and Administrative Expenses. SG&A includes salaries,
benefits, occupancy costs, commissions, sales and marketing expenses and
administrative expenses. SG&A increased $9.4 million, or 67%, from $14.1 million
in 1997 to $23.5 million in 1998. The increase resulted primarily from the
additional personnel required to support CapRock's growth, advertising to
increase name recognition and brand awareness, and additional sales commission
payments.
CapRock recorded merger related expenses of $2.3 million in 1998, as
compared to no such costs in 1997. The merger related costs relate to the
business combination of CapRock Telecommunications, CapRock Fiber and IWL
Communications, our predecessor companies. This combination was consummated on
August 26, 1998. The merger related expenses consist of fees for investment
bankers, attorneys, accountants, financial printing and other related charges.
Depreciation and amortization expense increased $1.5 million, or 46%, from
$3.3 million in 1997 to $4.9 million in 1998. This increase resulted primarily
from purchases of additional equipment and other fixed assets to accommodate
CapRock's growth. CapRock expects that depreciation and amortization expense
will continue to increase in subsequent periods as CapRock continues to expand
its facilities.
Interest Expense. Interest expense increased $7.8 million from $1.7 million
in 1997 to $9.5 million in 1998. The increase resulted from interest expense
related to its senior notes. See "-- Liquidity and Capital Resources."
Interest Income. Interest income increased $2.9 million from $133,000 in
1997 to $3.0 million in 1998. The increase was attributable to the interest and
investment accretion associated with the marketable securities purchased with
the proceeds from the senior notes. See "-- Liquidity and Capital Resources."
Income Taxes. Income tax expense of $1.5 million in 1997 was comparable to
the income tax expense of $1.3 million in 1998. The effective tax rate was 37%
in 1997 as compared to 85% in 1998. The increase in the effective tax rate was
primarily attributable to certain non-deductible merger related costs in the
amount of approximately $1.8 million.
Net Income. Net income decreased $2.3 million, or 91%, from $2.6 million in
1997 to $223,000 in 1998 as a result of the factors discussed above.
YEAR ENDED 1996 COMPARED TO 1997
Revenues. Total revenues increased $24.3 million from $51.0 million in 1996
to $75.3 million in 1997. The 48% 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 the continued expansion of CapRock's direct and agent sales. The 48%
increase was attributable to increases of 87% in carriers' carrier, 336% in
integrated services and 37% in systems services revenue. Product resale revenue
was $10.6 million in 1996, as compared to $2.9 million in 1997.
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The product resales were substantially complete in May 1997 and these revenues
are not expected to contribute in a material manner in future years after 1997.
Carriers' carrier revenue increased $19.4 million from $22.4 million in
1996 to $41.8 million in 1997. The 87% increase resulted primarily from the
rapid growth in domestic and international switched services sold to the other
carriers.
Integrated services revenue increased $6.7 million from $2.0 million in
1996 to $8.6 million in 1997. The 336% increase was attributable to growth in
the number of business customers.
Systems services revenue increased $6.0 million from $16.0 million in 1996
to $22.0 million in 1997. The 37% increase was attributable to growth associated
with the leasing and sale of voice and data systems products and projects
involving the engineering and integration of telecommunications systems and
sales, services and maintenance of telecommunication equipment.
Costs of Services and Product Resales. Cost of services increased $13.1
million from $39.4 million in 1996 to $52.5 million in 1997. The growth in cost
of services was primarily attributable to the continued growth in all three
revenue categories. The seven percentage point increase in gross margin from 23%
to 30% resulted primarily from favorable pricing attributable to the higher
traffic and new vendors, as well as a more favorable mix of international and
domestic traffic. Additionally, the total margin increase was partially
attributable to the completion of the product resales to a single customer in
1997. Gross margins may vary in the future periods as a result of these factors.
Selling, General and Administrative Expenses. SG&A includes the cost of
salaries, benefits, occupancy costs, commissions, sales and marketing expenses
and administrative expenses. SG&A increased $5.1 million from $9.0 million in
1996 to $14.1 million in 1997. The increase resulted from additional personnel
needed to support CapRock's growth, additional sales commission payments and
from increases in travel and advertising expenses.
Depreciation and amortization expense increased $1.8 million from $1.5
million in 1996 to $3.3 million in 1997. This increase resulted primarily from
purchases of additional equipment and other fixed assets to accommodate
CapRock's growth. CapRock expects that depreciation and amortization expense
will continue to increase in subsequent periods as CapRock continues to expand
its facilities.
Interest Expense. Interest expense was approximately $631,000 in 1996, as
compared to $1.7 million in 1997.
Income Taxes. Income tax expense increased $1.3 million from $227,000 in
1996 to $1.5 million in 1997. This increase was attributable to the improved
profitability of CapRock.
Net Income. Net income increased $2.2 million from $324,000 in 1996 to
approximately $2.6 million in 1997 as a result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
CapRock had cash and cash equivalents of $294,000 at December 31, 1998, as
compared with $4.4 million at March 31, 1999 and marketable securities of $97
million at December 31, 1998 as compared to $47 million at March 31, 1999.
CapRock had working capital of $102.5 million at December 31, 1998 as compared
to working capital of $65.2 million at March 31, 1999. The decrease in working
capital was attributable to the utilization of working capital for the build out
of the fiber optic network and increase in corporate overhead to support
CapRock's growth.
CapRock's cash flow provided from operating activities for the three months
ended March 31, 1998 was $1.3 million as compared to $9.7 million used in
operating activities during the three months ended March 31, 1999. The change
was primarily attributable to an increase in accounts receivable and unbilled
services, and the timing of certain capital expenditure payments to vendors
relating to the fiber optic network build out.
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Cash used in investing activities during the three months ended March 31,
1998 was $4.1 million as compared to cash provided by investing activities
during the three months ended March 31, 1999 of $13.8 million. Capital resources
used for the purchase of property and equipment increased $20.3 million from
$3.5 million during the three months ended March 31, 1998 to $23.8 million
during the three months ended March 31, 1999. This increase primarily related to
the purchase of telecommunications equipment and costs incurred with the build
out of the fiber optic network. During the three months ended March 31, 1999,
CapRock received $50 million from the sale of marketable securities as compared
to no such sales during the three months ended March 31, 1998.
In January 1998, CapRock completed the acquisition of Integrated
Communications and Engineering, Ltd., a communications systems integrator and
maintenance provider in Aberdeen, Scotland. CapRock paid a total purchase price
of approximately $2.2 million comprised of approximately $610,000 in cash and
207,266 shares of CapRock's Common Stock.
In July 1998, CapRock issued $150 million aggregate principal amount of its
1998 Senior Notes. Interest on the 1998 Senior Notes is payable semi-annually in
arrears on January 15 and July 15 of each year, commencing January 15, 1999, at
the rate of 12% per year. A portion of the net proceeds from the offering of the
1998 Senior Notes was used to repay all existing debt obligations, totaling
$26.8 million. The remaining proceeds, net of transaction costs, have been, or
will be, used to fund additional capital expenditures for the construction of
CapRock's fiber optic network, switching equipment and other capital
expenditures to expand its sales offices, for potential acquisitions and for
general working capital purposes. The funds are invested in short-term,
high-grade investment securities classified as available for sale. The indenture
governing the issuance of the 1998 Senior Notes contains certain restrictive
operating and financial covenants, including restrictive covenants relating to
borrowing additional money, paying dividends or making other distributions to
our shareholders, limiting the ability of subsidiaries to make payments to us,
making certain investments, creating certain liens on our assets, selling
certain assets and using the proceeds from those sales for certain purposes,
entering into transactions with affiliates, and engaging in certain mergers or
consolidations. All of the covenants are subject to a number of important
qualifications and exceptions. These covenants may adversely affect CapRock's
ability to finance its future operations or capital needs or to engage in other
business activities that may be in the best interests of CapRock.
On May 6, 1999, CapRock entered into an underwriting agreement with various
underwriters to sell 4,000,000 shares of its common stock at a price of $22.00
per share in a public offering. The registration statement for the equity
offering was declared effective by the Commission on May 6, 1999 and closed on
May 12, 1999. CapRock received net proceeds, after deducting underwriting
discounts and expenses payable by CapRock, of approximately $81.5 million from
the sale of its common stock.
On May 18, 1999, CapRock issued $210 million aggregate principal amount of
private senior notes due May 1, 2009. We have filed the registration statement
(of which this prospectus is a part) to exchange new, registered senior notes
for these private senior notes. Interest on these senior notes is payable
semi-annually in arrears on May 1 and November 1 of each year, commencing
November 1, 1999, at the rate of 11 1/2% per year. CapRock received net proceeds
from such offering, after deducting the initial purchasers' discount and
estimated expenses payable by CapRock, of approximately $200.7 million. These
senior notes are senior unsecured obligations and as such rank pari passu in
right of payment with CapRock's existing 1998 Senior Notes and with all
CapRock's future unsecured and unsubordinated indebtedness. The indenture
governing the May 1999 senior notes has restrictions similar to those which
currently exist for CapRock's existing 1998 Senior Notes. The proceeds have been
and will be used to fund capital expenditures for the construction of the fiber
optic network, switching equipment and other capital expenditures and to expand
its sales offices, for potential acquisitions and for general working capital
purposes. The funds will be invested in short-term, high-grade investment
securities classified as available for sale.
CapRock is also considering various alternatives under a revolving credit
facility. CapRock anticipates that this credit facility, if obtained, would
range from approximately $50 to $100 million. The proceeds
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from this credit facility would be used in a similar manner to the uses
discussed for the notes issued by CapRock.
CapRock expects to require significant financing for future capital
expenditure and working capital requirements. By the end of the year 2000,
CapRock intends to build out its fiber optic network to approximately 6,100
route miles throughout the Southwest region. CapRock intends to use advanced
fiber capable of supporting dense wave division multiplexing with an OC-48
backbone scalable to OC-192, and intends to install 96 fibers throughout most of
its network and intends to retain on average 24 fiber strands. CapRock is
burying three to four conduits throughout its network. CapRock currently
estimates that its aggregate capital requirements will total approximately $250
million for 1999 and approximately $205 million for 2000, including expenditures
to be made under the joint build arrangement with Enron Communications. CapRock
expects to make substantial capital expenditures thereafter. Capital
expenditures will be required to (1) fund the construction and operation of the
fiber optic network, including the portion to be constructed through the joint
build arrangement with Enron Communications, (2) fund the installation of voice
and data switches, and (3) open sales offices and add sales support and customer
service personnel in markets throughout Texas, Louisiana, Oklahoma, Arkansas,
New Mexico and Arizona.
CapRock believes that its cash and marketable securities (including the net
proceeds from the May 1999 equity offering and the net proceeds from the May
1999 sale of notes), cash flow from operations and sales of dark fiber will be
sufficient to fund completion of its planned network. However, no assurances can
be made as to whether additional sources of capital will be needed to complete
the network and if such sources are needed, but CapRock is unable to obtain
them, CapRock may have to curtail or delay the build out of its fiber network
and its level of capital expenditures. CapRock's EBITDA was $3.7 million for the
three months ended March 31, 1998 and was $2.1 million for the three months
ended March 31, 1999.
CapRock may require additional capital in the future 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 venture and
strategic alliances. Sources of additional capital may include cash flow from
operations, public or private equity and debt financings, bank debt, vendor
financings and indefeasible right to use contracts. In addition, CapRock may
enter into joint construction agreements with carriers, thereby reducing its
capital expenditure requirements. However, we cannot assure you that CapRock
will be successful in producing sufficient cash flow or raising sufficient debt
or equity capital to meet its strategic business objectives or that such funds,
if available, will be available on a timely basis and on terms that are
acceptable to CapRock. If CapRock is unable to obtain such capital, the build
out of portions of its expanded network may be significantly delayed, curtailed
or abandoned. In addition, CapRock may accelerate the rate of deployment of its
network, which in turn may accelerate CapRock's need for additional capital.
CapRock's actual capital requirements will also be affected, possibly
materially, by various factors, including the timing and actual cost of the
deployment of CapRock's network, the timing and cost of expansion into new
markets, the extent of competition and the pricing of dark fiber and
telecommunications services in its markets.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity" ("SFAS 133") which requires that all
derivatives be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS No. 133. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The adoption of SFAS 133 will not have an impact on
CapRock's results of operations, financial position or cash flow.
CONTINGENCIES
CapRock is party to ordinary litigation incidental to its business. No
currently pending litigation is expected to have a material adverse effect on
CapRock's results of operations, financial condition or cash flow.
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YEAR 2000
The year 2000 problem is the inability of a meaningful portion of the
world's computers, software applications and embedded semiconductor chips to
cope with the change of the year from 1999 to 2000. This issue can be traced to
the infancy of computing, when computer data and programs were designed to save
disk space by truncating the date field to just six digits (two for the day, two
for the month and two for the year). Therefore, information applications
automatically assumed that the two-digit year field represented a year within
the 1900's. As a result of this, systems could fail to operate or fail to
produce correct results when dates roll over to the year 2000.
STATE OF READINESS
The year 2000 problem affects computers, software, and other equipment
used, operated, or maintained by CapRock for itself and its customers. CapRock
has substantially completed the process of assessing the potential impact of,
and the costs of remediating, the year 2000 problem for its internal systems,
facilities systems and equipment.
CapRock's business depends upon the operation of computer systems. CapRock
has established a year 2000 committee made up of leaders from the operational
areas of CapRock to assess CapRock's year 2000 problem. The committee has the
involvement of senior management and the Board of Directors and its objectives
are a top priority. CapRock has undertaken various initiatives intended to
provide computer equipment and software that will function properly with respect
to dates in the year 2000 and thereafter. Computer equipment and software
include systems that are commonly thought of as Information Technology, or IT,
systems, including accounting, data processing, telephone/PBX systems, scanning
equipment and other miscellaneous systems, as well as systems that are not
commonly thought of as IT systems, such as alarm systems, fax machines or other
miscellaneous systems. Based upon its identification and assessment efforts to
date, CapRock believes that certain computer equipment and software it currently
uses will require replacement or modification. In addition, in the ordinary
course of replacing computer equipment and software, CapRock will obtain
replacements that are warranted by the manufacturer to be year 2000 compliant.
CapRock currently estimates that the year 2000 identification, assessment,
remediation and testing efforts will be substantially complete by July 31, 1999
and that such efforts will be completed before any currently anticipated impact
on its computer equipment and software. CapRock has substantially completed the
identification and assessment process. CapRock estimates that it currently has
completed approximately 80% of the initiatives that it believes will be
necessary to address potential year 2000 issues relating to its computer
equipment and software. The projects comprising the remaining 20% of the
initiative are in process and are expected to be complete on or about September
30, 1999.
<TABLE>
<CAPTION>
YEAR 2000 INITIATIVE TIME FRAME
- -------------------- ----------
<S> <C>
Identification and assessment regarding IT system issues.... Completed
Remediation and testing regarding critical system issues.... 6/98-7/99
Identification, assessment, remediation and testing
regarding desktop and individual system issues............ 6/98-7/99
Identification and assessment regarding non-IT system
issues.................................................... 8/98-8/99
Remediation and testing regarding non-IT systems............ 11/98-8/99
Contingency plans regarding critical systems................ 5/99-9/99
</TABLE>
CapRock has mailed questionnaires to its significant vendors, service
providers and customers with whom CapRock's systems electronically interface to
determine the extent to which such interfaces and system processes are
vulnerable to year 2000 issues and whether the products and services of such
entities are year 2000 compliant. Substantially all of the parties have
responded to the request and no significant matters were noted from these
responses. However, the information contained in a number of the responses was
generic in nature and did not specifically address the stage of their year 2000
initiatives.
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CapRock will continue seeking alternate vendors in advance of December 31, 1999
in the event satisfactory responses are not received.
CapRock has evaluated its systems and has identified the following systems
and functions as mission critical:
- switching systems,
- network operations and fiber,
- satellite/microwave transmission equipment and satellite service
providers,
- billing and call record collection systems, and
- supply chain (vendor provider of switched services).
Switching Systems:
Switching equipment is used to connect calls to their destination, while
performing other advanced features and recording call record information for
future billing. The switch opens or closes circuits or selects the paths or
circuits to be used for the transmission of information. CapRock currently owns
eight switches, three of which are physically located in Dallas, Texas (two are
calling card platforms), three in Houston, Texas, one in Victoria, Texas and one
in Phoenix, Arizona. CapRock also manages a switch in Jersey City, New Jersey.
CapRock has completed the assessment and certain test procedures relating to the
switching equipment and has identified certain non-compliant features, which
were remediated through software upgrades provided by the respective
manufacturers.
The remainder of the testing procedures for the switching equipment were
substantially complete for all switches which were in service as of March 31,
1999. The switches which have not been placed in service will be subject to
integrated test procedures prior to being placed in service. The test will
incorporate the call collection processes and the interfaces with the billing
system. The test will involve simulating date changes with the switch, such that
the call records will be processed, rated and properly captured in the billing
system as a billable transaction.
The test procedures will consist of the following:
- process flow analysis,
- documentation of overall integrated test strategy,
- documentation and test case plans at an individual component level,
- committee agreement regarding the test plan,
- execution of the integrated test plan, and
- documentation regarding the results of test procedures.
Network Operations and Fiber:
CapRock currently owns and operates an 800-route mile fiber optic network,
which was substantially completed by December 31, 1998. Approximately 260 route
miles were completed and placed in service in January 1997. The network is
currently being expanded to 6,100 route miles (which CapRock expects to be
completed by the end of the year 2000). The fiber optic network is designed to
be scalable and will include network-advanced fiber, which is capable of
supporting dense wave division multiplexing with an OC-48 backbone scalable to
OC-192. The fiber optic network will include electronic equipment, which
regenerates and transports the voice, data and other information. A detailed
assessment of the network operations and fiber equipment has been performed and
no significant non-compliant issues have been identified.
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Satellite/Microwave Transmission Equipment and Satellite Service Providers:
CapRock utilizes satellite service providers to provide communications
services to certain customers in remote locations. CapRock has sent
correspondence to each of the three vendors supplying the satellite services.
Each of the satellite service providers has responded. None of them noted any
significant non-compliant issues. CapRock is continuing to pursue additional
information and test data from these providers and will seek new providers, if
necessary.
Billing and Call Record Collection Systems:
CapRock handles its provisioning, customer care, billing and traffic
reporting functions on a proprietary software platform developed by RiverRock
Systems, Ltd., a Texas limited partnership in which CapRock has a 49% ownership
interest. These operations support systems, or OSS systems, and other back
office systems are used to enter, schedule and track a customer's order from the
point of sale to the installation and testing of service. The systems also
include or interface with trouble management, inventory, billing, collection and
customer service systems. The test procedures relating to the billing system and
call record collection processes were performed in conjunction with the
switching equipment test procedures and are substantially completed.
CapRock believes that substantially all of the hardware, database platform
and operating systems impacting the billing system function will not be
materially affected by Year 2000 issues.
Supply Chain (Vendor Provider of Switch Services):
CapRock is dependent upon a number of telecommunications carriers during
the process of initiating and terminating calls to end-users. CapRock has sent
correspondence to each of the significant suppliers regarding their year 2000
status and has received responses from substantially all of these suppliers.
However, the information contained in a number of the responses was generic in
nature and did not specifically address the stage of their year 2000
initiatives. CapRock will seek alternate suppliers in advance of December 31,
1999 in the event satisfactory responses are not received.
Based upon CapRock's current assessment and responses from vendors, CapRock
believes that the risks associated with the year 2000 problem relating to
domestic traffic and terminations are not significant. CapRock is in the process
of evaluating the impact of year 2000 as it relates to the termination of
traffic in international locations, and specifically third world and developing
countries.
Non-IT Systems:
CapRock continues to evaluate non-information technology, or non-IT,
systems. Based on current results and other factors, CapRock does not anticipate
finding any material embedded system issues in its non-IT systems.
COSTS
CapRock anticipates that costs of replacing or remediating non-compliant
systems will not exceed $500,000 (remediation costs incurred to date have been
less than $100,000). Such expenditures represent less than 1% of 1999 projected
capital expenditures and will be funded out of cash flow from operations.
RISKS
CapRock is in the process of preparing a comprehensive analysis of the
problems and costs, including loss of revenues, that would be reasonably likely
to result from the failure by CapRock or certain third parties to complete the
efforts necessary to achieve year 2000 compliance on a timely basis.
CapRock has not yet completed its identification of the most likely worst
case scenario. However, CapRock believes that the most reasonably likely worst
case scenario would involve loss of revenues relating to traffic terminating in
certain developing third world countries, which have not adequately
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prepared for the year 2000. CapRock relies upon certain vendors to supply
international services and the possibility exists that some of the traffic in
these developing third world countries may not be able to be completed. The
estimated loss of revenue, if any, has not been determined, and we may not be
able to identify the amount of any loss by the year 2000. Depending on the
systems affected, the failure of any contingency plans developed by CapRock, if
implemented, could have a material adverse effect on CapRock's financial
condition and results of operations.
CONTINGENCY PLANS
CapRock's year 2000 contingency planning effort is designed to provide
immediate response and subsequent recovery from any unplanned business
interruption due to failure of technical infrastructure resulting from the year
2000. Contingency planning is a process that aids in determining the most
effective actions, identifies when contingent actions should be taken and helps
to ensure those resources necessary for response are available.
The contingency plans include a proactive analysis of countries that are
actively pursuing year 2000 remediation. CapRock is using outside consultants to
assist with an analysis of countries that are not actively pursuing year 2000
compliance and remediation. Contingency plans include identifying these
countries noted with substantial risk and potentially redirecting the sales and
marketing efforts to other countries less likely to be affected by year 2000
problems.
CapRock is still formulating contingency plans relating to the use of the
satellite service providers. CapRock continues to actively pursue receiving test
data and procedures from these service providers regarding year 2000 compliance.
CapRock will consider utilizing other service providers if the current service
providers cannot demonstrate compliance to CapRock's satisfaction by August 31,
1999.
CapRock is still formulating contingency plans regarding significant
suppliers of telecommunication services, which may suffer a year 2000-related
failure. CapRock utilizes a number of different service providers and the
contingency plan will include re-routing traffic from a vendor which experiences
a year 2000 systems failure to one or more other vendors.
DISCLAIMER
The discussion of CapRock's efforts, and management's expectations,
relating to year 2000 compliance are forward-looking statements and the dates on
which CapRock believes it will complete such efforts are based upon management's
best estimates. These estimates were derived using numerous assumptions
regarding future events, including the continued availability of certain
resources and other factors. We cannot assure you that these estimates will
prove to be accurate, and our actual results could differ materially from those
currently anticipated. Specific factors that could cause such material
differences include, but are not limited to the availability and cost of
personnel trained in year 2000 issues, the ability to identify, assess,
remediate and test all relevant computer codes and embedded technology and
similar uncertainties. In addition, variability of definitions of "compliance
with year 2000" relating to products and services sold by CapRock may lead to
claims whose impact on CapRock is currently not estimable. We cannot assure you
that the aggregate cost of defending and resolving such claims, if any, will not
materially adversely affect our results of operations.
MARKET RISK
CapRock is exposed to market risk from changes in marketable securities
(which consist of money market and commercial paper). At March 31, 1999,
marketable securities of CapRock were recorded at a fair value of approximately
$47 million, with an overall weighted average return of approximately 5% and an
overall weighted average life of less than 1 year. The marketable securities
held by CapRock have exposure to price risk, which is estimated as the potential
loss in fair value due to a hypothetical change of 50 basis points (10% of
CapRock's overall average return on marketable securities) in quoted market
prices. This hypothetical change would have an immaterial effect on the recorded
value of the marketable securities.
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CapRock is not exposed to material future earnings or cash flow
fluctuations from changes in interest rates on long-term debt since 100% of its
long-term debt is at a fixed rate as of March 31, 1999. The fair value of
CapRock's long-term debt at March 31, 1999 was estimated to be $152.6 million
based on the overall rate of the long-term debt of 12% and an overall maturity
of 9.3 years compared to terms and rates currently available in long-term
financing markets. Market risk is estimated as the potential decrease in fair
value of CapRock's long-term debt resulting from a hypothetical increase of 120
basis points in interest rates (ten percent of CapRock's overall borrowing
rate). Such an increase in interest rates would result in approximately a $9.5
million decrease in fair value of CapRock's long-term debt. To date, CapRock has
not entered into any derivative financial instruments to manage interest rate
risk and is currently not evaluating the future use of any such financial
instruments.
CapRock conducts business in Aberdeen, Scotland, through a wholly owned
subsidiary. However, the business transacted by this subsidiary is in the local
functional currency. Therefore, CapRock does not currently have any exposure to
foreign currency transaction gains or losses. All other business transactions
are in U.S. dollars. To date, CapRock has not entered into any derivative
financial instrument to manage foreign currency risk and is currently not
evaluating the future use of any such financial instruments.
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BUSINESS
CapRock owns and operates a scalable long-haul fiber network which upon
completion is expected to cover approximately 6,100 route miles throughout the
Southwest region, which includes Texas, Louisiana, Arkansas, Oklahoma, New
Mexico and Arizona. This fiber network supports the voice, data, bandwidth and
dark fiber services we provide to our carrier and retail customers. Our 1998
revenues were $121.8 million and EBITDA (exclusive of merger related expenses of
$2.3 million) was $15.0 million, and our revenues for the quarter ended March
31, 1999 were $37.0 million and EBITDA was $2.1 million. Over the past five
years, our revenues have grown at a compound annual growth rate of 55%.
We intend to be the premier provider of carriers' carrier services and the
leading facilities-based integrated communications provider in the Southwest
region. To measure our progress, we classify our revenues in three categories:
carriers' carrier, integrated services and systems services. Our carriers'
carrier revenues include domestic and international long distance, bandwidth and
dark fiber services sold to telecommunications carriers and other wholesale
customers. Currently, we have over 120 carrier customers, including AT&T, MCI
WorldCom, Sprint Corporation and Qwest Communications, as well as many regional
independent companies such as Century Tel, Inc. and Lufkin Conroe Telephone. Our
integrated services revenues reflect our local, long distance, Internet, data
and private line products provided to over 6,000 small and medium-sized
businesses on a single bundled bill. Lastly, our systems services revenues
represent the voice and data systems and services we provide primarily to the
oil and gas industry offshore in and along the Gulf of Mexico.
We are focused on the Southwest region because of this region's size and
attractive growth prospects and because we believe that as a region it is
currently underserved by other major telecommunications providers. We believe
our ability to offer integrated telecommunications services along with superior
customer service will be particularly attractive to small and medium-sized
businesses that desire simple bundled plans from a single provider. Many of the
smaller markets within our region do not have telecommunications alternatives to
the incumbent local telephone company. We also believe that a regional focus
enables us to achieve certain economies of scale due to the concentrated
deployment of network assets, our sales and marketing efforts and our
management. By maximizing the amount of traffic that remains on our network, we
can maximize our gross profit margins and returns on invested capital.
We intend to build the most extensive alternative fiber network in the
Southwest region, which will allow us to serve nearly every primary, secondary
and tertiary city within the region. Our fiber network is scalable, and we are
deploying a minimum of 96 fibers and two to three spare conduits along certain
routes. Each fiber is capable of supporting dense wave division multiplexing,
and each conduit is capable of housing a cable with hundreds of additional
fibers. In order to reduce the cost of fiber retained for our own use, we intend
to sell excess fiber to other carriers. We are currently in discussions for the
sale of fiber over segments of our network with over 25 carriers. Consistent
with our planned network deployment schedule, approximately 800 route miles of
the long-haul fiber network were substantially completed at year-end 1998. We
currently have another 1,870 route miles under construction and expect to have
approximately 3,000 route miles completed by the end of 1999, with the remainder
of the 6,100 route mile network expected to be completed by the end of 2000. We
recently entered into an agreement with Enron Communications to jointly build
approximately 1,050 miles of fiber network in Texas. We believe that this
agreement and any other similar agreements we may execute in the future may
enable us to significantly lower the overall cost of network construction as
well as accelerate its deployment.
In addition to our extensive fiber network, our voice network facilities
include nine local and long distance switches (eight which we own and one which
we manage) with another three local switches scheduled to be installed by the
end of the fourth quarter of 1999. We plan to colocate our equipment in 20
central offices with incumbent local telephone companies (13 of which are
currently in process) for the provision of local services using UNEs by the end
of 1999. We also plan to purchase and deploy eight ATM data switches to support
our Internet, frame relay and ATM services in the third quarter of 1999 and plan
to purchase and deploy an additional 10 ATM data switches in the fourth quarter
of 1999.
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Our proximity to Mexico allows us to directly connect to the fiber networks
of multiple Mexican telecommunications carriers. Subject to compliance with
certain regulatory requirements, we are capable of providing dark fiber to these
carriers at several border crossings enabling them to close open fiber rings in
Mexico by using CapRock fiber on the U.S. side of the border. Additionally, our
direct connect agreements with foreign carriers position us to capture increased
levels of growing international traffic. See Note 18 to the Consolidated
Financial Statements of CapRock included in this prospectus.
Our executive management team has extensive experience in developing
advanced telecommunications networks as well as significant executive managerial
experience. Jere W. Thompson, Jr., our Chief Executive Officer and Chairman of
the Board, founded CapRock Fiber in 1992, became President of CapRock
Telecommunications in 1994 and has overseen the development of our company since
that time. Ignatius W. Leonards, our President, founded IWL Communications and
has over 24 years of telecommunications industry experience. Kevin W. McAleer,
our Chief Financial Officer, has over 17 years of experience as the chief
financial officer of several publicly held companies. In addition, Scott L.
Roberts, our Executive Vice President of International Sales, Timothy W. Rogers,
our Executive Vice President of Retail Sales and Network Operations, and Timothy
M. Terrell, our Executive Vice President of Carrier Sales, were all co-founders
of CapRock Telecommunications and prior to that were employed as directors and
managers in the carrier sales divisions of Qwest and Sprint. Byron M. Allen,
Executive Vice President of International, has six years of experience in the
domestic and international telecommunications industry.
MARKET OPPORTUNITY
We believe that a substantial market opportunity exists for us as a result
of the following factors:
- attractive growth dynamics of the Southwest region,
- rapidly developing telecommunications technologies,
- growing demand for data services and Internet access,
- need for integrated communications solutions for small and medium-sized
businesses,
- increasing traffic between the U.S. and Mexico, and
- the 1996 Telecommunications Act.
Attractive growth dynamics of the Southwest region. We believe that there
is a significant opportunity in the Southwest region. Incumbent local telephone
companies, or ILECs, still control almost 98% of the local service market, and
the population of the Southwest region is large and growing rapidly. Texas is
the second largest state in the U.S., and its population is expected to exceed
20 million in 1999. Over the past two years, Texas was the second fastest
growing state in terms of total population and, over the past ten years, was the
fastest growing state in terms of new job creation. The combined population of
the Dallas/ Ft. Worth, Houston and San Antonio metropolitan areas exceeds the
total populations of each of 43 other states. Based on statistics published by
the Federal Communications Commission (FCC), in 1998 there were over 5.4 million
business access lines, approximately 12.0 million residential access lines and a
total of approximately 17.4 million total access lines in the Southwest region.
We believe that access lines in this region will grow slightly more than 5%
annually.
Rapidly developing telecommunications technologies. Advances in various
telecommunications technologies, such as high speed optical transmission
electronics, dense wave division multiplexing, or DWDM, and packet-switches are
reducing the cost structure of newly-deployed telecommunications networks. High
speed OC-192 transmission electronics operate at approximately 10 billion pulses
of light per second, four times faster and far more cost effective than prior
generation electronics. Dense wave division multiplexing significantly increases
the transmission capacity of a single strand of fiber optic cable (it can
increase the carrying capacity of a single fiber 32 fold by allowing
simultaneous transmission of up to 32 optical channels per fiber). High
performance packet switches break up data into "packets." Compared to circuit
switches, packet switches are almost half the cost on a per port basis and
utilize bandwidth more than ten
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times as efficiently for the transmission of voice and data. These technologies
effectively combine to manufacture more bandwidth and to make it faster and
available to more locations and at lower costs than ever before.
Growing demand for data services and Internet access. Demand for bandwidth
is being fueled by the demand from data and Internet services. Although rapid
access to information and the ability to distribute it quickly through the use
of data connections are critical to businesses, many of the nation's businesses
do not have access to data services, especially small and medium-sized
businesses located in secondary and tertiary cities. Market studies estimate
that, in response to this demand, spending on end-user subscriptions for data
services will grow at an annual rate of 77% over the next four years. In
addition, the proliferation of local area networks, wide area networks, private
networks, Internet services, e-mail and other enhanced services has caused data
transmissions to become a significant and increasing portion of overall
telecommunications traffic. These services are expected to drive much of the
growth in the data communications market. As a result, the data services market
has been the fastest growing segment of the communications industry, expanding
at a rate five times faster than the voice services market, with an increase
from approximately $3.7 billion in revenues in 1994 to approximately $9.9
billion in revenues in 1997. Market studies estimate that the data
communications services market will grow to approximately $24.3 billion in
annual revenues by the end of 2001, representing a compound annual growth rate
of 25% from 1997.
Need for integrated communications solutions for small and medium-sized
businesses. Currently the vast majority of the nation's small and medium-sized
businesses need to deal with multiple communications providers to obtain their
communications needs. These businesses tend to use the incumbent local telephone
company for local services, long distance carriers for long distance services,
equipment integrators for on-premise voice and network systems, and Internet
service providers for Internet access. As a result, we believe that there exists
a significant and growing demand from businesses for the provision of advanced
telecommunications services from a single provider that can not only provide a
convenient bundled package of products and services, but also provide integrated
customer care and support.
Increasing traffic between the U.S. and Mexico. We believe that over half
of the traffic between Mexico and the U.S. passes through border crossings along
the Texas border. In 1997, Mexico was the second largest destination for U.S.
outbound telecommunications traffic, accounting for approximately 12.1% of the
total international traffic originating in the U.S. The U.S. is the largest
destination of outbound traffic from Mexico, accounting for approximately 89% of
its total international traffic. In 1997, the telecommunications traffic into
Mexico was approximately 2.9 billion minutes, while outgoing traffic amounted to
approximately 1.2 billion minutes. International calling tends to be price
elastic: as rates fall, volume increases. Rates into Mexico have steadily
dropped over the past four years, and traffic volume has increased
commensurately. CapRock has a direct connection into Mexico with a Mexican
carrier, which enables us to provide reliable, high quality terminations to our
customers. We are in discussions with several Mexican carriers regarding
potential sales or exchanges of dark fiber.
The 1996 Telecommunications Act. Competition in the telecommunications
industry has been impacted significantly by the 1996 Telecommunications Act.
This act allows competitive carriers to use the existing incumbent local carrier
infrastructure, as opposed to building a competing infrastructure at significant
cost. The 1996 Telecommunications Act requires all incumbent carriers to allow
competitive carriers to colocate their equipment along with incumbent carrier
equipment in incumbent carrier central offices. This enables competitive
carriers to access end users through existing telephone line connections. The
1996 Telecommunications Act creates an incentive for incumbent carriers that
were formerly part of the Bell system to cooperate with competitive carriers.
These incumbent carriers cannot provide long distance service until regulators
determine that there is competition in the incumbent carrier's local market.
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BUSINESS STRATEGY
Our business objectives are to establish ourselves as the premier carriers'
carrier and to be the dominant integrated communications provider in the
Southwest region. To achieve these objectives, we intend to:
- Build the region's most advanced, scalable and extensive fiber optic
network. We believe that existing fiber networks cannot meet the
bandwidth needs of businesses and carriers in the Southwest region. We
also believe that the secondary and tertiary markets located between the
major markets in this region are underserved, creating a significant
market opportunity. To address this need, we are currently expanding our
network to cover approximately 6,100 route miles throughout the Southwest
region. We intend to construct the most extensive and advanced fiber
network in the region. By installing multiple conduits, along with a
large number of advanced fiber strands in each conduit that are capable
of supporting dense wave division multiplexing, we are creating a robust
network that will have significant flexibility to add capacity to meet
future customer demand. The unused conduits allow us to add fiber and to
cost-effectively deploy future generations of optical networking
components, which will expand capacity and reduce per unit costs, without
new construction. Through our use of these technologies, we believe that
we can rapidly scale our network to support the demands for increased
bandwidth, that the bandwidth we utilize is lower in cost and that the
markets we can reach are greater in number. We intend to have our network
interconnect with the networks of selected Mexican carriers at multiple
border crossings, creating international synchronous optical network, or
SONET, ring connections between the United States and Mexico. Given the
strong demand for dark fiber over the past year, we increased our planned
network build out from our original plan of approximately 4,300 route
miles to approximately 6,100 route miles.
- Create a strategic, regionally focused asset. We are focused on the
Southwest region because of the region's size, attractive growth
prospects and its border with Mexico, and because we believe that as a
region it is currently underserved by other major telecommunications
providers. We believe that existing fiber networks cannot meet the fiber
and bandwidth needs of businesses and carriers in the Southwest region.
This creates a significant market opportunity for an alternative network
provider that offers communications services throughout this region. Our
network has been designed to complement existing major long haul-fiber
networks. To the extent possible, our routes are geographically diverse
from the existing fiber networks of AT&T, MCI WorldCom, Sprint, Qwest and
IXC. We also believe that the majority of communications traffic is
regional in nature. By concentrating our network build within a region,
we feel we can maximize the amount of traffic that originates and
terminates end-to-end on our network, which captures significant regional
traffic and allows us to maximize our gross profit margins and returns on
invested capital.
- Pursue a cost-effective network build out. While our fiber network
principally supports our voice, data and bandwidth products, we also
expect the network to provide us with significant financial benefits.
Demand for dark fiber is strong, so we intend to sell excess dark fiber
to third parties. Also, we may enter into arrangements with other
carriers, similar to our agreement with Enron Communications, to jointly
build certain segments of our fiber network. These dark fiber sales and
joint build arrangements may enable us to accelerate our construction
schedule and significantly lower the cost of fiber retained for our own
use. We believe that on a per fiber mile basis we will own one of the
lowest net cost networks in the Southwest region.
- Focus on high value-added local switching infrastructure. As we enter
markets, we initially provide local services by reselling the services of
the incumbent local telephone companies. As we obtain enough customers to
economically justify the deployment of local switches, we plan to migrate
our resale customers to our own switching facilities. We also intend to
reach our customers by utilizing either the unbundled network elements of
ILECs or the fiber facilities of other CLECs. We believe that this
"success-based capital deployment" strategy, whereby we deploy capital
incrementally and only in attractive markets with an existing customer
base, will enable us to construct a network and
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facilities that can serve customers in all of our markets, while
minimizing the risk of making substantial up-front capital expenditures
in unproven markets. We are constantly exploring alternative technologies
to provide local loop, or last-mile connectivity, to customers in our
target markets, such as digital subscriber lines (DSL) and local
multipoint distribution systems (LMDS).
- Provide bundled communications solutions to small and medium-sized
businesses. We believe that there is a strong desire among small and
medium-sized business customers to simplify their operations by dealing
with a single telecommunications provider for an integrated package of
communications services. We currently offer local, long distance,
Internet, data and private line services. In addition, we also offer
asynchronous transfer mode (ATM), frame relay, Integrated Services
Digital Network (ISDN), Web server hosting, and other enhanced services
not generally available from the ILECs (or available only at prices
higher than those that we intend to charge). We believe that our ability
to provide a wide array of integrated services, to invoice these services
on a single bundled bill, and to serve as a single point of contact for
sales and service will enable us to (1) better compete in and to rapidly
penetrate our targeted markets, (2) capture virtually all of our existing
and newly acquired customers' expenditures for telecommunications
services and equipment, (3) enhance our profit margins, (4) increase
customer satisfaction, and (5) maintain lower customer churn. In
addition, we believe that our cost structure in offering bundled local
and long distance services will allow us to offer those services at a
bundled price that will be substantially lower than those services
purchased separately.
- Pursue acquisitions and strategic alliances. As part of our growth plan,
we routinely engage in discussions with other companies considering
potential business ventures and combinations. In our target markets, a
large number of small private companies provide local, long distance,
data, and Internet services, as well as telecommunications equipment.
This fragmentation creates opportunities to acquire industry participants
that can provide additional management talent, customers and product
extensions. In addition, as part of our strategy to rapidly deploy our
network, we intend to pursue strategic relationships with cable
television companies, utilities, state transportation departments and
other governmental authorities. By utilizing strategic alliances, we
believe we will be able to enter our target markets quickly and
efficiently and will be able to reduce the up-front capital investment
required to develop our network. Our agreement with Enron Communications
to jointly build approximately 1,050 miles of fiber network in Texas is
an example of this strategy. This agreement and any other similar
agreements we may execute in the future may enable us to accelerate the
construction schedule for our network and significantly lower the cost of
fiber retained for our use.
- Build market share through personalized sales and customer service. We
focus on superior customer service and offer our integrated services
primarily to small and medium-sized businesses. Unlike large corporate,
government, or other institutions, small and medium-sized businesses
often do not have the necessary in-house personnel required to manage and
implement complex telecommunications solutions. As a result, we believe
that a consultative direct sales effort combined with a superior and
personalized customer care program that provides customers with a
comprehensive turn-key telecommunications solution will give us a
competitive advantage in capturing our customers' total
telecommunications traffic. As of May 31, 1999, our direct sales force
consisted of 140 account executives and managers in Dallas, Ft. Worth,
Houston, San Antonio, Austin and Victoria, Texas, as well as Lafayette,
Louisiana. In addition, we had 135 sales agents located throughout Texas.
We intend to recruit, train and deploy approximately 65 additional
account executives by the end of 1999. We believe that our low customer
attrition in 1998, which was less than 3% for the entire year, was
achieved because of our superior customer service.
- Leverage our advanced back office systems. We handle our provisioning,
customer care, billing and traffic reporting functions through a
proprietary software platform developed by RiverRock Systems, Ltd., a
Texas limited partnership in which we have a 49% ownership interest. The
system has been designed to be both scalable and flexible in order to
support our expected future back office
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requirements. We believe that this system provides us with a significant
competitive advantage by allowing us to creatively bundle and price
various telecommunication services, to process large order volumes, and
to provide superior customer service when compared to the incumbent local
telephone companies or other providers using legacy systems that either
outsource back-office services or that do not have an advanced office
support systems platform. The RiverRock system is part of a larger back
office organization which enables us to: (1) minimize the time required
to initiate services for new customers, (2) provide customer bills, (3)
respond quickly to customers' needs and information requests, and (4)
better monitor and analyze traffic, financial and operating trends. We
intend to continue to develop this system to meet increasing demands for
our services and to continue to provide our customers with superior
customer care.
NETWORK BUILD OUT AND FINANCING PLAN
By the end of the year 2000, we intend to build out our fiber optic network
to approximately 6,100 route miles throughout the Southwest region. We began
constructing and operating a regional fiber network in 1993. We completed
construction of the first 260 route miles of our fiber network in 1997, and at
the end of 1998, the first 800 route miles of our scalable, regional fiber
network were substantially completed, linking San Antonio, Laredo, McAllen,
Harlingen, Corpus Christi, Victoria and Houston, Texas. Over the past two years,
we have met substantially all of our milestones with respect to our construction
schedules and budgets. We currently have approximately 1,870 route miles under
construction and expect to have approximately 3,000 route miles completed by the
end of 1999, linking south Texas, San Antonio, Houston, Austin, Waco, Dallas,
Fort Worth and Amarillo, Texas, Oklahoma City and Tulsa, Oklahoma, Little Rock,
Arkansas and Monroe and New Orleans, Louisiana. We expect that the remainder of
the 6,100 route mile fiber network will be completed by the end of the year
2000. Given the increased demand for our fiber-based telecommunications services
over the past year, we increased our planned network build out from our original
plan of approximately 4,300 route miles to approximately 6,100 route miles.
We believe that our network, once completed, will be the most extensive
alternative fiber network in the Southwest region and will enable us to serve
nearly every primary, secondary and tertiary city in the region. Our network is
designed to be scalable and will have significant excess capacity to meet future
demand and flexibility to accommodate new fiber technology and electronics. We
are burying three to four conduits throughout our network. We are installing in
a conduit a minimum combination of 96 Lucent Truewave and single-mode fibers.
Both Truewave and single-mode fiber are capable of supporting dense wave
division multiplexing. We intend to retain on average 24 fiber strands
throughout most of our network. The routes of the network are primarily
constructed on state highway and county road rights-of-way, and are planned to
be generally geographically diverse from the existing fiber networks of AT&T,
Sprint, MCI WorldCom, and IXC. The fiber network will also interconnect with the
fiber networks of selected Mexican carriers at multiple border crossings.
Through the continuing and successful integration of IWL Communications and
its personnel and network facilities, we have been able to continue developing
our fiber network and our switching facilities. In addition to our extensive
fiber network, our network facilities also include nine local and long distance
switches (eight which we own and one which we manage), with another three local
switches scheduled to be installed by the end of the fourth quarter of 1999. We
plan to colocate our equipment in 20 central offices with incumbent local
telephone companies (13 of which are currently in process) for the provision of
local services using UNEs by the end of 1999. We also plan to purchase and
deploy eight ATM data switches to support our Internet, frame relay and ATM
services in the third quarter of 1999 and plan to purchase and deploy an
additional 10 ATM data switches in the fourth quarter of 1999.
We estimate total gross capital expenditures of approximately $455 million
to complete our planned regional network build out, including fiber,
transmission electronics, voice and data switches and corporate capital
expenditures.
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To reduce the cost of fiber retained for our own use, we have sold in the
past, and intend to sell in the future, conduit and dark fiber to third parties.
In the past, we have jointly constructed segments with Teleport Communications
Inc., a competitive local phone company, and with TCI Communications Inc., a
cable television company, and we recently announced our agreement with Enron
Communications to jointly build approximately 1,050 miles of fiber network in
Texas. Through this joint build arrangement, we will connect Amarillo, Lubbock,
Dallas, Fort Worth, Waco, Bryan, Austin, San Marcos, San Antonio and Houston,
Texas. The partnership we formed with Enron Communications is installing four
conduits throughout the approximate 1,050 miles. We intend to jointly market 96
of the 192 fibers installed. Of the remaining 96 fibers, we will own 48 fibers
and Enron Communications will own 48 fibers. The joint build arrangement
provides several benefits, including reduction of construction costs,
accelerated acquisition of right of way and franchise agreements, the majority
of which are essentially in place, and the freeing up of resources to
potentially accelerate the build of the remaining portion of the network. This
agreement and any similar agreements we may execute in the future may enable us
to accelerate our construction schedule and accelerate the rate of deployment of
our network, which in turn may accelerate our need for additional capital. Each
city-pair segment of our fiber network is operational upon completion of
construction. Should network construction be slowed or postponed, our existing
network is still operational and our integrated services strategy can continue
essentially unchanged.
By installing a large fiber count, advanced fiber capable of supporting
dense wave division multiplexing and spare conduits, the network will be
scalable and will have significant flexibility to add capacity to meet future
demand. The integrity and survivability of the network will be enhanced through
the design of multiple SONET rings, and its diverse location from existing
long-haul networks. The expanded network is expected to deliver the following
significant strategic and financial benefits to us: (1) substantial savings by
allowing us to move onto our own network a significant portion of the traffic
that we currently carry on circuits which we lease from other carriers; (2) high
capacity new routes allowing us to increase revenues by leasing additional
circuits to our customers, including high capacity circuits such as OC-3s,
OC-12s, and OC-48s; (3) lower underlying transmission and network operating
costs; (4) sufficient capacity to support increasing demand from Internet,
multimedia applications, frame relay and ATM; and (5) reduced capital costs
through sales and exchanges of excess fiber which we are including in our
network expansion specifically for that purpose.
We also provide services to our oil and gas company customers through a
satellite network consisting of leases for access to multiple satellites, a
microwave network, two-way radio licenses and carrier agreements for long
distance service combined with a switch-based network. Our microwave network
includes a system that has been built by us onshore in the Southwest region and
extends offshore into the Gulf of Mexico. We believe that the fiber and
microwave network we have created to support our oil and gas industry customers
has excess capacity and can readily support integrated communications'
activities in secondary and tertiary markets along the Texas and Louisiana Gulf
Coast, where we expect less competition for customers than in the larger
markets. We intend to leverage our project management skill set and expertise by
supplying communications services to customers outside of the oil and gas
industry, particularly customers with operations located near our existing and
planned communications infrastructure.
PRODUCTS AND SERVICES
Carriers' Carrier
We intend to establish ourself as the premier carriers' carrier within the
Southwest region, providing voice, data, broadband and dark fiber services over
the most extensive advanced fiber optic network in the Southwest region. Our
principal carriers' carrier products are: long distance terminating access,
calling cards, dark fiber, and bandwidth provision. Our carrier customer base
includes more than 120 carriers, including AT&T, IXC, MCI WorldCom, Qwest and
Sprint, and including regional independents such as Century Tel, Inc. and Lufkin
Conroe Telephone. For the year ended December 31, 1998, revenues from services
provided to MCI WorldCom accounted for more than 10% of our revenues.
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Long Distance Terminating Access. This service enables carrier customers to
terminate regional, domestic or international long distance calls through our
switches. We terminate calls over our own network and feature groups established
with incumbent local telephone companies or through other carriers providing
services to us. We sell these services on a per-call basis, charging by minutes
of use, or MOUs, with payment due monthly after services are rendered.
Bandwidth Provision. We offer T-1, DS-3, OC-3, OC-12 and OC-48 capacity and
individual wavelength channels to our carrier customers. Carriers utilize the
broadband capacity to support their voice and data traffic requirements and to
provide diverse routing as backup in the event of a fiber cut along their
primary routes. Services are provided generally through one year contracts,
requiring fixed monthly payments, generally in advance.
Dark Fiber. We lease and sell excess dark fiber to carrier customers over
our fiber network. We are burying three to four conduits and installing a cable
with a minimum of 96 fiber strands throughout our 6,100 route mile fiber
network. We intend to retain an average of 24 fibers for our own use and to
continue to lease or sell excess capacity to lower our net cost for fiber
retained for our own use. Dark fiber lease contracts are generally for a minimum
of ten years with multiple five year renewals at discounted rates. Dark fiber
sales are in the form of indefeasible right of use contracts for terms for 20
years and longer.
Integrated Services
We intend to become the dominant integrated communications provider in the
Southwest region, offering local, long distance, Internet, data and private line
services to end-user customers on an integrated basis invoiced on a single,
bundled bill. We believe that our ability to provide integrated services, and to
invoice these services on a single, bundled bill enables us to (1) better
compete in and rapidly penetrate our targeted markets, (2) capture virtually all
of our existing and newly acquired customers' expenditures for
telecommunications services and equipment, (3) increase customer satisfaction,
and (4) maintain low customer churn.
We offer (or, where indicated, intend to offer) the following products:
Local. These services offer customers local switched and enhanced services.
We intend to continue to obtain local telephone services from incumbent local
telephone companies on a total service resale, or TSR, basis and as demand
economically justifies, to install local switches and migrate customers to our
network utilizing unbundled network elements leased from incumbent local
telephone companies for last mile local lines. We believe this approach
significantly boosts our gross margins, maximizes our return on invested
capital, and reduces the time required to enter new markets.
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 can select us as their primary long distance
provider by placing an order with us. 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 our switch. This eliminates ILEC originating
access fees and reduces per minute rates to the user.
Internet. We provide Internet services to approximately 860 customers. The
services include e-mail server, news server and hosting of customer web pages.
Data. Frame relay and ATM data services are currently provided on a resale
basis. Our fiber network has been designed to provide a platform to support high
capacity, bandwidth-intensive products. We intend to migrate our data services
onto our own data and fiber networks as these networks are built out.
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Private Lines. This service provides customers dedicated broadband
capacity, typically T-1s and DS-3s. Private lines enable customers to connect
directly to their long distance carriers, bypassing the ILEC and thereby
reducing long distance rates. Private lines also enable customers to establish
virtual private wide area networks for data and voice transmissions between or
among multiple locations.
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).
Calling Card. These traditional, basic telephone calling cards allow the
user to place calls from anywhere in the United States or Canada. Later in 1999,
we plan to expand our service to include Mexico. We also offer additional
features including conference calling 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.
System Services
We intend to maintain our position as a major provider of
telecommunications services to remote installations, primarily in the Gulf of
Mexico. Our principal products are offshore voice and data services, as well as
the sale and installation of equipment to carry those services.
Offshore Services. We provide offshore voice and data systems and services
to the oil and gas industry in the Gulf of Mexico. Satellite and microwave
transmission media are used depending on the type and location of the drilling
rig involved. Our communications systems are flexible and can be quickly
re-aligned as rigs move to new locations.
Customer Premise Equipment. We currently sell and install telephone and
switchboard equipment to our offshore customers. We intend to add office
switchboard and private branch exchange equipment for our small and medium-sized
business customers. We intend to continue to build our relationships with local
customer premise equipment installation companies in all of our markets for the
purpose of selling and installing customer premise equipment not otherwise
provided by us.
SALES AND MARKETING
Carriers' Carrier. We established a carrier services sales force in 1992.
We believe it competes effectively in this market based on a combination of
price, reliability, quality of service, route diversity, ease of ordering,
ability to obtain traffic information and superior customer service. We market
our carriers' carrier services primarily through eight direct sales personnel
and four support specialists located in our headquarters in Dallas. In general,
these sales professionals locate potential customers for our carrier services
through customer referrals, trade forums, trade shows and industry alliances.
Integrated Services. We focus our sales efforts on small to medium-sized
businesses in the Southwest region primarily through two channels: our direct
sales force and our network of independent sales agents. Our direct sales force
and our authorized agents are trained to emphasize our customer-focused sales
efforts, superior customer service and product value. We reinforce building
customer relationships by tying a portion of each account executive's and
agent's compensation directly to the longevity of their customer accounts.
As of May 31, 1999, our direct sales force consisted of 140 account
executives in Dallas, Fort Worth, Houston, San Antonio, Austin, and Victoria,
Texas, as well as Lafayette, Louisiana. We intend to hire and train
approximately 65 additional account executives by the end of 1999 and an
additional 100 account executives by the end of 2000.
Our sales personnel call on prospective and existing business customers,
conduct analyses of business customers' telecommunications usage histories and
service needs, and demonstrate how our various service
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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, personal
telemarketing and through other networking alliances such as endorsement
agreements with trade associations and local chambers of commerce. We recruit
new account executives by emphasizing our extensive and advanced fiber
communications network, broad array of services bundled on a single bill,
superior customer service, attractive compensation and commission plans, stock
option programs and marketing support plans.
We also have 135 sales agents located throughout Texas. Our agent program
was established in 1996, and consists primarily of independent telephone
equipment vendors authorized by us to market our products and services.
Authorized agents receive recurring commissions based on product, pricing,
volume of usage and customer retention. We have four agent managers who actively
recruit new agents. We intend to add an additional 55 agents in 1999.
Our marketing strategy is built upon the belief that customers want to
reduce the number of providers, simplify the complexity and enhance the value of
their telecommunications needs. To address this strategy, we seek to be a single
source provider, offering the bulk of our customers' needs on single bills and
through single sales channels. We believe that our personalized attention to the
needs of our business customers, coupled with our ability to provide a fully
integrated bill, is appealing to both existing and prospective customers.
Project Management and Offshore Services. We target domestic customers that
require turnkey system solutions and other telecommunications services. Our
sales force sells frequency bandwidth and call completion and system solutions,
which allows us to further develop our own telecommunications infrastructure.
CUSTOMER CARE AND SUPPORT
We believe that our reputation has been built on outstanding customer care.
We strive to provide superior customer care and support for our customers and
believe that personal contact with our customers through knowledgeable, friendly
and efficient customer service representatives is a significant factor in
customer retention. We intend to significantly increase the number of our
customer service representatives as the number of direct and agent sales
representatives grows.
To support our carriers' carrier and integrated services customers, we
operate a call center in Dallas, Texas staffed by our customer service
representatives, who have completed a certification and training program
provided by us. To enhance their effectiveness, we provide ongoing training to
all customer service representatives. Our customer service department uses
on-line, real-time automated systems that provide notes from all prior contacts
with the customer, provide a complete account and payment history for customers
billed by us and enable the customer service representatives to provision new
services and modify existing services on all of our products.
We handle our provisioning, customer care, billing and traffic reporting
functions through a proprietary software platform developed by RiverRock
Systems, Ltd., a Texas limited partnership in which we have a 49% ownership
interest. The system has been designed to be both scalable and flexible in order
to support our expected future back office requirements. We believe that this
system provides us with a significant competitive advantage by allowing us to
creatively bundle and price various telecommunication services, to process large
order volumes, and to provide superior customer service when compared to the
incumbent local telephone companies using legacy systems and their competitors
that outsource back-office services or that do not have an advanced office
support systems platform. The RiverRock system is part of a larger back office
organization which enables us to: (1) minimize the time required to initiate
services for new customers, (2) provide customer bills, (3) respond quickly to
customers' needs and information requests, and (4) better monitor and analyze
traffic, financial and operating trends. We intend to continue to develop this
system to meet increasing demands for our services and to continue to provide
our customers with superior customer care. See "Certain Transactions."
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We also provide customer support for our offshore products and services
through our full-service support teams in Friendswood, Texas, Lafayette and New
Orleans, Louisiana, Moscow, Russia and Aberdeen, Scotland. Support services
include: (1) on-site maintenance, with over 50 technical specialists on call for
immediate dispatch when customers' communications systems require maintenance;
(2) a network operations center in Friendswood, Texas where our professionals
remotely monitor customers' communications systems throughout the Gulf of Mexico
and around the world seven days a week, 24 hours a day; (3) customer support for
our wireless products; (4) training programs designed to maximize the customers'
communications investment through classroom training at customers' sites and
multimedia video training tools; and (5) research and development for unique
applications where our engineers can custom design or modify hardware to improve
our performance within a particular system.
COMPETITION
Overview. The communications services industry is highly competitive,
rapidly evolving and subject to constant technological change. In particular,
numerous companies offer long distance, local, Internet, data and bandwidth
services, and we expect competition to increase in the future. We compete in
these markets primarily on the basis of price, customer service and the ability
to provide a variety of communications products and services.
Fiber Networks. We intend to expand our fiber optic network to
approximately 6,100 route miles throughout the Southwest region. We expect to
compete with numerous established and start-up national and regional fiber optic
networks owned by long distance carriers, ILECs and competitive local exchange
carriers ("CLECs") throughout the Southwest region. These competitors include
very large companies such as:
- AT&T,
- MCI WorldCom,
- Sprint,
- Level 3,
- Williams,
- SBC, and
- Qwest.
Each of these companies has greater name recognition, financial, personnel,
technical and marketing resources than we have. We also anticipate that other
providers of local and long distance telecommunications services will plan and
construct fiber networks that could compete with our network. In addition to
long distance carriers and local telephone companies, entities potentially
capable of offering broadband services in competition with our 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.
Competing networks may also have advanced fiber and operating capabilities
similar to those of our network. Furthermore, we expect that some of our
competitors will compete in our geographic market and
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directly with us for many of the same customers along a significant portion of
the routes along which we intend to operate.
Domestic and International Long Distance. We provide long distance services
using our own facilities and by reselling the facilities of other carriers, both
in the United States and between the United States and other countries. The long
distance communications industry is intensely competitive and the marketing and
pricing decisions of the larger industry participants such as AT&T, MCI
WorldCom, and Sprint have a significant impact on us. In addition, significant
consolidation in the industry has created and will continue to create numerous
other entities with substantial resources to compete for long distance business.
Such entities include Excel Communications, Inc., Frontier Communications
Service, Inc. and Qwest. In addition, as a result of the Telecommunications Act
of 1996 (the "1996 Telecommunications Act"), we anticipate that the Federal
Communications Commission ("FCC") may permit the Regional Bell Operating
Companies (the "RBOCs") to enter the long distance market in the future. The GTE
Operating Companies ("GTOCs") do not require FCC approval and may enter the long
distance market now. These larger competitors have significantly greater name
recognition and greater personnel, financial, technical, network and marketing
resources. Many may also offer a broader portfolio of services and have long
standing relationships with customers targeted by us. Moreover, we cannot
guarantee that our competitors cannot negotiate contracts with suppliers of
telecommunications services to obtain conditions of service more favorable than
ours. Many of our competitors enjoy economies of scale that can result in a
lower cost structure for transmission and related terminating costs. Those
carriers could bring significant pricing pressure to bear on us.
Customers frequently change long distance providers in response to lower
rates or promotional incentives by competitors. Prices for domestic and
international long distance calls have declined in recent years and we expect
them to continue to decrease further and more rapidly. Indeed, we expect
competition in all of our relevant markets to increase. This increased
competition could adversely affect our net revenue per minute and gross margins.
We cannot guarantee that we can compete effectively in the domestic or
international long distance markets.
Local Exchange Service. Our business objective is to expand significantly
our operations to provide local services. Regulation permitting us to compete in
the local service market has only recently been enacted into law, following
enactment of the 1996 Telecommunications Act. The services we intend to offer
will compete with those offered by ILECs, such as BellSouth, Southwestern Bell
and the GTOCs, as well as very large long distance carriers, such as AT&T, MCI
WorldCom, and Sprint. The ILECs currently dominate the provision of local
services in their respective markets, and the ILECs and the very large long
distance carriers have greater name recognition and greater financial,
technical, network, marketing and personnel resources than we do. Those entities
also hold longer standing relationships with regulatory authorities at the
federal and state levels than we do. We may also face competition from other
current and potential market entrants, including:
- other CLECs,
- cable TV companies,
- electric utilities,
- ILECs 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.
We cannot guarantee that we can compete effectively in the local service
markets.
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Internet Telephony. The FCC currently classifies Internet services as
enhanced services. As a result, federal and state common carrier regulations,
including long distance interstate and intra-state access fees, tariffing,
certification and rate regulation do not apply to the provision of Internet
services. Some Internet service providers, or ISPs, have recently announced
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 long-distance companies and other
communications companies to reduce prices and margins on domestic and
international long distance services. We cannot guarantee that either we or our
carrier customers will not experience substantial decreases in call volume,
pricing and/or margins due to IP Telephony. We also cannot guarantee that we can
offer telecommunications services to end users at prices that can compete with
the IP Telephony services offered by these new companies.
We also provide Internet services. We cannot guarantee that federal or
state regulators will not impose additional regulation on Internet services in
the future. We expect to compete by introducing IP Telephony shortly. The
Internet services market is highly competitive, in part because no substantial
barriers to entry exist. We expect that competition will continue to intensify.
Our competitors in this market include:
- Internet service providers,
- other telecommunications companies,
- online services providers, and
- Internet software providers.
Many of these competitors have greater personnel, financial, technical and
marketing resources than those available to us.
On April 5, 1999, US West filed a petition with the FCC asking the FCC to
find that IP telephony services are telecommunications services, not enhanced
services or information services, and therefore should be subject to access
charge and universal service obligations. We cannot predict how the FCC will
rule on US West's petition. If the FCC does ultimately determine that IP
telephony is subject to the FCC's access charge and universal service regimes,
such a ruling would likely substantially increase the costs of providing IP
telephony. US West filed similar requests before the Nebraska Public Service
Commission and the Colorado Public Utility Commission.
Technological Advances. Dense wave division multiplexing, high-speed OC-192
transmission electronics, advanced fiber technology and packet switching are
converging to increase significantly the supply of domestic and international
transmission capacity. Rapid and on-going technological advances have brought
new product and service offerings similar to the services we provide. The
introduction of new products or emergence of new technologies may cause capacity
to greatly exceed demand, reducing the pricing of certain services we provide.
We cannot guarantee that we can satisfy future customer needs, that our
technologies will not become obsolete because of future technological
developments, or that we will not have to make significant additional capital
investments to upgrade or replace our system and equipment. We cannot predict
the impact of these technological changes on our operations. If we fail to keep
pace with advances, it could have a material adverse effect on our financial
condition, results of operations and cash flow.
Offshore and Remote Telecommunications Services. Currently, we provide
telecommunications services to oil and gas customers in the Gulf of Mexico. In
the Gulf of Mexico, we compete directly principally with Autocomm Communications
Engineering Corp., Sola Communications, Inc., Datacom and Shell. 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. Although we believe that we compete
successfully in each of our markets today, we cannot guarantee that we can
continue to compete successfully in the future. We believe that most of our
larger competitors have generally not made it a priority to provide remote,
difficult-access telecommunications
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services. Should one or more of our competitors decide to focus on such
services, it could have a material adverse effect on our financial condition,
results of operations and cash flow.
EMPLOYEES
As of May 31, 1999, we employed approximately 476 people, including
approximately 161 in sales and marketing, approximately 132 in engineering and
technical services and approximately 183 in management, customer care,
provisioning, administration and finance. At that date, we also had an agent
sales force numbering approximately 135 independent agents throughout Texas. We
use the services of independent contractors for construction of our fiber
network. None of our employees is represented by a labor union or is subject to
a collective bargaining agreement. We believe that we have good relations with
our employees.
PROPERTIES
We own or lease buildings that contain approximately 170,000 square feet of
floor space. Our primary headquarters are located in Dallas, Texas. We entered
into a lease agreement effective March 1999 for our new corporate headquarters
and expect to occupy an additional approximately 30,000 square feet at the new
headquarters in the year 2000. We own an office building in Friendswood, Texas
and an office building in Lafayette, Louisiana, and we lease the remainder of
our office space.
All of the fiber optic cable, fiber optic telecommunications equipment and
other properties and equipment used in the networks, are owned or leased by us.
We have entered into various franchise, rights of way and lease agreements for
network regeneration sites. These properties and agreements do not lend
themselves to description by character and location of principal units and are
not considered meaningful for this disclosure. Our principal facilities include:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET DESCRIPTION
- -------- ----------- -----------
<S> <C> <C>
Dallas, Texas.......................... 70,000 Corporate headquarters for
administration, finance and carrier
sales functions, sales, switching and
customer support personnel
Houston, Texas......................... 24,000 Division headquarters for
administration, finance and sales
functions
Friendswood, Texas..................... 24,000 Engineering, network operations center,
administration, production and
warehouse
Phoenix, Arizona....................... 10,300 Switching facility and sales functions
</TABLE>
We consider our current facilities adequate for our current needs and
believe 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
We are a party to ordinary litigation incidental to our business from time
to time. Currently, we are not a party to any litigation that we expect would
have a material adverse effect on our results of operations, financial condition
or cash flow.
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REGULATION AND LICENSES
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 us or the telecommunications industry, can be predicted at this time. This
section also sets forth a brief description of regulatory and tariff issues
pertaining to our operations.
We provide domestic and international services subject to varying degrees
of U.S. federal, state and local regulation, and regulation by foreign
authorities. In the United States, the 1934 Communications Act, as amended,
including as amended by the 1996 Telecommunications Act and the regulations
promulgated by the FCC thereunder, as well as the applicable laws and
regulations of the various states and state regulatory commissions all govern
the provision of telecommunications services. 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 common carrier communications,
including international communications originating from or terminating in the
United States. State regulatory authorities retain jurisdiction over
jurisdictionally intrastate communications. Under Title III of the 1934
Communications Act, the FCC also regulates 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
we provide in other countries remain subject to the telecommunications laws and
regulations of those countries.
The FCC and the state regulatory agencies impose and enforce regulatory
requirements applicable to our operations. 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.
As a telecommunications carrier, we must also comply with the Federal
digital wiretapping administered by the U.S. Department of Justice and the FCC.
The telecommunications industry varies substantially from state to state and
continues to change rapidly. Moreover, as deregulation at the federal level
occurs, some states are reassessing the level and scope of regulation applicable
to carriers. Domestic or international regulators or third parties could raise
material issues with regard to our compliance or non-compliance with applicable
regulations. Future regulatory, judicial or legislative activities could have a
material adverse effect on our financial condition, results of operations or
cash flow.
U.S. Federal Regulation
Local Service Regulation Under The 1996 Telecommunications Act. The 1996
Telecommunications Act, which amended the 1934 Communications Act, provided for
comprehensive reform of the United States' telecommunications laws. In passing
the 1996 Telecommunications Act, Congress sought to increase local competition
from newer competitors such as long distance carriers, cable TV companies and
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public utility companies. The 1996 Telecommunications Act specifically requires
all local exchange carriers, or LECs (including ILECs and CLECs):
- not to prohibit or unduly restrict resale of their services,
- to provide dialing parity, number portability and nondiscriminatory
access to telephone numbers, operator services, directory assistance and
directory listings,
- to afford access to poles, ducts, conduits and rights-of-way, and
- to establish reciprocal compensation arrangements for the transport and
termination of telecommunications.
In addition, ILECs must provide:
- interconnection on certain terms and conditions,
- 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 colocation of equipment necessary for interconnection and access
to unbundled network elements at the LECs' premises.
On March 31, 1999, the FCC released its Collocation Order which requires
ILECs to permit CLECs to collocate any equipment used for interconnection or
access to unbundled network elements even if that equipment includes switching
or enhanced service functions. Among other things, the Collocation Order also:
- prohibits ILECs from placing any limits on the use of switching or
enhanced features for collocated equipment; and
- requires ILECs to make cageless collocation available and permit CLECs to
construct their own cross-connect facilities.
Under the 1996 Telecommunications Act, Regional Bell Operating Companies,
or RBOCs, have the opportunity to provide out-of-region long distance and
certain cable TV services immediately and in-region long distance services after
the RBOCs meet certain conditions. Specifically, an RBOC can enter the market
for in-region long distance services within areas where the RBOC provides local
exchange service upon FCC approval based on a showing that facilities-based
competition and interconnection agreements meeting a 14-point checklist both
exist. Entry of RBOCs into the domestic and international long distance business
and the emergence of other new local competitors could subject us to substantial
competition and could have a material adverse effect on our financial condition,
results of operations and cash flow.
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 prices for unbundled
network elements and for wholesale resale services.
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On January 25, 1999, the Supreme Court issued an opinion overturning prior
decisions issued by the U.S. Court of Appeals for the Eighth Circuit that had
vacated certain portions of the Interconnection Decision. The Supreme Court's
decision confirmed the FCC's authority to issue regulations implementing the
pricing and other provisions of the 1996 Telecommunications Act and reinstated
most of the challenged rules. However, the Supreme Court vacated a key FCC rule
that identified the network elements that incumbent LECs must unbundle. The FCC
has initiated a rulemaking to consider that issue. The Eighth Circuit decisions
and their recent reversal by the Supreme Court perpetuate continuing uncertainty
about the rules governing the pricing, terms and conditions of interconnection
agreements. During the pendency of the Eighth Circuit proceedings, state public
utilities commissions have continued to conduct arbitrations, and to implement
and enforce interconnection agreements. However, the Supreme Court's recent
ruling and further proceedings on remand may affect the scope of the state
commissions' authority to conduct such proceedings or to implement or enforce
interconnection agreements. The U.S. Supreme Court's decision will likely result
in new or additional rules being promulgated by the FCC, and the FCC has
initiated a proceeding to delineate the network elements that must be provided
by incumbent LECs. Given the general uncertainty surrounding the effect of the
Eighth Circuit decisions and the recent decision of the Supreme Court reversing
them, we cannot guarantee that we can continue to obtain or enforce acceptable
interconnection terms or interconnection terms consistent with our business
plans.
On August 7, 1998, the FCC released an Order denying requests by various
ILECs that the FCC use Section 706 of the 1996 Telecommunications Act to forbear
from regulating advanced telecommunications services. Instead, the FCC
determined that advanced services constitute telecommunications services and
that ILECs must comply with the unbundling and resale obligations and the
in-region inter-LATA restrictions of the 1996 Telecommunications Act in their
provision of advanced services. The FCC also proposed in a rulemaking to allow
ILECs to provide advanced services on an unregulated basis through separate
subsidiaries. We cannot predict the outcome of the FCC's proceeding. However, if
the FCC does forbear from regulating advanced telecommunications services, such
a decision would increase the ability of ILECs to compete against less
established carriers such as us.
Domestic Interstate Services. The FCC considers domestic interstate common
carriers (including us) that do not have market power as "nondominant." The FCC
subjects nondominant carriers to minimal regulation. However, interstate
carriers offering services to the public must comply with the federal statutory
and regulatory requirements of common carriage under the 1934 Communications Act
file various reports and pay various fees and assessments. Among other things,
interstate common carriers must offer service on a non-discriminatory basis at
just and reasonable rates. Nondominant carriers need not obtain specific prior
FCC approval to initiate or expand domestic interstate services, although they
must file a tariff with the FCC. Nondominant carriers remain subject to the
FCC's complaint jurisdiction. In particular, we may be subject to complaint
proceedings in conjunction with alleged noncompliance such as unauthorized
changes in a customer's preferred carrier. To date, one such complaint has been
filed at the FCC against us. In the event that the FCC finds that we have
violated an applicable rule or regulation, due to a complaint, noncompliance
with a fee payment or other reporting requirement or an internal investigation,
the FCC retains broad authority to impose various sanctions or penalties. The
complaint alleges that we participated with another carrier in a "slamming"
violation in which we improperly reassigned a toll free 800 number held by one
customer to a different customer. We are vigorously defending the complaint and
we have argued that no penalties or damages should be imposed because, among
other things, we complied with all applicable service change requirements at the
time we purchased the toll free number from the other codefendant carrier and
played no role in and had no prior knowledge of any alleged unauthorized change
by that carrier. We believe that the ultimate outcome of this matter will not
have a material adverse effect on our financial condition, results of operations
or cash flow. The FCC has issued an order eliminating the requirement that
nondominant carriers maintain tariffs for their domestic interstate services on
file at the FCC. Several carriers have appealed the FCC's order to the U.S.
Court of Appeals for the District of Columbia and that court has stayed the
FCC's order 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
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their interstate services. The FCC recently released an order specifying how
carriers should inform customers of their rates if detariffing occurs. Rate
information is to be provided to customers by such means as posting the rates on
a carrier's World Wide Web site. Elimination of tariffs will require that we
secure with each of our customers contractual agreements containing the terms of
the services offered. To the extent that disputes arise over such contracts,
carriers, including us, may no longer resort to the legal doctrine that the
terms of a filed tariff supersede individual contract language.
International Service Regulation. As a provider of international
telecommunications services, we must comply with the federal statutory and
regulatory requirements of common carriage under the 1934 Communications Act.
International common carriers must obtain authority from the FCC under Section
214 of the 1934 Communications Act and file a tariff containing the rates,
terms, and conditions applicable to their services before initiating their
international telecommunications services. We hold global authority from the FCC
to provide resale of switched services and private line services (where
permitted by the FCC) and to provide facilities-based services. We maintain an
international tariff on file with the FCC. International telecommunications
service providers must also file with the FCC:
- copies of their contracts with other carriers,
- certain foreign carrier agreements, and
- various reports regarding their international revenue, traffic flows and
use of international facilities.
Carriers holding Section 214 authority must also comply with FCC rules
requiring, among other things, prior approval for most transfers of control and
assignments.
Authorized international carriers must also comply with the FCC's
international service regulations, including the International Settlements
Policy ("ISPY") which 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 settlements, and
- the permissible deviations from these policies.
The ISPY applies to both resale and facilities-based operations. To the
extent that we acquire or own facilities that permit us to carry international
traffic, the FCC may pay particular attention to our compliance with that
policy.
The FCC also recently approved significant reform of its ISPY, and
deregulated intercarrier settlement arrangements between U.S. carriers and
non-dominant foreign carriers and arrangements with all foreign carriers on
competitive routes. Specifically, the new FCC rules, issued but not yet
effective, generally eliminated the ISPY and contract filing requirements for
arrangements with foreign carriers that lack market power. The recent ISPY
reform also changed the FCC's private line resale (or international simple
resale ("ISR")) policy, which prohibits carriers from using private line
circuits to provide switched services to a foreign country unless the FCC has
approved that foreign route for ISR service. The FCC will approve a foreign
route for ISR if it finds that the country offers equivalent resale
opportunities to engage in similar activities in that country or, with WTO
countries, if the local telecommunications provider charges U.S. carriers rates
at or below the FCC-determined rate for terminating U.S. traffic (the "Benchmark
Rate"). The new ISPY reform effectively permits ISR arrangements with
nondominant foreign carriers. Where U.S. carriers enter into agreements with
dominant foreign carriers, ISR will continue to be permitted on those foreign
routes approved by the FCC. The ISPY reform will open new opportunities for U.S.
carriers to enter into innovative, economic traffic arrangements with foreign
carriers, but will also likely increase competition in the international
services market.
The FCC recently streamlined Section 214 license and related requirements.
While these rule changes may provide carriers with more flexibility to respond
more rapidly to changes in the global
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telecommunications market, they will also likely increase the level of
competition in the international telecommunications marketplace.
Wireless Services. We own and maintain a variety of telecommunications
infrastructures and we hold various FCC and international licenses to transmit
voice and data. We currently hold numerous FCC licenses to provide land mobile,
microwave and satellite communications services. See "-- Licenses."
FCC licensees authorized to provide microwave, satellite earth station and
land mobile service must comply with under Title III of the 1934 Communications
Act and a variety of detailed licensing, operational and technical requirements
specific to each service. Among other requirements, licensees seeking to alter
the technical or operational configurations of their equipment or to continue
operating beyond the expiration date of the licenses must seek additional prior
authority from the FCC. We recently became aware that some of our earth station
operations do not strictly comply with the licenses we hold. We recently filed
applications to modify our FCC licenses to ensure that they fully reflect our
operations. FCC rules also contain various other requirements such as
restrictions on proposed transfers of control or assignments and required
compliance with relevant Federal Aviation Administration rules on wireless tower
construction and operation. The FCC generally retains the right to sanction a
carrier or revoke its authorizations if a carrier violates applicable laws or
regulations.
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 the FCC assigns wireless
licenses 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. The term "access service" describes the use of local exchange
facilities for the origination and termination of interexchange communications.
On May 8, 1997, the FCC released an order intended to reform the FCC's system of
interstate access charges to make that regime compatible with the
pro-competitive deregulatory framework of the 1996 Telecommunications Act. The
FCC's access reform order adopts various changes to federal 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 interstate access charges do not apply to ISPs.
On April 5, 1999, US West filed a petition with the FCC asking the FCC to
find that IP telephony services are telecommunications services, not enhanced
services or information services, and therefore should be subject to access
charge and universal service obligations. We cannot predict how the FCC will
rule on US West's petition. If the FCC does ultimately determine that IP
telephony is subject to the FCC's access charge and universal service regimes,
such a ruling would likely substantially increase the costs of providing IP
telephony. US West filed similar requests before the Nebraska Public Service
Commission and the Colorado Public Utility Commission.
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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 competitive levels but that a "prescriptive" approach might
be considered if necessary. In the absence of competition, the FCC stated that
it might specify the nature and timing of changes to existing access rate
levels. The FCC has indicated that it will promulgate additional rules sometime
in 1999 that may grant increased pricing flexibility to price cap LECs upon
demonstrations of increased competition (or potential competition) in relevant
markets. Price cap LECs include the RBOCs, GTE and certain independents that
must establish rates only at or below a designated price ceiling. The Eighth
Circuit has affirmed the FCC's access reform order.
Universal Service Charges. In 1997, the FCC released an order establishing
a significantly expanded federal universal service subsidy regime. Specifically,
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. The FCC collects money to fund this
expanded regime from interstate carriers and certain other entities. Our
payments for the schools and libraries and rural health care fund depend on
estimated quarterly intrastate, interstate and international gross end-user
telecommunications revenues. Contribution factors vary quarterly and the FCC
bills carriers on a monthly basis. Contribution factors for 1999 ranged from
3.08 to 3.19% for the high cost and low income funds (interstate and
international revenues); and 0.72 to 0.76% for the schools, libraries, and rural
health care funds (intrastate, interstate and international revenues). Because
the contribution factors do vary quarterly, we cannot currently accurately
determine the annualized impact on our annual performance. Several parties have
appealed the FCC's universal service order and those appeals remain pending
before the Fifth Circuit Court of Appeals.
The FCC may also issue new regulations governing the treatment of calls to
ISPs for the purposes of universal service obligations. In a recent report to
Congress, the FCC clarified that carriers must consider revenues earned from the
transmission services supplied to ISPs when calculating universal service
obligations. 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. We cannot predict the outcome of these proceedings
or their potential effect on our operations.
Internet Services. There are currently few U.S. laws or regulations which
specifically regulate communications or commerce over the Internet. One area in
which Congress did attempt to regulate information over the Internet involved
the dissemination of obscene or indecent materials. Certain provisions of the
1996 Telecommunications Act relating to indecent communication over the
Internet, generally referred to as the Communications Decency Act, were found to
be unconstitutional by the U.S. Supreme Court in 1997. In October 1998, Congress
enacted the Child Online Protection Act, which requires that on-line material
that is "harmful" to minors be restricted. This law is currently being
challenged in federal district court. On February 1, 1999, a U.S. District Court
judge issued a preliminary injunction against enforcement of portions of that
Act and the U.S. Department of Justice has appealed that decision.
It is possible that in the future laws and regulations could be adopted
which address matters such as user privacy, copyrights, pricing and the
characteristics and quality of Internet services, among other areas.
Internet-related legislation and regulatory policies are continuing to develop
and we could be subject to increased regulation in the future. Laws or
regulations could be adopted in the future that may decrease the growth and
expansion of the Internet's use, increase our cost of doing business, or
otherwise adversely affect our business.
In addition, in 1998 Congress passed the Digital Millennium Copyright Act.
That act provides ISPs that comply with its requirements numerous protections
from certain types of copyright liability. To the extent that we have not met
those requirements, third parties could seek recovery from us for copyright
infringements caused by our Internet customers.
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The law relating to the liability of ISPs for information carried on or
disseminated through their networks is currently unsettled. It is possible that
claims could be made against ISPs for defamation, negligence, copyright or
trademark infringement, or on other theories based on the nature and content of
the materials disseminated through their networks. We could be required to
implement measures to reduce our exposure to potential liability, which may
require, for instance, the expenditure of resources or the discontinuance or
modification of certain product or service offerings. Costs that may be incurred
as a result of contesting any claims relating to our services or the consequent
imposition of liability could have a material adverse effect on our financial
condition, results of operations and cash flow.
The Eighth Circuit recently found that the FCC has a reasonable basis for
not requiring ISPs to pay access charges. In June 1997, every RBOC advised CLECs
that they did not consider calls in the same local calling area from RBOC served
customers to CLEC served ISPs, to be local calls under the interconnection
agreements between the RBOCs and the CLECs. The RBOCs also claimed that the FCC
exempted these calls from access charges, and therefore that CLECs could not
recover compensation 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 RBOCs must pay reciprocal compensation for
such calls. Various RBOCs have appealed these cases. We cannot predict the
outcome of these appeals.
On February 26, 1999, the FCC determined that calls made to ISPs are
largely interstate in nature, and requested comments regarding how this traffic
should be regulated once existing interconnection agreements expire. However,
the FCC also determined that since federal law did not govern compensation for
this traffic when existing interconnection agreements were signed, the states
could determine whether carriers should pay reciprocal compensation for these
calls under existing agreements. There is a risk that state commissions which
previously considered this issue and ordered the payment of reciprocal
compensation could revisit this issue on their own volition or at the request of
an ILEC, and revise their prior decisions on this issue. The U.S. Court of
Appeals for the Seventh Circuit recently affirmed a decision that reciprocal
corporations should be paid for calls to ISPs. To date, at least one ILEC has
filed suit seeking a refund from a carrier of reciprocal compensation the ILEC
has paid to that carrier.
State Regulation
Most states require carriers to obtain a certification or other
authorization before offering 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. We hold long distance
authorization in most, but not all, of the states in which certificates are
required. In addition most states impose tariff requirements on carriers and
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 often require prior approvals or notifications for certain transfers of
assets (such as fiber optic cable or other telecommunications facilities),
customers, or ownership. Some states also require approval or notice for the
issuance of securities or debt or for name changes. We have sought or expect to
seek various additional authority in some states. We cannot guarantee that we
will be able to successfully obtain such approvals. 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 concluded that
we provide intrastate service without the appropriate authority, or that we are
not otherwise in compliance with state public utility commission rules, that
agency could initiate enforcement actions, potentially including 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. We hold authority to provide interexchange and competitive local
exchange services in certain service areas in Arkansas, Kansas, Louisiana,
Oklahoma and Texas, and have authority to provide interexchange service in at
least 35 states.
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In addition, carriers providing intrastate services must comply with state
utility commission rules and 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. Numerous other
states have also instituted proceedings to adopt state universal service funding
obligations rules. 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
sought reductions in state regulatory requirements, including greater pricing
flexibility. If regulators allow variable pricing of access charges based on
volume, we could face a competitive disadvantage in competing against larger
long distance carriers. We also could face increased price competition from the
RBOCs and other LECs for local and long distance services. In addition, the
removal of former restrictions on long distance service offerings by the RBOCs
as a result of the 1996 Telecommunications Act could further increase
competition. We cannot predict what impact of such rule changes might have on
our operations.
Local Government Authorizations
We also own telecommunications facilities that may be subject to certain
local government requirements. In particular, facilities-based companies must
generally obtain street use and construction permits and licenses and/or
franchises to install and expand fiber optic networks using municipal rights of
way. While regulation of municipal rights of way generally remains a matter
under local jurisdiction, some states have enacted or are considering enacting
measures that affect the ability of local governments to impose certain types of
restrictions on franchisees or to require certain types of concessions from
carriers seeking franchise agreements.
Termination of our existing franchise or license agreements before their
expiration dates or failure to renew those agreements and any resulting
requirement to remove facilities could have a material adverse effect on our
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. We cannot guarantee that we can retain existing franchises or
that franchise fees will remain at their current levels.
The Texas Public Service Commission generally requires us to provide 911
service along with our 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, we have not obtained a franchise. On May 26, 1998, we, 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 violates the 1996
Telecommunications Act, particularly with respect to resellers of LEC services.
The Texas court has consolidated our action 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, we cannot guarantee that we will prevail in
our pending lawsuit against the City of Dallas.
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Foreign Regulation
International telecommunications providers are subject to varying degrees
of regulation in each of the jurisdictions in which they provide service. Local
laws and regulations, and the interpretation of such laws and regulations,
differ significantly from country to country. To the extent that we provide, now
or in the future, services in non-U.S. countries, we must comply with 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 we may also face to obtain initial licensing, operational and rate
requirements in the relevant countries. For example, many countries, including
Mexico, have international settlements policies similar to the one imposed by
the U.S. Such policies and their enforcement vary between different countries.
To the extent that we provide service between the U.S. and other countries,
various international settlement policies may apply.
Licenses
We have received authorization, 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 wireless mobile services, we
own various radio systems that provide two-way voice communications and have
obtained approximately 35 FCC licenses with approximately 300 frequency pairs.
These licenses have varying terms that expire and will require renewal. As each
license comes due for renewal, we will evaluate the need for such license and
elect to either renew the license or let it expire where, for example, we expect
no further need to use a particular license. These licenses allow us to provide
two-way wireless radio services along the Texas and Louisiana Gulf Coast and
offshore to oil and gas-related companies. Each frequency pair allows two-way
transmission and reception. We hold approximately 20 microwave FCC licenses
providing voice and data services along the Texas and Louisiana Gulf Coast and
offshore to drilling, production and related companies. We hold approximately
five C band fixed earth station authorizations. We also hold seven
authorizations that permit us to own and operate a network of Very Small
Aperture Terminal ("VSAT") networks that operate in the Ku band. As noted
previously, we recently filed modification applications with the FCC earth
station licenses to ensure that those authorizations reflect our current
operations.
We also operate as an FCC certificated Section 214 carrier to provide
resold switched telecommunications services. We have 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.
We currently provide international facilities-based private line service on
a private carrier basis into Bolivia, Bosnia, Croatia, Ecuador, Hungary and
Russia. As part of our plans to increase service offerings, we have obtained
authority to provide dedicated services in Louisiana and CLEC and long distance
services in Arkansas, Kansas, Louisiana and Texas. In addition, we have received
approval to have pole attachment rights to existing or future facilities of
Entergy, BellSouth and the State of Louisiana. Pole attachment rights allow us
to attach our own fiber optic cable to other parties' respective utility poles.
In addition, we own installed fiber optic cable placed under various public and
private rights-of-ways.
Digital Wiretapping
The Communications Assistance to Law Enforcement Act ("CALEA"), enacted in
1994, requires telecommunications carriers to make available certain
telecommunications capabilities to U.S. law enforcement officials to permit
those authorities to continue to intercept communications involving advanced
technologies such as digital and wireless transmission communications. CALEA
imposes certain obligations on carriers to ensure that their equipment,
facilities and services will meet capability and capacity requirements in order
to provide law enforcement agencies the ability to intercept wireline and
wireless communications transmitted over those carrier's networks. Courts may
impose fines of up to $10,000 per day on telecommunications carriers that fail
to meet the required capability functions, as determined by industry standards.
Under procedures specified in CALEA, the U.S. Department of Justice ("DOJ")
recently filed a petition at the FCC challenging the technical capability
standard developed by
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the telecommunications industry. Because of the disputed standard, several
carriers sought an FCC extension of the October 25, 1998 capability compliance
deadline. The FCC recently extended the compliance date for the CALEA capability
requirements to June 30, 2000 to permit manufacturers sufficient time to develop
CALEA compliant equipment. In the meantime, we expect the FCC to issue shortly
an order identifying the capabilities carriers, such as us, will have to provide
to law enforcement officials in order to meet CALEA's requirements.
Telecommunications carriers must also meet CALEA capacity requirement mandating
that by March 12, 2001, carriers enable a specific number of simultaneous
interceptions determined on a geographic basis. We cannot predict the nature and
extent of the impact the CALEA requirements will have on us or on
telecommunications carriers in general.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, officers and key employees as of the date of this prospectus
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Jere W. Thompson, Jr. ............... 42 Chairman of the Board, Chief Executive Officer
and Director
Ignatius W. Leonards................. 45 Vice Chairman of the Board, President and
Director
Kevin W. McAleer..................... 48 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Byron M. Allen....................... 51 Executive Vice President of International
Timothy W. Rogers.................... 36 Executive Vice President of Retail Sales and
Network Operations and Director
Timothy M. Terrell................... 37 Executive Vice President of Carrier Sales
Scott L. Roberts..................... 37 Executive Vice President of International Sales
Matthew M. Kingsley.................. 34 Corporate Controller
Mark Langdale........................ 45 Director
Christopher J. Amenson............... 49 Director
John R. Harris....................... 50 Director
Richard G. Ellenberger............... 46 Director
</TABLE>
Mr. Jere W. Thompson, Jr. has served as Chairman of the Board and Chief
Executive Officer of CapRock since its formation in February 1998. Mr. Thompson
also has served as President of CapRock Telecommunications, one of our
predecessor companies, since April 1994, and since July 1992, upon founding
CapRock Fiber, as the President of its general partner. In 1987, Mr. Thompson
joined The Thompson Company, an investment company, where he became a Vice
President and assisted in the acquisition and management of several of The
Thompson Company portfolio companies. From 1982 to 1986, Mr. Thompson worked in
commercial real estate as a broker and then with Trammell Crow Community
Development Company. 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 Cistercian Preparatory School. Mr. Thompson has a B.A. in
Economics from Stanford University and a M.B.A. from The University of Texas
Graduate School of Business.
Mr. Ignatius W. Leonards has served as Vice Chairman of the Board and
President of CapRock since its formation in February 1998. Mr. Leonards served
as Chairman of the Board, Chief Executive Officer and a director of IWL
Communications since founding IWL Communications in 1981 and served as President
from 1981 until February 1997. Mr. Leonards has an industrial electronics degree
from the T.H. Harris Technical Institute in Opelousas, Louisiana.
Mr. Kevin W. McAleer has served as Senior Vice President and Chief
Financial Officer of CapRock since May 1998 and as Treasurer and Secretary since
August 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
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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. Byron M. Allen has served as Executive Vice President of International
of CapRock since its formation in February 1998. Mr. Allen served as a director
of CapRock from February 1998 until May 3, 1999, and served as President and a
director of IWL Communications since February 1997 and served as a Vice
President of IWL Communications 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. Mr. Allen graduated from the University of Alabama with a
degree in Mathematics.
Mr. Timothy W. Rogers has served as Executive Vice President of Retail
Sales and Network Operations and as a director of CapRock since its formation in
February 1998. Mr. Rogers served as Executive Vice President of Retail Sales and
Network Operations and as a Director of CapRock Telecommunications since April
1994. In 1992, Mr. Rogers 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 1992 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 CapRock Telecommunications. 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 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.
Mr. Timothy M. Terrell has served as Executive Vice President of Carrier
Sales of CapRock since its formation in February 1998. Mr. Terrell served as
Executive Vice President, Carrier Sales, and a Director of CapRock
Telecommunications since April 1994. In 1992, Mr. Terrell co-founded Synergy and
from February 1993 to April 1994 served as one of its three executive officers.
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 WorldCom. From July 1988 to January 1989, Mr. Terrell held
the same position at Metromedia Long Distance. Mr. Terrell has a B.B.A. in
Marketing from Southwest Texas State University.
Mr. Scott L. Roberts has served as Executive Vice President of
International Sales of CapRock since its formation in February 1998. Mr. Roberts
served as Executive Vice President, International Sales, and a Director of
CapRock 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.
Mr. Matthew M. Kingsley has served as Corporate Controller of CapRock since
August 1998. From August 1996 to August 1998, Mr. Kingsley was an audit manager
for KPMG LLP and held various positions with such firm from January 1988 until
February 1992. From February 1992 until August 1996, Mr. Kingsley held various
positions, including Senior Manager of Financial Planning, with DSC
Communications Corporation, a telecommunications equipment manufacturer. Mr.
Kingsley 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. Kingsley has a B.B.A. in Accounting from the University
of Wisconsin.
Mr. Mark Langdale has served as a director of CapRock since its formation
in February 1998. Mr. Langdale served as a Director of CapRock
Telecommunications since April 1994 and Secretary of the general partner of
CapRock Fiber since 1992. Mr. Langdale is President of Posadas USA, Inc., a
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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.
Mr. Christopher J. Amenson has served as a director of CapRock since
February 1998. Mr. Amenson has served as a director of IWL Communications 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 and in May 1997 he became Chairman of the Board of Directors
of SBS Technologies, Inc. For five years before 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. John R. Harris has served as a director of CapRock since August 1998.
Mr. Harris is currently an information technology services industry consultant.
Prior thereto, Mr. Harris served as a Corporate Vice President at Electronic
Data Systems Corporation, an information and technology outsourcing and data
processing company ("EDS"), from 1997 until March 31, 1999 (when he resigned
from EDS), where he was 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.
Mr. Richard G. Ellenberger was elected as a director of CapRock at
CapRock's 1999 Annual Meeting of Shareholders held on May 3, 1999. Mr.
Ellenberger has served as President and Chief Executive Officer of Cincinnati
Bell, Inc., a telecommunications company, since March 1, 1999, its Chief
Operating Officer since September 1, 1998, a director since November 1998 and as
President and Chief Executive Officer of Cincinnati Bell Telephone since June
1997. From 1996 to 1997, Mr. Ellenberger served as Chief Executive Officer of
XLConnect, a technical services company. From 1992 to 1996, Mr. Ellenberger
served in various capacities with MCI Telecommunications and was its President,
Business Services, from 1995 to 1996. Mr. Ellenberger served as Chief Operating
Officer of Entrade Corporation, a natural gas company, from 1990 to 1992. Mr.
Ellenberger currently serves on the Cincinnati Chamber of Commerce Board of
Directors and is a member of the Family Services Board of Greater Cincinnati.
Mr. Ellenberger is a graduate of Old Dominion University.
Our Board of Directors is currently composed of seven directors. Each
director serves until the next annual meeting of shareholders and until his
successor is duly elected and qualified. Byron Allen declined to stand for
re-election as a director at CapRock's 1999 Annual Meeting of Shareholders held
on May 3, 1999, and Richard Ellenberger was elected to fill the vacancy. Our
officers are elected by and serve at the discretion of the Board of Directors.
There are no family relationships among any of our directors or executive
officers.
BOARD COMMITTEES
We have established a Compensation Committee and an Audit Committee. The
Compensation Committee consists of Christopher J. Amenson, John R. Harris and
Richard G. Ellenberger (who was appointed to the committee upon being elected as
a director of CapRock on May 3, 1999). The Audit Committee consists of
Christopher J. Amenson, John R. Harris, and Mark Langdale. All members of the
Compensation Committee are and will be "Non-Employee Directors" within the
meaning of Rule 16b-3 under the Exchange Act and "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Audit Committee reviews our internal accounting procedures and
consults with and reviews the services provided by our independent auditors. The
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Compensation Committee reviews and recommends to the Board of Directors the
compensation and benefits of all our officers and establishes and reviews
general policies relating to compensation and benefits of our employees,
including the administering of our 1998 Equity Incentive Plan.
DIRECTOR COMPENSATION
We reimburse each member of our Board of Directors for out-of-pocket
expenses incurred for attending board meetings. Each non-employee director
receives a $10,000 annual retainer and a $1,000 fee for each meeting of the
Board of Directors and each meeting of any committee of the Board attended by
the director. No employee director on our Board of Directors currently receives
any additional cash compensation. Our non-employee directors are eligible to
participate in and receive nonqualified stock options under our 1998 Director
Stock Option Plan.
LIMITATION OF LIABILITY
Our Articles of Incorporation provide that our directors will not be liable
to us or our shareholders for monetary damages for an act or omission in the
director's capacity as a director. However, this provision does not authorize
the elimination or limitation of liability of a director to the extent the
director is found liable for (1) a breach of the director's duty of loyalty to
us or our shareholders, (2) any act or omission not in good faith that
constitutes a breach of duty of the director to us or an act or omission that
involves intentional misconduct or a knowing violation of law, (3) any
transaction from which the director derived any improper personal benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office or (4) any act or omission for which the liability of the
director is expressly provided by statute.
Because this provision is included in our Articles of Incorporation, we or
our shareholders may not be able to obtain monetary damages from a director for
breach of the duty of care. Although shareholders may continue to seek
injunctive or other equitable relief for an alleged breach of fiduciary duty by
a director, shareholders may not have any effective remedy against the
challenged conduct if equitable remedies are unavailable.
In addition, our Articles of Incorporation and Bylaws provide certain
rights of indemnification for all officers and directors.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows the compensation that
we paid or awarded to our Chief Executive Officer and our other four most highly
compensated executive officers for the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
1998 ANNUAL ------------
COMPENSATION SHARES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY(1) BONUS(2) OPTIONS COMPENSATION
- ------------------------------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Jere W. Thompson, Jr. ........................... $194,583 $110,000 125,000 $ --
Chief Executive Officer and Chairman of the
Board
Kevin W. McAleer................................. 128,846 80,000 100,000 18,750(3)
Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
Timothy M. Terrell............................... 135,555 107,500 55,000 --
Executive Vice President
Timothy W. Rogers................................ 138,555 100,000 62,500 --
Executive Vice President
Scott L. Roberts................................. 133,055 70,000 40,000 --
Executive Vice President
</TABLE>
- ---------------
(1) Under the terms of their employment agreements with CapRock (which were
entered into in February 1998), the annual base salary for Messrs. Thompson,
Terrell, Rogers and Roberts through December 31, 1998 was $180,000,
$133,333, $133,333, and $133,333, respectively, in each case subject to
increase upon review annually by the Board of Directors. Under the terms of
his employment agreement with CapRock (which was entered into in May 1998),
the annual base salary for Mr. McAleer through December 31, 1998 was
$200,000, subject to increase upon review annually by the Board of
Directors. Mr. McAleer became an employee of CapRock in May 1998.
(2) Represents bonus amount earned from CapRock in fiscal year 1998 and paid in
fiscal year 1999.
(3) Represents amounts paid to Mr. McAleer as a consultant prior to his
employment.
Option Grants in Last Fiscal Year. The following table contains information
concerning the stock option grants made to each of our executive officers who
are named in the "Summary Compensation Table" during the fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
- ---- ---------- ------------ -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jere W. Thompson, Jr. ........... 125,000 7.26% $6.50 10/13/08 $510,977 $1,294,916
Kevin W. McAleer................. 100,000 5.81% 6.50 10/13/08 408,782 1,035,933
Timothy M. Terrell............... 55,000 3.20% 6.50 10/13/08 224,830 569,763
Timothy W. Rogers................ 62,500 3.63% 6.50 10/13/08 255,488 647,458
Scott L. Roberts................. 40,000 2.32% 6.50 10/13/08 163,513 414,373
</TABLE>
- ---------------
(1) The options generally vest over a five-year period and expire on the tenth
anniversary of the date of grant.
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<PAGE> 70
(2) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the Common Stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.
Fiscal Year-End Option Values. The following table contains information
through December 31, 1998 concerning options held by each of our executive
officers who are named in the "Summary Compensation Table."
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
--------------------------------- ---------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
- ---- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Jere W. Thompson, Jr. ................... -- 125,000 -- $23,438
Kevin W. McAleer......................... -- 100,000 -- 18,750
Timothy M. Terrell....................... -- 55,000 -- 10,313
Timothy W. Rogers........................ -- 62,500 -- 11,719
Scott L. Roberts......................... -- 40,000 -- 7,500
</TABLE>
- ---------------
(1) Value is determined by subtracting the exercise price from the fair market
value of the Common Stock at December 31, 1998 ($6.6875 per share),
multiplied by the number of shares underlying the options.
(2) "Exercisable" refers to those options which were vested and exercisable at
December 31, 1998, while "Unexercisable" refers to those options which were
unvested at such time.
BENEFIT PLANS
The Equity Incentive Plan
Our 1998 Equity Incentive Plan was adopted and approved by our Board of
Directors and shareholders in 1998. The Equity Incentive Plan provides for the
awards of (1) stock options, (2) stock appreciation rights, (3) restricted
stock, (4) deferred stock, (5) stock reload options and (6) other stock-based
awards (collectively, "Awards"). Our employees and consultants and the employees
of and consultants to our subsidiaries are eligible to participate in the Equity
Incentive Plan.
Administration
The Equity Incentive Plan is administered by our Compensation Committee.
The Committee has full authority, subject to the provisions of the Equity
Incentive Plan, to determine 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 Committee has complete
discretion to make all decisions relating to the interpretation, administration
and operation of the Equity Incentive Plan.
Shares Subject to the Plan, General Terms
The Equity Incentive Plan authorizes the granting of Awards which allows up
to an aggregate of 5,000,000 shares of Common Stock to be acquired by the
Participants. The Equity Incentive Plan provides that a maximum of 2,500,000
shares of Common Stock may be issued to any one Participant. In order to prevent
dilution or enlargement of the rights of Participants under the Equity Incentive
Plan, the number of shares of Common Stock authorized by the Equity Incentive
Plan is subject to adjustment by the Board if any increase or decrease in the
number of shares of outstanding Common Stock results from a stock dividend,
stock split, reverse stock split, merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock. If any shares granted under the Equity
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<PAGE> 71
Incentive Plan are forfeited or terminated, these shares will again be available
for distribution of Awards subsequently granted. We have granted 1,948,186
options under the Plan and these options generally vest over five years. As of
March 31, 1999, 101,600 of the options granted were forfeited and canceled and
1,846,586 options were outstanding. We have also granted 3,514 shares of
Restricted Stock to a former director of one of our predecessor companies who is
currently a consultant to our Company. See "Certain Transactions." The remaining
Awards available for future grant as of March 31, 1999 was 3,153,414.
Eligibility
Subject to the provisions of the Equity Incentive Plan, Awards may be
granted to key employees, officers, directors, consultants and other persons who
have rendered or are expected to render significant services to us or our
subsidiaries. Incentive stock options may be awarded only to our employees or
employees of our subsidiaries at the time the award is granted.
Types of Awards
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 are not, which are
non-qualified stock options. The exercise price of incentive stock options must
be at least the fair market value of a share of the 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 the Common
Stock. The exercise price of non-qualified stock options may be less than 100%
of the fair market value of a share of the Common Stock on the date of grant.
The term of an option may not exceed ten years (or five years in the case
of an incentive stock option granted to an optionee owning 10% or more of the
Common Stock). Options may be granted that may be exercised in whole or in part
upon certain defined events causing a "change of control." The accelerated
vesting of outstanding options upon the occurrence of such a "change in control"
transaction could have the effect of delaying, deferring, or preventing a change
in control of our company.
Stock Appreciation Rights. The Committee may grant stock appreciation
rights ("SARs" or singularly "SAR") in conjunction with all or part of any stock
option granted under the Equity Incentive Plan or may grant SARs on a
freestanding basis. If granted in conjunction with non-qualified stock options,
SARs may be granted either at or after the time of the grant of the
non-qualified stock options. If granted in conjunction with incentive stock
options, SARs may be granted only at the time of the grant of an incentive stock
option. An SAR entitles the holder to receive an amount (payable in cash and/or
Common Stock, as determined by the Committee) equal to the fair market value of
one share of 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
Participant's employment is terminated. In order to enforce the forfeiture
provisions, the Equity Incentive Plan requires that all shares of Restricted
Stock awarded to the Participant remain in our physical custody until the
restrictions on these 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 Participant must remain employed during the entire deferral period in
order to be issued the stock.
Stock Reload Options. The Committee may grant stock reload options with any
option granted under the Equity Incentive Plan. Stock reload options may be
granted only at the time of the grant of an incentive stock option or, in the
case of a non-qualified stock option, either at or after the time of the
70
<PAGE> 72
grant of a non-qualified stock option. A stock reload option permits a
Participant who exercises an option by delivering already owned stock (i.e., the
stock-for-stock method) to receive back from us a new option, at the current
market price, for the same number of shares delivered to exercise the option.
The 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 by our performance. Performance grants may be made 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. Terms and conditions of Awards may require continued
employment or the attainment of specified performance objectives or both.
Termination of Awards
Generally, no option, or any portion thereof, granted under the Equity
Incentive Plan may be exercised by the holder later than three months following
the date of termination of such holder's employment or consulting relationship
with CapRock or any affiliate. However, if the holder's status as an employee
with or consultant to CapRock or its affiliates is terminated due to the death
or disability of the holder prior to termination of the holder's right to
exercise the option in accordance with the provisions of the holder's stock
option agreement, without having totally exercised the option, the option may be
exercised, to the extent to which the option could have been exercised by the
holder on the date of the holder's termination, by (1) the holder's estate or by
the person who acquired the right to exercise the option by bequest or
inheritance, in the event of the holder's death, or (2) the holder or his or her
personal representative, in the event of the holder's disability; provided in
either case that the option is exercised not more than twelve (12) months (or
such shorter period specified in the option agreement granting such option) from
the date of the holder's termination, but in no event later than the expiration
date of such option. If holder's 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 will automatically cease to be treated
for tax purposes as an incentive stock option and will instead be treated for
tax purposes as a nonqualified option on the day that is three months and one
day following such termination.
Term and Termination of the Equity Incentive Plan
The Equity Incentive Plan became effective upon shareholder approval on
August 24, 1998. Unless terminated by the Board of Directors, the Equity
Incentive Plan shall continue to remain effective until no further Awards may be
granted and all Awards granted under the Equity Incentive Plan are no longer
outstanding. Grants of incentive stock options may only be made during the
ten-year period from August 24, 1998.
Amendments to the Plan
The Board of Directors may amend or terminate the Equity Incentive Plan as
long as no amendment or termination affects Awards previously granted. If the
Board of Directors amends the plan, shareholder approval will be sought only if
required by an applicable law.
The Director Stock Option Plan
Our Director Stock Option Plan was approved in 1998 by our Board of
Directors and our shareholders. The purpose of the Director Stock Option Plan is
to encourage ownership of Common Stock by our eligible non-employee directors.
Options will be granted to directors whose continued services are considered
essential to our future progress and to provide them with a further incentive to
remain as directors. All options granted under the Director Stock Option Plan
are non-qualified stock options. A total of 400,000 shares of Common Stock have
been reserved for issuance under the Director Stock Option
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<PAGE> 73
Plan. As of March 31, 1999, we have granted 30,000 options under this Plan and
all are outstanding. There were 370,000 remaining options available for future
grant as of March 31, 1999.
The Director Stock Option Plan is administered by the Board of Directors.
The Board of Directors has full authority, subject to the provisions of the
Director Stock Option Plan, to 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. The Board of Directors has full authority to
construe and interpret the terms of the Director Stock Option Plan and the
options granted under it. We expect that each new non-employee director will
receive option grants under the Director Stock Option Plan upon becoming a
director. The Board of Directors 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, 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 our company, each
outstanding option will terminate unless otherwise provided by the Board of
Directors. In the event of a proposed sale of all or substantially all of the
assets of our company or upon certain mergers in which the shareholders of
CapRock receive cash or securities of another issuer, the options may be either
assumed by the successor entity or substituted with an equivalent option.
The Board of Directors may amend or terminate the Director Stock Option
Plan except that any such amendment or termination will not affect options
previously granted. If the Board of Directors amends the Director Stock Option
Plan, shareholder approval will be sought only if required by an applicable law.
EMPLOYMENT AGREEMENTS
In February 1998 we entered into employment agreements with each of Jere W.
Thompson, Jr., Ignatius W. Leonards, Byron M. Allen, Scott L. Roberts, Timothy
W. Rogers and Timothy M. Terrell. In addition, on May 11, 1998, we 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 Employment Agreement is for an initial term of three years, subject to
the right of either party to terminate their agreement upon 30 days' advance
written notice.
The Employment Agreements provide for Mr. Thompson to serve as Chief
Executive Officer and Mr. Leonards to serve as President of our company. Mr.
Thompson receives an annual base salary of $180,000 and Mr. Leonards receives
$168,000, both subject to increase upon review annually by the Board of
Directors.
The Employment Agreements provide for Mr. McAleer to serve as our Senior
Vice President and Chief Financial Officer (Mr. McAleer also serves as our
Treasurer and Secretary), and for Messrs. Allen, Roberts, Rogers and Terrell
each to serve as an Executive Vice President. Messrs. McAleer, Allen, Roberts,
Rogers and Terrell will receive annual salaries of $200,000, $125,000, $133,333,
$133,333 and $133,333, in each case subject to increase upon review annually by
the Board of Directors.
Each Employment Agreement provides that, at the discretion of the Board of
Directors, each employee may be paid bonus compensation or may be allowed to
participate in a management incentive bonus plan should we adopt one or both.
Each Employment Agreement also provides for certain insurance benefits and
provides that the employee be eligible to participate in all retirement and
other benefit plans generally available to employees of CapRock and any equity
or other employee benefit plan of CapRock that is generally available to senior
executive officers of such company. In addition, each Employment Agreement
provides for certain payments and benefits if the employee is terminated without
cause or due to death or permanent disability.
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<PAGE> 74
Each Employment Agreement generally provides that the employee will keep
confidential certain non-public information regarding our company and further
provides that, during the period after termination of employment specified
therein (generally two years), 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 we are engaged in
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 (1) solicit or engage the business of any of
our clients or our clients of our affiliates or (2) solicit any of our employees
or employees of our affiliates to terminate any relationship that person may
have with us or our affiliates or engage, employ or compensate any of our
employees or employees of our affiliates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established a Compensation Committee effective upon
consummation of our business combination (which occurred in August 1998). This
committee currently consists of Messrs. Amenson, Harris and Ellenberger. Before
that, during fiscal 1998, compensation decisions for executive officers of
CapRock Telecommunications were made by the Board of Directors of CapRock
Telecommunications, compensation decisions for the officers of CapRock Fiber's
general partner were made by its Board of Directors and compensation decisions
for executive officers of IWL Communications were made by Christopher J. Amenson
and Myron Goins, the sole members of IWL Communications' compensation committee.
Our business combination with our predecessor companies was completed on
August 26, 1998. During the last fiscal year, prior to the consummation of our
business combination, no executive officer of IWL Communications served as a
member of the Board of Directors or compensation committee of CapRock
Telecommunications or CapRock Fiber's general partner or any entity that had one
or more executive officers serving as a member of IWL Communications' Board of
Directors or compensation committee. During the last fiscal year prior to the
consummation of our business combination, no executive officer of CapRock
Telecommunications or CapRock Fiber's general partner served as a member of the
Board of Directors or compensation committee of IWL Communications or any entity
(other than CapRock Telecommunications or the general partner of CapRock Fiber)
that had one or more executive officers serving as a member of their Board.
During the last fiscal year after consummation of our business combination, no
executive officer of CapRock 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 CapRock's Board of Directors or compensation committee.
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<PAGE> 75
CERTAIN TRANSACTIONS
Caroline Fontenot, the sister of Mr. Leonards, our President, lent IWL
Communications, one of our predecessor companies, $75,000 on June 1, 1992 at an
interest rate of 12% per annum. We used a portion of the net proceeds from the
offering of our senior notes in July 1998 to repay the loan in full.
Our operations support system was developed by RiverRock Systems, Ltd.
CapRock owns a 49% limited partnership interest in RiverRock and David E.
Thompson, the brother of Jere W. Thompson, Jr., owns a 50% limited partnership
interest in RiverRock. Thompson Technology, Inc., a Texas corporation that is
owned by David E. Thompson, is the general partner and owns a 1% general
partnership interest in RiverRock. Although it is the intention of RiverRock to
market and sell licenses for the system to third parties, as of the date of this
prospectus, no marketing or sales to third parties have been made. RiverRock was
formed when CapRock and TTI transferred all rights to the system developed by
CapRock and TTI into RiverRock. CapRock has been granted a royalty-free,
perpetual and non-exclusive license for the use of the system. CapRock also
receives upgrades, maintenance and other support from RiverRock for three years,
without the payment of any fees or royalties, which expires in June 2001.
Thereafter, CapRock will be required to pay the same fees and royalties for
system upgrades, maintenance and support as other licensees of RiverRock. During
the fiscal year ended December 31, 1998 and the fiscal quarter ended March 31,
1999, CapRock contributed a total of approximately $170,000 and $90,000 to
RiverRock for the development of the 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 system.
Jere W. Thompson, Sr. is the president of The Williamsburg Corporation, a
Texas corporation. The Williamsburg Corporation lent CapRock Telecommunications,
one of our predecessor companies, $1,170,000 in 1995 at the rate of 13% per
annum and payable on demand, but no later than 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 CapRock Telecommunications common stock. The remaining principal balance of
the note, together with interest thereon, was repaid by CapRock
Telecommunications during the fiscal year ended December 31, 1997. Jere W.
Thompson, Sr. is the father of Jere W. Thompson, Jr.
CapRock currently leases private line services from TISP, Inc. ("TISP").
TISP is owned by Patrick J. Thompson, a brother of Jere W. Thompson, Jr. Total
payments to TISP in the fiscal year ended December 31, 1998 and the fiscal
quarter ended March 31, 1999, were approximately $1,176,000 and $331,000. We
believe that the prices charged for such services do not exceed prices charged
by unrelated parties for such services. 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.
In 1994, CapRock Telecommunications executed three promissory notes, one
payable to the order of each of Scott L. Roberts, Timothy M. Terrell and Timothy
W. Rogers, each an Executive Vice President of CapRock, relating to 334 shares
of common stock of CapRock Telecommunications repurchased from each of them with
such shares of stock pledged by CapRock Telecommunications to repay the notes.
The aggregate purchase price for the 334 shares from each individual was
$50,000. Each of the original notes were in the amount of $50,000 with no stated
interest rate. The notes were discounted using an interest rate of 5.8% and were
payable in three annual installments beginning April 1998. We used a portion of
the net proceeds from the offering of our senior notes in July 1998 to repay the
notes in full.
CapRock Telecommunications had a revolving credit facility with Bank One,
Texas, N.A. in the amount of $2,500,000, which was guaranteed by Jere W.
Thompson, Jr. We used a portion of the net proceeds from the offering of our
senior notes in July 1998 to repay in full all amounts outstanding under the
line of credit, and at that time Mr. Thompson was released from his guaranty.
Mark Langdale, one of our directors, Joe C. Thompson, Jr., an uncle of Jere
W. Thompson, Jr., The Florida Company (which is owned by Joe C. Thompson), The
Hayden Company (which is owned by
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John P. Thompson, an uncle of Jere W. Thompson, Jr.), and Jere W. Thompson, Sr.
guaranteed portions of the $10.0 million loan from Bank One, Texas, N.A. to
CapRock Fiber, one of our predecessor companies, in 1996, which was repaid on
August 27, 1998 totaling $439,602. Each guarantor received in exchange for each
$1 million of indebtedness guaranteed (1) a 2.67% limited partnership interest
in CapRock Fiber (which was converted into shares of our Common Stock in our
business combination in August 1998), (2) 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 increased 2% on each July 1 thereafter that the
commitment fee remained unpaid and (3) 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 after April 1, 1997 other than the accrued interest. The
total commitment fees, loan guarantee fees, and accrued interest thereon, as of
December 31, 1996, 1997, and 1998 were approximately $208,000 and $406,000 and
$430,000. Additionally, in exchange for Mark Langdale remaining on his joint and
several guaranty, CapRock Fiber agreed to pay him $20,000 which was paid in
1998. We used a portion of the net proceeds from the offering of our senior
notes in July 1998 to pay in full all of such commitment and guaranty fees.
CapRock entered into an agreement with CapRock Systems, which was the
general partner of CapRock Fiber prior to our business combination, to manage
the construction of the fiber optic network build out for the initial 260 route
miles, which was completed in 1997. Under this agreement, CapRock paid 4% of the
costs of constructing this portion of the network, payable monthly at a minimum
of $15,000 per month. CapRock paid management fees of $296,576 in 1997 and
$461,576, cumulative under the arrangement since construction of this segment
commenced. This arrangement ended in 1997.
In 1998, CapRock granted to Myron J. Goins, a former director of one of its
predecessor companies and currently one of CapRock's consultants, 3,514 shares
of "Restricted Stock" under the terms of a Restricted Stock Agreement under our
Equity Incentive Plan. The restriction period under the agreement with Mr. Goins
expired on February 28, 1999.
CapRock sold telecommunications services in the amount of approximately
$70,000 from June 1998 through December 1998 and $77,000 from January 1999
through March 1999 to Summit Communications, Inc., which is owned by Sherwood
Allen, a brother of Byron M. Allen. Byron Allen is an Executive Vice President
of CapRock.
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PRINCIPAL SHAREHOLDERS
The following table shows information concerning the beneficial ownership
of our Common Stock as of May 31, 1999 by: (1) each director and director
nominee and each of our executive officers named in the "Summary Compensation
Table," (2) each person we know to beneficially own more than 5% of the
outstanding shares of our Common Stock; and (3) all of our officers and
directors as a group. The address for Messrs. Jere W. Thompson, Jr., Rogers,
Roberts, Terrell and McAleer, CapRock Investors and Greenway Holdings, L.P. is
15601 Dallas Parkway, Suite 700, Dallas, Texas 75248. The address for Messrs.
Leonards and Allen is 12000 Aerospace Ave., Suite 200, Houston, Texas 77034.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED(1) OUTSTANDING(1)
- ---------------- --------------------- --------------
<S> <C> <C>
Jere W. Thompson, Jr.(2).................................... 10,775,218 32.6%
Ignatius W. Leonards(3)..................................... 1,897,528 5.7%
Timothy W. Rogers(4)........................................ 2,883,628 8.7%
Scott L. Roberts............................................ 2,883,628 8.7%
Timothy M. Terrell.......................................... 2,883,628 8.7%
Byron M. Allen(5)........................................... 214,200 *
Kevin W. McAleer............................................ -- --
Mark Langdale(6)............................................ 11,224,352 34.0%
5950 Berkshire, Suite 990
Dallas, TX 75225
Christopher J. Amenson(7)................................... 5,333 *
c/o SBS Technologies, Inc.
2400 Louisiana Blvd., N.E
AFC Building 5, Suite 600
Albuquerque, NM 87110
John R. Harris.............................................. 7,000 *
2808 McKinney Avenue, Suite 220
Dallas, TX 75204
Richard G. Ellenberger...................................... -- --
c/o Cincinnati Bell, Inc.
201 East Fourth Street
Cincinnati, Ohio 45201
Jere W. Thompson, Sr.(8).................................... 10,647,930 32.2%
Two Turtle Creek Village
3838 Oak Lawn Ave., Suite 1850
Dallas, TX 75219
Greenway Holdings, L.P.(2).................................. 2,014,082 6.1%
CapRock Investors(2)........................................ 8,650,884 26.2%
All executive officers and directors as a group(7) (eleven
persons).................................................. 24,014,699 72.7%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of the class.
(1) The numbers and percentages in the table were calculated based upon the
33,022,059 shares of Common Stock issued and outstanding on May 31, 1999.
The information contained in this table with respect to beneficial ownership
reflects "beneficial ownership" as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, which means generally any person who,
directly or indirectly, has or shares voting power or investment power with
respect to a security. Shares of 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, 1999 are treated as
outstanding only when determining the amount and percentage of 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
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<PAGE> 78
shareholder and we believe that, except as otherwise noted or pursuant to
community property laws, each shareholder has sole voting and investment
power with respect to shares shown.
(2) Includes 8,650,884 shares held of record by CapRock Investors, 108,932
shares held of record by CapRock Systems, Inc. and 2,014,082 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 CapRock. 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 20,166 shares held by Ignatius W. Leonards as custodian for minor
children.
(4) Includes 8,970 shares held by Neal S. Rogers as custodian for minor children
of Timothy W. Rogers. Neal S. Rogers is Timothy W. Roger's brother.
(5) 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 daughter.
(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 3,333 shares subject to currently exercisable options.
(8) Includes 1,302,283 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, Sr.'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. (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.
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 1,302,283 shares held
by The Williamsburg Corporation.
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<PAGE> 79
THE EXCHANGE OFFER
BACKGROUND
CapRock originally sold the outstanding 11 1/2% Senior Notes due 2009 on
May 18, 1999 in a transaction exempt from the registration requirements of the
Securities Act. Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chase
Securities Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co., as the initial purchasers,
subsequently resold the notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act. As of the date of this prospectus, $210.0
million aggregate principal amount of the notes are outstanding.
CapRock and the initial purchasers entered into a registration rights
agreement under which CapRock agreed that it would, at its own cost,
- file an exchange offer registration statement under the Securities Act
within 90 days after May 18, 1999, the original issue date of the old
notes,
- use its best efforts to cause the exchange offer registration statement
to be declared effective under the Securities Act within 150 days after
May 18, 1999, the original issue date of the old notes, and
- use its best efforts to consummate the exchange offer and issue new notes
within 35 days after the exchange offer registration statement is
declared effective.
The summary in this prospectus of provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the registration rights agreement, a copy
of which is filed as an exhibit to the registration statement of which this
prospectus is a part.
RESALE OF THE NEW NOTES
Based on no-action letters issued by the staff of the Commission to third
parties, CapRock believes that a holder of outstanding notes, but not a holder
who is an affiliate of CapRock within the meaning of Rule 405 of the Securities
Act, who exchanges outstanding notes for new notes in the exchange offer,
generally may offer the new notes for resale, sell the new notes and otherwise
transfer the new notes without further registration under the Securities Act and
without delivery of a prospectus that satisfies the requirements of Section 10
of the Securities Act. However, CapRock believes that a holder may so offer,
sell or transfer the new notes only if the holder acquires the new notes in the
ordinary course of its business and is not participating, does not intend to
participate and has no arrangement or understanding with any person to
participate in a distribution of the new notes.
Any holder of outstanding notes using the exchange offer to participate in
a distribution of new notes (including a broker-dealer that acquired outstanding
notes directly from CapRock, but not as a result of market-making activities or
other trading activities) cannot rely on the no-action letters referred to
above. Consequently, the holder must comply with the registration and prospectus
delivery requirements of the Securities Act in the absence of an exemption from
such requirements.
Each broker-dealer that receives new notes for its own account in exchange
for outstanding notes, where such outstanding notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities ("Participating Broker-Dealer") may be a statutory underwriter and
must acknowledge that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with the resale of new notes received in
exchange for outstanding notes. The letter of transmittal which accompanies this
prospectus states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act. A Participating
Broker-Dealer may use this prospectus, as it may be amended from time to time,
in connection with resales of new notes it receives in exchange for outstanding
notes in the exchange offer. CapRock will make this prospectus available to any
Participating Broker-Dealer in connection with any
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<PAGE> 80
resale of this kind for a period of 180 days after the expiration date of the
exchange offer. See "Plan of Distribution".
Each holder of the outstanding notes who wishes to exchange outstanding
notes for new notes in the exchange offer will be required to represent and
acknowledge, for the holder and for each beneficial owner of such outstanding
notes, whether or not the beneficial owner is the holder, in the letter of
transmittal that:
- the new notes to be acquired by the holder and each beneficial owner, if
any, are being acquired in the ordinary course of business,
- neither the holder nor any beneficial owner is an affiliate, as defined
in Rule 405 of the Securities Act, of CapRock or any of its subsidiaries,
- any person participating in the exchange offer with the intention or
purpose of distributing new notes received in exchange for outstanding
notes (including a broker-dealer that acquired outstanding notes directly
from CapRock, but not as a result of market-making activities or other
trading activities) cannot rely on the no-action letters referenced above
and must comply with the registration and prospectus delivery
requirements of the Securities Act, in connection with a secondary resale
of the new notes acquired by such person,
- if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in
any distribution of the new notes received in exchange for outstanding
notes, and
- if the holder is a broker-dealer that will receive new notes for the
holder's own account in exchange for outstanding notes, the outstanding
notes to be so exchanged were acquired by the holder as a result of
market-making or other trading activities and the holder will deliver a
prospectus meeting the requirements of the Securities Act in connection
with any resale of such new notes received in the exchange offer.
However, by so representing and acknowledging and by delivering a
prospectus, the holder will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
Under the registration rights agreement, CapRock is required to allow
Participating Broker-Dealers to use this prospectus in connection with the
resale of new notes received in the exchange offer. See "Plan of Distribution."
SHELF REGISTRATION STATEMENT
In the event that:
(1) applicable law or interpretations of the staff of the Commission
do not permit CapRock to effect the exchange offer,
(2) the exchange offer registration statement is not declared
effective within 150 days after May 18, 1999,
(3) the exchange offer is not consummated within 185 days after May
18, 1999,
(4) any holder of Notes notifies CapRock within 90 days after May 18,
1999 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 new notes acquired by it in the exchange offer to the
public without delivering a prospectus and (x) this prospectus is not
appropriate or available for such resales by such holder and (y) this
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 notes acquired
directly from CapRock or an affiliate of CapRock, or
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<PAGE> 81
(5) the holders of a majority of the notes may not resell the new
notes acquired by them in the exchange offer to the public without
restriction under the Securities Act and without restriction under
applicable blue sky or state securities laws,
then CapRock will, at its cost:
- file prior to the later of 90 days after May 18, 1999 or 30 days after
the obligation arises, a shelf registration statement covering resales of
the outstanding notes,
- use its best efforts to cause the shelf registration statement to be
declared effective under the Securities Act within 60 days after the
filing obligation arises, and
- use its best efforts to keep effective the shelf registration statement
until the earlier of (1) two years after its effective date, (2) the time
when all of the applicable outstanding notes have been sold thereunder
and (3) the time when all of the applicable outstanding notes cease to be
outstanding or have been sold to the public pursuant to Rule 144 under
the Securities Act.
CapRock will, in the event of the filing of the shelf registration
statement, provide to each holder of the outstanding notes copies of the
prospectus which is a part of the shelf registration statement, notify each
holder when the shelf registration statement has become effective and take other
actions as are required to permit unrestricted resales of the outstanding notes.
A holder that sells outstanding notes pursuant to the shelf registration
statement generally will be required to be named as a selling security-holder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to civil liability provisions under the Securities Act in connection
with these sales and will be bound by the provisions of the registration rights
agreement which are applicable to the holder (including indemnification
obligations). In addition, each holder of outstanding notes will be required to
deliver information to be used in connection with the shelf registration
statement in order to have its outstanding notes included in the shelf
registration statement.
INCREASE IN INTEREST RATE
If (1) CapRock fails to file any of the registration statements required by
the registration rights agreement on or before the date specified for such
filing, (2) any of such registration statements are not declared effective by
the Commission on or prior to the date specified for such effectiveness, subject
to certain limited exceptions, (3) CapRock fails to consummate the exchange
offer within 35 days of the target date for effectiveness with respect to the
exchange offer registration statement, or (4) the shelf registration statement
or the exchange offer registration statement is declared effective but
thereafter, subject to certain limited exceptions, ceases to be effective or
usable in connection with the exchange offer or resales of notes that are
transfer restricted notes (as defined by the registration rights agreement), as
the case may be, during the periods specified in the registration rights
agreement, then the interest rate borne by the outstanding notes will be
increased 0.50% immediately following the occurrence of such registration
default, and will increase by an additional 0.50% per annum of the principal
amount of the notes for each subsequent 90-day period while a registration
default is continuing until all registration defaults have been cured, up to a
maximum amount of 1.0% of the principal amount of the notes. Following the cure
of a particular registration default, the accrual of additional interest with
respect to such registration default will cease.
Following the cure of any of the aforementioned registration defaults, the
interest rate borne by the outstanding notes from the date of such completion or
effectiveness, as the case may be, will be reduced to the original interest rate
if CapRock is otherwise in compliance with the above. However, if after any such
reduction in interest rate, a different event specified in clause (1), (2), (3)
or (4) in the prior paragraph occurs, the interest rate may again be increased
under the provisions described above.
Any amounts of additional interest due as described above will be payable
in cash on the same interest payments dates as the outstanding notes.
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TERMS OF THE EXCHANGE OFFER
Upon the exchange offer registration statement being declared effective,
CapRock will offer the new notes in exchange for surrender of the outstanding
notes. CapRock will keep the exchange offer open for not less than 20 business
days, or longer if required by applicable law, after the date notice of the
exchange offer is mailed to the holders of the outstanding notes. CapRock has
agreed to use its best efforts to consummate the exchange offer within 35 days
after the exchange offer registration statement is declared effective.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal which accompanies this prospectus, CapRock will
accept any and all outstanding notes validly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the expiration date of the exchange offer.
CapRock will issue an equal principal amount of new notes in exchange for such
principal amount of outstanding notes accepted in the exchange offer. Holders
may tender some or all of their outstanding notes under the exchange offer.
Outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the new notes will be the same as the form and terms
of the outstanding notes except that:
(1) the new notes will bear a different CUSIP number from the
outstanding notes,
(2) the new notes will have been registered under the Securities Act
and therefore will not bear legends restricting the transfer thereof, and
(3) the holders of the new notes will not be entitled to certain
rights under the registration rights agreement, which rights will terminate
when the exchange offer is completed.
The new notes will evidence the same debt as the outstanding notes and will
be entitled to the benefits of the indenture governing the outstanding notes.
In connection with the exchange offer, holders of outstanding notes do not
have any appraisal or dissenters' rights under the indenture governing the
outstanding notes or the Texas Business Corporation Act. CapRock intends to
conduct the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
CapRock shall be deemed to have accepted validly tendered outstanding notes
when, as and if CapRock has given oral or written notice of acceptance to Chase
Manhattan Trust Company, National Association, exchange agent for the exchange
offer. Chase Manhattan Trust Company, National Association will act as agent for
the tendering holders for the purpose of receiving the new notes from CapRock.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth in this
prospectus or otherwise, the certificates for the unaccepted outstanding notes
will be returned, without expense, to the tendering holder as promptly as
practicable after the expiration date of the exchange offer.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes in the exchange offer. CapRock will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date of the exchange offer is 5:00 p.m., New York City time,
on, 1999 [20 DAYS AFTER THE EFFECTIVE DATE], unless CapRock, in its sole
discretion, extends the exchange offer, in which case the expiration date shall
be the latest date and time to which the exchange offer is extended.
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<PAGE> 83
In order to extend the exchange offer, CapRock will notify the exchange
agent of any extension by oral or written notice and will make a public
announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
CapRock reserves the right, in its sole discretion, (1) to delay accepting
any outstanding notes, to extend the exchange offer or to terminate the exchange
offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving written notice of the delay, extension or
termination to Chase Manhattan Trust Company, National Association or (2) to
amend the terms of the exchange offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof.
INTEREST ON THE NEW NOTES
The exchange notes will bear interest at the rate of 11 1/2% per annum
which will be payable in cash semiannually on November 1 and May 1 of each year,
commencing November 1, 1999. Holders of exchange notes will receive interest on
November 1, 1999 from the initial issuance of the new notes, plus an amount
equal to the accrued interest on the old notes. Interest on the old notes
accepted for exchange will cease to accrue upon issuance of the new notes.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender the holder's outstanding
notes in the exchange offer. To tender in the exchange offer, a holder must do
the following:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,
- have the signatures thereon guaranteed if required by the letter of
transmittal, and
- except as discussed in "-- Guaranteed Delivery Procedures," mail or
otherwise deliver the letter of transmittal, or facsimile, together with
the outstanding notes and any other required documents, to Chase
Manhattan Trust Company, National Association prior to 5:00 p.m., New
York City time, on the expiration date of the exchange offer.
To be tendered effectively, the outstanding notes, letter of transmittal
and other required documents must be completed and received by Chase Manhattan
Trust Company, National Association at the address set forth below under
"-- Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration
date. Delivery of the outstanding notes may be made by book-entry transfer in
accordance with the procedures described below under "Book-Entry; Delivery and
Form." Confirmation of any book-entry transfer must be received by Chase
Manhattan Trust Company, National Association prior to the expiration date.
By executing a letter of transmittal, each holder will make to CapRock the
representations set forth above in the fourth paragraph under the heading
"-- Resale of the New Notes."
The tender by a holder and the acceptance of the tender by CapRock will
constitute the agreement between the holder and CapRock in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRES DOCUMENTS TO CHASE MANHATTAN TRUST COMPANY, NATIONAL
ASSOCIATION IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO
DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY
TO CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO CAPROCK.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS ON THEIR BEHALF.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the beneficial owner's behalf. See "Instruction to Registered
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Holder and/or Book-Entry Transfer Participant from Beneficial Owner" included
with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution (within the meaning of Rule
17Ad-5 under the Exchange Act) unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal, or
- for the account of an eligible guarantor institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by a member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an eligible guarantor institution.
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed in the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power and signed by the
registered holder as the registered holder's name appears on the old notes.
If a letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by CapRock, evidence
satisfactory to CapRock of their authority to so act must be submitted with the
letter of transmittal.
Promptly after the date of this prospectus, the exchange agent will
establish a new account or utilize an existing account with respect to the old
notes at the book-entry transfer facility, The Depository Trust Company, for the
purpose of facilitating the exchange offer. Subject to the establishment of the
accounts, any financial institution that is a participant in the book-entry
transfer facility's system may make book-entry delivery of old notes by causing
the book-entry transfer facility to transfer the old notes into the exchange
agent's account with respect to the old notes in accordance with that facility's
procedures. Although delivery of the old notes may be effected through
book-entry transfer into the exchange agent's account at the book-entry transfer
facility, an appropriate letter of transmittal properly completed and duly
executed or an agent's message with any required signature guarantee and all
other required documents the exchange agent at its address listed below on or
before the expiration date of the exchange offer, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures. Delivery of documents to the book-entry transfer facility
does not constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by The Depositary
Trust Company to, and received by, the exchange agent, which states that The
Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the old notes stating:
- the aggregate principal amount of old notes which have been tendered by
such participant,
- that such participant has received and agrees to be bound by the term of
the letter of transmittal, and
- that CapRock may enforce such agreement against the participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by CapRock in its sole discretion, which determination will
be final and binding. CapRock reserves the absolute right to reject any and all
old notes not properly tendered or any old notes CapRock's acceptance of which
would, in the opinion of counsel for CapRock, be unlawful. CapRock also reserves
the right to waive any defects, irregularities or conditions of tender as to
particular old notes. CapRock's interpretation of the terms and conditions of
the exchange
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offer, including the instructions in the letter of transmittal, will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within a period of time that
CapRock shall determine.
Neither CapRock, the exchange agent nor any other person shall incur any
liability for failure to give notice of any defect or irregularity with respect
to any tender of old notes. Tenders of old notes will not be deemed to have been
made until such defects or irregularities mentioned above have been cured or
waived. Any old notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the exchange agent to the tendering holders, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date of the exchange offer.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and (1) whose old notes are not
immediately available or (2) who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent prior to the
expiration date, may effect a tender if:
- the tender is made through an eligible guarantor institution,
- prior to the expiration date, the exchange agent receives from such
eligible guarantor institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder, the
certificate number(s) of such old notes and the principal amount of old
notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal (or facsimile
thereof) together with the certificate(s) representing the old notes in
proper form for transfer, or a confirmation of a book-entry transfer, as
the case may be, and any other documents required by the letter of
transmittal will be deposited by the eligible guarantor institution with
the exchange agent, and
- such properly completed and executed letter of transmittal (or facsimile
thereof), as well as the certificate(s) representing all physically
tendered old notes in proper form for transfer, or a confirmation of a
book-entry transfer, as the case may be, and all other documents required
by the letter of transmittal are received by the exchange agent within
three New York Stock Exchange trading days after the expiration date.
Upon request to the exchange agent, a form of Notice of Guaranteed
Delivery will be sent to holders who wish to tender their old notes
according to the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer.
To withdraw a tender of outstanding notes in the exchange offer, a letter
or facsimile transmission notice of withdrawal must be received by Chase
Manhattan Trust Company, National Association at its address set forth below
prior to 5:00 p.m., New York City time, on the expiration date. Any notice of
withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn,
- identify the outstanding notes to be withdrawn (including the certificate
number(s) and principal amount of such outstanding notes or, in the case
of outstanding notes transferred by book-entry transfer, the name and
number of the account at the book-entry transfer facility to be credited)
and include a statement that such holder is withdrawing such holder's
election to have such outstanding notes exchanged,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered
(including any required signature guarantees) or be
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accompanied by documents of transfer sufficient to have the trustee under
the indenture governing the outstanding notes register the transfer of
the outstanding notes into the name of the person withdrawing the tender,
and
- specify the name in which any such outstanding notes are to be
registered, if different from that of the person who deposited the notes.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by CapRock, whose determination
shall be final and binding on all parties. Any outstanding notes so withdrawn
will be deemed not to have been validly tendered for purposes of the exchange
offer, and no new notes will be issued with respect thereto unless the
outstanding notes so withdrawn are validly retendered. Any outstanding notes
which have been tendered but which are not accepted for exchange will be
returned to the holder of the notes without cost to the holder as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn outstanding notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering" at any
time prior to the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, CapRock shall not be
required to accept for exchange, or exchange new notes for, any old notes, and
may terminate the exchange offer as provided herein before the acceptance of
such old notes, if:
(1) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the exchange offer
which, in the sole judgment of CapRock, might materially impair the ability
of CapRock to proceed with the exchange offer, or
(2) the exchange offer, or the making of any exchange by a holder,
would violate applicable law or any applicable interpretation of the staff
of the Commission.
If CapRock determines in its sole and absolute discretion that any of the
conditions are not satisfied, CapRock may (1) refuse to accept any old notes and
return all tendered old notes to the tendering holders, (2) extend the exchange
offer and retain all old notes tendered prior to the expiration of the exchange
offer, subject, however, to the rights of holders to withdraw such old notes
(see "-- Withdrawal of Tenders" above) or (3) waive such unsatisfied conditions
with respect to the exchange offer and accept all properly tendered old notes
which have not been withdrawn. If such waiver constitutes a material change to
the exchange offer, CapRock will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the holders, and CapRock will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the exchange offer would otherwise expire during such
five to ten business day period.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of old notes being tendered for exchange.
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EXCHANGE AGENT
Chase Manhattan Trust Company, National Association has been appointed as
exchange agent for the exchange offer. Questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for notice of guaranteed delivery should be directed to
Chase Manhattan Trust Company, National Association addressed as follows:
<TABLE>
<S> <C>
By Hand/Overnight Delivery or by (For Eligible Institutions Only):
Registered or Certified Mail: By Facsimile:
Chase Manhattan Trust Company, Chase Manhattan Trust Company,
National Association National Association
1650 Market Street (215) 568-1449
Suite 5210 Confirm by telephone:
Philadelphia, PA 19103 (215) 988-1320
Attn: Stephen Schaaf
Corporate Trust Department
</TABLE>
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand, or by overnight delivery service.
Delivery to an address or transmission of instructions via facsimile other than
as set forth above will not constitute a valid delivery.
Chase Manhattan Trust Company, National Association also acts as trustee
under the indenture governing the notes.
FEES AND EXPENSES
CapRock will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail. However, additional solicitation may be made
by telegraph, telecopy, telephone or in person by officers and regular employees
of CapRock and its affiliates.
CapRock has not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. CapRock, however, will pay Chase Manhattan
Trust Company, National Association reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection with providing the services.
The cash expenses to be incurred in connection with the exchange offer will
be paid by CapRock. Such expenses includes fees and expenses of Chase Manhattan
Trust Company, National Association as exchange agent and as trustee under the
indenture governing the notes, accounting and legal fees and printing costs,
among others. CapRock will pay all transfer taxes, if any, applicable to the
exchange of old notes pursuant to the exchange offer. If, however, certificates
representing new notes or old notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the old notes tendered, or if
tendered old notes are registered in the name of any person other than the
person signing the letter of transmittal, or if a transfer tax is imposed for
any reason other than the exchange of old notes pursuant to the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the
outstanding notes as reflected in CapRock's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by CapRock. The expenses of the exchange offer will be amortized over
the term of the notes.
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<PAGE> 88
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who are eligible to participate in the
exchange offer but who do not tender their outstanding notes will not have any
further registration rights, and their outstanding notes will continue to be
subject to restrictions on transfer. Accordingly, such outstanding notes may be
resold only:
- to CapRock, upon redemption thereof or otherwise,
- so long as the outstanding notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person inside the United States whom
the seller reasonably believes is a qualified institutional buyer within
the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A,
- in accordance with Rule 144 under the Securities Act, or pursuant to
another exemption from the registration requirements of the Securities
Act, and based upon an opinion of counsel reasonably acceptable to
CapRock,
- outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act, or
- pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any
state of the United States.
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<PAGE> 89
DESCRIPTION OF THE NOTES
The new notes, like the old notes, will be issued under the indenture,
dated May 18, 1999, between CapRock and Chase Manhattan Trust Company, National
Association, as trustee. Upon the effectiveness of the registration statement,
of which this prospectus is a part, the indenture will be subject to and
governed by the Trust Indenture Act of 1939, as that act may have been amended.
The new notes are the same as the old notes except that the new notes:
- will not bear legends restricting their transfer, and
- will not contain certain terms providing for an increase in the interest
rate under the circumstances described in the registration rights
agreement.
The indenture and the registration rights agreement contain the full legal
text of the matters described in this section. A copy of the indenture and the
registration rights agreement have been filed with the commission as part of our
Registration Statement. See "Where You Can Find More Information" for
information on how to obtain copies.
Because this section is a summary, it does not describe every aspect of the
notes. This summary is subject to and qualified in its entirety by reference to
all the provisions of the indenture and the registration rights agreement,
including definitions of some terms used in the indenture. For example, in this
section we use capitalized words to signify defined terms that have been given
special meaning in the indenture. We describe the meaning for only the more
important terms, under "-- Certain Definitions." We also include references in
parentheses to certain sections of the indenture. Whenever we refer to
particular sections or defined terms of the indenture in this prospectus, these
sections or defined terms are incorporated by reference into this prospectus.
BRIEF DESCRIPTION OF THE NOTES
The notes:
- will be unsecured unsubordinated obligations of CapRock;
- will be limited to $210 million aggregate principal amount;
- will mature on May 1, 2009; and
- will bear interest at the rate of 11 1/2% per annum.
Interest will be paid semi-annually on May 1 and November 1 of each year,
commencing November 1, 1999, to the registered holder at the close of business
on the preceding April 15 or October 15.
Interest on the notes will be computed on the basis of a 360 day year of
twelve 30 day months. Principal of, premium, if any, and interest on the notes
will be payable, and the notes may be exchanged or transferred, at the office or
agency of CapRock in the Borough of Manhattan, The City of New York; provided
that, at the option of CapRock, payments of interest may be made by check mailed
to the holders at their addresses as they appear in the Security Register.
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 principal amount and any integral multiple thereof. See
"Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of the notes, but CapRock may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
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OPTIONAL REDEMPTION
The notes are redeemable, at CapRock's option, in whole or in part, at any
time or from time to time, on or after May 1, 2004 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 Security 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 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 beginning on May 1 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2004................................................ 105.750%
2005................................................ 103.834%
2006................................................ 101.917%
2007 and thereafter................................. 100.000%
</TABLE>
In addition, at any time or from time to time on or prior to May 1, 2002,
CapRock may, other than in any circumstances resulting in a Change of Control,
redeem, at its option, up to 35% of the aggregate principal amount of the notes
with the proceeds of one or more additional Public Equity Offerings or Strategic
Equity Investments resulting in aggregate gross proceeds to CapRock of at least
$25 million, at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 111.50%, plus accrued and
unpaid interest to the Redemption Date (subject to the right of holders of
record on the relevant record date that is prior to the Redemption Date to
receive interest due on an Interest Payment Date); provided that at least 65% of
the aggregate principal amount of notes originally issued remain outstanding
after each such redemption. Any such redemption shall be made within 60 days
after the consummation of such Public Equity Offering or Strategic Equity
Investment upon not less than 30 nor more than 60 days' prior notice.
If less than all of the notes are to be redeemed at any time, the trustee
will select the notes, or portions thereof, for redemption in compliance with
the requirements of the principal national securities exchange, if any, on which
the notes are listed or, if the notes are not listed on a national securities
exchange, on a pro rata basis, by lot or by such other method as the trustee in
its sole discretion shall deem to be fair and appropriate; provided that no note
of $1,000 in principal amount or less shall be redeemed in part. If any note is
to be redeemed in part only, the notice of redemption relating to such note
shall state the portion of the principal amount thereof to be redeemed. A new
note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the holder thereof upon cancellation of the original Note.
NOTES CALLED FOR REDEMPTION CEASE TO BE OUTSTANDING
Notes called for redemption in accordance with the terms of the indenture
will be deemed to be paid and discharged and cease to be outstanding, and
interest on such notes will cease to accrue, from and after the date set for
redemption if CapRock has deposited with the trustee, in trust, money and/or
Temporary Cash Investments that, through the payment of interest and principal
in respect thereof in accordance with their terms, will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued interest
on the notes on the Redemption Date in accordance with the terms of the
indenture and the notes.
RANKING
The Indebtedness evidenced by the notes ranks pari passu in right of
payment with all existing and future unsecured senior indebtedness of CapRock
and senior in right of payment to all existing and future indebtedness of
CapRock expressly subordinated in right of payment to the notes. As of March 31,
1999, on an as adjusted basis after giving effect to the offering of the May
1999 senior notes, CapRock would have had outstanding debt of approximately
$346.0 million, none of which would have ranked senior in
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right of payment to the notes. As of the same date, CapRock's subsidiaries had
no outstanding debt (other than trade payables). CapRock will be dependent upon
access to the cash flow or assets of its subsidiaries to make payments on the
notes, and CapRock's ability to obtain such access may be limited by law. See
"Risk Factors -- We are a holding company and holders of the notes offered
hereby will be structurally subordinated."
CapRock and its subsidiaries are permitted to incur additional
Indebtedness, including Indebtedness under one or more Credit Facilities and
Indebtedness incurred to finance the acquisition of certain assets, and is
permitted to secure any such Indebtedness and certain other Indebtedness,
including Indebtedness under one or more Credit Facilities and Indebtedness
incurred to finance the acquisition of certain assets. The notes will be
effectively subordinated to such security interests to the extent of such
security interests.
CERTAIN COVENANTS
The indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Indenture provides that CapRock will not,
and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (including Acquired Indebtedness) other than Permitted
Indebtedness; provided that CapRock 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 covenant.
Notwithstanding any other provision of the foregoing "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that CapRock or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded due solely to the result of
fluctuations in the exchange rates of currencies.
For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) 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 (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with the foregoing
"Limitation on Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the definition of "Indebtedness," CapRock, 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.
Limitation on Restricted Payments. The Indenture provides that CapRock 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: (A) a Default or Event of Default shall have
occurred and be continuing, (B) CapRock could not Incur at least $1.00 of
Indebtedness under clause (i) of the first paragraph of the "Limitation on
Indebtedness" covenant or (C) 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 CapRock, whose determination shall be conclusive and evidenced
by a Board Resolution) made after the 1998 Senior Notes Issue 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 1998 Senior Notes Issue 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 the "Commission Reports and Reports to
Holders" covenant, plus
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(2) the aggregate Net Cash Proceeds received by CapRock after the 1998
Senior Notes Issue Date, from a capital contribution from, or the issuance
and sale permitted by the Indenture to, a Person who is not a Subsidiary of
CapRock 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 CapRock or a Restricted Subsidiary that has been exchanged
for or converted into Capital Stock of CapRock (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 the second paragraph of this "Limitation on
Restricted Payments" covenant) 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 CapRock 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 as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by CapRock or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
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 CapRock (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
CapRock of, shares of Capital Stock (other than Redeemable Stock) of
CapRock (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
CapRock 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 CapRock of,
shares of the Capital Stock (other than Redeemable Stock) of CapRock (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 any consolidation, merger or transfer of
assets that complies with the provisions of the Indenture applicable to
mergers, consolidations and transfers of all or substantially all of the
property and assets of CapRock;
(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)
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does not exceed the sum of (x) $85 million plus (y) the amount of Net Cash
Proceeds received by CapRock after the 1998 Senior Notes Issue Date as a
capital contribution or from the sale of Capital Stock (other than
Redeemable Stock) of CapRock (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 CapRock, 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 clause (C)(2) of the first paragraph, or clauses (iii) or (iv)
of this paragraph, of this "Limitation on Restricted Payments" covenant,
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 CapRock to the extent necessary, in the
judgment of the Board of Directors of CapRock, to prevent the loss or
secure the renewal or reinstatement of any license or franchise held by
CapRock 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 CapRock, or options, warrants or other
rights to purchase such shares, held by directors, employees, or former
directors or employees of CapRock 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;
(ix) Investments acquired (x) as a capital contribution to CapRock or
a Restricted Subsidiary or (y) in exchange for Capital Stock (other than
Redeemable Stock) of CapRock (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 CapRock 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 the "Change of Control" covenant;
provided that prior to such purchase, redemption, defeasance or other
acquisition or retirement, CapRock 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 $25 million.
The actions described in clauses (i), (v), (vi), (vii), (viii), (x) and
(xi) of the immediately preceding paragraph are Restricted Payments that are
permitted in accordance with the immediately preceding paragraph but reduce the
amount that would otherwise be available for Restricted Payments under clause
(C) of the first paragraph of this "Limitation on Restricted Payments" covenant.
The actions
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described in clauses (ii), (iii), (iv) and (ix) of the immediately preceding
paragraph are Restricted Payments that are permitted in accordance with the
immediately preceding paragraph and do not reduce the amount that would
otherwise be available for Restricted Payments under clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that CapRock 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 CapRock or any other
Restricted Subsidiary, (ii) pay any Indebtedness owed to CapRock or any other
Restricted Subsidiary, (iii) make loans or advances to CapRock or any other
Restricted Subsidiary or (iv) transfer any of its property or assets to CapRock
or any other Restricted Subsidiary.
The foregoing provisions do not restrict any encumbrances or restrictions:
(i) in the 1998 Senior Notes Indenture, the Indenture or any other
agreements in effect on the 1998 Senior Notes Issue 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 CapRock 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 clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenants, (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 CapRock or any
Restricted Subsidiary not otherwise prohibited by the 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 value of property or assets of CapRock or any Restricted
Subsidiary in any manner material to CapRock 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 CapRock 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
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Facility prohibit distributions to CapRock 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.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant prevents CapRock or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted by the "Limitation on Liens" covenant
described below or (2) restricting the sale or other disposition of property or
assets of CapRock or any of its Restricted Subsidiaries subject to such Liens.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries. The Indenture provides that CapRock 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:
(i) to CapRock or a Wholly Owned Restricted Subsidiary,
(ii) issuances of director's qualifying shares or other issuances or
sales to the extent required by applicable law or regulation,
(iii) issuances or sales of 100% of the Capital Stock of a Restricted
Subsidiary, provided that CapRock or such Restricted Subsidiary applies the
Net Cash Proceeds, if any, of any such sale pursuant to this clause (iii)
in accordance with clause (A) or (B) of the "Limitation on Asset Sales"
covenant described below,
(iv) issuances or sales in a transaction if, immediately after giving
effect thereto, such Restricted Subsidiary would no longer be a Restricted
Subsidiary if (A) such transaction does not violate the "Limitation on
Asset Sales" covenant and (B) any Investment in such Person remaining after
giving effect to such transaction would not violate the "Limitation on
Restricted Payments" covenant if made at the date of such issuance or sale,
(v) pursuant to a Credit Facility or a Vendor Credit Facility,
(vi) 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, or
(vii) 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 the
Indenture.
Limitation on Issuances of Guarantees by Restricted Subsidiaries. The
Indenture provides that CapRock will not permit any Restricted Subsidiary,
directly or indirectly, to Guarantee any Indebtedness of CapRock 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 the 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
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against CapRock or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee;
Provided that this paragraph does not apply 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 Vendor 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.
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 CapRock, of all of CapRock'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 the 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.
Limitation on Transactions with Stockholders and Affiliates. The Indenture
provides that CapRock 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 CapRock
or with any Affiliate of CapRock or any Restricted Subsidiary, except (a) in
writing (other than the payment of salaries or bonuses to officers of CapRock 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 CapRock 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 CapRock 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
CapRock, or in the event there is only one Disinterested Director, by such
Disinterested Director, or (2) CapRock 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 CapRock or such Subsidiary from a financial point of view.
The foregoing limitation does not limit, and does not apply to:
(i) any transaction solely between CapRock 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 CapRock who are not employees of CapRock;
(iii) any payments or other transactions pursuant to any tax-sharing
agreement between CapRock and any other Person with which CapRock files a
consolidated tax return or with which CapRock is part of a consolidated
group for tax purposes;
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(iv) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant; or
(v) any transaction or agreement as described in this Offering
Memorandum and as in effect as of the date of this Offering Memorandum.
Limitation on Liens. The Indenture provides that CapRock 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 the 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.
Limitation on Sale-Leaseback Transactions. The Indenture provides that
CapRock 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 CapRock 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 CapRock or such Restricted Subsidiary, as the case may be,
intends to use for substantially the same purpose or purposes as the assets or
properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if
(i) the lease is for a period, including renewal rights, of not in
excess of three years;
(ii) the lease secures or relates to industrial revenue or pollution
control bonds;
(iii) the transaction is solely between CapRock and any Wholly Owned
Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or
(iv) CapRock 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 the "Limitation on Asset
Sales" covenant described below.
Limitation on Asset Sales. The Indenture provides that CapRock will not,
and will not permit any Restricted Subsidiary to, consummate any Asset Sale,
unless (i) the consideration received by CapRock 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 CapRock or
a Restricted Subsidiary that are unconditionally assumed by the transferee being
deemed to be cash for purposes of this covenant). In the event and to the extent
that the Net Cash Proceeds received by CapRock or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the 1998 Senior
Notes Issue 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 CapRock and its Subsidiaries has been filed with
the Commission or provided to the trustee pursuant to the "Commission Reports
and Reports to Holders" covenant), then CapRock 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 CapRock or any
Restricted Subsidiary providing a Subsidiary Guarantee pursuant to the
"Limitation on Issuances of Guarantees by Restricted Subsidiaries" covenant
described above or Indebtedness of any other Restricted Subsidiary, in each case
owing to a Person other than CapRock 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
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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 "Limitation on Asset Sales" covenant. 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, CapRock or such 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
"Limitation on Asset Sales" covenant totals at least $10 million, CapRock must
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 CapRock or a
Restricted Subsidiary is required under the terms of Indebtedness of CapRock or
such Restricted Subsidiary which is pari passu with, or (in the case of any
secured Indebtedness) senior with respect to such collateral to, the notes with
any proceeds which constitute Excess Proceeds under the Indenture, CapRock shall
make a pro rata offer to the holders of all other pari passu Indebtedness
(including the notes) with such proceeds. If the aggregate principal amount of
notes and other pari passu Indebtedness surrendered by holders thereof exceeds
the amount of such Excess Proceeds, the trustee shall select the notes and other
pari passu Indebtedness to be purchased on a pro rata basis. To the extent that
the aggregate purchase price for the notes tendered pursuant to an Offer to
Purchase is less than the Excess Proceeds, CapRock 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.
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 May 18, 1999, in either case, whether or not
CapRock is then required to file reports with the Commission, CapRock shall file
with the Commission (if permitted by Commission practice and applicable law and
regulations) 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. CapRock 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
the copies of such reports and information mailed to holders need not contain
the exhibits thereto, but CapRock 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
May 18, 1999, CapRock 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. 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, CapRock shall supply to such holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
Limitation on Restrictive Covenants. Notwithstanding any other provisions
of the Indenture, the restrictive covenants set forth therein, including,
without limitation, those described under "Limitation on Restricted Payments,"
"Limitation on Dividend and other Payments Restrictions Affecting Restricted
Subsidiaries," "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries," "Limitation on Transactions with Stockholders and
Affiliates," "Limitation on Liens," "Limitation on Sale-Leaseback Transactions"
and "Limitation on Asset Sales" are limited and are deemed limited to the extent
necessary so that the creation, existence and effectiveness of such restrictive
covenants did not result
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in a breach of the covenants of the 1998 Senior Notes Indenture relating to
"Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries."
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
If a Change of Control shall occur at any time, each holder shall have the
right to require that CapRock purchase all such holder's notes 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.
CapRock shall commence such Offer to Purchase within 30 days following the
occurrence of such Change of Control.
There can be no assurance that CapRock will have sufficient funds available
at the time of any Change of Control to make any debt payment (including
repurchases of notes) required by the foregoing covenant (as well as may be
contained in other securities of CapRock which might be outstanding at the
time). The foregoing covenant requiring CapRock to repurchase the notes will,
unless consents are obtained, require CapRock to repay all indebtedness then
outstanding which by its terms would prohibit such note repurchase, either prior
to or concurrently with such note repurchase.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture:
(a) defaults in the payment of principal of (or premium, if any, on)
any note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) defaults in the payment of interest on any note when the same
becomes due and payable, which defaults continue for a period of 30 days;
(c) defaults in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of CapRock or mandatory redemption, or the
failure to make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" or the "Repurchase of Notes upon a Change of
Control" covenants described above;
(d) defaults in the performance or breach of any covenant or agreement
of CapRock in the Indenture or under the notes (other than a default
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 CapRock 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;
(e) there occurs with respect to any issue or issues of Indebtedness
of CapRock or any Restricted Subsidiary having an outstanding principal
amount of $7.5 million or more in the aggregate for all 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 interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended within 30 days of such payment
default;
(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 CapRock 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
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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 of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (i) relief in respect of CapRock or any Restricted Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (ii) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of CapRock or any Restricted Subsidiary or for all or substantially all of
the property and assets of CapRock or any Restricted Subsidiary or (iii)
the winding up or liquidation of the affairs of CapRock 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; or
(h) CapRock or any Restricted Subsidiary (i) commences a voluntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (ii) consents to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of CapRock or any Restricted
Subsidiary or for all or substantially all of the property and assets of
CapRock or any Restricted Subsidiary or (C) effects any general assignment
for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clauses
(g) or (h) above that occurs with respect to CapRock) occurs and is continuing
under the Indenture, the trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding, by written notice to CapRock
(and to the trustee if such notice is given by the holders), may, and the
trustee at the request of such holders shall, declare the principal of, premium,
if any, and accrued interest on the notes to be immediately due and payable.
Upon a declaration of acceleration, such principal, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (e) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by CapRock 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. If an Event of Default specified in clauses (g) or (h) above occurs
with respect to CapRock, the principal of, premium, if any, and accrued interest
on the notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the trustee or any
holder. The holders of at least a majority in principal amount of the
outstanding notes, by written notice to CapRock and to the trustee, may waive
all past defaults and their consequences including the acceleration of the notes
if (i) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the notes that have become due
solely by such acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "-- Modification
and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding notes may 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. However, the trustee may refuse to follow any
direction that conflicts with law or the Indenture that may involve the trustee
in personal liability, or that the trustee determines in good faith may be
unduly prejudicial to the rights of holders of notes not joining in the giving
of such direction, and may take any other action it deems proper that is not
inconsistent with any such direction received from holders of notes. A holder
may not pursue any remedy with respect to the Indenture or the notes unless:
(i) the holder gives the trustee written notice of a continuing Event
of Default;
(ii) the holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the trustee to pursue the
remedy;
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(iii) such holders offer the trustee indemnity satisfactory to the
trustee against any costs, liability or expense;
(iv) the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding notes do not give the trustee a
direction that is inconsistent with the request. However, such limitations
do not apply to the right of any holder of a note to receive payment of the
principal of, premium, if any, or (subject to certain provisions of the
Indenture) interest on, such note or to bring suit for the enforcement of
any such payment, on or after the due date expressed in the notes, which
right shall not be impaired without the consent of the holder.
The Indenture requires certain officers of CapRock to certify, on or before
a date not more than 90 days after the end of each fiscal year, that a review
has been conducted of the activities of CapRock and its Restricted Subsidiaries
and the performance of CapRock and its Restricted Subsidiaries under the
Indenture and that CapRock has fulfilled all obligations thereunder, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default and the nature and status thereof. CapRock is also be
obligated to notify the trustee of any default or defaults in the performance of
any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that CapRock shall not consolidate with, 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 CapRock, unless:
(i) CapRock shall be the continuing Person, or the Person (if other
than CapRock) formed by such consolidation or into which CapRock is merged
or that acquired or leased such property and assets of CapRock 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 CapRock on all of the notes and under the Indenture;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro
forma basis, CapRock, 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 the first paragraph of the "Limitation on Indebtedness"
covenant described above; provided, however, that this clause (iii) 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) in the surviving Person or
CapRock (or a Person that owns directly or indirectly all of the Capital
Stock of the surviving Person or CapRock 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 CapRock or other Person) shall be issued
or distributed to the stockholders of CapRock; and
(iv) CapRock delivers to the trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clause (iii) 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 (ii) and (iii) above do not apply if, in the good
faith determination of the Board of Directors of CapRock, whose
determination shall be evidenced by
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a Board Resolution, the principal purpose of such transaction is to change
the state of incorporation of CapRock; and provided further that any such
transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that CapRock 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 deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
notes (except for, among other matters, certain obligations to register the
transfer or exchange of the notes, to replace stolen, lost or mutilated notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) CapRock has deposited with the trustee, in trust, money and/or
U.S. Government Obligations that through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued interest
on the notes on the Stated Maturity of such payments in accordance with the
terms of the Indenture and the notes, (B) CapRock has delivered to the trustee
(i) either (x) an Opinion of Counsel to the effect that holders will not
recognize income, gain or loss for federal income tax purposes as a result of
CapRock's exercise of its option under this "Defeasance" provision 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, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel 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 after the passage of 123 days (or, under
certain circumstances, one year) following the deposit, the trust fund will not
be subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an 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 the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which CapRock or any of its
Subsidiaries is a party or by which CapRock or any of its Subsidiaries is bound,
and (D) if at such time the notes are listed on a national securities exchange,
CapRock has delivered to the trustee an Opinion of Counsel to the effect that
the notes will not be delisted as a result of such deposit, defeasance and
discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Certain
Covenants," clause (d) under "Events of Default" with respect to such covenants
and clauses (iii) and (iv) under "Consolidation, Merger and Sale of Assets," and
that clauses (e) and (f) under "Events of Default" shall be deemed not to be
Events of Default, upon, among other things, the deposit with the trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the notes, the satisfaction of
the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by CapRock to the trustee of an Opinion of Counsel to
the effect that, among other things, 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.
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Defeasance and Certain Other Events of Default. In the event CapRock
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the notes as described in the immediately
preceding paragraph and the notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the trustee will be
sufficient to pay amounts due on the notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the notes at the time of the
acceleration resulting from such Event of Default. However, CapRock will remain
liable for such payments.
MODIFICATION AND WAIVER
From time to time, CapRock, when authorized by trustee, without the consent
of the holders, may amend, waive or supplement the Indenture and the notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, to provide for the assumption of CapRock's
obligations to holders in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the holders, to
add guarantors with respect to the notes, to secure the notes, to maintain the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), or to make any change that does not adversely
affect the rights of any holder. Other amendments and modifications of the
Indenture or the notes issued thereunder may be made by CapRock and the trustee
with the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding notes; provided, however, that no such
modification or amendment may, without the consent of each holder affected
thereby:
(i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note,
(ii) reduce the principal of, or premium, if any, or interest on, any
Note,
(iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Note,
(iv) 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,
(v) reduce the above-stated percentage of outstanding notes the
consent of whose holders is necessary to modify or amend the Indenture,
(vi) waive a default in the payment of principal of, premium, if any,
or interest on the notes, or
(vii) 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 the Indenture or for waiver of
certain defaults.
GOVERNING LAW
The Indenture provides that the Indenture and the notes are governed by and
construed in accordance with the laws of the State of New York without giving
effect to principles of conflicts of law.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of CapRock, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
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security or otherwise. The trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the definition of any other capitalized term used herein for which
no definition is provided.
"1998 Senior Notes Indenture" means the Indenture dated as of July 16,
1998, among CapRock, CapRock Telecommunications Corp., CapRock Fiber Network,
Ltd. and IWL Communications, Incorporated and PNC Bank, N.A. (now known as Chase
Manhattan Trust Company, National Association), as trustee, providing for the
issuance of the 1998 Senior Notes in the aggregate principal amount of
$150,000,000, as such instrument may be amended and supplemented from time to
time.
"1998 Senior Notes Issue Date" means the date on which the 1998 Senior
Notes were originally issued under the 1998 Senior Notes Indenture.
"1998 Senior Notes" means CapRock's 12% Senior Notes due 2008 issued
pursuant to the 1998 Senior Notes Indenture, as such instrument may be amended
or supplemented from time to time.
"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 CapRock 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 CapRock and its Restricted Subsidiaries for such period
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 CapRock 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 CapRock 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 CapRock or any Restricted Subsidiary to such Person
during such period;
(ii) the net income (or loss) of any Person acquired by CapRock 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
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(vii) any compensation or other expense paid or payable solely with
Capital Stock (other than Redeemable Stock) of CapRock or any options,
warrants or other rights to acquire such Capital Stock.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of CapRock 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
CapRock 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 CapRock and its Restricted
Subsidiaries, prepared in conformity with GAAP and filed with the Commission or
provided to the trustee pursuant to the "Commission Reports and Reports to
Holders" covenant described above.
"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 CapRock 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
CapRock or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of
CapRock and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by CapRock or any of its Restricted Subsidiaries of the property
and assets of any Person other than CapRock 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 CapRock and its Restricted
Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by CapRock or any
of its Restricted Subsidiaries (other than to CapRock 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 CapRock or any of its Restricted Subsidiaries.
"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 CapRock
or any of its Restricted Subsidiaries to any Person other than CapRock 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 CapRock or any of its Restricted Subsidiaries
or
(iii) any other property and assets of CapRock or any of its
Restricted Subsidiaries outside the ordinary course of business of CapRock
or such Restricted 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 by the
provisions of the Indenture applicable to mergers, consolidations and sales of
all or substantially all of the assets of CapRock; 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,
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(b) contemporaneous exchanges by CapRock 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 CapRock or such Restricted Subsidiary have at least substantially equal
fair market value to the Telecommunications Assets disposed of, or
(c) sales, transfers or other dispositions of assets that have become
uneconomic, obsolete or worn-out.
"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.
"Board of Directors" means, with respect to any Person, its Board of
Directors, general partner(s), manager(s), or similar governing body.
"Calculation Date" means, with respect to the Incurrence of any
Indebtedness by CapRock 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.
"Change of Control" shall be deemed to occur if:
(i) the sale, conveyance, transfer or lease of all or substantially
all of the assets of CapRock 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 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 CapRock (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 CapRock
(together with any directors whose election or appointment by the Board of
Directors of CapRock or whose nomination for election by the stockholders
of CapRock 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
CapRock then in office or
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(iv) the merger, amalgamation or consolidation of CapRock with or into
another Person or the merger of another Person with or into CapRock shall
have occurred, and the securities of CapRock that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of CapRock 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 May 18, 1999.
"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,
(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 or the offering of the
1998 Senior Notes and expensed by CapRock 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 CapRock 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 CapRock 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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(iv) Preferred Stock dividends of CapRock'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 CapRock 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
CapRock 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, the 1998 Senior Notes and the 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 CapRock 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 CapRock have been filed with
the Commission or provided to the trustee pursuant to the "Commission Reports
and Reports to Holders" covenant described above (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 Person that has become a Restricted Subsidiary or has been merged
with or into CapRock 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 CapRock 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 CapRock 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).
"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.
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"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 CapRock or any of its Subsidiaries designed solely
to protect against or manage exposure to fluctuations in currency exchange
rates.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"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 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 CapRock 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 CapRock) 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 1998 Senior Notes Issue 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.
"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 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 the caption
"Limitation on Issuances of Guarantees by Restricted Subsidiaries."
"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.
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"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 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,
(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 CapRock or any Restricted Subsidiary, and
(F) Indebtedness shall not include overdrafts.
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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 the 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.
"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 Investment), held by CapRock 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
(iii) of the "Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant described above. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described above, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to CapRock 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 CapRock 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.
"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 a conditional sale or other title
retention agreement or lease in the nature thereof or a switch partition.
"Merger Agreement" means that certain Agreement and Plan of Merger and Plan
of Exchange dated as of February 16, 1998 among CapRock, CapRock
Telecommunications Corp., CapRock Fiber Network, Ltd. and IWL Communications,
Incorporated and certain other parties thereto, as amended through the 1998
Senior Notes Issue Date and thereafter in accordance with the terms of the 1998
Senior Notes Indenture.
"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 CapRock 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 CapRock and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation
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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 CapRock 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 CapRock 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 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.
(i) "Offer to Purchase" means an offer by CapRock to purchase notes
from the holders commenced by mailing a notice to the trustee and each
holder stating:
(ii) 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;
(iii) 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);
(iv) that any note not tendered will continue to accrue interest
pursuant to its terms;
(v) that, unless CapRock 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;
(vi) 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;
(vii) 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
(viii) 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.
On the Payment Date, CapRock 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 CapRock. 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 nonequal 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. CapRock will publicly
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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. CapRock 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 CapRock is required to repurchase
notes pursuant to an Offer to Purchase.
"Payment Date" means the date on which any note is purchased pursuant to an
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 CapRock pursuant to the notes and the Indenture;
(ii) Indebtedness owed (A) to CapRock 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 CapRock 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 the
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 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 CapRock 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 CapRock or any
Restricted Subsidiary in accordance with the policies issued to CapRock 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 CapRock 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
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credit, surety bonds or performance bonds securing any obligations of
CapRock 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 CapRock or any Restricted Subsidiary in connection
with such disposition;
(v) Indebtedness of CapRock, to the extent the net proceeds thereof
are promptly used to purchase notes tendered in an Offer to Purchase made
as a result of a Change of Control or Indebtedness of CapRock or any
Restricted Subsidiary to the extent the net proceeds thereof are promptly
deposited to defease all of the notes as described above under
"Defeasance";
(vi) Guarantees of the notes and Guarantees of Indebtedness of CapRock
by any Restricted Subsidiary; provided that the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant described
above;
(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 interest, and reasonable fees and
expenses) in an aggregate amount not to exceed at any one time outstanding
$25 million;
(viii) (A) Indebtedness of CapRock not to exceed, at any one time
outstanding, two times the Net Cash Proceeds received by CapRock after the
1998 Senior Notes Issue Date 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 CapRock to the extent such
Net Cash Proceeds have not been used pursuant to clause (C)(2) of the first
paragraph or clause (iii), (iv) or (vi) of the second paragraph of the
"Limitation on Restricted Payments" covenant described above to make a
Restricted Payment less any Indebtedness Incurred pursuant to clause (B),
(B) Indebtedness Incurred by (x) CapRock 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 CapRock after the 1998
Senior Notes Issue Date 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 CapRock to the extent such
Net Cash Proceeds have not been used pursuant to clause (C)(2) of the first
paragraph or clause (iii), (iv) or (vi) of the second paragraph of the
"Limitation on Restricted Payments" covenant described above 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 CapRock not to exceed, at any one time outstanding, 100% of the fair
market value of property (other than cash and cash equivalents) received by
CapRock after the 1998 Senior Notes Issue Date 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 CapRock 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
clause (iii), (iv) or (ix) of the second paragraph of the "Limitation on
Restricted Payments" covenant described above 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;
(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 CapRock and its Restricted Subsidiaries as of the
last fiscal quarter for which financial statements are prepared or
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(y) $175 million less any amount of such Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described above;
(x) Indebtedness existing as of the Closing Date;
(xi) Capitalized Lease Obligations in an aggregate principal amount
outstanding at any time not to exceed $25 million; and
(xii) Indebtedness of CapRock (in addition to Indebtedness permitted
under clauses (i) through (xi) above) in the aggregate principal amount
outstanding at any time not to exceed $75 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described above.
"Permitted Investment" means any of the following:
(i) an Investment in CapRock 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, CapRock or a Restricted Subsidiary;
provided that such Person's primary business is related, ancillary or
complementary to the businesses of CapRock 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;
(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 CapRock 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, material men, 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);
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(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 CapRock or any of its Restricted
Subsidiaries;
(vi) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the Incurrence of such Indebtedness
by CapRock or any Restricted Subsidiary; provided that such Lien does not
extend to any property or assets of CapRock 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 CapRock 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 CapRock 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 CapRock or any Restricted
Subsidiary other than the property or assets acquired and any proceeds
thereof;
(xii) Liens in favor of CapRock or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against CapRock 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 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 CapRock 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
CapRock or any of its Restricted Subsidiaries in the ordinary course of
business in accordance with the past practices of CapRock and its
Restricted Subsidiaries;
(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 of CapRock or any Restricted Subsidiary securing
Indebtedness in effect at the Closing Date;
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(xxiii) Liens granted after the Closing Date on any assets or Capital
Stock of CapRock 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 CapRock or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to CapRock 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 of CapRock or any Restricted
Subsidiary other than the property or assets securing the Indebtedness
being refinanced;
(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.
"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.
"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.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock (other than Redeemable Stock) of CapRock or a Restricted Subsidiary
pursuant to an effective registration statement filed under the Securities Act
(excluding registration statements on Form S-8).
"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 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
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described above 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 CapRock's repurchase of such notes as
are required to be repurchased pursuant to the "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described above.
"Restricted Payment" means
(i) a declaration or payment of any dividend or the making of any
distribution on or with respect to CapRock's Capital Stock (other than (x)
dividends or distributions payable solely in shares of CapRock'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 CapRock or any Wholly Owned Restricted Subsidiary),
(ii) a payment made by CapRock or any Restricted Subsidiary used to
purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of (A) CapRock or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital Stock)
held
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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 CapRock (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 CapRock (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 CapRock
or in options, warrants or other rights to acquire shares of such Capital
Stock and (y) payments payable to CapRock 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 CapRock that is subordinated in
right of payment to the notes (other than, in each case, the purchase,
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.
"Restricted Subsidiary" means any Subsidiary of CapRock other than an
Unrestricted Subsidiary.
"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.
"Strategic Equity Investments" means the issuance and sale of Capital Stock
(other than Redeemable Stock) to a Person that has an equity market
capitalization, a net asset value or annual revenues of at least $1.0 billion
and owns and operates businesses primarily in a Telecommunications Business;
provided that such Telecommunications Business may be located anywhere in the
world.
"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 under the caption
"Limitation on Issuances of Guarantees by Restricted Subsidiaries."
"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 CapRock 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 CapRock pursuant to the Indenture. The determination of what
constitutes Telecommunications Assets shall be made by the Board of Directors of
CapRock 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 complimentary assets and devices; (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 CapRock.
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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
CapRock) 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
(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 Standard & Poor's Ratings Service or Moody's Investors Service, Inc.
"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,
which were consummated on August 26, 1998.
"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 CapRock, as provided below) and (b) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of CapRock may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither CapRock 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 CapRock 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 the "Limitation on Restricted Payments" covenant, (iv) neither
CapRock 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 CapRock, and (v)
neither CapRock 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 CapRock
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shall be evidenced to the trustee by filing a Board Resolution with the trustee
giving effect to such designation. The Board of Directors of CapRock may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if, immediately
after giving effect to such designation, there would be no Default or Event of
Default under the Indenture and CapRock could incur $1.00 of additional
Indebtedness under clause (i) of the first paragraph of the "Limitation on
Indebtedness" covenant described above pursuant to the "Limitation on
Indebtedness" covenant.
"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 CapRock
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 CapRock 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.
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BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be represented by one or more permanent global
certificates in definitive, fully registered form. This global note will be
deposited upon issuance with The Depositary Trust Company, New York, New York
and registered in the name of a nominee of the Depository Trust Company.
THE GLOBAL NOTE.
We expect that pursuant to procedures established by The Depository Trust
Company
-- upon the issuance of the global note, The Depository Trust Company
or its custodian will credit, on its internal system, the principal amount
of the individual beneficial interests represented by the global note to
the respective accounts of persons who have accounts with such depositary
and
-- ownership of beneficial interests in the global note will be shown
on, and the transfer of ownership will be effected only through, records
maintained by The Depository Trust Company or its nominee, with respect to
interests of participants, and the records of participants, with respect to
interests of persons other than participants.
Ownership of beneficial interests in the global notes will be limited to
persons who have accounts with The Depository Trust Company or persons who hold
interests through participants.
So long as The Depository Trust Company or its nominee is the registered
owner or holder of the new notes, The Depository Trust Company (or the nominee)
will be considered the sole owner or holder of the new notes represented by the
global note for all purposes under the indenture. No beneficial owner of an
interest in the global note will be able to transfer that interest except in
accordance with The Depository Trust Company's procedures.
Payments of interest, principal and other amounts due on the global note
will be made to The Depository Trust Company or its nominee as the registered
owner. None of CapRock, the trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global note or
for maintaining, supervising or reviewing any records relating to this
beneficial ownership interest.
We expect that The Depository Trust Company or its nominee, upon receipt of
any payment of interest, principal or other amounts due on the global note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the global note as shown on the records of
The Depository Trust Company. We also expect that payments by participants to
owners of beneficial interests in the global note held through such participants
will be governed by standing instructions and customary practice, as is the case
with securities held for the accounts of customers registered in the names of
nominees for those customers. These payments will be the responsibility of the
participants.
Transfers between participants in The Depository Trust Company will be
effected in the ordinary way through The Depository Trust Company's settlement
system in accordance with The Depository Trust Company rules and will be settled
in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of new notes, including the presentation of
new notes for exchange as described below, only at the direction of a
participant to whose account The Depository Trust Company interests in the
global note are credited. Further, The Depository Trust Company will take action
only as to such portion of the notes as to which the participant has given such
direction. However, if there is an Event of Default under the indenture, the
Depository Trust Company will exchange the global note for certificated notes,
which it will distribute to its participants.
The Depository Trust Company has advised us as follows: The Depository
Trust Company is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
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"Clearing Agency" registered under to the provisions of Section 17A of the
Exchange Act. The Depository Trust Company was created to hold securities for
its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the Depository Trust Company system is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Although the Depository Trust Company has agreed to the foregoing
procedures in order to facilitate transfers of interests in the global note
among participants of the Depository Trust Company, it is under no obligation to
perform those procedures, and those procedures may be discontinued at any time.
Neither CapRock nor the trustee will have any responsibility of the performance
by the Depository Trust Company or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
CERTIFICATED SECURITIES.
If (1) the Depository Trust Company is at any time unwilling or unable to
continue as a depositary for the global note and a successor depositary is not
appointed by CapRock within 90 days or (2) an event of default under the
indenture has occurred and is continuing with respect to the notes, certificated
notes will be issued in exchange for the global note.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CapRock has outstanding $150.0 million of its 1998 Senior Notes bearing
interest at the rate of 12% per annum. The 1998 Senior Notes are subject to the
terms and conditions of an indenture dated July 16, 1998 between CapRock and
Chase Manhattan Trust Company, National Association (formerly known as PNC Bank,
N.A.), as Trustee. The 1998 Senior Notes are subject to all of the terms and
conditions of the indenture governing the 1998 Senior Notes. The following
summary highlights some provisions of the indenture.
The 1998 Senior Notes will mature on July 15, 2008. Interest on the 1998
Senior Notes is payable semiannually in cash on January 15 and July 15 of each
year, commencing January 15, 1999. The 1998 Senior Notes are general senior
unsecured obligations of CapRock, and as such, rank pari passu in right of
payment with all existing and future unsecured and unsubordinated indebtedness
of CapRock, including CapRock's senior notes issued in May 1999.
The 1998 Senior Notes are redeemable at CapRock's option, in whole or in
part, at any time on or after July 15, 2003 at the redemption prices set forth
in the indenture governing the 1998 Senior Notes.
Upon a change of control, each holder of 1998 Senior Notes may require
CapRock to make an offer to purchase all outstanding 1998 Senior Notes at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. There can be no
assurance that CapRock will have available, or will be able to acquire from
alternative sources of financing, funds sufficient to repurchase the 1998 Senior
Notes in the event of a change of control.
The indenture governing the 1998 Senior Notes contains covenants that,
among other things, limit or prohibit us from engaging in certain transactions
including the following:
- borrowing additional money,
- paying dividends or making other distributions to our shareholders,
- limiting the ability of subsidiaries to make payments to us,
- making certain investments,
- certain liens on our assets,
- selling certain assets and using the proceeds from those sales for
certain purposes,
- entering into transactions with affiliates, and
- engaging in certain mergers or consolidations.
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DESCRIPTION OF CAPITAL STOCK
The following summaries highlight certain provisions of our Articles of
Incorporation and Bylaws, as amended. Copies of our Articles and Bylaws are
available from us upon request. See "Where You Can Find More Information."
AUTHORIZED CAPITAL STOCK
Under our Articles, the total number of shares of all classes of stock that
we have authority to issue is 220,000,000 shares. Each share has a par value of
$.01 per share. Of the authorized amount, 200,000,000 of the shares are Common
Stock and 20,000,000 are shares of Preferred Stock. As of May 31, 1999, there
were 33,028,694 shares of Common Stock issued and outstanding, and no shares of
Preferred Stock were issued or outstanding.
COMMON STOCK
Each share of Common Stock has identical rights and privileges in every
respect. The holders of CapRock Common Stock are entitled to vote upon all
matters submitted to a vote of our shareholders and are entitled to one vote for
each share of Common Stock held.
Subject to the prior rights and preferences, if any, applicable to shares
of Preferred Stock or any series of Preferred Stock, the holders of Common Stock
are entitled to receive such dividends, payable in cash, stock or otherwise, as
may be declared by the Board out of any funds legally available for the payment
of dividends.
If CapRock voluntarily or involuntarily liquidates, dissolves or winds-up,
the holders of Common Stock will be entitled to receive after distribution in
full of the preferential amounts, if any, to be distributed to the holders of
Preferred Stock or any series of Preferred Stock, all of the remaining assets
available for distribution ratably in proportion to the number of shares of
Common Stock held by them.
Holders of Common Stock will have no preferences or any preemptive,
conversion or exchange rights.
PREFERRED STOCK
The Board is authorized to provide for the issuance of shares of CapRock
Preferred Stock in one or more series, and to fix for each series, 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 shown in a resolution
providing for the issuance of such series adopted by the Board. The Board may
authorize the issuance of shares of Preferred Stock with terms and conditions
which could discourage a takeover or other transaction that holders of some or a
majority of shares of CapRock 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-current market price of such shares. As of the date hereof,
no shares of Preferred Stock are outstanding and the Board has no present
intention to issue any shares of Preferred Stock.
PREEMPTIVE RIGHTS
No holder of any shares of our stock has 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 our Common Stock is American
Securities Transfer & Trust, Inc.
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CERTAIN ANTI-TAKEOVER EFFECTS
As of May 31, 1999, there were 166,977,941 authorized and unissued shares
of Common Stock and 20,000,000 authorized and unissued shares of Preferred
Stock. The Board of Directors can authorize the issuance of authorized but
unissued shares of its stock to render more difficult or to discourage an
attempt to obtain control of our company by means of a merger, tender offer,
proxy solicitation or otherwise. We are also subject to prior regulatory
approval by the FCC and various state regulatory agencies for a transfer of
control or for the assignment of our (or our 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 we (and our
subsidiaries) hold FCC authority to provide international service, the FCC will
scrutinize an ownership interest in our company of greater than 25%, or a
controlling interest at any level, by a dominant foreign carrier. International
carriers, such as we are, 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 telecommunications markets to competition
starting in 1998. Furthermore, the indenture for our senior notes provides for a
mandatory purchase of the senior notes upon a change of control and we expect
that the credit facility that we are currently negotiating will provide that an
event of default or redemption event thereunder will occur if all or a
controlling interest in our capital stock is sold, assigned or otherwise
transferred. See "Description of Certain Indebtedness." Any of the foregoing
factors could have the effect of delaying, deferring or preventing a change of
control of CapRock. The Articles provide that Article 13.03 of the Texas
Business Corporation Act, which includes statutory anti-takeover measures, will
not apply to us.
WARRANTS AND REGISTRATION RIGHTS
As part of its initial public offering, IWL Communications, one of our
predecessor companies, issued warrants to purchase up to 145,000 shares of IWL
Communications common stock at an exercise price of $7.20 per share to
Cruttenden Roth, Incorporated or its designees for nominal consideration.
Following our business combination in August 1998, the Cruttenden warrants were
converted on a one-to-one ratio to warrants to purchase shares of our Common
Stock and are exercisable until July 16, 2002. Cruttenden Roth has certain
demand and piggyback registration rights associated with our Common Stock to be
issued upon the exercise of the warrants.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States
federal income tax consequences of an exchange of old notes for new notes and
the ownership and disposition of the new notes to initial purchasers thereof.
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing, temporary and proposed
Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all
of which are subject to change, possibly with retroactive effect, or different
interpretations. This discussion does not address the tax consequences to
subsequent purchasers of notes and is limited to purchasers who acquire the
notes at their issue price and hold such notes as capital assets within the
meaning of section 1221 of the Code. Moreover, this discussion is for general
information only and does not address all of the tax consequences that may be
relevant to particular initial purchasers in light of their personal
circumstances or to certain types of initial purchasers, such as certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities, certain U.S. expatriates, persons who have hedged the risk of owning
a note or holders whose "functional currency" is not the U.S. dollar.
As used herein, the term "U.S. Holder" means an initial purchaser of a note
that is, for United States federal income tax purposes, (a) a citizen or
individual resident of the United States, (b) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof (other than any partnership treated as foreign
under U.S. Treasury regulations which may be issued under recently enacted
amendments to the Code), (c) an estate the income of which is subject to United
States federal income taxation regardless of source, or (d) a trust subject to
the primary supervision of a court within the United States and the control of a
United States person, as described in the Code. An individual may, subject to
certain exceptions, be deemed to be a United States resident (as opposed to a
non-resident alien) by virtue of being present in the United States on at least
31 days in the calendar year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year (counting for such
purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second preceding year). Resident aliens are subject to U.S. federal tax as
if they were U.S. citizens. As used herein, a "Non-U.S. Holder" is a holder that
is not a U.S. Holder.
EXCHANGE OF NOTES
CapRock believes that the exchange of old notes for new notes pursuant to
the exchange offer will not be treated as an "exchange" for federal income tax
purposes because the new notes will not be considered to differ materially in
kind or extent from the old notes. Rather, the new notes received by a holder
will be treated as a continuation of the old notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging old notes for new notes pursuant to the exchange offer.
ALL PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN
APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
UNITED STATES FEDERAL INCOME TAXATION OF UNITED STATES HOLDERS
Stated Interest. Interest paid on an old note or a new note will be taxable
to a U.S. Holder as ordinary interest income as it accrues or is received, in
accordance with such U.S. Holder's method of accounting for United States
federal income tax purposes.
Sale or Exchange of Notes (Other than in the Exchange Offer). Upon a sale,
redemption (including pursuant to an offer by CapRock), retirement or other
disposition of an old note or a new note, except in the case of an exchange
pursuant to the exchange offer (see above discussion), a U.S. Holder generally
will recognize taxable gain or loss equal to the difference between (i) the
amount of cash and the fair
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market value of property received on such disposition (other than amounts
attributable to accrued and unpaid interest) and (ii) such U.S. Holder's
adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note
generally will equal the cost of such note (net of accrued interest), less any
principal payments received by such holder.
Gain or loss recognized on the sale or exchange of a note will be capital
gain or loss. In general, long-term capital gains recognized by an individual
U.S. Holder will be subject to a maximum rate of 20% in respect of property held
for more than one year. The distinction between capital gain or loss and
ordinary income or loss is also relevant for purposes of, among other things,
limitations with respect to the deductibility of capital losses.
Notwithstanding the foregoing, any amounts realized in connection with any
sale or exchange with respect to accrued interest not previously included in
income will be treated as ordinary interest income.
UNITED STATES FEDERAL TAXATION OF NON-U.S. HOLDERS
Under present United States federal income and estate tax law and subject
to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest on a note by
CapRock or any agent of CapRock to any Non-U.S. Holder will not be subject
to withholding of United States federal income tax, provided that, in the
case of interest (1) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of CapRock entitled to vote, (2) the Non-U.S. Holder is
not (A) a controlled foreign corporation that is related to CapRock through
stock ownership, or (B) a bank receiving interest described in section
881(c)(3)(A) of the Code, and (3) either (A) the beneficial owner of the
note certifies to CapRock or its agent, under penalties of perjury, that it
is not a "United States person" (as defined in the Code) and provides its
name and address, or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the
note on behalf of the beneficial owner, certifies to CapRock or its agent
under penalties of perjury that such statement has been received from the
beneficial owner by it or by the financial institution between it and the
beneficial owner, and furnishes the payor with a copy thereof;
(ii) a Non-U.S. Holder will not be subject to United States federal
income tax on gain realized on the sale, exchange, redemption, retirement
at maturity or other disposition of a note (other than any such gain in
respect of accrued interest) unless (1) such holder is an individual who is
present in the United States for 183 days or more during the taxable year
and certain other conditions are met, or (2) the gain is effectively
connected with a United States trade or business of the holder, and if an
income tax treaty applies, is generally attributable to a United States
"permanent establishment" maintained by the holder; and
(iii) a note held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to United
States federal estate tax as a result of such individual's death if, at the
time of such death, (1) the individual did not actually or constructively
own 10 percent or more of the total combined voting power of all classes of
stock of CapRock entitled to vote, and (2) the income on the note would not
have been effectively connected with the conduct of a trade or business by
the individual in the United States.
If a Non-U.S. Holder is engaged in a trade or business in the United
States, and interest on the note or gain realized on the sale, exchange or other
disposition of the note is effectively connected with the conduct of such trade
or business (and, if an income tax treaty applies, the Non-U.S. Holder maintains
a U.S. "permanent establishment" to which the interest or gain is generally
attributable), the Non-U.S. Holder, although exempt from the withholding tax
discussed in the preceding paragraph (i) (provided that such holder furnishes a
properly executed Internal Revenue Service ("IRS") Form 4224 or successor form
on or before any payment date to claim such exemption), may be subject to United
States federal income tax on such interest or gain on a net basis in the same
manner as if it were a U.S. Holder.
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In addition, a foreign corporation that is a Non-U.S. Holder of a note may
be subject to a branch profits tax equal to 30% of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments,
unless it qualifies for a lower rate under an applicable tax treaty. For this
purpose, interest on a note or gain on the disposition of a note will be
included in earnings and profits if such interest or gain is effectively
connected with the conduct by the foreign corporation of a trade or business in
the United States.
Recently finalized Treasury regulations pertaining to U.S. federal
withholding tax, generally effective for payments made after December 31, 1999
(the "Final Withholding Tax Regulations"), will provide alternative methods for
satisfying the certification requirement described in paragraph (i)(3) above and
will require a Non-U.S. Holder which provides an IRS Form 4224 or successor form
(as discussed above) to also provide its U.S. taxpayer identification number.
The Final Withholding Tax Regulations generally also will require, in the case
of a note held by a foreign partnership, that (A) the certification described in
paragraph (i)(3) above be provided by the partners and (B) the partnership
provide certain information, including a United States taxpayer identification
number. A look-through rule will apply in the case of tiered partnerships.
With respect to a Non-U.S. Holder subject to United States federal income
taxation under the circumstances described above in paragraph (ii), exchange of
an old note for a new note should not be subject to U.S. federal income tax.
Non-U.S. Holders should consult with their tax advisors regarding United
States and foreign tax consequences with respect to the notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments made in respect of a note to U.S. Holders other than certain exempt
recipients (such as corporations). A 31% backup withholding tax will apply to
such payments if the U.S. Holder fails to provide a correct taxpayer
identification number or certification of exempt status or, with respect to
certain payments, the U.S. Holder fails to report in full all dividend and
interest income and the IRS notifies the payor of such underreporting.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by CapRock or any agent thereof (in
its capacity as such) to a Non-U.S. Holder of a note if such holder has provided
the required certification that it is not a United States person as set forth in
paragraph (i) under "United States Federal Taxation of Non-U.S. Holders,"
provided that neither CapRock nor its agent has actual knowledge that the holder
is a United States person. CapRock or its agent may, however, report (on IRS
Form 1042-S) payments of interest on the notes.
Payment of the proceeds from the disposition of a note made to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, except that if the broker is a United States person, a
controlled foreign corporation for United States tax purposes or a foreign
person 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with a United States trade or business, information
reporting may apply to such payments. Payments of the proceeds from a
disposition of a note made to or through the United States office of a broker is
subject to information reporting and backup withholding unless the holder or
beneficial owner certifies as to its taxpayer identification number or otherwise
establishes an exemption from information reporting and backup withholding.
In general, the Final Withholding Tax Regulations do not significantly
alter the current substantive backup withholding and information reporting
requirements but unify current certification procedures and clarify reliance
standards. Under the Final Withholding Tax Regulations, special rules apply
which permit the shifting of primary responsibility for withholding to certain
financial intermediaries acting on behalf of beneficial owners. A holder of a
note should consult with its tax advisor regarding the application of the backup
withholding rules to its particular situation, the availability of an exemption
therefrom, the
127
<PAGE> 129
procedure for obtaining such an exemption, if available, and the impact of the
Final Withholding Tax Regulations on payments made with respect to notes after
December 31, 1999.
Any amounts withheld under the backup withholding rules from a payment to a
holder would be allowed as a refund or a credit against such holder's United
States federal income tax liability, provided the required information is
furnished to the IRS.
PLAN OF DISTRIBUTION
Any broker-dealer that acquired old notes for its own account as a result
of market-making activities or other trading activities may be deemed to be an
"underwriter" under the Securities Act. Each broker-dealer that receives new
notes for its own account in exchange for old notes, where such old notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such new
notes. The letter of transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of the new notes received in
exchange for old notes where such old notes were acquired by such broker-dealer
as a result of market-making or other trading activities. CapRock has agreed
that, for a period of 180 days after the expiration date of the exchange offer,
it will make this prospectus available to any broker-dealer for use in
connection with any such resale. A broker-dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the registration rights agreement (including certain
indemnification rights and obligations).
CapRock will not receive any proceeds from any sale of new notes by
broker-dealer or others. New notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus as required, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the expiration date, CapRock will send a
reasonable number of additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. CapRock will pay all the expenses incident to the
exchange offer (which shall not include the expenses of any holder in connection
with resales of the new notes). CapRock has agreed to indemnify the initial
purchasers and any broker-dealers participating in the exchange offer against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the new notes will be passed upon for CapRock by Munsch
Hardt Kopf & Harr, P.C., Dallas, Texas.
128
<PAGE> 130
EXPERTS
The consolidated financial statements of CapRock Communications Corp. as of
December 31, 1997 and 1998 and for each of the years in the three year period
ended December 31, 1998 are included in this prospectus in reliance upon the
reports of KPMG LLP and Burds, Reed & Mercer, P.C., independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firms as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and, therefore, we file reports, proxy statements,
information statements and other information with the Securities and Exchange
Commission. You may inspect and copy this information (at prescribed rates) at
the Commission's public reference facilities at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the regional offices of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Please call the Commission at 1-800-SEC-0330 for more information on its
public reference rooms. The Commission also maintains an Internet Website at
http://www.sec.gov that contains reports, proxy statements, registration
statements, information statements and other information regarding registrants,
including us, that file electronically with the Commission. Our Common Stock is
quoted on the Nasdaq National Market. Reports, proxy statements, information
statements and other information about us may also be inspected at the office of
the National Association of Securities Dealers, Inc., located at 1735 K Street,
N.W., Washington, D.C. 20006.
We have also filed with the Commission a registration statement on Form S-4
to register this exchange offer. This prospectus, which forms part of the
registration statement, does not contain all of the information included in that
registration statement. For further information about CapRock and the new notes
offered in this prospectus, you should refer to the registration statement and
its exhibits. Statements contained in this prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and, in
each instance, if such contract or document is filed as an exhibit, reference is
made to the copy of such contract or document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference to such exhibit. The registration statement, including exhibits
and schedules thereto, is available as shown in the previous paragraph.
129
<PAGE> 131
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report of KPMG LLP.................... F-2
Independent Auditors' Reports of Burds, Reed and Mercer,
P.C....................................................... F-3, F-4
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-6
Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the years ended December 31,
1996, 1997 and 1998....................................... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-8
Notes to Consolidated Financial Statements.................. F-9
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).....
Condensed Consolidated Balance Sheets as of December 31,
1998 and March 31, 1999 (unaudited)....................... F-26
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1998 and 1999........ F-27
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1998 and 1999........ F-28
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-29
</TABLE>
F-1
<PAGE> 132
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CapRock Communications Corp.
(formerly IWL Holdings Corp.):
We have audited the accompanying consolidated balance sheets of CapRock
Communications Corp. and subsidiaries, as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. 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 did
not audit the 1996 financial statements of certain consolidated subsidiaries,
which statements reflect total assets constituting 56 percent and total revenues
constituting 45 percent of the related 1996 consolidated totals. Those financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts of these consolidated
subsidiaries, is based solely on the report of the other auditors.
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, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CapRock Communications Corp. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Dallas, Texas
February 19, 1999
F-2
<PAGE> 133
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapRock Telecommunications Corp.:
(formerly CapRock Communications Corp.)
We have audited the 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 year then
ended (not presented separately herein). 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 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, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
BURDS, REED AND MERCER, P.C.
Dallas, Texas
May 28, 1997
F-3
<PAGE> 134
INDEPENDENT AUDITORS' REPORT
The Partners of
CapRock Fiber Network, Ltd.:
We have audited the 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 year then ended (not presented separately herein). 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, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
BURDS, REED AND MERCER, P.C.
Dallas, Texas
March 19, 1997
F-4
<PAGE> 135
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 3,520,017 $ 293,860
Marketable securities..................................... -- 97,019,789
Accounts receivable and unbilled services, less allowance
for doubtful accounts of $1,781,355 and $709,941 at
December 31, 1997 and 1998, respectively............... 15,143,525 19,936,214
Income tax receivable..................................... -- 1,405,000
Costs and estimated earnings in excess of billings........ -- 7,238,402
Inventory................................................. 1,022,927 1,301,726
Prepaid expenses and other................................ 1,022,319 706,775
Deferred income taxes..................................... 731,845 1,989,250
----------- ------------
Total current assets.............................. 21,440,633 129,891,016
Property, plant and equipment, net.......................... 27,340,599 59,606,752
Other assets................................................ 608,219 2,468,000
----------- ------------
Total assets...................................... $49,389,451 $191,965,768
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 8,116,424 $ --
Accounts payable and accrued expenses..................... 11,851,945 26,850,525
Accrued commitment and guarantor fees..................... 406,010 --
Current installments of obligations under capital
leases................................................. 239,672 --
Income taxes payable...................................... 589,514 --
Unearned revenue.......................................... 542,441 551,341
----------- ------------
Total current liabilities......................... 21,746,006 27,401,866
Long-term debt, excluding current portion................... 12,338,341 --
Senior notes, net of unamortized debt issuance costs........ -- 145,187,039
Deferred income taxes....................................... 851,307 3,314,568
Obligations under capital lease, excluding current
installments.............................................. 367,493 --
----------- ------------
Total liabilities................................. 35,303,147 175,903,473
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized; none issued................................ -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; issued and outstanding, 28,677,743 and
28,932,395 shares at December 31, 1997 and 1998,
respectively........................................... 286,777 289,377
Additional paid-in capital................................ 8,810,627 10,521,713
Retained earnings......................................... 5,385,144 5,608,237
Accumulated other comprehensive income.................... -- 8,878
Unearned compensation..................................... (396,244) (329,070)
Treasury stock, at cost................................... -- (36,840)
----------- ------------
Total stockholders' equity........................ 14,086,304 16,062,295
----------- ------------
Total liabilities and stockholders' equity........ $49,389,451 $191,965,768
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 136
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Carriers' carrier.................................. $22,405,158 $41,804,704 $ 72,165,460
Integrated services................................ 1,980,393 8,640,427 17,978,115
Systems services................................... 16,030,586 21,958,772 31,630,566
Product resales.................................... 10,553,846 2,945,563 --
----------- ----------- ------------
Total revenues............................. 50,969,983 75,349,466 121,774,141
Costs of services and product resales:
Services........................................... 29,684,388 50,124,257 83,221,102
Product resales.................................... 9,672,078 2,347,060 --
----------- ----------- ------------
Gross profit............................... 11,613,517 22,878,149 38,553,039
Operating expenses:
Selling, general and administrative................ 8,983,394 14,073,691 23,528,038
Merger related expenses............................ -- -- 2,312,973
Depreciation and amortization...................... 1,535,880 3,345,819 4,887,157
----------- ----------- ------------
Total operating expenses................... 10,519,274 17,419,510 30,728,168
----------- ----------- ------------
Operating income..................................... 1,094,243 5,458,639 7,824,871
Interest expense..................................... (630,952) (1,735,156) (9,458,895)
Interest income...................................... 46,300 132,634 3,017,816
Other income......................................... 41,148 219,211 105,789
----------- ----------- ------------
Income before income taxes................. 550,739 4,075,328 1,489,581
Income tax expense................................... 227,148 1,513,561 1,266,488
----------- ----------- ------------
Net income................................. $ 323,591 $ 2,561,767 $ 223,093
=========== =========== ============
Earnings per common share:
Basic.............................................. $ 0.01 $ 0.09 $ 0.01
Diluted............................................ $ 0.01 $ 0.09 $ 0.01
Weighted average shares outstanding:
Basic.............................................. 27,145,920 27,983,504 28,899,449
Diluted............................................ 27,156,471 28,480,968 30,027,569
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 137
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK TREASURY STOCK ADDITIONAL OTHER
--------------------- ----------------- PAID IN RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS INCOME
---------- -------- ------ -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.... 27,145,713 $271,457 -- $ -- $ 1,041,596 $2,239,378 $ --
Issuance of common stock...... 2,808 28 -- -- 9,968 -- --
Net income.................... -- -- -- -- -- 323,591 --
---------- -------- ------ -------- ----------- ---------- ------
Balance at December 31, 1996.... 27,148,521 271,485 -- -- 1,051,564 2,562,969 --
Issuance of common stock...... 79,222 792 -- -- 777,058 -- --
Proceeds from initial public
common stock offering, net
of expenses (note 12)....... 1,450,000 14,500 -- -- 6,982,005 -- --
Deferred compensation from
compensatory stock option
grants (note 12)............ -- -- -- -- -- -- --
Amortization of deferred
compensation................ -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- 2,561,767 --
Net income excluded from IWL
Communications for the six
months ended December 31,
1996 as a result of
conforming fiscal year end
(note 2).................... -- -- -- -- -- 260,408 --
---------- -------- ------ -------- ----------- ---------- ------
Balance at December 31, 1997.... 28,677,743 286,777 -- -- 8,810,627 5,385,144 --
Issuance of common shares
under stock option plans and
restricted stock awards..... 52,641 527 -- -- 135,345 -- --
Acquisition of treasury shares
under stock option plans.... -- -- (5,255) (36,840) -- -- --
Issuance of stock relating to
acquisition (note 16)....... 207,266 2,073 -- -- 1,575,741 -- --
Amortization of deferred
compensation................ -- -- -- -- -- -- --
Comprehensive income:
Net income.................... -- -- -- -- -- 223,093 --
Currency translation
adjustment.................. -- -- -- -- -- -- 8,878
---------- -------- ------ -------- ----------- ---------- ------
Total comprehensive
income................ -- -- -- -- -- 223,093 8,878
---------- -------- ------ -------- ----------- ---------- ------
Balance at December 31, 1998.... 28,937,650 $289,377 (5,255) $(36,840) $10,521,713 $5,608,237 $8,878
========== ======== ====== ======== =========== ========== ======
<CAPTION>
CONSOLIDATED
UNEARNED STOCKHOLDERS'
COMPENSATION EQUITY
------------ -------------
<S> <C> <C>
Balance at December 31, 1995.... $ -- $ 3,552,431
Issuance of common stock...... -- 9,996
Net income.................... -- 323,591
--------- -----------
Balance at December 31, 1996.... -- 3,886,018
Issuance of common stock...... -- 777,850
Proceeds from initial public
common stock offering, net
of expenses (note 12)....... -- 6,996,505
Deferred compensation from
compensatory stock option
grants (note 12)............ (417,100) (417,100)
Amortization of deferred
compensation................ 20,856 20,856
Net income.................... -- 2,561,767
Net income excluded from IWL
Communications for the six
months ended December 31,
1996 as a result of
conforming fiscal year end
(note 2).................... -- 260,408
--------- -----------
Balance at December 31, 1997.... (396,244) 14,086,304
Issuance of common shares
under stock option plans and
restricted stock awards..... (32,500) 103,372
Acquisition of treasury shares
under stock option plans.... -- (36,840)
Issuance of stock relating to
acquisition (note 16)....... -- 1,577,814
Amortization of deferred
compensation................ 99,674 99,674
Comprehensive income:
Net income.................... -- 223,093
Currency translation
adjustment.................. -- 8,878
--------- -----------
Total comprehensive
income................ -- 231,971
--------- -----------
Balance at December 31, 1998.... $(329,070) $16,062,295
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 138
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 323,591 $ 2,561,767 $ 223,093
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 1,535,880 3,345,819 4,887,157
Amortization of discount on notes payable............. 7,338 7,338 --
Gain on sale of assets................................ (67,021) (105,048) (51,361)
Deferred income taxes................................. (98,088) 384,247 1,205,856
Equity earnings of unconsolidated joint venture....... 25,873 (115,107) (46,075)
Amortization of debt issuance costs, included in
interest expense.................................... -- -- 202,158
Allowance for doubtful accounts....................... 356,223 1,382,119 1,649,773
Changes in operating assets and liabilities:
Accounts receivable and unbilled services........... (5,384,642) (7,876,944) (6,442,462)
Inventory........................................... (253,022) 1,631,929 (278,799)
Costs and earnings in excess of billings............ (132,794) 83,265 (7,238,402)
Prepaid expenses and other.......................... (275,987) (911,597) 407,325
Accounts payable and accrued liabilities............ 4,746,639 3,378,009 14,592,570
Income taxes payable................................ 37,418 553,739 (1,994,514)
Other............................................... (40,507) (207,851) 8,900
------------ ------------ -------------
Net cash provided by operating activities........ 780,901 4,111,685 7,125,219
Cash flows from investing activities:
Purchases of property, plant and equipment.............. (10,211,878) (13,630,464) (36,854,766)
Purchase of marketable securities....................... -- -- (145,000,000)
Proceeds from sale of marketable securities............. -- -- 47,980,211
Proceeds from note receivable........................... 659,972 -- --
Proceeds from disposal of property, plant and
equipment............................................. 201,550 643,836 303,805
Investment in unconsolidated subsidiary................. -- -- (169,166)
Purchase of ICEL........................................ -- -- (609,822)
------------ ------------ -------------
Net cash used in investing activities............ (9,350,356) (12,986,628) (134,349,738)
Cash flows from financing activities:
Proceeds from issuance of senior notes, net of debt
issuance.............................................. 15,395,225 20,553,869 144,984,881
Principal payments on notes payable..................... (8,307,785) (14,608,429) (19,302,437)
Proceeds from line of credit............................ 18,564,432 40,742,755 44,717,209
Principal payments on line of credit.................... (17,750,010) (40,404,848) (45,869,537)
Loan fees paid under long-term note agreement........... (135,749) (346,935) --
Net change in bank overdraft............................ 957,497 (957,497) --
Purchase of treasury stock.............................. -- -- (36,840)
Proceeds from issuance of common stock.................. 9,996 7,347,258 103,373
Principal payments under capital lease obligations...... (128,324) (212,695) (607,165)
------------ ------------ -------------
Net cash provided by financing activities........ 8,605,282 12,113,478 123,989,484
Effect of exchange rate on cash and cash equivalents...... -- -- 8,878
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents...... 35,827 3,238,535 (3,226,157)
Cash and cash equivalents at beginning of year............ 325,103 281,482 3,520,017
------------ ------------ -------------
Cash and cash equivalents at end of year.................. $ 360,930 $ 3,520,017 $ 293,860
============ ============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................. $ 550,332 $ 1,760,777 $ 1,344,441
============ ============ =============
Cash paid for income taxes.............................. $ 150,866 $ 801,124 $ 1,861,656
============ ============ =============
Non-cash investing activity:
Issuance of stock for ICEL acquisition.................. $ -- $ -- $ 1,577,814
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 139
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Nature of Business
The consolidated financial statements include CapRock Communications Corp.
("CapRock" or the "Company") and its majority owned subsidiaries. The Company
was formed on February 3, 1998, to serve as a holding company for the operations
of CapRock Telecommunications ("Telecommunications"), CapRock Fiber Network Ltd.
("Partnership") and IWL Communications, Inc. ("IWL") and its wholly owned
subsidiaries. All significant inter-company transactions are eliminated in
consolidation. The consolidated financial statements include the accounts of
Telecommunications, Partnership, IWL, Spacelink Systems, Inc., Spacelink
Systems, FSC, Inc., and IWL Communications Ltd. ("Russia") and Integrated
Communications and Engineering Ltd. ("ICEL") (note 16). The equity method is
used to account for unconsolidated investments in companies in which CapRock
exercises significant influences over operating and financial policies, but does
not have a controlling interest. On August 26, 1998, pursuant to the Plan of
Agreement of Merger and Plan of Exchange dated February 16, 1998, as amended,
the Company completed the mergers and interest exchange with Telecommunications,
Partnership and IWL (note 2).
The Company is a regional facilities-based integrated communications
provider offering local, long distance, Internet, data and private line services
to small and medium-sized businesses. The Company also provides switched and
dedicated access, regional and international long distance, private lines and
dark fiber to carrier customers. The Company is in the process of building an
advanced fiber network throughout Texas, Louisiana, Arkansas, New Mexico,
Oklahoma and Arizona. Additionally, the Company, through its wholly owned
subsidiary -- IWL, provides communications solutions to customers with
operations in remote, difficult-access regions. The Company markets its services
through its internal sales representatives and a network of independent agents.
(b) Cash Equivalents and Short-Term Investments Available for Sale
The Company considers all cash in bank accounts as cash equivalents.
Marketable securities consist of U.S. government, money market and commercial
paper securities, with maturities of less than one year. Marketable securities
are stated at cost and are adjusted for discount accretion and premium
amortization, which approximate fair value. The Company's short-term investment
objectives are safety, liquidity and yield.
(c) 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 specified 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.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost and include certain costs,
which are capitalized during the installation and expansion of the
telecommunications network including interest costs, and payroll related to the
construction. Depreciation is computed using the straight-line method over the
estimated useful 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. Assets under construction are not
depreciated until placed in service.
F-9
<PAGE> 140
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the process of building out its fiber network, the Company may enter
into Indefeasible Right to Use contracts ("IRUs") for the sale of fiber usage
rights and to provide the construction services for such fiber. The Company may
install additional conduits for these segments included in the IRUs for its own
use while performing the construction services. This additional conduit is
capitalized proportionately with the number of conduits placed, and depreciation
begins for these costs as the specific fiber segment is placed in service.
(e) Revenues and Cost of Revenues
The Company recognizes revenue from the following sources: Carriers'
Carrier, Integrated Services, System Services and Product Resale.
CARRIERS' CARRIER:
Carriers' carrier revenue includes all carrier revenues generated from the
sale of domestic and international switched services, from the sale of T-1 and
DS-3 broadband capacity and from the sale and lease of dark fiber. The revenue
generated from international switched services represent minutes of long
distance traffic terminating in foreign countries, but generated by domestic
U.S. based long distance carriers. Such revenues are recognized when the
services are provided. The cost of revenues associated with these services 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 sales representatives or agents
to acquire customer call traffic are expensed in the period when associated call
revenues are recognized.
The Company accounts for long-term construction contracts relating to the
development of telecommunications networks for customers using the
percentage-of-completion method, which would include the sale of fiber usage
rights through IRUs and the related construction services associated with
building the fiber network specified in the IRUs. Progress under the
percentage-of-completion is measured based upon costs incurred to date compared
with total estimated construction costs. Customers are billed based upon
contractual milestones.
INTEGRATED SERVICES:
Integrated services revenue includes all revenues generated from the sale
of telecommunications products to business and residential customers. These
products include local, long distance, Internet, data and private line services.
The Company records revenues for these telecommunications services at the time
of customer usage. The cost of revenues associated with services 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. The cost of revenues for local services also includes payments to
local exchange carriers and interexchange carriers for access and transport
charges. Commissions paid to sales representatives or agents to acquire customer
call traffic are expensed in the period when associated call revenues are
recognized.
SYSTEMS SERVICES:
Systems services revenue includes revenues generated from the design,
installation, leasing and sale of voice and data systems and products, primarily
to companies in the oil and gas industry. The revenues associated with the
leasing and sale of voice and data systems products are recorded as the services
are provided. The revenue associated with the design and installation of voice
and data systems products primarily relates to communication system contracts
involving the engineering and integration of telecommunications systems and
sales, service and maintenance of telecommunications equipment. These
F-10
<PAGE> 141
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contracts are typically fixed price and such revenue is recognized based upon
the percentage-of-completion method, primarily based upon contract costs
incurred to date compared with total estimated contract costs.
PRODUCT RESALES:
In 1997, the Company provided services to a subsidiary of Shell, which
included the resale of a significant amount of Alcatel products. The Company
sold $2.9 million to the Shell subsidiary in 1997, relating to 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 the Company's total sales in future periods.
(f) 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 carriers, retail and commercial customers. The Company
extends credit to customers on an unsecured basis with the risk of loss limited
to outstanding amounts.
(g) 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.
(h) 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.
(i) Foreign Currency Translation
Results of operations for foreign investments are translated from the
designated functional currency to the U.S. dollar using average exchange rates
during the period, while assets and liabilities are translated at the exchange
rate in effect at the reporting date. Resulting gains and losses from
translating foreign currency financial statements are included in accumulated
other comprehensive income, a component of stockholders' equity.
(j) Intangible Assets
The Company recorded approximately $1.6 million of goodwill and $300,000
relating to other intangibles in connection with the acquisition of Integrated
Communications and Engineering Ltd. ("ICEL") (note 16). Goodwill represents the
excess of the purchase price over fair value of identifiable
F-11
<PAGE> 142
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
net assets acquired and is amortized on a straight-line basis over the expected
periods to be benefited. Goodwill in connection with the acquisition of ICEL
will be amortized over 20 years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill balance
over its remaining life can be recovered through undiscounted future operating
cash flows. The amount of goodwill impairment, if any, is measured based upon
projected discounted future operating cash flows using a discounted rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
(k) Impairment of Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. The Statement requires that
long-lived assets and certain identifiable intangibles be assessed 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 exceeds 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.
(l) Fair Value of Financial Instruments
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. As of December 31, 1998, the
estimated fair value and the carrying amount of the Company's 12% Senior Notes
due 2008 was $144 million and $145.2 million, respectively.
(m) 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.
(n) Earnings per Share
In 1997, the Company adopted the Financial Accounting Standards Board
Statement No. 128 ("SFAS No. 128"), Earnings Per Share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to SFAS No. 128 requirements. All data in the table below is in
thousands, except for per share data.
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Numerator:
Net income............................................ $ 324 $ 2,562 $ 223
Denominator:
Denominator for basic earnings per share-weighted
average shares outstanding......................... 27,146 27,984 28,899
Effect of dilutive securities:
Employee stock options................................ 10 497 1,129
------- ------- -------
Denominator for diluted earnings per share-weighted
average shares outstanding............................ 27,156 28,481 30,028
======= ======= =======
Basic and diluted earnings per share.................... $ 0.01 $ 0.09 $ 0.01
======= ======= =======
</TABLE>
F-12
<PAGE> 143
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(o) Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income ("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net income and
currency translation adjustments and is presented in the consolidated statements
of stockholder's equity and comprehensive income. The Statement requires only
additional disclosures in the consolidated financial statements; it does not
affect the Company's financial position or results of operations. Prior to 1998,
the Company's comprehensive income only consisted of net income.
(2) BUSINESS COMBINATION
On August 26, 1998, pursuant to the Plan of Agreement of Merger and Plan of
Exchange dated February 16, 1998, as amended, the Company completed the mergers
with Telecommunications, Partnership and IWL. Accordingly, the Consolidated
Balance Sheets as of December 31, 1997 and 1998 and the Consolidated Statements
of Operations, Stockholders' Equity and Comprehensive Income and Cash Flows for
each of the years in the three year period ended December 31, 1998 include
Telecommunications, Partnership and IWL as though these entities had always been
a part of CapRock.
All previously outstanding shares of IWL common stock ceased to exist and
each such share was converted into and became exchangeable for one share of
CapRock common stock, and all previously outstanding shares of
Telecommunications common stock ceased to exist, and each such share was
converted into and became exchangeable for 1.789030878 shares of CapRock common
stock and each one percent (1%) of the Partnership interests issued and
outstanding was exchanged for 63,194.54 shares of CapRock common stock. The
Company issued 28,910,221 common shares in exchange for the outstanding common
share of Telecommunications, Partnership and IWL. Additionally, outstanding
employee stock options of IWL and Telecommunications were converted at the above
exchange factors into options to purchase shares of CapRock common stock. The
mergers and interest exchange constituted a tax-free reorganization and was
accounted for as a pooling of interests.
In May 1998, IWL changed its fiscal year end to coincide with the fiscal
years of CapRock, Telecommunications and the Partnership. The Consolidated
Statement of Operations for the year ended December 31, 1997 and 1998 combine
the operating activity for all three entities for these years. The Consolidated
Statement of Operations for 1996 combine IWL's operating activity for the year
ended June 30, 1996 with Telecommunications and the Partnership operating
activity for the year ended December 31, 1996. The net income of IWL for the six
month period ended December 31, 1996 was excluded from the Consolidated
Statement of Operations for the year ended December 31, 1996 in the amount of
approximately $260,000 as a result of the non-conforming year ends for such
period. This amount was included as an adjustment to retained earnings in the
Consolidated Statement of Stockholders' Equity. IWL's cash flow for this six
month period was added to the 1997 beginning balance in the Consolidated
Statement of Cash Flows.
The transactions between CapRock, IWL and the Partnership have been
eliminated for all respective periods presented. Certain reclassifications were
made to IWL's financial statements to conform to CapRock's presentations.
(3) MARKETABLE SECURITIES
Investments in marketable securities at December 31, 1998 consist of money
market investments of $46,666,281 and commercial paper securities of
$50,353,508.
At December 31, 1998, the estimated fair value of the Company's money
market instruments and commercial paper securities approximated cost, and the
gross unrealized gains were not significant.
F-13
<PAGE> 144
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including assets acquired under capital
leases of $1,732,000 as of December 31, 1997 (no capital leases as of December
31, 1998), is comprised of the following:
<TABLE>
<CAPTION>
USEFUL LIVES 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
Land.......................................... -- $ 51,289 $ 299,752
Buildings..................................... 20-31 982,484 1,188,812
Leasehold improvements........................ Lease Term 330,468 1,191,277
Office equipment, furniture and other......... 5-7 4,264,606 9,706,840
Telecommunications network.................... 5-20 13,501,993 21,148,362
Equipment for rent/lease...................... 7-10 12,003,374 16,658,582
Construction in progress...................... -- 4,373,499 21,774,422
----------- -----------
Total property, plant and
equipment......................... 35,507,713 71,968,047
Less accumulated depreciation, including
amounts applicable to assets acquired under
capital leases of $721,667 and $0 as of
December 31, 1997 and 1998, respectively.... 8,167,114 12,361,295
----------- -----------
Net property, plant and equipment............. $27,340,599 $59,606,752
=========== ===========
</TABLE>
(5) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $381,074 $3,479,846
Estimated earnings.......................................... 281,869 6,119,136
-------- ----------
662,943 9,598,982
Less: billings to date...................................... 662,943 2,360,580
-------- ----------
$ -- $7,238,402
======== ==========
</TABLE>
(6) INVESTMENT IN KENWOOD SYSTEMS GROUP
In September 1997, the Company sold its 50% ownership in Kenwood Systems
Group, Inc. ("KSG"), a California corporation. The remaining 50% of the voting
common stock is owned by Kenwood Americas Corporation ("KAC"). The results of
operations from January 1, 1997 through the date of sale (September 30, 1997) of
KSG have been reflected in the Company's operating results. The Company recorded
a gain on the sale of KSG of $66,226 in 1997.
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 December 31, 1997. The Company's
proportionate share of KSG's (losses)/earnings for the years ended December 31,
1996 and 1997 were $(25,873) and $115,107, respectively.
The Company received a management fee of $58,253 and $76,995 from KSG for
the years ended December 31, 1996 and 1997, respectively. Billings by the
Company to KSG for the years ended December 31, 1996 and 1997 for insurance,
supplies, equipment and management fees totaled approximately $128,178 and
$174,500, respectively.
F-14
<PAGE> 145
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LEASES
The Company leases equipment, office space, communication services and land
and buildings (used for transmission sites) under operating leases. Future
minimum lease payments under these lease agreements for each of the next five
years are summarized as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999................................................. $ 3,810,959
2000................................................. 4,181,258
2001................................................. 4,063,546
2002................................................. 3,147,298
2003................................................. 2,514,350
Thereafter........................................... 1,813,588
-----------
Total minimum lease payments................. $19,530,999
</TABLE>
As operating leases expire, it is expected that they will be replaced with
similar leases. Rent expense under operating leases totaled $768,108, $1,419,812
and $1,027,651 for each of the years ended December 31, 1996, 1997 and 1998,
respectively.
(8) DEBT
A summary of the lines of credit and the notes payable is as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Senior notes, 12%, due 2008............................... $ -- $145,187,039
Lines of credit, variable rates, 8.12% to 10.5%........... 5,275,608 --
Notes to banks, variable rates, 8.12%..................... 2,274,590 --
Notes to banks, fixed rates, 8.5% to 9.0%................. 1,968,674 --
Term construction loan, variable rate, 8.5%............... 9,550,892 --
Notes to financing companies, variable rates.............. 180,328 --
Notes to financing companies, fixed rates................. 1,026,733 --
Shareholder notes, 5.8% imputed rate...................... 128,167 --
Other..................................................... 49,773 --
----------- ------------
Total........................................... 20,454,765 145,187,039
Less: current portion of long-term debt................... 8,116,424 --
----------- ------------
Long-term debt.................................. $12,338,341 $145,187,039
=========== ============
</TABLE>
In July 1998, the Company issued, through a private placement under Rule
144A under the Securities Act of 1998, as amended, $150 million aggregate
principal amount of its 12% Senior Notes due 2008 (the "Senior Notes"), which
closed on July 16, 1998. Interest on the Senior Notes is payable semi-annually
in arrears on January 15 and July 15 of each year, commencing on January 15,
1999, at the rate of 12% per annum. The Senior Notes are presented net of
unamortized debt issuance costs of $4,821,961. The amortization of debt issuance
cost is recorded to interest expense and such amount was $202,000 in 1998. The
net proceeds from the offering were used to repay existing debt obligations.
Such proceeds for debt payoffs totaled $26.8 million. The proceeds will be used
to fund capital expenditures for the construction of its fiber optic network, to
expand its sales offices, for potential acquisitions and for general working
capital purposes. The funds have been invested in high-grade liquid securities.
The Senior Notes contain certain covenants which provide for limitations on
indebtedness, dividends, asset sales and certain other transactions and
effectively prohibits the payment of cash dividends.
F-15
<PAGE> 146
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1996, the Company entered into a revolving credit facility with a
bank for borrowings up to $15 million. In December 1997, the Company entered
into an amended agreement that provided for borrowings up to $25 million. The
line of credit was amended in June 1998 and was increased to $7.0 million. The
balance outstanding as of December 31, 1997 under the line of credit was
$1,152,329. The line of credit was paid off in August 1998 with the proceeds
from the Senior Notes.
The Company also entered into a secured revolving line of credit, which
allowed the Company to borrow up to a maximum of $5.0 million subject to
borrowing base limitations on accounts receivable and inventory. The Company
also secured a guidance line of credit, which allowed the Company to borrow up
to $5.0 million to finance certain purchases and subsequent leases of
communications equipment. These lines of credit were paid off in August 1998
with the proceeds from the Senior Notes.
The Company had a loan agreement with a bank ("Term Construction Loan")
whereby it borrowed $10.0 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 shareholder, accounts receivable and
guarantees of certain shareholders. The balance outstanding for this loan as of
December 31, 1997 was $9,550,892 and the loan was paid off in August 1998 with
the proceeds from the Senior Notes.
Certain shareholders guaranteed the Term Construction Loan. In
consideration, the Company agreed to pay a one-time commitment fee equal to 1%
of each shareholder's guarantee. The guarantors were also paid a loan guaranty
fee by the Company equal to 7% of the amount of the lesser of $8.0 million or
the average outstanding daily principal of the loan. The bank released the
guaranty requirement in April 1997 for certain limited partners. The total
accrued commitment fees and loan guarantor fees as of December 31, 1997 were
approximately $406,000. All commitment and guarantee fees were paid in full in
August 1998 with the proceeds from the Senior Notes. Such payments totaled
approximately $430,000.
In 1994, the Company entered into note payable agreements with three
officers of the Company ("Shareholder Notes") relating to stock repurchased by
the Company. The unamortized discount was $21,834 as of December 31, 1997. The
Shareholder Notes were repaid in August 1998 with the proceeds from the Senior
Notes.
(9) RELATED PARTIES
In 1996 the Company entered into an agreement with a related party to
manage the construction of the fiber optic network build out for the initial 260
route miles, which was completed in 1997. Under this agreement, the Company paid
4% of the costs of constructing this portion of the network, payable monthly at
a minimum of $15,000 per month. The Company paid management fees of $296,576 in
1997 and $461,576, cumulative under the arrangement since construction of this
segment commenced. This arrangement ceased to exist in 1997.
The Company currently leases private line services from affiliated
companies. Total payments to these affiliated companies for services totaled
$765,000 in 1997 and $1,176,000 in 1998. The Company believes that the prices
charged for such services do not exceed prices charged by unrelated parties.
The Company's billing and back office systems are being developed by
RiverRock Systems, Ltd. ("RiverRock"), a limited partnership formed in July
1998. The Company owns a 49% interest in the limited partnership and David E.
Thompson owns a 50% limited partnership interest. Thompson Technology, Inc.
(which is owned by David Thompson, a brother of Jere W. Thompson, Jr. -- CEO of
CapRock Communications Corp.) is the general partner and owns a 1% general
partnership interest. The Company contributed a total of $170,000 in 1998 for
the development of the systems and had committed to fund up to a total of
$700,000, as capital contributions to RiverRock. The investment balance of
$86,000 as of December 31, 1998 was included in other assets.
F-16
<PAGE> 147
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts for the years ended
December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Allowance for doubtful accounts at beginning of year........ $ 399,216 $ 1,781,335
Additions charged to bad debt expense....................... 1,382,119 1,649,773
Write-downs charged against the allowance, net of
recoveries................................................ -- (2,721,167)
---------- -----------
Allowance for doubtful accounts at end of year.............. $1,781,335 $ 709,941
========== ===========
</TABLE>
(11) LEASE CONTRACTS
The Company provides telecommunications services to various customers under
operating leases. The services include agreements to lease capacity to customers
over the fiber optic line, 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 and oil and gas companies and other customers
doing business in Russia.
The following is a summary of expected revenue to be earned during the next
five years by the Company on lease agreements executed on or before December 31,
1998.
<TABLE>
<S> <C>
Year ending December 31:
1999.................................................. $ 8,051,952
2000.................................................. 7,243,418
2001.................................................. 4,569,128
2002.................................................. 3,622,862
2003.................................................. 3,182,282
Thereafter............................................ 5,244,940
-----------
Total......................................... $31,914,582
===========
</TABLE>
(12) STOCKHOLDERS' EQUITY
Initial Public Offering
The Company, through its wholly owned subsidiary -- IWL, 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 over allotment option and purchased an additional 62,496 shares
resulting in net proceeds of $337,473.
Common Stock
CapRock was incorporated as a Texas corporation on February 3, 1998, to
serve as a holding company for the operations of Telecommunications, Partnership
and IWL after completion of their business
F-17
<PAGE> 148
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
combination (note 2) in conformance with the provisions of their Agreement and
Plan of Merger dated February 16, 1998. The Company issued 28,910,221 common
shares in exchange for the outstanding common shares of Telecommunications,
Partnership and IWL.
Telecommunications Employee Stock Option Plan
In September 1997, Telecommunications adopted a stock option plan (the
"Telecommunication Plan") pursuant to which the Company's Board of Directors may
grant nonqualified options to employees. The Telecommunications Plan authorized
grants of options to purchase up to 10% of the common shares outstanding. All
Telecommunications stock options have a ten-year term and cannot be exercised
prior to September 1, 1998. The options vest in 20% increments over a five-year
period. All options expire August 31, 2007. Upon consummation of the merger, the
outstanding stock options under this plan were converted at the exchange factor
(note 2) into options to purchase shares of CapRock common stock.
In 1997, Telecommunications granted 380,899 nonqualified stock options
under the Telecommunications Plan 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 over the vesting period. As of December 31,
1998, 34,501 of the options previously granted were forfeited and canceled,
17,504 options were exercised and 328,894 options were outstanding.
IWL Incentive Stock Option Plan
In 1996, IWL adopted an Employee Incentive Stock Option Plan ("IWL
Incentive Plan"). The option price per share could not be less than the fair
market value of a share on the date the option is granted. Options under such
plan 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 granted under the IWL Incentive Plan on or prior to the IPO date, June
12, 1997, vested in full on the offering date. IWL granted 342,214 options under
the plan. The stock options expire ten years from the date of grant. Upon
consummation of the merger, the outstanding stock options under this plan were
converted at a one to one ratio to purchase shares of CapRock common stock.
As of December 31, 1998, 24,000 of the options previously granted were
forfeited, 50,141 options were exercised and 268,073 options were outstanding.
No additional options are available for grant under the IWL Incentive Plan.
Warrants
The Company issued to its investment bankers warrants to purchase up to
145,000 shares of common stock, at an exercise price equal to 120% of the IPO
price. Upon consummation of the merger, the outstanding warrants were converted
at a one to one ratio to purchase shares of CapRock common stock. All of the
warrants were outstanding as of December 31, 1998.
The warrants have certain demand and "piggy-back" registration rights that
may require the Company to register for resale the shares of Common Stock
issuable under the warrants. The warrants are exercisable for a period of four
years, beginning June 12, 1998.
CapRock Equity Incentive Plan
On August 26, 1998, in connection with the approval of the merger, the
shareholders of the Company approved an equity incentive plan (the "CapRock
Plan"). The CapRock Plan authorized the granting of awards, which would allow up
to an aggregate of 5,000,000 share of common stock to be acquired by
participants and provides that a maximum of 2,500,000 shares of common stock may
be issued to any one participant. All prospective equity grants will be issued
from the CapRock Plan. The awards under the
F-18
<PAGE> 149
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Plan may take the form of stock options, stock appreciation rights, restricted
stock awards, deferred stock, stock reload options, stock appreciation rights,
restricted stock awards, deferred stock, stock related options and other stock
based awards.
Stock options granted under the CapRock Plan may be either options that are
intended to qualify for treatment as incentive stock options under Section 422
of the IRS tax code or options that do not so qualify (non-qualified stock
options). Options under the Plan may be granted to any person who is an officer
or other employee or consultants of the Company or any of its subsidiaries. The
exercise price of incentive stock options must be at least the fair value of a
share of the common stock on the date of grant (and not less than 110% of the
fair market value of a share of the common stock on the date of grant). The
exercise price of non-qualified stock options may be less than 100% of the fair
market value of a share of the common stock on the date of grant. The term of
the option may not exceed 10 years (5 years in the case of incentive stock
options granted to an optionee owning 10% or more of the common stock).
During 1998, the Company granted 1,681,600 options under this plan and
these options vest over five years. As of December 31, 1998, 48,700 of the
options granted were forfeited and canceled, none of the options granted had
been exercised and 1,632,900 of the options were outstanding.
Director Stock Option Plan
On August 26, 1998, in connection with the approval of the merger, the
shareholders of the Company approved the Director Stock Option Plan (the
"CapRock Director Plan"). All options to be granted under the CapRock Director
Plan will be non-qualified stock options. A total of 400,000 shares of common
stock have been reserved for issuance under the CapRock Director Plan. Each
option will expire ten years from the date of grant and the options vest over
three years. Outstanding options will expire earlier if an optionee terminates
service as a director before the end of the first ten-year term. As of December
31, 1998, the Company granted 30,000 options under this plan and all were
outstanding as of December 31, 1998.
The remaining options available for future grant as of December 31, 1998
are 3,363,586 options under the CapRock Plan and 370,000 under the CapRock
Director Plan.
A summary of options activity under the plans described above is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at December 31, 1996............................... 160,614 $3.62
Options granted.......................................... 552,499 2.25
Options exercised........................................ (13,919) 3.56
Options forfeited........................................ (8,275) .56
--------- -----
Balance at December 31, 1997............................... 690,919 2.56
Options granted.......................................... 1,721,600 6.58
Options exercised........................................ (53,726) 3.04
Options forfeited........................................ (98,926) 4.80
--------- -----
Balance at December 31, 1998............................... 2,259,867 $5.51
========= =====
</TABLE>
F-19
<PAGE> 150
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of options outstanding as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE NUMBER OF
EXERCISE OPTIONS REMAINING OPTIONS
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
----- ----------- ---------------- -----------
<S> <C> <C> <C>
$ .56........................................ 328,894 8.77 52,241
3.56........................................ 109,918 6.92 109,918
4.49........................................ 10,555 7.36 10,555
6.00........................................ 132,600 8.40 28,167
6.25........................................ 5,000 8.63 1,000
6.50........................................ 1,662,900 9.79 --
20.25........................................ 10,000 9.22 --
--------- ---- -------
2,259,867 9.40 201,881
========= ==== =======
</TABLE>
The Company applied the intrinsic value method prescribed by APB Opinion
No. 25 in accounting for its plans. SFAS No. 123 requires disclosure of the
compensation cost for stock-based incentives granted based upon the fair value
at grant date for awards. Applying SFAS No. 123 would result in pro forma net
income and earnings per share ("EPS") amounts as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ---------
<S> <C> <C> <C> <C>
Net income (loss)............... As reported $323,591 $2,561,767 $ 223,093
Pro forma 319,000 2,385,000 (762,238)
Basic EPS....................... As reported $ 0.01 $ 0.09 $ 0.01
Pro forma 0.01 0.09 (0.03)
Diluted EPS..................... As reported $ 0.01 $ 0.09 $ 0.01
Pro forma 0.01 0.08 (0.03)
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option pricing model with the following assumptions: risk free interest rates of
5.8%, 5.8% and 5.75%; expected option lives of 2.5, 2.5 and 3 years; expected
volatility of 55%, 55% and 52%, and no expected dividend yield, in 1996, 1997
and 1998, respectively.
F-20
<PAGE> 151
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------
U.S. FEDERAL FOREIGN STATE TOTAL
------------ -------- -------- ----------
<S> <C> <C> <C> <C>
Current........................... $ 175,404 $149,832 $ -- $ 325,236
Deferred........................ (87,737) -- (10,351) (98,088)
---------- -------- -------- ----------
Total................... $ 87,667 $149,832 $(10,351) $ 227,148
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------
U.S. FEDERAL FOREIGN STATE TOTAL
------------ -------- -------- ----------
<S> <C> <C> <C> <C>
Current........................... $ 946,703 $112,659 $ 69,952 $1,129,314
Deferred........................ 364,993 -- 19,254 384,247
---------- -------- -------- ----------
Total................... $1,311,696 $112,659 $ 89,206 $1,513,561
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------
U.S. FEDERAL FOREIGN STATE TOTAL
------------ -------- -------- ----------
<S> <C> <C> <C> <C>
Current........................... $ -- $ -- $ 60,632 $ 60,632
Deferred........................ 896,739 134,442 174,675 1,205,856
---------- -------- -------- ----------
Total................... $ 896,739 $134,442 $235,307 $1,266,488
========== ======== ======== ==========
</TABLE>
Foreign income taxes results from taxes withheld on sales related to
Russian operations. Operating income (loss) from such operations for the years
ended December 31, 1996, 1997 and 1998 were $436,000 and $555,000 and
$(441,000), respectively.
Income tax expense differs from the amount computed by applying the federal
income tax rate of 34% to earnings before taxes, as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Income tax provision at 34%....................... $187,251 $1,385,612 $ 506,458
Merger expenses not deductible for tax purposes... -- -- 612,000
Expenses not deductible for tax purposes.......... 11,990 33,094 28,488
State income tax expense, net of federal effect... (10,351) 89,206 155,303
Effect of foreign operations, including foreign
tax
credits......................................... (53,071) (49,326) --
Exclusion of Partnership income tax benefit....... 84,000 39,000 --
Other............................................. 7,329 15,975 (35,761)
-------- ---------- ----------
Total................................... $227,148 $1,513,561 $1,266,488
======== ========== ==========
</TABLE>
Effective January 1, 1998, the Partnership elected to be taxed as a
corporation. As such, deferred taxes and tax provisions have been established in
1998. The pro forma tax benefit in 1996 and 1997 was approximately $84,000 and
$39,000, respectively, if the partnership would have been taxed as a C
corporation in those years.
F-21
<PAGE> 152
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences and carryforwards, which result in
a significant portion of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1998
---------------------- ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Effect on deferred taxes of
carryforwards......................... $116,958 $ -- $2,035,899 $ --
Foreign tax credit...................... 25,600 -- 207,235 --
Allowance for doubtful accounts......... 654,875 -- 245,263 --
Unearned compensation................... 7,717 -- -- 16,864
Deferred revenue........................ 7,142 -- -- 1,906,520
Accrued vacation pay.................... 27,200 -- 39,560 --
Property, plant and equipment........... -- 968,265 -- 1,960,602
Other................................... 9,311 -- 30,711 --
-------- -------- ---------- ----------
Total deferred taxes.......... $848,803 $968,265 $2,558,668 $3,883,986
======== ======== ========== ==========
</TABLE>
A net operating loss of $5,278,132 was generated in 1998 and the operating
loss will be used to offset future taxable income. The net operating loss
carryforward will expire in year 2013; however, management believes that this
carryforward will be utilized prior to expiration. No valuation allowance for
deferred taxes at December 31, 1997 and 1998 is considered necessary as
management has determined that it is more likely than not that these assets will
be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary 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.
(14) 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.
The Company entered into a volume purchase commitment of $13 million
relating to the purchase of telecommunications equipment. In the event the $13
million commitment is not fulfilled by CapRock, the Company shall pay the vendor
a penalty ranging from 3%-13% of the purchase commitment. The Company believes
that no penalties will be incurred under this contract.
(15) 401(k) PLANS
The Company and a subsidiary offer its qualified employees the opportunity
to participate in one of its defined contribution retirement plans qualifying
under the provisions of Section 401(k) of the Internal Revenue Code. Each
employee may contribute on a tax deferred basis a portion of annual earnings not
to exceed $9,500. The Company matches individual employee contributions in
certain plans, up to a maximum level, which in no case exceeds 6%. The Company's
matching contributions to the Plan (after forfeitures) for the years ended
December 31, 1996, 1997 and 1998 were $23,367, $30,287 and $81,086,
respectively.
(16) ACQUISITION
In January 1998, the Company completed the acquisition of Integrated
Communications and Engineering, Ltd. ("ICEL"), a communications systems
integrator and maintenance provider in Aberdeen, Scotland. The Company paid a
total purchase price of approximately $2.2 million comprised of
F-22
<PAGE> 153
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $610,000 in cash and 207,266 shares of the Company's common stock.
The acquisition was accounted for as a purchase business combination, and
accordingly the purchase price was allocated to assets acquired and liabilities
assumed. Approximately $1.6 million was recorded as goodwill and $300,000 was
allocated to contracts as a result of the transaction.
The following summarizes the unaudited consolidated data as though the
acquisition of ICEL occurred as of the January 1, 1997:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
Revenue.................................................... $75,349,466 $78,676,598
Net income................................................. 2,561,767 2,681,147
Earnings per share......................................... 0.09 0.10
</TABLE>
(17) SUBSEQUENT EVENTS
In February 1999, the Company entered into a joint build arrangement with
Enron Communications, Inc., a wholly owned subsidiary of Enron Corp., to jointly
build approximately 1,050 miles of fiber optic network within the state of
Texas. The build plan includes four conduit ducts to be placed throughout the
1,050 miles, with one and one-quarter conduits to be owned and funded by CapRock
and one and one-quarter conduits to be owned and funded by Enron Communications,
Inc., and one and one-half conduits to be owned and funded by a limited
partnership formed by CapRock and Enron Communications, Inc. The limited
partnership will sell a specified amount of fiber usage rights and CapRock will
own 48 fibers.
The total required capital contributions will depend on the costs to
construct the segment. CapRock and Enron are committed to each contribute
equally to fund the construction. The total construction costs for the 1,050
miles are estimated at approximately $100 million.
(18) SEGMENT REPORTING AND CONCENTRATION OF CUSTOMERS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information, which
the Company has adopted in 1998. The Company identifies such segments based on
management responsibility. The Company measures segment profit as operating
income, which is defined as income before interest expense and income taxes. The
service revenue from the Telecommunications Division include all revenues
generated from the sale of telecommunications products to business and
residential customers. These products include local, long distance, Internet,
data and private line services. The Fiber Division includes the operating
activity and the assets relating to the fiber build out. The revenues for the
Fiber Division primarily relate to the sale of dark fiber through IRUs. The
product and service revenue from the Services Division include revenues
generated from the design, installation, leasing and sale of voice and data
systems and products, primarily to companies in the oil and gas industry. The
Corporate Division includes certain general and administrative functions and
operating expenses and the merger related expenses of $2.3 million, which
comprise the segment operating loss of $3.5 million in 1998. The general and
administrative expenses were allocated to each of the respective divisions prior
to 1998. Information regarding operating segments is as follows (amounts are in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers....... $23,174 $ -- $27,796 $ 50,970
Depreciation and amortization......... 479 54 1,003 -- 1,536
Operating income...................... 44 (228) 1,278 -- 1,094
Total assets.......................... 7,356 8,757 12,409 -- 28,522
</TABLE>
F-23
<PAGE> 154
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers....... $46,745 $ 1,945 $26,659 $ 75,349
Depreciation and amortization......... 694 902 1,750 -- 3,346
Operating income...................... 3,226 671 1,562 -- 5,459
Total assets................ 13,327 9,779 26,283 -- 49,389
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external customers....... $75,768 $11,930 $34,798 $ (722) $121,774
Depreciation and amortization......... 1,113 744 2,993 37 4,887
Operating income...................... 3,280 8,128 (55) (3,528) 7,825
Total assets................ 26,929 39,175 34,064 91,798 191,966
</TABLE>
All significant transactions and agreements of the Company, with the
exception of the operations of ICEL (Scotland) are generated in U.S. dollars.
The pertinent data relating to foreign operations is as follows (amounts are in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
U.S. MEXICO RUSSIA INTERNATIONAL CONSOLIDATED
------- ------ ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue to external customers............. $44,285 $1,761 $2,281 $2,643 $50,970
Operating income (loss)................... 451 273 436 (66) 1,094
Long-lived assets......................... 15,901 -- -- -- 15,901
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
U.S. MEXICO RUSSIA INTERNATIONAL CONSOLIDATED
------- ------ ------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue to external customers............. $57,706 $6,495 $1,905 $9,243 $75,349
Operating income.......................... 3,464 1,216 555 224 5,459
Long-lived assets......................... 27,341 -- -- -- 27,341
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------
U.S. MEXICO INDIA RUSSIA SCOTLAND INTERNATIONAL CONSOLIDATED
------- ------- ------ ------ -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue to external
customers............. $79,185 $16,611 $4,766 $2,312 $5,207 $13,693 $121,774
Operating income
(loss)................ 3,766 1,920 415 (441) 8 2,157 7,825
Long-lived assets....... 58,893 -- -- -- 2,508 -- 61,401
</TABLE>
All revenue was derived from unaffiliated customers. For the years ended
December 31, 1996 and 1997 one customer provided $11,681,000 (or 23%) and
$9,349,000 (or 12%) of the Company's revenue, respectively. For the year ended
December 31, 1998, one customer provided $13,985,000 (or 11%) and another
customer provided $12,344,000 (or 10%) of the Company's revenue.
F-24
<PAGE> 155
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(19) QUARTERLY RESULTS
The Company's unaudited quarterly results are as follows (amounts are in
thousands, except share data):
<TABLE>
<CAPTION>
FOR THE 1997 QUARTER ENDED
---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue....................................... $17,022 $18,649 $19,039 $20,640
Gross profit.................................. 4,197 5,631 6,109 6,941
Net income.................................... 115 721 970 756
Basic and diluted earnings per share.......... -- 0.03 0.03 0.03
</TABLE>
<TABLE>
<CAPTION>
FOR THE 1998 QUARTER ENDED
---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue....................................... $24,412 $27,008 $35,284 $35,070
Gross profit.................................. 8,183 9,202 9,309 11,860
Net income (loss)............................. 1,358 1,515 (1,650) (1,000)
Basic and diluted earnings (loss) per share... 0.05 0.05 (0.06) (0.03)
</TABLE>
F-25
<PAGE> 156
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 293,860 $ 4,447,375
Marketable securities..................................... 97,019,789 47,040,582
Accounts receivable and unbilled services, less allowance
for doubtful accounts of $709,941 and $2,524,521 at
December 31, 1998 and March 31, 1999, respectively..... 19,936,214 35,443,827
Income tax receivable..................................... 1,405,000 2,020,920
Costs and estimated earnings in excess of billings........ 7,238,402 3,574,090
Inventory................................................. 1,301,726 1,273,344
Prepaid expenses and other................................ 706,775 1,088,901
Deferred income taxes..................................... 1,989,250 2,122,499
------------ ------------
Total current assets.............................. 129,891,016 97,011,538
Property, plant and equipment............................. 71,968,047 92,685,506
Accumulated depreciation.................................. (12,361,295) (13,823,888)
------------ ------------
Property, plant and equipment, net................ 59,606,752 78,861,618
Other assets................................................ 2,468,000 18,011,450
------------ ------------
Total assets...................................... $191,965,768 $193,884,606
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 26,850,525 $ 31,264,428
Unearned revenue.......................................... 551,341 539,096
------------ ------------
Total current liabilities......................... 27,401,866 31,803,524
Senior notes, net of unamortized debt issuance costs........ 145,187,039 145,308,334
Deferred income taxes....................................... 3,314,568 2,334,172
------------ ------------
Total liabilities................................. 175,903,473 179,446,030
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized; none issued................................ -- --
Common stock, $.01 par value; 200,000,000 shares
authorized; issued and outstanding, 28,932,395 and
28,952,747 shares at December 31, 1998 and March 31,
1999, respectively..................................... 289,377 289,593
Additional paid-in capital................................ 10,521,713 10,607,199
Retained earnings......................................... 5,608,237 3,902,925
Accumulated other comprehensive income.................... 8,878 468
Unearned compensation..................................... (329,070) (308,214)
Treasury stock, at cost................................... (36,840) (53,395)
------------ ------------
Total stockholders' equity........................ 16,062,295 14,438,576
------------ ------------
Total liabilities and stockholders' equity........ $191,965,768 $193,884,606
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
F-26
<PAGE> 157
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Revenues:
Carriers' carrier......................................... $12,763,105 $24,452,165
Integrated services....................................... 4,268,888 4,504,312
System services........................................... 7,380,369 8,079,814
----------- -----------
Total revenues.................................... 24,412,362 37,036,291
Cost of services............................................ 16,229,745 22,381,068
----------- -----------
Gross profit...................................... 8,182,617 14,655,223
Operating expenses:
Selling, general and administrative....................... 4,435,250 12,550,949
Depreciation and amortization............................. 1,063,677 1,480,163
----------- -----------
Total operating expenses.......................... 5,498,927 14,031,112
----------- -----------
Operating income............................................ 2,683,690 624,111
Interest expense............................................ (482,015) (4,255,475)
Interest income............................................. 31,704 845,051
Other income (expense)...................................... 548 (19,419)
----------- -----------
Income (loss) before income taxes................. 2,233,927 (2,805,732)
Income tax expense (benefit)................................ 875,779 (1,100,420)
----------- -----------
Net income (loss)................................. $ 1,358,148 $(1,705,312)
=========== ===========
Earnings (loss) per common share:
Basic..................................................... $ 0.05 $ (0.06)
Diluted................................................... $ 0.05 $ (0.06)
Weighted average shares outstanding:
Basic..................................................... 28,835,994 28,942,571
Diluted................................................... 29,448,890 28,942,571
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
F-27
<PAGE> 158
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 1,358,148 $ (1,705,312)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 1,063,677 1,480,163
Deferred income taxes.................................. (45,462) (1,113,645)
Equity earnings of unconsolidated joint venture........ -- 46,120
Amortization of debt issuance costs, included in
interest expense..................................... -- 121,295
Changes in operating assets and liabilities:
Accounts receivable and unbilled services............ (2,275,475) (15,507,613)
Inventory............................................ 24,927 28,382
Costs and earnings in excess of billings............. -- 3,664,312
Prepaid expenses and other........................... (125,887) (487,998)
Accounts payable and accrued liabilities............. 629,220 4,413,903
Income taxes receivable.............................. 542,486 (615,920)
Unearned revenue..................................... 92,559 (12,245)
------------ ------------
Net cash provided by (used in) operating
activities...................................... 1,264,193 (9,688,558)
Cash flows from investing activities:
Purchases of property, plant and equipment................ (3,525,641) (23,819,240)
Proceeds from sale of marketable securities............... -- 49,979,207
Proceeds from disposal of property, plant and equipment... 73,300 3,136,000
Investment in unconsolidated subsidiary................... -- (15,514,631)
Purchase of ICEL.......................................... (609,822) --
------------ ------------
Net cash provided by (used in) investing
activities...................................... (4,062,163) 13,781,336
Cash flows from financing activities:
Principal payments on notes payable....................... (4,074,495) --
Proceeds from line of credit.............................. 19,223,971 --
Principal payments on line of credit...................... (14,457,241) --
Purchase of treasury stock................................ -- (16,555)
Proceeds from issuance of common stock.................... 20,883 85,702
Principal payments under capital lease obligations........ (57,165) --
------------ ------------
Net cash provided by financing activities......... 655,953 69,147
Effect of exchange rate on cash and cash equivalents........ -- (8,410)
------------ ------------
Net increase (decrease) in cash and cash equivalents........ (2,142,017) 4,153,515
Cash and cash equivalents at beginning of period............ 3,520,017 293,860
------------ ------------
Cash and cash equivalents at end of period.................. $ 1,378,000 $ 4,447,375
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 455,915 $ 8,950,000
============ ============
Cash paid for income taxes................................ $ 290,000 $ --
============ ============
Non-cash investing activity:
Issuance of stock for ICEL acquisition.................... $ 1,577,814 $ --
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
(unaudited).
F-28
<PAGE> 159
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Nature of Business
The condensed consolidated financial statements include CapRock
Communications Corp. ("CapRock" or the "Company") and its majority owned
subsidiaries. The Company was formed on February 3, 1998, to serve as a holding
company for the operations of CapRock Telecommunications Corp., a Texas
corporation ("Telecommunications"), CapRock Fiber Network Ltd., a Texas limited
partnership ("Partnership"), and IWL Communications, Incorporated, a Texas
corporation ("IWL"), and its wholly owned subsidiaries upon the consummation of
the business combination of those companies (the "Combination"). All significant
inter-company transactions are eliminated in the consolidation. The equity
method is used to account for unconsolidated investments in companies in which
the Company exercises significant influences over operating and financial
policies, but does not have a controlling interest. On August 26, 1998, pursuant
to the Agreement and Plan of Merger and Plan of Exchange dated February 16,
1998, as amended (the "Merger Agreement"), among the Company,
Telecommunications, the Partnership, IWL and certain other parties, the Company
completed the Combination (note 2).
The Company is a regional facilities-based integrated communications
provider offering local, long distance, Internet, data and private line services
to small and medium-sized businesses. The Company also provides switched and
dedicated access, regional and international long distance, private lines and
dark fiber to carrier customers. The Company is in the process of building an
advanced fiber network throughout Texas, Louisiana, Oklahoma, Arkansas and New
Mexico. Additionally, the Company, through its wholly owned subsidiary -- IWL,
provides communications solutions to customers with operations in remote,
difficult-access regions. The Company markets its services through its internal
sales representatives and a network of independent agents.
The accompanying condensed consolidated financial statements, which should
be read in conjunction with the consolidated financial statements and footnotes
included in this Prospectus, have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year-end. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 1999.
(2) BUSINESS COMBINATION
On August 26, 1998, pursuant to the Merger Agreement, the Company completed
the Combination with Telecommunications, the Partnership and IWL. Accordingly,
the Consolidated Balance Sheets as of December 31, 1998 and March 31, 1999 and
the Consolidated Statements of Operations and Consolidated Statements of Cash
Flows for the three months ended March 31, 1998 and 1999 include
Telecommunications, the Partnership and IWL as though these entities had always
been a part of CapRock.
Upon the consummation of the Combination, all previously outstanding shares
of IWL common stock ceased to exist and each such share was converted into and
became exchangeable for one share of CapRock common stock, and all previously
outstanding shares of Telecommunications common stock ceased to exist, and each
such share was converted into and became exchangeable for 1.789030878 shares of
CapRock common stock and each one percent (1%) of the Partnership interests
issued and outstanding was exchanged for 63,194.54 shares of CapRock common
stock. The Company issued 28,910,221 common shares in the Combination.
Additionally, outstanding employee stock options of IWL and Telecommunica-
F-29
<PAGE> 160
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
tions were converted at the above exchange factors into options to purchase
shares of CapRock common stock. The mergers and interest exchange constituted a
tax-free reorganization and was accounted for as a pooling of interests
In May 1998, IWL changed its fiscal year end to coincide with the fiscal
years of CapRock, Telecommunications and the Partnership. The Consolidated
Statement of Operations for the three months ended March 31, 1998 and 1999
combine the operating activity for all three entities for these periods.
The transactions between Telecommunications, IWL and the Partnership have
been eliminated for all respective periods presented. Certain reclassifications
were made to IWL's financial statements to conform to CapRock's presentations.
The results of operations for the separate companies and the combined
amounts presented in the Consolidated Financial Statements for periods prior to
the Combination follow:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1998
--------------
<S> <C>
Net Sales:
Telecommunications.................................. $15,776,950
Partnership......................................... 580,895
IWL................................................. 8,054,517
-----------
Combined.............................................. $24,412,362
===========
Net Income:
Telecommunications.................................. $ 897,241
Partnership......................................... 70,322
IWL................................................. 390,585
-----------
Combined.............................................. $ 1,358,148
===========
</TABLE>
(3) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted income
(loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
Numerator:
Net income (loss)........................................ $ 1,358,148 $(1,705,312)
Denominator:
Denominator for basic earnings (loss) per share-weighted
average shares outstanding............................ 28,835,994 28,942,571
Effect of dilutive securities:
Employee stock options................................... 612,896 --
----------- -----------
Denominator for diluted earnings (loss) per
share-weighted average shares outstanding............. 29,448,890 28,942,571
=========== ===========
Basic and diluted earnings (loss) per share.............. $ .05 $ (.06)
=========== ===========
</TABLE>
F-30
<PAGE> 161
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(4) SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information, which
the Company adopted in 1998. The Company identifies such segments based on
management responsibility. The Company measures segment profit as operating
income, which is defined as income before interest expense and income taxes. The
service revenue from the Telecommunications Division includes all revenues
generated from the sale of telecommunications products to business and
residential customers. These products include local, long distance, Internet,
data and private line services. The Fiber Division includes the operating
activity and the assets relating to the fiber build out. The revenues for the
Fiber Division primarily relate to the sale of dark fiber through IRUs. The
product and service revenue from the Services Division includes the revenues
generated from the design, installation, leasing and sale of voice and data
systems and products, primarily to companies in the oil and gas industry. The
Corporate Division includes certain general and administrative functions and
operating expenses. Information regarding operating segments is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1998
---------------------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers.................. $15,770,312 $ 587,533 $ 8,054,517 $ -- $ 24,412,362
Depreciation and
amortization............... 231,420 184,927 647,330 -- 1,063,677
Operating income............. 1,560,999 323,948 798,743 -- 2,683,690
Total assets................. 14,552,339 9,948,579 29,833,549 -- 54,334,467
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1999
---------------------------------------------------------------------------
TELECOMMUNICATIONS FIBER SERVICES CORPORATE CONSOLIDATED
------------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue from external
customers.................. $17,304,671 $11,651,806 $ 8,079,814 $ -- $ 37,036,291
Depreciation and
amortization............... 532,603 208,000 739,560 -- 1,480,163
Operating income............. (2,687,535) 7,697,874 343,869 (4,730,097) 644,111
Total assets................. 30,334,464 65,406,316 32,532,702 65,611,124 193,884,606
</TABLE>
All revenue was derived from unaffiliated customers.
(5) FIBER BUILD AGREEMENT
In February 1999, the Company entered into a joint build arrangement with
Enron Communications, Inc., a wholly owned subsidiary of Enron Corp., to jointly
build approximately 1,050 miles of fiber optic network within the state of
Texas. The build plan includes four conduits to be placed throughout the 1,050
miles, with one and one-quarter conduits to be owned and funded by CapRock and
one and one-quarter conduits to be owned and funded by Enron Communications,
Inc., and one and one-half conduits to be owned and funded by a limited
partnership formed by CapRock and Enron Communications, Inc. The limited
partnership will sell a specified amount of fiber usage rights and CapRock will
own 48 fibers.
The total required capital contributions will depend on the costs to
construct the segment. CapRock and Enron are committed to each contribute
equally to fund the construction. The total construction costs for the 1,050
miles are estimated at approximately $100 million.
F-31
<PAGE> 162
CAPROCK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(6) SUBSEQUENT EVENTS
(a) Secondary Public Offering
On May 6, 1999, the Company entered into an underwriting agreement with
various underwriters to sell 4,000,000 shares of its common stock at a price of
$22.00 per share in a public offering. The registration statement for the equity
offering was declared effective by the SEC on May 6, 1999 and closed on May 12,
1999. The net proceeds after the underwriters discount from the sale of the
stock was approximately $82.7 million and the expenses associated with offering
are estimated at approximately $1.2 million.
(b) Senior Note Offering
In May 1999, the Company sold securities through a private placement under
Section 4(2) and Rule 144A under the Securities Act of 1933. The $210 million
aggregate principal senior notes (the "Senior Notes") were priced at an interest
rate of 11 1/2% on May 13, 1999. The private placement closed on May 18, 1999.
The net proceeds to the Company after deducting the initial purchasers' discount
and estimated offering expenses were approximately $200.7 million. The proceeds
will be used to fund capital expenditures for the construction of the fiber
optic network, switching equipment and other capital expenditures and to expand
its sales offices, for potential acquisitions and for general working capital
purposes. The funds have been invested in high-grade liquid securities
classified as available for sale. The Company is required under the indenture to
file a registration statement to register the Senior Notes within 90 days of the
closing of the transaction.
(c) Fiber Network Expansion
In June 1999, the Company publicly announced that it extended the planned
build out of its fiber network to include Arizona. When completed, this
expansion will increase the Company's fiber network by approximately 600 route
miles to approximately 6,100 route miles and connect Phoenix and Tucson, Arizona
with El Paso, Texas and the Company's previously planned five-state network. The
Company anticipates completion of the Arizona portion of its network in the
first half of 2000.
F-32
<PAGE> 163
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CAPROCK COMMUNICATIONS LOGO]
CAPROCK COMMUNICATIONS CORP.
-------------------------
PROSPECTUS
-------------------------
$210,000,000
OFFER TO EXCHANGE 11 1/2% SENIOR
NOTES DUE 2009, SERIES B
THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
FOR OUTSTANDING 11 1/2% SENIOR
NOTES DUE 2009, SERIES A
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XII of the Registrant's 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 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 Bylaws provides the following:
"The Corporation shall have the authority to an 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 Purchase Agreement (Exhibit 10.63 hereto) relating to the Registrant's
May 1999 equity offering provides for indemnification by the underwriters
specified therein of the Registrant and its officers and directors, and by the
Registrant of the underwriters specified therein, for certain liabilities
arising under the Securities Act or otherwise.
The Registration Rights Agreement (Exhibit 4.3 hereto) relating to the 1998
Senior Notes provides for indemnification by each of the initial purchasers
specified therein, their successors, assigns and direct and indirect
transferees, and participating broker-dealers, in specified circumstances, of
the Registrant, the other initial purchasers, underwriters and the other selling
holders, and each of their respective directors and officers and controlling
parties, and by the Registrant of the initial purchasers specified therein,
their successors, assigns and direct and indirect transferees, and participating
broker-dealers, underwriters, and each person, if any controlling any such
underwriter or holder, in specified circumstances, for certain liabilities
arising under the Securities Act or otherwise.
II-1
<PAGE> 165
The Note Purchase Agreement (Exhibit 10.43 hereto) relating to the 1998
Senior Notes provides for indemnification by the initial purchasers specified
therein of the Registrant and its officers and directors, and by the Registrant
of the initial purchasers specified therein, for certain liabilities arising
under the Securities Act or otherwise.
The Registration Rights Agreement (Exhibit 4.7 hereto) relating to the 1999
Senior Notes provides for indemnification by each of the initial purchasers
specified therein, their successors, assigns and direct and indirect
transferees, and participating broker-dealers, in specified circumstances, of
the Company, the other initial purchasers, underwriters and the other selling
holders specified therein, and each of their respective directors and officers
and controlling parties, and by the Company of the initial purchasers specified
therein, their successors, assigns and direct and indirect transferees, and
participating broker-dealers, underwriters, and each person, if any controlling
any such underwriter or holder, in specified circumstances, for certain
liabilities arising under the Securities Act or otherwise.
The Note Purchase Agreement (Exhibit 10.61 hereto) relating to the 1999
Senior 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.
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 the Registrant, IWL
Communications, Incorporated ("IWL"), IWL Acquisition
Corp., CapRock Communications Corp. (n/k/a CapRock
Telecommunications Corp. ("CapRock Telecommunications")),
CapRock Acquisition Corp., and CapRock Fiber Network,
Ltd. ("CapRock Fiber" and collectively, the "Parties").
The schedules to the Agreement and Plan of Merger and
Plan of Exchange and the appendices thereto have been
omitted. The Registrant will furnish supplementally to
the Securities and Exchange Commission any of the
schedules or appendices upon request. (Incorporated by
reference to Exhibit 2.1 to the Registration Statement on
Form S-4, as amended, of the Registrant, File No.
333-57365.)
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. (Incorporated by reference to Exhibit 2.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
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. (Incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
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. (Incorporated by reference to Exhibit 2.4 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.1 -- Articles of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.2 -- Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-64699.)
</TABLE>
II-2
<PAGE> 166
<TABLE>
<C> <S>
4.1 -- Specimen Certificate for the Common Stock of the
Registrant (Incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365).
4.2 -- Indenture dated as of July 16, 1998, among the
Registrant, CapRock Telecommunications, CapRock Fiber,
IWL and PNC Bank, National Association, Trustee.
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
4.3 -- Registration Rights Agreement dated July 16, 1998, among
the Registrant, CapRock Telecommunications, CapRock
Fiber, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and BancOne Capital Markets, Inc.
(Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
4.4 -- Form of Warrant Agreement between IWL and Cruttenden Roth
Incorporated. (Incorporated by reference to Exhibit 1.2
to the Registration Statement on Form S-1 of IWL, as
amended, File No. 333-22801.)
4.5 -- Registration Rights Agreement dated January 22, 1998,
between IWL and Nera Limited. (Incorporated by reference
to Exhibit 4.5 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
4.6 -- Registration Rights Agreement dated January 22, 1998 by
and among IWL, Thomas Norman Blair and Margaret Helen
Blair. (Incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
4.7 -- Registration Rights Agreement dated May 18, 1999, among
the Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Chase Securities Inc., Bear, Stearns & Co.
Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Goldman, Sachs & Co.
4.8 -- Indenture dated as of May 18, 1999, between the
Registrant and Chase Manhattan Trust Company, National
Association, Trustee.
5.1 -- Opinion of Munsch Hardt Kopf & Harr, P.C. regarding
validity of securities being registered.*
10.1 -- CapRock Communications Corp. 1998 Equity Incentive Plan.
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.2 -- CapRock Communications Corp. 1998 Director Stock Option
Plan. (Incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.3 -- Employment Agreement between the Registrant and Ignatius
W. Leonards. (Incorporated by reference to Exhibit 10.5
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.4 -- Employment Agreement between the Registrant and Byron M.
Allen. (Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.5 -- Employment Agreement between the Registrant and Errol
Olivier. (Incorporated by reference to Exhibit 10.7 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.6 -- Employment Agreement between the Registrant and Richard
H. Roberson. (Incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
</TABLE>
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<PAGE> 167
<TABLE>
<C> <S>
10.7 -- Employment Agreement between the Registrant and Bryan
Olivier. (Incorporated by reference to Exhibit 10.9 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.8 -- Employment Agreement between the Registrant and Jere W.
Thompson, Jr. (Incorporated by reference to Exhibit 10.10
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.9 -- Employment Agreement between the Registrant and Scott L.
Roberts. (Incorporated by reference to Exhibit 10.11 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.10 -- Employment Agreement between the Registrant and Timothy
W. Rogers. (Incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.11 -- Employment Agreement between the Registrant and Timothy
M. Terrell. (Incorporated by reference to Exhibit 10.13
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.12 -- Employment Agreement between the Registrant and Kevin W.
McAleer. (Incorporated by reference to Exhibit 10.14 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.13 -- 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 Registration Statement on Form S-1, as amended, File
No. 333-22801.)
10.14 -- 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 the Registration Statement
on Form S-1, as amended, of IWL, File No. 333-22801.)
10.15 -- Reseller Agreement dated December 31, 1996, by and
between Alcatel Network Systems, Inc. and IWL.
(Incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)#
10.16 -- Form of Service Agreement (Incorporated by reference to
Exhibit 10.16 to the Registration Statement on Form S-1,
as amended, of the Registrant, File No. 333-74735.)
10.17 -- Lease Agreement dated November 18, 1996, by and between
IWL and CLG, Inc. (Incorporated by reference to Exhibit
10.13 to the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
10.18 -- Promissory Note dated September 20, 1996 payable by IWL
to First Bank and Trust, Cleveland, Texas. (Incorporated
by reference to Exhibit 10.15 to the Registration
Statement on Form S-1, as amended, of IWL, File No.
333-22801.)
10.19 -- 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 the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)
10.20 -- 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
the Registration Statement on Form S-1, as amended, of
IWL, File No. 333-22801.)
10.21 -- 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 the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
</TABLE>
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<PAGE> 168
<TABLE>
<C> <S>
10.22 -- 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 the Form
10K for the year ending June 30, 1997 of IWL, File No.
0-22293.)
10.23 -- 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 the Form 10K of IWL for the year ending June 30, 1997,
File No. 0-22293.)
10.24 -- 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 the Form 10-K of IWL for the year ending June 30,
1997, File No. 0-22293.)
10.25 -- 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 the Form 10K of IWL for the year ending June 30,
1997, File No. 0-22293.)
10.26 -- Revolving Credit Agreement, dated August 1, 1997,
executed by and between IWL and Bank One. (Incorporated
by reference to Exhibit 10.26 to the Form 10K of IWL for
the year ending June 30, 1997, File No. 0-22293.)
10.27 -- 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 the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
10.28 -- 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 the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
10.29 -- 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 the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
10.30 -- 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 the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
10.31 -- Telecommunications Equipment Lease Agreement dated as of
June 1, 1997 between IWL and Diamond Offshore Company.
(Incorporated by reference to Exhibit 10.4 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)#
10.32 -- Sublease dated November 22, 1994 by and between CapRock
Telecommunications and Arkwright Mutual Insurance
Company. (Incorporated by reference to Exhibit 10.35 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.33 -- Loan and Security Agreement dated March 14, 1996 by and
between CapRock Telecommunications and Bank One, as
amended. (Incorporated by reference to Exhibit 10.36 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.34 -- Sixth Renewal Extension $2,500,000 Promissory Note dated
December 31, 1997 payable by CapRock Telecommunications
to Bank One. (Incorporated by reference to Exhibit 10.37
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
</TABLE>
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<PAGE> 169
<TABLE>
<C> <S>
10.35 -- Form of CapRock Communications Corp. Commercial
Application. (Incorporated by reference to Exhibit 10.41
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.36 -- Form of CapRock Communications Corp. Commercial Agent
Application. (Incorporated by reference to Exhibit 10.42
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.37 -- Unlimited Guaranty dated March 9, 1996 by Jere W.
Thompson, Jr. for the benefit of Bank One. (Incorporated
by reference to Exhibit 10.43 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.38 -- Loan Agreement dated July 1, 1996 by and between CapRock
Fiber and Bank One. (Incorporated by reference to Exhibit
10.44 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.39 -- $10,000,000 Promissory Note dated July 1, 1996 by and
between CapRock Fiber and Bank One. (Incorporated by
reference to Exhibit 10.45 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
10.40 -- Guaranty dated July 1, 1996 by CapRock Systems, Inc. in
favor of Bank One. (Incorporated by reference to Exhibit
10.46 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.41 -- Guaranty dated July 1, 1996 by Mark Langdale in favor of
Bank One. (Incorporated by reference to Exhibit 10.47 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.42 -- Guaranty dated July 1, 1996 by Jere W. Thompson, Jr. in
favor of Bank One. (Incorporated by reference to Exhibit
10.48 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.43 -- Form of Note Purchase Agreement by and among the
Registrant and various initial purchasers. (Incorporated
by reference to Exhibit 10.49 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.44 -- Form of Contribution Agreement by the General Partner of
CapRock Fiber. (Incorporated by reference to Exhibit
10.50 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.45 -- First Amendment to Loan Agreement dated July 1, 1996 by
and between CapRock Fiber and Bank One. (Incorporated by
reference to Exhibit 10.51 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
10.46 -- Second Amendment to Loan Agreement dated April 29, 1998
by and between CapRock Fiber and Bank One. (Incorporated
by reference to Exhibit 10.52 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.47 -- License Agreement dated June 16, 1998 by and between
CapRock Telecommunications and RiverRock Systems, Ltd.
(Incorporated by reference to Exhibit 10.53 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.48 -- Modification Agreement dated as of June 17, 1998 by and
between IWL and Bank One. (Incorporated by reference to
Exhibit 10.54 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.49 -- 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. (Incorporated by reference to Exhibit
10.55 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
</TABLE>
II-6
<PAGE> 170
<TABLE>
<C> <S>
10.50 -- Eighth Amendment to Loan and Security Agreement dated as
of June 18, 1998 by and between CapRock
Telecommunications and Bank One. (Incorporated by
reference to Exhibit 10.56 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
10.51 -- Renewal and Extension Promissory Note dated as June 18,
1998 executed by CapRock Telecommunications payable to
the order of Bank One, in the principal amount of
$7,000,000.00. (Incorporated by reference to Exhibit
10.57 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.52 -- Intercompany Promissory Note dated as of June 18, 1998
originally executed by CapRock Fiber payable to the order
of Telecommunications in the principal amount of
$2,500,000.00 and endorsed by CapRock Telecommunications
in favor of Bank One. (Incorporated by reference to
Exhibit 10.58 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.53 -- Ninth Amendment to Loan and Security Agreement dated as
July 9, 1998 by and between CapRock Telecommunications
and Bank One. (Incorporated by reference to Exhibit 10.59
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.54 -- Third Amendment to Loan Agreement dated as of June 18,
1998 by and between CapRock Fiber and Bank One.
(Incorporated by reference to Exhibit 10.60 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.55 -- Fourth Amendment to Loan Agreement dated as of July 9,
1998, by and between CapRock Fiber and Bank One.
(Incorporated by reference to Exhibit 10.61 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.56 -- Form of Escrow Agreement. (Incorporated by reference to
Exhibit 10.62 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.57 -- Form of Exchange Agent Agreement by and between the
Registrant and PNC Bank, National Association.
(Incorporated by reference to Exhibit 10.57 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
10.58 -- Addison Circle One Office Lease Agreement between
Champion Addison One Limited Partnership, a limited
partnership, as Landlord and the Registrant, as Tenant
(Incorporated by reference to Exhibit 10.58 to the
Registration Statement on Form S-1, as amended, of the
Registrant, File No. 333-74735.)
10.59 -- Form of Carrier Agreement. (Incorporated by reference to
Exhibit 10.59 to the Registration Statement on Form S-1,
as amended, of the Registrant, File No. 333-74735.)
10.60 -- Amendment to Addison Circle One Office Lease Agreement.
(Incorporated by reference to Exhibit 10.60 to the
Registration Statement on Form S-1, as amended, of the
Registrant, File No. 333-74735.)
10.61 -- Note Purchase Agreement dated May 13, 1999 by and among
the Registrant and various initial purchasers.
10.62 -- Form of Exchange Agent Agreement by and between the
Registrant and Chase Manhattan Trust Company, National
Association, Trustee.*
</TABLE>
II-7
<PAGE> 171
<TABLE>
<C> <S>
10.63 -- Form of Purchase Agreement (Incorporated by reference to Exhibit 1.1 to the
Registration Statement on Form S-1, as amended, of the Registrant, File No. 333-74735.)
16.1 -- Letter re: Change in Accountants. (Incorporated by reference to Exhibit 16.1 to the
Registration Statement on Form S-4, as amended, of the Registrant, File No. 333-57365.)
21.1 -- Subsidiaries of the Registrant. (Incorporated by reference to Exhibit 21.1 to the
Registration Statement on Form S-1, as amended, of the Registrant, File No. 333-74735.)
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Burds Reed & Mercer, P.C.
23.3 -- Consent of Munsch Hardt Kopf & Harr, P.C. (Included in the opinion filed as Exhibit 5.1
to this Registration Statement.)
24.1 -- Power of Attorney (included in the signature page hereto.)
25.1 -- Statement of Eligibility and Qualification on Form T-1 under the Trust Indenture Act of
1939 of Chase Manhattan Trust Company, National Association, as Trustee of the
Indenture relating to the 11 1/2% Senior Notes due 2009, Series B.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other
Nominees.
99.4 -- Form of Letter to Clients.
99.5 -- Instruction to Registered Holder and/or Book-Entry Transfer Participant from Beneficial
Owner.
99.6 -- Guidelines for Certification of Taxpayer Identification Number on substitute Form W-9.
</TABLE>
- ---------------
# Confidential treatment was granted.
* To be filed by amendment
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.
II-8
<PAGE> 172
(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) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit of
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling president,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Registration Statement,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each ruling of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE> 173
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on
the 8th day of July, 1999.
CAPROCK COMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
----------------------------------
Jere W. Thompson, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
in so signing also makes, constitutes and appoints Jere W. Thompson, Jr. and
Kevin W. McAleer, and each of them acting alone, his true and lawful
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement, with exhibits thereto and other documents in connection
therewith and hereby ratifies and confirms all that said attorney-in-fact or his
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JERE W. THOMPSON, JR. Chief Executive Officer, July 8, 1999
- ----------------------------------------------------- Chairman of the Board, and
Jere W. Thompson, Jr. Director (Principal Executive
Officer)
/s/ KEVIN W. MCALEER Senior Vice President and Chief July 8, 1999
- ----------------------------------------------------- Financial Officer (Principal
Kevin W. McAleer Financial Officer)
/s/ IGNATIUS W. LEONARDS President, Vice Chairman of the July 8, 1999
- ----------------------------------------------------- Board, and Director
Ignatius W. Leonards
/s/ TIMOTHY W. ROGERS Executive Vice President and July 8, 1999
- ----------------------------------------------------- Director
Timothy W. Rogers
/s/ MATTHEW M. KINGSLEY Corporate Controller (Principal July 8, 1999
- ----------------------------------------------------- Accounting Officer)
Matthew M. Kingsley
/s/ MARK LANGDALE Director July 8, 1999
- -----------------------------------------------------
Mark Langdale
/s/ CHRISTOPHER J. AMENSON Director July 8, 1999
- -----------------------------------------------------
Christopher J. Amenson
/s/ JOHN R. HARRIS Director July 8, 1999
- -----------------------------------------------------
John R. Harris
/s/ RICHARD G. ELLENBERGER Director July 8, 1999
- -----------------------------------------------------
Richard G. Ellenberger
</TABLE>
II-10
<PAGE> 174
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger and Plan of Exchange, dated
as of February 16, 1998, by and among the Registrant, IWL
Communications, Incorporated ("IWL"), IWL Acquisition
Corp., CapRock Communications Corp. (n/k/a CapRock
Telecommunications Corp. ("CapRock Telecommunications")),
CapRock Acquisition Corp., and CapRock Fiber Network,
Ltd. ("CapRock Fiber" and collectively, the "Parties").
The schedules to the Agreement and Plan of Merger and
Plan of Exchange and the appendices thereto have been
omitted. The Registrant will furnish supplementally to
the Securities and Exchange Commission any of the
schedules or appendices upon request. (Incorporated by
reference to Exhibit 2.1 to the Registration Statement on
Form S-4, as amended, of the Registrant, File No.
333-57365.)
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. (Incorporated by reference to Exhibit 2.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
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. (Incorporated by reference to Exhibit 2.3 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
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. (Incorporated by reference to Exhibit 2.4 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.1 -- Articles of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
3.2 -- Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-64699.)
4.1 -- Specimen Certificate for the Common Stock of the
Registrant (Incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365).
4.2 -- Indenture dated as of July 16, 1998, among the
Registrant, CapRock Telecommunications, CapRock Fiber,
IWL and PNC Bank, National Association, Trustee.
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
4.3 -- Registration Rights Agreement dated July 16, 1998, among
the Registrant, CapRock Telecommunications, CapRock
Fiber, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and BancOne Capital Markets, Inc.
(Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
4.4 -- Form of Warrant Agreement between IWL and Cruttenden Roth
Incorporated. (Incorporated by reference to Exhibit 1.2
to the Registration Statement on Form S-1 of IWL, as
amended, File No. 333-22801.)
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.5 -- Registration Rights Agreement dated January 22, 1998,
between IWL and Nera Limited. (Incorporated by reference
to Exhibit 4.5 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
4.6 -- Registration Rights Agreement dated January 22, 1998 by
and among IWL, Thomas Norman Blair and Margaret Helen
Blair. (Incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
4.7 -- Registration Rights Agreement dated May 18, 1999, among
the Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Chase Securities Inc., Bear, Stearns & Co.
Inc., Donaldson, Lufkin & Jenrette Securities Corporation
and Goldman, Sachs & Co.
4.8 -- Indenture dated as of May 18, 1999, between the
Registrant and Chase Manhattan Trust Company, National
Association, Trustee.
5.1 -- Opinion of Munsch Hardt Kopf & Harr, P.C. regarding
validity of securities being registered.*
10.1 -- CapRock Communications Corp. 1998 Equity Incentive Plan.
(Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.2 -- CapRock Communications Corp. 1998 Director Stock Option
Plan. (Incorporated by reference to Exhibit 10.2 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.3 -- Employment Agreement between the Registrant and Ignatius
W. Leonards. (Incorporated by reference to Exhibit 10.5
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.4 -- Employment Agreement between the Registrant and Byron M.
Allen. (Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.5 -- Employment Agreement between the Registrant and Errol
Olivier. (Incorporated by reference to Exhibit 10.7 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.6 -- Employment Agreement between the Registrant and Richard
H. Roberson. (Incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.7 -- Employment Agreement between the Registrant and Bryan
Olivier. (Incorporated by reference to Exhibit 10.9 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.8 -- Employment Agreement between the Registrant and Jere W.
Thompson, Jr. (Incorporated by reference to Exhibit 10.10
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.9 -- Employment Agreement between the Registrant and Scott L.
Roberts. (Incorporated by reference to Exhibit 10.11 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.10 -- Employment Agreement between the Registrant and Timothy
W. Rogers. (Incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
</TABLE>
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11 -- Employment Agreement between the Registrant and Timothy
M. Terrell. (Incorporated by reference to Exhibit 10.13
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.12 -- Employment Agreement between the Registrant and Kevin W.
McAleer. (Incorporated by reference to Exhibit 10.14 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.13 -- 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 Registration Statement on Form S-1, as amended, File
No. 333-22801.)
10.14 -- 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 the Registration Statement
on Form S-1, as amended, of IWL, File No. 333-22801.)
10.15 -- Reseller Agreement dated December 31, 1996, by and
between Alcatel Network Systems, Inc. and IWL.
(Incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)#
10.16 -- Form of Service Agreement (Incorporated by reference to
Exhibit 10.16 to the Registration Statement on Form S-1,
as amended, of the Registrant, File No. 333-74735.)
10.17 -- Lease Agreement dated November 18, 1996, by and between
IWL and CLG, Inc. (Incorporated by reference to Exhibit
10.13 to the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
10.18 -- Promissory Note dated September 20, 1996 payable by IWL
to First Bank and Trust, Cleveland, Texas. (Incorporated
by reference to Exhibit 10.15 to the Registration
Statement on Form S-1, as amended, of IWL, File No.
333-22801.)
10.19 -- 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 the
Registration Statement on Form S-1, as amended, of IWL,
File No. 333-22801.)
10.20 -- 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
the Registration Statement on Form S-1, as amended, of
IWL, File No. 333-22801.)
10.21 -- 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 the Registration Statement on Form S-1, as
amended, of IWL, File No. 333-22801.)
10.22 -- 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 the Form
10K for the year ending June 30, 1997 of IWL, File No.
0-22293.)
10.23 -- 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 the Form 10K of IWL for the year ending June 30, 1997,
File No. 0-22293.)
10.24 -- 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 the Form 10-K of IWL for the year ending June 30,
1997, File No. 0-22293.)
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.25 -- 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 the Form 10K of IWL for the year ending June 30,
1997, File No. 0-22293.)
10.26 -- Revolving Credit Agreement, dated August 1, 1997,
executed by and between IWL and Bank One. (Incorporated
by reference to Exhibit 10.26 to the Form 10K of IWL for
the year ending June 30, 1997, File No. 0-22293.)
10.27 -- 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 the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
10.28 -- 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 the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
10.29 -- 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 the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)
10.30 -- 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 the Form 10K of IWL for the year ending
June 30, 1997, File No. 0-22293.)
10.31 -- Telecommunications Equipment Lease Agreement dated as of
June 1, 1997 between IWL and Diamond Offshore Company.
(Incorporated by reference to Exhibit 10.4 to the Form
10K of IWL for the year ending June 30, 1997, File No.
0-22293.)#
10.32 -- Sublease dated November 22, 1994 by and between CapRock
Telecommunications and Arkwright Mutual Insurance
Company. (Incorporated by reference to Exhibit 10.35 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.33 -- Loan and Security Agreement dated March 14, 1996 by and
between CapRock Telecommunications and Bank One, as
amended. (Incorporated by reference to Exhibit 10.36 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.34 -- Sixth Renewal Extension $2,500,000 Promissory Note dated
December 31, 1997 payable by CapRock Telecommunications
to Bank One. (Incorporated by reference to Exhibit 10.37
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.35 -- Form of CapRock Communications Corp. Commercial
Application. (Incorporated by reference to Exhibit 10.41
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.36 -- Form of CapRock Communications Corp. Commercial Agent
Application. (Incorporated by reference to Exhibit 10.42
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.37 -- Unlimited Guaranty dated March 9, 1996 by Jere W.
Thompson, Jr. for the benefit of Bank One. (Incorporated
by reference to Exhibit 10.43 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.38 -- Loan Agreement dated July 1, 1996 by and between CapRock
Fiber and Bank One. (Incorporated by reference to Exhibit
10.44 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.39 -- $10,000,000 Promissory Note dated July 1, 1996 by and
between CapRock Fiber and Bank One. (Incorporated by
reference to Exhibit 10.45 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
10.40 -- Guaranty dated July 1, 1996 by CapRock Systems, Inc. in
favor of Bank One. (Incorporated by reference to Exhibit
10.46 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.41 -- Guaranty dated July 1, 1996 by Mark Langdale in favor of
Bank One. (Incorporated by reference to Exhibit 10.47 to
the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.42 -- Guaranty dated July 1, 1996 by Jere W. Thompson, Jr. in
favor of Bank One. (Incorporated by reference to Exhibit
10.48 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.43 -- Form of Note Purchase Agreement by and among the
Registrant and various initial purchasers. (Incorporated
by reference to Exhibit 10.49 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.44 -- Form of Contribution Agreement by the General Partner of
CapRock Fiber. (Incorporated by reference to Exhibit
10.50 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.45 -- First Amendment to Loan Agreement dated July 1, 1996 by
and between CapRock Fiber and Bank One. (Incorporated by
reference to Exhibit 10.51 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
10.46 -- Second Amendment to Loan Agreement dated April 29, 1998
by and between CapRock Fiber and Bank One. (Incorporated
by reference to Exhibit 10.52 to the Registration
Statement on Form S-4, as amended, of the Registrant,
File No. 333-57365.)
10.47 -- License Agreement dated June 16, 1998 by and between
CapRock Telecommunications and RiverRock Systems, Ltd.
(Incorporated by reference to Exhibit 10.53 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.48 -- Modification Agreement dated as of June 17, 1998 by and
between IWL and Bank One. (Incorporated by reference to
Exhibit 10.54 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.49 -- 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. (Incorporated by reference to Exhibit
10.55 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.50 -- Eighth Amendment to Loan and Security Agreement dated as
of June 18, 1998 by and between CapRock
Telecommunications and Bank One. (Incorporated by
reference to Exhibit 10.56 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
</TABLE>
<PAGE> 179
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.51 -- Renewal and Extension Promissory Note dated as June 18,
1998 executed by CapRock Telecommunications payable to
the order of Bank One, in the principal amount of
$7,000,000.00. (Incorporated by reference to Exhibit
10.57 to the Registration Statement on Form S-4, as
amended, of the Registrant, File No. 333-57365.)
10.52 -- Intercompany Promissory Note dated as of June 18, 1998
originally executed by CapRock Fiber payable to the order
of Telecommunications in the principal amount of
$2,500,000.00 and endorsed by CapRock Telecommunications
in favor of Bank One. (Incorporated by reference to
Exhibit 10.58 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.53 -- Ninth Amendment to Loan and Security Agreement dated as
July 9, 1998 by and between CapRock Telecommunications
and Bank One. (Incorporated by reference to Exhibit 10.59
to the Registration Statement on Form S-4, as amended, of
the Registrant, File No. 333-57365.)
10.54 -- Third Amendment to Loan Agreement dated as of June 18,
1998 by and between CapRock Fiber and Bank One.
(Incorporated by reference to Exhibit 10.60 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.55 -- Fourth Amendment to Loan Agreement dated as of July 9,
1998, by and between CapRock Fiber and Bank One.
(Incorporated by reference to Exhibit 10.61 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-57365.)
10.56 -- Form of Escrow Agreement. (Incorporated by reference to
Exhibit 10.62 to the Registration Statement on Form S-4,
as amended, of the Registrant, File No. 333-57365.)
10.57 -- Form of Exchange Agent Agreement by and between the
Registrant and PNC Bank, National Association.
(Incorporated by reference to Exhibit 10.57 to the
Registration Statement on Form S-4, as amended, of the
Registrant, File No. 333-64699.)
10.58 -- Addison Circle One Office Lease Agreement between
Champion Addison One Limited Partnership, a limited
partnership, as Landlord and the Registrant, as Tenant
(Incorporated by reference to Exhibit 10.58 to the
Registration Statement on Form S-1, as amended, of the
Registrant, File No. 333-74735.)
10.59 -- Form of Carrier Agreement. (Incorporated by reference to
Exhibit 10.59 to the Registration Statement on Form S-1,
as amended, of the Registrant, File No. 333-74735.)
10.60 -- Amendment to Addison Circle One Office Lease Agreement.
(Incorporated by reference to Exhibit 10.60 to the
Registration Statement on Form S-1, as amended, of the
Registrant, File No. 333-74735.)
10.61 -- Note Purchase Agreement dated May 13, 1999 by and among
the Registrant and various initial purchasers.
10.62 -- Form of Exchange Agent Agreement by and between the
Registrant and Chase Manhattan Trust Company, National
Association, Trustee.*
10.63 -- Form of Purchase Agreement (Incorporated by reference to
Exhibit 1.1 to the Registration Statement on Form S-1, as
amended, of the Registrant, File No. 333-74735.)
</TABLE>
<PAGE> 180
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
16.1 -- Letter re: Change in Accountants. (Incorporated by
reference to Exhibit 16.1 to the Registration Statement
on Form S-4, as amended, of the Registrant, File No.
333-57365.)
21.1 -- Subsidiaries of the Registrant. (Incorporated by
reference to Exhibit 21.1 to the Registration Statement
on Form S-1, as amended, of the Registrant, File No.
333-74735.)
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Burds Reed & Mercer, P.C.
23.3 -- Consent of Munsch Hardt Kopf & Harr, P.C. (Included in
the opinion filed as Exhibit 5.1 to this Registration
Statement.)
24.1 -- Power of Attorney (included in the signature page
hereto.)
25.1 -- Statement of Eligibility and Qualification on Form T-1
under the Trust Indenture Act of 1939 of Chase Manhattan
Trust Company, National Association, as Trustee of the
Indenture relating to the 11 1/2% Senior Notes due 2009,
Series B.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and other Nominees.
99.4 -- Form of Letter to Clients.
99.5 -- Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Beneficial Owner.
99.6 -- Guidelines for Certification of Taxpayer Identification
Number on substitute Form W-9.
</TABLE>
- ---------------
# Confidential treatment was granted.
* To be filed by amendment
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made
and entered into this 18th day of May, 1999, by and among CapRock Communications
Corp., a Texas corporation (the "Company") and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Chase Securities Inc., Bear, Stearns & Co.
Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Goldman, Sachs &
Co. (each, an "Initial Purchaser" and collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement,
dated May 13, 1999, by and among the Company and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchasers of $210 million aggregate principal amount of its 11 1/2% Senior
Notes due 2009, Series A (the "Securities"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide to the Initial Purchasers and their direct and indirect transferees 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).
"Closing Date" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
<PAGE> 2
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company; 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(b).
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Securities for certain 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 11 1/2% Senior Notes due
2009, Series B issued by the Company 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 certain 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 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 May 18, 1999 between the Company and Chase
Manhattan Trust Company, 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.
-2-
<PAGE> 3
"Initial Purchaser" or "Initial Purchasers" shall have the
meaning set forth in the preamble.
"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 Company and other obligors on the
Securities or any Affiliate (as defined in the Indenture) of the
Company shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage amount.
"Participating Broker-Dealer" shall mean any broker-dealer
which makes a market in the Securities and exchanges Registrable
Securities in the Exchange Offer for Exchange Securities.
"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.
"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 or Private Exchange Securities shall have
been declared effective under the 1933 Act and such Securities or
Private Exchange Securities shall have been disposed of pursuant to
such Registration Statement, (ii) such Securities or Private Exchange
Securities have been sold to the
-3-
<PAGE> 4
public pursuant to Rule 144 (or any similar provision then in force,
but not Rule 144A) under the 1933 Act, (iii) such Securities or Private
Exchange Securities shall have ceased to be outstanding or (iv) the
Exchange Offer is consummated (except in the case of Securities
purchased from the Company and continued to be held by any one of the
Initial Purchasers and Private Exchange Securities issued in exchange
therefor).
"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 Company with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. (the "NASD")
registration and filing fees, 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 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 Company
and of the independent public accountants of the Company including the
expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, (vii) the fees and
expenses of the Trustee, 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 Company in connection with any Registration Statement, but
excluding underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities or
Exchange Securities by a Holder.
-4-
<PAGE> 5
"Registration Statement" shall mean any registration statement
of the Company which covers any of the Exchange Securities or
Registrable Securities pursuant to the provisions of this Agreement
(including a Shelf Registration Statement and an Exchange Offer
Registration Statement), 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 United States 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 Company 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
registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"TIA " shall have the meaning set forth in Section 2.1(d).
"Transfer Restricted Notes" shall mean each Security, each
Exchange Security obtained by a broker-dealer in the Exchange Offer 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;
-5-
<PAGE> 6
(iii) the date on which such Security, Exchange
Security or Private Exchange Security has been effectively
registered under the 1933 Act and disposed of in accordance
with a Shelf Registration Statement;
(iv) the date on which such Security, Exchange
Security or Private Exchange Security is distributed to the
public pursuant to Rule 144 under the 1933 Act (or any similar
provision then in force, but not Rule 144A under the 1933
Act);
(v) such Security, Exchange Security or Private
Exchange Security shall have been otherwise transferred by the
holder thereof and a new Security, Exchange Security or
Private Exchange Security not bearing a legend restricting
further transfer shall have been delivered by the Company and
subsequent disposition of such Security, Exchange Security or
Private Exchange Security shall not require registration or
qualification under the 1933 Act or any similar state law then
in force; or
(vi) such Security, Exchange Security or Private
Exchange Security ceases to be outstanding.
"Trustee" shall mean the trustee with respect to the
Securities, the Private Exchange 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
Company shall, for the benefit of the Holders, at the Company's cost, (i)
prepare and, as soon as practicable but not later than 90 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 Company and continued to be
held by any one of the Initial Purchasers and Private Exchange Securities issued
in exchange therefor), 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 150 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 and (iv) commence
the Exchange Offer and use its best efforts to issue, on or prior to 35 days
after the date on which the Exchange Offer Registration Statement was declared
effective by the SEC, the Exchange Securities in exchange for all Securities
tendered prior thereto in the Exchange Offer. The Exchange Securities will be
issued
-6-
<PAGE> 7
under the Indenture. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder eligible and electing to
exchange Registrable Securities for Exchange Securities (assuming that such
Holder (i) is not an affiliate of the Company within the meaning of Rule 405
under the 1933 Act, (ii) is not a broker-dealer tendering Registrable Securities
acquired directly from the Company or an affiliate of the Company 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) and 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 Company
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 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.
-7-
<PAGE> 8
(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 Company 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 Company 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 Securities and
the Company shall use all commercially reasonable efforts to have the Private
Exchange Securities bear the same CUSIP number as the Exchange Securities. The
Company 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 Company shall use its best efforts, on or prior to the 35th day
following the date the Exchange Offer Registration Statement is declared
effective by the SEC, to:
(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 duly
tendered pursuant to the Private Exchange;
(iii) deliver to the Trustee for cancellation all
Registrable Securities so accepted for exchange; and
-8-
<PAGE> 9
(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 Company 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 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, (iv) that no action
or proceeding shall have been instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer or the Private
Exchange which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer or the
Private Exchange and (v) compliance with Section 3(f) hereof. To the extent
permitted by law and ascertainable by the Company, the Company shall inform the
Initial Purchasers of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchasers shall have the right to
contact such Holders and otherwise facilitate the tender of Registrable
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 Company 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 150 days following
the date of this Agreement or the Exchange Offer is not consummated within 185
days after the date of this Agreement, (iii) if within 90 days after the Closing
Date any Holder of Securities notifies the Company 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
-9-
<PAGE> 10
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 Company or an
affiliate of the Company 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 Company shall, at its cost:
(x) As promptly as practicable, but in any event prior to
the later of (1) 90 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 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 Company may, if permitted by current interpretations by the SEC'
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 Company is required to
file a Shelf Registration Statement upon the request of any Holder
(including an Initial Purchaser) not eligible pursuant to clause (iii)
or (iv) above to participate in the Exchange Offer, the Company shall
file and use its best efforts to have declared effective by the SEC
both an Exchange Offer Registration Statement pursuant to Section 2.1
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
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<PAGE> 11
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 Shelf Registration Statement, and any supplement to
such Prospectus (as amended or supplemented from time to time), does
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of
the circumstances under which they were made, not misleading.
The Company shall not permit any securities other than Registrable
Securities to be included in the Shelf Registration Statement. The Company
further agrees, if necessary, to supplement or amend the Shelf Registration
Statement, as required by Section 3(b) below, and to furnish to the Holders of
Registrable Securities included in such Shelf Registration Statement copies of
any such supplement or amendment promptly after its being used or filed with the
SEC.
2.3 Expenses. The Company shall pay all Registration Expenses in
connection with 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 Company 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 Company voluntarily takes any action that
would, or omits to take any action
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<PAGE> 12
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 Company 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
be effective during the period of such interference, until the offering of
Registrable Securities pursuant to such Registration Statement may legally
resume.
(c) During any 365-day period, the Company may suspend
the availability of a Shelf Registration Statement and the use of the related
Prospectus, for up to two periods of up to 45 consecutive days each (except for
the consecutive 45-day period immediately prior to maturity of the Security),
but no more than an aggregate of 60 days during any 365-day period, if any event
shall occur as a result of which it shall be necessary, in the good faith
determination of the board of directors of the Company, to amend the Shelf
Registration Statement or amend or supplement any Prospectus or prospectus
supplement thereunder in order that each such document not include any untrue
statement of material fact or omit to state a material fact necessary to make
the statements therein not misleading in light of the circumstances under which
they were made.
2.5 Interest. (a) If (i) the Company fails to file any of the
registration statements required by this Agreement on or before the date
specified for such filing, (ii) any of such registration statements are not
declared effective by the SEC on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (iii) the Company fails to
consummate the Exchange Offer within 35 days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement, or (iv) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter, subject to Section 2.4(c) above, ceases to be
effective or usable in connection with the Exchange Offer or resales of Transfer
Restricted Notes, as the case may be, during the periods specified in this
Agreement (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
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<PAGE> 13
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. Following the cure of a particular Registration Default, the accrual of
Additional Interest with respect to such Registration Default will cease;
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 Company 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 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 Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement, 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 Company, (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
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<PAGE> 14
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 included in the Shelf Registration Statement and to each
underwriter of an underwritten offering of Registrable Securities included in
the Shelf Registration Statement, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits in order to facilitate the public sale or other
disposition of the Registrable Securities included in the Shelf Registration
Statement; 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
included in the Shelf Registration Statement 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 Company
shall not be required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), or (ii) take any action which would subject
it to general service of process or taxation in any such jurisdiction where it
is not then so subject;
(e) 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 Company raises a substantial
question as to whether the Exchange Offer is permitted by applicable federal
law, the Company hereby agrees to seek a no-action letter or other favorable
decision from the SEC allowing the Company to consummate an Exchange Offer for
Registrable Securities contemplated hereby. The Company hereby agrees to pursue
the issuance of such a decision to the SEC staff level. In connection with and
subject to the foregoing, the Company hereby agrees to take all
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<PAGE> 15
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 Company
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
Company, prior to the consummation of the Exchange Offer, a written
representation to the Company (which may 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 Company, (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
Company'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 Company or
an affiliate thereof, it (1) could not, under SEC 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 Company shall, to the extent requested or required by the SEC,
provide a supplemental letter to the SEC (A) stating that the Company is
registering the Exchange Offer in reliance on the position of the SEC enunciated
in Exxon Capital Holdings Corporation (available May 13, 1988), and 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 Company 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 Company is capable of
so representing, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is
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<PAGE> 16
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 included
in a Shelf Registration or any Participating Broker-Dealer who has notified the
Company 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 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 Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects, (v) of the happening of
any event or the discovery of any facts during the period a Shelf Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or Prospectus
in order to make the statements therein not misleading, (vi) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities or the Exchange Securities, as the
case may be, included in the Registration Statement for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose and (vii) of
any determination by the Company that a post-effective amendment to such
Registration Statement would be appropriate;
(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
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<PAGE> 17
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 Company the notice referred to in Section 2.2(iii)(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
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 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
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 Company 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 Company's independent
certified public accountants (and, if necessary, any other independent certified
public
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<PAGE> 18
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements are, or are required to be, included in
the Registration Statement) at least as broad in scope and coverage as the
comfort letter or comfort letters delivered to the Initial Purchasers in
connection with the initial sale of the 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 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 included therein, 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 included therein 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
included therein or by Participating Broker-Dealers, such Prospectus will not
contain at the time of such delivery any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. At such time as
such public disclosure is otherwise made or the Company determines that such
disclosure is not necessary, in each case to correct any misstatement of a
material fact or to include any omitted material fact, the Company agrees
promptly to notify each such Holder of such determination and to
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<PAGE> 19
furnish each such 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 the Holders whose
Registrable Securities are included therein; and make such representatives of
the Company as shall be reasonably requested by the Holders of Registrable
Securities included therein, 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 the Registrable
Securities included therein 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 the Registrable Securities included therein and the
underwriters, if any, in form, substance and scope as are customarily
made by issuers to underwriters in similar underwritten offerings as
may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any,
and the holders of a majority in principal amount of the Registrable
Securities being sold) addressed to
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<PAGE> 20
each selling Holder and the underwriters, if any, covering the matters
customarily covered in opinions requested in sales of securities or
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company
for which financial statements are, or are required to be, included in
the Registration Statement) addressed to the underwriters, if any, and
use reasonable efforts to have such letter addressed to the selling
Holders of Registrable 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
selling Holders and an agent of the selling Holders providing for,
among other things, the appointment of such agent for the selling
Holders for the purpose of soliciting purchases of Registrable
Securities included therein, 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 in the case of an
Exchange Offer, if a Prospectus is required to be delivered by any Participating
Broker-Dealer, make available for inspection by representatives of the Holders
of the Registrable Securities included therein, any underwriters participating
in any disposition pursuant to a Shelf
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<PAGE> 21
Registration Statement, any such Participating Broker-Dealer and any counsel or
accountant retained by any of the foregoing, all financial and other records,
pertinent corporate documents and properties of the Company reasonably requested
by any such persons, and cause the respective officers, directors, employees,
and any other agents of the Company to supply all information reasonably
requested by any such representative, underwriter, special counsel or accountant
in connection with a Registration Statement, and make such representatives of
the Company available for discussion of such documents as shall be reasonably
requested by the Initial Purchasers; provided that any such records, documents,
properties and such information that is designated in writing by the Company, in
good faith, as confidential at the time of delivery of such records, documents,
properties or information shall be kept confidential by any such representative,
underwriter, special counsel or accountant and shall be used only in connection
with such 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 Company 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 such 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 Company
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 included or to be included in such Shelf Registration, to
the Initial Purchasers, to counsel for such 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 such Holders or the underwriter or underwriters
reasonably request and not file any such document in a form to which the
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<PAGE> 22
Majority Holders, the Initial Purchasers on behalf of such 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 such Holders of
Registrable Securities, counsel to such Holders of Registrable Securities or any
underwriter shall reasonably object, and make the representatives of the Company
available for discussion of such document as shall be reasonably requested by
such Holders of Registrable Securities, the Initial Purchasers on behalf of such
Holders, counsel for such Holders of Registrable Securities or any underwriter;
(v) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities included therein to be listed on any securities
exchange on which similar debt securities issued by the Company are then listed
if requested by the Majority Holders whose securities are included therein, 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 included therein to be rated by the appropriate
rating agencies, if so requested by the Majority Holders whose securities are
included therein, or if requested by the underwriter or underwriters of an
underwritten offering of Registrable Securities included therein, 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 Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(h)(v) or
3(h)(vi) hereof, such Holder will keep such information confidential and will
forthwith discontinue
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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 Company, such
Holder will deliver to the Company (at its expense) all copies in such Holder's
possession, other than permanent file copies then in such Holder's possession,
of all Prospectuses covering such Registrable Securities in effect at or prior
to the time of receipt of such notice.
In the event that the Company 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 Company shall not file any
Registration Statement with respect to any securities (within the meaning of
Section 2(l) of the 1933 Act) of the Company other than Registrable 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 Company. 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 Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder, each Participating Broker-Dealer, each Person who
participates as an underwriter (any such Person being an "Underwriter") and each
Person, if any, who controls any Holder or Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all 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
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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 Company; and
(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 Company by the
Holder or Underwriter expressly for use in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto),
(B) 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 or
(c) result from the use of the Prospectus in violation of the third to last
paragraph of Section 3.
(b) Each Holder severally, but not jointly, agrees to indemnify
and hold harmless the Company, the Initial Purchasers, each Underwriter and the
other selling Holders, and each of their respective directors and officers, and
each Person, if any, who controls the Company, 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 Company by such Holder
expressly for use in the Shelf Registration Statement (or any amendment thereto)
or such Prospectus (or any amendment or supplement thereto); provided, however,
that no such
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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 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
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appropriate to reflect the relative fault of the Company on the one hand and the
Holders and the Initial Purchasers on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company on the one hand and the
Holders and the Initial Purchasers on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Holders or the Initial
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that
it would not be just and equitable if contribution pursuant to this Section 4
were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 4. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
4 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial
Purchaser shall be required to contribute any amount in excess of the amount by
which the total price at which the 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
Company, and each Person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company. The Initial Purchasers' respective
obligations to contribute pursuant to this Section 4 are several in proportion
to the principal amount of Securities set forth opposite their respective names
in Schedule A to the Purchase Agreement and not joint.
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5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company is
subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the
Company covenants that it will file the reports required to be filed by it under
the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable 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 Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
5.2 No Inconsistent Agreements. The Company has not
entered into and the Company will not after the date of this Agreement enter
into any agreement which is inconsistent with the rights granted to the Holders
of Registrable 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 Company's other issued and outstanding securities under
any such agreements.
5.3 Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure.
5.4 Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand delivery,
registered first-class mail, telex, telecopier, or any courier guaranteeing
overnight delivery (a) if to a Holder, at the most current address given by such
Holder to the Company by means of a notice given in accordance with the
provisions of this Section 5.4, which address initially is the address set forth
in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to
the Company, initially at the Company's address set forth in the Purchase
Agreement, and
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thereafter at such other address of which notice is given in accordance with the
provisions of this Section 5.4.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; two
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the person giving the same to the Trustee
under the Indenture, at the address specified in such Indenture.
5.5 Successor and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
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.
5.6 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
Company, on the one hand, and the Holders, on the other hand, and shall have the
right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder. Each Holder of Registrable Securities shall be a third party
beneficiary to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights hereunder.
5.7 Specific Enforcement. Without limiting the remedies
available to the Initial Purchasers and the Holders, the Company acknowledges
that any failure by the Company to comply with its obligations under Sections
2.1 through 2.4 hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
would not be possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Initial Purchasers or any
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Holder may obtain such relief as may be required to specifically enforce the
Company's obligations under Sections 2.1 through 2.4 hereof
5.8 Restriction on Resales. Until the expiration of two
years after the original issuance of the Securities, the Company will not, and
will cause its "affiliates" (as such term is defined in Rule 144(a)(1) under the
1933 Act) not to, resell to anyone other than the Company 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 after payment therefor by the Company (if the Securities are
being submitted by an affiliate of the Company).
5.9 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
5.10 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.12 Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
CAPROCK COMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ MICHAEL J. MARCHETTI
----------------------------
Name:
Title:
For itself and as Representative of the other Initial Purchasers named in this
Agreement.
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CAPROCK COMMUNICATIONS CORP., as Issuer
and
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
---------------------
INDENTURE
Dated as of May 18, 1999
--------------------
$210,000,000 Aggregate Principal Amount
11 1/2% Senior Notes due 2009, Series A
11 1/2% Senior Notes due 2009, Series B
- -------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION..................................................................1
Section 1.01. Definitions...............................................................1
Section 1.02. Other Definitions........................................................33
Section 1.03. Rules of Construction....................................................34
Section 1.04. Form of Documents Delivered to Trustee...................................34
Section 1.05. Acts of Holders..........................................................35
Section 1.06. Notices, etc., to the Trustee and the Issuer.............................35
Section 1.07. Notice to Holders; Waiver................................................36
Section 1.08. Conflict with Trust Indenture Act........................................36
Section 1.09. Effect of Headings and Table of Contents.................................37
Section 1.10. Successors and Assigns...................................................37
Section 1.11. Separability Clause......................................................37
Section 1.12. Benefits of Indenture....................................................37
Section 1.13. GOVERNING LAW............................................................37
Section 1.14. No Recourse Against Others...............................................37
Section 1.15. Independence of Covenants................................................38
Section 1.16. Exhibits.................................................................38
Section 1.17. Counterparts.............................................................38
Section 1.18. Duplicate Originals......................................................38
ARTICLE 2 NOTE FORMS.............................................................................38
Section 2.01. Form and Dating..........................................................38
ARTICLE 3 THE NOTES..............................................................................39
Section 3.01. Title and Terms..........................................................39
Section 3.02. Registrar and Paying Agent...............................................39
Section 3.03. Execution and Authentication.............................................40
Section 3.04. Temporary Notes..........................................................41
Section 3.05. Transfer and Exchange....................................................42
Section 3.06. Mutilated, Destroyed, Lost and Stolen Notes..............................43
Section 3.07. Payment of Interest; Interest Rights Preserved...........................43
Section 3.08. Persons Deemed Owners....................................................45
Section 3.09. Cancellation.............................................................45
Section 3.10. Computation of Interest..................................................45
Section 3.11. Legal Holidays...........................................................45
Section 3.12. CUSIP and CINS Numbers...................................................46
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Section 3.13. Paying Agent To Hold Money in Trust......................................46
Section 3.14. Treasury Notes...........................................................46
Section 3.15. Deposits of Monies.......................................................47
Section 3.16. BookEntry Provisions for Global Notes....................................47
Section 3.17. Special Transfer Provisions..............................................48
ARTICLE 4 DEFEASANCE OR COVENANT DEFEASANCE......................................................53
Section 4.01. Termination of Issuer's Obligations......................................52
Section 4.02. Defeasance and Discharge of Indenture....................................53
Section 4.03. Defeasance of Certain Obligations........................................55
Section 4.04. Application of Trust Money...............................................57
Section 4.05. Repayment to Issuer......................................................57
Section 4.06. Reinstatement............................................................57
ARTICLE 5 REMEDIES...............................................................................58
Section 5.01. Events of Default........................................................58
Section 5.02. Acceleration of Maturity, Rescission and Annulment.......................59
Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee..........60
Section 5.04. Trustee May File Proofs of Claims........................................61
Section 5.05. Trustee May Enforce Claims Without Possession of Notes...................62
Section 5.06. Application of Money Collected...........................................62
Section 5.07. Limitation on Suits......................................................63
Section 5.08. Unconditional Right of Holders To Receive Principal,
Premium and Interest.....................................................63
Section 5.09. Restoration of Rights and Remedies.......................................64
Section 5.10. Rights and Remedies Cumulative...........................................64
Section 5.11. Delay or Omission Not Waiver.............................................64
Section 5.12. Control by Majority......................................................64
Section 5.13. Waiver of Past Defaults..................................................65
Section 5.14. Undertaking for Costs....................................................65
Section 5.15. Waiver of Stay, Extension or Usury Laws..................................65
Section 5.16. Unconditional Right of Holders To Receive Payment........................66
ARTICLE 6 THE TRUSTEE............................................................................66
Section 6.01. Certain Duties and Responsibilities......................................66
Section 6.02. Notice of Defaults.......................................................67
Section 6.03. Certain Rights of Trustee................................................67
Section 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes
or Application of Proceeds Thereof.......................................69
Section 6.05. Trustee and Agents May Hold Notes; Collections; Etc......................69
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Section 6.06. Money Held in Trust......................................................69
Section 6.07. Compensation and Indemnification of Trustee and Its Prior
Claim....................................................................70
Section 6.08. Conflicting Interests....................................................70
Section 6.09. Corporate Trustee Required; Eligibility..................................71
Section 6.10. Resignation and Removal; Appointment of Successor Trustee...............71
Section 6.11. Acceptance of Appointment by Successor...................................73
Section 6.12. Merger, Conversion, Amalgamation, Consolidation or
Succession to Business...................................................73
ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER.......................................74
Section 7.01. Preservation of Information; Issuer To Furnish Trustee
Names and Addresses of Holders...........................................74
Section 7.02. Communications of Holders................................................75
Section 7.03. Reports by Trustee.......................................................75
Section 7.04. Reports by Issuer........................................................75
ARTICLE 8 CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.............................................76
Section 8.01. Issuer May Consolidate, etc., Only on Certain Terms......................76
Section 8.02. Successor Substituted....................................................77
ARTICLE 9 SUPPLEMENTAL INDENTURES AND WAIVERS....................................................78
Section 9.01. Supplemental Indentures, Agreements and Waivers
Without Consent of Holders...............................................78
Section 9.02. Supplemental Indentures, Agreements and Waivers With
Consent of Holders.......................................................79
Section 9.03. Execution of Supplemental Indentures, Agreements and Waivers.............80
Section 9.04. Effect of Supplemental Indentures........................................80
Section 9.05. Conformity with Trust Indenture Act......................................80
Section 9.06. Reference in Notes to Supplemental Indentures............................80
Section 9.07. Record Date..............................................................81
Section 9.08. Revocation and Effect of Consents........................................81
ARTICLE 10 COVENANTS..............................................................................81
Section 10.01. Payment of Principal, Premium and Interest...............................81
Section 10.02. Maintenance of Office or Agency..........................................82
Section 10.03. Money for Note Payments To Be Held In Trust..............................82
Section 10.04. Corporate Existence......................................................84
Section 10.05. Payment of Taxes and Other Claims........................................84
Section 10.06. Maintenance of Properties................................................84
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Section 10.07. Insurance................................................................85
Section 10.08. Books and Records........................................................85
Section 10.09. Compliance Certificates and Opinions.....................................85
Section 10.10. Repurchase of Notes Upon a Change of Control.............................86
Section 10.11. Limitation on Indebtedness...............................................86
Section 10.12. Statement by Officers as to Default......................................86
Section 10.13. Limitation on Restricted Payments........................................87
Section 10.14. Limitation on Transactions with Stockholders and Affiliates..............91
Section 10.15. Limitation on Asset Sales................................................92
Section 10.16. Limitation on Liens......................................................93
Section 10.17. Intentionally Omitted....................................................93
Section 10.18. Limitation on the Issuance and Sale of Capital Stock
of Restricted Subsidiaries...............................................93
Section 10.19. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................................94
Section 10.20. Limitation on SaleLeaseback Transactions.................................96
Section 10.21. Limitation on Restrictive Covenants......................................97
Section 10.22. Commission Reports and Reports to Holders................................97
Section 10.23. Limitation on Issuances of Guarantees by Restricted Subsidiaries.........97
ARTICLE 11 SATISFACTION AND DISCHARGE.............................................................98
Section 11.01. Satisfaction and Discharge of Indenture..................................98
Section 11.02. Application of Trust Money...............................................99
ARTICLE 12 REDEMPTION............................................................................100
Section 12.01. Right of Redemption; Mandatory Redemption...............................100
Section 12.02. Notice to the Trustee...................................................101
Section 12.03. Selection of Notes to be Redeemed.......................................101
Section 12.04. Notice of Redemption....................................................101
Section 12.05. Effect of Notice of Redemption..........................................102
Section 12.06. Deposit of Redemption Price.............................................103
Section 12.07. Notes Redeemed in Part..................................................103
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C> <C>
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
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
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
</TABLE>
-v-
<PAGE> 7
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and Indenture, dated as of May 18, 1999
<TABLE>
<CAPTION>
Trust
Indenture Act Indenture
Section Section
- -------------- ------------------
<S> <C> <C>
Section 310 (a)(1)............................................. 6.09
(a)(2)............................................. 6.09
(a)(3)............................................. Not applicable
(a)(4)............................................. Not applicable
(b)................................................ 6.08, 6.10
Section 311 (a)................................................ 6.07
(b)................................................ 6.07
(c)................................................ Not Applicable
Section 312 (a)................................................ 3.05, 7.01
(b)................................................ 7.02
(c)................................................ 7.02
Section 313 (a)................................................ 7.03
(b)................................................ 7.03
(c)................................................ 7.03
(d)................................................ 7.03
Section 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
Section 315 (a)................................................ 6.01(a)
(b)................................................ 6.02
(c)................................................ 6.01(b)
(d)................................................ 6.01(c)
(e)................................................ 5.14
Section 316 (a) (last sentence)................................ 3.14
(a)(1)(A).......................................... 5.12
(a)(1)(B).......................................... 5.13
(a)(2)............................................. Not Applicable
- --------------------------------------------------------------------------------------------------------
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
Trust
Indenture Act Indenture
Section Section
- -------------- ------------------
<S> <C> <C>
(b)................................................ 5.08
Section 317 (a)(1)............................................. 5.03
(a)(2)............................................. 5.04
(b)................................................ 10.03
Section 318 (a)................................................ 1.08
</TABLE>
ii
<PAGE> 9
INDENTURE, dated as of May 18, 1999, between CAPROCK COMMUNICATIONS
CORP. (the "Issuer") and CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
(the "Trustee").
RECITALS
The Issuer has duly authorized the creation of an issue of (i) 11 1/2%
Senior Notes due 2009, Series A (the "Initial Notes"), and (ii) 11 1/2% Senior
Notes due 2009, 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 the Issuer
has duly authorized the execution and delivery of this Indenture.
All things necessary have been done to make the Notes, when executed
by the Issuer and authenticated and delivered hereunder and duly issued by the
Issuer, the valid obligations of the Issuer and to make this Indenture a valid
agreement of the Issuer 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:
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.
<PAGE> 10
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Issuer and its Restricted Subsidiaries for
such period 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;
(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.
-2-
<PAGE> 11
"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.
"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.
"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.
"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:
-3-
<PAGE> 12
(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 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, or
(c) sales, transfers or other dispositions of assets that have
become uneconomic, obsolete or worn-out.
"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.
-4-
<PAGE> 13
"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 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 Issue
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:
(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,
-5-
<PAGE> 14
(ii) any Person or "group" (as such term is used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act including any group acting for the purpose
of acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(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.
"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 Issue 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,
-6-
<PAGE> 15
(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 or the offering of the
1998 Senior 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;
-7-
<PAGE> 16
(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, the 1998 Senior Notes and the 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 (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 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)
-11-
<PAGE> 17
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 1650 Market Street, Suite 5210, 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.
"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.
-9-
<PAGE> 18
"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.
"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 11 1/2% Senior Notes due 2009, 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 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 1998 Senior Notes Issue 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
-10-
<PAGE> 19
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 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,
-11-
<PAGE> 20
(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 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.
-12-
<PAGE> 21
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,
(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
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this Indenture or the Notes and the performance of all other obligations to the
Trustee (including, but not limited to, payment of all amounts due the Trustee
under Section 6.07 hereof) and the Holders of the Notes under this Indenture and
the Notes, according to the terms hereof and thereof.
"Initial Notes" means the 11 1/2% Senior Notes due 2009, Series A, of
the Issuer.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Chase Securities Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin
& Jenrette Securities Corporation and Goldman, Sachs & Co.
"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 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)
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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 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
Chairman of the Board, Vice-Chairman, Chief Executive Officer, President or Vice
President, and by its 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 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 Issuer, CapRock
Telecommunications Corp., CapRock Fiber Network, Ltd., IWL Communications,
Incorporated and certain other parties thereto, as amended through the 1998
Senior Notes Issue Date and thereafter as amended in accordance with the terms
of the 1998 Senior Notes 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
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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 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.
"1998 Senior Notes Indenture" means the Indenture dated as of July 16,
1998, among the Issuer, CapRock Telecommunications Corp., CapRock Fiber Network,
Ltd. and IWL Communications, Incorporated and Chase Manhattan Trust Company,
National Association, as successor Trustee, providing for the issuance of the
1998 Senior Notes in the aggregate principal amount of $150,000,000, as such
instrument may be amended and supplemented from time to time.
"1998 Senior Notes Issue Date" means the date on which the 1998 Senior
Notes were originally issued under the 1998 Senior Note Indenture.
"1998 Senior Notes" means the Issuer's 12% Senior Notes due 2008
issued pursuant to the 1998 Senior Notes Indenture, as such instrument may be
amended from time to time.
"Non-U.S. Person" has the meaning assigned to such term in
Regulation S.
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"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.
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
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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 May 13, 1999
pursuant to which the Notes were offered.
"Officer" means, with respect to the Issuer, its 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.
"144A Global Note" means one or more permanent global notes 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:
(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
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(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.
"Payment Date" means the date on which any Note is purchased pursuant
to an Offer to Purchase.
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"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 and this
Indenture;
(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 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
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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 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 interest, and reasonable fees and
expenses) in an aggregate amount not to exceed at any one time outstanding
$25 million;
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(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 1998 Senior Notes Issue Date 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, 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
1998 Senior Notes Issue Date 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, 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 1998 Senior Notes Issue Date 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 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;
(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)
$175 million less any amount of such Indebtedness permanently repaid as
provided under Section 10.15 hereof;
(x) Indebtedness existing as of the Issue Date;
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(xi) Capitalized Lease Obligations in an aggregate principal amount
outstanding at any time not to exceed $25 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 $75 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;
(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
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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;
(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;
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(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 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;
(xviii) Liens on or sales of receivables, including related intangible
assets and proceeds thereof;
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(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 of the Issuer or any Restricted Subsidiary securing
Indebtedness in effect at the Issue Date;
(xxiii) Liens granted after the Issue 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 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 Issue Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
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"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.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock (other than Redeemable Stock) of the Issuer or a Restricted
Subsidiary pursuant to an effective registration statement filed under the
Securities Act (excluding registration statements on Form S-8).
"Purchase Agreement" means the Purchase Agreement, dated May 13, 1999,
among the Issuer 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 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.
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"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 Issue Date, by and among the Issuer 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 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),
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(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,
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.
"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 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.
"Strategic Equity Investments" means the issuance and sale of Capital
Stock (other than Redeemable Stock) to a Person that has an equity market
capitalization, a net asset value or annual revenues of at least $1.0 billion
and owns and operates businesses primarily in a Telecommunications Business;
provided that such Telecommunications Business may be located anywhere in the
world.
"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, which were consummated on August 26, 1998.
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"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.
"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.
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"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
"Paying Agent" or "Agent" 3.02
"Physical Notes" 3.03
"Registrar" 3.02
"Restricted Period" 3.17
- -------------------------------------------------------------------------
</TABLE>
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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.
Any certificate or opinion of an officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion may be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Issuer stating that the information with respect to
such factual matters is in the possession of the Issuer, 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.
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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 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 shall be sufficient for
every purpose hereunder if made, given, furnished or filed, in writing, to or
with the Trustee at One
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Liberty Place, 1650 Market Street, Suite 5210, Philadelphia, Pennsylvania 19103,
Attention: Corporate Trust Department, or at any other address previously
furnished in writing to the Holders and the Issuer by the Trustee; or
(b) the Issuer 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 the
Issuer at 15601 Dallas Parkway, Suite 700, Dallas, Texas 75248, Attention: Jere
W. Thompson, Jr., or at any other address previously furnished in writing to the
Trustee by the Issuer.
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.
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.
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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 shall
bind its 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.
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
shall not have any liability for any obligations of the Issuer under the Notes
or this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation.
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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.
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.
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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.
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 $210,000,000, 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 or 10.15 hereof.
The Notes will mature on May 1, 2009. The Notes shall bear interest
payable in cash at a rate of 11 1/2% 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 May 18, 1999. 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 and 10.15 hereof.
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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.
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 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.
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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 $210,000,000 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
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 $210,000,000, 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
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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.
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 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.
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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.
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
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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 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.
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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 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,
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then (notwithstanding any other provision of this Indenture or of the Notes)
payment of principal, premium, if any, or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date, date
established for the payment of Defaulted Interest or at the Stated Maturity, as
the case may be. In such event, no interest shall accrue with respect to such
payment for the period from and after such Interest Payment Date, Redemption
Date, date established for the payment of Defaulted Interest or Stated Maturity,
as the case may be, to the next succeeding Business Day and, with respect to any
Interest Payment Date, interest for the period from and after such Interest
Payment Date shall accrue with respect to the next succeeding Interest Payment
Date.
Section 3.12. CUSIP and CINS Numbers.
The 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 in trust by the
Paying Agent need not be segregated except as required by law and in no event
shall the Paying Agent be liable for any interest on any money received by it
hereunder. The 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
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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.
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 or 10.15 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
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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 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
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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
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
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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 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(k)
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
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in the 144A Global Note, upon receipt by the Registrar of written
instructions given in accordance with the Depository's and the Registrar's
procedures, the Registrar shall register the transfer and reflect on its
book and records the date and an increase in the principal amount of the
144A Global Note in an amount equal to the principal amount of Physical
Notes to be transferred, and the Trustee shall cancel the Physical Note so
transferred; and
(iii) if the proposed transferor is an Agent Member seeking to
transfer an interest in 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.
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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 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
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precedent relating to the satisfaction and discharge of this Indenture set
forth herein have been complied with.
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
Issuer's obligations under Sections 3.02, 3.03, 3.05, 3.06, 3.07, 3.13, 4.04,
4.05, 4.06, 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. 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
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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 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
Issuer's obligations under Sections 3.02, 3.03, 3.05, 3.06, 3.07, 3.13, 3.16,
3.17, 4.04, 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 Issuer's obligations
under 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 of
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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 or Section 10.15; 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
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such acceleration and/or (ii) the failure to make a principal payment at the
final (but not any 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; or
(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.
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 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
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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 or 10.15) 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 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.
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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.
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
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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
(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.
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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 Stated Maturities expressed in
such Note (or, in the case of redemption, on the respective Redemption Date) and
to institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
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Section 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Note and such proceeding has
been discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case the 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 in good faith as unduly prejudicial to the rights
of any Holder of Notes not joining in the giving of such direction; and
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(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.
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,
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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.
(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
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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 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.
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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.
The Trustee shall be subject to and comply with the provisions of
Section 310(b) of the Trust Indenture Act.
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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:
(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
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(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 in the Note Register. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
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Section 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the 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, 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
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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;
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).
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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
(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
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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, 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) 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
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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 or the Notes 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 or the Notes; provided, however, that no such amendment, waiver,
modification or supplement may, without the written consent of the Holder of
each Outstanding Note affected thereby:
(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, or
(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.
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.
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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 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 or the Notes shall be modified in accordance therewith, and such
supplemental indenture, instrument, amendment, waiver or supplement shall form a
part of this Indenture or the Notes, as the case may be, for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture, 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,
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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.
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.
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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 Chase Manhattan Bank,
55 Water Street, Room 234, North Building, New York, New York 10041, Attention:
Carlos Estevez, Money Market Operations, 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 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.
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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 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.
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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.
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.
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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.
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
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(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.
(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
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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 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 1998 Senior Notes Issue 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 1998 Senior Notes Issue 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
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(2) the aggregate Net Cash Proceeds received by the Issuer after
the 1998 Senior Notes Issue Date 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 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 or a Restricted Subsidiary that has been
exchanged for or converted into Capital Stock of the Issuer (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 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 as provided in
the definition of "Investments"), not to exceed, in each case, the amount
of Investments previously made by the Issuer 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
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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 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;
(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) $85 million plus (y) the amount of Net Cash Proceeds received by
the Issuer after the 1998 Senior Notes Issue Date 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, 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;
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(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 Issue Date does not exceed $2 million in any calendar year, or $5
million in the aggregate;
(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 $25
million.
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(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).
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;
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(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; or
(v) 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 Sale, 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 1998 Senior Notes Issue 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, 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
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Proceeds, the Issuer or such 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 the Issuer or a Restricted Subsidiary is
required under the terms of Indebtedness of the Issuer or such Restricted
Subsidiary which is pari passu with, or (in the case of any secured
Indebtedness) senior with respect to such collateral to, the Notes with any
proceeds which constitute Excess Proceeds under this Indenture, the Issuer shall
make a pro rata offer to the holders of all other pari passu Indebtedness
(including the Notes) with such proceeds. If the aggregate principal amount of
Notes and other pari passu Indebtedness surrendered by holders thereof exceeds
the amount of such Excess Proceeds, the Trustee shall select the Notes and other
pari passu Indebtedness to be purchased on a pro rata basis. 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. Intentionally Omitted.
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,
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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, or
(g) issuances or sales of Redeemable Stock (other than Redeemable
Stock convertible into or exchangeable for Common Stock of any Restricted
Subsidiary) that do not otherwise violate the provisions of this Indenture.
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
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(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) in the 1998 Senior Notes Indenture, this Indenture or any
other agreements in effect on the 1998 Senior Notes Issue 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 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
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(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.
(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.
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Section 10.21. Limitation on Restrictive Covenants.
Notwithstanding any other provisions of this Indenture, the
restrictive covenants set forth herein, including, without limitation, those set
forth in Sections 10.13, 10.14, 10.15, 10.16, 10.18, 10.19 and 10.20 shall be
and shall be deemed limited to the extent necessary so that the creation,
existence and effectiveness of such restrictive covenants shall not result in a
breach of Section 10.19 of the 1998 Senior Notes Indenture.
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
Issue 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 (if
permitted by Commission practice and applicable law and regulations) 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 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 Issue Date,
the Issuer shall, at its cost, deliver or caused to be delivered 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:
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(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.
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
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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.
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.
-99-
<PAGE> 108
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 May 1, 2004 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 May 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- -----
<S> <C> <C>
2004................... 105.750%
2005.................. 103.834%
2006.................. 101.917%
2007 and thereafter... 100.000%
</TABLE>
In addition, at any time or from time to time on or prior to May 1, 2002, the
Issuer may, other than in any circumstances resulting in a Change of Control,
redeem, at its option, up to 35% of the aggregate principal amount of the Notes
with the proceeds of one or more additional Public Equity Offerings or Strategic
Equity Investments resulting in aggregate gross proceeds to the Issuer of at
least $25 million, at any time or from time to time in part, at a Redemption
Price (expressed as a percentage of principal amount) of 111.50%, plus accrued
and unpaid interest to the Redemption Date (subject to the right of Holders of
record on the relevant record date that is prior to the Redemption Date to
receive interest due on an Interest Payment Date); provided that at least 65% of
the aggregate principal amount of Notes originally issued remain outstanding
after each such redemption. Any such redemption shall be made within 60 days
after the consummation of such Public Equity Offering or Strategic Equity
Investment upon not less than 30 nor more than 60 days' prior notice.
-100-
<PAGE> 109
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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<PAGE> 110
(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.
-102-
<PAGE> 111
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.
-103-
<PAGE> 112
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: /s/ JERE W. THOMPSON JR.
-----------------------------------
Name:
Title:
TRUSTEE:
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
By: /s/ STEVE SCHAAF
-----------------------------------
Name:
Title:
<PAGE> 113
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 IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO
YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE
SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST
DAY ON WHICH CAPROCK COMMUNICATIONS CORP. (THE "COMPANY") OR ANY AFFILIATE OF
THE COMPANY WAS THE OWNER OF THIS SECURITY OR ANY PREDECESSOR OF THIS SECURITY
AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE
"RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (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) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 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 COMPANY AND THE TRUSTEE SHALL HAVE
THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (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
<PAGE> 114
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.
<PAGE> 115
CAPROCK COMMUNICATIONS CORP.
11 1/2% SENIOR NOTES DUE 2009, SERIES A
CUSIP No.
No. 140667 AC 0
CAPROCK COMMUNICATIONS CORP., a corporation incorporated under the
laws of the State of Texas ("Issuer", which term includes any successor Person
under the Indenture hereinafter referred to) for value received, hereby promises
to pay to _______________ or registered assigns, the principal sum of
_______________ Dollars on May 1, 2009, at the office or agency of the Issuer
referred to below, and to pay interest thereon on May 1 and November 1 (each an
"Interest Payment Date"), of each year, commencing on November 1, 1999, accruing
from May 18, 1999 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, at the rate of 11 1/2% 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 April 15 and
October 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the then applicable interest rate borne by the Notes, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date
and may be paid to the Person in whose name this Note (or one or more
predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in 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; 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.
-105-
<PAGE> 116
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> 117
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
Dated: CAPROCK COMMUNICATIONS CORP.
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
<PAGE> 118
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11 1/2% Senior Notes due 2009, Series A, referred
to in the within-mentioned Indenture.
Chase Manhattan Trust Company,
National Association, as Trustee
By:
--------------------------------
Authorized Signatory
<PAGE> 119
REVERSE OF NOTE
1. Indenture. This Note is one of a duly authorized issue of Notes of
the Issuer designated as the 11 1/2% Senior Notes due 2009, 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
$210,000,000, which may be issued under an indenture (herein called the
"Indenture") dated as of May 18, 1999, by and among the Issuer and Chase
Manhattan Trust Company, 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. Section 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 Issuer and the Initial Purchasers, the Issuer 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 11 1/2% Senior Notes due 2009, 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 consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
<PAGE> 120
3. Redemption. The Notes will be redeemable, at the option of the
Issuer, in whole or in part, on or after May 1, 2004 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 May 1 of each of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2004................................................. 105.750%
2005................................................. 103.834%
2006................................................. 101.917%
2007 and thereafter.................................. 100.000%
</TABLE>
In addition, at any time or from time to time on or prior to May 1,
2002, the Issuer may, other than in any circumstances resulting in a Change of
Control, redeem, at its option, up to 35% of the aggregate principal amount of
the Notes with the proceeds of one or more additional Public Equity Offerings or
Strategic Equity Investments resulting in aggregate gross proceeds to the Issuer
of at least $25 million, at any time or from time to time in part, at a
Redemption Price (expressed as a percentage of principal amount) of 111.50%,
plus accrued and unpaid interest to the Redemption Date (subject to the right of
Holders of record on the relevant record date that is prior to the Redemption
Date to receive interest due on an Interest Payment Date); provided that at
least 65% of the aggregate principal amount of Notes originally issued remain
outstanding after each such redemption. Any such redemption shall be made within
60 days after the consummation of such Public Equity Offering or Strategic
Equity Investment upon not less than 30 nor more than 60 days' prior notice.
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. 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.
-2-
<PAGE> 121
6. 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.
7. 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.
8. 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.
9. 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
-3-
<PAGE> 122
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.
10. 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., 15601 Dallas Parkway, Suite 700, Dallas, Texas 75248.
-4-
<PAGE> 123
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 Indenture in
<PAGE> 124
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> 125
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> 126
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
<PAGE> 127
EXHIBIT A-2
CAPROCK COMMUNICATIONS CORP.
11 1/2% SENIOR NOTES DUE 2009, SERIES B
CUSIP No. 140667 AD 8
No. $
CAPROCK COMMUNICATIONS CORP., a corporation incorporated under the
laws of the State of Texas (the "Issuer," which term includes any successor
person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to _______________ or registered assigns, the principal sum of
_______________ Dollars on May 1, 2009, at the office or agency of the Issuer
referred to below, and to pay interest thereon on May 1 and November 1 (each an
"Interest Payment Date"), of each year, commencing on November 1, 1999, accruing
from May 18, 1999 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, at the rate of 11 1/2% 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 April 15 and
October 15 (each a "Regular Record Date"), whether or not a Business Day, as the
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the then applicable interest rate borne by the Notes, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may be paid to the Person in whose name this Note (or one or more
predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice of which shall be given to Holders of Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in 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; provided,
however, that
<PAGE> 128
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]
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<PAGE> 129
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.
CAPROCK COMMUNICATIONS CORP.
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
-3-
<PAGE> 130
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11 1/2% Senior Notes due 2009, Series B, referred
to in the within-mentioned Indenture.
Chase Manhattan Trust Company,
National Association, as Trustee
By:
------------------------------
Authorized Signatory
<PAGE> 131
[REVERSE OF NOTE]
1. Indenture. This Note is one of a duly authorized issue of Notes of
the Issuer designated as its 11 1/2% Senior Notes due 2009, 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
$210,000,000, which may be issued under an indenture (herein called the
"Indenture") dated as of May 18, 1999, by and between the Issuer and Chase
Manhattan Trust Company, 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. Section 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 May 1, 2004 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 May 1 of each of the years indicated
below:
<PAGE> 132
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------
<S> <C>
2004......................................... 105.750%
2005......................................... 103.834%
2006......................................... 101.917%
2007 and thereafter.......................... 100.000%
</TABLE>
In addition, at any time or from time to time on or prior to May 1,
2002, the Issuer may, other than in any circumstances resulting in a Change of
Control, redeem, at its option, up to 35% of the aggregate principal amount of
the Notes with the proceeds of one or more additional Public Equity Offerings or
Strategic Equity Investments resulting in aggregate gross proceeds to the Issuer
of at least $25 million, at any time or from time to time in part, at a
Redemption Price (expressed as a percentage of principal amount) of 111.50%,
plus accrued and unpaid interest to the Redemption Date (subject to the right of
Holders of record on the relevant record date that is prior to the Redemption
Date to receive interest due on an Interest Payment Date); provided that at
least 65% of the aggregate principal amount of Notes originally issued remain
outstanding after each such redemption. Any such redemption shall be made within
60 days after the consummation of such Public Equity Offering or Strategic
Equity Investment upon not less than 30 nor more than 60 days' prior notice.
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
-2-
<PAGE> 133
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 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.
-3-
<PAGE> 134
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., 15601 Dallas Parkway, Suite 700, Dallas, Texas 75248.
-4-
<PAGE> 135
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> 136
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> 137
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> 138
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 11 1/2% Senior Notes due 2009 (the "Notes") of CapRock
Communications Corp., CapRock Telecommunications Corp. and CapRock Fiber
Network, Ltd. (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 is either:
(a) a QIB and is aware that any sale of Notes to it will be
made in reliance on Rule 144A and 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> 139
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 any predecessor thereto) or (y) such later date, if any, as
may be required by applicable law (the "Resale Restriction Termination Date")
only (a) to the Issuer or any of its subsidiaries, (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. 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
C-2
<PAGE> 140
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 IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (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 OR ANY OF ITS
SUBSIDIARIES, (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) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 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" AND THE "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
It acknowledges that the foregoing restrictions apply to
holders of beneficial interest in the Notes, as well as to holders of
the Notes.
C-3
<PAGE> 141
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 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.
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:
C-4
<PAGE> 142
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S
Chase Manhattan Trust Company,
National Association
One Liberty Plaza
1650 Market Street
Suite 5210
Philadelphia, Pennsylvania 19103
Attention: Corporate Trust Department
Re: CapRock Communications Corp. ("Issuer") 11 1/2% Senior Notes
due 2009 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed sale of $_______________ aggregate
principal amount 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(a)(2) 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> 143
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities;
(6) if the circumstances set forth in Rule 904(b) 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(b) 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(b) 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-2
<PAGE> 1
$210,000,000 Aggregate Principal Amount of 11 1/2% Senior Notes due 2009
CAPROCK COMMUNICATIONS CORP.
PURCHASE AGREEMENT
May 13, 1999
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
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 (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Chase Securities Inc. ("Chase"), Bear,
Stearns & Co. Inc. ("Bear Stearns"), Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and Goldman, Sachs & Co. ("Goldman") (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 Company 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 $210,000,000 aggregate principal amount of the
Company's 11 1/2% Senior Notes due 2009 (the "Securities"). The Securities are
to be issued pursuant to an indenture dated as of May 18, 1999 (the "Indenture")
between the Company and Chase Manhattan Trust Company, National Association, as
trustee (the "Trustee"). Securities issued in book-entry form will be issued to
Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant to a
letter agreement, to be dated as of the Closing Time (as defined in Section
2(b)) (the "DTC Agreement"), among the Company, the Trustee and DTC.
<PAGE> 2
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agree that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers ("Subsequent
Purchasers") at any time 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 Company has prepared and delivered to each Initial Purchaser copies
of a preliminary offering memorandum dated May 7, 1999 (the "Preliminary
Offering Memorandum") and has prepared and delivered to each Initial Purchaser,
on the date hereof or the next succeeding day, copies of a final offering
memorandum dated May 13, 1999 (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.
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 Agreement, the Company 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 its best efforts to cause such shelf
registration statement to be declared effective.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Initial Purchaser as of the date hereof and as
of the
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Closing Time referred to in Section 2(b) hereof, and agrees with each Initial
Purchaser as follows:
(i) Similar Offerings. The Company has 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 Company 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 Company or any of its subsidiaries is a
party have been duly authorized, executed and delivered by it or its
subsidiaries, constitute valid and binding agreements of the Company or such
subsidiary and are enforceable against the Company 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).
(C) Certain Transactions. No relationship, direct or
indirect, exists between or among the Company or any of its subsidiaries, on the
one hand, and the directors, officers, securityholders, customers or suppliers
of the Company or any of its 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 Company believes to be reliable and accurate in all material respects or
represents the Company's good faith estimates that are made on the basis of data
derived from such sources.
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(iii) Independent Accountants. The accountants who
certified the financial statements and supporting schedules included in the
Offering Memorandum are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of Regulation S-X under the
1933 Act.
(iv) Financial Statements. The financial statements
included in the Offering Memorandum present fairly the financial position of the
Company and its consolidated subsidiaries at the dates indicated and the
statements of operations, shareholders' equity and cash flows of the Company and
its 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. 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.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Offering Memorandum,
except as otherwise stated therein, (a) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its 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 Company or any of its subsidiaries, other than those in the ordinary course
of business, which are material with respect to the Company and its subsidiaries
considered as one enterprise, and (c) there has been no dividend or distribution
of any kind declared, paid or made by the Company or any of its subsidiaries on
any class of its capital stock or other equity interests.
(vi) Good Standing of the Company. The Company has
been duly organized and is validly existing as a corporation in good standing
under the laws of the State of Texas and has the corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under this Agreement, and the Company is duly qualified as a foreign
corporation 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.
(vii) Good Standing of Subsidiaries. Each of CapRock
Telecommunications Corp., IWL Communications, Incorporated and CapRock Fiber
Network, Ltd. (each a "Subsidiary" and, collectively, the "Subsidiaries") 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,
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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.
The Company does not have any "significant subsidiary" (as defined in Rule
1.02(w) of Regulation S-X of the Commission) other than the Subsidiaries. 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 and is
owned by the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity. None of
the outstanding shares of capital stock or partnership interests of any
Subsidiary was issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary.
(viii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Offering
Memorandum in the column entitled "Actual" under the caption "Capitalization,"
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 May 1999 equity offering described in the Offering Memorandum.
(ix) Authorization of Agreement. This Agreement has
been duly authorized, executed and delivered by the Company.
(x) Authorization of the Indenture. The Indenture has
been duly authorized by the Company and, at the Closing Time, will have been
duly executed and delivered by the Company and will constitute a valid and
binding agreement of the Company, enforceable against it 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).
(xi) 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 the Company 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 the Company,
enforceable against it 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
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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 the Company,
and, when executed and delivered by the Company and when authenticated in the
manner provided for in the Indenture, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or 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.
(xii) Authorization of the Registration Rights
Agreement. The Registration Rights Agreement has been duly authorized by the
Company, and, when executed and delivered by the Company and the other parties
thereto in accordance with the terms thereof, will constitute a valid and
binding agreement of the Company, enforceable against the Company 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.
(xiii) 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.
(xiv) Absence of Defaults and Conflicts. Neither the
Company nor any of its 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 the Company or any of its
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 Registration Rights Agreement, the Indenture and the Securities and any
other agreement or instrument entered into or issued or to be entered into or
issued by the Company in connection with
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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
Company with its obligations hereunder or any other Transaction Document have
been duly authorized by all necessary corporate 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 upon any property or assets of the
Company or any of its 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 the
Company or any of its 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 the
Company or any of its 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 the Company or any of its
subsidiaries.
(xv) Absence of Labor Disputes. No labor dispute with
the employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of its or any of its
subsidiaries' principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xvi) 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 the Company,
threatened, against or affecting the Company or any of its subsidiaries or any
licenses, permits or authorizations held by the Company or any of its
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 the Company or any of its 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 the Company or any of its subsidiaries is a
party or of which any of its properties or assets is the subject which are not
described in the Offering Memorandum, including ordinary routine litigation
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incidental to the business, could not reasonably be expected to result in a
Material Adverse Effect.
(xvii) Possession of Intellectual Property. Except as
is set forth in the Offering Memorandum, the Company and its 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 neither the Company nor any of its
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 Company or any of
its 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.
(xviii) 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 Federal Communications Commission (the
"FCC") or any state agency or governmental authority having jurisdiction over
interstate or intrastate communication) is necessary or required for the
performance by the Company of its obligations hereunder, in connection with the
offering, issuance or sale of the Securities hereunder, or the consummation of
the transactions 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).
(xix) Possession of Licenses and Permits. The Company
and its 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 Company and its subsidiaries is 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 Company's knowledge,
such Governmental Licenses contain no materially burdensome conditions or
restrictions not customarily imposed by the FCC or state
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agency having jurisdiction over interstate or intrastate telecommunications on
telecommunications operators operating under the same type of licenses as the
Company and its 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. Neither the Company nor any of its
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 Company or any of its
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
Company or any of its subsidiaries have been duly and validly issued to the
Company or its 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.
(xx) Compliance with Laws and Regulations. The
Company and its subsidiaries have operated in compliance with, and are not in
violation of (except for such noncompliance or such violations which do not or
will not result in a Material Adverse Effect), all statutes (including, but not
limited to, the Communications Act of 1934, as amended, including the
Telecommunications Act of 1996) laws, ordinances, 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 Company or its 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 Company or its subsidiaries or over their
respective assets or properties.
(xxi) Required Filings. The Company and its
subsidiaries have filed with all administrative bodies, administrative agencies,
governmental bodies, arbitrators or other authorities having jurisdiction over
the Company 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 the Company's or any of its subsidiaries'
ability to provide its services as described in the Offering Memorandum. To the
Company's knowledge, such filings or submissions were in compliance with
applicable laws or
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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 the Company's or any of
its subsidiaries' ability to provide their services as described in the Offering
Memorandum. To the Company'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.
(xxii) 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 the Company or any of its subsidiaries or any of their
properties or assets, as applicable, which, either singly or in the aggregate,
would have a Material Adverse Effect.
(xxiii) Title to Property. The Company and its
subsidiaries have good and indefeasible title to all real property owned by the
Company and its 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 Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries holds
properties described in the Offering Memorandum, are in full force and effect,
and neither the Company nor any of its subsidiaries has any notice of any
material claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any of its subsidiaries under any of the title leases
or subleases mentioned above, or affecting or questioning the rights of the
Company or any of its subsidiaries to the continued possession of the leased or
subleased premises under any such lease or sublease.
(xxiv) Tax Returns. The Company and its 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)(iv) above in respect of all federal, state, local
and foreign taxes for all periods as to which the tax liability of the Company
or any of its subsidiaries has not been finally determined or remains open to
examination by applicable taxing authorities.
(xxv) Environmental Laws. Except as described in the
Offering Memorandum and except such matters as would not, singly or in the
aggregate, result in a
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Material Adverse Effect, (a) neither the Company nor any of its 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 Company's best knowledge after due inquiry,
the Company and its subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance with
their requirements, (c) to the Company'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 Company or any of its subsidiaries and (d) to the Company's best
knowledge after due inquiry, there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or Environmental Laws.
(xxvi) 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 Company or any of its
subsidiaries under the 1933 Act.
(xxvii) PORTAL. The Company has 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.
(xxviii) Investment Company Act. The Company is not,
and upon the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xxix) 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
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Exchange Act of 1934, as amended (the "1934 Act"), or quoted in a U.S. automated
interdealer quotation system.
(xxx) Market Activities. The Company has not,
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 any compensation for
soliciting another to purchase any other securities of the Company other than
underwriting commissions paid to the underwriters named in the Company's
prospectus dated May 6, 1999 relating to its May 1999 equity offering described
in the Offering Memorandum.
(xxxi) ERISA. To the Company's best knowledge after
due inquiry, the Company and each of its 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 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 Company or any of its subsidiaries would have
any liability. The Company and each of its 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 the Company and each of its 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.
(xxxii) Insurance. The Company and its subsidiaries
carry, or are covered by, insurance in such amounts and covering such risks as
is adequate for the conduct of its businesses and the value of its properties
and is customary for companies engaged in similar businesses in similar
industries.
(xxxiii) No General Solicitation. None of the
Company, its 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 Company 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.
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(xxxiv) 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").
(xxxv) 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
the Company or any of its subsidiaries delivered to the Initial Purchasers or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Company 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
Company agrees to sell to each Initial Purchaser, severally and not jointly, and
each Initial Purchaser, severally and not jointly, agrees to purchase from the
Company, 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 Company,
at 10:00 A.M. (New York time) on the third 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 Company (such time and date of payment
and delivery being herein called the "Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds, against delivery to the Initial Purchasers for the respective
accounts of the Initial Purchasers of certificates for the Securities to be
purchased by them. 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
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<PAGE> 14
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.
(c) Qualified Institutional Buyer. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Company 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 Company. The Company covenants with each
Initial Purchaser as follows:
(a) Offering Memorandum. The Company, 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 Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction and (y) prior to the 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 Company
(which notice will be provided to the Company upon its 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 Company
and its 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 Company, its counsel,
the Initial Purchasers or counsel for the Initial Purchasers, to amend or
supplement the Final Offering Memorandum in order that the Final Offering
Memorandum not include any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements therein not misleading
in the light
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<PAGE> 15
of the circumstances then existing, the Company 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 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 Company 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 Company will
use its 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
Company shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which 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 Company 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 its
credit ratings of the Securities.
(f) DTC. The Company will cooperate with the Initial Purchasers and use
its best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of DTC.
(g) PORTAL. The Company will use its 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.
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<PAGE> 16
(h) Use of Proceeds. The Company 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".
(i) Restriction on Sale of Securities. During a period of 90 days from
the date of the Offering Memorandum, the Company will not, without the prior
written consent of 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 Company or securities of the Company 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 Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits) and 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 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 Company's counsel,
accountants and other advisors; (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(d) hereof,
including filing fees and the reasonable fees and disbursements of counsel for
the Initial Purchasers in connection therewith and in connection with the
preparation of the Blue Sky Survey, 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 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 Company'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 Company shall be 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.
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<PAGE> 17
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 Company contained in
Section 1 hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Opinions of Counsel for Company. 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 Company, in form and substance
satisfactory to counsel for the Initial Purchasers: (i) Munsch Hardt Kopf &
Harr, P.C., counsel for the Company, 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) Swidler, Berlin, Shereff & Friedman, LLP, special New
York counsel for the Company, to the effect set forth in Exhibit A-2 hereto and
to such further effect as counsel to the Initial Purchasers may reasonably
request; and (iii) Swidler, Berlin, Shereff & Friedman, LLP, special regulatory
counsel for the Company, to the effect set forth in Exhibit A-3 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
(iii), 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
Company and its 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 Company and its 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 chief executive
officer, President or a Vice President of the Company and of the chief financial
or chief accounting officer of the Company, dated as of the Closing Time, to the
effect that (i), there has been no such material adverse change, (ii) the
representations and warranties in Section 1 hereof are true and correct with the
same force and effect as though expressly
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<PAGE> 18
made at and as of the Closing Time, and (iii) the Company 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 KPMG LLP a letter,
dated such date, in form and substance satisfactory to the Initial Purchasers
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to 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 KPMG LLP a letter, dated as of the Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (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, the Company shall have
executed the Indenture and the Registration Rights Agreement and the Initial
Purchasers shall have received an original copy thereof, duly executed by the
Company 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 Company 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 Company
at any time at or 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.
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SECTION 6. Subsequent Offers and Resales of the Securities.
(a) Offer and Sale Procedures. Each of the Initial Purchasers and the
Company 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 Qualified Institutional
Buyers or Non-U.S. Persons. 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. 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 Affiliates
to take reasonable steps to inform, Subsequent Purchasers 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 the Company (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 (it being agreed that compliance with clause (vii)
below satisfies the foregoing requirement).
(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
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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 Company 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 Company for any losses, damages or liabilities suffered or
incurred by the Company, including any losses, damages or liabilities under the
1933 Act, arising from or relating to any 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 Company. The Company covenants with each Initial
Purchaser as follows:
(i) Due Diligence. In connection with the original
distribution of the Securities, the Company agrees that, prior to any offer or
resale of the Securities by the Initial Purchasers, the Initial Purchasers and
counsel for the Initial Purchasers shall have the right to make reasonable
inquiries into the business of the Company and its subsidiaries. The Company
also agrees to provide answers to each prospective Subsequent Purchaser of
Securities who so requests concerning the Company and its 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 Company agrees that it has not
previously and it will not and will cause its Affiliates not to make any offer
or sale of securities of the Company of any class if, as a result of the
doctrine of "integration" referred to in Rule 502 under the 1933 Act, such offer
or sale would render invalid (for the purpose of (a) the sale of the Securities
by the Company 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 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.
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(iii) Rule 144A Information. The Company agrees that,
in order to render the Securities eligible for resale pursuant to Rule 144A
under the 1933 Act, while any of the Securities remain outstanding, 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 Company furnishes information to the Commission pursuant to Section 13 or
15(d) of the 1934 Act (such information, whether made available to holders or
prospective purchasers or furnished to the Commission, is herein referred to as
"Additional Information").
(iv) Restriction on Repurchases. Until the expiration
of two years after the original issuance of the Securities, the Company will
not, and will cause its Affiliates not to, purchase or agree to purchase or
otherwise acquire any Securities which are "restricted securities" (as such term
is defined under Rule 144(a)(3) under the 1933 Act), whether as beneficial owner
or otherwise (except as agent acting as a securities broker on behalf of and for
the account of customers in the ordinary course of business in unsolicited
broker's transactions) unless, immediately upon any such purchase, the Company
or any Affiliate shall submit such Securities to the Trustee for cancellation.
(c) Resale Pursuant to 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(a) above, it has offered and sold Securities and will
offer and sell Securities as part of their distribution at any time only in
accordance with Rule 144A and Regulation S 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 with respect to any Securities sold in reliance on
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 Company.
SECTION 7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to
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:
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(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 Company; 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;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by 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 Company with Section 3(a) hereof.
(b) Indemnification of the Company, Directors and Officers. Each
Initial Purchaser severally agrees to indemnify and hold harmless the Company,
its directors, its officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section,
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as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Offering Memorandum in reliance upon
and in conformity with written information furnished to the Company by 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 Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same, general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 7(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party for the reasonable fees and expenses of counsel in accordance
with such request prior to the date of such settlement.
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SECTION 8. Contribution. If the indemnification provided for in Section
7 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Initial
Purchasers, bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 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
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<PAGE> 25
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 the Company and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company.
The Initial Purchasers' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the principal amount of Securities set
forth opposite its 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 certificates of officers of the Company 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 the Company, 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 Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its 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 the Company 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
25
<PAGE> 26
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:
(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 Company 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-
26
<PAGE> 27
1201, attention of Michael Marchetti; and notices to the Company shall be
directed to Jere W. Thompson, Jr., CapRock Communications Corp., 15601 Dallas
Parkway, Suite 700, Dallas, Texas 75248, with a copy to A. Michael Hainsfurther,
Munsch Hardt Kopf & Harr, 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 Company and its 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 its successors and the controlling persons and
officers and directors referred to in Sections 7 and 8 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Initial Purchasers, the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from 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 together shall constitute one and the same agreement.
27
<PAGE> 28
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
CAPROCK COMMUNICATIONS CORP.
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CHASE SECURITIES INC.
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ MICHAEL J. MARCHETTI
--------------------------------------
Name:
Title:
For itself and as Representative of the other Initial Purchasers named in
Schedule A hereto.
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Principal
Amount of
Name of Initial Purchaser Securities
------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................ $105,000,000
Chase Securities Inc................................................................ $ 42,000,000
Bear, Stearns & Co. Inc............................................................. $ 21,000,000
Donaldson, Lufkin & Jenrette Securities Corporation................................. $ 21,000,000
Goldman, Sachs & Co................................................................. $ 21,000,000
------------
Total............................................................................... $210,000,000
============
</TABLE>
<PAGE> 30
SCHEDULE B
CAPROCK COMMUNICATIONS CORP.
$210,000,000 of 11 1/2% Senior Notes due 2009
1. The initial public offering price of the Securities shall be 98.541%
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 96.041% of the principal amount thereof.
3. Interest on the Securities shall accrue at an annual rate of 11 1/2%
and will be payable on May 1 and November 1 of each year, commencing on November
1, 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 May 1 of the years
appearing below:
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2004 105.750%
2005 103.834%
2006 101.917%
2007 and thereafter 100.000%
</TABLE>
5. Equity Clawback. On or prior to May 1, 2002, the Company may redeem
up to 35% of the aggregate principal amount of Notes originally issued at a
redemption price of 111.50% of the principal amount thereof, together with
accrued and unpaid interest to the date of redemption.
Sch B-1
<PAGE> 31
Exhibit A-1
FORM OF OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(i)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Texas.
(ii) The Company has the corporate 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 Indenture, the Securities and the Registration Rights Agreement.
(iii) The Company is duly qualified as a foreign corporation 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) Each Subsidiary has been duly incorporated or formed and is
validly existing as a corporation or limited partnership in good standing under
the laws of the jurisdiction of its incorporation or formation, 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 partnership 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 its
business, except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock or
equity interests of each Subsidiary has been duly authorized and validly issued,
is fully paid and non-assessable and is owned of record by the Company, directly
or through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance (other than those imposed by the 1933 Act), or claim;
none of the outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of such
Subsidiary arising under the articles of incorporation or bylaws of the Company,
Texas law, or to such counsel's Actual Knowledge, otherwise.
(v) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vi) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company.
Exh A-1 - 1
<PAGE> 32
(vii) The Indenture has been duly authorized, executed and delivered by
the Company.
(viii) The Securities are in the form contemplated by the Indenture and
have been duly authorized by the Company.
(ix) The Securities and the Indenture conform in all material respects
to the descriptions thereof contained in the Offering Memorandum.
(x) To our Actual Knowledge, other than as set forth on Schedule 1,
there are no pending or threatened actions, suits, proceedings, inquiries,
complaints or investigations, to which the Company or any of its subsidiaries is
a party, or to which the assets or properties of the Company or any of its
subsidiaries is subject, before or brought by any court or governmental agency
or body 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.
(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 bylaws of the Company) 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 the Company or its subsidiaries is a party are accurate
in all material respects. To our Actual 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 our Actual Knowledge, neither the Company nor any Subsidiary
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, and other than as may be required by the Federal Communications
Commission ("FCC") and any state public utility commission or similar authority
("State PUC") or otherwise addressed in the opinion of counsel delivered
pursuant to Section 5(a)(iii) 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
Exh A-1 - 2
<PAGE> 33
Transaction Document by the Company 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 Company 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.
(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 Company with its 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 the Company or any of its subsidiaries thereof pursuant to
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or any other agreement or instrument, of which we have Actual
Knowledge, to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any of its 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 the Company or any of its Subsidiaries, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, of which we have Actual Knowledge
of any government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or any of its
properties, assets or operations (other than those laws, statutes, rules,
regulations, judgments, orders, writs or decrees promulgated by or administered
by the FCC or the State PUCs or otherwise addressed in the opinion of counsel
delivered pursuant to Section 5(a)(iii) of the Purchase Agreement, as to which
no opinion is hereby expressed).
(xvii) The Company is not 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 Company, the Initial Purchasers, their counsel and
the independent
Exh A-1 - 3
<PAGE> 34
certified public accountants of the Company, at which such conferences the
contents of the Offering Memorandum and related matters were discussed, and
although we have not verified and are not passing upon 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 would have caused 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 or omitted therefrom and
other financial information included therein and other than the information
contained in the Offering Memorandum under the captions "Risk Factors -- Our
ability to provide local telephone service is dependent on incumbent local
exchange carriers," "Risk Factors -- The regulatory environment for
telecommunications businesses creates risks," "Risk Factors -- Our ability to
provide long distance service is dependent on other long distance carriers,"
"Risk Factors -- Communications laws and state corporate laws may make it harder
for someone to acquire control of CapRock" (except for the discussion of Article
13.03 of the Texas Business Corporation Act), "Risk Factors - We need
franchises, rights of way and permits to build our fiber network," "Risk Factors
- - We may incur liability as an Internet service provider," 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.
The opinions expressed herein are subject to the following additional
assumptions, qualifications, limitations and exceptions:
The opinions expressed herein are limited to the substantive laws of
the State of Texas and the federal laws of the United States, and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction.
We have assumed, with your permission and without any independent
investigation, inquiry or verification, (i) that except with respect to the
Company, each other party has all requisite corporate power to execute and
deliver and perform their obligations under the Transaction Documents and to
execute and deliver the Transaction Documents; (ii) the execution, delivery and
performance of the Transaction Documents has been duly authorized by all
requisite corporate action on the part of each party other than the Company;
(iii) the due execution and delivery of the Transaction Documents by each party
other than the Company or on behalf of each party other than the Company; (iv)
that the Transaction Documents constitute the legal, valid and binding
obligation of each party other than the Company, enforceable against each party
other than the Company in accordance with its respective terms; (v) that the
representations and warranties as to factual matters made by the Company in the
Transaction Documents are true, accurate and complete in all respects at the
date of this opinion; (vi) that as to factual matters, the statements contained
in the certificates of officers and representatives of the Company and the
Subsidiaries and the certificates of public officials and the certificate of
Exh A-1 - 4
<PAGE> 35
the Trustee and the Transfer Agent, each of which is described on Exhibit A
attached hereto, are true, accurate and complete in all respects at the date of
this opinion and as of the date of such certificates; (vii) the authenticity of
all documents submitted to us as original documents; (viii) the conformity to
authentic, original documents of all documents submitted to us as copies
(whether telecopies, photocopies or conformed copies) and that each document
submitted to us is accurate and complete; (ix) the genuineness of all signatures
(and the competency of any signatories who are natural persons) and that where
any such signature purports to have been made in a corporate, governmental,
fiduciary, or other capacity, the person who affixed such signature to such
document had authority to do so; (x) that all information submitted to us was
accurate and complete (including the completeness of all documents furnished to
us, and that no amendments, modifications or revisions to such documents are in
existence); (xi) that the Company will use the proceeds of the offering as set
forth in the Offering Memorandum and the Company is engaged primarily in a
business other than that of investing, reinvesting, owning, holding or trading
in securities; (xiii) there are no agreements or understandings among the
parties, written or oral, and there is no usage of trade or course of prior
dealing among the parties that would, in either case, define, supplement or
qualify the terms of the Transaction Documents; and (xiv) that no mutual mistake
of fact or misunderstanding, fraud, duress, undue influence or dishonesty exists
with respect to any of the matters relevant to our opinions.
For purposes of the foregoing opinions, "Actual Knowledge" shall mean
the current actual awareness each of the attorneys of the firm of Munsch Hardt
Kopf & Harr, P.C. who has given substantive legal attention to the affairs of
the Company in connection with the Offering to be effected pursuant to the
Offering Memorandum, or certain other matters with respect to the Company for
which they have been specifically engaged.
In rendering the opinions set forth in Paragraphs (xiv) and (xvi), we
express no opinion as to the absence of a violation of any applicable federal or
state antifraud, antitrust or fraudulent conveyance statute, rule or regulation
or any state securities or blue sky statute, rule or regulation or any FCC or
State PUC statute, rule or regulation. Except as otherwise provided herein, this
opinion letter and the matters addressed herein are as of the date hereof, and
we undertake no, and hereby disclaim any, obligation to advise you of any change
in any matter set forth herein occurring after the date hereof or the date
referred to herein, as the case may be. This opinion letter is limited to the
matters stated herein and no opinion is implied or may be inferred beyond the
matters expressly stated.
This opinion letter is solely for your benefit and may be relied upon
solely for the transactions set forth in the Transaction Documents and no other
persons shall be entitled to rely upon the opinions herein expressed. This
opinion is being delivered to and accepted by you with the understanding that
such delivery and acceptance of this opinion are conditioned upon your agreement
that neither you nor your counsel have knowledge of any incorrect statement or
omission relating to the facts or opinions set forth herein. Without our prior
written consent, this opinion letter may not be quoted in whole or in
Exh A-1 - 5
<PAGE> 36
part or otherwise referred to in any document and may not be furnished to any
other person or entity.
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 Company 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 - 6
<PAGE> 37
Exhibit A-2
FORM OF OPINION OF COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(a)(ii)
(i) The Registration Rights Agreement constitutes a valid and binding
agreement of the Company, enforceable against it 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.
(ii) The Indenture (assuming the due authorization, execution and
delivery thereof by the Trustee) constitutes a valid and binding agreement of
the Company, enforceable against it 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.
(iii) The Securities, when executed by the Company 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 Company, enforceable against it 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 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.
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 Company 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 - 1
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CapRock Communications Corp.
(Formerly IWL Holdings Corp.)
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Dallas, Texas
July 8, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CapRock Communications Corp.
We consent to the use of our reports related to CapRock Telecommunications
Corp. and CapRock Fiber Network, Ltd. included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Burds, Reed and Mercer, P.C.
Dallas, Texas
July 8, 1999
<PAGE> 1
EXHIBIT 25.1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) X
--------
----------------------------------------
CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
29-2933369
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
UNION TRUST BUILDING, SUITE 325
501 GRANT STREET, PITTSBURGH, PA 15219
(Address of principal executive offices) (Zip Code)
WILLIAM H. MCDAVID
THE CHASE MANHATTAN BANK
GENERAL COUNSEL
270 PARK AVENUE
NEW YORK, NEW YORK 10017
TEL: (212) 270-2611
(Name, address and telephone number of agent for service)
--------------------------------------------
CAPROCK COMMUNICATIONS CORP.
(Exact name of obligor as specified in its charter)
TEXAS 75-2765572
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
15601 DALLAS PARKWAY, SUITE 700
DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip Code)
-------------------------------------------
11 1/2% SENIOR NOTES DUE 2009, SERIES B
(Title of the indenture securities)
- --------------------------------------------------------------------------------
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
Comptroller of the Currency, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
NO RESPONSES ARE INCLUDED FOR ITEMS 3-15 OF THIS FORM T-1 BECAUSE THE OBLIGOR IS
NOT IN DEFAULT AS PROVIDED UNDER ITEM 13.
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this Statement of Eligibility.
1. EXHIBIT T1A(a) A copy of the Articles of Association of the Trustee as now
in effect.
2. EXHIBIT T1A(b) A copy of the Certificate of Authority of the Trustee
(previously known as New Trust Company, National Association,) to commence
business. Also included in Exhibit TIA(b) are letters dated November 24,
1997 from the Comptroller of the Currency authorizing the exercise of
fiduciary powers by the Trustee and acknowledging the name change of the
Trustee.
3. EXHIBIT T1A(c) The Authorization of the Trustee to exercise corporate trust
powers is contained in Exhibit T1A(b).
4. EXHIBIT T1B A copy of the By-Laws of the Trustee as now in effect.
5. EXHIBIT T1C Not applicable
6. EXHIBIT T1D The Trustee's consent required by Section 321(b) of the Act.
7. EXHIBIT T1E A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its supervising or
examining authority.
8. EXHIBIT T1F Not applicable
9. EXHIBIT T1G Not applicable
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Chase Manhattan Trust Company, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of
Philadelphia and State of Pennsylvania, on the 8th day of July, 1999.
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
By /s/ S. R. Schaaf
----------------
S. R. Schaaf
Vice President
<PAGE> 4
EXHIBIT T1A(a)
[CHASE LOGO]
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
CHARTER NO. 23548
ARTICLES OF ASSOCIATION
For the purpose of organizing an Association to perform any lawful activities of
a national bank, the undersigned do enter into the following Articles of
Association:
FIRST. The title of this Association shall be Chase Manhattan Trust Company,
National Association (the "Association").
SECOND. The main office of the Association shall be in the City of Pittsburgh,
County of Allegheny, Commonwealth of Pennsylvania. The business of the
Association shall be limited to the fiduciary powers and the support of
activities incidental to the exercise of those powers. The Association will
obtain the prior written approval of the Office of the Comptroller of the
Currency before amending these Articles of Association to expand the scope of
its activities and services.
THIRD. The board of directors of this Association shall consist of not less than
five nor more than twenty-five persons, the exact number to be fixed and
determined from time to time by resolution of a majority of the full board of
directors or by resolution of a majority of the shareholders at any annual or
special meeting thereof. Each director, during the full term of his
directorship, shall own common or preferred stock of the Association or of a
holding company owning the Association, with an aggregate par, fair market or
equity value of not less than $1,000. Any vacancy in the board of directors may
be filled by action of the shareholders or a majority of the remaining
directors.
Terms of directors, including directors selected to fill vacancies, shall expire
at the next regular meeting of shareholders at which directors are elected,
unless the directors resign or are removed from office.
Despite the expiration of a director's term, the director shall continue to
serve until his or her successor is elected and qualifies or until there is a
decrease in the number of directors and his or her position is eliminated.
FOURTH. There shall be an annual meeting of the shareholders to elect directors
and transact whatever other business may be brought before the meeting. It shall
be held at the main office or any other convenient place the board of directors
may designate, on the day of each year specified therefore in the by-laws, or if
that day falls on a legal holiday in the state in which the Association is
located, on the next following banking day. If no election is held on the day
fixed or in event of a legal holiday, on the following banking day, an election
may be held on any subsequent day within 60 days of the day fixed, to be
designated by the board of directors, or, if the directors fail to fix the day,
by shareholders representing two-thirds of the shares issued and outstanding.
Advance notice of the meeting may be duly waived by the sole shareholder in
accordance with 12 C.F.R. 7.2001.
A director may resign at any time by delivering written notice to the board of
directors, its Chairperson, or to the Association, which resignation shall be
effective when the notice is delivered unless the notice specifies a later
effective date.
A director may be removed by shareholders at a meeting called to remove him or
her, when notice of the meeting stating that the purpose or one of the purposes
is to remove him or her is provided, if there is a failure to fulfill one of the
affirmative requirements for qualification, or for cause.
FIFTH. The authorized amount of capital stock of this Association shall be five
million dollars ($5,000,000), divided into fifty thousand (50,000) shares of
common stock of the par value of one hundred dollars ($100) each; but said
capital stock may be increased or decreased from time to time, according to the
provisions of the laws of the United States.
<PAGE> 5
No holder of shares of the capital stock of any class of the Association shall
have any preemptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued, or sold, nor
any right to subscription to any thereof other than such, if any, as the board
of directors, in its discretion may from time to time determine and at such
price as the board of directors may from time to time fix.
Unless otherwise specified in the Articles of Association or required by law,
(1) all matters requiring shareholder action, including amendments to the
Articles of Association, must be approved by shareholders owning a majority
voting interest in the outstanding voting stock, and (2) each shareholder shall
be entitled to one vote per share.
The Association, at any time and from time to time, may authorize and issue debt
obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The board of directors may appoint one of its members President of this
Association, and one of its members Chairperson of the board or two of its
members as Co-Chairpersons of the board, and shall have the power to appoint one
or more Vice Presidents, a Secretary who shall keep minutes of the directors'
and shareholders' meetings and be responsible for authenticating the records of
the Association, and such other officers and employees as may be required to
transact the business of this Association. A duly appointed officer may appoint
one or more officers or assistant officers if authorized by the board of
directors in accordance with the by-laws.
<PAGE> 6
The board of directors shall have the power to:
(1) Define the duties of the officers, employees, and agents of the
Association.
(2) Delegate the performance of its duties, but not the responsibility for
its duties, to the officers, employees, and agents of the Association.
(3) Fix the compensation and enter into employment contracts with its
officers and employees upon reasonable terms and conditions consistent
with applicable law.
(4) Dismiss officers and employees.
(5) Require bonds from officers and employees and fix the penalty thereof.
(6) Ratify written policies authorized by the Association's management or
committees of the board.
(7) Regulate the manner in which any increase or decrease of the capital of
the Association shall be made, provided that nothing herein shall
restrict the power of shareholders to increase or decrease the capital of
the Association in accordance with law.
(8) Manage and administer the business and affairs of the Association.
(9) Adopt initial by-laws, not inconsistent with law or the Articles of
Association, for managing the business and regulating the affairs of the
Association.
(10) Amend or repeal by-laws, except to the extent that the Articles of
Association reserve this power in whole or in part to shareholders.
(11) Make contracts.
(12) Generally perform all acts that are legal for a board of directors to
perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other location permitted under applicable law, without
the approval of the shareholders, and shall have the power to establish or
change the location of any branch or branches of the Association to any other
location permitted under applicable law, without the approval of the
shareholders subject to approval by the Office of the Comptroller of the
Currency.
EIGHTH. The corporate existence of this Association shall continue until
termination according to the laws of the United States.
NINTH. These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of a greater
amount of stock is required by law, and in that case by the vote of the holders
of such greater amount. The Association's board of directors may propose one or
more amendments to the Articles of Association for submission to the
shareholders.
<PAGE> 7
EXHIBIT T1A(b)
COMPTROLLER OF THE CURRENCY
TREASURY DEPARTMENT [PHOTO] OF THE UNITED STATES
WASHINGTON, D.C.
WHEREAS, satisfactory evidence has been presented by the Comptroller of
the Currency that NEW TRUST COMPANY, NATIONAL ASSOCIATION located in PITTSBURGH
State of PENNSYLVANIA has complied with all provisions of the statutes of the
United States required to be complied with before being authorized to commence
the business of banking as a National Banking Association;
NOW, THEREFORE, I hereby certify that the above named association is
authorized to commence the business of banking as a National Banking
Association.
[SEAL] IN TESTIMONY WHEREOF, witness my signature and seal of
office this 24th day of NOVEMBER 1997
CHARTER NO. 23548
DEPUTY /s/ [ILLEGIBLE]
[ILLEGIBLE]
<PAGE> 8
[COMPTROLLER OF THE CURRENCY LETTERHEAD]
November 24, 1997
Mr. Daryl J. Zupan
President and CEO
New Trust Company, National Association
c/o Mellon Bank, N.A., Corporate Trust
Two Mellon Bank Center, Suite 325
Pittsburgh, Pennsylvania 15259
Re: Charter for a National Trust Bank, New Trust Company, National Association.
Pittsburgh, Pennsylvania
ACN 97 NE 01 0022
Dear Mr. Zupan:
The Comptroller of the Currency (OCC) has found that you have met all conditions
imposed by the OCC and completed all steps necessary to commence the business of
banking. Your charter certificate is enclosed. You are authorized to commence
business on November 24, 1997.
This letter also constitutes OCC authorization to exercise fiduciary powers.
You are reminded that several of the standard conditions contained in the
preliminary approval letter dated October 23, 1997 will continue to apply once
the bank opens and by opening, you agree to subject your association to these
conditions of operation. Some of the conditions bear reiteration here:
1. Regardless of the association's FDIC insurance status, the association is
subject to the Change in Bank Control Act (12 U.S.C. 1817(j)) by virtue of
its national bank charter. Please refer to item 4 in the list of standard
conditions sent with the preliminary approval letter.
2. The board of directors is responsible for regular review and update of
policies and procedures and for assuring ongoing compliance with them. This
includes maintaining an internal control system that ensures compliance
with the currency reporting and record keeping requirements of the Bank
Secrecy Act (BSA). The board is expected to train its personnel in BSA
procedures and designate one person or a group to monitor day-to-day
compliance.
<PAGE> 9
Mr. Daryl J. Zupan
Page two
3. The bank will not engage in full commercial powers authorized to
national banks without the OCC's prior approval.
Following the commencement of operations, bank management is urged to become
familiar with the requirements of the Securities Exchange Act of 1934 and Part
11 of the Comptroller's regulations relative to the registration of the bank's
equity securities and related periodic reports. These requirements will be
applicable to your bank when the number of shareholders of record is maintained
at 500 or more. Such registration may be subsequently terminated pursuant to
the Act, only when the number of shareholders of record is reduced to fewer than
300.
Should you have any questions regarding the supervision of your bank, please
contact the portfolio manager who will be responsible for OCC's ongoing
supervisory effort at your institution. You will be notified of the name and
number of the appropriate individual in the near future.
Sincerely,
/s/ MICHAEL G. TISCIA
Michael G. Tiscia
Licensing Manager
Enclosure
cc: Official File
Field File
<PAGE> 10
[COMPTROLLER OF THE CURRENCY LETTERHEAD]
Northeastern District
1114 Avenue of the Americas, Suite 3900
New York, New York 10036
November 24, 1997
Joseph R. Bielawa
Vice President and Assistant General Counsel
The Chase Manhattan Bank
270 Park Avenue, 39th Floor
New York, New York 10017
Re: Change in Corporate Title
New Trust Company, National Association (Bank)
Pittsburgh, Pennsylvania
Dear Mr. Bielawa:
The Office of the Comptroller of the Currency (OCC) has received your
submission, concerning the change and amendment to Article First of the
above-referenced Bank's Articles of Association. The OCC has amended its
records to reflect that effective November 24, 1997, the corporate title of New
Trust Company, National Association, Charter Number 23548, was changed to
"Chase Manhattan Trust Company, National Association."
You are reminded that the OCC does not approve national bank name changes nor
does it maintain official titles or the retention of alternate titles. The use
of other titles or the retention of the rights to any previously used title is
the responsibility of the Bank's board of directors. Legal counsel should be
consulted to determine whether or not the new title, or any previously used
title, could be challenged by competing institutions under the provisions of
federal or state law.
A copy of the amended Article as accepted for filing is enclosed for the Bank's
records.
Very truly yours,
/s/ LINDA LEICKEL
Linda Leickel
Senior Licensing Analyst
Charter No.: 23548
Control No.: 97 NE 04 010 w/97 NE 01 022
<PAGE> 11
EXHIBIT T1B
[CHASE LOGO]
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
BY-LAWS
ARTICLE I. MEETINGS OF SHAREHOLDERS
SECTION 1.1. ANNUAL MEETING. The regular annual meeting of the shareholders to
elect directors and transact whatever other business may properly come before
the meeting, shall be held at the main office of the Association, or such other
place as the board may designate, and at such time in each year as may be
designated by the board of directors. Unless otherwise provided by law, notice
of the meeting may be waived by the Association's sole shareholder in accordance
with 12 C.F.R. Section 7.2001. If, for any cause, an election of directors is
not made on that date, or in the event of a legal holiday, on the next following
banking day, an election may be held on any subsequent day within 60 days of the
date fixed, to be designated by the board, or, if the directors fail to fix the
date, by shareholders representing two thirds of the shares issued and
outstanding.
SECTION 1.2. SPECIAL MEETINGS. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by a majority of the board of directors or by any one or more
shareholders owning, in the aggregate, not less than twenty-five percent of the
stock of the Association or by the Chairperson of the board of directors or the
President. Unless otherwise provided by law, advance notice of a special meeting
may be waived by the Association's Sole Shareholder in accordance with 12 C.F.R.
Section 7.2001.
SECTION 1.3. NOMINATIONS OF DIRECTORS. Nominations for election to the board of
directors may be made by the board of directors or by any stockholder of any
outstanding class of capital stock of the Association entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the Association, shall be made in writing and shall be
delivered or mailed to the President of the Association and to the Comptroller
of the Currency, Washington, D.C., not less than 14 days nor more than 50 days
prior to any meeting of shareholders called for the election of directors,
provided, however, that if less than 21 days' notice of the meeting is given to
shareholders, such nomination shall be mailed or delivered to the President of
the Association and to the Comptroller of the Currency not later than the close
of business on the seventh (7th) day following the day on which the notice of
meeting was mailed. Such notification shall contain the following information to
the extent known to the notifying shareholder.
(1) The name and address of each proposed nominee.
(2) The principal occupation of each proposed nominee.
(3) The total number of shares of capital stock of the Association
that will be voted for each proposed nominee.
(4) The name and residence address of the notifying shareholder.
(5) The number of shares of capital stock of the Association owned
by the notifying shareholder. Nominations not made in
accordance herewith may, in his/her discretion, be disregarded
by the Chairperson of the meeting, and upon his/her
instructions, the vote tellers may disregard all votes cast
for each such nominee.
SECTION 1.4. PROXIES. Shareholders may vote at any meeting of the shareholders
by proxies duly authorized in writing, but no officer or employee of this
Association shall act as proxy. Proxies shall be valid only for one meeting to
be specified therein, and any adjournments of such meeting. Proxies shall be
dated and filed with the records of the meeting. Proxies with rubber stamped
facsimile signatures may be used and unexecuted proxies may be counted upon
receipt of a confirming telegram from the shareholder. Proxies meeting above
requirements submitted at any time during a meeting shall be accepted.
SECTION 1.5 QUORUM. A majority of the outstanding capital stock, represented in
person or by proxy, shall constitute a quorum at any meeting of shareholders,
unless otherwise provided by law, or by the shareholders or directors pursuant
to Section 10.2, but less than a quorum may adjourn any meeting, from time to
time, and the meeting may be held, as adjourned, without further notice. A
majority of the votes cast shall decide every question or matter submitted to
the shareholders at any meeting, unless otherwise provided by law or by the
Articles of Association, or by the shareholders or directors pursuant to Section
10.2. Any action required or
<PAGE> 12
permitted to be taken by the shareholders may be taken without a meeting by
unanimous written consent of the shareholders to a resolution authorizing the
action. The resolution and the written consent shall be filed with the minutes
of the proceedings of the shareholders.
ARTICLE II. DIRECTORS
SECTION 2.1. BOARD OF DIRECTORS. The board of directors ("board") shall have the
power to manage and administer the business and affairs of the Association.
Except as expressly limited by law, all corporate powers of the Association
shall be vested in and may be exercised by the board.
SECTION 2.2. NUMBER. The board shall consist of not less than five nor more than
twenty-five persons, the exact number within such minimum and maximum limits to
be fixed and determined from time to time by resolution of a majority of the
full board or by resolution of a majority of the shareholders at any meeting
thereof; provided, however, that a majority of the full board may not increase
the number of directors to a number which: (1) exceeds by more than two the
number of directors last elected by shareholders where such number was 15 or
less; and (2) exceeds by more than four the number of directors last elected by
shareholders where such number was 16 or more, but in no event shall the number
of directors exceed 25.
SECTION 2.3. ORGANIZATION MEETING. The Secretary shall notify the
directors-elect of their election and of the time at which they are required to
meet at the main office of the Association to organize the new board and elect
and appoint officers of the Association for the succeeding year. Such meeting
shall be held on the day of the election or as soon thereafter as practicable,
and, in any event, within 30 days thereof. If, at the time fixed for such
meeting, there shall not be a quorum, the directors present may adjourn the
meeting, from time to time, until a quorum is obtained.
SECTION 2.4. REGULAR MEETINGS. The time and location of regular meetings of the
board shall be set by the board. Such meetings may be held without notice. Any
business may be transacted at any regular meeting. The board may adopt any
procedures for the notice and conduct of any meetings as are not prohibited by
law.
SECTION 2.5. SPECIAL MEETINGS. Special meetings of the board may be called at
the request of the Chairperson or Co-Chairperson of the board, the President, or
three or more directors. Each member of the board shall be given notice stating
the time and place, by telegram, telephone, letter or in person, of each such
special meeting at least one day prior to such meeting. Any business may be
transacted at any special meeting.
SECTION 2.6. ACTION BY THE BOARD. Except as otherwise provided by law, corporate
action to be taken by the board shall mean such action at a meeting of the
board. Any action required or permitted to be taken by the board or any
committee of the board may be taken without a meeting if all members of the
board or the committee consent in writing to a resolution authorizing the
action. The resolution and the written consents thereto shall be filed with the
minutes of the proceedings of the board or committee. Any one or more members of
the board or any committee may participate in a meeting of the board or
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at such
meeting.
SECTION 2.7. WAIVER OF NOTICE. Notice of a special meeting need not be given to
any director who submits a signed waiver of notice, whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him or her.
SECTION 2.8. QUORUM AND MANNER OF ACTING. Except as otherwise required by law,
the Articles of Association or these by-laws, a majority of the directors shall
constitute a quorum for the transaction of any business at any meeting of the
board and the act of a majority of the directors present and voting at a meeting
at which a quorum is present shall be the act of the board. In the absence of a
quorum, a majority of the directors present may adjourn any meeting, from time
to time, until a quorum is present and no notice of any adjourned meeting need
be given. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 2.9. VACANCIES. In the event a majority of the full board increases the
number of directors to a number which exceeds the number of directors last
elected by shareholders, as permitted by Section 2.2, directors may be appointed
to fill the resulting vacancies by vote of such majority of the full board. In
the event of a vacancy
<PAGE> 13
in the board for any other cause, a director may be appointed to fill such
vacancy by vote of a majority of the remaining directors then in office.
SECTION 2.10. REMOVAL OF DIRECTORS. The vacancy created by the removal of a
director pursuant to this Section may be filled by the board in accordance with
Section 2.9 of these by-laws or by the shareholders.
ARTICLE III. COMMITTEES
SECTION 3.1. EXECUTIVE COMMITTEE. There may be an executive committee consisting
of the Chairperson or Co-Chairperson of the board and not less than two other
directors appointed by the board annually or more often. Subject to the
limitations in Section 3.4(g) of these by-laws, the executive committee shall
have the maximum authority permitted by law.
SECTION 3.2. AUDIT COMMITTEE. There may be an audit committee composed of not
less than two directors, exclusive of any active officers, appointed by the
board annually or more often, whose duty it shall be to make an examination at
least once during each calendar year and within fifteen months of the last
examination into the affairs of the Association, or cause continuous suitable
examinations to be made, by auditors responsible only to the board, and to
report the results of any such examinations in writing to the board from time to
time. Such examinations shall include audits of the fiduciary business of the
Association as may be required by law or regulation.
SECTION 3.3. OTHER COMMITTEES. The board may appoint, from time to time, other
committees of one or more persons, for such purposes and with such powers as the
board may determine.
SECTION 3.4. GENERAL. (a) Each committee shall elect a Chairperson from among
the members thereof and shall also designate a Secretary of the committee, who
shall keep a record of its proceedings.
(b) Vacancies occurring from time to time in the membership of any
committee shall be filled by the board for the unexpired term of the member
whose departure causes such vacancy. The board may designate one or more
alternate members of any committee, who may replace any absent member or members
at any meeting of such committee.
(c) Each committee shall adopt its own rules of procedure and shall
meet at such stated times as it may, by resolution, appoint. It shall also meet
whenever called together by its Chairperson or the Chairperson of the board.
(d) No notice of regular meetings of any committee need be given.
Notice of every special meeting shall be given either by mailing such notice to
each member of such committee at his or her address, as the same appears in the
records of the Association, at least two days before the day of such meeting, or
by notifying each member on or before the day of such meeting by telephone or by
personal notice, or by leaving a written notice at his or her residence or place
of business on or before the day of such meeting. Waiver of notice in writing of
any meeting, whether prior or subsequent to such meeting, or attendance at such
meeting, shall be equivalent to notice of such meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at any
special meeting.
(e) All committees shall, with respect to all matters, be subject to
the authority and direction of the board and shall report to it when required.
(f) Unless otherwise required by law, the Articles of Association or
these by-laws, a quorum at any meeting of any committee shall be one-third of
the full membership and present shall be the act of the committee.
(g) No committee shall have authority to take any action which is
expressly required by law or regulation to be taken at a meeting of the board or
by a specified proportion of directors.
ARTICLE IV. OFFICERS AND EMPLOYEES
SECTION 4.1. CHAIRPERSON OF THE BOARD. The board shall appoint one of its
members to be the Chairperson of the board, or two persons to serve as
Co-Chairperson of the board to serve at its pleasure. Such person shall preside
at all meetings of the board. The Chairperson or Co-Chairpersons of the board
shall supervise the carrying out of the policies adopted or approved by the
board; shall have general executive powers, as well as the specific powers
conferred by these by-laws; and shall also have and may exercise such further
powers and duties as from time to time may be conferred upon, or assigned by the
board.
<PAGE> 14
SECTION 4.2. PRESIDENT. The board may appoint one of its members to be the
President of the Association. In the absence of the Chairperson or
Co-Chairpersons, the President shall preside at any meeting of the board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulation, or practice
to the office of President, or imposed by these by-laws. The President shall
also have and may exercise such further powers and duties as from time to time
may be conferred, or assigned by the board.
SECTION 4.3. VICE PRESIDENT. The board may appoint one or more Vice Presidents.
Each Vice President shall have such powers and duties as may be assigned by the
board.
SECTION 4.4. SECRETARY. The board shall appoint a Secretary, Cashier, or other
designated officer who shall be Secretary of the board and of the Association,
and shall keep accurate minutes of all meetings. The Secretary shall attend to
the giving of all notices required by these by-laws; shall be custodian of the
corporate seal, records, documents and papers of the Association; shall provide
for the keeping of proper records of all transactions of the Association; shall
have and may exercise any and all other powers and duties pertaining by law,
regulation or practice, to the office of Cashier, or imposed by these by-laws;
and shall also perform such other duties as may be assigned from time to time,
by the board.
SECTION 4.5. OTHER OFFICERS. The board may appoint one or more Assistant Vice
Presidents, one or more Trust Officers, one or more Assistant Secretaries, one
or more Assistant Cashiers, one or more Managers and Assistant Managers of
branches and such other officers and attorneys in fact as from time to time may
appear to the board to be required or desirable to transact the business of the
Association. Such officers shall respectively exercise such powers and perform
such duties as pertain to their several offices, or as may be conferred upon, or
assigned to, them by the board, the Chairperson or Co-Chairpersons of the board,
or the President. The board may authorize an officer to appoint one or more
officers or assistant officers.
SECTION 4.6. RESIGNATION. An officer may resign at any time by delivering notice
to the Association. A resignation is effective when the notice is given unless
the notice specifies a later effective date.
ARTICLE V. FIDUCIARY ACTIVITIES
SECTION 5.1. TRUST COMMITTEE. There shall be a Trust Committee of this
Association composed of four or more members, who shall be capable and
experienced officers or directors of the Association. The Committee is charged
with the responsibility for the investment, retention, or disposition of assets
held in accounts with respect to which the Association has investment authority;
for the review of the assets of accounts for which the Association has
investment authority promptly after the acceptance of such an account and at
least once during every calendar year thereafter to determine the advisability
of retaining or disposing of such assets; for the determination of the manner in
which proxies received for accounts for which the Association has responsibility
for the voting of proxies shall be voted; for the determination of all
substantial questions involving discretionary authority of the Association of a
non-investment nature, including, but not limited to, distribution of principal
and/or income in respect of any account; for providing advice as to the
investment, retention, or disposition of assets in investment advisory accounts
maintained by the Association; for the making of such reports as this board
shall require; and for such other responsibilities as may be assigned by this
board. The Trust Committee, in discharging its aforementioned responsibilities,
may authorize officers of the Association to exercise such powers and under such
conditions as the Committee may from time to time prescribe.
SECTION 5.2. TRUST INVESTMENTS. Funds held in a fiduciary capacity shall be
invested according to the instrument establishing the fiduciary relationship and
local law. Where such instrument does not specify the character and class of
investments to be made and does not vest in the Association a discretion in the
matter, funds held pursuant to such instrument shall be invested in investments
in which corporate fiduciaries may invest under applicable law.
SECTION 5.3. TRUST AUDIT COMMITTEE. The board shall appoint a committee of at
least two directors, exclusive of any active officer of the association, which
shall, at least once during each calendar year make suitable audits of the
association's fiduciary activities or cause suitable audits to be made by
auditors responsible only to the board, and at such time shall ascertain whether
fiduciary powers have been administered according to law, Part 9 of the
Regulations of the Comptroller of the Currency, and sound fiduciary principles.
<PAGE> 15
SECTION 5.4. FIDUCIARY FILES. There shall be maintained by the association all
fiduciary records necessary to assure that its fiduciary responsibilities have
been properly undertaken and discharged.
ARTICLE VI. STOCK AND STOCK CERTIFICATES
SECTION 6.1. TRANSFERS. Shares of stock shall be transferable on the books of
the Association, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his or her shares, succeed to all rights of the prior
holder of such shares. The board may impose conditions upon the transfer of the
stock reasonably calculated to simplify the work of the Association with respect
to stock transfers, voting at shareholder meetings, and related matters and to
protect it against fraudulent transfers.
SECTION 6.2. STOCK CERTIFICATES. Certificates of stock shall bear the signature
of the Chairperson or Co-Chairpersons of the board or President (which may be
engraved, printed or impressed), and shall be signed manually or by facsimile
process by the Secretary, Assistant Secretary, Cashier, Assistant Cashier, or
any other officer appointed by the board for that purpose, to be known as an
authorized officer, and the seal of the Association shall be engraved thereon.
Each certificate shall recite on its face that the stock represented thereby is
transferable only upon the books of the Association properly endorsed. In case
any such officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such before such certificate is
issued, it may be issued by the Association with the same effect as if such
officer had not ceased to be such at the time of its issue. The corporate seal
may be a facsimile, engraved or printed.
ARTICLE VII. CORPORATE SEAL
SECTION 7.1. CORPORATE SEAL. The Chairperson, the President, the Cashier, the
Secretary or any Assistant Cashier or Assistant Secretary, or other officer
thereunto designated by the board, shall have authority to affix the corporate
seal to any document requiring such seal, and to attest the same. Such seal
shall be substantially in the following form: A circle, with the words "Chase
Manhattan Trust Company, National Association" within such circle.
ARTICLE VIII. MISCELLANEOUS PROVISIONS
SECTION 8.1. FISCAL YEAR. The fiscal year of the Association shall be the
calendar year.
SECTION 8.2. EXECUTION OF INSTRUMENTS. All agreements, indentures, mortgages,
deeds, conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies and other instruments or documents may
be signed, executed, acknowledged, verified, delivered or accepted on behalf of
the Association by the Chairperson or Co-Chairpersons of the board, or the
President, or any Vice Chairperson, or any Managing Director, or any Vice
President, or any Assistant Vice President, or the Chief Financial Officer, or
the Controller, or the Secretary, or the Cashier, or, if in connection with
exercise of fiduciary powers of the Association, by any of those officers or by
any Trust Officer. Any such instruments may also be executed, acknowledged,
verified, delivered or accepted on behalf of the Association in such other
manner and by such other officers as the board may from time to time direct. The
provisions of this Section 8.2 are supplementary to any other provision of these
by-laws.
SECTION 8.3. RECORDS. The Articles of Association, the by-laws and the
proceedings of all meetings of the shareholders, the board, and standing
committees of the board, shall be recorded in appropriate minute books provided
for that purpose. The minutes of each meeting shall be signed by the Secretary,
Cashier or other officer appointed to act as Secretary of the meeting.
SECTION 8.4. CORPORATE GOVERNANCE PROCEDURES. To the extent not inconsistent
with applicable Federal banking law, bank safety and soundness or these by-laws,
the corporate governance procedures found in the Delaware General Corporation
Law shall be followed by the Association.
<PAGE> 16
ARTICLE IX. INDEMNIFICATION
SECTION 9.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Association or is or was serving at the request of
the Association as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Association to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Association to provide broader indemnification rights than such law permitted
the Association to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section 9.3 of these by-laws with respect to proceedings
to enforce rights to indemnification, the Association shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the
board.
SECTION 9.2. RIGHT TO ADVANCEMENT OF EXPENSES. The right to indemnification
conferred in Section 9.1 of these by-laws shall include the right to be paid by
the Association the expenses (including attorney's fees) incurred in defending
any such proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Association of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 9.2 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections 9.1 and 9.2 of these by-laws shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
SECTION 9.3. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 9.1 or
9.2 of these by-laws is not paid in full by the Association within sixty (60)
days after a written claim has been received by the Association except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Association to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Association to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (1) any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (2) any suit brought by the Association to recover an
advancement of expenses pursuant to the terms of an undertaking, the Association
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Association
(including the board, the Association's independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Association (including the board, the Association's independent legal counsel,
or its shareholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Association to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article IX or otherwise shall be on the Association.
SECTION 9.4. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this Article IX shall not be exclusive of
any other right which any person may have or hereafter
<PAGE> 17
acquire under any statute, the Association's Articles of Association, by-laws,
agreement, vote of shareholders or disinterested directors or otherwise.
SECTION 9.5. INSURANCE. The Association may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Association or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Association would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 9.6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE ASSOCIATION. The
Association may, to the extent authorized from time to time by the board, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Association to the fullest extent of the provisions of this Article
IX with respect to the indemnification and advancement of expenses of directors
and officers of the Association.
ARTICLE X. BY-LAWS
SECTION 10.1. INSPECTION. A copy of the by-laws, with all amendments, shall at
all times be kept in a convenient place at the main office of the Association,
and shall be open for inspection to all shareholders during banking hours.
SECTION 10.2. AMENDMENTS. The by-laws may be amended, altered or repealed, at
any regular meeting of the board by a vote of a majority of the total number of
the directors except as provided below. The Association's shareholders may amend
or repeal the by-laws even though the by-laws may be amended or repealed by its
board.
<PAGE> 18
EXHIBIT T1D
Consent for Records of Governmental Agencies
to be Made Available to the Commission
The undersigned, Chase Manhattan Trust Company, National Association,
pursuant to Section 321(b) of The Trust Indenture Act of 1939, hereby authorizes
the Board of Governors of the Federal Reserve System, the Federal Reserve Banks,
the Treasury Department, the Comptroller of the Currency and the Federal Deposit
Insurance Corporation, under such conditions as they may prescribe, to make
available to the Commission such reports, records or other information as they
may have available with respect to the undersigned as a prospective trustee
under an indenture to be qualified under the aforesaid Trustee Indenture Act of
1939 and to make through their examiners or other employees for the use of the
Commission, examinations of the undersigned prospective Trustee.
The undersigned also, pursuant to Section 321(b) of said Trust
Indenture Act of 1939, consents that reports of examination by the Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Commission upon request therefor.
Dated this 8th day of July, 1999.
Chase Manhattan Trust Company,
National Association
By: /s/ S. R. Schaaf
-------------------------------------
S.R. Schaaf
Vice President
<PAGE> 19
EXHIBIT T1E
CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
STATEMENT OF CONDITION
MARCH 31, 1999
<TABLE>
<CAPTION>
($000)
------
<S> <C>
ASSETS
Cash and Due From Banks $ 6,195
Securities Available for Sale 3,027
Premises and Fixed Assets 647
Intangible Assets 159,849
---------
Total Assets 169,718
LIABILITIES
Sundry Liabilities and Accrued Expenses $ 985
---------
STOCKHOLDER'S EQUITY
Common Stock $ 5,000
Surplus 156,892
Retained Earnings $ 6,841
---------
Total Stockholder's Equity $ 168,733
---------
Total Liabilities and Stockholder's Equity $ 169,718
=========
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
TENDER OF 11 1/2% SENIOR NOTES DUE 2009, SERIES A
IN EXCHANGE FOR
11 1/2% SENIOR NOTES DUE 2009, SERIES B
CAPROCK COMMUNICATIONS CORP.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED
IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE
- --------------------------------------------------------------------------------
DELIVER TO THE EXCHANGE AGENT
BY REGISTERED OR CERTIFIED
MAIL, HAND OR OVERNIGHT COURIER:
Chase Manhattan Trust Company, National Association
1650 Market Street, Suite 5210
Philadelphia, PA 19103
ATTN: Stephen Schaaf, Corporate Trust Department
BY FACSIMILE:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(215) 568-1449
CONFIRM BY TELEPHONE:
(215) 988-1320
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER
OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD
BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the
Prospectus dated __________, 1999 (the "Prospectus") of CapRock Communications
Corp. (the "Company") and this Letter of Transmittal (the "Letter of
Transmittal"), which together describe the Company's offer (the "Exchange
Offer") to exchange its 11 1/2% Senior Notes due 2009, Series B (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for a like principal amount of its issued and outstanding
11 1/2% Senior Notes due 2009, Series A (the "Old Notes"). Capitalized terms
used but not defined herein have the respective meaning given to them in the
Prospectus.
<PAGE> 2
The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date in which the Exchange Offer is
extended. The Company shall notify the holders of the Old Notes of any extension
by oral or written notice prior to 9:00 A.M., New York City time, on the next
business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder of Old Notes
either if original Old Notes are to be forwarded herewith or if delivery of Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer--Book-Entry Transfer." Holders
of Old Notes whose Old Notes are not immediately available, or who are unable to
deliver their Old Notes and all other documents required by this Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, or who are
unable to complete the procedure for book-entry transfer on a timely basis, must
tender their Old Notes according to the guaranteed delivery procedures set forth
in the Prospectus under the caption.
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction
2. Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
In the following table, list the Old Notes to which this Letter of
Transmittal relates. If the space provided is inadequate, list the registered
numbers and principal amounts on a separate signed schedule and affix the list
to this Letter of Transmittal.
2
<PAGE> 3
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- ----------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
NAME(S) AND ADDRESS(S) PRINCIPAL
OF REGISTERED OLD NOTE HOLDER(S) AMOUNT PRINCIPAL
EXACTLY AS NAME(S) APPEAR(S) ON OLD NOTES (PLEASE FILL IN REGISTERED REPRESENTED BY AMOUNT
IF BLANK) NUMBERS* NOTE(S) TENDERED**
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
TOTAL
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Old Notes will be
deemed to have tendered the entire aggregate principal amount
represented by such Old Notes. All tenders must be in integral
multiples of $1,000.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THIS ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:
-----------------------------------------
Account Number:
--------------------------------------------------------
Transaction Code Number:
-----------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE
FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Old Notes:
--------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------
Window Ticket Number (if available):
-----------------------------------
Name of Eligible Institution that Guaranteed Delivery:
-----------------
Account Number (if delivered by book-entry transfer):
------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
3
<PAGE> 4
Name:
------------------------------------------------------------------
Address:
---------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes received in respect of such Old Notes in the Exchange
Offer; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company for exchange the principal amount of
Old Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Old Notes tendered in accordance with this
Letter of Transmittal, the undersigned hereby exchanges, assigns, and transfers
to the Company all right, title and interest in and to the Old Notes tendered
for exchange hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as the agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the New Notes issuable upon the exchange of such
tendered Old Notes and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are accepted for exchange by the
Company.
The undersigned acknowledge(s) that this Exchange Offer is being made
in reliance upon interpretations contained in no-action letters issued to third
parties unrelated to the Company by the staff of the Securities and Exchange
Commission (the "Commission") that the New Notes issued in exchange for the Old
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any person receiving such New Notes, whether or not
such person is the Holder thereof (other than any broker-dealer, as set forth
below, and any such Holder or other person which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of business of such Holder or such other person and such Holder or other person
is not engaged in, has no intention to engage in, and has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. By acceptance of the Exchange Offer, the undersigned hereby represent(s)
to the Company that (i) any New Notes acquired in exchange for Old Notes
tendered hereby are being acquired in the ordinary course of business of the
person receiving such New Notes, (ii) if the undersigned or any such other
person is not a broker-dealer, then neither the undersigned nor any such other
person is engaged in or intends to engage in a distribution of such New Notes,
(iii) neither the undersigned nor any such other person has an arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) neither the Holder
nor any such other person is an "affiliate" (as defined in Rule 405 under the
Securities Act) of the Company.
4
<PAGE> 5
If the undersigned or the person receiving the New Notes is a
broker-dealer that is receiving New Notes for its own account in exchange for
Old Notes, the undersigned hereby represents to the Company that such Old Notes
were acquired in the ordinary course of business as a result of market-making
activities or other trading activities and the undersigned hereby acknowledges
that it or such other person will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that the undersigned or such other person is an "underwriter"
within the meaning of the Securities Act. The undersigned acknowledges that if
the undersigned or the person receiving the New Notes is participating in the
Exchange Offer for the purpose of distributing the New Notes (i) the undersigned
or such person cannot rely on the position of the staff of the Commission in
certain no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the New
Notes, and (ii) failure to comply with such requirements in such instance could
result in the undersigned or such person incurring liability under the
Securities Act for which the undersigned or such person is not indemnified by
the Company.
If the undersigned or the person receiving the New Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company,
the undersigned represents to the Company that the undersigned understands and
acknowledges that the New Notes may not be offered for resale, resold or
otherwise transferred by the undersigned or such other person without
registration under the Securities Act and compliance with the prospectus
delivery requirements of the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense to the undersigned, at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer--Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions,"
please issue the New Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the New Notes issued in exchange
for the Old Notes accepted for exchange and any Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signature(s). In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, please issue the New Notes issued in exchange for the Old Notes
accepted for exchange in the name(s) of, and return any Old Notes not tendered
or not exchanged to, the person(s) so indicated. The undersigned recognizes that
the Company has no obligation pursuant to the "Special Issuance Instructions"
and "Special Delivery Instructions" to transfer any Old Notes from the name of
the registered holder(s) thereof if the Company does not accept for exchange any
of the Old Notes so tendered for exchange.
5
<PAGE> 6
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Old Notes in a principal amount not tendered, or New
Notes issued in exchange for Old Notes accepted for exchange, are to be issued
in the name of someone other than the undersigned, or (ii) if Old Notes tendered
by book-entry transfer that are not exchanged are to be returned by credit to an
account maintained at the Book-Entry Transfer Facility. Issue New Notes and/or
Old Notes to:
Name(s):
------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(Complete Substitute Form W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
- --------------------------------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE)
- --------------------------------------------------------------------------------
6
<PAGE> 7
- --------------------------------------------------------------------------------
PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY TENDERED
HEREBY
(Complete Accompanying Substitute Form W-9)
- --------------------------------------------------------------------------------
DATE
- --------------------------------------------------------------------------------
DATE
- --------------------------------------------------------------------------------
AREA CODE AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
The above lines must be signed by the registered Holder(s) of Old Notes
as name(s) appear(s) on the Old Notes or on a security position listing or by
person(s) authorized to become registered Holder(s) by a properly completed bond
power from the registered Holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Old Notes to which this Letter of Transmittal
relate are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority so to
act. See Instruction 5 regarding the completion of this Letter of Transmittal,
printed below.
Name(s):
------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
7
<PAGE> 8
- --------------------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEE
(If Required By Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME OF FIRM)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Date:___________________________________________________________________, 19____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5 and 6)
To be completed ONLY if Old Notes in a principal amount not tendered,
or New Notes issued in exchange for Old Notes accepted for exchange, are to be
mailed or delivered to someone other than the undersigned, or to the undersigned
at an address other than that shown below the undersigned's signature.
Mail or deliver New Notes and/or Old Notes to:
Name:
---------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
- --------------------------------------------------------------------------------
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES OR BOOK-ENTRY
CONFIRMATIONS. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof and any other documents required by
this Letter of Transmittal must be received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of the tendered Old Notes, this Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received or confirmed by the Exchange Agent.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure delivery to the Exchange Agent before the Expiration Date. No Letter of
Transmittal or Old Notes should be sent to the Company.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old
Notes and (a) whose Old Notes are not immediately available, (b) who cannot
deliver their Old Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date or (c) who
are unable to complete the procedure for book-entry transfer on a timely basis,
must tender their Old Notes according to the guaranteed delivery procedures set
forth in the Prospectus. Pursuant to such procedures (i) such tender must be
made by or through a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or a trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17 Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible
Institution"), (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within three (3) New York Stock Exchange, Inc. ("NYSE") trading days after the
Expiration Date, the Letter of Transmittal (or facsimile hereof) together with
the certificates representing the Old Notes (or a Book-Entry Confirmation) in
proper form for transfer, will be received by the Exchange Agent and (iii) the
properly completed and executed Letter of Transmittal (or facsimile thereof) as
well as the certificates for all physically tendered shares of Old Notes, in
proper form for transfer, or Book-Entry Confirmation as the case may be, and all
other documents required by this Letter must be received by the Exchange Agent
within three (3) NYSE trading days after the Expiration Date.
Any Holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m, New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer--Guaranteed Delivery Procedures" section of the
Prospectus.
3. TENDER BY HOLDER. Only a Holder of Old Notes may tender such Old
Notes in the Exchange Offer. Any beneficial Holder of Old Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in such Holder's name or obtain a properly completed bond power from the
registered Holder.
4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering Holder should fill in the
9
<PAGE> 10
principal amount tendered in the third column of the box entitled "Description
of Old Notes" above. The entire principal amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, then Old Notes,
for the principal amount of Old Notes not tendered, and New Notes issued in
exchange for any Old Notes accepted will be sent to the Holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, promptly after the Old Notes are accepted for
exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal
(or facsimile hereof) is signed by the registered Holder(s) of the Old Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Old Notes without alteration, enlargement or any change
whatsoever. If this Letter of Transmittal is signed by a participant in the
Book-Entry Transfer Facility, the signature must correspond with the name as it
appears on the security position listing as the Holder of the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of any Old Notes listed, such Old Notes must be
endorsed or accompanied by appropriate bond powers, in each case signed as the
name of the registered Holder or Holders appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Old Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the tendered Old Notes) and the issuance of New
Notes (and any Old Notes not tendered or not accepted) are to be issued directly
to such registered holder(s) (or, if signed by a participant in the Book-Entry
Transfer Facility, any New Notes or Old Notes not tendered or not accepted are
to be deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Issuance Instructions" has been completed, or (ii) such
Old Notes are tendered for the account of an Eligible Institution. In all other
cases, all signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which New Notes or substitute
Old Notes for principal amounts not tendered or not accepted for exchange are to
be issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes or Old Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person, other than the registered Holder of the Old Notes tendered
hereby, or if tendered Old Notes are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with this Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
10
<PAGE> 11
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder of any Old Notes which are accepted for exchange must provide the Company
(as payer) with its correct taxpayer identification number ("TIN") which, in the
case of a holder who is an individual, is his or her social security number. If
the Company is not provided with the correct TIN, the Holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. (If withholding results in
an over-payment of taxes, a refund may be obtained.) Certain holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Old Notes are registered in more than one name or are not in the name of
the actual owner, see the enclosed "Guidelines for Certification of Taxpayer
Identification Number of Substitute Form W-9" for information on which TIN to
report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Old Notes
will be determined by the Company, in its sole discretion, which determination
will be final and binding. The Company reserves the right to reject any and all
Old Notes not validly tendered or any Old Notes, the Company's acceptance of
which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Old Notes as to any ineligibility of any
holder who seeks to tender Old Notes in the Exchange Offer. The interpretation
of the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes,
but shall not incur any liability for failure to give such notification.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
11. NO CONDITIONAL TENDER. No alternative conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal will
be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose
Old Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance or for additional copies of the Prospectus or this Letter of
Transmittal may be directed to the Exchange Agent at the address or telephone
number set forth on the cover page of this Letter of Transmittal. Holders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN
OF OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Exchange Date and will issue New Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall be
deemed to
11
<PAGE> 12
have accepted tendered Old Notes when, as and if the Company has given written
or oral notice thereof to the Exchange Agent. If any tendered Old Notes are not
exchanged pursuant to the Exchange Offer for any reason, such unexchanged Old
Notes will be returned, without expense, to the undersigned at the address shown
above (or credited to the undersigned's account at the Book-Entry Transfer
Facility designated above) or at a different address as may be indicated under
the box entitled "Special Delivery Instructions."
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer--Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF TOGETHER WITH THE OLD NOTES WHICH MUST BE DELIVERED BY BOOK-ENTRY
TRANSFER OR IN ORIGINAL HARD COPY FORM OR THE NOTICE OF GUARANTEED DELIVERY MUST
BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME.
TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 8)
PAYER'S NAME: CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for Taxpayer
Identification Number (TIN)
- --------------------------------------------------------------------------------
Part I: PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW
- --------------------------------------------------------------------------------
Part II: For Payees exempt from backup withholding, see the enclosed Guidelines
for Certification of Taxpayer on Identification Number on Substitute Form W-9
and complete as instructed.
- --------------------------------------------------------------------------------
Part III: Awaiting TIN [ ]
- --------------------------------------------------------------------------------
Social Security Number OR
Employer Identification Number
-----------------------------
- --------------------------------------------------------------------------------
CERTIFICATION. Under penalty of perjury, I certify that:
(1) the number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
(3) Any other information provided on this form is true, correct and
complete.
CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreported interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
Signature ____________________________________ Date __________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
12
<PAGE> 13
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31%
of all payments with respect to the Old Notes or the New Notes made to me
thereafter will be withheld until I provide a number.
Signature ____________________________________ Date __________________________
13
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF 11 1/2% SENIOR NOTES DUE 2009, SERIES A
IN EXCHANGE FOR
11 1/2% SENIOR NOTES DUE 2009, SERIES B
CAPROCK COMMUNICATIONS CORP.
This form or one substantially equivalent hereto must be used by a
holder to accept the Exchange Offer of CapRock Communications Corp., a Texas
corporation (the "Company"), and, in connection therewith, who wishes to tender
11 1/2% Senior Notes due 2009, Series A (the "Old Notes") to the Exchange Agent
pursuant to the guaranteed delivery procedures described in "The Exchange
Offer--Guaranteed Delivery Procedures" of the Company's Prospectus, dated
__________, 1999 (the "Prospectus") and in Instruction 2 to the related Letter
of Transmittal. Any holder who wishes to tender Old Notes pursuant to such
guaranteed delivery procedures must ensure that the Exchange Agent receives this
Notice of Guaranteed Delivery prior to the Expiration Date (as defined below) of
the Exchange Offer. Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED
IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BY REGISTERED OR CERTIFIED
MAIL, HAND OR OVERNIGHT COURIER:
Chase Manhattan Trust Company, National Association
1650 Market Street, Suite 5210
Philadelphia, PA 19103
ATTN: Stephen Schaaf, Corporate Trust Department
BY FACSIMILE:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(215) 568-1449
CONFIRM BY TELEPHONE:
(215) 988-1320
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE
<PAGE> 2
GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED BOX ON THE LETTER OF
TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as their name(s) appear on certificates for Old Notes or on a security
position listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES) AND OTHER INFORMATION
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of
the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery
must be accompanied by appropriate bond powers, signed as the name of
the registered holder(s) appear on the Old Notes or signed as the name
of the participant shown on the Book-Entry Transfer Facility's security
position listing.
2
<PAGE> 3
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or
other person acting in a fiduciary or representative capacity, such
person should so indicate when signing and submit with the Letter of
Transmittal evidence satisfactory to the Company of such person's
authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal, the Old Notes indicated below pursuant to the guaranteed delivery
procedures set forth in the Prospectus under the caption "Guaranteed Delivery
Procedures."
Name(s) of Registered Holder(s):
------------------------------------------------
(PLEASE PRINT OR TYPE)
Signature(s):
-------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
Area Code(s) and Telephone Number(s):
-------------------------------------------
Account Number:
-----------------------------------------------------------------
Date:
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Certificate No(s). Principal Amount of
(if available) Old Notes Tendered*
<S> <C>
- ---------------------------------------------------- --------------------------------------------
- ---------------------------------------------------- --------------------------------------------
- ---------------------------------------------------- --------------------------------------------
- ---------------------------------------------------- --------------------------------------------
- ---------------------------------------------------- --------------------------------------------
</TABLE>
* Must be integral multiples of $1,000 principal amount at maturity.
3
<PAGE> 4
GUARANTEES:
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Old Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures" and in the Letter of Transmittal and any other required documents,
all by 5:00 p.m., New York City time, within three New York Stock Exchange
trading days following the Expiration Date.
Name of Firm
- ---------------------------------- -----------------------------------
(AUTHORIZED SIGNATURE)
Address: Name:
- ---------------------------------- -----------------------------------
- ----------------------------------
(INCLUDE ZIP CODE)
Title: Area Code and Tel. Number
- ---------------------------------- -----------------------------------
(PLEASE TYPE OR PRINT)
Date: ___________________, 19______
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
4
<PAGE> 1
EXHIBIT 99.3
LETTER TO BROKERS
FOR
TENDER OF 11 1/2% SENIOR NOTES DUE 2009, SERIES A
IN EXCHANGE FOR
11 1/2% SENIOR NOTES DUE 2009, SERIES B
CAPROCK COMMUNICATIONS CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ______________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the
offer by CapRock Communications Corp. (the "Company"), a Texas corporation, to
exchange its 11 1/2% Senior Notes Due 2009, Series B (the "New Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding
11 1/2% Senior Notes Due 2009, Series A (the "Old Notes") upon the terms and
subject to the conditions set forth in the Company's Prospectus, dated
__________, 1999, and the related Letter of Transmittal (which together
constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated ____________, 1999;
2. Letter of Transmittal (together with accompanying Substitute
Form W-9 Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you
hold Old Notes in your name or in the name of your nominee, with space provided
for obtaining such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, (ii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution within the meaning of the Securities Act of such New Notes, (iii)
if the holder or any such other person is not a broker-dealer, neither the
holder nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or, if the holder or any such other person is an "affiliate,"
that the holder or any such other person will comply with the
<PAGE> 2
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. If the holder or any such other person is a broker-dealer
(whether or not it is also an "affiliate") that will receive New Notes for its
own account in exchange for Old Notes, it will represent that such Old Notes
were acquired as a result of market-making activities or other trading
activities, and it will acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, such holder is not deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Each holder of the Old Notes will
further be required to acknowledge that if the holder or the person receiving
the New Notes is participating in the Exchange Offer for the purpose of
distributing the New Notes (i) the holder or such person cannot rely on the
position of the staff of the Commission in certain no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes, and (ii) failure to comply with
such requirements in such instance could result in the holder or such person
incurring liability under the Securities Act for which the holder or such person
is not indemnified by the Company.
The enclosed Letter to Clients contains an authorization by the
beneficial owners of the Old Notes for you to make the foregoing
representations.
The Company will not pay any fee or commission to any broker or dealer
or to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 7 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
<PAGE> 1
EXHIBIT 99.4
LETTER TO CLIENTS FOR
TENDER OF 11 1/2% SENIOR NOTES DUE 2009, SERIES A
IN EXCHANGE FOR
11 1/2% SENIOR NOTES DUE 2009, SERIES B
CAPROCK COMMUNICATIONS CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _______________, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE")
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE
To Our Clients:
We are enclosing herewith a Prospectus, dated __________, 1999, of
CapRock Communications Corp. (the "Company"), a Texas corporation, and a related
Letter of Transmittal (which together constitute the "Exchange Offer") relating
to the offer by the Company to exchange its 11 1/2% Senior Notes Due 2009,
Series B (the "New Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 11 1/2% Senior Notes Due 2009, Series A (the "Old
Notes"), upon the terms and subject to the conditions set forth in the Exchange
Offer.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
We are the holder of record of Old Notes held by us for your own
account. A tender of such Old Notes can be made only by us as the record holder
and pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Old Notes held by
us for your account.
We request instructions as to whether you wish to tender any or all of
the Old Notes held by us for your account pursuant to the terms and conditions
of the Exchange Offer. We also request that you confirm that we may on your
behalf make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, (ii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution within the meaning of the Securities Act of such New Notes, (iii)
if the holder or any such other person is not a broker-dealer, neither the
holder nor any such other person is engaged in or intends to participate in the
distribution of such New Notes, and (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or, if the holder or any such other person is an "affiliate,"
that the holder or any such other person will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
If the holder or any such other person is a broker-dealer (whether or not it is
also an "affiliate") that will receive New Notes for its own account in exchange
for Old Notes, it will represent that such Old Notes were acquired as a result
of market-making activities or other trading activities, and it will acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, the holder is
not deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Each holder of the Old Notes will further be required to
acknowledge that if the holder or the person receiving the New Notes is
participating in the Exchange Offer for the purpose of distributing the New
Notes (i) the holder or such person cannot rely on the position of the staff of
the Commission in certain no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the New Notes, and (ii) failure to comply with such requirements
in such instance could result in the holder or such person incurring liability
under the Securities Act for which the holder or such person is not indemnified
by the Company.
Very truly yours,
<PAGE> 1
EXHIBIT 99.5
INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK
ENTRY TRANSFER PARTICIPANT FROM BENEFICIAL OWNER
FOR
TENDER OF 11 1/2% SENIOR NOTES DUE 2009, SERIES A
IN EXCHANGE FOR
11 1/2% SENIOR NOTES DUE 2009, SERIES B
CAPROCK COMMUNICATIONS CORP.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON ______________, 1999, UNLESS EXTENDED
(THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE
To Registered Holder and/or Participant
of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
_________, 1999 (the "Prospectus") of CapRock Communications Corp., a Texas
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its 11 1/2% Senior Notes Due 2009, Series B (the
"New Notes") for all of its outstanding 11 1/2% Senior Notes Due 2009, Series A
(the "Old Notes"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to the action to be taken by you relating to
the Exchange Offer with respect to the Old Notes held by you for the account of
the undersigned.
The aggregate face amount of the Old Notes held by you for the account
of the undersigned is (FILL IN AMOUNT):
$ ________________________ of the 11 1/2% Senior Notes Due 2009, Series
A.
With respect to the Exchange Offer, the undersigned hereby instructs
you (CHECK APPROPRIATE BOX).
[ ] To TENDER the following Old Notes held by you for the account of the
undersigned [INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED (IF
ANY)]:
[ ] Not to TENDER any Old Notes by you for the account of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized to make, on
behalf of the undersigned (and the undersigned, by its signature below, hereby
makes to you), the representations and warranties contained in the Letter of
Transmittal that are to be made with respect to the undersigned as a beneficial
owner, including, but not limited to, the representations that (i) the New Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such New Notes, (ii) neither the
undersigned nor any such other person has an arrangement or understanding with
any person to participate in the distribution within the meaning of the
Securities Act of 1933, as
<PAGE> 2
amended (the "Securities Act"), of such New Notes, (iii) if the undersigned or
any such other person is not a broker-dealer, neither the undersigned nor any
such other person is engaged in or intends to participate in the distribution of
such New Notes and (iv) neither the undersigned nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if the undersigned is an "affiliate," that the undersigned will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable. If the undersigned is a broker-dealer (whether or not
it is also an "affiliate") that will receive New Notes for its own account in
exchange for Old Notes, it represents that such Old Notes were acquired as a
result of market-making activities or other trading activities, and it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. By acknowledging
that it will deliver and by delivering a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The undersigned acknowledges that if the
undersigned or the person receiving the New Notes is participating in the
Exchange Offer for the purpose of distributing the New Notes (i) the undersigned
or such person cannot rely on the position of the staff of the Commission in
certain no-action letters and, in the absence of an exemption therefrom must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the New
Notes, and (ii) failure to comply with such requirements in such instance could
result in the undersigned or such person incurring liability under the
Securities Act for which the undersigned or such person is not indemnified by
the Company.
SIGN HERE
Name of beneficial owner(s):
----------------------------------------------------
Signature(s):
-------------------------------------------------------------------
Name(s) (please print):
---------------------------------------------------------
Address:
------------------------------------------------------------------------
Telephone Number:
---------------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------------
Date:
---------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.6
TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 8)
PAYER'S NAME: CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
- --------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for Taxpayer
Identification Number (TIN)
- --------------------------------------------------------------------------------
Part I: PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW
- --------------------------------------------------------------------------------
Part II: For Payees exempt from backup withholding, see the enclosed Guidelines
for Certification of Taxpayer on Identification Number on Substitute Form W-9
and complete as instructed.
- --------------------------------------------------------------------------------
Part III: Awaiting TIN [ ]
- --------------------------------------------------------------------------------
Social Security Number OR
Employer Identification Number
-----------------------------
- --------------------------------------------------------------------------------
CERTIFICATION. Under penalty of perjury, I certify that:
(4) the number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me) and
(5) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
(6) Any other information provided on this form is true, correct and
complete.
CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreported interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
Signature ____________________________________ Date __________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31%
of all payments with respect to the Old Notes or the New Notes made to me
thereafter will be withheld until I provide a number.
Signature ____________________________________ Date __________________________
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF:
- ------------------------------------------------------------- ------------------------------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, any one of
the individuals(1)
3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either
person(1)
4. Custodian account of a minor (Uniform Give to The minor(2)
Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor(1)
6. Account in the name of guardian or committee for a The ward, minor, or incompetent person(3)
designated ward, minor or incompetent person
7. a. The usual revocable savings trust account The grantor-trustee(1)
(grantor is also trustee)
7. b. So-called trust account that is not a legal The actual owner(1)
or valid trust under state law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate or pension trust The legal entity (Do not furnish the identification number of the
personal representative or trustee unless the legal entity itself
is not designated in the account title)(5)
10. Corporate account The corporation
11. Religious, charitable, or educational organization The organization
account
12. Partnership account The partnership
13. Association, club or other tax-exempt organization The organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of Agriculture in the The public entity.
name of a public entity (such as a State or local
government, school district, or prison) that receives
agricultural program payments
</TABLE>
- ---------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension
trust.
<PAGE> 3
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
OBTAINING A NUMBER:
If you don't have a taxpayer identification number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number at the local office of
the Social Security Administration or the Internal Revenue Service and apply for
a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments
include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), or an
individual retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof.
- An international organization or any agency or instrumentality
thereof.
- A registered dealer in securities or commodities registered in
the United States or a possession of the United States.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of
the Code.
- An exempt charitable remainder trust, or a nonexempt trust
described in section 4947(a)(1) of the Code.
- An entity registered at all times under the Investment Company
Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under
section 1441 of the Code.
- Payments to partnerships not engaged in a trade or business in
the Untied States and which have at least one nonresident
partner.
- Payments of patronage dividends where the amount received is
not paid in money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
<PAGE> 4
Payments of interest not generally subject to backup withholding
include the following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this
interest is $600 or more and is paid in the course of the
payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest
dividends under section 852 of the Code).
- Payments described in section 6049(b)(5) of the Code to
non-resident aliens.
- Payments on tax-free covenant bonds under section 1451 of the
Code.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE MUST STILL COMPLETE THE SUBSTITUTE FORM
W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE SUBSTITUTE FORM W-9
WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER IDENTIFICATION NUMBER ON
THE FORM, WRITE "EXEMPT" ON THE FACE OF THE FORM AND SIGN AND DATE THE FORM AND
RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see sections 6041, 6041(A)(a), 6042,
6044, 6045, 6049, 6050A, and 6050N of the Code and their regulations.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file a tax return.
Payers must generally withhold 31% of taxable interest, dividends and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If
you fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
