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FILE NO. 0-24521
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
CORECOMM LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BERMUDA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
CEDAR HOUSE CORECOMM INCORPORATED
41 CEDAR AVENUE 110 EAST 59TH STREET
HAMILTON HM 12 NEW YORK, NY 10022
BERMUDA (212) 906-8440
(441) 295-2244 (NAME, ADDRESS, INCLUDING ZIP CODE AND
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE TELEPHONE NUMBER, INCLUDING AREA CODE,
NUMBER, OF AGENT FOR SERVICE)
INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL
EXECUTIVE OFFICES)
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Securities to be registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
NONE NONE
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------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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CORECOMM LIMITED
INFORMATION REQUIRED IN REGISTRATION STATEMENT:
CROSS-REFERENCE BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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ITEM NUMBER CAPTION LOCATION IN INFORMATION STATEMENT
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Item 1............... Business Summary; Introduction; The Distribution;
Risk Factors; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Financial
Statements.
Item 2............... Financial Information Summary; Risk Factors; Pro Forma
Capitalization; Pro Forma Financial
Information; Selected Historical Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Financial Statements.
Item 3............... Properties Business.
Item 4............... Security Ownership of Certain Security Ownership of Certain Beneficial
Beneficial Owners and Owners; Beneficial Ownership of Management.
Management
Item 5............... Directors and Executive Management; Liability and Indemnification of
Officers Directors and Officers.
Item 6............... Executive Compensation Management; Security Ownership of Certain
Beneficial Owners.
Item 7............... Certain Relationships and Summary; The Distribution; Relationship
Related Transactions Between CoreComm and the Company after the
Distribution.
Item 8............... Legal Proceedings Legal Proceedings.
Item 9............... Market Price of and Dividends Summary; The Distribution; Risk Factors;
on the Registrant's Common Management; Security Ownership of Certain
Equity and Related Stockholder Beneficial Owners; Beneficial Ownership of
Matters Management; Description of Company Capital
Stock.
Item 10.............. Recent Sales of Unregistered Not Applicable.
Securities
Item 11.............. Description of Registrant's Description of Company Capital Stock.
Securities to be Registered
Item 12.............. Indemnification of Directors Liability and Indemnification of Directors
and Officers and Officers.
Item 13.............. Financial Statements and Summary; Pro Forma Financial Information;
Supplementary Data Selected Historical Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Financial Statements.
Item 14.............. Changes in and Disagreements Not Applicable.
with Accountants on Accounting
and Financial Disclosure
Item 15.............. Financial Statements and Index to Financial Statements; Exhibit
Exhibits Index.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENTS.
SUBJECT TO COMPLETION OR AMENDMENTS, DATED AUGUST 19, 1998
INFORMATION STATEMENT
CORECOMM LIMITED
COMMON STOCK
PAR VALUE $0.01 PER SHARE
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by CoreComm Incorporated ("CoreComm") to
holders of record of CoreComm common stock, par value $0.01 per share (the
"CoreComm Common Stock"), at the close of business on August 31, 1998 (the
"Record Date"), of one share of common stock, par value $0.01 per share (the
"Newco Common Stock"), of CoreComm Limited, a Bermuda company, ("Newco" or the
"Company"), including Series A Junior Participating Preferred Stock Purchase
Rights, for each share of CoreComm Common Stock owned on the Record Date. The
Distribution will result in 100% of the outstanding shares of Newco Common Stock
being distributed to holders of CoreComm Common Stock on a pro rata basis. The
Distribution will be effective on September 2, 1998 (the "Distribution Date").
The Company is a newly formed company which, at the time of the
Distribution, will own and operate communications related businesses which were
previously held in wholly owned subsidiaries of CoreComm, some of which have
been recently acquired, as more fully described herein. Newco will also pursue
new communications related opportunities both domestically and internationally.
No consideration will be paid by CoreComm stockholders for the shares of
Newco Common Stock. There is no current public trading market for the shares of
Newco Common Stock, although it is expected that a "when-issued' trading market
will develop on or about the Record Date. The Company has applied for listing of
the shares of Newco Common Stock on the Nasdaq National Market System ("Nasdaq")
under the symbol ("COMMF").
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "Risk Factors."
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement is August 19, 1998.
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TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 2
INTRODUCTION................................................ 6
THE DISTRIBUTION............................................ 6
RISK FACTORS................................................ 15
RELATIONSHIP BETWEEN CORECOMM AND THE COMPANY AFTER THE
DISTRIBUTION.............................................. 19
DESCRIPTION OF CORECOMM FUNDING OF THE COMPANY.............. 21
PRO FORMA CAPITALIZATION.................................... 22
UNAUDITED PRO FORMA FINANCIAL INFORMATION................... 23
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............ 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 31
BUSINESS.................................................... 34
MANAGEMENT.................................................. 47
TREATMENT OF CORECOMM EMPLOYEE STOCK OPTIONS IN THE
DISTRIBUTION.............................................. 51
SECURITY OWNERSHIP OF MANAGEMENT............................ 51
DESCRIPTION OF COMPANY CAPITAL STOCK........................ 53
INDEPENDENT AUDITORS........................................ 60
ADDITIONAL INFORMATION...................................... 60
INDEX TO FINANCIAL STATEMENTS............................... F-1
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i
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FORWARD-LOOKING STATEMENTS
This Information Statement contains certain forward-looking statements
which are based upon certain assumptions and describe future plans, strategies
and expectations of CoreComm and the Company, respectively, and are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. The ability of CoreComm and the
Company, respectively, to predict results or the actual effect of future plans
or strategies is inherently uncertain. Important factors which may cause actual
results to differ materially from the forward-looking statements contained
herein or in other public statements by CoreComm or the Company are described in
the section entitled "Risk Factors."
IMPORTANT INTRODUCTORY NOTE FOR AMENDMENT NO. 1 TO THE CORECOMM LIMITED FORM 10,
DATED AUGUST 19, 1998
The statements in this Information Statement are based on the assumption
that certain matters that will only be accomplished at or about the time of the
Distribution, have been accomplished. For example, the statements in this
Information Statement are based on the assumption, (i) that the financing
intended for the Company has occurred, and (ii) all licenses for which the
Company has applied have been granted. Also, please note that CoreComm intends
to change its name to Cellular Communications of Puerto Rico, Inc. prior to the
Distribution.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
by, the more detailed information set forth in this Information Statement, which
should be read in its entirety. Unless the context otherwise requires, (i)
references in this Information Statement to CoreComm or the Company shall
include CoreComm's or the Company's respective subsidiaries and (ii) references
in this Information Statement to the Company prior to the Distribution Date
shall refer to the Newco Businesses (as defined) as operated as part of
CoreComm. Moreover, all of the statements in this Information Statement are
based on the assumption that all licenses for which the Company has applied have
been granted. Please note that CoreComm Incorporated intends to change its name
to Cellular Communications of Puerto Rico, Inc. prior to the distribution.
THE COMPANY
Newco was formed in March 1998 by CoreComm in order to succeed to the
businesses and assets that were operated by OCOM Corporation and as an
appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment. Newco is a holding company that owns and operates communications
businesses which were previously held in wholly owned subsidiaries of CoreComm,
some of which have been recently acquired. As of August 14, 1998, Newco and its
subsidiaries had approximately 135 employees. Newco now holds, through directly
and indirectly wholly owned subsidiaries, entities which operate or hold
licenses or applications to operate in the competitive local exchange carrier
("CLEC") business, cellular long distance resale business, landline long
distance resale business, cellular service resale business, paging resale
service and repair business, prepaid cellular service resale business,
centralized telecommunications services ("CTS") business, and local multipoint
distribution services ("LMDS") business (collectively the "Newco Businesses").
Aside from the cellular long distance resale business, which has been operating
for approximately seven years, these businesses are in early stages of
development.
Newco's CLEC, cellular long distance, landline long distance and cellular
resale businesses were formerly owned and operated by OCOM Corporation, a
subsidiary of NTL Incorporated. OCOM Corporation sold all of these assets and
related liabilities ("OCOM Corporation Telecoms Division" or "OCOM") to a
subsidiary of CoreComm pursuant to an agreement dated as of June 1, 1998.
Corecomm, through a wholly owned subsidiary, also purchased all of the
outstanding capital stock of Digicom, Inc. ("Digicom"), which operates a CLEC in
the State of Ohio. CoreComm also acquired all of the operating assets of
JeffRand Corp. ("Wireless Outlet") which operates the Company's paging and
prepaid cellular businesses. Following an FCC auction, on June 8, 1998,
Cortelyou Communications Corp. ("Cortelyou"), a wholly-owned subsidiary of
CoreComm, was awarded LMDS licenses for 15 markets in the State of Ohio.
CoreComm contributed to Newco all of the capital stock of OCOM, Digicom,
Wireless Outlet and Cortelyou on August 18, 1998.
See "BUSINESS --" for a detailed description of Newco's businesses. See
also "THE DISTRIBUTION -- Transactions Related to the Distribution."
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THE DISTRIBUTION
Distributing Corporation...... CoreComm Incorporated, a Delaware corporation
("CoreComm"), which shall be renamed Cellular
Communications of Puerto Rico, Inc. prior to
the Distribution Date.
Distributed Corporation....... CoreComm Limited, a Bermuda corporation
("Newco"_). Newco will operate the Newco
Businesses, as well as pursue
telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an
entrepreneurial corporate environment.
Principal Businesses to be
Retained by CoreComm.......... CoreComm will retain its other businesses,
consisting of all of its current businesses
other than the Newco Businesses (the "CoreComm
Businesses"). The CoreComm Businesses consist
of CoreComm's operations as a leading provider
of telecommunications services in Puerto Rico
and the U.S. Virgin Islands.
Primary Purpose of the
Distribution.................. To fulfill one of CoreComm's stated goals of
pursuing new telecommunications opportunities
outside of Puerto Rico and the U.S. Virgin
Islands, in an entrepreneurial corporate
environment.
Shares to be Distributed...... Approximately 13,198,000 shares of Newco Common
Stock, based on the number of shares of
CoreComm Common Stock outstanding on August 14,
1998. The shares to be distributed will
constitute 100% of the outstanding shares of
Newco Common Stock on the Distribution Date.
Distribution Ratio............ Each CoreComm stockholder will receive one
share of Newco Common Stock for each share of
CoreComm Common Stock held on the Record Date.
Listing and Trading Market.... The Company has applied for listing of the
shares of Newco Common Stock on the Nasdaq
National Market System under the symbol
"COMMF."
Record Date................... Close of business on August 31, 1998.
Distribution Date............. September 2, 1998.
Distribution Agent............ Continental Stock Transfer & Trust Company (the
"Distribution Agent").
Tax Consequences.............. Certain Federal income tax consequences will
result from the Distribution. An amount equal
to the fair market value on the Distribution
Date of Newco Common Stock distributed to each
stockholder will be taxable to such stockholder
as a dividend, but only to the extent of the
stockholder's portion of CoreComm's current and
accumulated earnings and profits. The amount,
if any, that exceeds CoreComm's current and
accumulated earnings and profits, would first
be treated as a tax-free return of capital to
the extent of the stockholder's tax basis in
the shares, and to the extent in excess of such
tax basis, as capital gains. See "THE
DISTRIBUTION -- Certain Federal Income Tax
Consequences."
3
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Dividend and Share Repurchase
Policy........................ The Company does not intend to pay a cash
dividend in the foreseeable future.
Relationship with CoreComm
after the Distribution........ Other than certain common officers and
directors and certain limited responsibilities
under a Distribution Agreement and a Tax
Disaffiliation Agreement, the material terms of
which are described elsewhere in this
Information Statement, the only anticipated
relationship between the Company and CoreComm
are certain services to be provided by the
Company to CoreComm related to the development
of a billing system. These services will be
provided on an arms-length basis. See "RISK
FACTORS -- Potential Conflicts of Interest for
Officers and Directors" and "RELATIONSHIP
BETWEEN CORECOMM AND THE COMPANY AFTER THE
DISTRIBUTION."
RISK FACTORS
Stockholders should carefully consider the matters discussed under the
section entitled "Risk Factors" beginning on page 10 is of this Information
Statement.
4
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following tables set forth summary historical and pro forma statement
of operations data for OCOM and the Company and historical and pro forma balance
sheet data for the Company. The Company was formed in March 1998 in order to
succeed to the businesses and assets that were operated by OCOM Corporation. The
historical financial data are derived from the audited Financial Statements of
the Company and OCOM, which are included elsewhere in this Information
Statement. This historical financial data relates to OCOM as it was operated
prior to its acquisition by the Company.
The pro forma financial data were derived from the "Unaudited Pro Forma
Financial Information" that give pro forma effect to the acquisitions of OCOM,
Digicom and Wireless Outlet by CoreComm (collectively, the "Acquisitions"),
CoreComm's contribution to the Company of the Acquisitions and other assets and
to CoreComm's funding of the Company through a $150 million capital contribution
(see "DESCRIPTION OF CORECOMM FUNDING OF THE COMPANY") (the Acquisitions and the
contributions are defined as the "Transactions"). The pro forma adjustments are
based upon available information and certain assumptions that management
believes are reasonable. The pro forma statement of operations data for the six
months ended June 30, 1998 and for the year ended December 31, 1997 give effect
to the Transactions as if they had occurred on January 1, 1997. The pro forma
balance sheet data give effect to the Transactions as if they had occurred as of
June 30, 1998. The pro forma financial data do not purport to represent what the
financial position or results of operations of the Company would actually have
been had the Transactions in fact occurred on the assumed dates or to project
the financial position or results of operations of the Company for any future
period or date. These tables should be read in conjunction with "Unaudited Pro
Forma Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the audited Financial Statements
included elsewhere herein.
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NEWCO OCOM
-------------------------------------------------- -------------------
PRO FORMA HISTORICAL PRO FORMA
------------- -------------- ----------------- FOR THE PERIOD FROM
FOR THE SIX FOR THE PERIOD JANUARY 1, 1998 TO
MONTHS FROM APRIL 1, JUNE 1, 1998
ENDED 1998 TO YEAR ENDED (DATE ACQUIRED BY
JUNE 30, 1998 JUNE 30, 1998 DECEMBER 31, 1997 THE COMPANY)
------------- -------------- ----------------- -------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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STATEMENT OF
OPERATIONS DATA:
Revenues............. $ 4,569 $ 1,261 $ 9,150 $ 1,452
Operating (loss)..... (4,487) (1,381) (4,900) (2,782)
Net (loss)........... (4,487) (1,381) (4,919) (2,782)
Basic and diluted net
(loss) per share... (0.34) (0.38)
Weighted average
shares............. 13,183 13,075
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OCOM
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HISTORICAL
-------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ---------------------------
JUNE 30, 1997 1997 1996 1995
------------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
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STATEMENT OF
OPERATIONS DATA:
Revenues............. $ 1,961 $ 3,579 $ 5,103 $ 4,001
Operating (loss)..... (1,443) (4,375) (1,230) (4,412)
Net (loss)........... (1,447) (4,379) (1,097) (4,154)
Basic and diluted net
(loss) per share...
Weighted average
shares.............
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NEWCO
-----------------------
JUNE 30, 1998
-----------------------
PRO FORMA HISTORICAL
--------- ----------
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BALANCE SHEET DATA:
Working capital............. $149,025 $ (975)
Fixed assets, net........... 1,687 1,687
Total assets................ 181,579 31,579
Long-term debt.............. -- --
Shareholder's equity........ 178,540 28,540
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INTRODUCTION
On June 3, 1998, the Board of Directors of CoreComm resolved to declare a
dividend payable to holders of record of CoreComm Common Stock at the close of
business on the Record Date of one share of Newco Common Stock for each share of
CoreComm Common Stock held on the Record Date. The Distribution will be
effective on September 2, 1998. As a result of the Distribution, 100% of the
outstanding shares of Newco Common Stock will be distributed to CoreComm
stockholders.
On August 18, 1998, CoreComm transferred to the Company substantially all
of the subsidiaries operating the Newco Businesses. Prior to that date, CoreComm
operated the Newco Businesses through wholly owned subsidiaries.
If you have questions relating to the Distribution, please contact the
Distribution Agent at: (212) 509-4000.
For other information relating to CoreComm or the Company, please contact
either company at: 110 East 59th Street, New York, NY 10022 (Telephone: (212)
906-8485).
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The Board of Directors of CoreComm has determined that it is in the best
interest of CoreComm and its stockholders to undertake the Distribution, thereby
separating the Newco Businesses from CoreComm, for the reasons described herein.
CoreComm's strategy, in creating and distributing shares of Newco, is to create
an appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment.
The Distribution is designed to establish Newco as a stand alone company
that can adopt strategies and pursue objectives appropriate to its specific
businesses. As a separate company, the Company's management should better be
able to access the capital markets to finance these new telecommunications
opportunities and to structure and operate the Company in a manner more directly
and appropriately tailored to meet the business opportunities and challenges
presented by the competitive telecommunications environment in which the Company
operates.
CoreComm believes that the separation of the Newco Businesses from its
established Puerto Rico and U.S. Virgin Islands telecommunications businesses
will allow the two entities to be recognized and appropriately valued by the
financial community as distinct businesses with different investment risk and
return profiles. As a result of the Distribution, CoreComm should develop and
enhance its following in the financial community primarily as a leading provider
of telecommunications services in Puerto Rico and the U.S. Virgin Islands while
the Company should develop its following primarily as an entrepreneurial
telecommunications company. In this regard, investors will be better able to
evaluate the merits and future prospects of the businesses of CoreComm and the
Company, enhancing the likelihood that each will achieve appropriate market
recognition and valuation for its performance and potential. In addition,
current stockholders and potential investors will be better able to direct their
investments to their specific areas of interest. The Distribution will also
enable the Company, as and when appropriate, to explore the possibility of
engaging in strategic acquisitions, joint ventures and other collaborative
arrangements.
The Distribution is also designed to allow each of the Company and
CoreComm, respectively, to establish and tailor its own equity-based
compensation plans so that there will be a more direct alignment between the
performance of each business and the compensation of its management. Following
the Distribution, it is anticipated that the Company's management will be
granted stock options which will be closely aligned with the financial results
of the Company, thereby linking each employee's financial success directly to
the financial success of the Company. Among other things, the implementation of
a separate Newco stock option plan is intended to strengthen and enhance the
incentives for the Company's management to capitalize on opportunities to grow
the business and enhance operating efficiencies. See "MANAGEMENT."
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For the reasons stated above, the CoreComm Board of Directors believes that
the Distribution is in the best interest of CoreComm, the Company and CoreComm's
shareholders.
TRANSACTIONS RELATED TO THE DISTRIBUTION
CoreComm has contributed all of its non-Puerto Rico and U.S. Virgin Islands
businesses to the Company, as described in the following sections. CoreComm also
intends to change its name to Cellular Communications of Puerto Rico, Inc.
Because that name is currently being used by a wholly owned subsidiary of
CoreComm, that subsidiary will change its name to CCPR, Inc. CoreComm expects to
cause the name changes to occur prior to the Distribution. Additionally, prior
to the Distribution, CoreComm intends to contribute to the Company $150 million
in cash, which was obtained through a credit agreement entered into by CCPR
Services, Inc. (Delaware) ("Services"), an indirect wholly owned subsidiary of
CoreComm, with The Chase Manhattan Bank and other lenders on August 11, 1998. On
August 11 and 12, 1998 Services drew down under the credit agreement an
aggregate of $155 million of which $150 million was transferred to CoreComm. See
"CORECOMM FUNDING OF THE COMPANY."
The following sections detail the current structure of CoreComm, the
transactions that resulted in CoreComm's owning the Newco Businesses, the
structure of the Company following the contribution by CoreComm of the Newco
Businesses to the Company, and the transactions between CoreComm and the Company
that resulted in that structure, in which Newco now owns the Newco Businesses.
Current Structure of CoreComm Incorporated
CoreComm currently has a holding company structure, in which its
subsidiaries carry on various lines of businesses. The structure is described in
the chart following this section entitled "CoreComm Incorporated Structure." In
planning the Distribution, CoreComm undertook to acquire OCOM and various
complementary lines of business in the communications industry that have been
contributed to the Company. CoreComm's subsidiaries currently carrying on
CoreComm's principal lines of business, including the transactions through which
such businesses were acquired, are as follows:
- Cellular Communications of Puerto Rico, Inc. (Delaware), through wholly
owned subsidiaries, carries on telecommunications businesses in Puerto
Rico and the U.S. Virgin Islands, including cellular telephone service,
cellular long distance service and paging service (collectively the
"Puerto Rico and U.S. Virgin Islands Telecommunications Businesses").
- On June 1, 1998 CoreComm Newco, Inc. (Delaware) ("CNI"), a wholly owned
direct subsidiary of CoreComm, purchased substantially all of the assets
and related liabilities of OCOM Corporation (the predecessor), a
subsidiary of NTL Incorporated (Delaware), for a cash purchase price of
$1,312,069. CNI's businesses include CLEC service, cellular long
distance, landline long distance and cellular resale service, primarily
in the State of Ohio. See "BUSINESS --", "-- Competitive Local Exchange
Carrier Business", "-- Cellular Long Distance Business", "-- Landline
Long Distance Business" and "-- Cellular Resale Business."
- CoreComm Telco, Inc. (Delaware) owns 28 subsidiaries (Delaware) (the
"Telco Group"), each of which has applied or will apply in a single state
for certification to offer CLEC service (the "28 CLEC Subsidiaries").
Thus far, certification has been granted in Ohio and New York. See
"BUSINESS -- Competitive Local Exchange Carrier Business."
- All of the capital stock of Digicom, Inc. (Ohio) ("Digicom") was acquired
by CoreComm through an agreement dated as of February 11, 1998, for a
cash purchase price of $2 million. Digicom is in the business of
centralized telecommunications services. See "BUSINESS -- Centrex
Business."
- CoreComm purchased all of the operating assets of JeffRand
Corp.("Wireless Outlet") pursuant to an agreement dated as of February
12, 1998, for a cash purchase price of $400,000. Wireless Outlet consists
of a paging business and a prepaid cellular business. CoreComm
subsequently transferred these assets to Prepaid Communications Corp.
(Delaware), an indirect wholly owned subsidiary of
7
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CoreComm, that is now an indirect wholly owned subsidiary of the Company.
See "BUSINESS -- Paging Business" and "-- Prepaid Cellular Business."
- CoreComm formed the Company on March 18, 1998, in order to effect the
Distribution. The Company's original name was Cortelyou Communications
Ltd., which subsequently was changed to CoreComm Limited. The Company
currently is a wholly owned direct subsidiary of CoreComm.
- Cortelyou Communications Corp. (Delaware) ("Cortelyou") owns 15 LMDS
licenses that were obtained through an FCC auction, as described more
fully in the section entitled "BUSINESS -- Local Multipoint Distribution
Service Business." The licenses were granted on June 8, 1998. CoreComm
made the final payment to the FCC on June 22, 1998, for a total of $25.2
million paid for the LMDS licenses. See also "REGULATION -- LMDS."
8
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CORECOMM INCORPORATED STRUCTURE AS OF AUGUST 19, 1998
[CORECOMM INCORPORATED ORGANIZATIONAL CHART]
9
<PAGE> 14
Planned Structure of CoreComm Limited
On August 18, 1998 CoreComm contributed to the Company all of the above
businesses except for the Puerto Rico and U.S. Virgin Islands Telecommunications
Businesses (the "Contributions") The Contributions consisted of the capital
stock of the Telco Group, Digicom, Wireless Outlet, CNI and Cortelyou. The
post-Distribution structure of CoreComm Limited is detailed in the chart
following this section entitled "CoreComm Limited (Newco) Structure." The
Contributions and Distribution result in CoreComm Limited having a holding
company structure, with the following subsidiaries of the Company operating the
following principal businesses, as a result of the transactions specified:
- The Company will contribute all of the capital stock of CoreComm Telco,
Inc. to CoreComm Operating Co. Ltd. (Bermuda), a wholly owned subsidiary
of the Company, which as a result will indirectly own the 28 CLEC
Subsidiaries.
- The Company will contribute all of the capital stock of the following
subsidiaries to CoreComm Ohio Ltd. (Bermuda), an indirectly wholly owned
subsidiary of the Company, each of which will continue to carry on the
same businesses as it did as a subsidiary of CoreComm: Prepaid
Communications Corp., Digicom, Inc., CoreComm Newco, Inc. and Cortelyou
Communications Corp. Cortelyou Communications Corp. is held by FCC Holdco
I, Inc. (Delaware), a wholly owned direct subsidiary of CoreComm Ohio,
Ltd.
Detailed descriptions of the businesses that are carried on by the Company
appear in the section entitled "BUSINESS --."
10
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CORECOMM LIMITED (NEWCO) STRUCTURE
[CORECOMM LIMITED ORGANIZATIONAL CHART]
11
<PAGE> 16
Current Structure of CoreComm After the Contributions
CoreComm retains and continues to carry on all of the Puerto Rico and U.S.
Virgin Island Telecommunications Businesses.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in a Distribution Agreement, dated as of August 18, 1998 (the "Distribution
Agreement"), between CoreComm and the Company. See "RELATIONSHIP BETWEEN
CORECOMM AND THE COMPANY AFTER THE DISTRIBUTION."
The Distribution will be made on the basis of one share of Newco Common
Stock for each share of CoreComm Common Stock held on the Record Date. The
actual total number of shares of Newco Common Stock to be distributed will
depend on the number of shares of CoreComm Common Stock outstanding on the
Record Date. Based upon the shares of CoreComm Common Stock outstanding on
August 14, 1998, approximately 13,198,000 shares of Newco Common Stock will be
distributed to CoreComm's stockholders. The shares of Newco Common Stock will be
fully paid and nonassessable and the holders thereof will not be entitled to
preemptive rights. See "DESCRIPTION OF COMPANY CAPITAL STOCK."
Prior to the Distribution Date, CoreComm will deliver all shares of Newco
Common Stock to be distributed ("Distribution Shares") to the Distribution Agent
for distribution. The Distribution Agent will mail, beginning on or about the
Distribution Date, certificates representing the Distribution Shares to CoreComm
shareholders of record on the Record Date. CoreComm shareholders will not be
required to pay for shares received in the Distribution, or to surrender or
exchange CoreComm shares in order to receive shares of Newco Common Stock. No
vote of CoreComm shareholders is required or sought in connection with the
Distribution.
No holder of CoreComm Common Stock will be required to pay any cash or
other consideration for the shares of Newco Common Stock received in the
Distribution or to surrender or exchange shares of CoreComm Common Stock in
order to receive shares of Newco Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material anticipated Federal
income tax consequences under current law relating to the Distribution. This
summary is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated thereunder and
administrative rulings and judicial decisions now in effect, all of which are
subject to change, possibly with retroactive effect. The following discussion
does not purport to deal with all aspects of Federal income taxation that may be
applicable to specific stockholders. In particular, the following discussion may
not be applicable to stockholders who acquired their shares of CoreComm capital
stock pursuant to the exercise of employee stock options or other compensation
arrangements with CoreComm or who are not citizens or residents of the United
States or who are otherwise subject to special tax treatment. In addition, this
discussion applies only to stockholders who have held their CoreComm Common
Stock and will hold their Newco Common Stock as capital assets.
EACH STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR FEDERAL TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE DISTRIBUTION, AS
WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX
LAWS.
Earnings and Profits. The discussion below refers to current and
accumulated earnings and profits for Federal income tax purposes. CoreComm
presently believes that it does not have, as of the date hereof, any current or
accumulated earnings and profits. However, CoreComm may generate current
earnings and profits for 1998, including as a result of the Distribution. It is
impossible to predict whether the Company or CoreComm will have earnings and
profits for 1998. Similarly, earnings and profits of the Company during years
after 1998 will depend on future activities, as to which no predictions can be
made.
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The Distribution. The Distribution will be a taxable transaction for
Federal income tax purposes. Accordingly, an amount equal to the fair market
value on the Distribution Date of Newco Common Stock distributed to each
stockholder will be taxable to such stockholder as a dividend, but only to the
extent of the stockholder's portion of CoreComm's current and accumulated
earnings and profits for Federal income tax purposes for the year of the
Distribution. The amount, if any, of such fair market value that exceeds the
stockholder's portion of such earnings and profits will be treated first, as a
nontaxable reduction of the stockholder's tax basis in his shares of CoreComm
Common Stock, to the extent of such tax basis, and thereafter, as gain from the
sale of such shares. Such gain will be capital gain and will be long-term
capital gain if the Corecomm Common Stock has been held for more than one year.
In general, a dividend for Federal income tax purposes that is made from
CoreComm to a corporate stockholder will qualify for the 70% dividends received
deduction under Section 243 of the Code, to the extent certain holding period
and other requirements are met. Corporate stockholders should note, however,
that there can be no assurance that there will be sufficient earnings and
profits for any of the Distribution to constitute a dividend for Federal income
tax purposes. In addition, certain "extraordinary dividends" under Section 1059
of the Code could cause a corporate holder that claims the dividends received
deduction to reduce its tax basis in its CoreComm Common Stock. Corporate
holders of CoreComm Common Stock are advised to consult their own tax advisors
regarding the treatment of the Distribution as a dividend.
A stockholder's initial tax basis in Newco Common Stock generally will
equal such stock's fair market value on the Distribution Date, and his holding
period for the Newco Common Stock will begin on the Distribution Date.
To the extent that the fair market value of the assets contributed by
CoreComm to Newco prior to the distribution exceeds CoreComm's tax basis
therein, or to the extent that the fair market value of the Newco Common Stock
on the Distribution Date exceeds CoreComm's tax basis in the Newco Common Stock
immediately before the distribution, then CoreComm will recognize capital gain,
and generate current earnings and profits in an amount equal to such excess. No
loss will be recognized.
Ownership of Newco Common Stock. For U.S. Federal income tax purposes, and
subject to the discussion below regarding PFICs (as defined below), a
stockholder will recognize gain or loss equal to the difference between the
amount realized on a sale or exchange of Newco Common Stock and his tax basis
therein. Any such gain or loss will be capital gain or loss, and will constitute
long-term capital gain if such stock was held more than one year.
The Company will be a passive foreign investment company (a "PFIC") if 75%
or more of its gross income (including the pro rata share of the gross income of
any company, U.S. or foreign, in which the Company is considered to own 25% or
more of the shares by value) in a taxable year is passive income (the "Income
Test"). Alternatively, the Company will be considered to be a PFIC if at least
50% of the assets (averaged over the year and generally determined based upon
fair market value) of the Company (including the pro rata share of the assets of
any company of which the Company is considered to own 25% or more of the shares
by value) in a taxable year are held for the production of, or produce, passive
income (the "Asset Test"). Notwithstanding the foregoing, however, a corporation
shall not be treated as a PFIC for the first taxable year it has gross income
(the "start-up year") if (i) no predecessor of such corporation was a PFIC, (ii)
it is established to the satisfaction of the Secretary of the Treasury that such
corporation will not be a PFIC for either of the first two taxable years
following the start-up year, and (iii) such corporation is not a PFIC for either
of the first two years following the start-up year. If the Company becomes a
PFIC, each stockholder who is a U.S. person, in the absence of an election by
such stockholder to treat the Company as a "qualified electing fund" (a "QEF
election"), as discussed below, upon certain distributions by the Company and
upon disposition of the Newco Common Stock at a gain, would be liable to pay tax
at the then prevailing income tax rates on ordinary income plus interest on the
tax, as if the distribution or gain had been recognized ratably over the
stockholder's holding period for the Newco Common Stock. Additionally, if the
Company were to become a PFIC, stockholders who acquire Newco Common Stock from
a decedent would be denied the normally available step-up of the tax basis for
such shares to fair market value at the date of death and instead would have a
tax basis equal to the decedent's basis, if lower.
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If a stockholder had made a QEF election for all taxable years that such
shareholder has held the Newco Common Stock and the Company were a PFIC,
distributions and gain will not be deemed to have been recognized ratably over
the stockholder's holding period or be subject to an interest charge, gain on
the sale of Newco Common Stock will be characterized as capital gain and the
denial of basis step-up at death described above will not apply. Instead, a
stockholder that has made a QEF election is required for each taxable year to
include in income a pro rata share of the ordinary earnings of the qualified
electing fund as ordinary income and a pro rata share of the net capital gain of
the qualified electing fund as capital gain, regardless of whether the Company
has distributed such earnings or gain.
A stockholder of certain publicly traded PFIC stock could elect to mark the
stock to market annually, recognizing as ordinary income or loss each year an
amount equal to the difference between the holder's adjusted basis in the PFIC
stock and its fair market value. Losses would be allowed only to the extent of
net mark-to-market gain previously included by the stockholder under the
election for prior taxable years. If the mark-to-market election were made, then
the rules set for the above would not apply for periods covered by the election.
The tests for determining PFIC status are applied annually and it is
difficult to make accurate predictions of future income and assets, which are
relevant to this determination. Accordingly, there can be no assurance that the
Company will not become a PFIC. If the Company's income and fair market value of
assets for its first taxable year ending December 31, 1998 do not change
significantly from the Distribution Date, the Company likely would meet the
Income Test or Asset Test for determining PFIC status. Such change could result,
for example, from the acquisition of one or more businesses that would enable
the Company to fail the Income Test and Asset Test for determining PFIC status.
However, if the Company still met those tests by year end, it could still
qualify for the "start-up year" exception to PFIC status described above,
depending upon, for example, its use of cash.
The Company will comply with applicable information reporting requirements
for stockholders to make a QEF election and will promptly supply a PFIC annual
information statement to any stockholder or former stockholder who requests it,
as well as any other information that may be required to give effect to a QEF
election. Stockholders should consult their own tax advisors regarding
eligibility, manner and advisability of making a QEF election if the Company is
treated as a PFIC.
THE DISCUSSION ABOVE DOES NOT COVER ALL ASPECTS OF FEDERAL TAXATION THAT
MAY BE RELEVANT TO PARTICULAR STOCKHOLDERS. ACCORDINGLY, STOCKHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES
OF THE DISTRIBUTION.
LISTING AND TRADING OF NEWCO COMMON STOCK
The Company has applied for listing of the shares of Newco Common Stock on
the Nasdaq National Market System under the symbol "COMMF." The Company is
expected to have initially approximately 317 holders of record, based on the
number of stockholders of record of CoreComm on August 14, 1998.
A "when-issued" trading market is expected to develop on or about the
Record Date. The term "when-issued" means that shares can be traded prior to the
time certificates are actually available or issued. Prices at which the shares
of Newco Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. See "RISK FACTORS -- Absence of Prior Trading
Market for Newco Common Stock."
The shares of Newco Common Stock distributed to CoreComm stockholders will
be freely transferable, except for shares received by persons who may be deemed
to be "affiliates" of the Company within the meaning of the Securities Act of
1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of the Company after the Distribution generally include individuals
or entities that control, are controlled by, or are under common control with
the Company and may include the directors and principal executive officers of
the Company as well as any principal stockholder of the Company. Persons who are
affiliates of the Company will be permitted to sell their shares of Newco Common
Stock only pursuant to an effective registration statement under the Securities
Act or an exemption from the registration requirements of the Securities Act,
such as the exemptions afforded by Section 4(2) of the Securities Act and Rule
144 thereunder.
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RISK FACTORS
LIMITED OPERATIONS; EARLY STAGE COMPANY
Aside from OCOM's cellular long distance business, which has been operating
for seven years, the Company has only recently begun managing the other Newco
Business, and has only recently begun to develop the requisite staff and plans
necessary to effectively manage and operate these businesses. Therefore,
historical financial information is reflective of a company in the early growth
stage of its development. Prospective investors should be aware of the
difficulties encountered by enterprises in development, like the Company,
especially in view of the highly competitive nature of the telecommunications
industry. See "-- New Industry and Technology Risks and Limitations."
OPERATING HISTORY AND FUTURE PROSPECTS; TRANSITION TO AN INDEPENDENT PUBLIC
COMPANY
The Company was formed from various, separate previously owned CoreComm
subsidiaries and independent businesses, and does not have an operating history
as an independent public company. Accordingly, the financial statements included
herein may not necessarily reflect the results of operations, financial
condition and cash flows that would have been achieved had the Newco Businesses
been operated as an independent company during the periods presented. Following
the Distribution, the Company will also be responsible for the costs associated
with being an independent public company, including costs related to corporate
governance, listed and registered securities and investor relations issues.
Moreover, the financial statements included herein do not reflect many
changes that may occur in the operations of the Company as a result of the
Company's future business strategies. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS." There can be
no assurance as to the timing or amount of any positive contribution which may
be realized from these changes or that these changes might not result in
material adverse consequences.
The Company's future results of operations will also depend upon a number
of factors and events, including the following: (i) the levels of demand for the
Company's existing products; (ii) the substantial competition encountered by the
Company in all of its lines of business (see "-- Competition"); (iii) the effect
of future regulatory changes; and (iv) the Company's transition to a separate
public company and the costs associated therewith.
LIQUIDITY AND CAPITAL RESOURCES
The Company will require significant capital resources to develop and
expand its existing businesses and licenses, acquire or develop additional
telecommunications-related business, and fund near term operating losses. The
Company intends to fund its near term capital expenses, operating losses and
working capital requirements with a $150,000,000 capital contribution in cash to
be received from CoreComm prior to the Distribution. Longer term, it is likely
that the Company will be required to raise additional debt and/or equity
financing to fully implement its goals. See "DESCRIPTION OF CORECOMM FUNDING OF
THE COMPANY."
The existing resale businesses will consume capital to acquire new
customers and to finance the working capital required to support these new
customers. These businesses will also require additional billing, customer
service and other back-office infrastructure. These capabilities can be expanded
in-house or can be outsourced to reduce up-front capital requirements.
The amount of capital required to construct the LMDS systems in unknown at
this time, but is likely to be several times the cost of the licenses. In
addition to up-front network construction costs, a significant ongoing capital
requirement will be the cost to acquire customer premise equipment to receive
and transmit LMDS signals. The network and customer premise equipment costs are
unknown because a de facto standard has yet to emerge among the LMDS auction
winners and because insufficient orders have been placed with
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<PAGE> 20
manufacturers who determine likely prices for equipment. As license holders
choose equipment manufacturers and one or more equipment standard emerges,
prices will become more easily quantifiable.
COMPETITION
The telecommunications industry and all of its segments are highly
competitive. Newco's Competitive Local Exchange Carrier ("CLEC") business, which
is in the development stage, will operate in this highly competitive
environment. The Company expects that competition will continue to intensify in
the future due to the increase in the size, resources and number of market
participants. In each of its markets, the Company faces competition from larger,
better capitalized incumbent providers.
In the local exchange markets, the Company also faces competition or
prospective competition from one or more CLECs, many of which have significantly
greater financial resources than the Company, and from other competitive
providers, including some non-facilities-based providers like the Company. For
example, AT&T, MCI and Sprint, among other carriers, have each begun to offer
local telecommunications services in major U.S. markets using their own
facilities or by resale of the ILECs' or other providers' services. In fact,
certain competitors, including AT&T, MCI and Sprint, have entered into
interconnection agreements with Ameritech (as defined) with respect to the
States of Michigan and Ohio, where the Company currently operates. These
competitors either have begun or in the near future likely will begin offering
local exchange service in those states, subject to the joint marketing
restrictions under the Telecommunications Act. In addition to these long
distance service providers, entities that currently offer or are potentially
capable of offering switched services include other CLECs, cable television
companies, electric utilities, other long distance carriers, microwave carriers,
wireless telephone system operators and large customers who build private
networks. Many facilities-based CLECs and long distance carriers, for example,
have committed substantial resources to building their networks or to purchasing
CLECs or Inter Exchange Carriers ("IXC's") with complementary facilities. By
building or purchasing a network or entering into interconnection agreements or
resale agreements with ILECs, including Regional Bell Operating Companies
("RBOCs"), a facilities-based provider can offer single source local and long
distance services similar to those offered by the Company. Such additional
alternatives may provide such competitors with greater flexibility and a lower
cost structure than the Company. In addition, some of these CLECs and other
facilities-based providers of local exchange service are acquiring or being
acquired by IXCs. While certain of these combined entities may continue to be
subject to the joint marketing restrictions in the Telecommunications Act,
others will not be subject to such restrictions. Any of these combined entities
may have resources far greater than those of the Company. These combined
entities may provide a bundled package of telecommunications products, including
local and long distance telephony, that is in direct competition with the
products offered or planned to be offered by the Company. See
"BUSINESS -- REGULATION" and "BUSINESS -- COMPETITION."
The Company's LMDS Business will compete with franchised cable systems and
also may face competition from several other sources, such as Multichannel
Multipoint Distribution Systems ("MMDS"), Satellite Master Antenna Television
systems, DBS, video service from telephone companies and television receive-only
satellite dishes. Moreover, the Telecommunications Reform Act eliminates
restrictions that prohibit local telephone exchange companies from providing
video programming in their local telephone service areas and substantially
reduces current and future regulatory burdens on franchised cable systems, thus
potentially resulting in significant additional competition from local telephone
companies and franchised cable systems.
Pay television operators face competition from other sources of
entertainment, such as movie theaters and computer on-line services. Further,
premium movie services offered by cable television systems have encountered
significant competition from the home video industry. In areas where several
off-air television broadcasts can be received without the benefit of cable
television, cable television systems have experienced competition from such
broadcasters.
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Many actual and potential competitors have greater financial, marketing and
other resources than the Company. No assurance can be given that the Company
will be able to compete successfully. See "BUSINESS -- REGULATION -- LMDS" and
"BUSINESS -- COMPETITION."
NEW INDUSTRY AND TECHNOLOGY RISKS AND LIMITATIONS
The Company's planned LMDS broadband wireless telecommunications system
utilizes a new technology with a limited operating history whose system
architecture remains subject to further development and refinement. In the past,
other companies experienced a number of technical difficulties, some of which
have affected subscriber acceptance of their systems. Additional technical
issues may arise in the course of system deployment that could adversely affect
reception quality and coverage of the Company's possible service areas. In
addition, the Company believes that a significant percentage of the households
in the Company's LMDS markets will be located in "shadowed" areas capable of
receiving the transmitted signal only with the assistance of small, low cost
"repeaters," which the Company may deploy. The Company would only deploy
repeaters where such deployment is economically justifiable. Two-Way Services
will require the development and mass production of appropriate equipment. There
can be no assurance that such equipment will become commercially available at a
cost acceptable to the Company. While a number of techniques, including digital
compression and frequency reuse technologies, can expand the effective capacity
of the Company's system, the Company's capacity to support high service volumes
will ultimately be limited by its total available bandwidth and limitations of
the technology it employs. See "BUSINESS -- LMDS Business" and
"BUSINESS -- REGULATION -- LMDS".
POSSIBILITY OF LOSS OF CELLULAR ONE(R) BRAND NAME; COSTS OF INTRODUCING NEW
BRAND NAME
The Company has a license for the use of the service mark and trademark
CELLULAR ONE(R), in the States of Ohio and Michigan which is also licensed to
many of the non-wireline cellular systems in the United States. In 1997, the
owners of such mark entered into a new agreement with OCOM Corporation, with an
effective thirteen-year term, which agreement was assigned to a subsidiary of
the Company on June 1, 1998. Under the Cellular One(R) Agreement, the Company is
required to maintain certain service quality standards and to pay licensing and
other fees for the use of the service mark. If the Company had to adopt a new
brand name, it could encounter significant challenges in marketing its services
under the new brand name. The Company believes that the use of the nationally
recognized Cellular One(R) brand name will assist in attracting and retaining
customers in its markets. The Company would have to make large advertising and
promotional expenditures to position a new brand name in its regional and local
markets. The Company is unable to predict the extent of expenditures that would
be necessary to implement such a strategy. The Company is also unable to predict
with certainty the extent to which the substitution of a new brand name may
adversely affect its retention and acquisition of customers, its access to
distribution channels or its financial performance.
Although the Company anticipates that it will continue to have use of the
mark, there is no guarantee that it will remain available after the expiration
of the existing agreements. Moreover, it is possible that the Company will cease
to meet the service quality standards required to maintain use of the mark. See
"BUSINESS -- Patents, Copyrights and Licenses."
DEPENDENCE ON RELATIONSHIPS WITH THIRD-PARTY FACILITIES-BASED PROVIDERS
The Company does not own any part of a local exchange network or a long
distance network. As a result, the Company depends entirely on facilities-based
carriers for its various resale based services, and has entered into agreements
with such carriers. Although the Company believes that its relations with its
underlying carriers are good, the termination of any of the Company's contracts
with its carriers or a reduction in the quality or increase in cost of such
carriers' services could have a material adverse effect on the Company's
financial condition and results of operations. In addition, the accurate and
prompt billing of the Company's customers is dependent upon the timeliness and
accuracy of call detail records provided by the carriers whose service the
Company resells. There can be no assurance that the current carriers will
continue to provide, or that new carriers will provide, accurate information on
a timely basis, and such carrier's failure to do so could have a material
adverse effect on the Company's financial condition and results of operations.
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<PAGE> 22
In addition, physical damage, power loss and software defects (including
the inability to update their systems to be Year 2000 compliant) of the
facilities-based carriers may cause interruption in service and/or reduced
capacity for the Company's customers. In the event that the Company's long
distance carriers are unable to handle the growth in customer usage, the Company
could transfer such traffic to a carrier that had sufficient capacity, but there
can be no assurance that additional capacity will be available. If any of the
local exchange carriers are unable to handle the provisioning or growth in
customer usage, then the Company would be required to use another local carrier,
which could be difficult in light of the limited development of facilities-based
competitive local exchange networks. In the event the Company otherwise elects
to use other carriers, the charges for such services may exceed those under the
existing contracts, which could have a material adverse effect on the Company's
financial condition and results of operations. See "BUSINESS."
RISK OF SUBSCRIBER ACCEPTANCE AND SERVICE CANCELLATION
The success of the Company's business strategy will depend upon consumer
acceptance of the Company's planned offerings, most of which are in their early
stages of deployment or are only in the planning stage. Subscriber acceptance
could be adversely affected by, among other things, customer loyalty to more
established competitors and unfamiliarity with the Company's systems. In
addition, there can be no assurance that technical problems will not impede or
delay subscriber acceptance of the Company's services.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the abilities and continued efforts of its senior management to execute its
business strategy. The loss of the services of any of such individuals could
have a material adverse effect upon the Company's results of operations and
financial condition. The members of senior management are all officers and/or
directors of other companies. None of these individuals have entered into
employment agreements with the Company. See "MANAGEMENT -- Executive Officers."
POTENTIAL CONFLICTS OF INTEREST FOR OFFICERS AND DIRECTORS
Certain officers and directors of the Company are also officers and
directors of NTL, Cellular Communications International, Inc. ("CCII") and
CoreComm (the "Former Affiliates"). (See "MANAGEMENT -- Directors," and
"-- Executive Officers"). From time to time, opportunities may arise that would
be pursued by one or more of the Former Affiliates or the Company. Because all
of the directors of the Company are directors of one or more of the Former
Affiliates, decisions respecting such opportunities may result in a conflict of
interest. In those instances, the Company's Board of Directors will seek to act,
with the advice of the Company's counsel, in a manner consistent with each
director's duties to the Company and its shareholders under the law.
ABSENCE OF PRIOR TRADING MARKET FOR NEWCO COMMON STOCK
There has not been any established public trading market for Newco Common
Stock, although it is expected that a "when-issued" trading market will develop
on or about the Record Date. The Company has applied for listing of the Newco
Common Stock on the Nasdaq National Market System. However, there can be no
assurance either as to the prices at which shares of Newco Common Stock will
trade before or after the Distribution Date. Until the Newco Common Stock is
fully distributed and an orderly market for those shares develops, the prices at
which such shares trade may fluctuate significantly. Prices for shares of Newco
Common Stock will be determined in the marketplace and may be influenced by many
factors, including the nature and liquidity of the market for the shares,
investor perception of the Company, the competitive environment of the
industries in which the Company participates, and general economic and market
conditions.
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DIVIDENDS AND SHARE REPURCHASES
The payment and amount of cash dividends or share repurchases, if any, on
the Newco Common Stock after the Distribution will be subject to the discretion
of the Company's Board of Directors. The Company's policy will be reviewed by
the Company's Board of Directors at such future times as may be appropriate, and
payment of dividends on or share repurchases of the Newco Common Stock will
depend upon the Company's financial position, capital requirements,
profitability, cash flows, and such other factors as the Company's Board of
Directors deems relevant. At present, the Company has no plans to pay cash
dividends in the foreseeable future.
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND
OTHER MATTERS
Certain provisions of the Company's By-Laws, including provisions
classifying the Board of Directors, prohibiting stockholder action by written
consent and requiring advance notice for nomination of directors and stockholder
proposals, may inhibit changes of control of the Company that are not approved
by the Company's Board of Directors. Such By-Law provisions and preferred stock
purchase rights could diminish the opportunities for a stockholder to
participate in certain tender offers, including tender offers at prices above
the then-current fair market value of the Newco Common Stock, and may also
inhibit fluctuations in the market price of the Newco Common Stock that could
result from takeover attempts. In addition, the Company's Board of Directors,
without further stockholder approval, may issue preferred stock that could have
the effect of delaying, deferring or preventing a change in control of the
Company. The issuance of preferred stock could also adversely affect the voting
power of the holders of Newco Common Stock, including the loss of voting control
to others. The Company has no present plans to issue any preferred stock. The
provisions of the By-Laws and the preferred stock purchase rights may have the
effect of discouraging or preventing an acquisition of the Company or a
disposition of certain of the Company's businesses. See "DESCRIPTION OF COMPANY
CAPITAL STOCK -- Certain Special Provisions of the By-Laws."
GOVERNMENT REGULATION
The Company is subject to extensive regulation by the FCC and by the public
utility commissions of various states. Changes in statutes, regulations or
judicial interpretations, such as permitting new competitors to enter the
communications services marketplace, which is an element of the
Telecommunication Act of 1996 (the "Telecommunications Act"), could have
material adverse effects on the Company's operations. See
"BUSINESS -- REGULATION"
BERMUDA COMPANY
The Company's corporate affairs are governed by its Memorandum of
Association and By-laws and by the laws governing corporations incorporated in
Bermuda. The rights of shareholders of the Company and the responsibilities of
members of the Company's Board of Directors under Bermuda law are different from
those applicable to a corporation incorporated in the United States. For a
description of certain relevant provisions of Bermuda law, see "DESCRIPTION OF
COMPANY CAPITAL STOCK --."
RELATIONSHIP BETWEEN CORECOMM
AND THE COMPANY AFTER THE DISTRIBUTION
GENERAL
The Company's relationship with CoreComm will be governed by agreements to
be entered into in connection with the Distribution, including a Distribution
Agreement and a Tax Disaffiliation Agreement, the material terms of which are
described below. The descriptions set forth below are intended to be summaries,
and while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety by reference to the relevant
agreement filed as an exhibit to the Registration Statement of which this
Information Statement is a part.
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DISTRIBUTION AGREEMENT
CoreComm and the Company have, effective August 18, 1998, entered into the
Distribution Agreement. The Distribution Agreement provides that on the date of
the Distribution, CoreComm will deliver to the Distribution Agent a certificate
or certificates representing 100% of the shares of Newco Common Stock. Upon
receipt of a certificate from the Secretary or other appropriate officer of
CoreComm certifying the number of shares of CoreComm Common Stock outstanding on
the Record Date, Newco will deliver to CoreComm for the benefit of holders of
record of CoreComm Common Stock on the Record Date, one share of Newco Common
Stock for every share of CoreComm Common Stock outstanding and will instruct the
Distribution Agent to distribute the shares to the holders of CoreComm Common
Stock on the basis of one share of Newco Common Stock for every share of
CoreComm Common Stock owned on the Record Date. The Distribution Agreement
further provides that CoreComm and Newco will cooperate to determine the amount
of taxes or other government fees payable in connection with the Distribution
and that payment of such fees shall be the responsibility of Newco and shall be
reimbursed by Newco to CoreComm promptly upon request. All other costs
associated with the Distribution will be paid by CoreComm.
The Distribution Agreement is governed by the laws of the State of
Delaware.
TAX DISAFFILIATION AGREEMENT
CoreComm and the Company, effective August 18, 1998, have entered into a
Tax Disaffiliation Agreement (the "Tax Disaffiliation Agreement"), detailing
their respective obligations concerning various tax liabilities. The Tax
Disaffiliation Agreement generally will require CoreComm to pay, and indemnify
the Company against, all Federal, state and local domestic taxes relating to the
businesses conducted by CoreComm or its subsidiaries for any taxable period
ending on or prior to the Distribution Date. Taxes relating to the Company and
its subsidiaries for periods after the Distribution Date will be paid by the
Company.
The Tax Disaffiliation Agreement further provides for cooperation with
respect to certain tax matters, the exchange of information and retention of
records which may affect the tax liability of either party.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Currently, CoreComm owns 1,200,000 shares of Newco Common Stock.
Immediately after the Distribution, approximately 13,198,000 shares of Newco
Common Stock will be outstanding, based on the number of shares of CoreComm
Common Stock outstanding on August 14, 1998.
20
<PAGE> 25
The following table sets forth certain information regarding the beneficial
ownership of CoreComm Common Stock, as of August 14, 1998, by stockholders
holding 5% or more of CoreComm's Common Stock.
<TABLE>
<CAPTION>
PERCENT
COMMON STOCK VOTE
NUMBER PERCENTAGE OF COMMON
NAME AND ADDRESS OF SHARES OF OWNERSHIP STOCK
---------------- ------------ ------------ ---------
<S> <C> <C> <C>
Snyder Capital Management, L.P.(1).................... 1,687,662 12.43 12.43
Snyder Capital Management, Inc.
350 California Street, Suite 1460
Francisco, CA 94104
Ronald Baron(2)....................................... 1,506,200 11.09 11.09
Baron Capital Group, Inc.
AMCO, Inc.
Baron Capital Management Inc.
Baron Asset Fund
767 Fifth Avenue
New York, NY 10153
Wallace R. Weitz & Company(3)......................... 829,300 6.11 6.11
1125 South 103rd Street
Suite 600
Omaha, NE 68124-6008
The Equitable Companies Incorporated(4)............... 710,249 5.23 5.23
1290 Avenue of the Americas
New York, NY 10104
Lazard Freres & Co., LLC(5)........................... 681,883 5.02 5.02
30 Rockefeller Plaza
New York, NY 10020
</TABLE>
- ---------------
(1) Based solely upon a Schedule 13-G, filed by Snyder Capital Management, L.P.
and by Snyder Capital Management, Inc. with the Securities and Exchange
Commission (the "SEC") on May 12, 1998.
(2) Based solely upon a Schedule 13-G (Amendment No. 2), filed by Baron Capital,
Inc. with the SEC on February 19, 1998.
(3) Based solely upon a Schedule 13-G, filed by Wallace R. Weitz & Company with
the SEC on February 11, 1998.
(4) Based solely upon a Schedule 13-G, filed by The Equitable Companies
Incorporated with the SEC on February 13, 1998.
(5) Based solely upon a Schedule 13-G (Amendment No. 1), filed by Lazard Freres
& Co., LLC with the SEC on April 6, 1998.
DESCRIPTION OF CORECOMM FUNDING OF THE COMPANY
Prior to the Distribution, CoreComm will contribute to Newco $150 million
in cash. The financing will be used to pay expenses associated with the
Distribution and for working capital and general corporate purposes of the
Company following the Distribution, including making future acquisitions. It is
currently estimated that expenses associate with the Distribution will be
approximately $500,000. CoreComm will fund the capital contribution with the
proceeds of a bank loan to CCPR Services, Inc. ("Services"), a wholly-owned
indirect subsidiary of CoreComm. Services entered into a credit agreement dated
August 11, 1998, with The Chase Manhattan Bank and the other lenders party
thereto, for senior secured credit facilities in an aggregate amount of up to
$170 million. On August 11 and 12, 1998, Services drew down under the credit
agreement an aggregate of $155 million of which $150 million was transferred to
CoreComm.
21
<PAGE> 26
PRO FORMA CAPITALIZATION
(IN THOUSANDS)
(UNAUDITED)
The following table sets forth the historical and pro forma capitalization
of the Company at June 30, 1998. This table should be read in conjunction with
the Unaudited Pro Forma Financial Information appearing elsewhere in this
Information Statement. The pro forma information may not reflect the
capitalization of the Company in the future or as it would have been had the
Company been a separate, independent company on June 30, 1998. Assumptions
regarding the number of shares of CoreComm Common Stock may not reflect the
actual number of shares at the Distribution Date. See "Unaudited Pro Forma
Financial Information."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Long term debt.............................................. $ -- $ --
Shareholder's equity:
Series preferred stock -- $.01 par value; authorized
1,000,000 shares; issued and outstanding none.......... -- --
Common stock, $.01 par value: authorized 75,000,000
shares; issued and outstanding 1,200,000 (historical)
and 13,184,000 (pro forma) shares...................... 12 132
Additional paid-in capital................................ 29,909 179,789
(Deficit)................................................. (1,381) (1,381)
------- --------
Total shareholder's equity.................................. 28,540 178,540
------- --------
Total capitalization........................................ $28,540 $178,540
======= ========
</TABLE>
22
<PAGE> 27
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information gives effect to (i) the
acquisition of the assets and related liabilities of OCOM by CoreComm, (ii) the
acquisition of all of the outstanding capital stock of Digicom by CoreComm,
(iii) the acquisition by CoreComm of all of the operating assets of Wireless
Outlet (the acquisitions described in clause (ii) and (iii) above are
collectively referred to as the "Other Acquisitions" and together with the
acquisition described in clause (i) above, the "Acquisitions"), (iv) CoreComm's
contribution to the Company of the Acquisitions, Cortelyou Communications Corp.
and other assets and (v) the $150 million cash contribution from CoreComm
(collectively the "Transactions"). The pro forma financial information is based
on the historical financial statements of Newco, OCOM, Digicom and Wireless
Outlet.
The Acquisitions by CoreComm have been accounted for using the purchase
method of accounting. Accordingly, assets acquired and liabilities assumed have
been recorded at their estimated fair value, which are subject to further
adjustment based upon appraisals and other analysis. The contribution of the
assets from CoreComm to the Company were accounted for at historical cost in a
manner consistent with a transfer of entities under common control which is
similar to that used in a "pooling of interests." The Company's financial
statements include the results of the contributed companies for all periods
owned by CoreComm.
The unaudited pro forma condensed consolidated statement of operations for
the six months ended June 30, 1998 and for the year ended December 31, 1997
gives effect to the Transactions as if they had been consummated on January 1,
1997. The unaudited pro forma condensed consolidated balance sheet as of June
30, 1998 gives effect to the Transactions as if they had been consummated on
June 30, 1998.
The pro forma adjustments are based upon available information and
assumptions that management believes are reasonable at the time made. Management
believes that any variations from the available information and assumptions
applied will not have a material effect on the pro forma financial statements
presented. The unaudited pro forma condensed consolidated financial statements
do not purport to present the financial position or results of operations of
Newco had the Transactions occurred on the dates specified, nor are they
necessarily indicative of the financial position or results of operations that
may be achieved in the future. The unaudited pro forma condensed consolidated
statements of operations do not reflect any adjustments for synergies that
management expects to realize commencing upon consummation of the Acquisitions.
No assurances can be made as to the amount of cost savings or revenue
enhancements, if any, that may be realized.
The unaudited pro forma financial statements should be read in conjunction
with the financial statements and notes thereto of the Company and OCOM its
predecessor appearing elsewhere in this Information Statement.
23
<PAGE> 28
CORECOMM LIMITED (NEWCO)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Cash...................................................... $ 201 $150,000A $150,201
Accounts receivable, net.................................. 1,320 1,320
Inventory................................................. 172 172
Other..................................................... 371 371
------- -------- --------
Total current assets................................. 2,064 150,000 152,064
Fixed assets, net......................................... 1,687 1,687
LMDS license costs........................................ 25,356 25,356
Goodwill, net............................................. 2,349 2,349
Other, net................................................ 123 123
------- -------- --------
$31,579 $150,000 $181,579
======= ======== ========
Accounts payable.......................................... $ 842 $ -- $ 842
Other..................................................... 2,197 2,197
------- -------- --------
Total current liabilities............................ 3,039 3,039
Shareholder's equity...................................... 28,540 150,000A 178,540
------- -------- --------
$31,579 $150,000 $181,579
======= ======== ========
</TABLE>
24
<PAGE> 29
CORECOMM LIMITED (NEWCO)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OCOM OTHER PRO
HISTORICAL (PREDECESSOR)(1) ACQUISITIONS(1) ADJUSTMENTS FORMA
---------- ---------------- --------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 1,261 $ 1,452 $1,856 $ -- $ 4,569
Costs and expenses:
Cost of equipment sold..... 15 28 6 49
Operating.................. 1,052 744 1,588 3,384
Selling, general and
administrative.......... 1,417 3,205 478 5,100
Depreciation and
amortization............ 158 257 46 62B 523
------- ------- ------ ------- -------
2,642 4,234 2,118 62 9,056
------- ------- ------ ------- -------
Operating (loss)............. (1,381) (2,782) (262) (62) (4,487)
Other income (expense)....... -- -- -- -- --
------- ------- ------ ------- -------
Net (loss)................... $(1,381) $(2,782) $ (262) $ (62) $(4,487)
======= ======= ====== ======= =======
Basic and diluted net (loss)
per share.................. $ (0.34)
=======
Weighted average shares...... 13,183C 13,183
======= =======
</TABLE>
- ---------------
(1) For periods prior to their acquisition by CoreComm.
25
<PAGE> 30
CORECOMM LIMITED (NEWCO)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER PRO
HISTORICAL OCOM ACQUISITIONS ADJUSTMENTS FORMA
---------- ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues............................ $ -- $ 3,579 $5,571 $ -- $ 9,150
Costs and expenses:
Cost of equipment sold............ 20 20
Operating......................... 1,561 4,380 5,941
Selling, general and
administrative................. 5,934 1,329 7,263
Depreciation and amortization..... 439 146 241B 826
------- ------- ------ ------- -------
7,954 5,855 241 14,050
------- ------- ------ ------- -------
Operating (loss).................... (4,375) (284) (241) (4,900)
Other income (expense).............. (4) (15) -- (19)
------- ------- ------ ------- -------
Net (loss).......................... $ -- $(4,379) $ (299) $ (241) $(4,919)
======= ======= ====== ======= =======
Basic and diluted net (loss) per
share............................. $ (0.38)
=======
Weighted average shares............. 13,075C 13,075
======= =======
</TABLE>
26
<PAGE> 31
CORECOMM LIMITED (NEWCO)
PRO FORMA ADJUSTMENTS
(IN THOUSANDS)
<TABLE>
<C> <S> <C>
A. To record the capital contribution from CoreComm
Capital contribution from CoreComm in cash.................. $150,000
========
B. To record the amortization of goodwill
Amortization of goodwill over 10 years:
For the six months ended June 30, 1998 (6 months of
amortization less the historical
amount recorded)............................................ $ 62
========
For the year ended December 31, 1997........................ $ 241
========
C. To compute the weighted average shares outstanding
Weighted average shares:
Based on the historical weighted average shares of CoreComm
on a one-for-one basis
For the six months ended June 30, 1998...................... 13,183
========
For the year ended December 31, 1997........................ 13,075
========
Stock options are excluded from the calculation of diluted
net loss per share as their effect would be anti-dilutive.
D. Stock Options
The Company expects that, at the time of the Distribution,
in connection with the issuance of stock options to purchase
the Company's common stock to holders of options to purchase
CoreComm's Common Stock, the Company will record a one time
charge of approximately $6,000,000. In addition CoreComm
will record approximately $37,000,000 of deferred
compensation which will be amortized over the remaining
vesting period of its options due to changes in the exercise
price of such options.
</TABLE>
27
<PAGE> 32
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical financial data of the Company and its
predecessor, OCOM, should be read in conjunction with the historical financial
statements and notes thereto included elsewhere in this Information Statement.
The selected historical financial data relates to OCOM as it was operated prior
to its acquisition by CoreComm. The selected historical financial data of OCOM
that relate to the three year period ended December 31, 1997 have been derived
from the historical financial statements of OCOM audited by Ernst & Young LLP,
independent auditors.
The pro forma financial data were derived from the "Unaudited Pro Forma
Financial Information" that give pro forma effect to the Transactions. The pro
forma adjustments are based upon available information and certain assumptions
that management believes are reasonable. The pro forma statement of operations
data for the six months ended June 30, 1998 and for the year ended December 31,
1997 give effect to the Transactions as if they had occurred on January 1, 1997.
The pro forma balance sheet data give effect to the Transactions as if they had
occurred as of June 30, 1998. The pro forma financial data do not purport to
represent what the financial position or results of operations of the Company
would actually have been had the Transactions in fact occurred on the assumed
dates or to project the financial position or results of operations of the
Company for any future periods or date. These tables should be read in
conjunction with "Unaudited Pro Forma Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere herein.
28
<PAGE> 33
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NEWCO
---------------------------------------------------------------
PRO FORMA HISTORICAL PRO FORMA
------------------- ------------------- -----------------
FOR THE PERIOD FROM
FOR THE SIX MONTHS APRIL 1, 1998 YEAR ENDED
ENDED JUNE 30, 1998 TO JUNE 30, 1998 DECEMBER 31, 1997
------------------- ------------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 4,569 $ 1,261 $ 9,150
Costs and expenses:
Cost of equipment sold................ 49 15 20
Operating............................. 3,384 1,052 5,941
Selling, general and administrative... 5,100 1,417 7,263
Depreciation and amortization......... 523 158 826
------- -------- -------
9,056 2,642 14,050
------- -------- -------
Operating (loss)........................ (4,487) (1,381) (4,900)
Other income (expense).................. -- -- (19)
------- -------- -------
Net (loss).............................. $(4,487) $ (1,381) $(4,919)
======= ======== =======
Basic and diluted net (loss) per
share................................. $ (0.34) $ (0.38)
======= =======
Weighted average shares................. 13,183 13,075
======= =======
</TABLE>
<TABLE>
<CAPTION>
NEWCO
-----------------------
JUNE 30, 1998
-----------------------
PRO FORMA HISTORICAL
--------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $149,025 $ (975)
Fixed assets, net......................................... 1,687 1,687
Total assets.............................................. 181,579 31,579
Long-term debt............................................ -- --
Shareholder's equity...................................... 178,540 28,540
</TABLE>
29
<PAGE> 34
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCOM
------------------------------------------------------------------------------------
HISTORICAL
------------------------------------------------------------------------------------
FOR THE PERIOD SIX MONTHS YEAR ENDED DECEMBER 31,
FROM JANUARY 1, 1998 ENDED ---------------------------------------------
TO JUNE 1, 1998 JUNE 30, 1997 1997 1996 1995 1994 1993
-------------------- ------------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 1,452 $ 1,961 $ 3,579 $ 5,103 $ 4,001 $3,690 $4,286
Costs and expenses:
Cost of equipment
sold................ 28 -- 20 -- -- -- --
Operating............. 744 820 1,561 3,065 2,478 1,617 1,609
Selling, general and
administrative...... 3,205 2,450 5,934 3,119 5,798 1,200 1,728
Depreciation and
amortization........ 257 134 439 149 137 170 192
------- ------- ------- ------- ------- ------ ------
4,234 3,404 7,954 6,333 8,413 2,987 3,529
------- ------- ------- ------- ------- ------ ------
Operating income
(loss)................ (2,782) (1,443) (4,375) (1,230) (4,412) 703 757
Other income
(expense)............. -- (4) (4) 133 258 345 202
------- ------- ------- ------- ------- ------ ------
Net income (loss)....... $(2,782) $(1,447) $(4,379) $(1,097) $(4,154) $1,048 $ 959
======= ======= ======= ======= ======= ====== ======
</TABLE>
30
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Newco will require significant capital resources to develop and expand its
existing businesses and licenses, acquire or develop additional
telecommunications-related business, and fund near term operating losses. Newco
intends to fund its near term capital expenses, operating losses and working
capital requirements with the $150,000,000 capital contribution in cash to be
received from CoreComm. CoreComm is funding the capital contribution using the
proceeds from a bank loan to CCPR Services, Inc. ("Services"), a wholly-owned
indirect subsidiary of CoreComm. Services entered into a credit agreement dated
August 11, 1998, with The Chase Manhattan Bank and the other lenders party
thereto, for senior secured credit facilities in an aggregate amount of up to
$170,000,000. On August 11 and 12, 1998, Services drew down under the credit
agreement an aggregate of $155 million of which $150 million was transferred to
CoreComm. Longer term, it is likely that Newco will be required to raise
additional debt and/or equity financing to fully implement its goals.
The existing resale businesses will consume capital to acquire new
customers and to finance the working capital required to support these new
customers. These businesses will also require additional billing, customer
service and other back-office infrastructure. These capabilities can be expanded
in-house or can be outsourced to reduce up-front capital requirements. To date,
Newco's strategy has been to utilize the expertise developed by its management
to develop in-house billing and back-office capabilities. In the future, the
Company plans to make further appropriate acquisitions and to purchase and build
telecommunications facilities which may require significant capital
expenditures.
The amount of capital required to construct the LMDS systems is unknown at
this time, but is likely to be several times the cost of the licenses. In
addition to up-front network construction costs, a significant ongoing capital
requirement will be the cost to acquire customer premise equipment to receive
and transmit LMDS signals. The network and customer premise equipment costs are
unknown because a de facto standard has yet to emerge among the LMDS auction
winners and because insufficient orders have been placed with manufacturers who
determine likely prices for equipment. As license holders choose equipment
manufacturers and one or more equipment standard emerges, prices will become
more easily quantifiable.
RESULTS OF OPERATIONS
The following discussion of the results of operations of Newco is for the
period from April 1, 1998 (date operations commenced) to June 30, 1998. The
results include the results of operations of OCOM (the predecessor business),
Wireless Outlet and Digicom from the dates of acquisition in June 1998, April
1998 and April 1998, respectively. Telecommunications revenues of $1,201,000 and
income from telephone equipment of $45,000 are primarily from Wireless Outlet
and Digicom. Operating costs of $1,052,000 as a percentage of telecommunications
revenues was 87.6% which reflects the lower margins of Wireless Outlet and
Digicom's businesses compared to OCOM's business. Selling, general and
administrative expenses of $1,417,000 are primarily from OCOM and represent
costs for selling, marketing and customer service. Depreciation expense of
$97,000 is primarily from OCOM's fixed assets. Amortization expense of $61,000
is primarily from the amortization of goodwill.
The following discussion of the results of operations of OCOM, the
predecessor business to Newco, is included herein because Newco was formed in
March 1998 and did not have any prior operations. Since OCOM represents a
significant portion of Newco's current business, the discussion of its
historical operating results gives the reader a basis to evaluate Newco's
present business, however the historical results of OCOM may not be indicative
of its future results. OCOM's primary historical business is its cellular long
distance resale business which has been and currently is a highly competitive
segment of the long distance telephone service market. OCOM competes with the
cellular service provider from whom the customer obtains cellular service for
the opportunity to provide long distance service to the customer. These cellular
service providers have been successful in attracting OCOM's customers through
discounts on long distance when linked to
31
<PAGE> 36
airtime rate plans and through the perceived convenience of a single bill for
the use of the cellular telephone and the associated long distance charges. OCOM
has therefore diversified into other telecommunications resale businesses. See
"RISK FACTORS."
The following discussion of the results of operations of OCOM should be
read in conjunction with the financial statements and notes thereto appearing
elsewhere in this Information Statement.
FOR THE PERIOD FROM JANUARY 1, 1998 TO JUNE 1, 1998 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997
Telecommunications revenues decreased to $1,416,000 from $1,961,000
primarily due to a reduction in cellular long distance revenues as a result of
customers switching to other long distance providers. OCOM's customers have
switched their cellular long distance service due to discounts on long distance
rates and the perceived convenience of a single bill for the use of the cellular
telephone and the associated long distance charges. The Company expects this
trend to continue. OCOM has therefore diversified into other telecommunications
resale businesses. The reduction in cellular long distance revenues was
partially offset by revenues from landline long distance and cellular service,
both of which were introduced subsequent to June 30, 1997.
The income from telephone equipment increased to $8,000 from zero as a
result of the introduction of cellular service in late 1997. OCOM's strategy is
to minimize sales of cellular telephones or accessories below cost, which is
typical in the cellular market since the cellular carriers subsidize the sale of
equipment in order to activate customers under long-term contracts. To date,
OCOM has kept sales of equipment below cost to a minimum. OCOM has obtained
customers and revenues from its cellular service resale business even though it
has not used equipment subsidies. OCOM intends to continue this strategy,
therefore, the nominal amount of income from equipment sales is expected to
continue for the foreseeable future.
Operating costs decreased to $744,000 from $820,000 as a result of the
decline in telecommunications revenues. Operating costs as a percentage of
telecommunications revenues increased to 52.5% from 41.8% due to the reduction
in cellular long distance revenues which has a higher gross margin than landline
long distance and cellular service.
Selling, general and administrative expenses increased to $3,205,000 from
$2,450,000 as a result of increased selling and marketing costs and increased
customer service costs, offset by a reduction in billing costs due to the
implementation of in-house billing subsequent to June 30, 1997.
Depreciation expense increased to $255,000 from $129,000 as a result of an
increase in fixed assets, primarily computer equipment.
Amortization expense decreased to $2,000 from $5,000 because the deferred
costs were fully amortized.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Telecommunications revenues decreased to $3,565,000 from $5,103,000
primarily due to a reduction in cellular long distance revenues as a result of
customers switching to other long distance providers. The reduction in cellular
long distance revenues was partially offset by revenues from landline long
distance and cellular service, both of which were introduced subsequent to
December 31, 1996.
The loss from telephone equipment increased to $6,000 from zero as a result
of the introduction of cellular service in late 1997. OCOM's strategy is to
minimize sales of cellular telephones or accessories below cost, which is
typical in the cellular market since the cellular carriers subsidize the sale of
equipment in order to activate customers under long-term contracts.
Operating costs decreased to $1,561,000 from $3,065,000 as a result of the
decline in telecommunications revenues. Operating costs as a percentage of
telecommunications revenues decreased to 43.8% from 60.1% due to the improvement
in the margin on cellular long distance as a result of a reduction in the
wholesale cost.
Selling, general and administrative expenses increased to $5,934,000 from
$3,119,000 as a result of increased selling and marketing costs, customer
service costs and management costs due to increased efforts beginning in late
1996 to grow and develop OCOM's business.
32
<PAGE> 37
Depreciation expense increased to $428,000 from $138,000 as a result of an
increase in fixed assets, primarily computer equipment.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Telecommunications revenues increased to $5,103,000 from $4,001,000 due to
an increase in cellular long distance revenues as a result of the expansion of
OCOM's cellular long distance resale business in to certain AT&T Wireless
markets in 1995. Prior to this expansion, OCOM only provided cellular long
distance service in certain AirTouch Communications markets in Ohio.
Operating costs increased to $3,065,000 from $2,478,000 as a result of the
increase in cellular long distance revenues. Operating costs as a percentage of
telecommunications revenues decreased to 60.1% from 61.9%.
Selling, general and administrative expenses decreased to $3,119,000 from
$5,798,000. The 1995 amount includes one-time costs of $2,294,000 incurred in
connection with the expansion of the cellular long distance resale business into
certain AT&T Wireless markets. The remainder of the decrease was due to reduced
selling and marketing costs. Included in the 1996 amount are increased billing
costs and increased management costs beginning in late 1996 in order to grow and
develop OCOM's business.
Depreciation expense increased to $138,000 from $126,000 as a result of an
increase in fixed assets.
Other income decreased to $133,000 from $258,000 due to the termination of
OCOM's consulting agreement with AT&T Wireless for assistance in marketing and
implementing a cellular long distance resale business.
YEAR 2000
Many computer systems experience problems handling dates beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is assessing
both the internal readiness of its computer systems and the compliance of the
computer systems of certain significant vendors for handling the year 2000. The
Company's assessment is primarily focused on both its information technology
("IT") systems, in particular its billing, provisioning and customer service
systems, and the readiness of the third-party facilities-based carriers that the
Company depends upon for its resale services. See "RISK FACTORS -- Dependence on
Relationships with Third-Party Facilities-Based Providers." The Company's leased
office space and other non-IT equipment which may have embedded technology that
may be affected by the year 2000 problem is being separately assessed. The
Company has completed the assessment of its financial IT systems, which will
require upgrades from vendors at nominal additional cost. The evaluation of the
billing, provisioning and customer service IT systems has progressed from
assessments to renovation and validation. The evaluation of the readiness of the
major third-parties is still in the assessment phase. The Company believes that
all of the facilities-based third-parties that it does business with are
required to report their year 2000 readiness to state public utility
commissions, which will assist the Company in its evaluation of their readiness.
The Company expects to implement successfully the systems and programming
changes necessary to address year 2000 issues, and does not believe that the
cost of such actions will have a material adverse effect on the Company. There
can be no assurance, however, that there will not be a delay in, or increased
costs associated with, the implementation of such changes, and the Company's
inability to implement such changes could have an adverse effect on the Company.
In addition, the failure of certain of the Company's significant vendors to
address the year 2000 issue could have a material adverse effect on the Company.
33
<PAGE> 38
BUSINESS
Newco was formed in March 1998 by CoreComm in order to succeed to the
businesses and assets that were operated by OCOM Corporation and as an
appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment. Newco is a holding company that owns and operates communications
businesses which were previously held in wholly owned subsidiaries of CoreComm,
some of which have been recently acquired. As of August 14, 1998 Newco and its
subsidiaries had approximately 135 employees. Newco now holds, through directly
and indirectly wholly owned subsidiaries, entities which operate or hold
licenses or applications to operate in the competitive local exchange business,
cellular long distance resale business, landline long distance resale business,
cellular service resale business, paging resale service and repair business,
prepaid cellular service resale business, centralized telecommunications
services business, and local multipoint distribution services business. Aside
from the cellular long distance resale business, which has been operating for
approximately seven years, these businesses are in early stages of development.
Newco's CLEC, cellular long distance, landline long distance and cellular
resale businesses were formerly owned by OCOM Corporation, a subsidiary of NTL
Incorporated ("NTL"). OCOM Corporation sold all of these assets and related
liabilities ("OCOM Corporation Telecoms Business" or "OCOM") to a subsidiary of
CoreComm pursuant to an agreement dated as of June 1, 1998. CoreComm, through a
wholly owned subsidiary, also has purchased all of the outstanding capital stock
of Digicom, Inc. ("Digicom"), which operates a CLEC in the State of Ohio.
CoreComm also acquired all of the operating assets of JeffRand Corp. ("Wireless
Outlet") which operates the Company's paging and prepaid cellular businesses.
Following an FCC auction, on June 8, 1998, Cortelyou Communications Corp.
("Cortelyou"), a wholly-owned subsidiary of CoreComm, was awarded LMDS licenses
for 15 markets in the state of Ohio. CoreComm contributed to Newco all of the
capital stock of OCOM, Digicom, Wireless Outlet and Cortelyou on August 18,
1998.
COMPETITIVE LOCAL EXCHANGE CARRIER BUSINESS
Newco's Competitive Local Exchange Carrier ("CLEC") business is divided
into two segments: Ohio and twenty-eight undeveloped markets. In the State of
Ohio, through its acquisition of OCOM, Newco has already been certified as a
CLEC and OCOM began providing CLEC services to residential customers in March,
1998. Newco has also been certified as a CLEC in New York and has also applied,
or intends to apply, for certification as a CLEC in twenty-seven other states,
through twenty-seven separate wholly owned subsidiaries, and is expecting to
gain certification for CLEC services in those states by the end of 1998. These
two segments are each discussed in detail below. For a detailed description of
the Telecommunications Act of 1996 and the regulatory environment for CLEC's,
see "-- REGULATION."
CLEC BUSINESS -- OHIO
On February 19, 1997, OCOM applied to the Public Utility Commission of Ohio
("PUCO") for certification as a CLEC in the State of Ohio. On June 13, 1997,
OCOM's application for certification as a CLEC was granted by PUCO, and OCOM
began offering residential CLEC service on March 11, 1998. The granting of
certification made OCOM one of the first CLECs in the State of Ohio to be
certified to compete with the Incumbent Local Exchange Carrier ("ILEC") for
residential, local phone service.
OCOM provides CLEC service on a resale basis, pursuant to an
Interconnection Agreement OCOM signed with Ameritech Services, Inc.,
("Ameritech") the ILEC, on November 17, 1997. Under that agreement, OCOM
purchases local exchange services at wholesale prices from Ameritech, and is
permitted to resell those services to OCOM's customers.
Services offered for resale include most of the telecommunications products
and services engineered and provided by Ameritech, such as local exchange
calling and attendant features including call waiting, call forwarding, caller
ID and three-way calling. The rates for these services are filed with PUCO. OCOM
also has an agreement with Ameritech for the resale of certain non-tariffed
services to its customers, including inside wire maintenance. OCOM's CLEC
service is transparent to the customer, whose phone operates precisely the same
as it did prior to selecting OCOM as its Local Exchange Carrier ("LEC"). The
customer receives its
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bill from OCOM, rather than Ameritech. OCOM offers this service under the
CELLULAR ONE(R) service mark. See "-- Patents, Copyrights and Licenses."
In addition to OCOM's CLEC business, prior to the Distribution Date, a
wholly owned subsidiary of CoreComm purchased all of the outstanding capital
stock of Digicom. One of Digicom's principal lines of business is CLEC service
to small businesses in the State of Ohio. Digicom also has an interconnection
agreement with Ameritech covering all of Ameritech's Ohio markets. See
"-- Centrex Business."
CLEC BUSINESS -- OTHER STATES
Apart from the CLEC business conducted by OCOM and Digicom in Ohio, Newco,
through separate, indirect wholly owned subsidiaries (the "CLEC Subs") has
received certification as a CLEC in New York and is in the process of applying
or has applied for certification as a CLEC in twenty-seven other states. The
Company expects the last of the CLEC Subs to receive its certification by the
end of 1998.
LOCAL MULTIPOINT DISTRIBUTION SERVICE BUSINESS
Local Multipoint Distribution Service ("LMDS") is a broadband wireless
communications service that uses frequencies in the 28GHz to 31GHz range to
transmit video and data signals to and from residences and offices over a
cellular-like network at distances under a few miles. An LMDS system is capable
of providing high-capacity broadband service for the "last mile" to a
subscriber's home or office, at what may be a substantially lower cost than
other competing delivery systems.
Video or data signals transmitted through an LMDS system, such as
television programming, are received by the system from satellite transponders,
terrestrial microwave facilities and/or studios. Internet Access can be obtained
through dedicated lines, such as a T-3 line, connected to the Internet
"backbone." The signals are then upconverted to the LMDS frequency band and
transmitted via omnidirectional transmitters.
Prior to the development of LMDS systems, transmission of communications
signals in the 28 GHz frequency range was not commercially pursued apart from
limited satellite applications because technical impediments, such as intercell
interference and rainfade, were thought to be insurmountable. Modern LMDS
systems eliminate or significantly reduce these impediments through the
strategic placement of cells and advanced system architecture.
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Newco, through an indirect, wholly owned subsidiary, participated in the
FCC's recently concluded auction of LMDS licenses. Newco has been awarded the A
Block licenses in 15 markets in Ohio with a total of 10,573,982 pops:
<TABLE>
<CAPTION>
MARKET NAME POPS(1)
----------- ----------
<S> <C>
Cleveland-Akron, OH......................................... 2,894,133
Cincinnati, OH.............................................. 1,990,451
Columbus, OH................................................ 1,477,891
Dayton-Springfield, OH...................................... 1,207,689
Toledo, OH.................................................. 782,184
Canton-New Philadelphia, OH................................. 513,623
Youngstown-Warren, OH....................................... 492,619
Lima, OH.................................................... 249,734
Mansfield, OH............................................... 221,514
Zanesville-Cambridge, OH.................................... 178,179
Findlay-Tiffin, OH.......................................... 147,523
Sandusky, OH................................................ 133,019
Ashtabula, OH............................................... 99,821
Chillicothe, OH............................................. 93,579
Marion, OH.................................................. 92,023
----------
Total............................................. 10,573,982
==========
</TABLE>
- ---------------
(1) Pops are defined as the estimated population of a market multiplied by a
company's ownership interest in the entity operating the system in that
market. The number of pops owned by an operator does not represent the
number of users of its services and is not necessarily indicative of the
number of potential subscribers. Rather, this term is used only as a basis
for comparison of the current size of system operators. The FCC used pops in
the LMDS auction for determining upfront payments, bidder eligibility, and
minimum bids. The pops in this chart are based upon the April 1, 1990 U.S.
Department of Commerce, Bureau of the Census data.
For a detailed description of the FCC bidding process and LMDS, see
"REGULATION -- LMDS"
Each LMDS license covers a defined Basic Trading Area ("BTA"), with each
A-Block LMDS license consisting of 1150 MHZ of spectrum. Newco bid approximately
$25.2 million for such licenses, for an average of $2.39/pop.
In the provision of multichannel video services, the Company will compete
with franchised cable systems and also may face competition from several other
sources, such as MMDS, Satellite Master Antenna Television ("SMATV") systems,
DBS, video service from telephone companies and television receive-only
satellite dishes. Moreover, the Telecommunications Act of 1996 eliminates
restrictions that prohibit local telephone exchange companies from providing
video programming in their local telephone service areas and substantially
reduces current and future regulatory burdens on franchised cable systems, thus
potentially resulting in significant additional competition from local telephone
companies and franchised cable systems.
CELLULAR LONG DISTANCE BUSINESS
OCOM sells retail long distance telephone services in portions of Ohio,
Michigan, Kentucky and Indiana to cellular customers of various local cellular
service providers who have chosen OCOM as their long distance service provider.
OCOM markets these cellular long distance services under the CELLULAR ONE(R)
service mark. OCOM currently has approximately 50,000 subscribers in Ohio, which
generate annual revenues of approximately $700,000.
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<PAGE> 41
OCOM also sells retail long distance services to cellular customers of AT&T
Wireless who choose OCOM as their long distance service provider. OCOM provides
these services primarily through arrangements with other long distance carriers
under tariff or contract. OCOM currently has approximately 110,000 customers in
these markets which generate annual revenues of approximately $1.4 million. The
markets currently include Colorado, Florida, Minnesota, Nevada and Pennsylvania
where the services are offered under the "Cellular Long Distance Company"
service mark, and California and Texas, where the services are offered under the
"Cellular Network" service mark.
OCOM provides domestic and international interexchange long distance
service to points outside OCOM's operating territory through arrangements with
LCI International ("LCI") and other long distance carriers. LCI provides OCOM
with terminating switched service from any LCI switch location. When an outgoing
long distance cellular call is placed, the call is routed to the interconnection
point for the long distance carrier. OCOM pays long distance companies a
wholesale rate for these calls and bills its customers at a retail rate.
LANDLINE LONG DISTANCE BUSINESS
In addition to its cellular long distance business, OCOM recently developed
a landline long distance business. OCOM is a reseller of long distance telephone
services to residential and small business customers throughout the State of
Ohio, under the CELLULAR ONE(R) service mark. The primary product is OCOM's
Dial-1 Telephone Service. Its other long distance telephone products are 800
Number services and debit calling card services.
In order to provide these products, OCOM generally contracts to purchase
long distance telephone time from national carriers at wholesale rates based
upon high volume usage. OCOM then resells this time to its customers at its own
retail rates which are priced generally below AT&T's published, tariffed basic
rates. OCOM's Dial-1 Service is transparent to its customers once a customer's
long distance service has been converted to OCOM. OCOM's calling card products
operate similarly to the calling card products offered by the major carriers.
OCOM's customers pay for their long distance calling usage through direct
billing from OCOM or through direct billing by OCOM of the customer's major
credit card or checking account.
PAGING BUSINESS
Wireless Outlet operates a paging system on a resale basis and a pager
sales and repair business (collectively the "Paging Business"). The Paging
Business resells paging services and markets its products through a dealer
network that sells the service and the pagers, primarily to small businesses
throughout Ohio.
CENTREX BUSINESS
In purchasing Digicom, the Company acquired a well developed Centralized
Telecommunication Services and Telecommunications Facilities Management Services
("TFMS") business (the "Centrex Business"). Digicom offers its customers, small
to large sized businesses throughout the State of Ohio, reliable one-source
communications services previously available through the Bell System, together
with the latest in communications equipment and enhanced services.
Although the Company presently does not have any plans to do so, in the
future it may become possible to offer OCOM's various communications services to
Digicom's Centrex Business customers, as part of their bundled package of
services.
CELLULAR RESALE BUSINESS
Through OCOM and Wireless Outlet, the Company sells cellular telephone
service throughout the states of Ohio and Michigan. OCOM sells cellular service
under the CELLULAR ONE(R) service mark on a resale basis. OCOM has signed resale
agreements with the three major providers of cellular service in Michigan and
Ohio: New Par (d/b/a AirTouch Cellular), GTE Mobilenet Inc. and Ameritech Mobile
Communications, Inc. OCOM has been actively engaged in marketing this business
for less than 11 months, and as of August 14, 1998 had approximately 950
cellular telephone numbers in operation. Wireless Outlet also operates
37
<PAGE> 42
a cellular service on a resale basis, also operating through resale agreements
with AirTouch, GTE and Ameritech.
PREPAID CELLULAR BUSINESS
In addition to its traditional paging and cellular resale businesses,
Wireless Outlet also sells pre-paid cellular service on a resale basis through
the sale of pre-paid debit cards. Prepaid debit cards allow users to make calls
from a cellular phone based on a prepaid dollar amount that has been credited to
the card. Prepaid debit card applications include promotional campaigns, fund
raising for charitable organizations and budgeted out-of-town calling for
traveling employees. In addition, prepaid debit cards allow cellular resale
companies to generate revenues from a base of customers who would otherwise not
have the opportunity to take advantage of cellular services due to credit
problems or who need to limit the usage of cellular service. For example, a
developing niche market for prepaid cellular debit cards are college students.
Under the name "Wireless Outlet", Wireless Outlet currently sells prepaid
cellular cards in Ohio, and is also in the process of expanding its business to
other states.
PATENTS, COPYRIGHTS AND LICENSES
The Company does not have any patents or copyrights nor does the Company
believe patents or copyrights play a material role in its business. Other than
the Company's FCC licenses, the Company's only license is for the use of the
service mark and trademark CELLULAR ONE(R), which is also licensed to many of
the non-wireline cellular systems in the United States. In August, 1997, the
owners of such mark entered into a new agreement with OCOM Corporation, with an
effective fifteen-year term, which agreement was assigned to a subsidiary of the
Company. Under the Cellular One(R) Agreement, the Company is required to
maintain certain service quality standards and to pay licensing and other fees
for the use of the service mark.
COMPETITION
The telecommunications industry and all of its segments are highly
competitive. Newco's CLEC Business, which is in the development stage, will
operate this highly competitive environment. The Company expects that
competition will continue to intensify in the future due to the increase in the
size, resources and number of market participants. In each of its markets, the
Company faces competition from larger, better capitalized incumbent providers.
In the local exchange markets, the Company's principal competitor will be
the ILEC. The Company also faces competition or prospective competition from one
or more CLECs, many of which have significantly greater financial resources than
the Company. For example, AT&T, MCI and Sprint, have each begun to offer local
telecommunications services in major U.S. markets using their own facilities or
by resale of the ILECs' or other providers' services. In fact, certain
competitors, including AT&T, MCI and Sprint, have entered into interconnection
agreements with Ameritech with respect to the States of Michigan and Ohio in
which the Company operates. These competitors either have begun or in the near
future likely will begin offering local exchange service in those states,
subject to the joint marketing restrictions under the Telecommunications Act. In
addition to long distance service providers and existing CLECs, entities that
are potentially capable of offering switched services include cable television
companies, electric utilities, microwave carriers, wireless telephone system
operators and large customers who build private networks. Many facilities-based
CLECs have committed substantial resources to building their networks or to
purchasing CLECs or IXCs with complementary facilities. By building or
purchasing a network or entering into interconnection agreements or resale
agreements with ILECs, including Bell Operating Companies ("BOCs"), and IXCs, a
provider can offer single source local and long distance services similar to
those offered by the Company. Some of these CLECs and other facilities-based
providers of local exchange service are acquiring or being acquired by IXCs.
While certain of these combined entities may continue to be subject to the joint
marketing restrictions in the Telecommunications Act, others will not be subject
to such restrictions. Some of these combined entities may have resources far
greater than those of the Company. These combined entities may provide a bundled
package of telecommunications products, including local and long distance
telephony, that is in direct competition with the products offered by the
Company.
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<PAGE> 43
Under the Telecommunications Act and related federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
availability of broad-based local resale and introduction of facilities-based
local competition are required before the BOCs may provide in-region
interexchange long distance services. Also, the largest long distance carriers
(AT&T, MCI, Sprint and any other carrier with 5% or more of the pre-subscribed
access lines) are prevented under the Telecommunications Act from bundling local
services resold from an BOC in a particular state with their long distance
services until the earlier of (i) February 8, 1999 or (ii) the date on which the
BOC whose services are being resold obtains in-region long distance authority in
that state. The BOCs are currently allowed to offer certain in-region
"incidental" long distance services (such as cellular, audio and visual
programming and certain interactive storage and retrieval functions) and to
offer virtually all out-of-region long distance services.
Section 271 of the Telecommunications Act prohibits a BOC from providing
long-distance service that originates (or in certain cases terminates) in one of
its in-region states until the BOC has satisfied certain statutory conditions in
that state and has received the approval of the FCC. The FCC to date has denied
each application for such approval, including the application of Ameritech for
in-region long distance authority in Michigan. The Company anticipates that a
number of BOCs, including Ameritech, will file additional applications for
in-region long distance authority in certain states in 1998. The FCC will have
90 days from the date an application for in-region long distance authority is
filed to decide whether to grant or deny the application. Based on continuing
legal challenges, the Company does not believe that any BOC will provide in-
region long distance services on a significant basis prior to 1999.
Once the BOCs are allowed to offer widespread in-region long distance
services, both they and the largest IXCs will be in position to offer
single-source local and long distance services similar to those offered by the
Company. On December 31, 1997, a United States District Court judge in Texas
held unconstitutional certain sections of the Telecommunications Act, including
Section 271. This decision, which has been stayed pending appeal, would permit
the three BOCs that are parties in the case to begin offering widespread
in-region long distance services. Unless overturned on appeal, this decision
could have a material adverse effect on the Company.
While new business opportunities will be made available to the Company
through the Telecommunications Act and other federal and state regulatory
initiatives, regulators are likely to provide the ILECs with an increased degree
of flexibility with regard to pricing of their services as competition
increases. Although the Ameritech resale agreement contains certain pricing
protections, including adjustments in the wholesale rates to be consistent with
any changes in the Ameritech retail rates, if the ILECs elect to lower their
rates and sustain lower rates over time, this may adversely affect the revenues
of the Company and place downward pressure on the rates the Company can charge.
The Company believes the effect of lower rates may be offset by the increased
revenues available by offering new products and services to its target
customers, but there can be no assurance that this will occur. In addition, if
future regulatory decisions afford the LECs excessive pricing flexibility or
other regulatory relief, such decisions could have a material adverse effect on
the Company.
Competition for the Company's products and services is based on price,
quality, network reliability, service features and responsiveness to customers
needs. A continuing trend toward business combinations and alliances in the
telecommunications industry may create significant new competitors to the
Company. Many of the Company's existing and potential competitors have
financial, technical and other resources significantly greater than those of the
Company. In addition, in December 1997 the FCC issued rules to implement the
provisions of the World Trade Organization Agreement on Basic
Telecommunications, which was drafted to liberalize restrictions on foreign
ownership of domestic telecommunications companies and foreign
telecommunications companies to enter domestic markets. The new FCC rules went
into effect in February 1998 and make it substantially easier for many non-U.S.
telecommunications companies to enter the U.S. market, thus further increasing
the number of competitors. The new rules also give non-U.S. individuals and
corporations greater ability to invest in U.S. telecommunications companies,
thus increasing the financial and technical resources available to the Company
and its existing and potential competitors.
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<PAGE> 44
Pay television operators face competition from other sources of
entertainment, such as movie theaters and computer on-line services. Further,
premium movie services offered by cable television systems have encountered
significant competition from the home video industry. In areas where several
off-air television broadcasts can be received without the benefit of cable
television, cable television systems have experienced competition from such
broadcasters.
Many actual and potential competitors have greater financial, marketing and
other resources than the Company. No assurance can be given that the Company
will be able to compete successfully.
See "-- REGULATION -- LMDS" and "RISK FACTORS -- Competition from Suppliers
of Telecommunication Services."
REGULATION
OVERVIEW
Telecommunications services provided by the Company are subject to
regulation by federal, state and local government agencies. At the federal
level, the FCC has jurisdiction over interstate and international services.
Jurisdictionally, interstate services are communications that originate in one
state and terminate in another. Intrastate services are communications that
originate and terminate in a single state. State public service commissions
("State PSCs") exercise jurisdiction over intrastate services. Additionally,
municipalities and other local government agencies may regulate limited aspects
of the Company's business, such as use of government-owned rights-of-way and
construction permits. The Company's networks are also subject to numerous local
regulations such as building codes, franchise and right-of-way licensing
requirements.
TELECOMMUNICATIONS ACT OF 1996
On February 8, 1996, the Federal Telecommunications Act of 1996 was signed
into law. The Telecommunications Act has and will continue to result in
substantial changes in the marketplace for telecommunications services. These
changes include opening local exchange services to competition and will result
in a substantial increase in the addressable services for the Company. Among its
more significant provisions, the Telecommunications Act (i) removes legal
barriers to entry into all telecommunications services, such as long distance
and local exchange services, (ii) requires ILECs to "interconnect" with
competitors, (iii) establishes procedures for ILEC entry into new services, such
as long distance and cable television, (iv) relaxes regulation of
telecommunications services provided by ILECs and all other telecommunications
service providers, and (v) directs the FCC to establish an explicit subsidy
mechanism for the preservation of universal service. As a component of the need
for explicit subsidy mechanism for universal service, the FCC was also directed
by Congress to revise and make explicit subsidies inherent in the current access
charge system.
REMOVAL OF ENTRY BARRIERS
Prior to enactment of the Telecommunications Act, many states limited the
services that could be offered by a Company competing with the ILEC. See
"-- State Regulation." The Telecommunications Act prohibits state and local
governments from enforcing any law, rule or legal requirement that prohibits or
has the effect of prohibiting any entity from providing interstate or intrastate
telecommunications services.
The provisions of the Telecommunications Act should enable the Company to
provide a full range of local telecommunications services in any state. Although
the Company will be required to obtain certification from the State PSCs in
almost all cases, the Telecommunications Act should limit substantially the
ability of a State PSC to deny a request for certification filed by the Company.
The provisions of the Telecommunications Act also reduces the barriers to entry
by other potential competitors and therefore increases the level of competition
the Company will likely face in all its markets. See "-- Competition."
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<PAGE> 45
INTERCONNECTION WITH LEC FACILITIES
A Company cannot compete effectively with the ILEC in switched local
telephone services unless it is able to connect its facilities with the ILEC and
obtain access to certain essential services and resources under reasonable
rates, terms and conditions. The Telecommunications Act imposes a number of
access and interconnection requirements on all local exchange providers,
including CLECs, with additional requirements imposed on non-rural ILECs. These
requirements will provide access to certain networks under reasonable rates,
terms and conditions. Specifically, LECs must provide the following:
Telephone Number Portability. Telephone number portability enables a
customer to keep the same telephone number when the customer switches LECs.
Dialing Parity. All LECs must provide dialing parity, which means
that a customer calling to or from a CLEC network cannot be required to
dial more digits than is required for a comparable call originating and
terminating on the LEC's network.
Reciprocal Compensation. The duty to provide reciprocal compensation
means that LECs must terminate calls that originate on competing networks
in exchange for a given level of compensation and that they are entitled to
termination of calls that originate on their network for which they must
pay a given level of compensation.
Resale. LECs generally may not prohibit or place unreasonable
restrictions on the resale of their services. In addition, ILECs must offer
bundled local exchange services to resellers at a wholesale rate that is
less than the retail rate charged to end users.
Access to Rights-of-Way. All ILECs, CLECs and certain other utilities
must provide access to their poles, ducts, conduits and rights-of-way on a
reasonable, nondiscriminatory basis.
Unbundling of Network Elements. ILECs must offer access to various
unbundled elements of their network. This requirement allows new entrants
to purchase at cost-based rates elements of an ILEC's network that may be
necessary to provide service to a new entrant's customers.
While the Telecommunications Act generally requires ILECs to offer
interconnection, unbundled network elements and resold services to CLECs,
LEC-CLEC interconnection agreements may have short terms, requiring the CLEC to
renegotiate the agreements. LECs may not provide timely provisioning or adequate
service quality, thereby impairing a CLEC's reputation with customers who can
easily switch back to the LEC. In addition, the prices set in the agreements may
be subject to significant rate increases if state regulatory commissions
establish prices designed to pass on to the CLECs part of the intrastate cost of
providing universal service.
On July 2, 1996, the FCC ordered all LECs to begin phased development of a
long-term service provider number portability method in the 100 largest
Metropolitan Statistical Areas ("MSAs") no later than October 1, 1997, and to
complete deployment in those MSAs by December 31, 1998. After December 31, 1998,
each LEC must make number portability available within six months after
receiving a specific request by another telecommunications carrier in areas
outside the 100 largest areas MSAs in which the requesting carrier is operating
or plans to operate. Until long-term service number portability is available,
all LECs must provide currently available number portability measures as soon as
reasonably possible after a specific request from another carrier.
On August 8, 1996, the FCC released its orders concerning the
interconnection obligations of all telecommunications carriers and ILEC pricing
of interconnection, resale and unbundled elements (the "Local Competition
Orders").
On July 18, 1997, the U.S. Court of Appeals for the Eighth Circuit ("Eighth
Circuit") vacated certain portions of the Local Competition Orders. The Eighth
Circuit decision created uncertainty about individual states' rules governing
the pricing, terms and conditions of interconnection agreements, and may make
negotiating and enforcing such agreements more difficult and protracted.
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<PAGE> 46
On August 22, 1997, the Eighth Circuit issued an order vacating the FCC's
dialing parity rules to the extent they apply to intrastate traffic and certain
non-toll interstate services. On October 14, 1997, the Eighth Circuit vacated an
FCC rule that obligated ILECs, under certain circumstances, to provide
combinations of network elements, rather then provide them individually. This
decision may make it more difficult or expensive for competitors to use
combinations of ILEC elements.
The U.S. Supreme Court accepted for review the Eighth Circuit's decision on
the Local Competition Orders, but is not expected to issue a decision before the
end of 1998. On January 22, 1998 the Eighth Circuit ruled that the FCC cannot
apply its local competition pricing rules in reviewing applications of the BOCs
for authorization to provide long distance services that originate and certain
services that terminate in their regions. If upheld, this decision could make it
somewhat easier for BOCs to enter the market for in-region long distance
services.
Various parties have requested that the FCC reconsider its orders
implementing the Telecommunications Act. There is uncertainty as to how the
courts and FCC will affect these rules, and how State PSCs will act in light of
the Telecommunications Act and the FCC rules.
Finally, continuing challenges to state and federal rules and policies
implementing the Telecommunications Act, and individual actions by State PSCs
could cause the Company to incur substantial legal and administrative expenses.
LEC ENTRY INTO NEW MARKETS
The Company's principal competitor in each area it enters is the ILEC. See
"-- Competition." Prior to the enactment of the Telecommunications Act, the BOCs
generally were prohibited by the consent decree that broke up the Bell System
from providing interLATA (i.e., long distance) services. Section 271 of the
Telecommunications Act established procedures under which a BOC can provide
interLATA services originating from (and in certain cases, terminating in) its
telephone service area ("in-region" interLATA service). BOCs are currently
permitted to provide interLATA services to customers outside of their local
service areas ("out-of-region" interLATA service), and interLATA service in
conjunction with their mobile telephone service offerings ("incidental"
interLATA service). Before a BOC can provide non-incidental in-region interLATA
service, it must enter into a state-approved interconnection agreement with a
Company that provides local exchange service to business and residential
customers predominantly over its own facilities, and receive FCC approval. The
interconnection offered or provided by the BOC must comply with a "competitive
checklist" that incorporates the interconnection requirements discussed above.
See "-- Interconnection with LEC Facilities."
Section 271 approval from the FCC will enable a BOC to provide customers
with a full range of local and long distance telecommunications services. The
provision of interLATA services by BOCs is expected to reduce the market share
of the major long distance carriers, which may be significant customers of the
Company's services. Consequently, the entry of the BOCs into the long distance
market may have adverse consequences on the ability of CLECs both to generate
access revenues from the IXCs and to compete in offering a package of local and
long distance services. To date, FCC authority to provide in-region interLATA
service has been sought by Ameritech in Michigan, Southwestern Bell in Oklahoma
and BellSouth in South Carolina and Louisiana. The Department of Justice opposed
each of these requests, and the FCC denied them. BellSouth has applied for long
distance authority in Louisiana a second time. The FCC must issue its decision
on this application no later than October 13, 1998. More BOC requests to provide
in-region interLATA service are expected to be filed with the FCC in the near
future.
Further FCC rulings on Section 271 applications have been complicated by a
Texas Federal District Court ruling on December 31, 1997 that Section 271 of the
Telecommunications Act is unconstitutional. On February 11, 1998, the District
Court granted a request for stay of its decision pending the outcome of an
appeal on the merits to the U.S. Court of Appeals for the Fifth Circuit.
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<PAGE> 47
RELAXATION OF REGULATION
A long-term goal of the Telecommunications Act is to increase competition
for telecommunications services, thereby reducing the need for regulation of
these services. To this end, the Telecommunications Act requires the FCC to
streamline its regulation of ILECs and permits the FCC to forbear from
regulating particular classes of telecommunications services or providers. Since
the Company is a non-dominant carrier and, therefore, is not heavily regulated
by the FCC, the potential for regulatory forbearance likely will be more
beneficial to the ILECs than the Company in the long run.
In an exercise of its "forbearance authority," the FCC ruled that
nondominant IXCs will no longer be able to file tariffs with the FCC concerning
their long distance services. This order has been stayed pending review in the
U.S. Court of Appeals for the District of Columbia.
Pursuant to the forebearance provisions of the Telecommunications Act, in
June 1997, the FCC adopted an order allowing nondominant providers of exchange
access service the option of tariffing or detariffing their services. The FCC
also requested further comment on whether to mandate the detariffing of exchange
access services.
UNIVERSAL SERVICE AND ACCESS CHARGE REFORM
On May 8, 1997, the FCC issued an order to implement the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service. This order requires all telecommunications carriers providing
interstate telecommunications services, including the Company, to contribute to
universal service support.
In a related proceeding, on May 16, 1997, the FCC issued an order to
implement certain reforms to its access charge rules. Access charges are charges
imposed by LECs on long distance providers for access to the local exchange
network, and are designed to compensate the LEC for its investment in the local
network. The FCC regulates interstate access and the states regulate intrastate
access. This order required ILECs to substantially decrease over time the prices
they charge for switched and special access and changed how access charges are
calculated. These changes are intended to reduce access charges paid by IXCs to
LECs and shift certain usage-based charges to flat-rated, monthly per-line
charges. To the extent that these rules are effective in reducing access
charges, the ability of the Company to provide customers with lower-cost access
services might be impaired. Additionally, the FCC ruled that ILECs may no longer
impose certain interconnection charges on competitive providers that
interconnect with the ILEC at the incumbent's end offices but do not use the
ILEC's transport facilities.
These FCC orders are subject to petitions seeking reconsideration by the
FCC and petitions for review before U.S. Courts of Appeals. Until the time when
any such review proceeding or appeals are decided, there can be no assurance of
how these orders will be implemented, or what effect these orders will have on
competition within the telecommunications industry, generally, or on the
competitive position of the Company, specifically.
Some State PSCs are currently considering actions to preserve universal
services and promote the public interest. The actions may impose conditions on
the authorizations issued to the Company which could increase the cost to the
Company of providing services, or could otherwise affect the Company's
flexibility to offer certain services.
FEDERAL REGULATION GENERALLY
Through a series of proceedings, the FCC has established different levels
of regulation for "dominant carriers" and "non-dominant carriers." Only ILECs
are classified as dominant; all other providers of domestic interstate services
are classified as non-dominant carriers. As a non-dominant carrier, the Company
is subject to relatively limited regulation by the FCC. The Company must offer
interstate services at just and reasonable rates in a manner that is not
unreasonably discriminatory.
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The FCC has adopted rules requiring ILECs to provide "collocation" to CLECs
for the purpose of interconnecting their competing networks. Under the rules
adopted by the Local Competition Orders, ILECs are required to provide either
physical collocation or virtual collocation at their switching offices.
As discussed earlier, all LECs, including CLECs, must make their services
available for resale by other carriers, provide nondiscriminatory access to
rights-of-way, offer reciprocal compensation for termination of traffic and
provide dialing parity and telephone number portability. In addition, the
Telecommunications Act requires all telecommunications carriers to contribute to
the universal service mechanism established by the FCC and to ensure that their
services are accessible to and usable by persons with disabilities. Moreover,
the FCC is currently engaged in a number of rulemakings in which it is
considering regulatory implications of various aspects of local exchange
competition. Any or all of the proceedings may negatively affect CLECs,
including the Company.
The FCC could grant ILECs substantial pricing flexibility with regard to
interstate access services. The May 21, 1997 order reforming the FCC's price cap
formula affords LECs greater flexibility in establishing rates and provides
additional incentives to foster efficiency. To the extent these regulatory
initiatives enable or require ILECs to offer selectively reduced rates for
access services, the rates the Company may charge for access services will be
constrained. The Company's rates also will be constrained by the fact that
competitors other than the ILECs are subject to the same streamlined regulatory
regime as the Company and can price their services to meet competition.
To promote the development of the Internet, the FCC has treated traffic to
ISPs terminated in the local exchange as local calls, for which end user
customers normally pay fixed monthly charges or low per-minute rates up to a
cap. ILECs contend that traffic routed to the Internet is interstate in nature
and that the charge for such calls should be charged at a different rate. The
FCC is considering such changes. If the FCC changes its policy and requires a
different payment arrangement for Internet calls routed through local ISPs,
CLECs may no longer receive the benefit of substantial call-termination revenue
from LECs for CLEC ISP customers whose traffic is mostly inbound (such that CLEC
payments to the LEC for terminating calls are minimal).
The Telecommunications Act and FCC rules adopted thereunder protect the
privacy of certain information about telecommunications customers that a
carrier, such as the Company, acquires by virtue of its provision of
telecommunications services to such customers. Protected information, known as
Customer Proprietary Network Information ("CPNI"), includes information related
to the quantity, technical configuration, type, destination, and the amount of
use of a telecommunications service. A carrier may not use CPNI acquired through
one of its service offerings to market certain other service offerings without
the approval of the affected customers. These restrictions may affect the
Company's ability to market a variety of packaged services to existing
customers.
STATE REGULATION GENERALLY
Most State PSCs require companies that wish to provide intrastate common
carrier services to be certified to provide such services. These certifications
generally require a showing that the carrier has adequate financial, managerial
and technical resources to offer the proposed services in a manner consistent
with the public interest.
In addition to obtaining certification, the Company must negotiate terms of
interconnection with the ILEC before it can begin providing switched services.
Under the Telecommunications Act, the FCC has adopted interconnection
requirements, certain portions of which have been overturned by the Eighth
Circuit. See "-- Telecommunications Act of 1996 -- Interconnection with LEC
Facilities." The Company, through OCOM and Digicom, has entered into
interconnection agreements with Ameritech.
The Company is not presently subject to price regulation. Most states
require CLECs to file tariffs setting forth the terms, conditions and prices for
intrastate services. Some states permit tariffs to list a rate range or set
prices on an individual case basis.
Several states provide ILECs with flexibility for their rates, special
contracts (selective discounting) and tariffs, particularly for services deemed
subject to competition. This pricing flexibility increases the ability of
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<PAGE> 49
the ILEC to compete with the Company and constrains the rates the Company may
charge for its services. In light of the additional competition that is expected
to result from the Telecommunications Act, states may grant ILECs additional
pricing flexibility. At the same time, some ILECs may request increases in local
exchange rates to offset revenue losses due to competition.
REGULATION OF RESELLERS
The FCC has defined resale as an activity in which a party (the reseller)
subscribes to the services or facilities of a facilities-based provider (or
another reseller) and then reoffers communications services to the public for
profit, with or without adding value. Resellers are common carriers generally
subject to all rules and regulations placed on providers of the underlying
services by either the FCC or the states in which they operate. The FCC has held
that prohibitions on the resale of common carrier services are unjust,
unreasonable, and unlawfully discriminatory in violation of the Communications
Act. Accordingly, all common carriers must make their services available for
resale at rates, terms, and conditions that do not unreasonably discriminate
against resellers. The 1996 Act imposed the additional duty upon ILECs to make
their services available for resale at wholesale rates. The FCC adopted specific
requirements for determining such wholesale rates for local telecommunications
services, but the FCC's rules were vacated by the Eighth Circuit Court of
Appeals. The U.S. Supreme Court has accepted an appeal of the Eighth Circuit's
decision. Unless or until the FCC's rules are reinstated, each state is free to
adopt its own rules regarding the wholesale pricing of local services for
resale. As to other telecommunications services, however, there is no regulation
that requires discounts to resellers below those offered to end users of the
same quantities of like services. The FCC has determined that because of the
competitive development of broadband commercial mobile radio service ("CMRS,"
i.e., cellular PCS, and certain SMR services), broadband CMRS providers will not
be required to offer their services for resale after a date that is five years
after the FCC awards the last PCS license.
LOCAL GOVERNMENT AUTHORIZATIONS
Some jurisdictions where the Company may provide service, require license
or franchise fees based on a percent of certain revenues. There are no
assurances that jurisdictions that do not currently impose fees will not seek to
impose fees in the future. In many markets, other companies providing local
telecommunications services, particularly the ILECs, currently are excused from
paying license or franchise fees or pay fees that are materially lower than
those that would be required from new competitors such as the Company. The
Telecommunications Act requires jurisdictions to charge nondiscriminatory fees
to all telecommunications providers, but it is uncertain how quickly this
requirement will be implemented by particular jurisdictions in which the Company
operates or plans to operate or whether it will be implemented without a legal
challenge initiated by the Company or another CLEC.
LMDS
In March, 1997 the FCC established service and auction rules for a new
wireless service that it named Local Multipoint Distribution Service ("LMDS").
The FCC allocated two frequency blocks in each of 493 Basic Trading Areas
("BTAs") in the U.S. to LMDS: Block A with 1,150 MHZ of spectrum in the 28 GHz
and 31 GHz bands, and Block B with 150 MHZ in the 31 GHz band. LMDS licenses
will be awarded for ten-year terms with renewal expectancies provided to
licensees that make a showing of substantial service in their licensed areas.
LMDS may be used to provide any kind of communications service on a common
carrier or non-common-carrier basis. Radio frequencies in the 28 and 31 GHz
bands are generally capable of only "line-of-sight" transmission and reception,
are subject to interference from certain weather conditions, and do not lend
themselves to mobile applications. LMDS is expected to be used for the delivery
of various broadband services to homes and offices, including
telecommunications, Internet access, and two-way video. The single currently
operating U.S. LMDS system provides analog video service to homes in a portion
of the New York metropolitan area. At least seven other countries, including
Canada and Mexico, have licensed LMDS on either a permanent or experimental
basis. LMDS licensees are expected to be able to provide a wide array of
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<PAGE> 50
services, two-way capabilities, and high capacity through the use of newer
digital equipment and transmission mechanisms. The FCC expects that Block A LMDS
licensees especially, by applying cellular-style frequency re-use technology to
an already large frequency bandwidth, have the potential to become competitors
to ILECs and cable operators. Accordingly, the LMDS rules prohibit ownership of
Block A licenses by ILECs and incumbent cable operators prior to July, 2000, but
permit an applicant that would otherwise be prohibited from holding a Block A
license to apply for a waiver of the ownership restriction by showing that it
does not have market power in its telephone or cable service area.
The FCC held a simultaneous, multiple-round auction for the 986 LMDS
licenses which closed on March 25, 1998. 104 winning participants bid a total of
$578,663,029 for 864 licenses. No auction participant placed the minimum opening
bid on any of the remaining 122 licenses, which are expected to be the subject
of a future reauction. Newco won 15 Block A licenses for BTAs encompassing
substantially all population centers in the state of Ohio, for a total bid of
$25,241,133. Auction participants that had average gross revenues for the
previous three years of $75 million or less, when aggregated with all commonly
controlled affiliates, were entitled to bidding credits of 25%, 35%, or 45%.
Newco did not qualify for any bidding credit.
On April 16, 1998, the FCC issued a public notice that it had accepted the
final applications of the LMDS auction winners, including Newco. The FCC granted
Newco's 15 LMDS licenses with an effective date of June 8, 1998. Six small ILECs
that were top bidders for BTAs in which they provide telephone service applied
for waivers of the LMDS ownership rules. There can be no assurance that LMDS
will develop into a technically and commercially feasible business.
FUTURE INTERNATIONAL OPERATIONS
The Company may ultimately expand its operations to other countries. The
FCC requires every carrier that intends to originate international
telecommunications from within the U.S., either through the use of its own
facilities or on a resale basis, to secure in advance an authorization from the
FCC pursuant to Section 214 of the Communications Act (a "214 Authorization").
Additionally all such carriers must file with the FCC a tariff containing the
rates, terms, and conditions of their international service offerings. In
applying for a 214 Authorization, a carrier must disclose any affiliations with
or special concessions from foreign carriers or nations. The FCC has streamlined
its procedures for granting 214 Authorizations, providing routine grant of such
authorizations in 35 days unless an application is formally opposed or the
applicant is affiliated with a carrier that controls bottleneck
telecommunications facilities in a foreign country, in which case the applicant
may be subject to more stringent regulation as a "dominant" carrier.
Additionally, applicants affiliated with foreign carriers in countries that are
signatories to the Telecommunications Annex to the World Trade Organization
General Agreement of Trade in Services, including Canada, have a reduced burden
of demonstrating their "non-dominance." Carriers that have received 214
Authorizations are subject to certain reporting requirements, must file
contracts with foreign correspondents, and are restricted in the provision of
certain services to certain nations, such as the use of resold private lines for
switched services and the provision of any services to countries on the FCC's
"exclusion list." The Company applied for a 214 Authorization for both
facilities-based and resale international services on May 1, 1998 and has not
yet filed a tariff for its proposed international services.
PROPERTIES
The Company leases office space which is adequate to meet its needs at
present and its expected needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not engaged in any legal disputes that are expected to have
a material adverse effect on its operations.
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MANAGEMENT
MANAGEMENT AND THE INTERRELATIONSHIP OF THE FORMER AFFILIATES
The senior management and directors of Newco also serve as management and
directors of the Former Affiliates (NTL, CCII and CoreComm) as more fully
described below. In 1990, Cellular Communications, Inc. ("CCI"), a Delaware
corporation in the cellular communications industry, entered into an agreement
with AirTouch Communications, Inc. (formerly PacTel Corporation) through which
the two parties operated a partnership that controlled a cellular communications
business in the States of Ohio, Michigan, Indiana and Kentucky (the "CCI Joint
Venture"). In connection with the CCI Joint Venture, on July 31, 1991, CCI
distributed pro rata to its stockholders all of the capital stock of CCII and
OCOM (now known as NTL), which conducted CCI's international and long
distance/microwave operations, respectively. On February 28, 1992, also in
connection with the CCI Joint Venture, CCI distributed pro rata to its
stockholders all of the capital stock of its former subsidiary Cellular
Communications of Puerto Rico, Inc. ("old CCPR"), which subsequently formed
CoreComm to act as a holding company, pursuant to Delaware General Corporate Law
Section 251(g). Accordingly, because historically CCI, CCII, NTL, CoreComm and
most recently, the Company, have their origins in the same corporate family,
there is an historical interconnection among these companies' management and
directors. Each officer and director's specific roles are outlined in the
following sections.
NTL intends to provide certain corporate management, financial, legal and
technical services to the Company. NTL is expected to charge the Company for
direct costs where identifiable and a fixed percentage of its corporate
overhead, which is presently anticipated to be 30%.
DIRECTORS
The Board of Directors of the Company and of CoreComm consist of the seven
persons listed below (other than Ted H. McCourtney who does not serve on
CoreComm's Board of Directors), each of whom will be elected for a term expiring
at the annual meeting of stockholders indicated below and until his successor
shall have been elected and qualified.
<TABLE>
<CAPTION>
TERM EXPIRES
AT ANNUAL
NAME AGE MEETING IN
- ---- --- ------------
<S> <C> <C>
Alan J. Patricof.......................................... 63 2001
Warren Potash............................................. 66 2001
Sidney R. Knafel.......................................... 67 2002
Ted H. McCourtney......................................... 59 2002
Del Mintz................................................. 70 2002
George S. Blumenthal...................................... 54 2000
J. Barclay Knapp.......................................... 41 2000
</TABLE>
Set forth below is a brief description of the present and past business
experience of each of the persons who serve as directors of the Company:
ALAN J. PATRICOF, a director of the Company since March 18, 1998, has been
a director of CoreComm from the date of the February 1992 distribution by CCI to
its stockholders of the Common Stock of the Company's predecessor, old CCPR (the
"CCPR Distribution"), and is Chairman of Patricof & Co. Ventures, Inc., a
venture capital firm he founded in 1969. Mr. Patricof has also been a director
of CCII from and prior to the July 1991 distribution by CCI to its stockholders
of the Common Stock of CCII (the "CCII Distribution"), NTL since its formation
and is a director of other privately owned companies.
WARREN POTASH, a director of the Company since March 18, 1998, has been a
director of CoreComm from the date of the CCPR Distribution. Mr. Potash retired
in 1991 as President and Chief Executive Officer of the Radio Advertising
Bureau, a trade association, a position he held since 1989. Prior to that time,
and beginning in 1986, he was President of New Age Communications, Inc., a
communications consultancy firm. Until his retirement in 1986, Mr. Potash was a
Vice President of Capital Cities/ABC Broadcasting, Inc., a
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position he held since 1970. Mr. Potash has also been a director of CCII from
and prior to the CCII Distribution and NTL since its formation.
SIDNEY R. KNAFEL, a director of the Company since March 18, 1998, and, a
director of CoreComm from the date of the CCPR Distribution, has also been
Managing Partner of SRK Management Company, a private investment concern, since
1981. In addition, Mr. Knafel is Chairman of Insight Communications, Inc. and
BioReliance Corporation. Mr. Knafel is also a director of General American
Investors Company, Inc., IGENE Biotechnology, Inc. and some privately owned
companies, and has been a director of CCII from and prior to the CCII
Distribution and NTL since its formation.
TED H. MCCOURTNEY, a director of the Company since March 18, 1998, is a
General Partner of Venrock Associates, a venture capital investment partnership,
a position he has held since 1970. Mr. McCourtney also has been a director of
NTL since its formation and serves as a director of Medpartners Inc., Visual
Networks, Inc. and several privately owned companies.
DEL MINTZ, a director of the Company since March 18, 1998, and a director
of CoreComm from the date of the CCPR Distribution, is President of Cleveland
Mobile Tele Trak, Inc., Cleveland Mobile Radio Sales, Inc. and Ohio Mobile Tele
Trak, Inc., companies providing telephone answering and radio communications
services in Cleveland and Columbus, respectively. Mr. Mintz has held similar
positions with the predecessors of these companies since 1967. Mr. Mintz is
President of several other companies, and was President and a principal
stockholder of Cleveland Mobile Cellular Telephone, Inc. before such company was
acquired by a merger with CCI's predecessor in 1985. Mr. Mintz has also been a
director of CCII since the CCII Distribution, NTL since its formation and is a
director of several privately owned companies.
GEORGE S. BLUMENTHAL, a director of the Company since March 18, 1998, has
been Chairman, Treasurer and a director of CoreComm from and prior to the CCPR
Distribution and was Chief Executive Officer from March 1994 until March 1998.
In addition, Mr. Blumenthal is Chairman, Treasurer and a director of NTL. Mr.
Blumenthal is also a director of Andover Togs, Inc. Mr. Blumenthal was Chairman,
Treasurer and a director of CCII from its organization until April 1994. Mr.
Blumenthal was also Chairman, Treasurer and a director of CCI, which positions
he held from CCI's founding in 1981 until its merger in 1996 into a subsidiary
of AirTouch Communications, Inc. (the "CCI Merger").
J. BARCLAY KNAPP, a director of the Company since March 18, 1998, was
appointed President of CoreComm in March 1994 and Chief Executive Officer in
March 1998. Mr. Knapp has been a director of CoreComm from and prior to the CCPR
Distribution and was Chief Financial Officer from that date to 1997. Mr. Knapp
was Executive Vice President, Chief Operating Officer and a director of CCII
from and prior to the CCII Distribution until June 1998. He is President, Chief
Executive Officer, Chief Financial Officer and a director of NTL. Mr. Knapp was
also Executive Vice President, Chief Operating Officer, Chief Financial Officer
and a director of CCI until the CCI Merger.
Following the Distribution, the Company may expand the Board of Directors
to include additional independent directors. The identities of such additional
independent directors have not yet been determined and will not be determined
prior to the Distribution.
CLASSIFIED BOARD OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes as nearly equal in number as possible
with the directors in each class serving staggered three-year terms. Initially,
the Class I directors will be George S. Blumenthal and J. Barclay Knapp; the
Class II directors will be Alan J. Patricof and Warren Potash and the Class III
directors will be Sidney R. Knafel, Ted H. McCourtney and Del Mintz. The terms
of the Class I, Class II and Class III Directors will expire initially in 2000,
2001 and 2002, respectively. At each annual meeting of the stockholders of the
Company, the successors to the class of directors whose term expires will be
elected to hold office for a term expiring at the annual meeting of stockholders
held in the third year following their election. See "DESCRIPTION OF COMPANY
CAPITAL STOCK."
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish a Compensation and Option
Committee (the "Compensation Committee") and an Audit Committee. Messrs. Knafel
and Mintz will serve as members of the Board of Directors' Compensation and
Option Committee and Messrs. Mintz, Patricof and Potash will serve as members of
the Board of Directors' Audit Committee. The Compensation and Option Committee
will review and make recommendations regarding annual compensation for Company
officers and the Audit Committee will oversee the Company's financial reporting
process on behalf of the Company's Board of Directors. There are no other plans
to establish committees of the Board of Directors. Directors will be reimbursed
for out-of-pocket expenses incurred in attending meetings of the Board of
Directors and the committees.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who serve as executive officers of the Company. George S. Blumenthal, J. Barclay
Knapp, Richard J. Lubasch and Gregg Gorelick also serve as executive officers of
CoreComm. Executive officers of the Company and CoreComm are elected annually by
the Board of Directors and serve until their successors are duly elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
George S. Blumenthal...................... 54 Chairman of the Board
J. Barclay Knapp.......................... 41 President, Chief Executive Officer and Chief
Financial Officer
Patty J. Flynt............................ 46 Senior Vice President -- Chief Operating
Officer
Richard J. Lubasch........................ 51 Senior Vice President -- General Counsel and
Secretary
Gregg Gorelick............................ 39 Vice President -- Controller, Treasurer
</TABLE>
Set forth below is a brief description of the present and past business
experience of each of the persons who serve as executive officers of the Company
who are not also serving as directors.
PATTY J. FLYNT has been OCOM Corporation's President since 1996. Ms. Flynt
is also Group Managing Director of the Information Services Division of NTL
Incorporated. Prior to joining OCOM in 1996, Ms. Flynt was a Vice President of
New Par, a joint venture of CCI and AirTouch Communications, Inc. from 1989
until 1996.
RICHARD J. LUBASCH has been CoreComm's Senior Vice President-General
Counsel and Secretary from the date of the CCPR Distribution. Mr. Lubasch has
also been Senior Vice President -- General Counsel and Secretary of CCII from
and prior to the CCII Distribution and NTL since its formation, as well as
Treasurer of CCII. Mr. Lubasch was Vice President, General Counsel and Secretary
of CCI from July 1987 until the CCI Merger.
GREGG GORELICK has been CoreComm's Vice President -- Controller from the
date of the CCPR Distribution. From 1981 to 1986 he was employed by Ernst &
Whinney (now known as Ernst & Young LLP). Mr. Gorelick is a certified public
accountant and was Vice President -- Controller of CCI from 1986 until the CCI
Merger. Mr. Gorelick has held that position at CCII from and prior to the CCII
Distribution and at NTL since its formation.
EXECUTIVE COMPENSATION
POLICY
The Compensation Committee has the responsibility for the design and
implementation of the Company's executive compensation program. The Compensation
Committee is composed entirely of independent non-employee directors.
The Company's executive compensation program is designed to be closely
linked to corporate performance and return to shareholders. To this end, the
Company has developed an overall compensation strategy and specific compensation
plans that tie a very significant portion of an executive's aggregate
compensation to
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<PAGE> 54
the appreciation in the Company's stock price. In addition, executive bonuses
are linked to the achievement of operational goals and therefore relate to
shareholder return. The overall objective of this strategy is to attract and
retain the best possible executive talent, to motivate these executives to
achieve the goals inherent in the Company's business strategy and to link
executive and shareholder interests through equity-based compensation, thereby
seeking to enhance the Company's profitability and shareholder value.
Each year the Compensation Committee will conduct a review of the Company's
executive compensation program to determine the appropriate level and forms of
compensation. Such review will permit an annual evaluation of the link between
the Company's performance and its executive compensation.
In assessing compensation levels for the executives, the Compensation
Committee recognizes the fact that such executives have participated in the
development of the Company (and its predecessors) from its earliest stages. In
determining the annual compensation for the Chief Executive Officer, the
Committee uses the same criteria as it does for the other named executives.
BASE SALARY AND BONUS
In furtherance of the Company's incentive-oriented compensation goals set
forth above, cash compensation (annual base salary and bonus) is supplemented by
equity-based option grants. For 1998, the Compensation Committee has not yet
determined the amounts of compensation or grants of options for the Company's
Management. The Company's officers and directors will receive shares in Newco on
the same basis as all other CoreComm shareholders, and will receive an equitable
adjustment in their CoreComm options and grants of options in Newco, in
connection with the Distribution, as will all other option holders. See
"MANAGEMENT -- Stock Option Plan" and "TREATMENT OF CORECOMM EMPLOYEE AND
NON-EMPLOYEE DIRECTOR STOCK OPTIONS IN THE DISTRIBUTION."
BERMUDA RESIDENT REPRESENTATIVE AND SECRETARY
The Company is required, as a matter of Bermuda law, to maintain a
representative presence in Bermuda and has elected to appoint a resident
representative. The resident representative is entitled to attend and speak, but
not to vote at meetings of the board or any committee of the board or of the
shareholders. Hugh Gillespie, an attorney with Appleby, Spurling & Kempe, the
Company's Bermuda legal advisor has been appointed as the Company's initial
resident representative.
RICHARD H. BENNETT is employed by A.S. & K. Services Ltd., a Bermuda
Corporation, and an affiliate of Appleby, Spurling & Kemp, as a corporate
administrator and will serve as the Company's Secretary resident in Bermuda.
STOCK OPTION PLANS
The Company's Board of Directors is expected to adopt the CoreComm Limited
1998 Stock Option Plan (the "Newco Stock Option Plan") and the CoreComm Limited
Non-Employee Director Stock Option Plan (the "Non-Employee Director's Plan"),
reserving thereunder shares for issuances to employees and directors,
respectively.
The Newco Stock Option Plan is intended to encourage stock ownership by
employees of the Company and its divisions and subsidiary corporations and other
affiliates, so that they may acquire or increase their proprietary interest in
the Company, and to encourage such employees and directors who are employees to
remain in the employ of the Company or its affiliates and to put forth maximum
efforts for the success of the business. The Newco Stock Option Plan provides
for grants of options to acquire shares of Newco Common Stock, which options may
be "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code. The terms of options granted pursuant to the Newco Stock Option
Plan, including provisions regarding vesting, exercisability, exercise price and
duration are generally set by the Compensation and Option Committee of the
Company's Board of Directors. Employees and Directors of the Company who hold
CoreComm Options (as defined below) will generally receive a corresponding
option under the Newco Stock Option Plan, immediately prior to the Distribution,
with an exercise price equal to the fair market value of the
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<PAGE> 55
Newco Common Stock as determined on the date of the option grant. Certain of
these optionees will have the ability to express to the Compensation Committee
their preference to receive their options at various exercise prices and terms
intended to preserve the economic value inherent in such optionee's existing
CoreComm Options. The Compensation Committee will make the ultimate decision as
to the terms of such options.
The Non-Employee Director's Plan is also intended to encourage stock
ownership by non-employee directors of the Company in order to increase their
identification with the interests of the Company's shareholders, and to
encourage such directors to remain in the service of the Corporation and to put
forth maximum efforts for the success of the business.
The forms of the Newco Stock Option Plan and the Non-Employee Directors
Plan are filed as exhibits to the Registration Statement of which this
Information Statement is a part.
TREATMENT OF CORECOMM EMPLOYEE AND NON-EMPLOYEE DIRECTOR
STOCK OPTIONS IN THE DISTRIBUTION
Certain employees of the Company currently hold options to purchase shares
of CoreComm Common Stock ("CoreComm Options") granted pursuant to the CoreComm
Stock Option Plan, which options will generally remain outstanding following the
Distribution. Pursuant to the CoreComm Stock Option Plan and the related option
agreements, an equitable adjustment will be made to reduce the exercise price of
each such CoreComm Option to reflect (in whole or in part) the change in the
book value of the CoreComm Common Stock resulting from the Distribution.
Employees and Directors of the Company who hold CoreComm Options will generally
receive a corresponding option under the Newco Stock Option Plan, immediately
prior to the Distribution, with an exercise price equal to the fair market value
of the Newco Common Stock as determined on the date of the option grant. Certain
of these optionees will have the ability to express to the Compensation
Committee their preference to receive their options at various exercise prices
and terms intended to preserve the economic value inherent in such optionee's
existing CoreComm Options. The Compensation Committee will make the ultimate
decision as to the terms of such options.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
anticipated beneficial ownership of Newco Common Stock as of the Distribution
date, based on ownership of CoreComm Common Stock as of August 17, 1998 by (i)
each executive officer and director of the Company and (ii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
----------------------------------------------------------------
PRESENTLY TOTAL
COMPANY EXERCISABLE OPTIONS
EXECUTIVE OFFICERS AND DIRECTORS STOCK OPTIONS(1) OUTSTANDING TOTAL PERCENT(2)
- -------------------------------- ------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
George S. Blumenthal(3)............ 145,549 321,813 846,813 467,362 3.36
J. Barclay Knapp................... 9,298 401,478 926,478 410,776 2.94
Patty J. Flynt..................... -- 6,250 6,250 6,250 *
Richard J. Lubasch................. 3,282 115,185 201,685 118,467 *
Gregg Gorelick..................... 18,837 37,904 58,404 56,741 *
Richard H. Bennett................. -- -- -- -- *
Del Mintz(5)....................... 282,286 32,023 92,823 314,309 2.31
Sidney R. Knafel(6)................ 199,249 32,023 92,823 231,272 1.70
Ted H. McCourtney(7)............... 210,355 21,523 40,323 231,878 1.70
Alan J. Patricof(8)................ 18,172 32,023 92,823 50,195 *
Warren Potash...................... 542 29,419 90,219 29,961 *
All Directors and Officers as a
group (11 in number)............. 886,691 1,029,641 2,448,641 1,916,332 13.12
</TABLE>
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<PAGE> 56
- ---------------
* Represents less than one percent
(1) Includes shares of CoreComm Common Stock purchasable upon the exercise of
options which are presently exercisable or become exercisable in the next 60
days.
(2) Includes Common Stock and Presently Exercisable CoreComm Options.
(3) Includes 2,080 shares of Common Stock held by trusts for the benefit of Mr.
Blumenthal's children and 3,000 shares owned by Mr. Blumenthal's wife, as to
which shares Mr. Blumenthal disclaims beneficial ownership.
(4) Includes 104 shares of Common Stock owned by Mr. Lubasch as custodian for
his child, as to which shares Mr. Lubasch disclaims beneficial ownership.
(5) Includes 20,732 shares of Common Stock owned by Mr. Mintz's children or by
Mr. Mintz's children as trustees for their children and 25 shares owned by
Mr. Mintz's wife, as to which shares Mr. Mintz disclaims beneficial
ownership.
(6) Includes 100,449 shares of Common Stock owned by trust accounts for the
benefit of Mr. Knafel's children, as to which shares Mr. Knafel disclaims
beneficial ownership. An additional 44,617 shares are owned by an adult
child of Mr. Knafel, as to which shares Mr. Knafel disclaims beneficial
ownership.
(7) Includes 520 shares of Common Stock held by trusts for the benefit of Mr.
McCourtney's children, as to which shares Mr. McCourtney disclaims
beneficial ownership. Also includes 200,000 shares of Common Stock owned by
various entities of which Mr. McCourtney is a general partner, as to which
shares Mr. McCourtney disclaims beneficial ownership.
(8) Includes 1,065 shares of Common Stock owned by Mr. Patricof's wife and 2,436
shares owned by Mr. Patricof's children, as to which shares Mr. Patricof
disclaims beneficial ownership. Also includes 5,000 shares of Common Stock
owned by Patricof & Co. Ventures, Inc.'s Profit
(9) Sharing Plan, of which Mr. Patricof is a trustee and Mr. Patricof disclaims
beneficial ownership of such securities other than the amount allocable to
his beneficial interest in the plan.
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<PAGE> 57
DESCRIPTION OF COMPANY CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of seventy-five
million (75,000,000) shares of Newco Common Stock and one million (1,000,000)
shares of Series A Junior Participating Preferred Stock. On June 1, 1998, there
were 1,200,000 shares of Common Stock outstanding. The following description is
qualified in all respects by reference to the Memorandum of Association (the
"Memorandum") and the By-laws, copies of which are attached to the Registration
Statement of which this Information Statement is a part.
COMMON STOCK
All shares of Newco Common Stock participate equally in dividends payable
to holders of Newco Common Stock when and as declared by the Board of Directors
and in net assets available for distribution to holders of Newco Common Stock on
liquidation or dissolution, have one vote per share on all matters submitted to
a vote of the Company's shareholders and do not have cumulative rights in the
decision of directors. All issued and outstanding shares of Newco Common Stock
are fully paid and nonassessable, and the holders thereof do not have
pre-emptive rights.
TRANSFER AGENT
Continental Stock Transfer & Trust Company is the transfer agent and
registrar for the Company's Common Stock.
CERTAIN SPECIAL PROVISIONS OF THE BY-LAWS
Certain provisions contained in the By-laws could make the acquisition of
control of the Company by means of a tender offer, open market purchases, a
proxy contest or otherwise more difficult. Set forth below is a description of
such provisions in the By-laws. Such description is intended as a summary only
and is qualified in its entirety by reference to the By-laws and copies of which
will be available upon request.
Classified Board of Directors: The By-laws provide that the Board of
Directors will be divided into three classes of directors, with the classes to
be as nearly equal in number as possible. The Board of Directors consists of the
persons referred to in "MANAGEMENT -- Directors and Officers of the Company." At
each annual meeting of shareholders, one class of directors will be elected,
each year for a three-year term.
The Company believes that the classified board provision of the By-laws is
advantageous to the Company and its shareholders because, by providing that
directors will serve three-year terms rather than one-year terms, it will
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors. The
Company believes that this, in turn, will permit the board to represent more
effectively the interests of all shareholders.
With a classified Board of Directors, it will generally take a majority
shareholder two annual meetings of shareholders to elect a majority of the Board
of Directors. As a result, a classified board may discourage proxy contests for
the election of directors or purchases of a substantial block of shares because
its provisions could operate to prevent obtaining control of the board in a
relatively short period of time. The classification provisions could also have
the effect of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its shareholders. In addition, because under
the By-laws directors may be removed only for cause, a classified board would
delay shareholders who do not agree with the policies of the Board of Directors
from replacing a majority of the Board of Directors for two years, unless they
can demonstrate the directors should be removed for cause and obtain the
requisite vote.
Number of Directors; Removal; Filling Vacancies: The By-laws provide that
the number of directors shall consist of not more than fifteen nor less than
three directors. In addition, pursuant to authority conferred under a
Shareholders resolution, and subject to any rights of holders of any shares of
Preferred Stock, if any, a majority of the Board of Directors then in office is
empowered to fill any vacancies on the Board of Directors.
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<PAGE> 58
Accordingly, the Board of Directors could temporarily prevent any shareholder
from obtaining majority representation on the board by enlarging the size of the
board and filling the new directorships with its own nominees.
Under the Bermuda Companies Act, 1981, as amended (the "Companies Act"), a
director serving on a classified board may be removed by the shareholders only
for cause. Moreover, the By-laws provide that directors may be removed only by
the affirmative vote of holders of a least a majority of the voting power of all
the then outstanding shares of shares entitled to vote generally in the election
of directors (the "Voting Shares"), voting together as a single class.
Advance Notice Provisions for Shareholder Nominations: The By-laws
establish an advance notice procedure with regard to the nomination, other than
by or at the direction of the Board of Directors, of candidates for election as
directors (the "Nomination Procedure").
The Nomination Procedure provides that, subject to the rights of holders of
any series of Preferred Stock, if any, only persons who are nominated by or at
the direction of the Board of Directors or by a shareholder who has given timely
written notice to the Secretary prior to the meeting at which directors are to
be elected, will be eligible for election as directors of the Company. Under the
Nomination Procedure, to be timely, notice must be received by the Company not
less than 75 days nor more than 90 days prior to the annual or special meeting
of shareholders, provided, however, that in the event that less than 90 days'
notice or prior public disclosure of the meeting date is given or made to
shareholders, notice by the shareholder to be timely must be received not later
than the fifteenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made, whichever first occurs.
Under the Nomination Procedure, a shareholder's notice to the Company
proposing to nominate a person for election as a director must contain certain
information (i) about each proposed nominee, including, without limitation, (a)
the name, age, business address and residence address of the nominee, (b) the
principal occupation or employment of the nominee, (c) the class, series and
number of shares of capital stock of the Company which are beneficially owned by
the nominee, and (d) any other information relating to the nominee that is
required to be disclosed in solicitations of proxies for election of directors
pursuant to the Rules and Regulations of the Commission under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as director if elected) and (ii) about the
shareholder proposing to nominate such person, including, without limitation,
the name and record address of the shareholder and the class, series and number
of shares of capital shares of the Company which are beneficially owned by the
shareholder. The Company may require any proposed nominee to furnish such other
information as may reasonably be required by the Company to determine the
eligibility of such proposed nominee to serve as a director of the Company. If
the officer presiding at a meeting determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director and such nomination shall be disregarded.
By requiring advance notice of nominations by shareholders, the Nomination
Procedure will afford the Board of Directors a meaningful opportunity to
consider the qualifications of the Proposed nominees and, to the extent deemed
necessary or desirable by the Board of Directors, to inform shareholders about
such qualification. Although the By-laws do not give the Board of Directors any
power to approve or disapprove shareholder nominations for the election of
directors or proposals for action, they may have the effect of precluding a
contest for the election of directors if the proper procedures are not followed,
and of discouraging or deterring a third party from conducting a solicitation of
procedures to elect its own slate of directors without regard to whether
consideration of such nominees might be harmful or beneficial to the Company and
its shareholders.
Preferred Stock: The By-laws authorize the Board of Directors to issue one
or more series of Preferred Stock and to determine, with respect to any series
of Preferred Stock, the powers, designations, preferences, optional or other
rights, if any, and the qualifications, limitations or restrictions thereof, as
are stated in resolutions adopted by the Board of Directors providing for the
issue of such series and as are permitted by the Companies Act.
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<PAGE> 59
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide increased flexibility in
structuring possible future financings and acquisitions and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of the Common Stock, will be available for issuance without
further action by the Company's shareholders, unless such action is required by
applicable law or the rules of any shares exchange on which the Company's
securities may be listed or applicable rules of any self-regulatory
organization. If the approval of the Company's shareholders is not required for
the issuance of shares of Preferred Stock or the Company Common Stock, the Board
of Directors does not intend to seek shareholder approval. The Board of
Directors will make any determination to issue such shares based on its judgment
as to the best interests of the Company and its shareholders. The Board of
Directors, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt or other transaction that some or a majority
of the shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their shares over the then current
market price of such shares.
Voting Requirements for Certain Business Combinations: The By-laws also
provide that, in addition to any affirmative vote required by law, the
affirmative vote of holders of two-thirds of the voting power of the Company
shall be necessary to approve any "Business Combination" (as defined) proposed
by an "Interested Shareholder (as defined). The additional voting requirements
will not apply, however, if: (a) the Business Combination was approved by not
less than a majority of the Continuing Directors or (ii) a series of conditions
are satisfied requiring (in summary) (a) that the consideration to be paid to
the Company's shareholders in the Business Combination must be at least equal to
the higher of (i) the highest per-share price paid by the Interested Shareholder
in acquiring any of the Company's Common Shares during the two years prior the
announcement date of the Business Combination or in the transaction in which it
becomes an Interested Shareholder (the "Determination Date") whichever is higher
or (ii) the fair market value per share of Common Shares on the announcement
date or Determination Date, whichever is higher, in either case appropriately
adjusted for any stock dividend, stock split, combination of shares or similar
event (non-cash consideration is treated similarly) and (b) certain "procedural"
requirements are complied with, such as the solicitation of proxies pursuant to
the rules of the Securities and Exchange Commission and no decrease in regular
dividends (if any) after the Interested Shareholder becomes an Interested
Shareholder (except as approved by a majority of the Continuing Directors).
An "Interested Shareholder" is defined as anyone who is or has announced
the intention to become the beneficial owner of a 10% or more of the voting
shares and other than any employee share plan sponsored by the Company and
includes any person who is an affiliate of the Company and at any time within
the prior two-year period prior to the date in question and was the beneficial
owner of 10% or more of the voting shares. The term "beneficial owner" includes
person directly and indirectly owning or having the right to acquire or vote the
shares. Interested Shareholders participate fully in all shareholder voting.
A "Business Combination" includes the following transactions: (a) merger or
consolidation or amalgamation of the Company or any subsidiary with an
Interested Shareholder or with any other corporation or entity which is, or
after such merger or consolidation or amalgamation would be, an affiliate of an
Interested Shareholder; (b) the sale or other disposition by the Company or a
subsidiary of assets having a fair market value of $5,000,000 or more if an
Interested Shareholder (or an affiliate thereof) is a party to the transaction;
(c) the adoption of any plan or proposal for the liquidation or dissolution of
the Company or for amendment of the By-laws; or (d) any reclassification of
securities, recapitalization, merger with a subsidiary, or other transaction
which has the effect, directly or indirectly, of increasing the proportionate
share of any class of its outstanding stock (or securities convertible into
stock) of the Company or a subsidiary owned by an Interested Shareholder (or an
affiliate thereof). Determinations of the fair market value of non-cash
consideration are made by a majority of the Continuing Directors.
The term "Continuing Directors" means any member of the Board of Directors
of the Company while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested Shareholder
and was a member of the Board of Directors prior to the time that the Interested
Shareholder became an Interested Shareholder, and any successor of a Continuing
Director while such successor is a member of the Board of Directors, who is not
an Affiliate or Associate or representative of the
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Interested Shareholder and is recommended or elected to succeed the Continuing
Director by a majority of Continuing Directors.
SHAREHOLDER PROPOSALS
Under the Companies Act the Company must circulate notice of a properly
supported shareholder requisition moving a resolution to be passed at the next
annual general meeting of the Company, together with a statement of up to 1,000
words in respect of the proposed resolution. The resolution must be supported by
the lesser of: 100 shareholders or shareholders representing 5% of the total
voting rights eligible at the meeting at which the resolution is proposed to be
passed. The resolution and notice will circulated at the expense of the
shareholders making the requisition, unless the Company otherwise resolves. The
requisition proposing a resolution must be deposited at the registered office of
the Company not less than six weeks before the general meeting.
AMENDMENT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Under the Companies Act, the directors may amend the By-laws of a company
subject to the approval of the company's shareholders. The By-laws provide that
they may be amended in the manner provided under the Companies Act, provided
that the provisions set forth in the By-laws relating to the election and term
of directors, the indemnification rights of directors, the amendment of the
By-laws and the restrictions on certain business combinations may be amended
only by the directors, with the approval by affirmative vote of the holders of
at least 66.667% of the Voting Shares.
SHAREHOLDER RIGHTS PLAN
The following description of the Rights Agreement is qualified in its
entirety by reference to the Rights Agreement, which is in substantially the
form attached as an exhibit to the Registration Statement of which this
Information Statement is a part.
The Rights Agreement provides that one Right will be issued with each share
of the Common Stock issued (whether originally issued or from the Company's
treasury) on or after the date of the Distribution and prior to the Rights
Distribution Date (as hereinafter defined). The Rights are not exercisable until
the Rights Distribution Date and will expire at the close of business on
December 31, 2010 unless previously redeemed by the Company as described below.
When exercisable, each Right entitles the owner to purchase from the Company
one-hundredth of a share of Series A Junior Participating Preferred Stock at a
purchase price of .
Except as described below, the Rights will be evidenced by all the Common
Stock certificates and will be transferred with the Common Stock certificates,
and no separate Rights certificates will be distributed. The Rights will
separate from the Common Stock and a "Rights Distribution Date" will occur upon
the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of the Common Stock (the "Shares Acquisition Date") or (ii)
10 business days (or such later date as is determined by the Company's Board of
Directors) following the commencement of a tender offer or exchange offer that
would result in a person or group becoming an Acquiring Person.
After the Rights Distribution Date, Rights certificates will be mailed to
holders of record of the Common Stock as of the Rights Distribution Date and,
thereafter the separate Rights certificates alone will represent the Rights.
The Series A Junior Participating Preferred Stock issuable upon exercise of
the Rights will be entitled to a minimum preferential quarterly dividend payment
of $0.01 per share and will be entitled to an aggregate dividend of 100 times
the dividend, if any, declared per share of Common Stock. In the event of
liquidation, the holders of the Series A Junior Participating Preferred Stock
will be entitled to a minimum preferential liquidation payment of $100 per share
and will be entitled to an aggregate payment of 100 times the payment made per
share of the Common Stock. Each share of Series A Junior Participating Preferred
Stock will have
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100 votes and will vote together with the Common Stock. In the event of any
merger, consolidation or other transaction in which shares of the Common Stock
are changed or exchanged, each share of Series A Junior Participating Preferred
Stock will be entitled to receive 100 times the amount received per share of the
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the Series A Junior Participating Preferred Stock's
dividend, liquidation and voting rights, the value of one-hundredth of a share
of Series A Junior Participating Preferred Stock purchasable upon exercise of
each Right should approximate the value of one share of the Common Stock.
In the event that a person becomes an Acquiring Person, each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price, the Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two
times the exercise price of the Right. Notwithstanding any of the foregoing,
following the occurrence of any such event, all Rights that are, or (under
certain circumstances specified in the Rights Agreement) were beneficially owned
by any Acquiring Person (or certain related parties) will be null and void.
However, Rights are not exercisable following the occurrence of the event set
forth above until such time as the Rights are no longer redeemable by the
Company as set forth below.
In the event that, at any time following the Shares Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation or the Common Stock is
changed or exchanged (other than a merger which follows a Qualifying Offer and
satisfies certain other requirements) or (ii) 50% or more of the Company's
assets or earning power is sold or transferred, each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price, Common Stock of the acquiring company having a value equal to
two times the exercise price of the Right.
At any time prior to the earlier of (i) until 10 days following the Shares
Acquisition Date, or (ii) the Final Expiration Date, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right. Immediately upon
the action of the Board of Directors ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of the Rights will be to
receive the $.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders or to the Company, shareholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for the Newco Common Stock (or other consideration) or for Common
Stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors prior to the Rights Distribution Date. After the Rights
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board of Directors in order to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person) or to shorten or lengthen any time period under the Rights
Agreement, provided that no amendment to adjust the time period governing
redemption shall be made at such time as the Rights are not redeemable.
The Rights have certain anti-takeover effects as they will cause
substantial dilution to a person or group that acquires a substantial interest
in the Company without the prior approval of the Board of Directors. Among the
effects is that the Rights could discourage a takeover attempt that might
otherwise allow the holders of Common Stock to sell such Common Stock at a
premium to the then current market price or which might otherwise be beneficial
to shareholders.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Companies Act permits the Company to indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may be
guilty in relation to the Company other than in respect of his own fraud or
dishonesty.
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The By-laws provide that every director, officer, committee member and any
resident representative of the Company be indemnified against any liabilities,
loss, damage or expense incurred or suffered in such capacity, subject to
limitations imposed in the Companies Act.
The By-laws further provide that to the extent that any director, officer,
committee member or resident representative of the Company is successful in
defending any proceedings, whether civil or criminal, the Company will indemnify
the individual for all liabilities incurred in such capacity.
By-law 151 stipulates that each shareholder and the Company agree to waive
any claim or right of action against any director, officer or committee member,
in respect of any failure to act or any action taken by such director, officer
or committee member in the performance of his duties with or for the Company.
The waiver does not extend to claims, rights of action arising from the fraud of
the director, officer, committee member or to recover any gain, personal profit
or advantage to which such individual is not legally entitled.
The By-laws permit the Company to advance the expenses incurred in
defending any civil or criminal action for which indemnification is required
against an undertaking of the indemnified party to repay the amount advanced if
it is ultimately determined that the indemnified party is not entitled to be
indemnified under the By-laws and subject to a determination by the Board of
Directors or, in specified situations, independent legal counsel or a majority
vote of the shareholders, that indemnification would be proper in the
circumstances.
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of the
Company which could give rise to an indemnification obligation on the part of
the Company. In addition, except as described herein, the Board of Directors is
not aware of any threatened litigation or proceeding which may result in a claim
for indemnification.
INTERESTED DIRECTORS
The By-laws provide that any transaction entered into by the Company in
which a director has an interest is not voidable by the Company nor can such
director be liable to the Company for any profit realized pursuant to such
transaction provided the nature of the interest is disclosed at the first
opportunity at a meeting of director, or in writing to the directors.
MERGERS AND SIMILAR ARRANGEMENTS
The Company may acquire the business of another Bermuda company similarly
exempt from Bermuda taxes or a company incorporated outside Bermuda and carry on
such business when it is within the objects of its Memorandum of Association.
The Company may also amalgamate with another Bermuda company or with a body
incorporated outside Bermuda upon the approval of the board of directors and the
holders of 75% of the outstanding shares of the Company, including any shares
that would otherwise be non-voting shares. In the case of an amalgamation, a
shareholder may apply to a Bermuda court for a proper valuation of such
shareholder's shares if such shareholder is not satisfied that fair value has
been paid for such shares. The court ordinarily would not set aside the
transaction on that ground absent evidence of fraud or bad faith.
TAKEOVERS
Bermuda law provides that where an offer is made for shares of another
company and, within four months of the offer, the holders of not less than 90%
of the shares which are the subject of the offer accept, the offeror may by
notice require the non-tendering shareholders to transfer their shares on the
terms of the offer. Dissenting shareholders may apply to the court within one
month of the notice objecting to the transfer. The burden is on the dissenting
shareholders to show that the court should exercise its discretion to enjoin the
required transfer, which the court will be unlikely to do unless there is
evidence of fraud or bad faith or collusion between the offeror and the holders
of the shares who have accepted the offer as a means of unfairly forcing out
minority shareholders.
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SHAREHOLDER'S SUIT
A shareholder who considers that the affairs of the Company are being
conducted in a manner which is unfairly prejudicial or oppressive to the
interests of some of the shareholders may apply to the Bermuda court for relief
under the Act. The court may grant such relief as it considers fit. Class
actions and derivative actions are generally not available to shareholders under
the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to
follow English case law precedent, which would permit a shareholder to commence
an action in the name of the Company to remedy a wrong done to the Company where
the act complained of is alleged to be beyond the corporate power of the Company
or is illegal or would result in the violation of the Memorandum of Association
or By-laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorneys' fees incurred in connection with such
action.
INSPECTION OF CORPORATE RECORDS
Members of the general public have the right to inspect the public
documents of the Company available at the office of the Registrar of Companies
in Bermuda, which will include the Memorandum of Association (including its
objects and powers) and any alteration to the Memorandum of Association and
documents relating to any increase or reduction of authorized capital. The
shareholders have the additional right to inspect or obtain copies of the
By-laws, minutes of general meetings and audited financial statements of the
Company, which must be presented to the annual general meeting of shareholders.
The register of shareholders of the Company is also open to inspection by
shareholders without charge, and to members of the public for a fee. The Company
is required to keep at its registered office a register of its directors and
officers which is open for inspection by members of the public without charge.
Bermuda law does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records.
BERMUDA TAXATION
Under current Bermuda law, there is no Bermuda income tax, withholding tax,
capital gains tax or capital transfer tax levied on the Company or its
shareholders.
The Company and its Bermuda subsidiaries have obtained a written
undertaking from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act 1966 (as amended) that, in the event of there
being enacted in Bermuda any legislation imposing tax computed on profits or
income, or computed on any capital asset, gain or appreciation, or any tax in
the nature of estate duty or inheritance tax, such tax shall not, until March
28, 2016, be applicable to the Company or any of its operations, or to the
shares, debentures or other obligations of the Company, except insofar as such
tax applied to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or to any land leased or let to
the Company.
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INDEPENDENT AUDITORS
The Company has appointed Ernst & Young LLP as the Company's independent
auditors to audit the Company's financial statements as of and for the year
ending December 31, 1998. Ernst & Young LLP has audited the Company's
consolidated balance sheet as of March 31, 1998 and OCOM's financial statements
as of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 (the "Registration Statement," which term shall include any amendments or
supplements thereto) under the Exchange Act with respect to the shares of Newco
Common Stock being received by CoreComm stockholders in the Distribution. This
Information Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. With respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, 13th
Floor, New York, New York 10048. The Commission maintains a web site that
contains reports, proxy statements, registration statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov.
Following the Distribution, the Company intends to furnish to its
stockholders annual reports containing consolidated financial statements audited
by an independent public accounting firm accompanied by an opinion expressed by
such independent public accounting firm and quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information, in each case prepared in accordance with generally accepted
accounting principles.
60
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CORECOMM LIMITED
Condensed Consolidated Balance Sheet -- June 30, 1998
(Unaudited)............................................... F-2
Condensed Consolidated Statement of Operations -- For the
Period from April 1, 1998 to June 30, 1998 (Unaudited).... F-3
Condensed Consolidated Statement of Shareholder's
Equity -- For the Period from incorporation to June 30,
1998 (Unaudited).......................................... F-4
Condensed Consolidated Statement of Cash Flows -- For the
Period from April 1, 1998 to June 30, 1998 (Unaudited).... F-5
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-6
Report of Independent Auditors.............................. F-8
Consolidated Balance Sheet -- March 31, 1998................ F-9
Notes to Consolidated Balance Sheet......................... F-10
OCOM CORPORATION TELECOMS DIVISION
Condensed Balance Sheet -- June 1, 1998 (Unaudited)......... F-13
Condensed Statements of Operations -- For the Period from
January 1, 1998 to June 1, 1998 and for the Six Months
Ended June 30, 1997 (Unaudited)........................... F-14
Condensed Statement of Parent's Investment -- For the Period
from January 1, 1998 to June 1, 1998 (Unaudited).......... F-15
Condensed Statements of Cash Flows -- For the Period from
January 1, 1998 to June 1, 1998 and for the Six Months
Ended June 30, 1997 (Unaudited)........................... F-16
Notes to Condensed Financial Statements (Unaudited)......... F-17
Report of Independent Auditors.............................. F-18
Balance Sheets -- December 31, 1997 and 1996................ F-19
Statements of Operations -- Years ended December 31, 1997,
1996 and 1995............................................. F-20
Statement of Parent's Investment (Deficiency) -- Years ended
December 31, 1997, 1996 and 1995.......................... F-21
Statements of Cash Flows -- Years ended December 31, 1997,
1996 and 1995............................................. F-22
Notes to Financial Statements............................... F-23
</TABLE>
F-1
<PAGE> 66
CORECOMM LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets
Cash...................................................... $ 201,000
Accounts receivable-trade, less allowance for doubtful
accounts of $301,000................................... 1,320,000
Inventory................................................. 172,000
Other..................................................... 371,000
-----------
Total current assets........................................ 2,064,000
Fixed assets, net of accumulated depreciation of $97,000.... 1,687,000
Goodwill, net of accumulated amortization of $60,000........ 2,349,000
LMDS license costs.......................................... 25,356,000
Other, net of accumulated amortization of $1,000............ 123,000
-----------
$31,579,000
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable.......................................... $ 842,000
Accrued expenses.......................................... 1,450,000
Due to NTL Incorporated................................... 747,000
-----------
Total current liabilities................................... 3,039,000
Shareholder's equity
Series preferred stock -- $.01 par value, authorized
1,000,000 shares; issued and outstanding none
Common stock, $.01 par value; authorized 75,000,000
shares; issued and outstanding 1,200,000 shares........ 12,000
Additional paid-in capital................................ 29,909,000
Deficit................................................... (1,381,000)
-----------
28,540,000
-----------
$31,579,000
===========
</TABLE>
See accompanying notes.
F-2
<PAGE> 67
CORECOMM LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE PERIOD FROM APRIL 1, 1998 (DATE OPERATIONS COMMENCED) TO JUNE 30, 1998
<TABLE>
<S> <C>
REVENUES
Telecommunications.......................................... $ 1,201,000
Telephone equipment......................................... 60,000
-----------
1,261,000
COSTS AND EXPENSES
Cost of telephone equipment sold............................ 15,000
Operating................................................... 1,052,000
Selling, general and administrative......................... 1,417,000
Depreciation................................................ 97,000
Amortization................................................ 61,000
-----------
2,642,000
-----------
OPERATING (LOSS)............................................ (1,381,000)
OTHER INCOME (EXPENSE)...................................... --
-----------
NET (LOSS).................................................. $(1,381,000)
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 68
CORECOMM LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(UNAUDITED)
FOR THE PERIOD FROM INCORPORATION TO JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN
SHARES PAR CAPITAL (DEFICIT)
--------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Initial contribution....................... 1,200,000 $12,000 $22,173,000
Capital contributions...................... 7,736,000
Net (loss) for the period.................. $(1,381,000)
--------- ------- ----------- -----------
Balance, June 30, 1998..................... 1,200,000 $12,000 $29,909,000 $(1,381,000)
========= ======= =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 69
CORECOMM LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD FROM APRIL 1, 1998 (DATE OPERATION COMMENCED) TO JUNE 30, 1998
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net (loss).................................................. $(1,381,000)
Adjustments to reconcile net (loss) to net cash used in
operating activities:
Depreciation and amortization............................. 158,000
Provision for losses on accounts receivable............... 16,000
Changes in operating assets and liabilities, net of effect
of acquisitions:
Accounts receivable.................................... (150,000)
Inventory.............................................. (104,000)
Other current assets................................... (204,000)
Accounts payable....................................... 230,000
Accrued expenses....................................... 271,000
Due to NTL Incorporated................................ 747,000
-----------
Net cash (used in) operating activities..................... (417,000)
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (232,000)
-----------
Net cash (used in) investing activities..................... (232,000)
FINANCING ACTIVITIES
Capital contributions....................................... 850,000
-----------
Net cash provided by financing activities................... 850,000
-----------
Net increase in cash........................................ 201,000
Cash at beginning of period................................. --
-----------
Cash at end of period....................................... $ 201,000
===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Contribution of subsidiaries................................ $29,059,000
</TABLE>
See accompanying notes.
F-5
<PAGE> 70
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
CoreComm Limited (the "Company"), a wholly owned subsidiary of CoreComm
Incorporated ("CoreComm"), was formed in March 1998 in order to provide an
appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment. CoreComm is planning to make a cash contribution to the Company of
$150,000,000 using proceeds from its wholly owned indirect subsidiary's new bank
loan and distributing 100% of the outstanding shares of the Company on a
one-for-one basis to CoreComm's shareholders.
The accompanying unaudited condensed consolidated financial statements 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 of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period from April 1,
1998 to June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the consolidated balance sheet and footnotes thereto as of March 31, 1998
included herein.
NOTE 2. ACQUISITIONS
In April and June 1998, CoreComm acquired the stock of Digicom, Inc. and
certain operating assets and related liabilities of the Wireless Outlet and OCOM
Corporation. CoreComm contributed these businesses to the Company. Digicom is a
reseller of Centrex services based in Cleveland, Ohio. The Wireless Outlet is a
reseller of primarily prepaid cellular and paging service in Ohio and other
locations in the United States. OCOM is a competitive local exchange carrier
("CLEC") on a resale basis as well as a reseller of long distance and cellular
service. The OCOM CLEC business is based in Ohio and the long distance and
cellular businesses operate in Ohio and other locations in the United States.
Aside from the cellular long distance resale business, which has been operating
for approximately seven years, these businesses are in early stages of
development. These acquisitions have been accounted for as purchases by
CoreComm, and, accordingly, the net assets and results of operations of the
acquired businesses have been included in the consolidated financial statements
from the dates of acquisition. The aggregate purchase price for these
acquisitions was cash of $3,787,000 which exceeded the fair value of the net
tangible assets acquired by $2,409,000, which is classified as goodwill. The
goodwill is being amortized on a straight-line basis over 10 years. The
contribution of the assets from CoreComm to the Company were accounted for at
historical cost in a manner consistent with a transfer of entities under common
control which is similar to that used in a "pooling of interests". The Company's
financial statements include the results of the contributed companies for all
period owned by CoreComm.
The pro forma unaudited consolidated results of operations for the six
months ended June 30, 1998 and 1997 assuming consummation of the acquisitions as
of January 1, 1997 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Total revenue..................................... $ 4,569,000 $ 4,998,000
Net (loss)........................................ (4,487,000) (1,516,000)
</TABLE>
NOTE 3. LMDS LICENSE COSTS
A wholly-owned subsidiary of CoreComm, Cortelyou Communications Corp.
("Cortelyou") was the successful bidder, for an aggregate of $25,241,000, for 15
Block A Local Multipoint Distribution Service
F-6
<PAGE> 71
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
("LMDS") licenses in Ohio. LMDS frequencies are expected to be used for the
provision of voice, data, video and Internet services to businesses and homes in
competition with incumbent local exchange telephone companies and/or cable
television operators. The FCC has allocated two blocks of frequencies to be
licensed in each of the 493 Basic Trading Areas in the United States and its
territories based on an auction that commenced in February 1998 and ended in
March 1998. In June 1998, CoreComm funded Cortelyou's payment of its bid and the
FCC issued the licenses. Costs of $115,000 were incurred in connection with the
auction and the license acquisition. CoreComm contributed Cortelyou to the
Company.
NOTE 4. FIXED ASSETS
Fixed assets at June 30, 1998 consist of:
<TABLE>
<S> <C>
Operating equipment......................................... $ 210,000
Computer equipment.......................................... 1,248,000
Other equipment............................................. 321,000
Construction in progress.................................... 5,000
----------
1,784,000
Accumulated depreciation.................................... 97,000
----------
$1,687,000
==========
</TABLE>
NOTE 5. ACCRUED EXPENSES
Accrued expenses at June 30, 1998 consist of:
<TABLE>
<S> <C>
Payroll and related......................................... $ 497,000
Accrued purchase price...................................... 172,000
Operating expenses.......................................... 223,000
Other....................................................... 558,000
----------
$1,450,000
==========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
The Company provides billing and software development services to other
subsidiaries of CoreComm and to NTL Incorporated. Certain officers and directors
of the Company are officers and directors of CoreComm and of NTL Incorporated.
The Company charges an amount in excess of its costs to provide these services.
The Company's general and administrative expenses were reduced by $29,000 for
the period from April 1, 1998 to June 30, 1998 as a result of these charges.
NOTE 7. INCOME TAXES
The Company has not recorded an income tax benefit for the period ended
June 30, 1998 as there was no tax sharing agreement between the Company and
CoreComm. The Company has not recorded a deferred tax asset for its tax losses
since it will not be able to utilize them in the future.
F-7
<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CoreComm Limited
We have audited the accompanying consolidated balance sheet of CoreComm
Limited and subsidiaries as of March 31, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the balance sheet 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 consolidated balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of CoreComm Limited and
subsidiaries at March 31, 1998 in conformity with generally accounting
principles.
ERNST & YOUNG LLP
New York, New York
June 2, 1998
F-8
<PAGE> 73
CORECOMM LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Due from Digicom, Inc. ..................................... $ 2,000,000
Deferred costs.............................................. 185,000
LMDS auction bid............................................ 25,241,000
-----------
Total assets................................................ $27,426,000
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accrued LMDS auction bid.................................. $ 5,241,000
Shareholder's equity
Series preferred stock -- $.01 par value; authorized
1,000,000 shares; issued and outstanding none
Common stock, $.01 par value; authorized 75,000,000
shares; issued and outstanding 1,200,000 shares........ 12,000
Additional paid in capital................................ 22,173,000
-----------
Total shareholder's equity.................................. 22,185,000
-----------
Total liabilities and shareholder's equity.................. $27,426,000
===========
</TABLE>
See accompanying notes.
F-9
<PAGE> 74
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
1. ORGANIZATION
CoreComm Limited (the "Company"), a wholly-owned subsidiary of CoreComm
Incorporated ("CoreComm"), was formed in March 1998 in order to provide an
appropriate vehicle to pursue new telecommunications opportunities outside of
Puerto Rico and the U.S. Virgin Islands in an entrepreneurial corporate
environment. All of the Company's net assets were contributed by CoreComm.
CoreComm intends to distribute to its stockholders 100% of the outstanding
shares of the Company on a one-for-one basis (the "Distribution"). As of March
31, 1998, the Company had not yet commenced operations.
After the completion of the acquisitions as described in Note 3, the
Company holds, through directly and indirectly wholly owned subsidiaries,
entities which operate or hold licenses or applications to operate in the
competitive local exchange carrier ("CLEC") business, cellular long distance
resale business, landline long distance resale business, prepaid cellular
service resale business, centralized telecommunications services ("CTS")
business and local multipoint distribution services ("LMDS") business. Aside
from the cellular long distance resale business, which has been operating for
approximately seven years, these businesses are in early stages of development.
The Company's customers are located throughout the United States. The Company
does not own its own facilities, instead it purchases capacity on a wholesale
basis and sells it at retail rates to end users.
Since a substantial portion of the Company's revenues will be derived from
long distance service provided to cellular telephone users, the Company's
business is currently dependent on the trends in the use of cellular telephone
service. Competition continues to increase in the long distance, local and
cellular (or wireless) telecommunications markets. Increased competition has
resulted in pricing pressure, which contributes to lower revenues per customer
and higher customer acquisition costs.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The Company consolidates its wholly-owned subsidiaries and those entities
where the Company's interest is greater than 50%. Significant intercompany
accounts and transactions are eliminated in consolidation.
DEFERRED COSTS
Deferred costs include legal and other costs incurred in connection with
the LMDS auction and application for LMDS licenses from the Federal
Communications Commission ("FCC") and with applications for approvals to operate
as a CLEC in various states. These costs will be amortized on a straight-line
basis over the term of the license or license-equivalent upon the commencement
of operations.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
F-10
<PAGE> 75
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
3. LMDS AUCTION AND ACQUISITIONS
A subsidiary of the Company, Cortelyou Communications Corp., was the
successful bidder, for an aggregate of $25,241,000, for 15 Block A LMDS licenses
in Ohio. The FCC has allocated two blocks of frequencies (Block A and Block B)
to be licensed in each of the 493 Basis Trading Area in the United States and
its territories based on an auction that commenced in February 1998 and ended in
March 1998. LMDS frequencies are expected to be used for the provision of voice,
data, video and Internet services to businesses and homes in competition with
incumbent local exchange telephone companies and/or cable television operators.
High bidders must submit an application demonstrating their qualifications to
hold the licenses they won at auction. The high bids must be paid within ten
business days of the announcement by the FCC that an application was accepted.
In February 1998, CoreComm entered into an agreement to acquire Digicom,
Inc., a reseller of Centrex services in Cleveland, Ohio for an aggregate
purchase price of $2,000,000. The acquisition was subject to regulatory
approval, which was received in April 1998.
In April 1998, CoreComm acquired for cash of approximately $400,000 all of
the operating assets of the Wireless Outlet which operates prepaid cellular and
paging businesses on a resale basis in Ohio and other locations in the United
States.
In June 1998, CoreComm acquired for cash of approximately $1,312,000
certain operating assets and related liabilities of OCOM Corporation.
4. RECENT ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company has adopted SFAS No. 130, which had no effect on
the consolidated balance sheet.
SEGMENT DISCLOSURES
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. The Company will adopt SFAS No. 131 for its fiscal year
ending December 31, 1998, and is evaluating the effect of SFAS No. 131 on its
financial statements.
5. THE DISTRIBUTION
RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company are also officers or
directors of NTL Incorporated ("NTL"). NTL intends to provide certain corporate
management, financial, legal and technical services to the Company. Amounts
charged to the Company by NTL will consist of salaries and direct costs where
identifiable and a fixed percentage of NTL's corporate overhead, which is
presently anticipated to be 30%. In the opinion of management, this proposed
method is reasonable.
F-11
<PAGE> 76
CORECOMM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
The Company's relationship with CoreComm is expected to be governed by
agreements to be entered into in connection with the Distribution, including a
Distribution Agreement and a Tax Disaffiliation Agreement. The Distribution
Agreement will provide for, among other things, the amount of the Company's
common stock to be issued in the Distribution. The Tax Disaffiliation Agreement
will detail the respective obligations concerning various tax liabilities and
will provide for cooperation with respect to certain tax matters, the exchange
of information and the retention of records.
DESCRIPTION OF CORECOMM FUNDING OF THE COMPANY
Prior to the Distribution, CoreComm intends to make a capital contribution
to the Company of $150,000,000 in cash. CCPR Services, Inc. ("Services"), a
wholly-owned indirect subsidiary of CoreComm entered into a credit agreement
dated August 11, 1998, with The Chase Manhattan Bank and the other lenders party
thereto, for senior secured credit facilities in an aggregate amount of up to
$170,000,000. On August 11 and 12, 1998, Services drew down under the credit
agreement an aggregate of $155 million of which $150 million was transferred to
CoreComm.
STOCK OPTIONS
CoreComm has granted options to purchase shares of common stock to
officers, employees and directors. As of June 1, 1998, CoreComm had options to
purchase approximately 3,768,000 shares of common stock outstanding. In
connection with the Distribution, each holder of CoreComm stock options will
receive options to purchase shares of the Company's common stock on a
one-for-one basis. The Company expects that, at the time of the Distribution, in
connection with the issuance of stock options to purchase the Company's common
stock to holders of options to purchase CoreComm's Common Stock, the Company
will record a one time charge of approximately $6,000,000.
F-12
<PAGE> 77
OCOM CORPORATION TELECOMS DIVISION
CONDENSED BALANCE SHEET
(UNAUDITED)
JUNE 1, 1998
<TABLE>
<S> <C>
ASSETS
Current assets
Accounts receivable-trade, less allowance for doubtful
accounts of $78,000.................................... $ 502,000
Inventory................................................. 60,000
Other..................................................... 247,000
----------
Total current asset......................................... 809,000
Fixed assets, net of accumulated depreciation of
$1,174,000................................................ 1,637,000
----------
$2,446,000
==========
LIABILITIES AND PARENT'S INVESTMENT
Current liabilities
Accounts payable.......................................... $ 37,000
Accrued expenses.......................................... 609,000
----------
Total current liabilities................................... 646,000
Parent's investment......................................... 1,800,000
----------
$2,446,000
==========
</TABLE>
See accompanying notes.
F-13
<PAGE> 78
OCOM CORPORATION TELECOMS DIVISION
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 1, 1998 SIX MONTHS ENDED
TO JUNE 1, 1998 JUNE 30, 1997
------------------------- ----------------
<S> <C> <C>
REVENUES
Telecommunications..................................... $ 1,416,000 $ 1,961,000
Telephone equipment.................................... 36,000 --
----------- -----------
1,452,000 1,961,000
COSTS AND EXPENSES
Cost of telephone equipment sold....................... 28,000 --
Operating.............................................. 744,000 820,000
Selling, general and administrative.................... 3,205,000 2,450,000
Depreciation........................................... 255,000 129,000
Amortization........................................... 2,000 5,000
----------- -----------
4,234,000 3,404,000
----------- -----------
OPERATING (LOSS)....................................... (2,782,000) (1,443,000)
OTHER INCOME (EXPENSE)................................. -- (4,000)
----------- -----------
NET (LOSS)............................................. $(2,782,000) $(1,447,000)
=========== ===========
</TABLE>
See accompanying notes.
F-14
<PAGE> 79
OCOM CORPORATION TELECOMS DIVISION
CONDENSED STATEMENT OF PARENT'S INVESTMENT
(UNAUDITED)
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1998.................................... $ 321,000
Capital contributions..................................... 4,261,000
Net loss for the period from January 1, 1998 to June 1,
1998................................................... (2,782,000)
-----------
BALANCE, JUNE 1, 1998....................................... $ 1,800,000
===========
</TABLE>
See accompanying notes.
F-15
<PAGE> 80
OCOM CORPORATION TELECOMS DIVISION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM SIX MONTHS ENDED
JANUARY 1, 1998 TO JUNE 1, 1998 JUNE 30, 1997
------------------------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss)......................................... $(2,782,000) $(1,447,000)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization.................... 257,000 134,000
Provision for losses on accounts receivable...... 92,000 --
Loss on disposal of fixed assets................. -- 4,000
Changes in operating assets and liabilities:
Accounts receivable........................... (262,000) 205,000
Inventory..................................... 20,000 --
Other current assets.......................... (199,000) (115,000)
Accounts payable.............................. (311,000) (113,000)
Accrued expenses.............................. (453,000) 18,000
----------- -----------
Net cash (used in) operating activities............ (3,638,000) (1,314,000)
INVESTING ACTIVITIES
Purchase of fixed assets........................... (623,000) (603,000)
Proceeds from disposals of fixed assets............ -- 4,000
----------- -----------
Net cash (used in) investing activities............ (623,000) (599,000)
FINANCING ACTIVITIES
Capital contributions from OCOM Corporation........ 4,261,000 1,913,000
----------- -----------
Net cash provided by financing activities.......... 4,261,000 1,913,000
----------- -----------
Net increase (decrease) in cash.................... $ -- $ --
=========== ===========
</TABLE>
See accompanying notes.
F-16
<PAGE> 81
OCOM CORPORATION TELECOMS DIVISION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
OCOM Corporation Telecoms Division (the "Company") was a division of OCOM
Corporation ("OCOM") until its sale to a subsidiary of CoreComm as of June 1,
1998. OCOM is a wholly-owned subsidiary of NTL Incorporated ("NTL"). The
accompanying unaudited condensed financial statements include the financial
position and results of operations of the Company and are prepared on the basis
of historical cost from the accounting records of OCOM. The condensed financial
statements are presented as if the Company had operated as an independent, stand
alone entity for the periods presented.
The accompanying unaudited condensed financial statements 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
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period from January 1, 1998 to June 1,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto for the year ended December 31, 1997 included
herein.
NOTE 2. RELATED PARTY TRANSACTIONS
The Company provides billing and software development services to other
subsidiaries of NTL and to affiliates of CoreComm Limited. Certain officers and
directors of OCOM are officers and directors of CoreComm Limited and NTL.
Beginning in 1997, the Company charges an amount in excess of its costs to
provide these services. The Company's general and administrative expenses were
reduced by $138,000 and zero in the period from January 1, 1998 to June 1, 1998
and in the six months ended June 30, 1997, respectively, as a result of these
charges.
F-17
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
Owner
OCOM Corporation Telecoms Division
We have audited the accompanying balance sheets of OCOM Corporation
Telecoms Division as of December 31, 1997 and 1996, and the related statements
of operations, parent's investment (deficiency) and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of OCOM Corporation Telecoms
Division at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Columbus, Ohio
April 24, 1998
F-18
<PAGE> 83
OCOM CORPORATION TELECOMS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable-trade, less allowance for doubtful
accounts of $46,000 (1997)............................. $ 332,000 $ 507,000
Inventory................................................. 80,000 --
Other..................................................... 48,000 127,000
---------- ----------
Total current assets........................................ 460,000 634,000
Fixed assets, net........................................... 1,269,000 270,000
Deferred costs, net of accumulated amortization of $107,000
(1997) and $96,000 (1996)................................. 2,000 13,000
---------- ----------
$1,731,000 $ 917,000
========== ==========
LIABILITIES AND PARENT'S INVESTMENT (DEFICIENCY)
Current liabilities
Accounts payable.......................................... $ 348,000 $ 179,000
Accrued expenses.......................................... 1,062,000 946,000
---------- ----------
Total current liabilities................................... 1,410,000 1,125,000
Parent's investment (deficiency)............................ 321,000 (208,000)
---------- ----------
$1,731,000 $ 917,000
========== ==========
</TABLE>
See accompanying notes.
F-19
<PAGE> 84
OCOM CORPORATION TELECOMS DIVISION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Telecommunications.................................. $ 3,565,000 $ 5,103,000 $ 4,001,000
Telephone equipment................................. 14,000 -- --
----------- ----------- -----------
3,579,000 5,103,000 4,001,000
COSTS AND EXPENSES
Cost of telephone equipment sold.................... 20,000 -- --
Operating........................................... 1,561,000 3,065,000 2,478,000
Selling, general and administrative................. 5,934,000 3,119,000 5,798,000
Depreciation........................................ 428,000 138,000 126,000
Amortization........................................ 11,000 11,000 11,000
----------- ----------- -----------
7,954,000 6,333,000 8,413,000
----------- ----------- -----------
Operating (loss).................................... (4,375,000) (1,230,000) (4,412,000)
Other income (expense).............................. (4,000) 133,000 258,000
----------- ----------- -----------
NET (LOSS).......................................... $(4,379,000) $(1,097,000) $(4,154,000)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE> 85
OCOM CORPORATION TELECOMS DIVISION
STATEMENT OF PARENT'S INVESTMENT (DEFICIENCY)
<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1995.................................... $ 353,000
Capital contributions..................................... 4,008,000
Net loss for the year ended December 31, 1995............. (4,154,000)
-----------
BALANCE, DECEMBER 31, 1995.................................. 207,000
Capital contributions..................................... 682,000
Net loss for the year ended December 31, 1996............. (1,097,000)
-----------
BALANCE, DECEMBER 31, 1996.................................. (208,000)
Capital contributions..................................... 4,908,000
Net loss for the year ended December 31, 1997............. (4,379,000)
-----------
BALANCE, DECEMBER 31, 1997.................................. $ 321,000
===========
</TABLE>
See accompanying notes.
F-21
<PAGE> 86
OCOM CORPORATION TELECOMS DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss).......................................... $(4,379,000) $(1,097,000) $(4,154,000)
Adjustments to reconcile net (loss) to net cash used
in operating activities:
Depreciation and amortization....................... 439,000 149,000 137,000
(Gain) loss on disposal of fixed assets............. 4,000 (1,000) (11,000)
Provision for losses on accounts receivable......... 46,000 -- --
Inventory reserve................................... 78,000 -- --
Changes in operating assets and liabilities:
Accounts receivable............................... 129,000 129,000 (204,000)
Inventory......................................... (158,000) -- --
Other current assets.............................. 79,000 7,000 (102,000)
Accounts payable.................................. 169,000 82,000 74,000
Accrued expenses.................................. 116,000 230,000 421,000
----------- ----------- -----------
Net cash (used in) operating activities............. (3,477,000) (501,000) (3,839,000)
INVESTING ACTIVITIES
Purchase of fixed assets............................ (1,435,000) (183,000) (180,000)
Proceeds from disposals of fixed assets............. 4,000 2,000 11,000
----------- ----------- -----------
Net cash (used in) investing activities............. (1,431,000) (181,000) (169,000)
FINANCING ACTIVITIES
Capital contributions from OCOM Corporation......... 4,908,000 682,000 4,008,000
----------- ----------- -----------
Net cash provided by financing activities........... 4,908,000 682,000 4,008,000
----------- ----------- -----------
Net increase (decrease) in cash..................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE> 87
OCOM CORPORATION TELECOMS DIVISION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BUSINESS
OCOM Corporation Telecoms Division (the "Company") is a division of OCOM
Corporation ("OCOM"). OCOM is a wholly-owned subsidiary of NTL Incorporated
("NTL"). The Company provides long distance telephone service to cellular
telephone, residential and business customers, as well as calling card service
and cellular telephone service. The Company's customers are located throughout
the United States. The Company does not own its own facilities, instead it
purchases capacity on a wholesale basis and sells it at retail rates to end
users. In 1998, the Company commenced offering local exchange telephone service
in portions of Ohio to residential and business customers through a resale
arrangement with the incumbent local exchange company.
Since a substantial portion of the Company's revenues are derived from long
distance service provided to cellular telephone users, the Company's business is
currently dependent on the trends in the use of cellular telephone service.
Competition continues to increase in the long distance, local and cellular (or
wireless) telecommunications markets. Increased competition has resulted in
pricing pressure, which contributes to lower revenues per customer and higher
customer acquisition costs.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the financial position and
results of operations of the Company and are prepared on the basis of historical
cost from the accounting records of OCOM. The financial statements are presented
as if the Company had operated as an independent, stand alone entity for the
periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying value of all financial instruments, including accounts
receivable-trade and current liabilities, approximates their fair value due to
the short maturity of the respective instruments.
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined by
specific identification or the first-in, first-out method.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives are as follows: office furniture -- 5 years, cellular
telephones -- 2 or 3 years, and all other fixed assets -- 3 years.
DEFERRED COSTS
One-time charges from telephone companies upon the commencement of resale
service were deferred and are amortized on a straight-line basis over
approximately ten years.
F-23
<PAGE> 88
OCOM CORPORATION TELECOMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
INCOME TAXES
The Company has not recorded an income tax benefit in the periods presented
because there was no tax sharing arrangement between the Company and OCOM or NTL
during the periods. The Company is not a legal entity, therefore it has not
recorded a deferred tax asset for its tax losses since it will not be able to
utilize them in the future.
REVENUE RECOGNITION
Telecommunications revenue is recognized at the time the service is
provided to the customer. Telephone equipment revenue is recorded when the
customer takes possession of the telephone or accessories.
ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred.
Advertising expense for the years ended December 31, 1997, 1996 and 1995 was
$127,000, $350,000 and $1,669,000, respectively.
NOTE 3. FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Computer equipment.......................................... $1,640,000 $ 655,000
Office furniture............................................ 224,000 125,000
Leasehold improvements...................................... 160,000 73,000
Vehicles.................................................... 155,000 137,000
Cellular telephones......................................... 27,000 25,000
---------- ----------
2,206,000 1,015,000
Accumulated depreciation.................................... (937,000) (745,000)
---------- ----------
$1,269,000 $ 270,000
========== ==========
</TABLE>
F-24
<PAGE> 89
OCOM CORPORATION TELECOMS DIVISION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- --------
<S> <C> <C>
Payroll and related......................................... $ 433,000 $231,000
Toll expense................................................ 66,000 116,000
Professional fees........................................... 204,000 273,000
Excise and sales taxes...................................... 108,000 9,000
Advertising................................................. 115,000 266,000
Other....................................................... 136,000 51,000
---------- --------
$1,062,000 $946,000
========== ========
</TABLE>
NOTE 5. RELATED PARTY TRANSACTIONS
The Company provides billing and software development services to other
subsidiaries of NTL and to subsidiaries of CoreComm Incorporated ("CoreComm").
Certain officers and directors of CoreComm are officers and directors of OCOM
and NTL. Beginning in 1997, the Company charges an amount in excess of its costs
to provide these services. The Company's general and administrative expenses
were reduced by $217,000 in 1997 as a result of these charges.
NOTE 6. 401(k) PLAN
The Company sponsors a 401(k) Plan in which all full-time employees who
have completed six months of employment and are 21 years of age may participate.
The Company's matching contribution is determined annually by the OCOM Board of
Directors. Participants may make salary deferral contributions of 1% to 15% of
their compensation not to exceed the maximum allowed by law. The Company's
expense for the years ended December 31, 1997, 1996 and 1995 was $126,000,
$46,000 and $32,000, respectively.
NOTE 7. COMMITMENTS
As of December 31, 1997, OCOM had leases for office space that expire in
1998. In 1998, OCOM entered into new leases for office space with terms that
expire in 2003. Total rent expense for the years ended December 31, 1997, 1996
and 1995 under operating leases was $131,000, $60,000 and $51,000, respectively.
Future minimum annual lease payments under noncancellable operating leases for
the leases entered into in 1998 are: $159,000 in 1998, $275,000 in 1999,
$283,000 in 2000, $291,000 in 2001, $302,000 in 2002 and $124,000 in 2003.
As of December 31, 1997, commitments for purchases of inventory, fixed
assets and services were $374,000.
NOTE 8. SUBSEQUENT EVENT (UNAUDITED)
As of June 1, 1998, the Company was sold to a subsidiary of CoreComm. The
financial statements do not give effect to the sale.
F-25
<PAGE> 90
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement, Amendment
No. 1., to be signed on its behalf by the undersigned, thereunto duly
authorized.
CoreComm Limited
By: /s/ RICHARD J. LUBASCH
------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President &
General Counsel
August 19, 1998
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Distribution Agreement, dated as of August 18, 1998, between
CoreComm Incorporated ("CoreComm") and the Registrant.
3.1 Form of Memorandum of Association of the Registrant and
Certificate of Name Change.
3.2 Form of By-Laws of the Registrant.
4.1 Form of Common Stock Certificate.
4.2 Form of Rights Agreement between the Registrant and
Continental Stock Transfer & Trust Company, as Rights Agent.
10.1 Form of Tax Disaffiliation Agreement between CoreComm and
the Registrant.
10.2 Form of CoreComm Limited 1998 Stock Option Plan.
10.3 Form of CoreComm Limited Non-Employee Director Stock Option
Plan.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
27.1 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) March 31, 1998.
27.2 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) March 31, 1997.
27.3 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) December 31, 1997.
27.4 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) December 31, 1996.
27.5 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) December 31, 1995.
27.6 Financial Data Schedule -- CoreComm Limited and Subsidiaries
March 31, 1998.
27.7 Financial Data Schedule -- OCOM Corporation Telecoms
Division (predecessor) June 01, 1998.
27.8 CoreComm Limited and Subsidiaries June 30, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 2.1
DISTRIBUTION AGREEMENT
Dated as of August 19, 1998
between
CORECOMM INCORPORATED
and
CORECOMM LIMITED
<PAGE> 2
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of August 19, 1998, by and
between CoreComm Incorporated, a Delaware corporation ("CoreComm") and CoreComm
Limited, a Bermuda corporation and a wholly owned subsidiary of CoreComm
("CoreComm").
WHEREAS, CoreComm and Newco desire to effect a distribution
(the "Distribution") by CoreComm to the holders of common stock, par value of
$.01 per share, (the "CoreComm Common Stock") of CoreComm of 100% of the issued
and outstanding common stock, par value $.01 per share (the "Newco Common
Stock"), of Newco owned by CoreComm immediately prior to the Distribution;
WHEREAS, CoreComm and Newco have determined that it is
necessary and desirable to set forth the principal corporate transactions
required to effect the Distribution and to set forth other agreements that will
govern certain other matters in connection with the Distribution;
NOW, THEREFORE, in consideration of the promises and the
mutual covenants and agreements contained herein and intending to be legally
bound hereby, CoreComm and Newco hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 General. As used in this Agreement, capitalized
terms defined immediately after their use shall have the respective meanings
thereby provided and the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
Action: any action, claim, suit, arbitration, inquiry,
subpoena, discovery request, proceeding or investigation by or before any court
or grand jury, any governmental or other regulatory or administrative agency or
commission or any arbitration tribunal.
Affiliate: with respect to any specified person, a person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under
2
<PAGE> 3
common control with, such specified person; provided, however, that CoreComm and
Newco shall not be deemed to be Affiliates of each other for purposes of this
Agreement.
Agent: Continental Stock Transfer & Trust Company, the
distribution agent appointed by CoreComm and Newco to distribute shares of Newco
Common Stock pursuant to the Distribution.
Code: the Internal Revenue Code of 1986, as amended.
Distribution: the distribution as a dividend to holders of
CoreComm Common Stock of Newco Common Stock on the basis provided in Section
2.01 hereof, which shall be effected on the Distribution Date.
Distribution Date: the date as of which the Distribution shall
be effected as determined by the CoreComm Board of Directors.
Record Date: the date determined by CoreComm's Board of
Directors as the record date for the Distribution.
Tax Disaffiliation Agreement: the Tax Disaffiliation
Agreement, in the form of Exhibit A hereto, pursuant to which CoreComm and Newco
have provided for certain tax matters.
ARTICLE II
THE DISTRIBUTION
Section 2.01 The Distribution. On the Distribution Date and
prior to giving effect to the Distribution, CoreComm shall deliver to the Agent,
a certificate or certificates representing shares of Newco Common Stock, equal
to 100% of the shares outstanding and owned by CoreComm. Upon receipt of a
certificate from the Secretary (or such other appropriate officer) of CoreComm
certifying the number of shares of CoreComm Common Stock outstanding on the
Record Date, Newco shall deliver to CoreComm or the Agent on behalf of CoreComm,
for the benefit of holders of record of CoreComm Common Stock on the Record
Date, a stock certificate representing, in the aggregate (and rounded to the
nearest whole share), one share of Newco Common Stock for every share of
CoreComm Common Stock outstanding on the Record Date and shall instruct the
Agent to distribute as promptly as practicable
3
<PAGE> 4
following the Distribution Date to holders of CoreComm Common Stock on the
Record Date one share of Newco Common Stock for every share of CoreComm Common
Stock held by each such stockholder. Newco agrees to provide to CoreComm or the
Agent on behalf of CoreComm, as the case may be, sufficient certificates in such
denominations as may be requested in order to effect the Distribution. All of
the shares of Newco Common Stock issued in the Distribution shall be fully paid,
nonassessable and free of preemptive rights.
Section 2.02 CoreComm Board Action. This Agreement and the Tax
Disaffiliation Agreement have been approved by the Board of Directors of
CoreComm and the Distribution and the Record Date have been declared by the
Board of Directors of CoreComm.
ARTICLE III
SURVIVAL
Section 3.01 Survival of Agreements.
(a) Except as specifically provided herein, all covenants and
agreements of the parties contained in this Agreement shall survive the
Distribution Date.
(b) The provisions of this Article III shall terminate and be
of no further force and effect on the third anniversary of the Distribution
Date.
ARTICLE IV
CERTAIN ADDITIONAL MATTERS
Section 4.01 Certain Intercompany Arrangements.
(a) Except as specifically provided by this Agreement or the
Tax Disaffiliation Agreement, to the extent that CoreComm, on the one hand, and
Newco, on the other hand, are providing or selling at the Distribution Date to
the other, or
4
<PAGE> 5
charging each other for, any services, pursuant to any written agreement or
arrangement, then such agreement or arrangement shall not be deemed altered,
amended or terminated as a result of this Agreement or the consummation of the
transactions contemplated hereby.
Section 4.02 Other Agreements. As of the date hereof, CoreComm
and Newco shall enter into the Tax Disaffiliation Agreement.
Section 4.03 Sales and Transfer Taxes. Newco and CoreComm
agree to cooperate to determine the amount of taxes or fees payable in
connection with the transactions contemplated by this Agreement (the
"Transaction Taxes"). CoreComm agrees to file promptly and timely the returns
for such Transaction Taxes with the appropriate taxing authorities and remit
payment of the Transaction Taxes and Newco will join in the execution of any
such tax returns or other documentation. Payment of all such Transaction Taxes
shall be the responsibility of Newco and shall be reimbursed to CoreComm by
Newco promptly upon request by CoreComm.
ARTICLE V
ACCESS TO INFORMATION AND SERVICES
Section 5.01 Confidentiality. CoreComm and Newco shall hold,
and shall cause its officers, employees, agents, consultants and advisors to
hold, in strict confidence, unless compelled to disclose by judicial or
administrative process or, in the opinion of its independent, legal counsel, by
other requirements of law, all confidential information concerning the other
party furnished it by such other party or its representatives pursuant to this
Agreement (except to the extent that such Information can be shown to have been
(a) available to such party on a non-confidential basis prior to its disclosure
by the other party, (b) in the public domain through no fault of such party or
(c) later lawfully acquired from other sources by the party to which it was
furnished), and each party shall not release or disclose such Information to any
other person, except its auditors, attorneys, financial advisors, bankers and
other consultants and advisors who shall be bound by the provisions of this
Section 5.01. Each party shall be deemed to have satisfied its obligation to
hold confidential Information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own
similar Information.
5
<PAGE> 6
ARTICLE VI
MISCELLANEOUS
Section 6.01 Complete Agreement. This Agreement, including the
Annexes and Exhibits and the agreements and other documents referred to herein,
shall, together with the Tax Disaffiliation Agreement constitute the entire
agreement between CoreComm and Newco with respect to the subject matter hereof
and shall supersede all previous negotiations, commitments and writings with
respect to such subject matter.
Section 6.02 Expenses. Except as otherwise provided in this
Agreement, the Tax Disaffiliation Agreement or any other agreement being entered
into by CoreComm and Newco pursuant to this Agreement, CoreComm or Newco shall
each pay their own costs and expenses incurred in connection with the
Distribution (whether or not payable as of the Distribution Date) and with the
consummation of the transactions contemplated by this Agreement. Such costs and
expenses shall include, without limitation, investment banking, legal,
accounting and printing costs and expenses and transfer taxes.
Section 6.03 Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware without giving effect to the conflicts of law principles thereof.
Section 6.04 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telegram, telex or other standard form of telecommunications, or by
registered or certified mail or overnight courier service, postage prepaid,
return receipt requested, addressed as follows:
If to CoreComm: CoreComm Incorporated
110 East 59th Street
New York, New York 10022
Attn: General Counsel
Fax: (212) 906-8440
6
<PAGE> 7
If to Newco: CoreComm Limited
110 East 59th Street
New York, New York 10022
Attn: General Counsel
Fax: (212) 906-8440
Any party may change its address by giving the other party written notice of its
new address in the manner set forth above.
Section 6.05 Amendment and Modification. This Agreement may be
amended, modified or supplemented only by written agreement of the parties.
Section 6.06 Successors and Assigns. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party without the prior written consent of the other party.
Section 6.07 No Third Party Beneficiaries. This Agreement is
solely for the benefit of the parties hereto and is not intended to confer upon
any other person except the parties hereto any rights or remedies hereunder.
Section 6.08 Counterparts. This Agreement may be execute in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 6.09 Severability. Each provision of this Agreement
shall be considered severable and it for any reason any provision which is not
essential to the effectuation of the basic purposes of the Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable
and contrary to existing or future applicable law, such invalidity shall not
impair the operation of or affect those provisions of this Agreement which are
valid. In that case, this Agreement shall be construed so as to limit any term
or provision so as to make it enforceable or valid within the requirements of
any applicable law, and in the event such term or provision cannot be so
limited, this Agreement shall be construed to omit such invalid or unenforceable
provisions.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the day and year first above
written.
CORECOMM INCORPORATED
By: /s/ Richard J. Lubasch
------------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President-General Counsel
CORECOMM LIMITED
By: /s/ Richard J. Lubasch
------------------------------------------
Name: Richard J. Lubasch
Title: Senior Vice President-General Counsel
8
<PAGE> 1
Exhibit 3.1
FORM NO. 5 REGISTRATION NO. EC24634
[BERMUDA LOGO]
BERMUDA
CERTIFICATE OF DEPOSIT OF
MEMORANDUM OF ASSOCIATION AND CONSENT
GRANTED BY THE MINISTER
THIS IS TO CERTIFY that a Memorandum of Association
of
CORTELYOU COMMUNICATIONS LIMITED
and the consent granted by the Minister under section 6(1) of THE COMPANIES ACT
1981 ("the Act") were delivered to the Registrar of Companies on the 17th day of
MARCH, 1998 in accordance with the provisions of section 14(2) of the Act.
Given under my hand this 19th
day of MARCH, 1998.
/s/
for REGISTRAR OF COMPANIES
Minimum Capital of the Company: US$12,000.00
Authorised Capital of the Company: US$12,000.00
<PAGE> 2
FORM NO. 6 REGISTRATION NO. EC24634
[LOGO]
BERMUDA
CERTIFICATE OF INCORPORATION
I hereby in accordance with section 14 of THE COMPANIES ACT 1981 issue this
Certificate of Incorporation and do certify that on the 16th day of March, 1998
CORTELYOU COMMUNICATIONS LIMITED
was registered by me in the Register maintained by me under the provisions of
the said section and that the status of the said company is that of an exempted
company.
Given under my hand and the Seal of
the REGISTRAR OF COMPANIES
[SEAL] this 19th day of March, 1998.
/s/
for REGISTRAR OF COMPANIES
<PAGE> 3
FORM NO. 3a Registration No. 24634
[LOGO]
BERMUDA
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
I HEREBY CERTIFY that in accordance with section 10 of THE COMPANIES ACT 1981
CORTELYOU COMMUNICATIONS LIMITED by resolution and with the approval of the
Registrar of Companies has changed its name and was registered as CORECOMM
LIMITED on the 15TH day of MAY, 1998.
Given under my hand and the Seal of the
REGISTRAR OF COMPANIES this 22ND day
of MAY, 1998.
[SEAL]
/s/
for REGISTRAR OF COMPANIES
<PAGE> 4
FORM NO. 2
[BERMUDA LOGO]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(SECTION 7(1) AND (2))
MEMORANDUM OF ASSOCIATION
OF
CORTELYOU COMMUNICATIONS LIMITED
- -------------------------------------------------------------------------------
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
BERMUDIAN NUMBER OF
STATUS SHARES
NAME ADDRESS (YES/NO) NATIONALITY SUBSCRIBED
Hugh Gillespie
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda No Canadian 1
Ruby L. Rawlins
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
Judith Morgan-Swan
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
Rachael M. Lathan
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda Yes British 1
do hereby respectively agree to take such number of shares of the Company as
may be allotted to us respectively by the provisional directors of the
Company, not exceeding the number of shares for which we have respectively
subscribed, and to satisfy such calls as may be made by the directors,
provisional directors or promoters of the Company in respect of the shares
allotted to us respectively.
<PAGE> 5
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company has power to hold land situate in Bermuda not exceeding in
all, including the following parcels-
Not Applicable
5. The authorised share capital of the Company is $12,000.00 divided into
shares of U.S. one dollar each. The minimum subscribed share capital of
the Company is $12,000.00 in United States currency.
6. The objects for which the Company is formed and incorporated are-
As set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the
Second Schedule to the Companies Act 1981.
7. The Company has the powers set out in the Schedule annexed hereto.
<PAGE> 6
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof-
/s/ /s/
- ------------------------------------ ---------------------------------
/s/ /s/
- ------------------------------------ ---------------------------------
/s/ /s/
- ------------------------------------ ---------------------------------
/s/ /s/
- ------------------------------------ ---------------------------------
(Subscribers) (Witnesses)
SUBSCRIBED this 11th day of March, 1998
<PAGE> 7
STAMP DUTY (To be affixed)
Not Applicable
<PAGE> 8
The Schedule
(referred to in Clause 7 of the Memorandum of Association)
(a) To borrow and raise money in any currency or currencies and to secure or
discharge any debt or obligation in any manner and in particular (without
prejudice to the generality of the foregoing) by mortgages of or charges
upon all or any part of the undertaking, property and assets (present and
future) and uncalled capital of the Company or by the creation and issue
of securities.
(b) To enter into any guarantee, contract of indemnity or suretyship and in
particular (without prejudice to the generality of the foregoing) to
guarantee, support or secure, with or without consideration, whether by
personal obligation or by mortgaging or charging all or any part of the
undertaking, property and assets (present and future) and uncalled capital
of the Company or both such methods or in any other manner, the
performance of any obligations or commitments, of, and the repayment or
payment of the principal amounts of and any premiums, interest, dividends
and other moneys payable on or in respect of any securities or liabilities
of, any person including (without prejudice to the generality of the
foregoing) any company which is for the time being a subsidiary or a
holding company of the Company or another subsidiary or a holding company
of the Company or otherwise associated with the Company.
(c) To accept, draw, make, create, issue, execute, discount, endorse,
negotiate bills of exchange, promissory notes, and other instruments and
securities, whether negotiable or otherwise.
(d) To sell, exchange, mortgage, charge, let on rent, share of profit, royalty
or otherwise, grant licences, easements, options, servitudes and other
rights over, and in any other manner deal with or dispose of, all or any
part of the undertaking, property and assets (present and future) of the
Company for any consideration and in particular (without prejudice to the
generality of the foregoing) for any securities.
(e) To issue and allot securities of the Company for cash or in payment or
part payment for any real or personal property purchased or otherwise
acquired by the Company or any services rendered to the Company or as
security for any obligation or amount (even if less than the nominal
amount of such securities) or for any other purpose.
(f) To grant pensions, annuities, or other allowances, including allowances on
death, to any directors, officers or employees or former directors,
officers or employees of the Company or any company which at any time is
or was a subsidiary or a holding company or another subsidiary of a
holding company of the Company or otherwise associated with the Company or
of any predecessor in business of any of them, and to the relations,
connections or dependants of any such persons, and to other persons whose
service or services have
<PAGE> 9
directly or indirectly been of benefit to the Company or whom the
Company considers have any moral claim on the Company or to their
relations, connections or dependants, and to establish or support any
associations, institutions, clubs, schools, building and housing
schemes, funds and trusts, and to make payments toward insurance or
another arrangements likely to benefit any such persons or otherwise
advance the interests of the Company or of its Members, and to
subscribe, guarantee or pay money for any purpose likely, directly or
indirectly to further the interests of the Company or of its Members or
for any national, charitable, benevolent, educational, social, public,
general or useful object.
(g) Subject to the provisions of Section 42 of the Companies Act of 1981,
to issue preference shares which at the option of the holders thereof
are to be liable to be redeemed.
(h) To purchase its own shares in accordance with the provisions of Section
42A of the Companies Act 1981.
<PAGE> 10
THE COMPANIES ACT 1981
SECOND SCHEDULE
(Section 11(2))
A company may by reference include in its memorandum any of the following
objects that is to say the business of -
(a) insurance and re-insurance of all kinds;
(b) packaging of goods of all kinds;
(c) buying, selling and dealing in goods of all kinds;
(d) designing and manufacturing of goods of all kinds;
(e) mining and quarrying and exploration for metals, minerals, fossil fuels and
precious stones of all kinds and their preparation for sale or use;
(f) exploring for, the drilling for, the moving, transporting and refining
petroleum and hydro carbon products including oil and oil products;
(g) scientific research including the improvement, discovery and development of
processes, inventions, patents and designs and the construction, maintenance
and operation of laboratories and research centres;
(h) land, sea and air undertakings including the land, ship and air carriage of
passengers, mails and goods of all kinds;
(i) ships and aircraft owners, managers, operators, agents, builders and
repairers;
(j) acquiring, owning, selling, chartering, repairing or dealing in ships and
aircraft;
(k) travel agents, freight contractors and forwarding agents;
(l) dock owners, wharfingers, warehousemen;
(m) ship chandlers and dealing in rope, canvas oil and ship stores of all kinds;
(n) all forms of engineering;
(o) developing, operating, advising or acting as technical consultants to any
other enterprise or business;
(p) farmers, livestock breeders and keepers, graziers, butchers, tanners and
processors of and dealers in all
<PAGE> 11
- 2 -
kinds of live and dead stock, wool, hides, tallow, grain, vegetables and
other produce;
(q) acquiring by purchase or otherwise and holding as an investment inventions,
patents, trade marks, trade names, trade secrets, designs and the like;
(r) buying, selling, hiring, letting and dealing in conveyances of any sort;
(s) employing, providing, hiring out and acting as agent for artists, actors,
entertainers of all sorts, authors, composers, producers, directors,
engineers and experts or specialists of any kind;
(t) to acquire by purchase or otherwise hold, sell, dispose of and deal in real
property situated outside Bermuda and in personal property of all kinds
wheresoever situated; and
(u) to enter into any guarantee, contract of indemnity or suretyship and to
assure, support or secure with or without consideration or benefit the
performance of any obligations of any person or persons and to guarantee
the fidelity of individuals filling or about to fill situations of trust or
confidence.
<PAGE> 12
THE COMPANIES ACT 1981
FIRST SCHEDULE
(Section 11(1))
A company limited by shares may exercise all or any of the following
powers subject to any provision of the law or its memorandum -
1. (Deleted) 404
2. to acquire or undertake the whole or any part of the business, property and
liabilities of any person carrying on any business that the company is
authorized to carry on;
3. to apply for register, purchase, lease, acquire, hold, use, control,
licence, sell, assign or dispose of patents, patent rights, copyrights,
trade marks, formulae, licences, inventions, processes, distinctive marks
and similar rights;
4. to enter into partnership or into any arrangement for sharing of profits,
union of interests, co-operation, joint venture, reciprocal concession or
otherwise with any person carrying on or engaged in or about to carry on or
engage in any business or transaction that the company is authorized to
carry on or engage in or any business or transaction capable of being
conducted so as to benefit the company;
5. to take or otherwise acquire and hold securities in any other body corporate
having objects altogether or in part similar to those of the company or
carrying on any business capable of being conducted so as to benefit the
company;
6. subject to section 96 to lend money to any employee or to any person having
dealings with the company or with whom the company proposes to have dealings
or to any other body corporate any of whose shares are held by the company;
7. to apply for, secure or acquire by grant, legislative enactment, assignment,
transfer, purchase or otherwise and to exercise, carry out and enjoy any
charter, licence, power authority, franchise, concession, right or
privilege, that any government or authority or any body corporate or other
public body may be empowered to
<PAGE> 13
- 2 -
grant, and pay for, aid in and contribute toward carrying it into effect
and to assume any liabilities or obligations incidental thereto;
8. to establish and support or aid in the establishment and support of
associations, institutions, funds or trusts for the benefit of employees or
former employees of the company or its predecessors, or the dependents or
connections of such employees or former employees, and grant pensions and
allowances, and make payments towards insurance or for any object similar
to those set forth in this paragraph, and to subscribe or guarantee money
for charitable, benevolent, educational or religious objects or for any
exhibition or for any public, general or useful objects;
9. to promote any company for the purpose of acquiring or taking over any of
the property and liabilities of the company or for any other purpose that
may benefit the company;
10. to purchase, lease, take in exchange, hire or otherwise acquire any
personal property and any rights or privileges that the company considers
necessary or convenient for the purposes of its business;
11. to construct, maintain, alter, renovate and demolish any buildings or works
necessary or convenient for its objects;
12. to take land in Bermuda by way of lease or letting agreement for a term not
exceeding twenty-one years, being land "bonafide" required for the purposes
of the business of the company and with the consent of the Minister granted
in his discretion to take land in Bermuda by way of lease or letting
agreement for a similar period in order to provide accommodation or
recreational facilities for its officers and employees and when no longer
necessary for any of the above purposes to terminate or transfer the lease
or letting agreement;
13. except to the extent, if any, as may be otherwise expressly provided in its
incorporating Act or memorandum and subject to the provisions of this Act
every company shall have power to invest the moneys of the Company by way
of mortgage of real or personal property of every description in Bermuda or
elsewhere and to sell, exchange, vary, or dispose of such
<PAGE> 14
- 3 -
mortgage as the company shall from time to time determine;
14. to construct, improve, maintain, work, manage, carry out or control any
roads, ways, tramways, branches or sidings, bridges, reservoirs,
watercourses, wharves, factories, warehouses, electric works, shops, stores
and other works and conveniences that may advance the interests of the
company and contribute to, subsidize or otherwise assist or take part in the
construction, improvement, maintenance, working, management, carrying out or
control thereof;
15. to raise and assist in raising money for, and aid by way of bonus, loan,
promise, endorsement, guarantee or otherwise, any person and guarantee the
performance or fulfilment of any contracts or obligations of any person, and
in particular guarantee the payment of the principal of and interest on the
debt obligations of any such person;
16. to borrow or raise or secure the payment of money in such manner as the
company may think fit;
17. to draw, make, accept, endorse, discount, execute and issue bills of
exchange, promissory notes, bills of lading, warrants and other negotiable
or transferable instruments;
18. when properly authorized to do so, to sell, lease, exchange or otherwise
dispose of the undertaking of the company or any part thereof as an entirety
or substantially as an entirety for such consideration as the company thinks
fit;
19. to sell, improve, manage, develop, exchange, lease, dispose of, turn to
account or otherwise deal with the property of the company in the ordinary
course of its business;
20. to adopt such means of making known the products of the company as may seem
expedient, and in particular by advertising, by purchase and exhibition of
works of art or interest, by publication of books and periodicals and by
granting prizes and rewards and making donations;
<PAGE> 15
- 4 -
21. to cause the company to be registered and recognized in any foreign
jurisdiction, and designate persons therein according to the laws of that
foreign jurisdiction or to represent the company and to accept service for
and on behalf of the company of any process or suit;
22. to allot and issue fully-paid shares of the company in payment or part
payment of any property purchased or otherwise acquired by the company or
for any past services performed for the company;
23. to distribute among the members of the company in cash, kind, specie or
otherwise as may be resolved, by way of dividend, bonus or any other manner
considered advisable, any property of the company, but not so as to
decrease the capital of the company unless the distribution is made for the
purpose of enabling the company to be dissolved or the distribution, apart
from this paragraph, would be otherwise lawful;
24. to establish agencies and branches;
25. to take or hold mortgages, hypothecs, liens and charges to secure payment
of the purchase price, or of any unpaid balance of the purchase price, of
any part of the property of the company of whatsoever kind sold by the
company, or for any money due to the company from purchasers and others and
to sell or otherwise dispose of any such mortgage, hypothec, lien or
charge;
26. to pay all costs and expenses of or incidental to the incorporation and
organization of the company;
27. to invest and deal with the moneys of the company not immediately required
for the objects of the company in such manner as may be determined;
28. to do any of the things authorized by this subsection and all things
authorized by its memorandum as principals, agents, contractors, trustees
or otherwise, and either alone or in conjunction with others;
29. to do all such other things as are incidental or conducive to the
attainment of the objects and the exercise of the powers of the company.
Every company may exercise its powers beyond the boundaries of Bermuda to
the extent to which the laws in force where the powers are sought to be
exercised permit.
<PAGE> 16
FORM NO. 1a
[BERMUDA LOGO]
BERMUDA
THE COMPANIES ACT 1981
CONSENT
Pursuant to Section 6(1)
In exercise of the powers conferred upon him by Section 6(1) of the Companies
Act 1981. The Minister of Finance hereby gives his Consent to:-
CORTELYOU COMMUNICATIONS LIMITED
to be registered as an exempted Company under the Companies Act 1981, subject
to the provisions of the said Act.
DATE THIS 13th DAY OF March 1998.
/s/ (Illegible Signature)
MINISTER OF FINANCE
<PAGE> 1
EXHIBIT 3.2
B Y - L A W S
of
CORTELYOU COMMUNICATIONS LIMITED
I HEREBY CERTIFY that the within written By-laws are a true copy of the By-laws
of Cortelyou Communications Limited as subscribed by the subscribers to the
Memorandum of Association and approved at the Statutory Meeting of the above
Company.
Director
Prepared by
Messrs Appleby Spurling & Kempe
Cedar House
41 Cedar Avenue
Hamilton, Bermuda
<PAGE> 2
I N D E X
BY-LAW SUBJECT PAGE
1 Interpretation
2 Registered Office
3-4 Share Rights
5-6 Modification of Rights
7-9 Shares
10-13 Certificates
14-17 Lien
18-23 Calls on Shares
24-30 Forfeiture of Shares
31-32 Register of Shareholders
33 Register of Directors and Officers
34-37 Transfer of Shares
38-41 Transmission of Shares
42-44 Increase of Capital
45-46 Alteration of Capital
47-48 Reduction of Capital
49 General Meetings and Written Resolutions
50-52 Notice of General Meetings
53 General Meetings at more than one place
54-60 Proceedings at General Meetings
61-76 Voting
77-82 Proxies and Corporate Representatives
83-90 Appointment and Removal of Directors
<PAGE> 3
BY-LAW SUBJECT PAGE
91 Resignation and Disqualification of Directors
92-95 Alternate Directors
96 Directors' Fees and Additional
Remuneration and Expenses
97 Directors' Interests
98-100 Powers and Duties of the Board
101 Gratuities, Pensions and Insurance
102-104 Delegation of the Board's Powers
105-118 Proceedings of the Board
119 Officers
120-122 Executive Directors
123 Minutes
124-125 Secretary and Resident Representative
126 The Seal
127-133 Dividends and Other Payments
134 Reserves
135-136 Capitalisation of Profits
137 Record Dates
138-140 Accounting Records
141 Audit
142-144 Service of Notices and Other Documents
145 Destruction of Documents
146 Untraced Shareholders
147 Winding Up
148-152 Indemnity
<PAGE> 4
BY-LAW SUBJECT PAGE
153 Amalgamation
154 Continuation
155 Alteration of By-laws
156- 164 Business Combinations
<PAGE> 5
BY - L A W S
of
Cortelyou Communications Limited
INTERPRETATION
1. (1) In these By-laws unless the context otherwise requires -
"BERMUDA" means the Islands of Bermuda;
"BOARD" means the Board of Directors of the Company or the
Directors present at a meeting of Directors at which there is
a quorum;
"BY-LAWS" means bye-laws within the meaning ascribed to that
term in the Companies Act;
"THE COMPANIES ACTS" means every Bermuda statute from time to
time in force concerning companies insofar as the same applies
to the Company;
"COMPANY" means the company incorporated in Bermuda under the
name of Cortelyou Communications Limited on the 16th day of
March, 1998
"OFFICER" means a person appointed by the Board pursuant to
By-law 119 of these By-laws and shall not include an auditor
of the Company;
"PAID UP" means paid up or credited as paid up;
"REGISTER" means the Register of Shareholders of the Company;
"REGISTERED OFFICE" means the registered office for the time
being of the Company;
1
<PAGE> 6
"RESIDENT REPRESENTATIVE" means the person (or, if permitted
in accordance with the Companies Acts, the company) appointed
to perform the duties of resident representative set out in
the Companies Acts and includes any assistant or deputy
Resident Representative appointed by the Board to perform any
of the duties of the Resident Representative;
"RESOLUTION" means a resolution of the Shareholders or, where
required, of a separate class or separate classes of
Shareholders, adopted either in general meeting or by written
resolution, in accordance with the provisions of these
By-laws;
"SEAL" means the common seal of the Company and includes any
duplicate thereof;
"SECRETARY" includes a temporary or assistant or deputy
Secretary and any person appointed by the Board to perform any
of the duties of the Secretary;
"SHAREHOLDER" means a shareholder or member of the Company;
"SPECIFIED PLACE" means the place, if any, specified in the
notice of any meeting of the shareholders, or adjourned
meeting of the shareholders, at which the chairman of the
meeting shall preside;
"THESE BY-LAWS" means these By-laws in their present form or
as from time to time amended;
(2) For the purposes of these By-laws a corporation shall be
deemed to be present in person if its representative duly
authorised pursuant to the Companies Acts is present;
(3) Words importing only the singular number include the plural
number and vice versa;
2
<PAGE> 7
(4) Words importing only the masculine gender include the feminine
and neuter genders respectively;
(5) Words importing persons include companies or associations or
bodies of persons, whether corporate or un-incorporate;
(6) Reference to writing shall include typewriting, printing,
lithography, photography and other modes of representing or
reproducing words in a legible and non-transitory form;
(7) Any words or expressions defined in the Companies Acts in
force at the date when these By-laws or any part thereof are
adopted shall bear the same meaning in these By-laws or such
part (as the case may be);
(8) In these By-laws, (a) powers of delegation shall not be
restrictively construed but the widest interpretation shall be
given thereto; (b) the word "Board" in the context of the
exercise of any power contained in these By-laws includes any
committee consisting of one or more Directors, any Director
holding executive office and any local or divisional Board,
manager or agent of the Company to which or, as the case may
be, to whom the power in question has been delegated; (c) no
power of delegation shall be limited by the existence or,
except where expressly provided by the terms of delegation,
the exercise of that or any other power of delegation; and (d)
except where expressly provided by the terms of delegation,
the delegation of a power shall not exclude the concurrent
exercise of that power by any other body or person who is for
the time being authorised to exercise it under these By-laws
or under another delegation of the powers.
REGISTERED OFFICE
3
<PAGE> 8
2. The Registered Office shall be at such place in Bermuda as the Board
shall from time to time appoint.
SHARE RIGHTS
3. Subject to any special rights conferred on the holders of any share or
class of shares, any share in the Company may be issued with or have
attached thereto such preferred, deferred, qualified or other special
rights or such restrictions, whether in regard to dividend, voting,
return of capital or otherwise, as the Company may by Resolution
determine or, if there has not been any such determination or so far as
the same shall not make specific provision, as the Board may determine.
4. (1) Subject to the Companies Acts, any preference shares may, with
the sanction of a resolution of the Board, be issued on terms:
(a) that they are to be redeemed on the happening of a
specified event or on a given date; and/or,
(b) that they are liable to be redeemed at the option of
the Company; and/or,
(c) if authorised by the memorandum/Incorporating Act of
the Company, that they are liable to be redeemed at
the option of the holder.
The terms and manner of redemption shall be provided for in
such resolution of the Board and shall be attached to but
shall not form part of these By-laws.
(2) The Board may, at its discretion and without the sanction of a
Resolution authorise the purchase by the Company of its own
shares, of any
4
<PAGE> 9
class, at any price (whether at par or above or below par),
and so that any shares to be so purchased may be selected in
any manner whatsoever, upon such terms as the Board may in
its discretion determine PROVIDED ALWAYS that such purchase is
effected in accordance with the provisions of the Companies
Acts.
MODIFICATION OF RIGHTS
5. Subject to the Companies Acts, all or any of the special rights for the
time being attached to any class of shares for the time being issued
may from time to time (whether or not the Company is being wound up) be
altered or abrogated with the consent in writing of the holders of not
less than seventy five percent of the issued shares of that class or
with the sanction of a resolution passed at a separate general meeting
of the holders of such shares voting in person or by proxy. To any such
separate general meeting, all the provisions of these By-laws as to
general meetings of the Company shall mutatis mutandis apply, but so
that the necessary quorum shall be two or more persons holding or
representing by proxy the majority of the shares of the relevant
class, that every holder of shares of the relevant class shall be
entitled on a poll to one vote for every such share held by him and
that any holder of shares of the relevant class present in person or by
proxy may demand a poll; provided, however, that if the Company or a
class of Shareholders shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum.
5
<PAGE> 10
6. For the purposes of this By-law, unless otherwise expressly provided by
the rights attached to any shares or class of shares, those rights
shall be deemed to be altered by the reduction of the capital paid up
on those shares otherwise than by a purchase or redemption by the
Company of its own shares and by the allotment of other shares ranking
in priority for payment of a dividend or in respect of capital or which
confer on the holders voting rights more favourable than those
conferred by such first mentioned shares but shall not otherwise be
deemed to be altered by the creation or issue of further shares ranking
pari passu therewith or by the purchase or redemption by the Company of
any of its own shares.
SHARES
7. Subject to the provisions of these By-laws, the unissued shares of the
Company (whether forming part of the original capital or any increased
capital) shall be at the disposal of the Board, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at
such times and for such consideration and upon such terms and
conditions as the Board may determine.
8. The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by
law. Subject to the provisions of the Companies Acts, any such
commission or brokerage may be satisfied by the payment of cash or by
the allotment of fully or partly paid shares or partly in one way and
partly in the other.
6
<PAGE> 11
9. Except as ordered by a court of competent jurisdiction or as required
by law, no person shall be recognised by the Company as holding any
share upon trust and the Company shall not be bound by or required in
any way to recognise (even when having notice thereof) any equitable,
contingent, future or partial interest in any share or any interest in
any fractional part of a share or (except only as otherwise provided in
these By-laws, or by law) any other right in respect of any share
except an absolute right to the entirety thereof in the registered
holder.
CERTIFICATES
10. The preparation, issue and delivery of certificates shall be governed
by the Companies Acts. In the case of a share held jointly by several
persons, delivery of a certificate to one of several joint holders
shall be sufficient delivery to all.
11. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and
to payment of the costs and out of pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board
may think fit and, in case of defacement, on delivery of the old
certificate to the Company.
12. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other
like documents) shall, except to the extent that the terms and
conditions for the time being relating thereto otherwise provide, be
issued under the Seal. The Board may by resolution determine, either
generally or in any particular case, that any signa-
7
<PAGE> 12
tures on any such certificates need not be autographic but may be
affixed to such certificates by some mechanical means or may be printed
thereon or that such certificates need not be signed by any persons, or
may determine that a representation of the Seal may be printed on any
such certificates. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
Company with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
13. Nothing in these By-laws shall prevent title to any securities of the
Company from being evidenced and/or transferred without a written
instrument in accordance with regulations made from time to time in
this regard under the Companies Acts, and the Board shall have power to
implement any arrangements which it may think fit for such evidencing
and/or transfer which accord with those regulations.
LIEN
14. The Company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys, whether presently payable or
not, called or payable, at a date fixed by or in accordance with the
terms of issue of such share in respect of such share, and the Company
shall also have a first and paramount lien on every share (other than a
fully paid share) standing registered in the name of a Shareholder,
whether singly or jointly with any other person, for all the debts and
liabilities of such Shareholder or his estate to the Com-
8
<PAGE> 13
pany, whether the same shall have been incurred before or after notice
to the Company of any interest of any person other than such
Shareholder, and whether the time for the payment or discharge of the
same shall have actually arrived or not, and notwithstanding that the
same are joint debts or liabilities of such Shareholder or his estate
and any other person, whether a Shareholder or not. The Company's lien
on a share shall extend to all dividends payable thereon. The Board may
at any time, either generally or in any particular case, waive any lien
that has arisen or declare any share to be wholly or in part exempt
from the provisions of this By-law.
15. The Company may sell, in such manner as the Board may think fit, any
share on which the Company has a lien but no sale shall be made unless
some sum in respect of which the lien exists is presently payable nor
until the expiration of fourteen days after a notice in writing,
stating and demanding payment of the sum presently payable and giving
notice of the intention to sell in default of such payment, has been
served on the holder for the time being of the share.
16. The net proceeds of sale by the Company of any shares on which it has a
lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is
presently payable, and any residue shall (subject to a like lien for
debts or liabilities not presently payable as existed upon the share
prior to the sale) be paid to the person who was the holder of the
share immediately before such sale. For giving effect to any such sale
the Board may authorise some person to transfer the share sold to the
purchaser thereof. The purchaser shall be registered as the holder of
the share and he shall not be bound to see to the application of the
purchase money, nor
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shall his title to the share be affected by any irregularity or
invalidity in the proceedings relating to the sale.
17. Whenever any law for the time being of any country, state or place
imposes or purports to impose any immediate or future or possible
liability upon the Company to make any payment or empowers any
government or taxing authority or government official to require the
Company to make any payment in respect of any shares registered in any
of the Company's registers as held either jointly or solely by any
Shareholder or in respect of any dividends, bonuses or other monies due
or payable or accruing due or which may become due or payable to such
Shareholder by the Company on or in respect of any shares registered as
aforesaid or for or on account or in respect of any Shareholder and
whether in consequence of:-
(a) the death of such Shareholder;
(b) the non-payment of any income tax or other tax by
such Shareholder;
(c) the non-payment of any estate, probate, succession,
death, stamp, or other duty by the executor or
administrator of such Shareholder or by or out of his
estate;
(d) any other act or thing;
in every such case (except to the extent that the rights
conferred upon holders of any class of shares render the
Company liable to make additional payments in respect of sums
withheld on account of the foregoing):-
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(i) the Company shall be fully indemnified by
such Shareholder or his executor or
administrator from all liability;
(ii) the Company shall have a lien upon all
dividends and other monies payable in
respect of the shares registered in any of
the Company's registers as held either
jointly or solely by such Shareholder for
all monies paid or payable by the Company in
respect of such shares or in respect of any
dividends or other monies as aforesaid
thereon or for or on account or in respect
of such Shareholder under or in consequence
of any such law together with interest at
the rate of fifteen percent per annum
thereon from the date of payment to date of
repayment and may deduct or set off against
such dividends or other monies payable as
aforesaid any monies paid or payable by the
Company as aforesaid together with interest
as aforesaid;
(iii) the Company may recover as a debt due from
such Shareholder or his executor or
administrator wherever constituted any
monies paid by the Company under or in
consequence of any such law and interest
thereon at the rate and for the period
aforesaid in excess of any dividends or
other monies as aforesaid then due or
payable by the Company;
(iv) the Company may if any such money is paid or
payable by it under any such law as
aforesaid refuse to register a transfer of
any shares by any such Shareholder or his
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executor or administrator until such money
and interest as aforesaid is set off or
deducted as aforesaid or in case the same
exceeds the amount of any such dividends or
other monies as aforesaid then due or
payable by the Company until such excess is
paid to the Company.
Subject to the rights conferred upon the holders of
any class of shares nothing herein contained shall
prejudice or affect any right or remedy which any law
may confer or purport to confer on the Company and as
between the Company and every such Shareholder as
aforesaid, his executor, administrator and estate
wheresoever constituted or situate, any right or
remedy which such law shall confer or purport to
confer on the Company shall be enforceable by the
Company.
CALLS ON SHARES
18. The Board may from time to time make calls upon the Shareholders in
respect of any moneys unpaid on their shares (whether on account of the
par value of the shares or by way of premium) and not by the terms of
issue thereof made payable at a date fixed by or in accordance with
such terms of issue, and each Shareholder shall (subject to the Company
serving upon him at least fourteen days notice specifying the time or
times and place of payment) pay to the Company at the time or times and
place so specified the amount called on his shares. A call may be
revoked or postponed as the Board may determine.
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<PAGE> 17
19. A call may be made payable by instalments and shall be deemed to have
been made at the time when the resolution of the Board authorising the
call was passed.
20. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
21. If a sum called in respect of the share shall not be paid before or on
the day appointed for payment thereof the person from whom the sum is
due shall pay interest on the sum from the day appointed for the
payment thereof to the time of actual payment at such rate as the Board
may determine, but the Board shall be at liberty to waive payment of
such interest wholly or in part.
22. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of
issue, whether on account of the nominal amount of the share or by way
of premium, shall for all the purposes of these By-laws be deemed to be
a call duly made, notified and payable on the date on which, by the
terms of issue, the same becomes payable and, in case of non-payment,
all the relevant provisions of these By-laws as to payment of interest,
forfeiture or otherwise shall apply as if such sum had become payable
by virtue of a call duly made and notified.
23. The Board may on the issue of shares differentiate between the
allottees or holders as to the amount of calls to be paid and the times
of payment.
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FORFEITURE OF SHARES
24. If a Shareholder fails to pay any call or instalment of a call on the
day appointed for payment thereof, the Board may at any time
thereafter during such time as any part of such call or instalment
remains unpaid serve a notice on him requiring payment of so much of
the call or instalment as is unpaid, together with any interest which
may have accrued.
25. The notice shall name a further day (not being less than 14 days from
the date of the notice) on or before which, and the place where, the
payment required by the notice is to be made and shall state that, in
the event of non-payment on or before the day and at the place
appointed, the shares in respect of which such call is made or
instalment is payable will be liable to be forfeited. The Board may
accept the surrender of any share liable to be forfeited hereunder and,
in such case, references in these By-laws to forfeiture shall include
surrender.
26. If the requirements of any such notice as aforesaid are not complied
with, any share in respect of which such notice has been given may at
any time thereafter, before payment of all calls or instalments and
interest due in respect thereof has been made, be forfeited by a
resolution of the Board to that effect. Such forfeiture shall include
all dividends declared in respect of the forfeited shares and not
actually paid before the forfeiture.
27. When any share has been forfeited, notice of the forfeiture shall be
served upon the person who was before forfeiture the holder of the
share; but no forfeiture
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shall be in any manner invalidated by any omission or neglect to give
such notice as aforesaid.
28. A forfeited share shall be deemed to be the property of the Company and
may be sold, re-offered or otherwise disposed of either to the person
who was, before forfeiture, the holder thereof or entitled thereto or
to any other person upon such terms and in such manner as the Board
shall think fit, and at any time before a sale, re-allotment or
disposition the forfeiture may be cancelled on such terms as the Board
may think fit.
29. A person whose shares have been forfeited shall thereupon cease to be a
Shareholder in respect of the forfeited shares but shall,
notwithstanding the forfeiture, remain liable to pay to the Company all
moneys which at the date of forfeiture were presently payable by him to
the Company in respect of the shares with interest thereon at such rate
as the Board may determine from the date of forfeiture until payment,
and the Company may enforce payment without being under any obligation
to make any allowance for the value of the shares forfeited.
30. An affidavit in writing that the deponent is a Director of the Company
or the Secretary and that a share has been duly forfeited on the date
stated in the affidavit shall be conclusive evidence of the facts
therein stated as against all persons claiming to be entitled to the
share. The Company may receive the consideration (if any) given for the
share on the sale, re-allotment or disposition thereof and the Board
may authorise some person to transfer the share to the person to whom
the same is sold, re-allotted or disposed of, and he shall
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<PAGE> 20
thereupon be registered as the holder of the share and shall not be
bound to see to the application of the purchase money (if any) nor
shall his title to the share be affected by any irregularity or
invalidity in the proceedings relating to the forfeiture, sale,
re-allotment or disposal of the share.
REGISTER OF SHAREHOLDERS
31. The Secretary shall establish and maintain the Register at the
Registered Office in the manner prescribed by the Companies Acts.
Unless the Board otherwise determines, the Register shall be open to
inspection in the manner prescribed by the Companies Acts between 9.00
a.m. and 5.00 p.m. in Bermuda, on every working day. Unless the Board
so determines, no Shareholder or intending Shareholder shall be
entitled to have entered in the Register any indication of any trust or
any equitable, contingent, future or partial interest in any share or
any interest in any fractional part of a share and if any such entry
exists or is permitted by the Board it shall not be deemed to abrogate
any of the provisions of By-law 9.
32. Subject to the provisions of the Companies Acts, the Company may keep
one or more overseas or branch registers in any place, and the Board
may make, amend and revoke any such regulations as it may think fit
respecting the keeping of such registers.
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REGISTER OF DIRECTORS AND OFFICERS
33. The Secretary shall establish and maintain a register of the Directors
and Officers of the Company as required by the Companies Acts. The
register of Directors and Officers shall be open to inspection in the
manner prescribed by the Companies Acts between 9:00 a.m. and 5:00 p.m.
in Bermuda on every working day.
TRANSFER OF SHARES
34. Subject to the Companies Acts and to such of the restrictions contained
in these By-laws as may be applicable, any Shareholder may transfer all
or any of his shares by an instrument of transfer in the usual common
form or in any other form which the Board may approve.
35. The instrument of transfer of a share shall be signed by or on behalf
of the transferor or his lawfully appointed attorney and where any
share is not fully-paid, the transferee and the transferor shall be
deemed to remain the holder of the share until the name of the
transferee is entered in the Register in respect thereof. All
instruments of transfer when registered may be retained by the Company.
The Board may, in its absolute discretion and without assigning any
reason therefor, decline to register any transfer of any share which is
not a fully-paid share. The Board may also decline to register any
transfer unless:-
(1) the instrument of transfer is duly stamped and lodged with the
Company, at such place as the Board shall appoint for the
purpose, accompanied by the certificate for the shares (if
any has been issued) to which it
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<PAGE> 22
relates, and such other evidence as the Board may reasonably
require to show the right of the transferor to make the
transfer,
(2) the instrument of transfer is in respect of only one class of
share,
(3) where applicable, the permission of the Bermuda Monetary
Authority with respect thereto has been obtained.
Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under
this By-law and By-laws 34 and 36.
36. If the Board declines to register a transfer it shall, within three
months after the date on which the instrument of transfer was lodged,
send to the transferee notice of such refusal.
37. No fee shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage,
power of attorney, distringas or stop notice, order of court or other
instrument relating to or affecting the title to any share, or
otherwise making an entry in the Register relating to any share.
TRANSMISSION OF SHARES
38. In the case of the death of a Shareholder, the survivor or survivors,
where the deceased was a joint holder, and the estate representative,
where he was sole holder, shall be the only person recognised by the
Company as having any title to his shares; but nothing herein contained
shall release the estate of a deceased holder (whether the sole or
joint) from any liability in respect of any share held
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<PAGE> 23
by him solely or jointly with other persons. For the purpose of this
By-law, estate representative means the person to whom probate or
letters of administration has or have been granted in Bermuda or,
failing any such person, such other person as the Board may in its
absolute discretion determine to be the person recognised by the
Company for the purpose of this By-law.
39. Any person becoming entitled to a share in consequence of the death of
a Shareholder or otherwise by operation of applicable law may, subject
as hereafter provided and upon such evidence being produced as may from
time to time be required by the Board as to his entitlement, either be
registered himself as the holder of the share or elect to have some
person nominated by him registered as the transferee thereof. If the
person so becoming entitled elects to be registered himself, he shall
deliver or send to the Company a notice in writing signed by him
stating that he so elects. If he shall elect to have his nominee
registered, he shall signify his election by signing an instrument of
transfer of such share in favour of his nominee. All the limitations,
restrictions and provisions of these By-laws relating to the right to
transfer and the registration of transfer of shares shall be
applicable to any such notice or instrument of transfer as aforesaid as
if the death of the Shareholder or other event giving rise to the
transmission had not occurred and the notice or instrument of transfer
was an instrument of transfer signed by such Shareholder.
40. A person becoming entitled to a share in consequence of the death of a
Share holder or otherwise by operation of applicable law shall (upon
such evidence being produced as may from time to time be required by
the Board as to his entitlement) be entitled to receive and may give a
discharge for any dividends
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or other moneys payable in respect of the share, but he shall not be
entitled in respect of the share to receive notices of or to attend or
vote at general meetings of the Company or, save as aforesaid, to
exercise in respect of the share any of the rights or privileges of a
Shareholder until he shall have become registered as the holder
thereof. The Board may at any time give notice requiring such person to
elect either to be registered himself or to transfer the share and, if
the notice is not complied with within sixty days, the Board may
thereafter withhold payment of all dividends and other moneys payable
in respect of the shares until the requirements of the notice have been
complied with.
41. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under
By-laws 38, 39 and 40.
INCREASE OF CAPITAL
42. The Company may from time to time increase its capital by such sum to
be divided into shares of such par value as the Company by Resolution
shall prescribe.
43. The Company may, by the Resolution increasing the capital, direct that
the new shares or any of them shall be offered in the first instance
either at par or at a premium or (subject to the provisions of the
Companies Acts) at a discount to all the holders for the time being of
shares of any class or classes in proportion to the number of such
shares held by them respectively or make any other provision as to the
issue of the new shares.
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44. The new shares shall be subject to all the provisions of these By-laws
with reference to lien, the payment of calls, forfeiture, transfer,
transmission and otherwise.
ALTERATION OF CAPITAL
45. The Company may from time to time by Resolution:-
(1) divide its shares into several classes and attach thereto
respectively any preferential, deferred, qualified or special
rights, privileges or conditions;
(2) consolidate and divide all or any of its share capital into
shares of larger par value than its existing shares;
(3) sub-divide its shares or any of them into shares of smaller
par value than is fixed by its memorandum, so, however, that
in the sub-division the proportion between the amount paid and
the amount, if any, unpaid on each reduced share shall be the
same as it was in the case of the share from which the reduced
share is derived;
(4) make provision for the issue and allotment of shares which do
not carry any voting rights;
(5) cancel shares which, at the date of the passing of the
resolution in that behalf, have not been taken or agreed to be
taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled; and
(6) change the currency denomination of its share capital.
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Where any difficulty arises in regard to any division, consolidation,
or subdivision under this By-law, the Board may settle the same as it
thinks expedient and, in particular, may arrange for the sale of the
shares representing fractions and the distribution of the net proceeds
of sale in due proportion amongst the Shareholders who would have been
entitled to the fractions, and for this purpose the Board may authorise
some person to transfer the shares representing fractions to the
purchaser thereof, who shall not be bound to see to the application of
the purchase money nor shall his title to the shares be affected by any
irregularity or invalidity in the proceedings relating to the sale.
46. Subject to the Companies Acts and to any confirmation or consent
required by law or these By-laws, the Company may by Resolution from
time to time convert any preference shares into redeemable preference
shares.
REDUCTION OF CAPITAL
47. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these By-laws, the Company may from time to
time by Resolution authorise the reduction of its issued share capital
or any share premium or contributed surplus account in any manner.
48. In relation to any such reduction, the Company may by Resolution
determine the terms upon which such reduction is to be effected
including in the case of a reduction of part only of a class of shares,
those shares to be affected.
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GENERAL MEETINGS AND WRITTEN RESOLUTIONS
49. (1) The Board shall convene and the Company shall hold general
meetings as Annual General Meetings in accordance with the
requirements of the Companies Acts at such times and places as
the Board shall appoint. The Board may, whenever it thinks
fit, and shall, when requisitioned by shareholders pursuant to
the provisions of the Companies Acts, convene general meetings
other than Annual General Meetings which shall be called
Special General Meetings.
(2) Except in the case of the removal of auditors and Directors,
anything which may be done by resolution of the Company in
general meeting or by resolution of a meeting of any class of
the Shareholders of the Company may, without a meeting and
without any previous notice being required, be done by
resolution in writing, signed by all of the Shareholders or
their proxies, or in the case of a Shareholder that is a
corporation (whether or not a company within the meaning of
the Companies Acts) on behalf of such Shareholder, being all
of the Share holders of the Company who at the date of the
resolution in writing would be entitled to attend a meeting
and vote on the resolution. Such resolution in writing may be
signed by, or in the case of a Shareholder that is a
corporation (whether or not a company within the meaning of
the Companies Acts), on behalf of, all the Shareholders of the
Company, or any class thereof, in as many counterparts as may
be necessary.
(3) For the purposes of this By-law, the date of the resolution in
writing is the date when the resolution is signed by, or in
the case of a Shareholder that is a corporation (whether or
not a company within the meaning of
23
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the Companies Acts), on behalf of, the last Shareholder to
sign and any reference in any enactment to the date of passing
of a resolution is, in relation to a resolution in writing
made in accordance with this section, a reference to such
date.
(4) A resolution in writing made in accordance with this By-law is
as valid as if it had been passed by the Company in general
meeting or, if applicable, by a meeting of the relevant class
of Shareholders of the Company, as the case may be. A
resolution in writing made in accordance with this section
shall constitute minutes for the purposes of the Companies
Acts and these By-laws.
NOTICE OF GENERAL MEETINGS
50. An Annual General Meeting shall be called by not less than ten days and
not more than sixty days notice in writing and a Special General
Meeting shall be called by not less than ten days and not more than
sixty days notice in writing. The notice shall be exclusive of the day
on which it is served or deemed to be served and of the day for which
it is given, and shall specify the place, day and time of the meeting,
and, the nature of the business to be considered. Notice of every
general meeting shall be given in any manner permitted by By-laws 142
and 143 to all Shareholders other than such as, under the provisions of
these By-laws or the terms of issue of the shares they hold, are not
entitled to receive such notice from the Company and to each Director,
and to any Resident Representative who or which has delivered a written
notice upon the Registered Office requiring that such notice be sent to
him or it.
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51. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental
omission to send such instrument of proxy to, or the non-receipt of
notice of a meeting or such instrument of proxy by, any person entitled
to receive such notice shall not invalidate the proceedings at that
meeting.
52. A Shareholder present, either in person or by proxy, at any meeting of
the Company or of the holders of any class of shares in the Company
shall be deemed to have received notice of the meeting and, where
requisite, of the purposes for which it was called.
GENERAL MEETINGS AT MORE THAN ONE PLACE
53. (1) The provisions of this By-law shall apply if any general
meeting is convened at or adjourned to more than one place.
(2) The notice of any meeting or adjourned meeting may specify the
Specified Place and the Board shall make arrangements for
simultaneous attendance and participation at other places
(whether adjoining the Specified Place or in a different and
separate place or places altogether or otherwise) by
Shareholders, provided that persons attending at any
particular place shall be able to see and hear and be seen and
heard (whether by audio visual links or otherwise howsoever
enabling the same) by persons attending at the other places at
which the meeting is convened.
(3) The Board may from time to time make such arrangements for the
purpose of controlling the level of attendance at any such
place
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(whether involving the issue of tickets or the imposition of
some means of selection or otherwise) as they shall in their
absolute discretion consider appropriate, and may from time
to time vary any such arrangements or make new arrangements in
place of them, provided that a Shareholder who is not entitled
to attend, in person or by proxy, at any particular place
shall be entitled so to attend at one of the other places; and
the entitlement of any Shareholder so to attend the meeting
or adjourned meeting at such place shall be subject to any
such arrangements as may be for the time being in force and by
the notice of meeting or adjourned meeting stated to apply to
the meeting.
(4) For the purposes of all other provisions of these By-laws any
such meeting shall be treated as being held at the Specified
Place.
(5) If a meeting is adjourned to more than one place, notice of
the adjourned meeting shall be given notwithstanding any
other provision of these By-laws.
PROCEEDINGS AT GENERAL MEETINGS
54. No business shall be transacted at any general meeting unless a quorum
is present when the meeting proceeds to business, but the absence of a
quorum shall not preclude the appointment, choice or election of a
chairman which shall not be treated as part of the business of the
meeting. Save as otherwise provided by these By-laws, at least two
Shareholders present in person or by proxy and entitled to vote
representing the holders of more than 50% of the issued shares shall be
a quorum for all purposes; provided, however, that if the Company or a
class of Shareholders shall have only one Shareholder, one
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<PAGE> 31
Shareholder present in person or by proxy shall constitute the
necessary quorum.
55. If within five minutes (or such longer time as the chairman of the
meeting may determine to wait) after the time appointed for the
meeting, a quorum is not present, the meeting, if convened on the
requisition of Shareholders, shall be dissolved. In any other case, it
shall stand adjourned to such other day and such other time and place
as the chairman of the meeting may determine. . If the adjournment is
for another thirty days, or after the adjournment a new record date is
fixed for the adjourned meeting the Company shall give not less than
ten days notice of any meeting adjourned through want of a quorum. If
at the adjourned meeting a quorum is not present within fifteen minutes
after the time appointed for holding the meeting, the meeting shall
be adjourned to such other day and such other time and place as the
Chairman of the meeting shall determine.
56. A meeting of the Shareholders or any class thereof may be held by means
of such telephone, electronic or other communication facilities as
permit all persons participating in the meeting to communicate with
each other simultaneously and instantaneously and participation in
such a meeting shall constitute presence in person at such meeting.
57. The Resident Representative, if any, upon giving the notice referred to
in By-law 50 above, shall be entitled to attend any general meeting of
the Company and each Director shall be entitled to attend and speak at
any general meeting of the Company.
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58. The Chairman (if any) of the Board or, in his absence, the President
shall preside as chairman at every general meeting. If there is no such
Chairman or President, or if at any meeting neither the Chairman nor
the President is present within five minutes after the time appointed
for holding the meeting, or if neither of them is willing to act as
chairman, the Directors present shall choose one of their number to act
or if one Director only is present he shall preside as chairman if
willing to act. If no Director is present, or if each of the Directors
present declines to take the chair, the persons present and entitled to
vote on a poll shall elect one of their number to be chairman.
59. The chairman of the meeting may, with the consent of any meeting at
which a quorum is present (and shall if so directed by the meeting),
adjourn the meeting from time to time and from place to place but no
business shall be transacted at any adjourned meeting except business
which might lawfully have been transacted at the meeting from which the
adjournment took place. In addition, the chairman may adjourn the
meeting to another time and place without such consent if it appears to
him that it is likely to be impracticable to hold or continue that
meeting because of the number of members wishing to attend who are not
present. When a meeting is adjourned for thirty days or more or for an
indefinite period, at least ten clear days' notice shall be given of
the adjourned meeting as in the case of an original meeting.
60. Save as expressly provided by these By-laws, it shall not be necessary
to give any notice of an adjournment or of the business to be
transacted at an adjourned meeting.
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VOTING
61. If an amendment shall be proposed to any resolution under consideration
but shall in good faith be ruled out of order by the chairman of the
meeting, the proceedings on the substantive resolution shall not be
invalidated by any error in such ruling. With the consent of the
chairman of the meeting, an amendment may be withdrawn by its proposer
before it is voted upon.
62. Save where a greater majority is required by the Companies Acts or
these Bylaws, any question proposed for consideration at any general
meeting shall be decided on by a simple majority of votes cast.
63. Subject to By-law 156 and any rights or restrictions attached to any
class of shares, at any meeting of the Company, each Shareholder
present in person shall be entitled to one vote on any question to be
decided on a show of hands and each Shareholder present in person or by
proxy shall be entitled on a poll to one vote for each share held by
him.
64. At any general meeting, a resolution put to the vote of the meeting
shall be decided on a show of hands unless (before or on the
declaration of the result of the show of hands or on the withdrawal of
any other demand for a poll) a poll is demanded by:-
(1) the chairman of the meeting; or
(2) at least three Shareholders present in person or represented
by proxy;
or
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(3) any Shareholder or Shareholders present in person or
represented by proxy and holding between them not less than
one tenth of the total voting rights of all the Shareholders
having the right to vote at such meeting; or
(4) a Shareholder or Shareholders present in person or represented
by proxy holding shares conferring the right to vote at such
meeting, being shares on which an aggregate sum has been paid
up equal to not less than one tenth of the total sum paid up
on all such shares conferring such right.
65. The demand for a poll may, before the poll is taken, be withdrawn but
only with the consent of the chairman and a demand so withdrawn shall
not be taken to have invalidated the result of a show of hands declared
before the demand was made. If the demand for a poll is withdrawn, the
chairman or any other Shareholder entitled may demand a poll.
66. Unless a poll is so demanded and the demand is not withdrawn, a
declaration by the chairman that a resolution has, on a show of hands,
been carried or carried unanimously or by a particular majority or not
carried by a particular majority or lost shall be final and conclusive,
and an entry to that effect in the minute book of the Company shall be
conclusive evidence of the fact without proof of the number or
proportion of votes recorded for or against such resolution.
67. If a poll is duly demanded, the result of the poll shall be deemed to
be the resolution of the meeting at which the poll is demanded.
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68. A poll demanded on the election of a chairman, or on a question of
adjournment, shall be taken forthwith. A poll demanded on any other
question shall be taken in such manner and either forthwith or at such
time (being not later than three months after the date of the demand)
and place as the chairman shall direct and he may appoint scrutineers
(who need not be Shareholders) and fix a time and place for declaring
the result of the poll. It shall not be necessary (unless the chairman
otherwise directs) for notice to be given of a poll.
69. The demand for a poll shall not prevent the continuance of a meeting
for the transaction of any business other than the question on which
the poll has been demanded and it may be withdrawn at any time before
the close of the meeting or the taking of the poll, whichever is the
earlier.
70. On a poll, votes may be cast either personally or by proxy.
71. A person entitled to more than one vote on a poll need not use all his
votes or cast all the votes he uses in the same way.
72. In the case of an equality of votes at a general meeting, whether on a
show of hands or on a poll, the chairman of such meeting shall not be
entitled to a second or casting vote and the resolution shall fail.
73. In the case of joint holders of a share, the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the
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votes of the other joint holders, and for this purpose seniority shall
be determined by the order in which the names stand in the Register in
respect of the joint holding.
74. A Shareholder who is a patient for any purpose of any statute or
applicable law relating to mental health or in respect of whom an order
has been made by any Court having jurisdiction for the protection or
management of the affairs of persons incapable of managing their own
affairs may vote, whether on a show of hands or on a poll, by his
receiver, committee, curator bonis or other person in the nature of a
receiver, committee or curator bonis appointed by such Court and such
receiver, committee, curator bonis or other person may vote on a poll
by proxy, and may otherwise act and be treated as such Shareholder for
the purpose of general meetings.
75. No Shareholder shall, unless the Board otherwise determines, be
entitled to vote at any general meeting unless all calls or other sums
presently payable by him in respect of shares in the Company have been
paid.
76. If;
(1) any objection shall be raised to the qualification of any
voter; or,
(2) any votes have been counted which ought not to have been
counted or which might have been rejected; or,
(3) any votes are not counted which ought to have been counted,
the objection or error shall not vitiate the decision of the
meeting or adjourned meeting on any resolution unless the
same is raised or pointed out at the meeting or, as the case
may be, the adjourned meeting at which the vote
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objected to is given or tendered or at which the error occurs. Any
objection or error shall be referred to the chairman of the meeting and
shall only vitiate the decision of the meeting on any resolution if the
chairman decides that the same may have affected the decision of the
meeting. The decision of the chairman on such matters shall be final
and conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
77. The instrument appointing a proxy shall be in writing under the hand of
the appointor or of his attorney authorised by him in writing or, if
the appointor is a corporation, either under its seal or under the hand
of an officer, attorney or other person authorised to sign the same.
78. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office, or at such
place or places as the Board may otherwise specify for the purpose, a
proxy or (if a corporation) an authorisation and such proxy or
authorisation shall be valid for all general meetings and adjournments
thereof or, resolutions in writing, as the case may be, until notice of
revocation is received at the Registered Office, or at such place or
places as the Board may otherwise specify for the purpose. Where a
standing proxy or authorisation exists, its operation shall be deemed
to have been suspended at any general meeting or adjournment thereof at
which the Shareholder is present or in respect to which the Shareholder
has specially appointed a proxy or representative. The Board may from
time to time require such evidence as it shall deem necessary as to the
due execution and continuing validity of any such standing proxy or
authorisation and the operation of
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any such standing proxy or authorisation shall be deemed to be
suspended until such time as the Board determines that it has received
the requested evidence or other evidence satisfactory to it. A person
so authorised as a representative of a corporation shall be entitled to
exercise the same power on behalf of the grantor of the authority as
the grantor could exercise if it were an individual Shareholder of the
Company and the grantor shall for the purposes of these By-laws be
deemed to be present in person at any such meeting if a person so
authorised is present at it.
79. Subject to By-law 78, the instrument appointing a proxy together with
such other evidence as to its due execution as the Board may from time
to time require, shall be delivered at the Registered Office (or at
such place or places as may be specified in the notice convening the
meeting or in any notice of any adjournment or, in either case or the
case of a written resolution, in any document sent therewith) not less
than 48 hours or such other period as the Board may determine, prior to
the holding of the relevant meeting or adjourned meeting at which the
person named in the instrument proposes to vote or, in the case of a
poll taken subsequently to the date of a meeting or adjourned meeting,
before the time appointed for the taking of the poll, or, in the case
of a written resolution, prior to the effective date of the written
resolution and in default the instrument of proxy shall not be treated
as valid.
80. Instruments of proxy shall be in any common form or in such other form
as the Board may approve and the Board may, if it thinks fit, send out
with the notice of any meeting or any written resolution forms of
instruments of proxy for use at that meeting or in connection with that
written resolution. The
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instrument of proxy shall be deemed to confer authority to demand or
join in demanding a poll and to vote on any amendment of a written
resolution or amendment of a resolution put to the meeting for which it
is given as the proxy thinks fit. The instrument of proxy shall unless
the contrary is stated therein be valid as well for any adjournment of
the meeting as for the meeting to which it relates.
81. A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or unsoundness of
mind of the principal, or revocation of the instrument of proxy or of
the authority under which it was executed, provided that no intimation
in writing of such death, insanity or revocation shall have been
received by the Company at the Registered Office (or such other place
as may be specified for the delivery of instruments of proxy in the
notice convening the meeting or other documents sent therewith) one
hour at least before the commencement of the meeting or adjourned
meeting, or the taking of the poll, or the day before the effective
date of any written resolution at which the instrument of proxy is
used.
82. Subject to the Companies Acts, the Board may at its discretion waive
any of the provisions of these By-laws related to proxies or
authorisations and, in particular, may accept such verbal or other
assurances as it thinks fit as to the right of any person to attend and
vote on behalf of any Shareholder at general meetings or to sign
written resolutions.
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APPOINTMENT AND REMOVAL OF DIRECTORS
83. The Directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting
the entire Board.
84. The term of the initial Class I Directors shall terminate on the date
of the year 2000 Annual General Meeting; the term of the initial Class
II Directors shall terminate on the date of the year 2001 Annual
General Meeting and the terms of the initial Class III directors shall
terminate on the date of the year 2002 Annual General Meeting of
stockholders. At each Annual General Meeting beginning in 2000,
successors to the class of Directors whose term expires at that Annual
General Meeting shall be elected for a three-year term. If the number
of Directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of Directors in each
class as nearly equal as possible, and any additional Directors of any
class elected to fill a vacancy resulting from an increase in such
class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the
number of Directors shorten the term of any incumbent Director. A
Director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy on
the Board however resulting, may be filled by a majority of the
Directors then in office, even if less than a quorum, or by a sole
remaining
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85. Notwithstanding By-law Nos 83 and 84, whenever the holders of any one
or more classes or series of preference shares issued by the Company
shall have the right, voting separately by class or series, to elect
Directors at an annual or special meeting of shareholders, the
election, term of office, filling of vacancies and other features of
such directorships shall be governed by the terms of resolutions
adopted by the Board at the time the class of preference shares is
established and such Directors so elected shall not be divided into
classes pursuant to by-laws Nos 83 and 84 unless expressly provided by
such terms.
86. Subject to any rights conferred on the holders of any preferred share
or shares, no person other than a Director retiring by rotation shall
be appointed a Director at any general meeting unless:-
(a) he is recommended by the Board; or
(b) ninety days or more notice of the general meeting is
given, not less than seventy-five nor more than
ninety days prior to the meeting; or (2) where less
than ninety days notice of the general meeting is
given, not nor more than fifteen clear days following
the date on which notice of the meeting was posted,
notice executed by a Shareholder qualified to vote at
the meeting (not being the person to be proposed)
has been given to the Company of the intention to
propose that person for appointment setting forth
(a) as to each person whom the Shareholder proposes
to nominate for election or re-election as a
Director, (i) the name, age, business address and
residence address of
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the person, (ii) the principal occupation or
employment of the person, (iii) the class, series and
number of shares of shares of the Company which are
beneficially owned by the person (iv) the particulars
which would, if he were so appointed, be required to
be included in the Company's register of Directors
and Officers; and (v) all other information relating
to that person that is required to be disclosed in
solicitations for proxies for the election of
directors pursuant to the Rules and regulations of
the Securities and Exchange Commission under Section
14 of the Securities Exchange Act of 1934, as
amended, together with consent executed by that
person of his willingness to serve as a Director if
so elected.
87. Except as otherwise authorised by the Companies Acts, the appointment
of any person proposed as a Director shall be effected by a separate
resolution.
88. All Directors, upon election or appointment, must provide written
acceptance of their appointment, in such form as the Board may think
fit, by notice in writing to the Registered Office within thirty days
of their appointment.
89. The minimum number of Directors, shall be not less than three and the
maximum number of Directors shall be fifteen. Without prejudice to the
power of the Company by Resolution in pursuance of any of the
provisions of these By-laws to appoint any person to be a Director, the
Board, so long as a quorum of Directors remains in office, shall have
power at any time and from time to time to appoint any individual to be
a Director so as to fill a casual vacancy. A
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Director so appointed shall hold office only until the next following
Annual General Meeting and shall not be taken into account in
determining the Directors who are to retire by rotation at the
meeting. If not reappointed at such Annual General Meeting, he shall
vacate office at the conclusion thereof.
90. The Company may in a Special General Meeting called for that purpose
remove a Director for cause provided notice of any such meeting shall
be served upon the Director concerned not less than 14 days before the
meeting and he shall be entitled to be heard at that meeting. To be
effective a resolution resolving to remove a Director must receive the
affirmative vote of the holders of a majority of the shares outstanding
and entitled to vote generally for the election of Directors, voting
together as a single class. Any vacancy created by the removal of a
Director at a Special General Meeting may be filled at the Meeting by
the election of another Director in his place or, in the absence of any
such election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
91. The office of a Director shall be vacated upon the happening of any of
the following events:
(1) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
(2) if he becomes of unsound mind or a patient for any purpose of
any statute or applicable law relating to mental health and
the Board resolves that his office is vacated;
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(3) if he becomes bankrupt under the laws of any country or
compounds with his creditors;
(4) if he is prohibited by law from being a Director;
(5) if he ceases to be a Director by virtue of the Companies Acts
or these By-laws or is removed from office pursuant to these
By-laws;
(6) he shall for more than six consecutive months have been absent
without permission of the Board from meetings of the Board
held during that period and his Alternate Director (if any)
shall not during such period have attended in his stead and
the Board resolves that his office be vacated;
ALTERNATE DIRECTORS
92. Any Director (other than an Alternate Director) may appoint any other
Director, or any other person approved by resolution of the Board and
willing to act, to be an Alternate Director and may remove from office
an Alternate Director so appointed by him. Any appointment or removal
of an Alternate Director by a Director shall be effected by depositing
a notice of appointment or removal with the Secretary at the Registered
Office, signed by such Director, and such appointment or removal shall
become effective on the date of receipt by the Secretary. Any Alternate
Director may also be removed by resolution of the Board. An Alternate
Director may also be a Director in his own right and may act as
alternate to more than one Director.
93. An Alternate Director shall cease to be an Alternate Director:-
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(a) if his appointor ceases to be a Director; but, if a
Director retires by rotation or otherwise but is
reappointed or deemed to have been reappointed at the
meeting at which he retires, any appointment of an
Alternate Director made by him which was in force
immediately prior to his retirement shall continue
after his reappointment;
(b) on the happening of any event which, if he were a
Director, would cause him to vacate his office as
Director;
(c) if he is removed from office pursuant to By-law 92;
or (d) if he resigns his office by notice to the
Company.
94. An Alternate Director shall be entitled to receive notices of all
meetings of Directors, to attend, be counted in the quorum and vote at
any such meeting at which any Director to whom he is alternate is not
personally present, and generally to perform all the functions of any
Director to whom he is alternate in his absence.
95. Every person acting as an Alternate Director shall (except as regards
powers to appoint an alternate and remuneration) be subject in all
respects to the provisions of these By-laws relating to Directors and
shall alone be responsible to the Company for his acts and defaults and
shall not be deemed to be the agent of or for any Director for whom he
is alternate. An Alternate Director may be paid expenses and shall be
entitled to be indemnified by the Company to the same extent mutatis
mutandis as if he were a Director. Every person acting as an Alternate
Director shall have one vote for each Director for whom he acts as
alternate (in addition to his own vote if he is also a Director). The
signature of
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an Alternate Director to any resolution in writing of the Board or a
committee of the Board shall, unless the terms of his appointment
provides to the contrary, be as effective as the signature of the
Director or Directors to whom he is alternate.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION
AND EXPENSES
96. The ordinary remuneration (if any) of the Directors who do not hold
executive office for their services (excluding amounts payable under
any other provision of these By-laws) shall be such amount as the Board
may from time to time determine. Each Director may be paid his
reasonable travel, hotel and incidental expenses in attending and
returning from meetings of the Board or committees constituted pursuant
to these By-laws or general meetings and shall be paid all expenses
properly and reasonably incurred by him in the conduct of the Company's
business or in the discharge of his duties as a Director. Any Director
who, by request, goes or resides abroad for any purposes of the Company
or who performs services which in the opinion of the Board go beyond
the ordinary duties of a Director may be paid such extra remuneration
(whether by way of salary, commission, participation in profits or
otherwise) as the Board may determine, and such extra remuneration
shall be in addition to any remuneration provided for by or pursuant to
any other By-law.
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DIRECTORS' INTERESTS
97. (1) A Director may hold any other office or place of profit with
the Company (except that of auditor) in conjunction with his
office of Director for such period and upon such terms as the
Board may determine, and may be paid such extra remuneration
therefor (whether by way of salary, commission, participation
in profits or otherwise) as the Board may determine, and such
extra remuneration shall be in addition to any remuneration
provided for by or pursuant to any other By-law.
(2) A Director may act by himself or his firm in a professional
capacity for the Company (otherwise than as auditor) and he or
his firm shall be entitled to remuneration for professional
services as if he were not a Director.
(3) Subject to the provisions of the Companies Acts, a Director
may notwithstanding his office be a party to, or otherwise
interested in, any transaction or arrangement with the Company
or in which the Company is otherwise interested; and be a
director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested
in, any body corporate promoted by the Company or in which the
Company is interested. The Board may also cause the voting
power conferred by the shares in any other company held or
owned by the Company to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof in
favour of any resolution appointing the Directors or any of
them to be directors or officers of such other company, or
voting or providing for the payment of remuneration to the
directors or officers of such other company.
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(4) So long as, where it is necessary, he declares the nature of
his interest at the first opportunity at a meeting of the
Board or by writing to the Directors as required by the
Companies Acts, a Director shall not by reason of his office
be accountable to the Company for any benefit which he derives
from any office or employment to which these By-laws allow
him to be appointed or from any transaction or arrangement in
which these By-laws allow him to be interested, and no such
transaction or arrangement shall be liable to be avoided on
the ground of any interest or benefit.
(5) Subject to the Companies Acts and any further disclosure
required thereby, a general notice to the Directors by a
Director or Officer declaring that he is a director or officer
or has an interest in a person and is to be regarded as
interested in any transaction or arrangement made with that
person, shall be a sufficient declaration of interest in
relation to any transaction or arrangement so made.
POWERS AND DUTIES OF THE BOARD
98. Subject to the provisions of the Companies Acts and these By-laws and
to any directions given by the Company by Resolution, the Board shall
manage the business of the Company and may pay all expenses incurred in
promoting and incorporating the Company and may exercise all the powers
of the Company. No alteration of these By-laws and no such direction
shall invalidate any prior act of the Board which would have been valid
if that alteration had not been made or that direction had not been
given. The powers given by this By-law shall not be limited by any
special power given to the Board by these By-laws
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<PAGE> 49
and a meeting of the Board at which a quorum is present shall be
competent to exercise all the powers, authorities and discretions for
the time being vested in or exercisable by the Board.
99. The Board may exercise all the powers of the Company to borrow money
and to mortgage or charge all or any part of the undertaking, property
and assets (present and future) and uncalled capital of the Company and
to issue debentures and other securities, whether outright or as
collateral security for any debt, liability or obligation of the
Company or of any other persons.
100. All cheques, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all
receipts for money paid to the Company shall be signed, drawn,
accepted, endorsed or otherwise executed, as the case may be, in such
manner as the Board shall from time to time by resolution determine.
GRATUITIES, PENSIONS AND INSURANCE
101. (1) The Board may (by establishment of or maintenance of schemes
or otherwise) provide benefits, whether by the payment of
gratuities or pensions or by insurance or otherwise, for any
past or present Director or employee of the Company or any of
its subsidiaries or any body corporate associated with, or any
business acquired by, any of them, and for any member of his
family (including a spouse and a former spouse) or any person
who is or was dependent on him, and may (as well before as
after he ceases to hold such office or employment)
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contribute to any fund and pay premiums for the purchase or
provision of any such benefit.
(2) Without prejudice to the provisions of By-laws 148 and 149,
the Board shall have the power to purchase and maintain
insurance for or for the benefit of any persons who are or
were at any time Directors, Officers or employees of the
Company, or of any other Company which is its holding company
or in which the Company or such holding company has any
interest whether direct or indirect or which is in any way
allied to or associated with the Company, or of any subsidiary
undertaking of the Company or any such other company, or who
are or were at any time trustees of any pension fund in which
employees of the Company or any such other company or
subsidiary undertaking are interested, including (without
prejudice to the generality of the foregoing) insurance
against any liability incurred by such persons in respect of
any act or omission in the actual or purported execution or
discharge of their duties or in the exercise or purported
exercise of their powers or otherwise in relation to their
duties, powers or offices in relation to the Company or any
such other company, subsidiary undertaking or pension fund.
(3) No Director or former Director shall be accountable to the
Company or the Shareholders for any benefit provided pursuant
to this By-law and the receipt of any such benefit shall not
disqualify any person from being or becoming a Director of the
Company.
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DELEGATION OF THE BOARD'S POWERS
102. The Board may by power of attorney appoint any company, firm or person
or any fluctuating body of persons, whether nominated directly or
indirectly by the Board, to be the attorney or attorneys of the Company
for such purposes and with such powers, authorities and discretions
(not exceeding those vested in or exercisable by the Board under these
By-laws) and for such period and subject to such conditions as it may
think fit, and any such power of attorney may contain such provisions
for the protection and convenience of persons dealing with any such
attorney and of such attorney as the Board may think fit, and may also
authorise any such attorney to sub-delegate all or any of the powers,
authorities and discretions vested in him.
103. The Board may entrust to and confer upon any Director, Officer or,
without prejudice to the provisions of By-law 104, other individual any
of the powers exercisable by it upon such terms and conditions with
such restrictions as it thinks fit, and either collaterally with, or to
the exclusion of, its own powers, and may from time to time revoke or
vary all or any of such powers but no person dealing in good faith and
without notice of such revocation or variation shall be affected
thereby.
104. The Board may delegate any of its powers, authorities and discretions
to committees, consisting of such person or persons (comprising at
least one member of its body ) as it thinks fit. Any committee so
formed shall, in the exercise of the powers, authorities and
discretions so delegated, and in conducting its proceedings conform to
any regulations which may be imposed upon it
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by the Board. If no regulations are imposed by the Board the
proceedings of a committee with two or more members shall be, as far as
is practicable, governed by the By-laws regulating the proceedings of
the Board.
PROCEEDINGS OF THE BOARD
105. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any
meeting shall be determined by a majority of votes. In the case of an
equality of votes the motion shall be deemed to have been lost. A
Director may, and the Secretary on the requisition of a Director shall,
at any time summon a meeting of the Board. Regular meetings of the
Board may be held without notice at such time and at such place as may
from time to time be determined by the Board.
106. Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent
to him by post, cable, telex, telecopier or other mode of representing
or reproducing words in a legible and non-transitory form at his last
known address or any other address given by him to the Company for this
purpose. A Director may retrospectively waive the requirement for
notice of any meeting by consenting in writing to the business
conducted at the meeting.
107. (1) The quorum necessary for the transaction of the business
of the Board may be fixed by the Board and, unless so fixed at
any other number, shall be a majority of the Directors. Any
Director who ceases to be a Director at a meeting of the Board
may continue to be present and to act
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as a Director and be counted in the quorum until the
termination of the meeting if no other Director objects and if
otherwise a quorum of Directors would not be present.
(2) The Resident Representative shall, upon delivering written
notice of an address for the purposes of receipt of notice, to
the Registered Office, be entitled to receive notice of,
attend and be heard at, and to receive minutes of all meetings
of the Board.
108. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no
such quorum remains, the continuing Directors or a sole continuing
Director may act only for the purpose of calling a general meeting.
109. The President or, in his absence, the Vice-President, shall preside as
chairman at every meeting of the Board. If at any meeting the President
or Vice-President is not present within five minutes after the time
appointed for holding the meeting, or is not willing to act as
chairman, the Directors present may choose one of their number to be
chairman of the meeting.
110. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these By-laws
for regulating the meetings and proceedings of the Board so far as the
same are applicable and are not superseded by any regulations imposed
by the Board.
111. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the
members of a committee
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<PAGE> 54
for the time being shall be as valid and effectual as a resolution
passed at a meeting of the Board or, as the case may be, of such
committee duly called and constituted. Such resolution may be contained
in one document or in several documents in the like form each signed by
one or more of the Directors or members of the committee concerned.
112. A meeting of the Board or a committee appointed by the Board may be
held by means of such telephone, electronic or other communication
facilities as permit all persons participating in the meeting to
communicate with each other simultaneously and instantaneously and
participation in such a meeting shall constitute presence in person at
such meeting. Such a meeting shall be deemed to take place where the
largest group of those participating in the meeting is physically
assembled, or, if there is no such group, where the chairman of the
meeting then is. The word "meeting" in these By-laws shall be construed
accordingly.
113. All acts done by the Board or by any committee or by any person acting
as a Director or member of a committee or any person duly authorised by
the Board or any committee, shall, notwithstanding that it is
afterwards discovered that there was some defect in the appointment of
any member of the Board or such committee or person acting as aforesaid
or that they or any of them were disqualified or had vacated their
office, be as valid as if every such person had been duly appointed and
was qualified and had continued to be a Director, member of such
committee or person so authorised.
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114. Save as otherwise provided by these By-laws, no contract or transaction
between the Company and one or more of the Directors or Officers, or
between the Company and any other corporation, partnership,
association, or other organisation in which one or more of Directors or
Officers are directors or officers, or have a financial interest, shall
be void or voidable solely for this reason, or solely because the
Director or Officer is present at or participates in the meeting of the
Board or committee which authorises the contract or transaction, or
solely because his or their votes are counted for such purpose if (a)
the material facts as to his or their relationship or interest and as
to the contract or transaction are disclosed or are known to the Board
or the committee, and the Board or committee in good faith authorises
the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be
less than a quorum; or (b) the material facts as to his or their
relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon,
and the contract or transaction is specifically approved in good faith
by vote of the shareholders, or (c) the contract or transaction is fair
as to the Company as of the time it is authorised, approved or
ratified, by the Board, a committee thereof or the shareholders.
115. A Director maybe counted in the quorum present at a meeting in relation
to a resolution on which he is not entitled to vote.
116. The Company may by ordinary resolution suspend or relax to any extent,
either generally or in respect of any particular matter, any provision
of these By-laws prohibiting a Director from voting at a meeting of the
Board or of a committee
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of the Board, or ratify any transaction not duly authorised by reason
of a contravention of any such provisions.
117. Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more
Directors to offices or employments with the Company or any body
corporate in which the Company is interested, the proposals may be
divided and considered in relation to each Director separately and in
such cases each of the Directors concerned (if not debarred from voting
under the proviso to paragraph (e) of By-law 114) shall be entitled to
vote and be counted in the quorum in respect of each resolution except
that concerning his own appointment.
118. If a question arises at a meeting of the Board or a committee of the
Board as to the entitlement of a Director to vote or be counted in a
quorum, the question may, before the conclusion of the meeting, be
referred to the chairman of the meeting and his ruling in relation to
any Director other than himself shall be final and conclusive except in
a case where the nature or extent of the interests of the Director
concerned have not been fairly disclosed. If any such question arises
in respect of the chairman of the meeting, it shall be decided by
resolution of the Board (on which the chairman shall not vote) and
such resolution will be final and conclusive except in a case where the
interests of the chairman have not been fairly disclosed.
OFFICERS
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119. The Officers of the Company shall include a President and a
Vice-President who shall be Directors and shall be elected by the Board
as soon as possible after the statutory meeting and each Annual General
Meeting. In addition, the Board may appoint any person whether or not
he is a Director to hold such office as the Board may from time to time
determine. Any person elected or appointed pursuant to this By-law
shall hold office for such period and upon such terms as the Board may
determine and the Board may revoke or terminate any such election or
appointment. Any such revocation or termination shall be without
prejudice to any claim for damages that such Officer may have against
the Company or the Company may have against such Officer for any breach
of any contract of service between him and the Company which may be
involved in such revocation or termination. Save as provided in the
Companies Acts or these By-laws, the powers and duties of the Officers
of the Company shall be such (if any) as are determined from time to
time by the Board.
EXECUTIVE DIRECTORS
120. (1) Subject to the provisions of the Companies Acts, the Board may
appoint one or more of its body to be the holder of any
executive office (except that of auditor) under the Company
and may enter into any agreement or arrangement with any
Director for his employment by the Company or for the
provision by him of any services outside the scope of the
ordinary duties of a Director. Any such appointment, agreement
or arrangement may be made upon such terms, including terms as
to remuneration, as the Board determines, and any remuneration
which is so determined may be in addition to or in lieu of any
ordinary remuner-
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ation as a Director. The Board may revoke or vary any such
appointment but without prejudice to any rights or claims
which the person whose appointment is revoked or varied may
have against the Company by reason thereof.
(2) Any Director holding executive office shall not be subject to
retirement by rotation. Any Director who is not subject to
retirement by rotation shall be disregarded in determining
which Directors are subject to retirement by rotation under
the provisions of these By-laws.
121. Any appointment of a Director to an executive office shall terminate if
he ceases to be a Director but without prejudice to any rights or
claims which he may have against the Company by reason of such cesser.
A Director appointed to an executive office shall not ipso facto cease
to be a Director if his appointment to such executive office
terminates.
122. The emoluments of any Director holding executive office for his
services as such shall be determined by the Board, and may be of any
description, and (without limiting the generality of the foregoing) may
include admission to or continuance of membership of any scheme
(including any share acquisition scheme) or fund instituted or
established or financed or contributed to by the Company for the
provision of pensions, life assurance or other benefits for employees
or their dependants, or the payment of a pension or other benefits to
him or his dependants on or after retirement or death, apart from
membership or any such scheme or fund.
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MINUTES
123. The Board shall cause minutes to be made and books kept for the purpose
of recording -
(1) all appointments of Officers made by the Board;
(2) the names of the Directors and other persons (if any) present
at each meeting of the Board and of any committee;
(3) of all proceedings at meetings of the Company, of the holders
of any class of shares in the Company, of the Board and of
committees appointed by the Board or the Shareholders;
(4) of all proceedings of its managers (if any).
Shareholders shall only be entitled to see the Register of Directors
and Officers, the Register, the financial information provided for in
By-law 140 and the minutes of meetings of the Shareholders of the
Company.
SECRETARY AND RESIDENT REPRESENTATIVE
124. The Secretary (including one or more deputy or assistant secretaries)
and, if required, the Resident Representative, shall be appointed by
the Board at such remuneration (if any) and upon such terms as it may
think fit and any Secretary and Resident Representative so appointed
may be removed by the Board. The duties of the Secretary and the duties
of the Resident Representative shall be those prescribed by the
Companies Acts together with such other duties as shall from time to
time be prescribed by the Board.
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125. A provision of the Companies Acts or these By-laws requiring or
authorising a thing to be done by or to a Director and the Secretary
shall not be satisfied by its being done by or to the same person
acting both as Director and as, or in the place of, the Secretary.
THE SEAL
126. (1) The Seal shall consist of a circular metal device with the
name of the Company around the outer margin thereof and the
country and year of incorporation across the centre thereof.
Should the Seal not have been received at the Registered
Office in such form at the date of adoption of this By-law
then, pending such receipt, any document requiring to be
sealed with the Seal shall be sealed by affixing a red wafer
seal to the document with the name of the Company, and the
country and year of incorporation type written across the
centre thereof.
(2) The Board shall provide for the custody of every Seal. A Seal
shall only be used by authority of the Board or of a committee
constituted by the Board. Subject to these By-laws, any
instrument to which a Seal is affixed shall be signed by
either two Directors, or by the Secretary and one Director, or
by the Secretary or by any one person whether or not a
Director or Officer, who has been authorised either generally
or specifically to affirm the use of a Seal; provided that
the Secretary or a Director may affix a Seal over his
signature alone to authenticate copies of these By-laws, the
minutes of any meeting or any other documents requiring
authentication.
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DIVIDENDS AND OTHER PAYMENTS
127. The Board may from time to time declare dividends or distributions out
of contributed surplus to be paid to the Shareholders according to
their rights and interests including such interim dividends as appear
to the Board to be justified by the position of the Company. The Board,
in its discretion, may determine that any dividend shall be paid in
cash or shall be satisfied, subject to By-law 135, in paying up in full
shares in the Company to be issued to the Shareholders credited as
fully paid or partly paid or partly in one way and partly the other.
The Board may also pay any fixed cash dividend which is payable on any
shares of the Company half yearly or on such other dates, whenever the
position of the Company, in the opinion of the Board, justifies such
payment.
128. Except insofar as the rights attaching to, or the terms of issue of,
any share otherwise provide:-
(1) all dividends or distributions out of contributed surplus may
be declared and paid according to the amounts paid up on the
shares in respect of which the dividend or distribution is
paid, and an amount paid up on a share in advance of calls may
be treated for the purpose of this By-law as paid-up on the
share;
(2) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts
paid-up on the shares during any portion or portions of the
period in respect of which the dividend or distribution is
paid.
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129. The Board may deduct from any dividend, distribution or other moneys
payable to a Shareholder by the Company on or in respect of any shares
all sums of money (if any) presently payable by him to the Company on
account of calls or otherwise in respect of shares of the Company.
130. No dividend, distribution or other moneys payable by the Company on or
in respect of any share shall bear interest against the Company.
131. Any dividend, distribution or interest, or part thereof payable in
cash, or any other sum payable in cash to the holder of shares may be
paid by cheque or warrant sent through the post addressed to the holder
at his address in the Register or, in the case of joint holders,
addressed to the holder whose name stands first in the Register in
respect of the shares at his registered address as appearing in the
Register or addressed to such person at such address as the holder or
joint holders may in writing direct. Every such cheque or warrant
shall, unless the holder or joint holders otherwise direct, be made
payable to the order of the holder or, in the case of joint holders, to
the order of the holder whose name stands first in the Register in
respect of such shares, and shall be sent at his or their risk and
payment of the cheque or warrant by the bank on which it is drawn shall
constitute a good discharge to the Company. Any one of two or more
joint holders may give effectual receipts for any dividends,
distributions or other moneys payable or property distributable in
respect of the shares held by such joint holders.
132. Any dividend or distribution out of contributed surplus unclaimed for a
period of six years from the date of declaration of such dividend or
distribution shall
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be forfeited and shall revert to the Company and the payment by the
Board of any unclaimed dividend, distribution, interest or other sum
payable on or in respect of the share into a separate account shall not
constitute the Company a trustee in respect thereof.
133. The Board may also, in addition to its other powers, direct payment or
satisfaction of any dividend or distribution out of contributed
surplus wholly or in part by the distribution of specific assets, and
in particular of paid-up shares or debentures of any other company, and
where any difficulty arises in regard to such distribution or dividend
the Board may settle it as it thinks expedient, and in particular, may
authorise any person to sell and transfer any fractions or may ignore
fractions altogether, and may fix the value for distribution or
dividend purposes of any such specific assets and may determine that
cash payments shall be made to any Shareholders upon the footing of the
values so fixed in order to secure equality of distribution and may
vest any such specific assets in trustees as may seem expedient to the
Board provided that such dividend or distribution may not be satisfied
by the distribution of any partly paid shares or debentures of any
company without the sanction of a Resolution.
RESERVES
134. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it
thinks proper as reserves which shall, at the discretion of the Board,
be applicable for any purpose of the Company and pending such
application may, also at such discretion, either be employed in the
business of the Company or be invested in such investments as
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the Board may from time to time think fit. The Board may also without
placing the same to reserve carry forward any sums which it may think
it prudent not to distribute.
CAPITALIZATION OF PROFITS
135. The Board may, from time to time resolve to capitalise all or any part
of any amount for the time being standing to the credit of any reserve
or fund which is available for distribution or to the credit of any
share premium account and accordingly that such amount be set free for
distribution amongst the Shareholders or any class of Shareholders who
would be entitled thereto if distributed by way of dividend and in the
same proportions, on the footing that the same be not paid in cash but
be applied either in or towards paying up amounts for the time being
unpaid on any shares in the Company held by such Shareholders
respectively or in payment up in full of unissued shares, debentures or
other obligations of the Company, to be allotted and distributed
credited as fully paid amongst such Shareholders, or partly in one way
and partly in the other, provided that for the purpose of this By-law,
a share premium account may be applied only in paying up of unissued
shares to be issued to such Shareholders credited as fully paid and
provided further that any sum standing to the credit of a share premium
account may only be applied in crediting as fully paid shares of the
same class as that from which the relevant share premium was derived.
136. Where any difficulty arises in regard to any distribution under the
last preceding By-law, the Board may settle the same as it thinks
expedient and, in particular, may authorise any person to sell and
transfer any fractions or may
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resolve that the distribution should be as nearly as may be practicable
in the correct proportion but not exactly so or may ignore fractions
altogether, and may determine that cash payments should be made to any
Shareholders in order to adjust the rights of all parties, as may seem
expedient to the Board. The Board may appoint any person to sign on
behalf of the persons entitled to participate in the distribution any
contract necessary or desirable for giving effect thereto and such
appointment shall be effective and binding upon the Shareholders.
RECORD DATES
137. Notwithstanding any other provisions of these By-laws, the Company may
by Resolution or the Board may fix any date as the record date for any
dividend, distribution, allotment or issue and for the purpose of
identifying the persons entitled to receive notices of general
meetings. Any such record date may be on or at any time not more than
sixty days before any date on which such dividend, distribution,
allotment or issue is declared, paid or made and not more than sixty
days nor less than ten days before the date of any such meeting.
ACCOUNTING RECORDS
138. The Board shall cause to be kept accounting records sufficient to give
a true and fair view of the state of the Company's affairs and to show
and explain its transactions, in accordance with the Companies Acts.
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139. The records of account shall be kept at the Registered Office or at
such other place or places as the Board thinks fit, and shall at all
times be open to inspection by the Directors: PROVIDED that if the
records of account are kept at some place outside Bermuda, there shall
be kept at an office of the Company in Bermuda such records as will
enable the Directors to ascertain with reasonable accuracy the
financial position of the Company at the end of each three month
period. No Shareholder (other than an Officer of the Company) shall
have any right to inspect any accounting record or book or document of
the Company except as conferred by law or authorised by the Board or by
Resolution.
140. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which
is to be laid before the Company in general meeting, together with a
copy of the auditors' report, shall be sent to each person entitled
thereto in accordance with the requirements of the Companies Acts.
AUDIT
141. Save and to the extent that an audit is waived in the manner permitted
by the Companies Acts, auditors shall be appointed and their duties
regulated in accordance with the Companies Acts, any other applicable
law and such requirements not inconsistent with the Companies Acts as
the Board may from time to time determine.
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SERVICE OF NOTICES AND OTHER DOCUMENTS
142. Any notice or other document (including a share certificate) may be
served on or delivered to any Shareholder by the Company either
personally or by sending it through the post (by airmail where
applicable) in a pre-paid letter addressed to such Shareholder at his
address as appearing in the Register or by delivering it to or leaving
it at such registered address. In the case of joint holders of a share,
service or delivery of any notice or other document on or to one of the
joint holders shall for all purposes be deemed as sufficient service on
or delivery to all the joint holders. Any notice or other document if
sent by post shall be deemed to have been served or delivered on the
date it was put in the post, and in proving such service or delivery,
it shall be sufficient to prove that the notice or document was
properly addressed, stamped and put in the post.
143. Any notice of a general meeting of the Company shall be deemed to be
duly given to a Shareholder, or other person entitled to it, if it is
sent to him by cable, telex, telecopier or other mode of representing
or reproducing words in a legible and non-transitory form at his
address as appearing in the Register or any other address given by him
to the Company for this purpose. Any such notice shall be deemed to
have been served upon its despatch.
144. Any notice or other document delivered, sent or given to a Shareholder
in any manner permitted by these By-laws shall, notwithstanding that
such Shareholder is then dead or bankrupt or that any other event has
occurred, and whether or not the Company has notice of the death or
bankruptcy or other event, be deemed to have been duly served or
delivered in respect of any share
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registered in the name of such Shareholder as sole or joint holder
unless his name shall, at the time of the service or delivery of the
notice or document, have been removed from the Register as the holder
of the share, and such service or delivery shall for all purposes be
deemed as sufficient service or delivery of such notice or document on
all persons interested (whether jointly with or as claiming through or
under him) in the share.
DESTRUCTION OF DOCUMENTS
145. The Company shall be entitled to destroy all instruments of transfer of
shares which have been registered, and all other documents on the basis
of which any entry is made in the register, at any time after the
expiration of six years from the date of registration thereof and all
dividends mandates or variations or cancellations thereof and
notifications of change of address at any time after the expiration of
two years from the date of recording thereof and all share certificates
which have been cancelled at any time after the expiration of one
year from the date of cancellation thereof and all paid dividend
warrants and cheques at any time after the expiration of one year from
the date of actual payment thereof and all instruments of proxy which
have been used for the purpose of a poll at any time after the
expiration of one year from the date of such use and all instruments of
proxy which have not been used for the purpose of a poll at any time
after one month from the end of the meeting to which the instrument of
proxy relates and at which no poll was demanded. It shall conclusively
be presumed in favour of the Company that every entry in the register
purporting to have been made on the basis of an instrument of transfer
or other document so destroyed was duly and properly made, that every
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instrument of transfer so destroyed was a valid and effective
instrument duly and properly registered, that every share certificate
so destroyed was a valid and effective certificate duly and properly
cancelled and that every other document hereinbefore mentioned so
destroyed was a valid and effective document in accordance with the
recorded particulars thereof in the books or records of the Company,
provided always that:-
(a) the provisions aforesaid shall apply only to the
destruction of a document in good faith and without
notice of any claim (regardless of the parties
thereto) to which the document might be relevant;
(b) nothing herein contained shall be construed as
imposing upon the Company any liability in respect of
the destruction of any such document earlier than as
aforesaid or in any other circumstances which would
not attach to the Company in the absence of this
By-law; and
(c) references herein to the destruction of any document
include references to the disposal thereof in any
manner.
UNTRACED SHAREHOLDERS
146. (1) The Company shall be entitled to sell, at the best price
reasonably obtainable, the shares of a Shareholder or the
shares to which a person is entitled by virtue of transmission
on death, bankruptcy, or otherwise by operation of law if and
provided that:-
(a) during the period of twelve years prior to the date
of the publication of the advertisements referred to
in paragraph (b) below
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(or, if published on different dates, the first
thereof) at least three dividends in respect of the
shares in question have been declared and all
dividend warrants and cheques which have been sent in
the manner authorised by these By-laws in respect of
the shares in question have remained uncashed; and
(b) the Company shall as soon as practicable after expiry
of the said period of twelve years have inserted
advertisements both in a national daily newspaper and
in a newspaper circulating in the area of the last
known address of such Shareholder or other person
giving notice of its intention to sell the shares;
and
(c) during the said period of twelve years and the period
of three months following the publication of the said
advertisements the Company shall have received no
indication either of the whereabouts or of the
existence of such Shareholder or person; and
(d) if the shares are listed on The Stock Exchange,
notice shall have been given to the Quotations
Department of The Stock Exchange of the Company's
intention to make such sale prior to the publication
of advertisements.
If during any twelve year period referred to in paragraph (a)
above, further shares have been issued in right of those held
at the beginning of such period or of any previously issued
during such period and all the other requirements of this
By-law (other than the requirement that they be in issue for
twelve years) have been satisfied in regard to the further
shares, the Company may also sell the further shares.
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(2) To give effect to any such sale, the Board may authorise some
person to execute an instrument of transfer of the shares sold
to, or in accordance with the directions of, the purchaser and
an instrument of transfer executed by that person shall be as
effective as if it had been executed by the holder of, or
person entitled by transmission to, the shares. The transferee
shall not be bound to see to the application of the purchase
money, nor shall his title to the shares be affected by any
irregularity in, or invalidity of, the proceedings in
reference to the sale.
(3) The net proceeds of sale shall belong to the Company which
shall be obliged to account to the former Shareholder or other
person previously entitled as aforesaid for an amount equal to
such proceeds and shall enter the name of such former
Shareholder or other person in the books of the Company as a
creditor for such amount. No trust shall be created in respect
of the debt, no interest shall be payable in respect of the
same and the Company shall not be required to account for any
money earned on the net proceeds, which may be employed in the
business of the Company or invested in such investments as the
Board from time to time thinks fit.
WINDING UP
147. If the Company shall be wound up, the liquidator may, with the sanction
of a Resolution of the Company and any other sanction required by the
Companies Acts, divide amongst the Shareholders in specie or kind the
whole or any part of the assets of the Company (whether they shall
consist of property of the same kind or not) and may for such purposes
set such values as he deems fair
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upon any property to be divided as aforesaid and may determine how such
division shall be carried out as between the Shareholders or different
classes of Shareholders. The liquidator may, with the like sanction,
vest the whole or any part of such assets in trustees upon such trust
for the benefit of the contributories as the liquidator, with the like
sanction, shall think fit, but so that no Shareholder shall be
compelled to accept any shares or other assets upon which there is any
liability.
INDEMNITY
148. Subject to the proviso below, every Director, Officer of the Company
and member of a committee constituted under By-law 104 and any Resident
Representative shall be indemnified out of the funds of the Company
against all liabilities, loss, damage or expense (including but not
limited to liabilities under contract, tort and statute or any
applicable foreign law or regulation and all reasonable legal and other
costs and expenses properly payable) incurred or suffered by him as
such Director, Officer, committee member or Resident Representative and
the indemnity contained in this By-law shall extend to any person
acting as a Director, Officer, committee member or Resident
Representative in the reasonable belief that he has been so appointed
or elected notwithstanding any defect in such appointment or election
PROVIDED ALWAYS that the indemnity contained in this By-law shall not
extend to any matter which would render it void pursuant to the
Companies Acts.
149. Every Director, Officer, member of a committee duly constituted under
By-law 104 or Resident Representative of the Company shall be
indemnified out of the
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funds of the Company against all liabilities incurred by him as such
Director, Officer, committee member or Resident Representative in
defending any proceedings, whether civil or criminal, in which
judgement is given in his favour, or in which he is acquitted, or in
connection with any application under the Companies Acts in which
relief from liability is granted to him by the court.
150. To the extent that any Director, Officer, member of a committee duly
constituted under By-law 104 or Resident Representative is entitled to
claim an indemnity pursuant to these By-laws in respect of amounts paid
or discharged by him, the relative indemnity shall take effect as an
obligation of the Company to reimburse the person making such payment
or effecting such discharge.
151. Each Shareholder and the Company agree to waive any claim or right of
action he or it may at any time have, whether individually or by or in
the right of the Company, against any Director, Officer, or member of a
committee duly constituted under By-law 104 on account of any action
taken by such Director, Officer, or member of a committee or the
failure of such Director, Officer, or member of a committee to take any
action in the performance of his duties with or for the Company
PROVIDED HOWEVER that such waiver shall not apply to any claims or
rights of action arising out of the fraud of such Director, Officer, or
member of a committee duly constituted under By-law 104 or to recover
any gain, personal profit or advantage to which such Director, Officer,
or member of a committee duly constituted under By-law 104 is not
legally entitled.
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152. Subject to the Companies Acts, expenses incurred in defending any civil
or criminal action or proceeding for which indemnification is required
pursuant to By-laws 148 and 149 shall be paid by the Company in advance
of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such
amount if it shall ultimately be determined that the indemnified party
is not entitled to be indemnified pursuant to By-laws 148 and 149
provided that no monies shall be paid hereunder unless payment of the
same shall be authorised in the specific case upon a determination
that indemnification of the Director or officer would be proper in the
circumstances because he has met the standard of conduct which would
entitle him to the indemnification thereby provided and such
determination shall be made:
(a) by the Board, by a majority vote at a meeting duly
constituted by a quorum of Directors not party to the
proceedings or matter with regard to which the
indemnification is, or would be, claimed; or
(b) in the case such a meeting cannot be constituted by
lack of a disinterested quorum, by independent legal
counsel in a written opinion; or
(c) by a majority vote of the Shareholders.
Each Shareholder of the Company, by virtue of its acquisition
and continued holding of a share, shall be deemed to have
acknowledged and agreed that the advances of funds may be made
by the Company as aforesaid, and when made by the Company
under this By-law 152 are made to meet expenditures incurred
for the purpose of enabling such
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Director, Officer, or member of a committee duly constituted
under By-law 104 to properly perform his or her duties as an
officer of the Company.
AMALGAMATION
153. Any resolution proposed for consideration at any general meeting to
approve the amalgamation of the Company with any other company,
wherever incorporated, shall require the approval of a simple majority
of votes cast at such meeting and the quorum for such meeting shall be
that required in By-law 54 and a poll may be demanded in respect of
such resolution in accordance with the provisions of By-law 64.
CONTINUATION
154. Subject to the Companies Act, the Shareholders may by Resolution
approve the discontinuation of the Company in Bermuda and the
continuation of the Company in a jurisdiction outside Bermuda. The
Shareholders, having resolved to approve the discontinuation of the
Company, may by Resolution further resolve not to proceed with any
application to discontinue the Company in Bermuda or may vary such
application as they see fit.
ALTERATION OF BY-LAWS
155. Subject to By-law No 164, these By-laws may be amended from time to
time in the manner provided for in the Companies Acts, PROVIDED
HOWEVER, that
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any vote to repeal, alter, amend or rescind any of By-law Nos 83, 84,
85, 148, 149, 150, 151, 152, 155 or any of 156 through 164, shall
require the affirmative vote of sixty-six and two thirds percent (66
2/3%) of the shares entitled to vote thereon.
BUSINESS COMBINATIONS
156. In addition to any affirmative vote required by law or these By-laws,
and except as otherwise expressly provided in By-law 157, a Business
Combination (as defined in By-law 158) with, or proposed by or on
behalf of, any Interested Shareholder (as defined in By-law 158) or any
Affiliate or Associate (as defined in By-law 158) of any Interested
Shareholder or any person who thereafter would be an Affiliate or
Associate of such Interested Shareholder shall require the affirmative
vote of not less than sixty-six and two-thirds percent (66 2/3%) of the
votes entitled to be cast by the holders of all the then outstanding
Voting Shares (as hereinafter defined), voting together as a single
class, excluding Voting Shares beneficially owned by any Interested
Shareholder or any Affiliate or Associate of such Interested
Shareholders. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified, by law or in any agreement with
any national securities exchange or otherwise.
157. The provisions of By-law 156 shall not be applicable to any particular
Business Combination, and such Business Combination shall require only
such affirmative vote, if any, as is required by law or any other
provision of the By-laws of the Company, if all of the conditions
specified in either of the following
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Paragraph (1) or (2) are met: (1) The Business Combination shall have
been approved by a majority of the Continuing Directors (as defined in
By-law 158).
(2) All of the following conditions shall have been met:
(a) the aggregate amount of the cash and the Fair Market
Value (as defined in By-law 158) as of the date of
the consummation of the Business Combination of
consideration other than cash to be received per
share by holders of Common Shares in such Business
Combination shall be at least equal to the highest
amount determined under clauses (i) and (ii) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions,
transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested
Shareholder for beneficial ownership of
Common Shares acquired by it (x) within the
two year period immediately prior to the
first public announcement of the proposed
Business Combination (the "Announcement
Date") or (y) in the transaction in which it
became an Interested Shareholder, whichever
is higher, in either case as adjusted for
any subsequent stock split, stock dividend,
subdivision or reclassification with respect
to the Common Shares; and
(ii) the Fair Market Value per share of Common
Shares on the Announcement Date or on the
date on which the Interested Shareholder
became an Interested Shareholder (the
"Determination Date"), whichever is higher,
as adjusted for any subsequent stock split,
stock dividend,
73
<PAGE> 78
subdivision or reclassification with respect
to the common shares.
(b) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination, of consideration other than
cash to be received per share by holders of shares of
any class or series of outstanding Capital Shares (as
defined in By-law 158), other than Common Shares,
shall be at least equal to the highest amount
determined under clauses (i), (ii) and (iii) below:
(i) (if applicable) the highest per share price
(including any brokerage commissions,
transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested
Shareholder for any such class or series of
Capital Shares in connection with the
acquisition by the Interested Shareholder
of beneficial ownership of shares of such
class or series of Capital Shares (x) within
the two year period immediately prior to the
Announcement Date or (y) in the transaction
in which it became an Interested
Shareholder, whichever is higher, in either
case as adjusted for any subsequent share
split, share dividend, subdivision or
reclassification with respect to such class
or series of Capital Shares;
(ii) the Fair Market Value per share of such
class or series of Capital Shares on the
Announcement Date or on the Determination
Date, whichever is higher, as adjusted for
any subsequent share split, subdivision or
reclassifica-
74
<PAGE> 79
tion with respect to such class or series of
Capital Shares; and
(iii) (if applicable) the highest preferential
amount per share to which the holders of
shares of such class or series of Capital
Shares would be entitled in the event of any
voluntary or involuntary liquidation,
dissolution or winding up of the affairs of
the Company regardless of whether the
Business Combination to be consummated
constitutes such an event.
The provisions of this paragraph (2) shall be required to be
met with respect to every class or series of outstanding
Capital Shares, whether or not the Interested Shareholder has
previously acquired beneficial ownership of any shares of a
particular class or series of Capital Shares.
(c) The consideration to be received by holders of a
particular class or series of outstanding Capital
Shares shall be in cash or in the same form as
previously has been paid by or on behalf of the
Interested Shareholder in connection with its direct
or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Shares. If
the consideration so paid for shares of any class or
series of Capital Shares varied as to form, the form
of consideration for such class or series of Capital
Shares shall be either cash or the form used to
acquire beneficial ownership of the largest number
of shares of such class or series of
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<PAGE> 80
Capital Shares previously acquired by the Interested
Shareholder.
(d) After the Determination Date and prior to the
consummation of such Business Combination; (i) except
as approved by a majority of the Continuing
Directors, there shall have been no failure to
declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative)
payable in accordance with the terms of any
outstanding Capital Shares; (ii) there shall have
been no reduction in the annual rate of dividends
paid on the Common Shares (except as necessary to
reflect any stock split, stock dividend or
subdivision of the Common Shares), except as approved
by a majority of the Continuing Directors; (iii)
there shall have been an increase in the annual rate
of dividends paid on the Common Shares as necessary
to reflect any reclassification (including any
reverse stock split), recapitalization,
reorganization or any similar transaction that has
the effect of reducing the number of outstanding
shares of Common Shares, unless the failure so to
increase such annual rate is approved by a majority
of the Continuing Directors; and (iv) such Interested
Shareholders shall not have become the beneficial
owner of any additional shares of Capital Shares
except as part of the transaction that results in
such Interested Shareholder becoming an Interested
Shareholder and except in a transaction that; after
giving effect thereto, would not result in any
increase in the Interested Shareholder's percentage
beneficial ownership of any class or series of
Capital Shares.
76
<PAGE> 81
(e) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder
(the "Act") (or any subsequent provisions replacing
such Act, rules or regulations) shall be mailed to
all shareholders of the Company at least 30 days
prior to the consummation of such Business
Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such
Act or subsequent provisions). The proxy or
information statement shall contain on the first page
thereof, in a prominent place, any statement as to
the advisability (or inadvisability) of the Business
Combination that the Continuing Directors, or any of
them, may choose to make and, if deemed advisable by
a majority of the Continuing Directors, an opinion of
an investment banking firm selected by a majority of
the Continuing Directors as to the fairness (or
unfairness) of the terms of the Business Combination
from a financial point of view to the holders of the
outstanding shares of Capital Shares other than the
Interested Shareholder and its Affiliates or
Associates, such investment banking firm to be paid a
reasonable fee for its services by the Company.
(f) Such Interested Shareholder shall not have made any
major change in the Company's business or equity
capital structure without the approval of a majority
of the Continuing Directors.
158. The following definitions shall apply with respect to these By-laws:
77
<PAGE> 82
(1) The term "Business Combination" shall mean:
(a) any merger, consolidation or amalgamation of the
Company or any Subsidiary (as hereinafter defined)
with (i) any Interested Shareholder or (ii) any other
company (whether or not itself an Interested
Shareholder) which is or after such merger,
consolidation or amalgamation would be an Affiliate
or Associates of an Interested Shareholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to
purchase, agreement to pay, extension of credit,
joint venture participation or other arrangement (in
one transaction or a series of transactions) with or
for the benefit of any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder
involving any assets, securities or commitments of
the Company, any Subsidiary or any Interested
Shareholder or any Affiliate or Associate of any
Interested Shareholder (except for any arrangement,
whether as employee, consultant or otherwise, other
than as a Director, pursuant to which any Interested
Shareholder or any Affiliate of Associate thereof
shall, directly or indirectly, have any control over
or responsibility for the management of any aspect of
the business or affairs of the Corporation, with
respect to which arrangements the value tests set
forth below shall not apply), together with all other
such arrangements (including all contemplated future
events), has an aggregate Fair Market Value and/or
78
<PAGE> 83
involves aggregate commitments of $5,000,000 or more
or constitutes more than 5 percent of the book value
of the total assets (in the case of transactions
involving assets or commitments other than capital
shares) or 5 percent of the shareholders' equity (in
the case of transactions in capital shares) of the
entity in question (the "Substantial Part"), as
reflected in the most recent fiscal year and
consolidated balance sheet of such entity existing at
the time the shareholders of the Company would be
required to approve or authorize the Business
Combination involving the assets, securities and/or
commitments constituting any Substantial Part; or
(c) the adoption of any plan or proposal for the
liquidation or dissolution of the Company or for any
amendment to the Company's By-laws; or
(d) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Company, or any merger, consolidation or amalgamation
of the Company with any of its Subsidiaries or any
other transaction (whether or not with or into or
otherwise involving an Interested Stockholder) that
has the effect, directly or indirectly, of increasing
the proportionate share of any class or series of
Capital Shares, or any securities convertible into
Capital Shares or into equity securities of any
Subsidiary, that is beneficially owned by an
Interested Shareholder or any Affiliate or Associate
of any Interested Shareholder; or
79
<PAGE> 84
(e) any agreement, contract or other arrangement
providing for any one or more of the actions
specified in the foregoing clauses (a) to (d).
(2) The term "Capital Shares" shall mean all shares of the Company
authorized to be issued from time to time the term "Common
Shares" shall mean all common shares of the Company authorized
to be issued from time to time and the term "Voting Shares"
shall mean all Capital Shares which by their terms may be
voted on all matters submitted to shareholders of the Company
generally.
(3) The terms "person" shall mean any individual, firm, company or
other entity and shall include any group comprised of any
person and any other person with whom such person or any
Affiliate or Associate of such person has any agreement,
arrangement or understanding directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Capital
Shares.
(4) The term "Interested Shareholder" shall mean any person (other
than the Company or any Subsidiary and other than any profit
sharing, employee share ownership or other employee benefit
plan of the Company or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such
capacity who (a) is or has announced or publicly disclosed a
plan or intention to become the beneficial owner of Voting
Shares representing ten percent (10%) or more of the vote
entitled to be case by the holders of all then outstanding
shares of
80
<PAGE> 85
Voting Shares, or (b) is an Affiliate or Associate of the
Company and at any time within the two year period immediately
prior to the date in question was the beneficial owner of
Voting Shares representing ten percent (10%) or more of the
votes entitled to be case by the holders of all then
outstanding shares of Voting Shares.
(5) A person shall be a "beneficial owner" of any Voting Shares:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; (b) which such
person or any of its Affiliates or Associates has, directly or
indirectly, (i) the right to acquire (whether such rights is
exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding
or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant of any agreement, arrangement or understanding; or
(c) beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding of
the purpose of acquiring, holding, voting or disposing of of
Capital Shares. For the purposes of determining whether a
person is an Interested Shareholder pursuant to paragraph (4)
of this By-law 158, the number of Capital Shares deemed to be
outstanding shall include shares deemed beneficially owned by
such person through application of this paragraph (5) of this
By-law 158, but shall not include any other Capital Shares
that may be issuable pursuant to an agreement arrangement or
understanding, or upon exercise of conversion rights, warrants
or options, or otherwise.
81
<PAGE> 86
(6) The terms "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Act, as in effect on November
8, 1990 (the term "registrant" in said Rule 12b-2 meaning in
this case the Company).
(7) "Subsidiary" means any company, wherever organised, of which a
majority of any class of equity security is beneficially owned
by the Company; provided, however, that for the purposes of
the definition of Interested Shareholder set forth in
paragraph (4) of this By-law 158, the term "Subsidiary" shall
mean only a company of which a majority of each class of
equity security is beneficially owned by the Company.
(8) The term "Continuing Director' means any member of the Board
while such person is a member of the Board who is not an
Affiliate or Associate or representative of the Interested
Shareholder and was a member of the Board prior to the time
that the Interested Shareholder became an Interested
Shareholder, and any successor of a Continuing Director while
such successor is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the
Interested Shareholder and is recommended or elected to
succeed the Continuing Director by a majority of Continuing
Directors.
(9) The term "Fair Market Value" means: (a) in the case of cash,
the amount of such cash; (b) in the case of shares, the
highest closing sale price during the 30 day period
immediately preceding the date in
82
<PAGE> 87
question of a share on the Composite Tape for New York Stock
Exchange Listed Stocks, or, if such shares are not quoted on
the Composite Tape, on the New York Stock Exchange, or, if
such shares are not listed on such Exchange, on the principal
United States securities exchange registered under the Act on
which such stock is listed or, if such share are not listed on
any such exchange, the highest closing bid quotation with
respect to such shares during the 30 day period preceding the
date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System, in the pink sheets
of the National Quotation Bureau or any similar system then in
use, or if no such quotations are available, the fair market
value on the date in question of a share as determined by a
majority of the Continuing Directors in good faith; and (c) in
the case of property other than cash or shares, the fair
market value of such property on the date in question as
determined in good faith by a majority of the Continuing
Directors.
159. In the event of any Business Combination in which the Company survives,
the phrase "consideration other than cash to be received" as used in
paragraphs (2)(a) and (2)(b) of By-law 157 shall include the Common
Shares and/or the shares of any other class or series of Capital Shares
retained by the holders of such shares.
160. A majority of the Continuing Directors shall have the power and duty to
determine for the purpose of these By-laws 156 through 164, on the
basis of information known to them after reasonable inquiry, all
questions arising under these By-laws 156 through 164 including,
without limitation, (a) whether a
83
<PAGE> 88
person is an Interested Shareholder, (b) the number of shares of
Capital Shares or other securities beneficially owned by any person,
(c) whether a person is an Affiliate or Associate of another, (d)
whether a Proposed Action (as defined in By-law 163) is with, or
proposed by, or on behalf of an Interested Shareholder or an Affiliate
or Associate of an Interested Shareholder, (e) whether the assets that
are the subject of any Business Combination have, or the consideration
to be received for the issuance or transfer of securities by the
Company or any Subsidiary in any Business Combination has, an aggregate
Fair Market Value of $5,000,000 or more and (f) whether the assets or
securities that are the subject of any Business Combination constitute
a Substantial Part. Any such determination made in good faith shall be
binding and conclusive on all parties. The good faith determination of
a majority of the Continuing Directors on such matters shall be
conclusive and binding for all purposes of these By-laws 156 through
164.
161. Nothing contained in these By-laws 156 through 164 shall be construed
to relieve any Interested Shareholder from any fiduciary obligation
imposed by law.
162. The fact that any Business Combination complies with the provisions of
these By-laws 156 through 164 shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board or any member
thereof, to approve such Business Combination or recommend its adoption
or approval to the shareholders of the Company, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the
Board or any member thereof, with respect
84
<PAGE> 89
to evaluations of or actions and responses taken with respect to such
Business Combination.
163. For the purposes of these By-laws 156 through 164 a Business
Combination or any proposal to amend, repeal or adopt any provision of
these By-laws inconsistent with these By-laws 156 through 164
(collectively, "Proposed Action") is presumed to have been proposed by,
or on behalf of, an Interested Shareholder or a person who thereafter
would become such if (1) after the Interested Share holder became such,
the Proposed Action is proposed following the election of any Director
who with respect to such Interested Shareholder, would not qualify to
serve as a Continuing Director or (2) such Interested Stockholder,
Affiliate, Associate or person votes for or consents to the adoption of
any such Proposed Action, unless as to such Interested Shareholder,
Affiliate, Associate or person a majority of the Continuing Directors
makes a good faith determination that such Proposed Action is not
proposed by or on behalf of such Interested Shareholder, Affiliate,
Associate or person, based on information known to them after
reasonable inquiry.
164. Notwithstanding any other provisions of these By-laws (and
notwithstanding the fact that a lesser percentage or separate class
vote may be specified by law or these By-laws), any proposal to amend,
repeal or adopt any provision of these By-laws inconsistent with these
By-laws 156 through 164 which is proposed by or on behalf of an
Interested Shareholder or an Affiliate or Associate of an Interested
Shareholder shall require the affirmative vote of the holders of not
less than sixty-six and two-thirds percent (66 2/3%) of the votes
entitled to be case by the holders of all the then outstanding shares
of Voting Stock,
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<PAGE> 90
voting together as a single class, excluding Voting Stock beneficially
owned by such Interested Stockholder; provided, however, that this
By-law 164 shall not apply to, and such sixty-six and two-thirds
percent (66 2/3%) vote shall not be required for, any amendment, repeal
or adoption unanimously recommended by the Board if all of such
Directors are persons who would be eligible to serve as Continuing
Directors within the meaning of By-law 158(8).
86
<PAGE> 1
Exhibit 4.1
NUMBER SHARES
COM
CORECOMM LIMITED
INCORPORATED UNDER THE LAWS OF BERMUDA
SEE THE LEGEND ON THE SEE REVERSE FOR
REVERSE OF THIS CERTIFICATE COMMON STOCK CERTAIN DEFINITIONS
CUSIP G2422R 10 9
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
CORECOMM LIMITED
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar. WITNESS the facsimile seal of the Corporation and
the facsimile signatures of its duly authorized officers.
Dated:
/s/ Richard J. Lubasch /s/ J. Barclay Knapp
----------------------- --------------------------
SECRETARY PRESIDENT
CORECOMM LIMITED
CORPORATE
SEAL
1988
BERMUDA
BY
AUTHORIZED OFFICER
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
<PAGE> 2
CORECOMM LIMITED
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement between the Corporation and
Continental Stock Transfer & Trust Company (the "Rights Agent") dated as of
__________, 1998 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
offices of the Corporation. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. The Corporation will mail to
the holder of this certificate a copy of the Rights Agreement, as in effect on
the date of mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring Person or
any Affiliate or Associates thereof (as such terms are defined in the Rights
Agreement), whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- ___________ Custodian ______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act._____________
(State)
Additional abbreviations may also be used though not in the above list.
For value received______________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation, with
full power of substitution in the premises.
Dated_________________________
_______________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
NOTICE: AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
Signature(s) Guaranteed:
__________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
CORECOMM LIMITED
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(as Rights Agent)
Rights Agreement
Dated as of August __, 1998
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Certain Definitions .............................................................. 2
Section 2. Appointment of Rights Agent ...................................................... 4
Section 3. Issue of Rights Certificates ..................................................... 5
Section 4. Form of Rights Certificates ...................................................... 7
Section 5. Countersignature and Registration ................................................ 8
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates ..................................................................... 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights;
Termination ...................................................................... 9
Section 8. Cancellation and Destruction of Rights Certificates .............................. 12
Section 9. Reservation and Availability of Capital Stock .................................... 12
Section 10. Preferred Stock Record Date ...................................................... 14
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights ................................................................. 14
Section 12. Certificate of Adjusted Purchase Price or Number of Shares ....................... 24
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power ............. 25
Section 14. Fractional Rights and Fractional Shares .......................................... 28
Section 15. Rights of Action ................................................................. 29
Section 16. Agreement of Rights Holders ...................................................... 30
Section 17. Rights Certificate Holder Not Deemed a Stockholder ............................... 31
Section 18. Concerning the Rights Agent ...................................................... 31
Section 19. Merger or Consolidation or Change of Name of Rights Agent ........................ 31
Section 20. Duties of Rights Agent ........................................................... 32
Section 21. Change of Rights Agent ........................................................... 35
Section 22. Issuance of New Rights Certificates .............................................. 36
Section 23. Redemption and Termination ....................................................... 36
Section 24. Exchange ......................................................................... 37
Section 25. Notice of Certain Events ......................................................... 38
Section 26. Notices .......................................................................... 39
Section 27. Supplements and Amendments ....................................................... 40
Section 28. Successors ....................................................................... 41
Section 29. Determinations and Actions by the Board of Directors, etc ........................ 41
Section 30. Benefits of this Agreement ....................................................... 41
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 31. Severability ..................................................................... 42
Section 32. Governing Law .................................................................... 42
Section 33. Counterparts ..................................................................... 42
Section 34. Descriptive Headings ............................................................. 42
</TABLE>
ii
<PAGE> 4
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of January 24, 1992 (the
"Agreement"), between CoreComm Limited., a Bermuda corporation ("Newco" or the
"Company"), and Continental Stock Transfer & Trust Company, a New York
corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, CoreComm Incorporated, a Delaware corporation
("CoreComm") of which the Company is a wholly owned subsidiary, entered into a
certain Distribution Agreement dated as of June 1, 1998 (the "Distribution
Agreement"). Pursuant to the Distribution Agreement, CoreComm is obligated to
distribute pro rata to its stockholders, 100 percent of the capital stock of
Newco and to use best efforts to obtain all the regulatory approvals necessary
to consummate such a transaction or distribution prior to January 6, 1992.
WHEREAS, the Board of Directors of CoreComm has put forth a
plan calling for the proposed distribution (the "Stock Distribution") by
CoreComm to the holders of CoreComm Common Stock, par value of $.0l per share
(collectively, the "CoreComm Stock") of CoreComm of all the issued and
outstanding common stock, par value of $.0l per share ("Newco Common Stock") of
the Company owned by CoreComm immediately prior to the Stock Distribution; and
WHEREAS, the Board of Directors of the Company wishes to
provide for the issuance of one Right (as such number may be hereinafter
adjusted pursuant to Section 11(p) hereof) for each share of Newco Common Stock
issued on or after the date of the Stock Distribution (whether originally issued
or delivered from the Company's treasury) and prior to the Distribution Date,
each Right initially representing the right to purchase one one-hundredth of a
share of Series A Junior Participating Preferred Stock of the Company having the
rights, powers and preferences set forth in the form of Certificate of
Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms
and subject to the conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
<PAGE> 5
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall, after the
date of the Stock Distribution, be the Beneficial Owner of 15% or more of the
shares of Newco Common Stock then outstanding, but shall not include the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and in effect
on the date of this Agreement (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether
such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding (whether
or not in writing) or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," (A) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates
or Associates until such tendered securities are accepted for purchase
or exchange, or (B) securities issuable upon exercise of Rights at any
time prior to the occurrence of a Triggering Event, or (C) securities
issuable upon exercise of Rights from and after the occurrence of a
Triggering Event which Rights were acquired by such Person or any of
such Person's Affiliates or Associates prior to the Distribution Date
or pursuant to Section 3(a) or Section 22 hereof (the "Original
Rights") or pursuant to Section 11(i) hereof in connection with an
adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of
or has
2
<PAGE> 6
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not
in writing; provided, however, that a Person shall not be deemed the
"Beneficial owner" of, or to "beneficially own," any security under
this subparagraph (ii) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General Rules
and Regulations under the Exchange Act, and (B) is not also then
reportable by such Person on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in the proviso to subparagraph (ii) of
this paragraph (c)) or disposing of any voting securities of the
Company; provided, however, that nothing in this paragraph (c) shall
cause a person engaged in business as an underwriter of securities to
be the "Beneficial Owner" of, or to "beneficially own," any securities
acquired through such person's participation in good faith in a firm
commitment underwriting until the expiration of forty days after the
date of such acquisition.
(d) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
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(g) "Newco Common Stock" shall mean the common stock, par
value $.0l per share, of the Company, except that "Common Stock" when used with
reference to any Person other than the Company shall mean the capital stock of
such Person with the greatest voting power, or the equity securities or other
equity interest having power to control or direct the management, of such
Person.
(h) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, stated value $1.00 per share, of the Company,
and, to the extent that there are not a sufficient number of shares of Series A
Junior Participating Preferred Stock authorized to permit the full exercise of
the Rights, any other series of Preferred Stock, stated value $1.00 per share,
of the Company designated for such purpose containing terms substantially
similar to the terms of the Series A Junior Participating Preferred Stock.
(i) "Section 11(a)(ii) Event" shall mean any event described
in Section 11(a)(ii) hereof.
(j) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(k) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(l) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
(m) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company
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<PAGE> 8
may from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Rights Certificates. (a) Until the earlier of (i)
the Close of Business on the tenth day after the Stock Acquisition Date, or (ii)
the Close of Business on the tenth business day (or such later date as the Board
shall determine) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if upon
consummation thereof, such Person would be the Beneficial Owner of 15% or more
of the shares of Newco Common Stock then outstanding (the earlier of (i) and
(ii) being herein referred to as the "Distribution Date"), (x) the Rights will
be evidenced (subject to the provisions of paragraph (b) of this Section 3) by
the certificates for Newco Common Stock registered in the names of the holders
of the Newco Common Stock (which certificates for Newco Common Stock shall be
deemed also to be certificates for Rights) and not by separate certificates, and
(y) the Rights will be transferable only in connection with the transfer of the
underlying shares of Newco Common Stock (including a transfer to the Company).
As soon as practicable after the Distribution Date, the Rights Agent will send
by first-class, insured, postage prepaid mail, to each record holder of Newco
Common Stock as of the Close of Business on the Distribution Date, at the
address of such holder shown on the records of the Company, one or more right
certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Newco Common Stock so
held, subject to adjustment as provided herein. In the event that an adjustment
in the number of Rights per share of Newco Common Stock has been made pursuant
to Section 11(p) hereof, at the time of distribution of the Rights Certificates,
the Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) With respect to certificates for Newco Common Stock
outstanding as of the date of the Stock Distribution, until the Distribution
Date, the Rights will be evidenced by such certificates for Newco Common Stock
and the registered holders of Newco Common Stock shall also be the registered
holders of
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<PAGE> 9
the associated Rights. Until the earlier of the Distribution Date or the
Expiration Date (as such term is defined in Section 7 hereof), the transfer of
any certificates representing shares of Newco Common Stock in respect of which
Rights have been issued shall also constitute the transfer of the Rights
associated with such shares of Newco Common Stock.
(c) Rights shall be issued in respect of all shares of Newco
Common Stock which are issued (whether originally issued or from the Company's
treasury) after the date of the Stock Distribution but prior to the earlier of
the Distribution Date or the Expiration Date. Certificates representing such
shares of Newco Common Stock shall also be deemed to be certificates for Rights,
and shall bear the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between Cellular
Communications Holdings, Inc. (the "Company") and Continental Stock
Transfer & Trust Company (the "Rights Agent") dated as of December __,
1991 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a
copy of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights
issued to, or held by, any Person who is, was or becomes an Acquiring
Person or any Affiliate or Associates thereof (as such terms are
defined in the Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may become null and
void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with Newco Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Newco Common
Stock shall also be the registered holders of the associated Rights, and the
transfer of any of such certificates shall also constitute the transfer of the
Rights associated with Newco Common Stock represented by such certificates.
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<PAGE> 10
Section 4. Form of Rights Certificates. (a) The Rights Certificates
(and the forms of election to purchase and of assignment to be printed on the
reverse thereof) shall each be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the date of the Stock
Distribution and on their face shall entitle the holders thereof to purchase
such number of one one-hundredths of a share of Preferred Stock as shall be set
forth therein at the price set forth therein (such exercise price per one
one-hundredth of a share, the "Purchase Price"), but the amount and type of
securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented
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<PAGE> 11
hereby may become null and void in the circumstances specified in Section 7(e)
of such Agreement.
Section 5. Countersignature and Registration. (a) The Rights
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its President or any Vice President, either manually or by facsimile
signature, and shall have affixed thereto the Company's seal or a facsimile
thereof which shall be attested by the Secretary or an Assistant Secretary of
the Company, either manually or by facsimile signature. The Rights Certificates
shall be manually countersigned by the Rights Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Rights Certificates shall cease to be such officer
of the Company before countersignature by the Rights Agent and issuance and
delivery by the Company, such Rights Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered by the Company with
the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14 hereof,
at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered holder to purchase
a like number of one one-hundredths of a share of Preferred Stock (or, following
a Triggering Event, Newco Common Stock, other securities, cash or other assets,
as the case may be) as the Rights Certificate or Certificates surrendered then
entitled such holder (or former holder in the case of a
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<PAGE> 12
transfer) to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Rights Certificate or Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Certificates to be transferred, split up, combined or exchanged
at the principal office or offices of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial owner (or former Beneficial owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights; Termination. (a) Subject to Section 7(e) hereof, the registered holder
of any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share (or other securities, cash or
other assets, as the case may be) as to which such surrendered Rights are then
exercisable, at or prior to the earlier of (i) the Close of Business on the date
which is
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<PAGE> 13
ten years from the date of the Stock Distribution (the "Final Expiration Date"),
or (ii) the time at which the Rights are redeemed as provided in Section 23
hereof (the earlier of (i) and (ii) being herein referred to as the "Expiration
Date"). Notwithstanding anything in this Agreement to the contrary, this
Agreement will terminate on June 1, 1992 (or such later date as shall be
determined by resolution of the Board of Directors of the Company prior to such
date) and thereafter be of no further effect and no Rights shall be issued
hereunder in the event that the Stock Distribution has not theretofore occurred.
(b) The Purchase Price for each one one-hundredth of a share
of Preferred Stock pursuant to the exercise of a Right shall initially be [$ ],
and shall be subject to adjustment from time to time as provided in Sections 11
and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-hundredth of a share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable transfer tax,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i)
(A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of one one-hundredths of a share of Preferred
Stock to be purchased and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) if the Company shall have elected
to deposit the total number of shares of Preferred Stock issuable upon exercise
of the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one one-hundredths of a
share of Preferred Stock as are to be purchased (in which case certificates for
the shares of Preferred Stock represented by such receipts shall be deposited by
the transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
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<PAGE> 14
bank check or bank draft payable to the order of the Company. In the event that
the Company is obligated to issue other securities (including Newco Common
Stock) of the Company, pay cash and/or distribute other property pursuant to
Section 11(a) hereof, the Company will make all arrangements necessary so that
such other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate. The Company reserves the right to
require prior to the occurrence of a Triggering Event that, upon any exercise of
Rights, a number of Rights be exercised so that only whole shares of Preferred
Stock would be issued.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
with whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall use all reasonable efforts to insure that the provisions of this Section
7(e) and Section 4(b) hereof are complied with, but shall have no liability to
any holder of Rights Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action
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<PAGE> 15
with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial owner (or former Beneficial owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock. (a) The
Company covenants and agrees that it will cause to be reserved and kept
available out of its authorized and unissued shares of Preferred Stock (and,
following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Newco Common Stock and/or other securities or out of its
authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Newco
Common Stock and/or other securities) that, as provided in this Agreement
including Section 11(a)(iii) hereof, will be sufficient to permit the exercise
in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Newco Common Stock and/or other
securities) issuable and deliverable upon the exercise of the Rights may be
listed on any national securities exchange, the Company shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii)
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<PAGE> 16
Event on which the consideration to be delivered by the Company upon exercise of
the Rights has been determined in accordance with Section 11(a)(iii) hereof, a
registration statement under the Securities Act of 1933 (the "Act"), with
respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. In addition,
if the Company shall determine that a registration statement is required
following the Distribution Date, the Company may temporarily suspend the
exercisability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law or a registration
statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all one one-hundredths of a share
of Preferred Stock (and, following the occurrence of a Triggering Event, Newco
Common Stock and/or other securities) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-hundredths of a
share of Preferred Stock (or Newco Common Stock and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax
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<PAGE> 17
which may be payable in respect of any transfer or delivery of Rights
Certificates to a Person other than, or the issuance or delivery of a number of
one one-hundredths of a share of Preferred Stock (or Newco Common Stock and/or
other securities, as the case may be) in respect of a name other than that of,
the registered holder of the Rights Certificates evidencing Rights surrendered
for exercise or to issue or deliver any certificates for a number of one
one-hundredths of a share of Preferred Stock (or Newco Common Stock and/or other
securities, as the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name any
certificate for a number of one one-hundredths of a share of Preferred Stock (or
Newco Common Stock and/or other securities, as the case may be) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of such fractional shares of Preferred Stock (or Newco Common
Stock and/or other securities, as the case may be) represented thereby on, and
such certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Newco Common Stock and/or other securities, as the case may be) transfer books
of the Company are closed, such Person shall be deemed to have become the record
holder of such shares (fractional or otherwise) on, and such certificate shall
be dated, the next succeeding Business Day on which the Preferred Stock (or
Newco Common Stock and/or other securities, as the case may be) transfer books
of the Company are open. Prior to the exercise of the Rights evidenced thereby,
the holder of a Rights Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
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(a) (i) In the event the Company shall at any time after the
date of the Stock Distribution (A) declare a dividend on the Preferred Stock
payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred
Stock, (C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification of
the Preferred Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a) and Section
7(e) hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Preferred Stock or
capital stock, as the case may be, issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive, upon payment of the Purchase Price then in
effect, the aggregate number and kind of shares of Preferred Stock or capital
stock, as the case may be, which, if such Right had been exercised immediately
prior to such date and at a time when the Preferred Stock transfer books of the
Company were open, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be in addition to, and shall be made prior
to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan), alone
or together with its Affiliates and Associates, shall, at any time after the
date of the Stock Distribution, become the Beneficial Owner of 15% or more of
the shares of Common Stock then outstanding, unless the event causing the 15%
threshold to be crossed is a transaction set forth in Section 13(a) hereof, or
is an acquisition of shares of Newco Common Stock pursuant to a tender offer or
an exchange offer for all outstanding shares of Newco Common Stock at a price
and on terms determined by at least a majority of the members of the Board of
Directors who are not officers of the Company and who are not representatives,
nominees, Affiliates or Associates of an Acquiring Person after receiving advice
from one or more investment banking firms, to be (a) at a price which is fair to
stockholders (taking into account all factors which such
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<PAGE> 19
members of the Board deem relevant including, without limitation, prices which
could reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (b) otherwise in the best
interests of the Company and its stockholders, then, promptly following the
occurrence of any such event, proper provision shall be made so that each holder
of a Right (except as provided below and in Section 7(e) hereof) shall
thereafter have the right to receive, upon exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, in lieu of a
number of one one-hundredths of a share of Preferred Stock, such number of
shares of Newco Common Stock of the Company as shall equal the result obtained
by (x) multiplying the then current Purchase Price by the then number of one
one-hundredths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, and (y)
dividing that product (which, following such first occurrence, shall thereafter
be referred to as the "Purchase Price" for each Right and for all purposes of
this Agreement) by 50% of the current market price (determined pursuant to
Section 11(d) hereof) per share of Newco Common Stock on the date of such first
occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Newco Common
Stock which are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section 11(a), the
Company shall (A) determine the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value"), and (B) with respect to each Right
(subject to Section 7(e) hereof), make adequate provision to substitute for the
Adjustment Shares, upon the exercise of a Right and payment of the applicable
Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common
Stock or other equity securities of the Company (including, without limitation,
shares, or units of shares, of preferred stock, such as the Preferred Stock,
which the Board has deemed to have essentially the same value or economic rights
as shares of Newco Common Stock (such shares of preferred stock being referred
to as "Common Stock Equivalents")), (4) debt securities of the Company, (5)
other assets, or (6) any combination of the foregoing, having an aggregate value
equal to the Current Value (less the amount of any reduction in the Purchase
Price), where such aggregate value has been determined by the Board based upon
the advice of a nationally
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<PAGE> 20
recognized investment banking firm selected by the Board; provided, how
ever, that if the Company shall not have made adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Section 11(a)(ii)
Event and (y) the date on which the Company's right of redemption
pursuant to Section 23(a) expires (the later of (x) and (y) being
referred to herein as the "Section 11(a)(ii) Trigger Date"), then the
Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, shares
of Newco Common Stock (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the
Spread. For purposes of the preceding sentence, the term "Spread" shall
mean the excess of (i) the Current Value over (ii) the Purchase Price.
If the Board determines in good faith that it is likely that sufficient
additional shares of Newco Common Stock could be authorized for
issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in
order that the Company may seek shareholder approval for the
authorization of such additional shares (such thirty (30) day period,
as it may be extended, is herein called the "Substitution Period"). To
the extent that action is to be taken pursuant to the first and/or
third sentences of this Section 11(a)(iii), the Company (1) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek such shareholder approval for such
authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of each
Adjustment Share shall be the Current Market Price per share of Newco
Common stock on the Section 11(a)(ii) Trigger Date and the per share or
per unit value of any Newco Common Stock Equivalent shall be deemed to
equal the Current Market Price per share of Newco Common Stock on such
date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days
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<PAGE> 21
after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock outstanding on such record date, plus the number of
additional shares of Preferred Stock and/or equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible). In case such subscription price may
be paid by delivery of consideration part or all of which may be in a form other
than cash, the value of such consideration shall be as determined in good faith
by the Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent and shall be binding on the Rights
Agent and the holders of the Rights. Shares of Preferred Stock owned by or held
for the account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall be made successively whenever
such a record date is fixed, and in the event that such rights or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current market
price (as
18
<PAGE> 22
determined pursuant to Section 11(d) hereof) per share of Preferred Stock on
such record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to a share of Preferred Stock and the denominator of which
shall be such current market price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d) (i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Newco Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Newco Common Stock for the
thirty (30) consecutive Trading Days immediately prior to such date, and for
purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share of Newco Common Stock on any date shall be deemed to be
the average of the daily closing prices per share of such Newco Common Stock for
the ten (10) consecutive Trading Days immediately following such date; provided,
however, that in the event that the Current Market Price per share of Newco
Common Stock is determined during a period following the announcement by the
issuer of such Newco Common Stock of (A) a dividend or distribution on such
Newco Common Stock payable in shares of such Newco Common Stock or securities
convertible into shares of such Newco Common Stock (other than the Rights), or
(B) any subdivision, combination or reclassification of such Newco Common Stock,
and the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification shall not have occurred
prior to the commencement of the requisite thirty (30) Trading Day or ten (10)
Trading Day period, as set forth above, then, and in each such case, the Current
Market Price shall be properly adjusted to take into account ex-dividend
trading. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the shares
of Newco Common Stock are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the shares of
19
<PAGE> 23
Newco Common Stock are listed or admitted to trading or, if the shares of Newco
Common Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Quotation or the National Association of Securities Dealers, Inc.
Automated Quotation System or such other system then in use, or, if on any such
date the shares of Newco Common Stock are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in Newco Common Stock selected by the Board. If on
any such date no market maker is making a market in Newco Common Stock, the fair
value of such shares on such date as determined in good faith by the Board shall
be used. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Newco Common Stock are listed or
admitted to trading is open for the transaction of business or, if the shares of
Newco Common Stock are not listed or admitted to trading on any national
securities exchange, a Business Day. If Newco Common Stock is not publicly held
or not so listed or traded, Current Market Price per share shall mean the fair
value per share as determined in good faith by the Board, whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the Current
Market Price per share of Preferred Stock shall be determined in the
same manner as set forth above for Newco Common Stock in clause (i) of
this Section 11(d) (other than the last sentence thereof). If the
Current Market Price per share of Preferred Stock cannot be determined
in the manner provided above or if the Preferred Stock is not publicly
held or listed or traded in a manner described in clause (i) of this
Section 11(d), the Current Market Price per share of Preferred Stock
shall be conclusively deemed to be an amount equal to 100 (as such
number may be appropriately adjusted for such events as stock splits,
stock dividends and recapitalizations with respect to Newco Common
Stock occurring after the date of this Agreement) multiplied by the
Current Market Price per share of Newco Common Stock. If neither Newco
Common Stock nor the Preferred Stock is publicly held or so listed or
traded, Current Market Price per share of the Preferred Stock shall
mean the fair value per share as determined in good faith by the Board,
whose determination shall be described in a statement filed with the
Rights Agent and shall be conclusive for all purposes. For all purposes
of this Agreement, the Current Market Price of a Unit shall be equal to
the Current Market Price of one share of Preferred Stock divided by
100.
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<PAGE> 24
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share of
Newco Common Stock or other share or one-millionth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths
of a share covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price, and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
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<PAGE> 25
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one-ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one
one-hundredth of a share and the number of one one-hundredth of a share which
were expressed in the initial Rights Certificates issued hereunder.
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<PAGE> 26
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then stated value, if any, of the number
of one one-hundredths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable such number of one one-hundredths of
a share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-hundredths of a share of Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the number of one one-hundredths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares (fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for
cash of any shares of Preferred Stock at less than the current market price,
(iii) issuance wholly for cash of shares of Preferred Stock or securities which
by their terms are convertible into or exchangeable for shares of Preferred
Stock, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of
23
<PAGE> 27
related transactions, assets or earning power aggregating 50% or more of the
assets, cash flow or earning power of the Company and its Subsidiaries (taken as
a whole) to any other Person or Persons (other than the Company and/or any of
its Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), if (x) at the time of or immediately after such consolidation,
merger or sale there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale, the shareholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the date
of the Stock Distribution and prior to the Distribution Date (i) declare a
dividend on the outstanding shares of Newco Common Stock payable in shares of
Newco Common Stock, (ii) subdivide the outstanding shares of Newco Common Stock,
or (iii) combine the outstanding shares of Newco Common Stock into a smaller
number of shares, the number of Rights associated with each share of Newco
Common Stock then outstanding, or issued or delivered thereafter but prior to
the Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Newco Common Stock following any
such event shall equal the result obtained by multiplying the number of Rights
associated with each share of Newco Common Stock immediately prior to such event
by a fraction the numerator which shall be the total number of shares of Newco
Common Stock outstanding immediately prior to the occurrence of the event and
the denominator of which shall be the total number of shares of Newco Common
Stock outstanding immediately following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 and Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
24
<PAGE> 28
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and Newco Common Stock, a copy of such certificate, and (c) mail
a brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Newco Common Stock) in accordance with Section 26 hereof. The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. (a) In the event that, following the Stock Acquisition
Date, directly or indirectly, (x) the Company shall consolidate with, or merge
with and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Newco Common
Stock shall be changed into or exchanged for stock or other securities of any
other Person or cash or any other property, or (z) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related transactions, assets, cash
flow or earning power aggregating 50% or more of the assets, cash flow or
earning power of the Company and its Subsidiaries (taken as a whole) to any
Person or Persons (other than the Company or any Subsidiary of the Company in
one or more transactions each of which complies with Section 11(o) hereof),
then, and in each such case (except as may be contemplated by Section 13(d)
hereof), proper provision shall be made so that: (i) each holder of a Right,
except as provided in Section 7(e) hereof, shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly authorized
and issued, fully paid, non-assessable and freely tradeable shares of Common
Stock of the Principal Party (as such term is hereinafter defined), not subject
to any liens, encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then current
Purchase Price by the number of one one-hundredth of a share of Preferred Stock
for which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the
first occurrence of a Section 13 Event, multiplying the number of such one
one-hundredths of a share for which a Right was exercisable immediately prior to
the first occurrence of a Section 11(a)(ii)
25
<PAGE> 29
Event by the Purchase Price in effect immediately prior to such first
occurrence), and dividing that product (which, following the first occurrence of
a Section 13 Event, shall be referred to as the "Purchase Price" for each Right
and for all purposes of this Agreement) by (2) 50% of the current market price
(determined pursuant to Section 11(d)(i) hereof) per share of the Common Stock
of such Principal Party on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed
to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event; (iv) such Principal Party
shall take such steps (including, but not limited to, the reservation of a
sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof shall
be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal-Party" shall mean
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), the Person that is the
issuer of any securities into which shares of Common Stock of the
Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party"
26
<PAGE> 30
shall refer to whichever of such Persons is the issuer of the Common Stock
having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the date of
any consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon exercise
of the Rights on an appropriate form, and will use its best efforts to
cause such registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date; and
(ii) will deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates
which comply in all respects with the requirements for registration on
Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if (i) such transaction is consummated with a
Person or Persons who acquired shares of Newco Common Stock pursuant to a tender
offer or exchange offer for all outstanding shares of Newco Common Stock which
complies with the provisions of Section 11(a)(ii)(B) hereof (or a wholly owned
subsidiary of any such Person or Persons), (ii) the price per share of Newco
Common Stock offered in such transaction is not less than the price per share of
Newco Common Stock paid to all
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holders of shares of Newco Common Stock whose shares were purchased pursuant to
such tender offer or exchange offer and (iii) the form of consideration being
offered to the remaining holders of shares of Newco Common Stock pursuant to
such transaction is the same as the form of consideration paid pursuant to such
tender offer or exchange offer. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights, except prior to the
Distribution Date as provided in Section 11(p) hereof, or to distribute Rights
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Rights Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For purposes of this Section 14(a), the current market value of a whole
Right shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable. The closing price of the Rights for any day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading, or if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Quotation
Bureau or NASDAQ or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one one-hundredth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred Stock
(other than
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fractions which are integral multiples of one one-hundredth of a share of
Preferred Stock). In lieu of fractional shares of Preferred Stock that are not
integral multiples of one one-hundredth of a share of Preferred Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Newco Common Stock
upon exercise of the Rights or to distribute certificates which evidence
fractional shares of Newco Common Stock. In lieu of fractional shares of Newco
Common Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one (1) share
of Newco Common Stock. For purposes of this Section 14(c), the current market
value of one share of Newco Common Stock shall be the closing price of one share
of Newco Common Stock (as determined pursuant to Section 11(d)(i) hereof) for
the Trading Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
Newco Common Stock); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Newco Common Stock), without the consent
of the Rights Agent or of the holder of any other Rights Certificate (or, prior
to the Distribution Date, of Newco Common Stock), may, in his own behalf and for
his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Rights Certificate in the manner
provided in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an
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adequate remedy at law for any breach of this Agreement and shall be entitled to
specific performance of the obligations hereunder and injunctive relief against
actual or threatened violations of the obligations hereunder of any Person
subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Newco Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Newco
Common Stock certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Rights Certificates or the associated Newco Common Stock certificate made
by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to the last
sentence of Section 7(e) hereof, shall be required to be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
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Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one
one-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 24 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to pay
to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and disbursements and other disbursements incurred in
the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Newco Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Rights Agent or any successor
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust business of the Rights Agent or any succes-
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<PAGE> 35
sor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of "current market price") be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other
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evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by a certificate signed by the Chairman
of the Board, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary of the Company and delivered
to the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Newco Common
Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Newco Common Stock or Preferred Stock
will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
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(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct provided, however, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent 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 its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
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Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of Newco Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of Newco Common
Stock and Preferred Stock, by registered or certified mail, and to the holders
of the Rights Certificates by first-class mail. If the Rights Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation organized and doing business
under the laws of the United States or of the State of New York (or of any other
state of the United States so long as such corporation is authorized to do
business as a banking institution in the State of New York), in good standing,
having a principal office in the State of New York, which is authorized under
such laws to exercise corporate trust powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$100,000,000. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
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Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of shares of Newco Common Stock following the
Distribution Date and prior to the redemption or expiration of the Rights, the
Company (a) shall, with respect to shares of Newco Common Stock so issued or
sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption and Termination. (a) The Board of Directors of
the Company may, at its option, at any time prior to the earlier of (i) the
Close of Business on the tenth day following the Stock Acquisition Date, or (ii)
the Final Expiration Date, redeem all but not less than all the then outstanding
Rights at a redemption price of $.0l per Right, as such amount may be
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). Notwithstanding anything
contained in this Agreement to the contrary, the Rights shall not be exercisable
after the first occurrence of a Section 11(a)(ii) Event until such time as the
Company's right of redemption hereunder has expired. The Company may, at its
option, pay the Redemption Price in cash, shares of Newco Common Stock (based on
the "current market price", as defined in Section 11(d)(i) hereof, of Newco
Common Stock at the time of redemption) or any other form of consideration
deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been
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filed with the Rights Agent and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. Promptly after the action of the Board of Directors ordering
the redemption of the Rights, the Company shall give notice of such redemption
to the Rights Agent and the holders of the then outstanding Rights by mailing
such notice to all such holders at each holder's last address as it appears upon
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the Transfer Agent for Newco Common Stock. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of redemption will state
the method by which the payment of the Redemption Price will be made.
Section 24. Exchange. (a) The Board of Directors of the Company may, at
its option, at any time and from time to time after the first occurrence of a
Section 11(a)(ii) Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that become void pursuant to
the provisions of the Section 7(e) hereof) for shares of Newco Common Stock or
Newco Common Stock Equivalents, or any combination thereof, at an exchange ratio
of one share of Newco Common Stock per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "Exchange
Ratio").
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Newco Common
Stock and/or Newco Common Stock Equivalents equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall promptly
give public notice of any such exchange; provided, however, that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. The Company promptly shall mail a notice of any such exchange to all
of the holders of such Rights at their latest addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the shares of Newco Common Stock for Rights will be effected and, in the
event of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of
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<PAGE> 41
Rights (other than Rights which have become void pursuant to the provisions of
Section 7(e) hereof) held by each holder of Rights.
(c) In the event that the number of shares of Newco Common
Stock which are authorized by the Company's Certificate of Incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise of
the Rights are not sufficient to permit any exchange of Rights as contemplated
in accordance with this Section 24, the Company may, at its option, take all
such action as may be necessary to authorize additional shares of Newco Common
Stock for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of
shares of Newco Common Stock or to distribute certificates which evidence
fractional shares of Newco Common Stock. In lieu of such fractional shares of
Newco Common Stock, the Company shall pay to the registered holders of Rights
with regard to which such fractional shares of Newco Common Stock would
otherwise be issuable an amount in cash equal to the same fraction of the value
of a whole share of Newco Common Stock. For purposes of this Section 24, the
value of a whole share of Newco Common Stock shall be the closing price (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24, and the value of any common stock equivalent shall be deemed to have the
same value as the common stock on such date.
Section 25. Notice of Certain Events. (a) In case the Company shall
propose, at any time after the Distribution Date, (i) to pay any dividend
payable in stock of any class to the holders of Preferred Stock or to make any
other distribution to the holders of Preferred Stock (other than a regular
quarterly cash dividend out of earnings or retained earnings of the Company), or
(ii) to offer to the holders of Preferred Stock rights or warrants to subscribe
for or to purchase any additional shares of Preferred Stock or shares of stock
of any class or any other securities, rights or options, or (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision of outstanding shares of Preferred Stock), or (iv) to
effect any consolidation or merger into or with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or to effect any sale or other transfer (or to permit one or more of
its Subsidiaries to effect any sale or other transfer), in one transaction or a
series of related transactions, of 50% or more of the assets, cash flow or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of
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which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii)
hereof shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Pre-Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
CoreComm Limited
110 East 59th Street, 26th Floor
New York, New York 10022
Attention: Richard J. Lubasch, Esq.
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by
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first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
Continental Stock Transfer & Trust Company
72 Reade Street
New York, New York
Attention: Chairman of the Board
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date
and subject to the penultimate sentence of this Section 27, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend any provision
of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. Notwithstanding the foregoing, or any other
provision of this Agreement, the Board of Directors of the Company may, prior to
the Stock Distribution, amend this Agreement to adjust the Purchase Price. From
and after the Distribution Date and subject to the penultimate sentence of this
Section 27, the Company and the Rights Agent shall, if the Company so directs,
supplement or amend this Agreement without the approval of any holders of Rights
Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, (iii) to shorten or lengthen any time period hereunder
or (iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person); provided, this Agreement
may not be supplemented or amended to lengthen, pursuant to clause (iii) of this
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable, or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this
40
<PAGE> 44
Agreement to the contrary, no supplement or amendment shall be made which
changes the Redemption Price, the Final Expiration Date, the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock for which a Right
is exercisable. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Newco
Common Stock.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of shares of
Newco Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Newco
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the Agreement). All
such actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board to any liability to the holders of
the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of Newco Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of Newco Common Stock).
41
<PAGE> 45
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent Jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
42
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
Attest: CORECOMM LIMITED
By: _______________________________ By: ___________________________
Name: Name:
Title: Title:
Attest: CONTINENTAL STOCK
TRANSFER & TRUST COMPANY
By: _______________________________ By: ___________________________
Name: Michael Nelson Name: Fred Bernstein
Title: Title:
43
<PAGE> 47
EXHIBIT A
[Form of Certificate of Designation]
<PAGE> 48
EXHIBIT B
[Form of Rights Certificate]
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER __________ __, 200_ OR EARLIER IF REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.
Rights Certificate
CORECOMM LIMITED
This certifies that ________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of August __, 1998 (the "Rights
Agreement"), between CoreComm Limited, a Bermuda corporation (the "Company"),
and Continental Stock Transfer & Trust Company, a New York corporation (the
"Rights Agent"), to purchase from the Company at any time prior to 5:00 P.M.
(New York City time) on __________ __, 200_ at the office or offices of the
Rights Agent designated for such purpose, or its successors as Rights Agent, one
one-hundredth of a full paid, non-assessable share of Series A Junior
Participating Preferred Stock (the "Preferred Stock") of the Company, at a
purchase price of [$ ] per one one-hundredth of a
<PAGE> 49
share (the "Purchase Price"), upon presentation and surrender of this Rights
Certificate with the Form of Election to Purchase and related Certificate duly
executed. The number of Rights evidenced by this Rights Certificate (and the
number of shares which may be purchased upon exercise thereof) set forth above,
and the Purchase Price per share set forth above, are the number and Purchase
Price as of [___________, 199_ ], based on the Preferred Stock as constituted at
such date. The Company reserves the right to require prior to the occurrence of
a Triggering Event (as such term is defined in the Rights Agreement) that a
number of Rights be exercised so that only whole shares of Preferred Stock will
be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and the
number and kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events,
including Triggering Events.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written
request to the Rights Agent.
B-2
<PAGE> 50
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of one one-hundredths
of a share of Preferred Stock as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right at any time prior to the earlier of the close
of business on (i) the tenth day following the Stock Acquisition Date (as such
time period may be extended pursuant to the Rights Agreement), and (ii) the
Final Expiration Date.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE> 51
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of August __, 1998
ATTEST: CORECOMM LIMITED
________________________________ By: _____________________
Secretary Title:
Countersigned:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By: ____________________________
Authorized Signature
B-4
<PAGE> 52
(Form of Reverse Side of Rights Certificate)
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED __________________________________________________________
hereby sells, assigns and transfers unto ____________________________________
_____________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _____________________________ , ____
________________________
Signature
Signature Guaranteed:
<PAGE> 53
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: ____________________________ , 19__ ___________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 54
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To: CORECOMM LIMITED:
The undersigned hereby irrevocably elects to exercise
___________ Rights represented by this Rights Certificate to purchase the shares
of Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________________________
(Please print name and address)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Dated : ___________________________ , 19__
_____________________________
Signature
Signature Guaranteed:
<PAGE> 55
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are
[ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring Person
(as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ____________________________ , 19__ ____________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE> 1
EXHIBIT 10.1
Tax Disaffiliation Agreement
THIS TAX DISAFFILIATION AGREEMENT, dated as of _______ __,
1998, by and between CoreComm Incorporated, a Delaware corporation ("Parent")
and CoreComm Limited, a Bermuda company and wholly-owned subsidiary of Parent
("Subsidiary").
WHEREAS, Parent anticipates that it will distribute all the
capital stock of Subsidiary to Parent's stockholders (the "Distribution") in
order to allow such stockholders greater freedom of choice in their investment
selection process and to allow stockholders that elect to retain their shares
the continued opportunity to participate in the growth of Subsidiary's business;
WHEREAS, Parent has transferred, or prior to the Distribution
will transfer, all the outstanding stock of certain of its United States
subsidiaries (the "U.S. Subsidiaries") to the Subsidiary (Subsidiary, the U.S.
Subsidiaries and all other subsidiaries of Subsidiary are hereafter referred to
as the "Subsidiary Group");
WHEREAS, Parent is the common parent of an affiliated group
(the "Group") of domestic corporations (as such terms are defined in Section
1504(a) of the Internal Revenue Code of 1986, as amended) (the "Code"), and has
or will include the U.S. Subsidiaries in its consolidated Federal income tax
returns relating to all taxable periods beginning before the Distribution
("Affiliation Periods");
WHEREAS, the parties wish that this Tax Disaffiliation
Agreement set forth the agreement between Parent and Subsidiary with respect to
the allocation and settlement of the Federal, state, local and foreign taxes of
the Group;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties agree as follows.
1. Filing of Returns. With respect to each Affiliation Period,
Parent shall file, and Subsidiary shall cause the U.S. Subsidiaries to agree to
join in the filing of , consolidated Federal income tax returns on behalf of the
Group. Subsidiary shall execute and file, or cause to be executed and filed,
such consents, elections and other documents as Parent reasonably requests with
respect to the filing of the Group's consolidated Federal income tax returns,
and shall, consistent with paragraph 4 hereof, timely provide to Parent such
information as may be necessary for the filing of such returns or for the
determination of amounts due
<PAGE> 2
under this Tax Disaffiliation Agreement. Subsidiary acknowledges and agrees that
the rights conferred upon Parent in connection with the filing of the Group's
returns include, without limitation, the right to reasonably determine the
allocation of income (or loss) of the U.S. Subsidiaries between the last
Affiliation Period and the U.S. Subsidiaries' next taxable period (including the
allocation of tax liability with respect to the date of Distribution) and make
all elections on such Group's consolidated Federal income tax returns,
including, without limitation, elections affecting the U.S. Subsidiaries after
the Distribution. Subsidiary shall file, or cause to be filed, all Federal,
state, local and foreign tax returns of any member of the Subsidiary Group with
respect to all periods (other than Federal, state and U.S. local income tax
returns for Affiliation Periods which include Parent), and Subsidiary shall be
responsible for the payment of all taxes in connection therewith. Subsidiary
shall file, or cause to be filed, any such income tax returns in a manner
consistent with the manner in which the Parent filed its returns for Affiliation
Periods (except as required by law or to the extent any inconsistency would not
adversely affect the returns of the Group).
2. Tax Payments.
(a) Due Dates. Except as otherwise provided herein, Subsidiary
will pay to Parent the amount due Parent, as determined under Section 2(b)
below, and Parent will pay Subsidiary the amount due Subsidiary, as determined
under Section 2(c) below, no later than the due date for the filing of any
Federal income tax return of the Group that includes the U.S. Subsidiaries;
provided, however, that no later than each estimated Federal income tax payment
date or March 15 extension date of the Group for which the Group actually incurs
a Federal income tax liability with respect to an Affiliation period, Subsidiary
shall pay to Parent the minimum amount required to be paid to avoid the
imposition of any penalties or additions to tax under the Code, determined on
the same basis as the total amount due for an Affiliation Period under Section
2(b). The amount of any overpayment of underpayment pursuant to this Section
2(a) shall be credited against, or added to, as the case may be, the amount
otherwise required to be paid for the period within which the amount of such
overpayment of underpayment first becomes reasonably ascertainable. The
settlements may be satisfied by check, wire transfer or through intercompany
accounts as the parties may mutually agree.
(b) Amount Due to Parent. To the extent any U.S. Subsidiary
has "Separate Company Tax Liability" for an Affiliation Period, Subsidiary, on
behalf of such U.S. Subsidiary, shall pay Parent in the time and manner
described in
2
<PAGE> 3
Section 2(a). "Separate Company Tax Liability" of a U.S. Subsidiary for any
Affiliation Period shall be the amount, if any, of the Federal income tax
liability (including, without limitation, liability for any penalty, fine,
additions to tax, interest, minimum tax and other items applicable to the U.S.
Subsidiary in connection with the determination of the U.S. Subsidiary's tax
liability) which the U.S. Subsidiary would have incurred if the U.S. Subsidiary
had filed a separate Federal income tax return for such Affiliation Period,
except that no carryforward or carryback of losses of credits shall be allowed.
Separate Company Tax Liability shall be determined by Parent (with the
cooperation and assistance of the U.S. Subsidiary) in a manner consistent with
(i) general tax accounting principles, (ii) the Code and regulations thereunder
and (iii) so long as a reasonable legal basis exists therefore, prior custom and
practice. In addition, transactions or items between a U.S. Subsidiary and
Parent or other members of the Group that are deferred under the Federal income
tax return shall also be deferred for purposes of this Tax Disaffiliation
Agreement until such time as they are restored or otherwise triggered into
income under the Code or regulations. Notwithstanding anything to the contrary
in this Tax Disaffiliation Agreement, Parent and Subsidiary agree, and
Subsidiary will cause the U.S. Subsidiaries to agree, to treat the Distribution
as a taxable transaction. In the event a U.S. Subsidiary owns any U.S.
Subsidiaries that are members of the Group, Separate Company Tax Liability shall
be computed on a deemed consolidated basis as if the owning U.S. Subsidiary were
the common parent of an affiliated group of domestic corporations (within the
meaning of Section 1504(a) of the Code) consisting of itself and its includable
U.S. Subsidiaries (the "Hypothetical Subsidiary Group").
(c) Amount Due to Subsidiary. In the event a U.S. Subsidiary
(or Hypothetical Subsidiary Group, if applicable) does not have Separate Company
Tax Liability for an Affiliation Period, but instead incurs net losses or
credits for such period, Parent shall pay Subsidiary in the time and manner
prescribed in Section 2(a) hereof the amount by which the Group's Federal income
tax liability for such period is actually reduced by reason of the actual use of
such losses or credits in the Group's Federal income tax return.
In the event a U.S. Subsidiary (or Hypothetical Subsidiary Group, if
applicable) incurs any tax losses or tax credits that, as permitted under the
Code and regulations, are carried back or forward to one or more Affiliation
Periods, Parent shall pay Subsidiary an amount equal to the amount by which the
Group's Federal income tax liability is actually reduced by reason of the actual
use of such carried
3
<PAGE> 4
over losses or credits in the Group's Federal income tax return. Any payment
from Parent to Subsidiary required on account of such carryover shall be paid
within 15 days of the date the benefit of the carryover is realized by Parent by
reason of the receipt of a refund or credit of taxes.
Notwithstanding the foregoing, Subsidiary will cause the U.S.
Subsidiaries to relinquish the carryback of any net operating losses under
Section 172 (b)(3) of the Code (or any successor provision) to Affiliation
Periods unless Parent expressly agrees to such carryback; further, Subsidiary
(and any member of the Subsidiary Group) will not be entitled to any payments
under this Tax Disaffiliation Agreement or otherwise if a U.S. Subsidiary
sustains losses or credits in taxable periods that are eligible to be carried
back to Affiliation Periods, unless (a) Parent, in its sole and absolute
discretion, elects to file a claim for refund with respect to such carryback
items or agrees to permit the U.S. Subsidiary to file such claims, (b) Parent
actually receives a refund or credit of taxes with respect thereto (in which
event, any other provision herein notwithstanding, Subsidiary shall be entitled
to the amount determined in the previous paragraph including any interest
actually paid by the taxing authority attributable thereto less the amount
reasonably determined by Parent to be equal to the present value (determined at
the then applicable short-term Federal rate under the Code) of any tax benefit
of the Group that may be deferred or eliminated and any future increase in tax
liability of the Group that may be incurred because of such carryback) and (c)
Parent is indemnified by Subsidiary in a form satisfactory to Parent for its
costs and expenses incurred in pursuing such refund (which costs shall be paid
by Subsidiary regardless of whether any refund is obtained). Any subsequent
adjustment to a loss or credit carryback shall be treated as an adjustment to
tax liability in Section 3 below.
(d) Paying Agent. Parent agrees to make all required payments
to the Internal Revenue Service ("IRS") of the consolidated Federal income tax
liability, if any, of the Group.
3. Adjustments to Tax Liability. If the consolidated Federal income tax
liability of the Group or any of it members is adjusted for any taxable period
for any reason other than a loss or credit carryback to the extent already
provided for in Section 2(c), whether by means of an amended return, judicial
decision, claim for refund or tax audit by the IRS, Separate Company Tax
Liability or the amount of tax benefits realized by the Group by reason of the
use of U.S. Subsidiary losses or credits shall be recomputed to give effect to
such adjustment, and the amount of any payments due under Section 2 hereof shall
be appropriately
4
<PAGE> 5
adjusted. Any additional payment between Parent and Subsidiary required by
reason of such recomputed Separate Company Tax Liability or Group tax refund or
credit shall include an allocable share of any refunded interest received from
the IRS, if applicable, or deficiency interest, penalties and additions to tax,
if applicable (such allocable share of refunded interest or deficiency interest,
penalties and additions to tax shall be paid or charged, respectively, to
Subsidiary to the extent such amount relates to (a) reduced Group tax liability
due to decreased Separate Company Tax Liability or increased Group tax refund or
credit resulting from increased use of U.S. Subsidiary losses or credits, on the
one hand, or (b) increased Group tax liability due to increased Separate Company
Tax Liability or decreased Group tax benefits arising from decreased use of U.S.
Subsidiary losses or credits, on the other hand).
Any payments to be paid to or by Subsidiary under this Section
3 shall be made on or before the earliest to occur of (i) a decision by a court
of competent jurisdiction that is not subject to further judicial review (by
appeal or otherwise) and has become final, (ii) the expiration of the time for
(a) filing a claim for refund or (b) instituting suit in respect to a claim for
refund disallowed in whole or in part by the IRS or for which the IRS took no
action, (iii) the execution of a closing agreement under Section 7121 of the
Code or the acceptance by the IRS or its counsel of an offer in compromise under
Section 7122 of the Code (or any successor provisions) except as to reserved
matters specified therein, (iv) the expiration of 30 days after (a) IRS
acceptance of a Waiver of Restrictions on Assessment and Collection of
Deficiency in Tax on Overassessment on Internal Revenue Form 870 or 870-AD (or
any successor comparable form) except as to reserved matters specified therein,
or (b) the expiration of the ninety-day period after receipt of the statutory
notice of deficiency resulting in immediate assessment, unless within such 30
days Parent notifies Subsidiary of its intent to attempt recovery of any
relevant amounts paid under the waiver by filing a timely claim for refund or
the Subsidiary has requested Parent attempt recovery of relevant amounts paid
and complied with and subject to paragraph 7 hereof, (v) the expiration of the
statue of limitations with respect to the relevant period or (vi) any other
event the parties reasonably agree is a final determination of the tax liability
at issue.
4. Books and Records. Parent and Subsidiary agree that the
preparation of the Federal income and other tax returns, amended returns, claims
for refund or IRS examination or litigation relating to the foregoing may
require the use of records and information that is within the exclusive
possession and control of either of Parent and Subsidiary. Parent and Subsidiary
will provide such records, information and assistance (which may include making
employees of any of the
5
<PAGE> 6
foregoing entities or their subsidiaries available to provide additional
information and explanation material hereunder) as are requested by Parent or
Subsidiary, as the case may be, during regular business hours, in connection
with any of the developments described in the preceding sentence; provided,
however, that Subsidiary shall provide Parent with all information necessary to
enable Parent to file the Group consolidated Federal income tax return for each
Affiliation Period as soon as practicable (but in no event later than five
months) after the last day of such Affiliation Period, and on the date the Group
Federal income tax returns that include Subsidiary are filed Parent shall
provide Subsidiary with those portions of such returns relating to each U.S.
Subsidiary. Each of the parties agrees that it shall retain, until the
expiration of the applicable stature of limitations (including extensions),
copies of any tax returns for any Affiliation Periods and for any other periods
for which the other party might have liability for taxes, and supporting work
schedules and other records or information, that may be relevant to the tax
returns of the parties hereto, and that it will not destroy or otherwise dispose
of such records and information without providing the other party with a
reasonable opportunity to review and copy such records and information.
5. Assignment. This Tax Disaffiliation Agreement shall not be
assignable by either party hereto without the prior written consent of the other
party hereto. The rights and obligations hereunder of the parties shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. This Agreement shall be binding upon each
corporation in which Subsidiary owns, directly or indirectly, 50 percent or more
of the stock, by vote or value, whether or not Subsidiary owns stock in such
corporation upon the execution of this Agreement or at any time during
Affiliation Periods, and Subsidiary shall cause each such corporation as soon as
practicable to assent formally to the terms hereof. Except as herein otherwise
specifically provide, nothing in this Tax Disaffiliation Agreement shall confer
any right or benefit upon any person or entity other than the parties hereto and
their respective successors and permitted assigns.
6. Disputes. Any dispute concerning the interpretation of a
Section or amount of payment due under this Tax Disaffiliation Agreement shall
be resolved by an independent accounting firm of national reputation selected by
Parent, whose judgment shall be conclusive and binding on the parties and who
shall act in consultation with the Parent's tax counsel.
7. Tax Controversies. If any party receives notice of a tax
examination, audit or challenge involving amounts subject to this Tax
Disaffiliation
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Agreement, such party shall timely notify the other party of the information and
shall provide the other party a written copy of any relevant letters, forms or
schedules received from the IRS or other governmental authority, and shall
provide notice and information relating to all material proceedings in
connection therewith. In any audit conference or other proceeding with the IRS
or in any judicial proceedings concerning the determination of the Federal
income tax liabilities of the Group or any of its members, including any U.S.
Subsidiary, the Group and each of its members shall be represented by persons
selected by Parent. Except as otherwise expressly provided in the succeeding
paragraph, the settlement and terms of settlement of any issues relating to such
proceeding shall be in the sole discretion of Parent, and Subsidiary hereby
appoints Parent as its and the U.S. Subsidiaries' agent for the purpose of
proposing and concluding any such settlement. Notwithstanding anything to the
contrary in this Tax Disaffiliation Agreement, in no event shall Parent be
obligated to file any amended returns or claims for refund with respect to
Affiliation Periods.
So long as any proposed deficiency involves a tax issue of a
U.S. Subsidiary, Parent shall contest such issue to the extent requested in
writing by Subsidiary and shall permit Subsidiary or its designee, at
Subsidiary's expense, to participate in all conferences and meetings with taxing
authorities with respect to the issue; provided, however, that if (and so long
as) the controversy also involves a tax issue of Parent or member of the Group
other than a U.S. Subsidiary (whether for the taxable year in question or
another taxable year), Parent shall be entitled to the choice of forum for the
proceedings and shall have the right to make any decision as to settlement of
the contest or any issue; further, in no event shall Parent be required to take
any action requested by Subsidiary unless and until (a) the Subsidiary shall
have given Parent an indemnity in a form satisfactory to Parent for any
liability, expense or loss arising out of or relating to the U.S. Subsidiary
issues involved in the dispute or contest (including, without limitation, all
out-of-pocket expenses solely of the U.S. Subsidiary, costs, losses, reasonable
legal, accounting, engineers' and like professional fees, disbursements,
penalties, interest and additions to tax relating to such issues, but excluding
any expense of the Parent incurred for the purpose of monitoring the U.S.
Subsidiary issues), (b) the Subsidiary has delivered to Parent an opinion of
independent tax counsel (which counsel shall be reasonably acceptable to
Parent) to the effect that it is more likely than not that the Parent or the
U.S. Subsidiary will prevail on the U.S. Subsidiary issue under dispute and (c)
if such contest is to be conducted in a manner requiring payment of a proposed
tax deficiency, the Subsidiary shall have advanced to Parent on an interest-free
basis an amount attributable to the issue, together with any required interest
or penalties.
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8. State and Local Taxes. To the extent appropriate, all provisions of
this Tax Disaffiliation Agreement shall apply with the same force and effect to
any state or U.S. domestic local income tax liabilities that are computed with a
combined, consolidated or unitary method by the parties; provided that
appropriate adjustments shall be made to the provisions hereof, including
computation of Separate Company Tax Liability, with respect to any period within
an Affiliation Period during which a U.S. Subsidiary or U.S. Subsidiary items
were not included on a return of Parent or other members of the Group, or were
included on a return of members of the Group other than Parent.
9. Representation and Warranties. As an inducement to enter into this
Tax Disaffiliation Agreement, each party represents to and agrees with the other
that:
(a) it is a corporation duly organized, validly existing and
in good standing under applicable laws and has all requisite corporate power to
own, lease and operate its properties, to carry on its business as presently
conducted and to carry out the transactions contemplated by this Tax
Disaffiliation Agreement;
(b) it has duly and validly taken all corporate action
necessary to authorize the execution, delivery and performance of this Tax
Disaffiliation Agreement and the consummation of the transactions contemplated
hereby;
(c) this Tax Disaffiliation Agreement has been duly executed
and delivered by it and constitutes its legal, valid and binding obligation
enforceable in accordance with its terms (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally from
time to time to effect, and subject to equitable limitations on the availability
of the remedy of specific performance); and
(d) none of the execution and delivery of this Tax
Disaffiliation Agreement, the consummation of the transactions contemplated
hereby or the compliance with any of the provisions of this Tax Disaffiliation
Agreement will (i) conflict with or result in a breach of any provision of its
corporate charter or by-laws or similar documents, (ii) breach, violate or
result in a default under any of the terms of any agreement or other instrument
or obligation to which it is a party or by which it or any of its properties or
assets may be bound or (iii) violate any order, writ,
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injunction, decree, statute, rule or regulation applicable to it or affecting
any of its properties or assets.
10. Miscellaneous.
(a) Injunction. The parties acknowledge that irreparable
damage would occur in the event that any of the provisions of this Tax
Disaffiliation Agreement was not performed in accordance with its specific terms
or was otherwise breached. The parties hereto shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Tax Disaffiliation
Agreement and to enforce specifically the terms and provisions hereof in any
court having jurisdiction, such remedy being in addition to any other remedy to
which they may be entitled at law or equity.
(b) Severability. If any term, provision, covenant or
restriction of this Tax Disaffiliation Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions
without including any of such which may be hereafter declared invalid, void or
unenforceable. In the event that any such term, provision, covenant or
restriction is held to be invalid, void or unenforceable, the parties hereto
shall use their best efforts to find and employ an alternate means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.
(c) Further Assurances. Subject to the provisions hereof, the
parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
required in order to effectuate the purposes of this Tax Disaffiliation
Agreement and to consummate the transactions contemplated hereby. Subject to the
provisions hereof, each of the parties shall, in connection with entering into
this Tax Disaffiliation Agreement, performing its obligations hereunder and
taking any and all actions relating hereto, comply with all applicable laws,
regulations, orders and decrees, obtain all required consents and approvals and
make all required filings with any governmental agency, other regulatory or
administrative agency, commission or similar authority and promptly provide the
parties with all such information as they may reasonably request in order to be
able to comply with the provisions of this sentence.
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<PAGE> 10
(d) Parties in Interest. Except as herein otherwise
specifically provided, nothing in this Tax Disaffiliation Agreement expressed or
implied is intended to confer any right or benefit upon any person, firm or
corporation other than the parties and their respective successors and permitted
assigns.
(e) Waivers, etc. No failure or delay on the part of the
parties in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right of power. No modification or waiver of any provision of this Tax
Disaffiliation Agreement nor consent to any departure by the parties therefrom
shall in any event be effective unless the same shall be in writing, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.
(f) Setoff. All payments to be made by any party under this
Tax Disaffiliation Agreement shall be made without setoff, counterclaim or
withholding, all of which are expressly waived.
(g) Change of Law. If, due to any change in applicable law or
regulations or the interpretation thereof by any court of law or other governing
body having jurisdiction subsequent to the date of this Tax Disaffiliation
Agreement, performance of any provision of this Tax Disaffiliation Agreement or
any transaction contemplated thereby shall become impracticable or impossible,
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such provision.
(h) Confidentiality. Subject to any contrary requirement of
law and the right of each party to enforce its rights hereunder in any legal
action, each party agrees that it shall keep strictly confidential, and shall
cause its employees and agents to keep strictly confidential, any information
which it or any of it agents or employees may acquire pursuant to, or in the
course of performing its obligations under, any provision of this Tax
Disaffiliation Agreement; provided, however, that such obligation to maintain
confidentiality shall not apply to information which (x) at the time of
disclosure was in the public domain not as a result of acts by the receiving
party or (y) was in the possession of the receiving party at the time of
disclosure.
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(i) Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Tax Disaffiliation Agreement.
(j) Counterparts. For the convenience of the parties, any
number of counterparts of this Tax Disaffiliation Agreement may be executed by
the parties hereto, and each such executed counterpart shall be, and shall be
deemed to be, an original instrument.
(k) Governing Law. This Tax Disaffiliation Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without regard to its conflict of law provisions.
(l) Effect of Agreement. This Tax Disaffiliation Agreement
shall supersede any other tax Disaffiliation arrangement or agreement in effect
between the parties. Nothing in this Tax Disaffiliation Agreement is intended to
change or otherwise affect any election made by or on behalf of the Group with
respect to the calculation of earnings and profits under Section 1552 of the
Code.
(m) Interest. Any payment required to be made hereunder and
not made when due shall bear interest at the rate per annum determined, from
time to time, by the prevailing average borrowing rate of the party required to
make payment.
(n) Term of Agreement. This Tax Disaffiliation Agreement shall
become effective as of the date first above written and, except as otherwise
expressly provided herein, the respective covenants of the parties contained
herein shall continue in full force and effect indefinitely.
(o) Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein shall be validly given,
made or served, if in writing and delivered personally, by telegram or sent by
registered mail, postage prepaid to:
Parent at: CoreComm Incorporated
110 East 59th Street
New York, New York 10022
Attention: General Counsel
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Fax: (212) 906-8440
Subsidiary at: CoreComm Limited
110 East 59th Street
New York, New York 10022
Attention: General Counsel
Fax: (212) 906-8440
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 10(o).
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IN WITNESS WHEREOF, the undersigned parties have caused this
Agreement to be duly executed, and their respective corporate seals to be
affixed hereto, all as of the date first above written.
CORECOMM INCORPORATED
By:_________________________________
CORECOMM LIMITED
By:__________________________________
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<PAGE> 1
EXHIBIT 10.2
CORECOMM LIMITED
1998 STOCK OPTION PLAN
1. PURPOSE; CONSTRUCTION.
This CoreComm Limited 1998 Stock Option Plan (the "Plan"), is
intended to encourage stock ownership by employees of CoreComm Limited (the
"Corporation") and its divisions and subsidiary corporations and other
affiliates, so that they may acquire or increase their proprietary interest in
the Corporation, and to encourage such employees and directors who are employees
to remain in the employ of the Corporation or its affiliates and to put forth
maximum efforts for the success of the business. It is further intended that
options ("Options") granted by the Committee pursuant to Section 6 of this Plan
shall constitute "incentive stock options" ("Incentive Stock Options") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
the regulations issued thereunder (the "Code"), and options granted by the
Committee pursuant to Section 7 of this Plan shall constitute "nonqualified
stock options" ("Nonqualified Stock Options").
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "DISABILITY" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months.
(b) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
(c) "FAIR MARKET VALUE" per share as of a particular date shall mean
(i) if the shares of common stock, par value $.0l per share, of the Corporation
("Common Stock") are then traded on an over-the-counter market, the average of
the closing bid and asked prices for the shares of Common Stock in such
over-the-counter market for the last preceding date on which there was a sale of
such Common Stock in such market, (ii) if the shares of Common Stock are then
listed on the Nasdaq Stock Market's National Market or other national securities
exchange, the
<PAGE> 2
closing sales price per share on the date of grant or on the last preceding date
on which there was a sale of such Common Stock on such exchange, or (iii) if the
shares of Common Stock are not then traded in an over-the-counter market or
listed on Nasdaq or a national securities exchange, such value as the Committee
in its discretion may determine.
(d) "OPTIONEE" shall mean a person who has been granted an option
under the Plan.
(e) "PARENT CORPORATION" shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the employer
corporation if, at the time of granting an Option, each of the corporations
other than the employer corporation owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(f) "RULE 16b-3" shall mean Rule 16b-3 promulgated under Section 16
of the Exchange Act (or any other comparable provisions in effect at the time or
times in question).
(g) "SUBSIDIARY CORPORATION" shall mean any corporation (other than
the Corporation) in an unbroken chain of corporations beginning with the
employer corporation if, at the time of granting an Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(h) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the
time an Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Corporation or of its Parent or Subsidiary Corporations.
3. ADMINISTRATION.
The Plan shall be administered by the Compensation and Option
Committee of the Corporation's Board of Directors or such other committee
appointed either by the Board of Directors of the Corporation (the "Board") or
by such Compensation and Option Committee (the "Committee"); provided, however,
to the extent deter mined necessary to satisfy the requirements for exemption
from Section 16(b) of the
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Exchange Act, with respect to the acquisition or disposition of securities
hereunder, action by the Committee may be by a subcommittee of a committee of
the Board composed solely of two or more "non-employee directors," within the
meaning of Rule 16b-3, appointed by the Board or by the Compensation and Option
Committee of the Board, or by a committee composed solely of two or more
"non-employee directors," within the meaning of Rule 16b-3, as a result of the
recusal of those members who do not qualify as non-employee directors; and,
provided further, to the extent determined necessary to satisfy the requirements
for the exception for qualified performance based compensation under Section
162(m) of the Code and the treasury regulations thereunder, action by the
Committee may be by a committee comprised solely of two or more "outside
directors," within the meaning of Section 162(m) of the Code and the treasury
regulations thereunder, appointed by the Board or by the Compensation and Option
Committee. Notwithstanding anything in the Plan to the contrary, and to the
extent determined to be necessary to satisfy an exemption under Rule 16b-3 with
respect to a grant hereunder (and, as applicable, with respect to the
disposition to the Corporation of a security hereunder), or as otherwise
determined advisable by the Committee, the terms of such grant and disposition
under the Plan shall be subject to the prior approval of the Board. Any prior
approval of the Board, as provided in the preceding sentence, shall not other
wise limit or restrict the authority of the Committee to make grants under the
Plan, including, but not limited to, the authority of the Committee to make
grants qualifying for the performance-based compensation exception under
Section 162(m) of the Code and the treasury regulations thereunder.
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options; to
determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine the purchase
price of the shares of Common Stock covered by each Option (the "Option Price");
to determine the persons to whom, and the time or times at which, Options shall
be granted; to determine the number of shares to be covered by each Option; to
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Option
Agreements (which need not be identical) entered into a connection with Options
granted under the Plan; and to make all other determinations deemed necessary or
advisable for the administration of the Plan. The Committee may delegate to one
or more of its members or to one or more agents such administrative
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<PAGE> 4
duties as it may deem advisable, and the Committee or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have under
the Plan.
The Board shall fill all vacancies, however caused, in the
Committee. The Board may from time to time appoint additional members to the
Committee, and may at any time remove one or more Committee members and
substitute others. One member of the Committee may be selected by the Board as
chairman. The Committee shall hold its meetings at such times and places as it
shall deem advisable. All determinations of the Committee shall be made by a
majority of its members either present in person or participating by conference
telephone at any meeting or by written consent. The Committee may appoint a
secretary and make such rules and regulations for the conduct of its business as
it shall deem advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Option
granted hereunder.
4. ELIGIBILITY.
Options may be granted (i) to employees (including, without
limitation, officers and directors who are employees) of the Corporation, its
present or future divisions, Subsidiary Corporations and Parent Corporations and
(ii) in the case of Nonqualified Stock Options, to employees of an affiliated
entity of the Corporation (an "Affiliated Entity") which is designated by the
Board to participate in the Plan. In determining the persons to whom Options
shall be granted and the number of shares to be covered by each Option, the
Committee shall take into account the duties of the respective persons, their
present and potential contributions to the success of the Corporation and such
other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of the Plan. A person to whom an option has been
granted hereunder is sometimes referred to herein as an "Optionee."
An Optionee shall be eligible to receive more than one grant of an
Option during the term of the Plan, but only on the terms and subject to the
restrictions hereinafter set forth.
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5. STOCK.
The stock subject to Options hereunder shall be shares of the
Corporation's Common Stock. Such shares may, in whole or in part, be authorized
but unissued shares or shares that shall have been or that may be reacquired by
the Corporation. The aggregate number of shares of Common Stock as to which
Options may be granted from time to time under the Plan shall not exceed [ ].
The limitation established by the preceding sentence shall be subject to
adjustment as provided in Section 8(j) hereof.
In the event that any outstanding Option under the Plan for any
reason expires or is cancelled, surrendered or otherwise terminated without
having been exercised in full, the shares of Common Stock allocable to the
unexercised portion of such Option shall (unless the Plan shall have been
terminated) become available for subsequent grants of Options under the Plan.
Notwithstanding the foregoing, the expiration, cancellation, surrender or
termination of an Option, to the extent consistent with Section 162(m) of the
Code and the treasury regulations thereunder, shall not be disregarded for
purposes of applying the individual limit on the maximum number of shares, as
provided in Section 8(f), that may be purchased in connection with Options
granted under the Plan with respect to any individual.
6. INCENTIVE STOCK OPTIONS.
Options granted pursuant to this Section 6 are intended to
constitute Incentive Stock Options and shall be subject to the following special
terms and conditions, in addition to the general terms and conditions specified
in Section 8 hereof.
(a) VALUE OF SHARES. In no event may Incentive Stock Options be
granted to an Optionee to the extent that the aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the shares
of Common Stock with respect to which such Options granted under this Plan and
all other option plans of the Corporation and any Parent or Subsidiary
Corporation which would become exercisable for the first time by an Optionee
during any calendar year exceeds $100,000.
(b) TEN PERCENT STOCKHOLDER. In the case of an Incentive Stock
Option granted to a Ten Percent Stockholder, (i) the Option Price shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the shares
of
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Common Stock of the Corporation on the date of grant of such Incentive Stock
Option, and (ii) the exercise period shall not exceed five (5) years from the
date of grant of such Incentive Stock Option.
7. NONQUALIFIED STOCK OPTIONS.
Options granted pursuant to this Section 7 are intended to
constitute Nonqualified Stock Options and shall be subject only to the general
terms and conditions specified in Section 8 hereof.
8. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to the Plan shall be evidenced by a
written Option agreement (an "Option Agreement") between the Corporation and the
Optionee, which agreement shall comply with and be subject to the following
terms and conditions:
(a) NUMBER OF SHARES. Each Option Agreement shall state the number
of shares of Common Stock to which the Option relates.
(b) TYPE OF OPTION. Each Option Agreement shall specifically
identify the portion, if any, of the Option which constitutes an Incentive Stock
Option and the portion, if any, which constitutes a Nonqualified Stock Option.
(c) OPTION PRICE. Each Option Agreement shall state the Option
Price, which, in the case of Incentive Stock Options, shall be not less than one
hundred percent (100%) of the Fair Market Value of the shares of Common Stock of
the Corporation on the date of grant of the Option, and which, in the case of
Nonqualified Stock Options, shall be the price determined by the Committee. The
Option Price shall be subject to adjustment as provided in Section 8(j) hereof.
(d) MEDIUM AND TIME OF PAYMENT. Options may be exercised in whole or
in part at any time during the option period by giving written notice of
exercise to the Corporation specifying the number of shares of Common Stock to
be purchased, accompanied by payment of the purchase price. Payment of the
purchase price shall be made in such manner as the Committee may provide in the
Option Agreement, which may include cash (including cash equivalents, such as by
certified or bank check payable to the Corporation), delivery of unrestricted
shares of Common Stock that have been owned by the Optionee or, as applicable,
a permissible
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transferee (as provided in Section 8(i)) for at least six months, any other
manner permitted by law as determined by the Committee, or any combination of
the foregoing.
(e) TERM AND EXERCISE OF OPTIONS. Options shall be exercisable over
the exercise period as and at the times and upon the conditions that the
Committee may determine, as reflected in the Option Agreement; provided,
however, that the Committee shall have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate; and further
provided, however, that such exercise period shall not exceed ten (10) years
from the date of grant of such Option. The exercise period shall be subject to
earlier termination as provided in Section 8(g) and 8(h) hereof. An Option may
be exercised, as to any or all full shares of Common Stock as to which the
Option has become exercisable, by giving written notice of such exercise to the
Committee or to such individuals) as the Committee may from time to time
designate.
(f) LIMITATION ON AWARDS. Grants of options under the Plan to any
individual in any calendar year shall be limited to Options to purchase no
greater than [ ] shares of Common Stock.
(g) TERMINATION. Except as provided in this Section 8(g) and in
Section 8(h) hereof, an option may not be exercised unless the Optionee is then
in the employ of the Corporation or a division or any corporation which was at
the time of grant of such Option, a Subsidiary Corporation or Parent Corporation
thereof (or a corporation or a Parent or Subsidiary Corporation of such
corporation issuing or assuming the Option in a transaction to which Section
424(a) of the Code applies) or an Affiliated Entity, and unless the Optionee has
remained continuously so employed since the date of grant of the Option. In the
event that the employment of an Optionee shall terminate (other than by reason
of death, Disability or, in the case of Nonqualified Stock Options, retirement),
all Options granted to such Optionee or transferred by such Optionee (as
provided in Section 8(i)) that are exercisable at the time of such termination
may, unless earlier terminated in accordance with their terms, be exercised
within three (3) months after such termination; provided, however, that if the
employment of an Optionee shall terminate for cause (as determined by the
Committee, in its good faith discretion), all Options theretofore granted to
such Optionee or transferred by such Optionee (as provided in Section 8(i))
shall, to the extent not theretofore exercised, terminate forthwith. Nothing in
the Plan or in any Option granted pursuant hereto shall confer upon an
individual any
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right to continue in the employ of the Corporation or any of its divisions,
Parent or Subsidiary Corporations or Affiliated Entities or interfere in any way
with the right of the Corporation or any such division, Parent or Subsidiary
Corporation or Affiliated Entity to terminate such employment.
(h) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an Optionee
shall die while employed by the Corporation or a division or any corporation
which was, at the time of grant of such Option, a Subsidiary Corporation or
Parent Corporation thereof (or a corporation or a Parent or Subsidiary
Corporation of such corporation issuing or assuming the Option in a transaction
to which Section 424(a) of the Code applies) or an Affiliated Entity, or within
three (3) months after the termination of such Optionee's employment, other than
for cause, or if the Optionee's employment shall terminate by reason of
Disability (or, in the case of Nonqualified Stock Options, retirement), all
Options theretofore granted to such Optionee or transferred by such Optionee (as
provided in Section 8(i)), to the extent otherwise exercisable at the time of
death or termination of employment, may, unless earlier terminated in accordance
with their terms, be exercised by the Optionee or by the Optionee's estate or by
a person who acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of death or Disability of the Optionee or by
a transferee (as provided in Section 8(i)), at any time within one year after
the date of death, Disability or retirement of the optionee.
(i) NONTRANSFERABILITY OF OPTIONS. Except as provided in this
Section 8(i), no Option granted hereunder shall be transferable by the Optionee
to whom granted, other than by will or the laws of descent and distribution, and
the Option may be exercised during the lifetime of such Optionee only by the
Optionee or such Optionee's guardian or legal representative. To the extent the
Option Agreement so provides, and subject to such conditions as the Committee
may prescribe, an Optionee may, upon providing written notice to the General
Counsel of the Corporation, elect to transfer the Nonqualified Stock Options
granted to such Optionee pursuant to such agreement, without consideration
therefor, to members of his or her "immediate family" (as defined below), to a
trust or trusts maintained solely for the benefit of the Optionee and/or the
members of his or her immediate family, or to a partnership or partnerships
whose only partners are the Optionee and/or the members of his or her immediate
family. Any purported assignment, alienation, pledge, attachment, sale,
transfer, or encumbrance that does not qualify as a permissible transfer under
this Section 8(i) shall be void and unenforceable against the Plan and the
Corporation. For purposes of this Section 8(i), the term "immediate family"
shall mean, with respect to a particular Optionee, the Optionee's spouse,
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<PAGE> 9
children or grandchildren, and such other persons as may be determined by the
Committee. The terms of any such Option and the Plan shall be binding upon a
permissible transferee, and the beneficiaries, executors, administrators, heirs
and successors of the Optionee and, as applicable, a permissible transferee.
(j) EFFECT OF CERTAIN CHANGES.
(1) If there is any change in the number of shares of
Common Stock through the declaration of stock or cash dividends, or
recapitalization resulting in stock splits, or combinations or
exchanges of such shares or other corporate transactions affecting
the capitalization of the Corporation, the aggregate number of
shares of Common Stock available for Options, the aggregate number
of shares of Common Stock available for distribution under the Plan
to any single individual with respect to Options granted hereunder,
the number of such shares covered by outstanding Options, the number
of shares set forth in Section 8(f) hereof and the price per share
of such Options shall be proportionately adjusted by the Committee
to reflect any increase or decrease in the number of issued shares
of Common Stock; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated. In the event of
any other extraordinary corporate transaction, including, but not
limited to distributions of cash or other property to the
Corporation's shareholders, the Committee may equitably adjust
outstanding Options as it deems appropriate.
(2) In the event of the proposed dissolution or
liquidation of the Corporation, in the event of any corporate
separation or division, including, but not limited to, split-up,
split-off or spin-off, or in the event of a merger or consolidation
of the Corporation with another corporation, the Committee may
provide that the holder of each Option then exercisable shall have
the right to exercise such Option (at its then Option Price) solely
for the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
dissolution, liquidation, or corporate separation or division, or
merger or consolidation by a holder of the number of shares of
Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate
separation or division, or merger or consolidation; or the
Committee may provide, in the alternative, that each Option granted
under the Plan shall terminate as of a date to be fixed by the
Committee; provided, however, that not less than thirty (30) days'
written notice of the date so fixed shall be given to each
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<PAGE> 10
Optionee, who shall have the right, during the period of thirty (30)
days preceding such termination, to exercise the Options (unless
earlier terminated in accordance with their terms) as to all or any
part of the shares of Common Stock covered thereby, including shares
as to which such Options would not otherwise be exercisable;
provided, further, that failure to provide such notice shall not
invalidate or affect the action with respect to which such notice
was required.
(3) If while unexercised Options remain outstanding
under the Plan;
(i) any corporation, person or other entity (other
than the Corporation) makes a tender or exchange offer
for shares of the Common Stock pursuant to which
purchases are made ("Offer"), or
(ii) the stockholders of the Corporation approve a
definitive agreement to merge or consolidate the
Corporation with or into another corporation or to sell
or otherwise dispose of all or substantially all of its
assets, or adopt a plan of liquidation, or
(iii) the "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act) of securities representing
more than 15% of the combined voting power of the
Corporation is acquired by any "person" as defined in
Sections 13(d) and 14(d) of the Exchange Act, or
(iv) during any period of two consecutive years,
individuals who at the beginning of such period were
members of the Board cease for any reason to constitute
at least a majority thereof (unless the election, or the
nomination for election by the Corporation's stock
holders, of each new director was approved by a vote of
at least two-thirds of the directors then still in
office who were directors at the beginning of such
period),
then from and after the date of the first purchase of Common Stock
pursuant to such Offer, or the date of any such stockholder approval
or adoption, or the date on which public announcement of the
acquisition of such percentage shall have been made, or the date on
which the change in the composition of the Board set forth above
shall have occurred, whichever is applicable (the applicable date
being referred to hereinafter as the "Acceleration Date"), all
Options shall be exercisable in full, whether or not otherwise
exercisable.
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<PAGE> 11
Following the Acceleration Date, the Committee shall, in the case of
a merger, consolidation or sale or disposition of assets, promptly
make an appropriate adjustment to the number and class of shares of
Common Stock available for Options, and to the amount and kind of
shares or other securities or property receivable upon exercise of
any outstanding Options after the effective date of such
transaction, and the price thereof.
(4) Paragraphs (2) and (3) of this Section 8(j) shall
not apply to a merger or consolidation in which the Company is the
surviving corporation and shares of Common Stock are not converted
into or exchanged for stock, securities of any other corporation,
cash or any other thing of value. Notwithstanding the preceding
sentence, in case of any consolidation or merger of another
corporation into the Corporation in which the Corporation is the
surviving corporation and in which there is a reclassification or
change (including a change to the right to receive cash or other
property) of the shares of Common Stock (other than a change in par
value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares
into two or more classes or series of shares), the Committee may
provide that the holder of each Option then exercisable shall have
the right to exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of any new
direct or indirect parent of the Corporation), property, cash or any
combination thereof receivable upon such reclassification, change,
consolidation or merger by the holder of the number of shares of
Common Stock for which such Option might have been exercised.
(5) In the event of a change in the Common Stock of the
Corporation as presently constituted, which is limited to a change
of all of its authorized shares with par value into the same number
of shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
(6) To the extent that the foregoing adjustments relate
to stock or securities of the Corporation, such adjustments shall be
made by the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each Incentive Stock
Option granted pursuant to this Plan shall not be adjusted in a
manner that causes such Option to fail to continue to qualify as an
Incentive Stock Option within the meaning of Section 422 of the
Code.
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<PAGE> 12
(7) Except as hereinbefore expressly provided in this
Section 8(j), the Optionee shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class or the
payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of
assets or stock of another corporation; and any issue by the
Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to the Option. The
grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structures or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or part of its business or
assets.
(k) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an
Option shall have no rights as a stockholder with respect to any shares covered
by the Option until the date of the issuance of a stock certificate to him for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution of
other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8(j) hereof.
(l) OTHER PROVISIONS. The Option Agreements authorized under the
Plan shall contain such other provisions, including, without limitation, (i) the
imposition of restrictions upon the exercise of an Option, and (ii) in the case
of an Incentive Stock Option, the inclusion of any condition not inconsistent
with such Option qualifying as an Incentive Stock Option, as the Committee shall
deem advisable. Without limiting the generality of the foregoing, the Committee
shall have the power to grant options with reload features as hereinafter
described. To the extent an Option with a reload feature (an "Original Option")
subsequently is exercised through the delivery of previously acquired shares of
Common Stock in payment of the exercise price, the Optionee automatically will
be granted, at the time of such exercise, a new Option (the "Reload Option") to
purchase the number of shares of Common Stock so delivered, provided, however,
that no such Reload Option shall be granted if, at the time of exercise of the
Original Option, insufficient shares are available under the Plan to cover the
grant of the Reload Option. Each Reload Option will be exercisable upon
substantially the same terms and conditions
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<PAGE> 13
as the Original Option to which it relates, except that (A) the per share
exercise price of the Reload Option shall be the Fair Market Value of the Common
Stock on the date of exercise of the Original Option, and (B) the Reload Option
shall not itself have reload features. Notwithstanding the foregoing, the
Committee shall have full authority to alter the terms of any Reload Option at
the time of exercise of the Original Option to which it relates.
9. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES.
If the Committee shall so require, as a condition of exercise, each
Optionee shall agree that;
(a) no later than the date of exercise of any Option granted
hereunder, the Optionee will pay to the Corporation or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld upon the exercise of such
Option, and
(b) the Corporation shall, to the extent permitted or required by
law, have the right to deduct federal, state and local taxes of any kind
required by law to be withheld upon the exercise of such Option from any payment
of any kind otherwise due to the Optionee.
10. TERMS OF PLAN.
Options may be granted pursuant to the Plan from time to time within
a period of ten (10) years from the date the Plan is adopted by the Board.
11. AMENDMENT AND TERMINATION OF THE PLAN.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that no amendment that requires
stockholder approval under applicable law, under the rules or regulations of any
securities exchange or regulatory agency, or in order for the Plan to continue
to comply with Rule 16b-3 or, if applicable, to comply with the exception for
qualified performance-based compensation under Code Section 162(m), or in order
for Options intended to constitute Incentive Stock Options to satisfy the
requirements of Section 422 of the Code shall be effective unless the same shall
be approved by the requisite vote of the stockholders of the Corporation. Except
as provided in Section 8 hereof, no suspension, termination, modification or
amendment of the Plan may adversely affect any
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<PAGE> 14
Option previously granted, unless the written consent of the Optionee or, as
applicable, a permissible transferee (as provided in Section 8(i)) is obtained.
12. INTERPRETATION.
The Plan is designed and intended to comply with Rule 16b-3 and, to
the extent applicable, Sections 162(m) and 422 of the Code, and all provisions
hereof shall be construed in a manner to so comply.
13. APPROVAL AND RATIFICATION BY STOCKHOLDERS.
The Plan shall take effect as set forth in Section 16 upon its
adoption by the Board of Directors, but shall be subject to its approval and
ratification by the holders of a majority of the issued and outstanding shares
of Common Stock of the Corporation, which approval and ratification must occur
within twelve months after the date that the Plan is adopted by the Board.
14. EFFECT OF HEADINGS.
The section and subsection headings contained herein are for
convenience only and shall not affect the construction hereof.
15. GOVERNING LAW.
The Plan shall be governed by the laws of the State of Delaware.
16. EFFECTIVE DATE OF PLAN.
The effective date of the Plan is the date the Plan is adopted by
the Board.
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<PAGE> 1
Exhibit 10.3
CORECOMM LIMITED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE, CONSTRUCTION.
The purpose of this CoreComm Limited Non-Employee Director Stock Option
Plan (the "Plan"), is to encourage stock ownership by non-employee directors of
CoreComm Limited (the "Corporation") in order to increase their identification
with the interests of the Corporation's shareholders, and to encourage such
directors to remain in the service of the Corporation and to put forth maximum
efforts for the success of the business.
2. DEFINITIONS.
As used in this Plan, the following words and phrases shall have the
mean ings indicated:
(a) "BOARD" shall mean the Board of Directors of the Corporation.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock, par value $.0l per
share, of the Corporation.
(d) "DISABILITY" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months.
(e) "FAIR MARKET VALUE" per share as of a particular date shall mean
(i) if the Common Stock is then traded on an over-the-counter market, the
average of the closing bid and asked prices for the Common Stock in such
over-the-counter market on such date or on the last preceding date on which
there was a sale of such Common Stock in such market, (ii) if the Common Stock
is then admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or another comparable quotation system and
has been designated as a National Market System ("NMS") security, or if the
Common Stock is then listed on a national securities exchange, the closing sales
price per share on such
<PAGE> 2
date or on the last preceding date on which there was a sale of such Common
Stock, or (iii) if the Common Stock is not then traded in an over-the-counter
market, admitted to quotation on NASDAQ or other comparable quotation system, or
listed on a national securities exchange, such value as the Committee in its
discretion may determine.
(f) "OPTION" shall mean a stock option granted pursuant to the Plan.
(g) "OPTIONEE" shall mean a person to whom an Option has been granted
under the Plan.
3. ADMINISTRATION.
The Plan shall be administered by the Compensation and Option Committee
(the "Committee") established by the Board.
The Committee shall have the powers vested in it by the terms of the
Plan, such powers to include the authority to prescribe the form of the
agreements embodying awards of Options made under the Plan. The Committee
shall, subject to and not inconsistent with the express provisions of the Plan,
have the authority to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including without limitation, the
authority to prescribe. amend and rescind rules and regulations relating to the
Plan; and to make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan.
The Board shall fill all vacancies, however caused, in the Committee.
The Board may from time to time appoint additional members to the Committee, and
may at any time remove one or more Committee members and substitute others. One
member of the Committee may be selected by the Board as chairman. The Committee
shall hold its meetings at such times and places as it shall deem advisable.
All determinations of the Committee shall be made by a majority of its members
either present in person or participating by conference telephone at any
2
<PAGE> 3
meeting or by written consent. The Committee may appoint a secretary and make
such rules, and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Option
granted hereunder.
4. ELIGIBILITY.
Each member of the Board who is not an employee of the Corporation or
any of its affiliates (a "Non-Employee Director") shall be granted Options in
accordance with Section 6 hereof. The adoption of this Plan shall not be deemed
to give any director any right to be granted an Option to purchase shares of
Common Stock, other than in accordance with the terms of this Plan.
5. STOCK.
The stock subject to Options granted hereunder shall be shares of the
Corporation's Common Stock. Such shares may, in whole or in part, be authorized
but unissued shares or shares that shall have been or that may be reacquired by
the Corporation. The aggregate number of shares of Common Stock as to which
Options may be granted from time to time under the Plan shall not exceed [ ].
The limitation established by the preceding sentence shall be subject to
adjustment as provided in Section 6(k) hereof.
In the event that any outstanding Option under the Plan for any reason
expires or is canceled, surrendered or otherwise terminated without having been
exercised in full, the shares of Common Stock allocable to the unexercised
portion of such Option shall (unless the Plan shall have been terminated) become
available for subsequent grants of Options under the Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted pursuant to the Plan shall be evidenced by a
written agreement between the Corporation and the Optionee in such form as the
Committee shall prescribe from time to time, which agreement shall comply with
and be subject to the following terms and conditions:
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<PAGE> 4
(a) INITIAL GRANTS. On the date of the Distribution, each Non-Employee
Director as of such date (a "Current Director") shall be granted automatically,
without action by the Committee, an Option to purchase [ ] shares of Common
Stock.
(b) GRANTS TO NEW NON-EMPLOYEE DIRECTORS. Each Non-Employee Director (a
'New Director") who, after the Distribution, is elected to the Board for the
first time by the stockholders of the Corporation at any special or annual
meeting of stockholders, will, at the time such director is elected and duly
qualified, be granted automatically, without action by the Committee, an Option
to purchase [ ] shares of Common Stock.
(c) GRANTS TO CONTINUING DIRECTORS. On the date of each annual meeting
of stockholders subsequent to the Distribution and during the term of the Plan,
each continuing Current Director (i.e., a Non-Employee Director not being
elected by stockholders for the first time) will be granted automatically,
without action by the Committee, an Option to purchase [ ] shares of Common
Stock.
(d) TYPE OF OPTION. Each Option granted under the Plan shall be a stock
option which is not intended to qualify as an "incentive stock option" under
Section 422 of the Code.
(e) OPTION PRICE. The Option Price of each Option granted under the
Plan shall be equal to one hundred percent (100%) of the Fair Market Value of
the shares of Common Stock subject to such Option on the date of grant thereof.
The Option Price shall be subject to adjustment as provided in Section 6(k)
hereof.
(f) MEDIUM AND TIME OF PAYMENT. Options which have vested pursuant to
Section 6(g) hereof may be exercised in whole or in part at any time during the
option period by giving written notice of exercise specifying the number of
shares to be purchased, accompanied by payment of the purchase price. Payment of
the purchase price may be made in cash (including cash equivalents, such as by
certified or bank check payable to the Corporation), by delivery of unrestricted
shares of Common Stock that have been owned by the Optionee or, as applicable, a
permissible transferee (as provided in Section 6(j)) for at least six months, or
in any combination of the foregoing.
(g) TERM AND EXERCISE OF OPTIONS. Options granted under the
Plan shall become exercisable as to twenty percent (20%) of the shares subject
4
<PAGE> 5
thereto on the first anniversary of the date of grant thereof and as to an
additional twenty percent (20%) of the shares subject thereto on each of the
second, third. fourth and fifth anniversaries of the date of grant thereof. An
Option shall be exercisable for a period of ten (10) years from the date of
grant of such Option; provided, however, that, except as provided in this
Section 6(g), the exercise period shall be subject to earlier termination as
provided in Sections 6(h) and 6(i) hereof. An Option may be exercised, as to any
or all full shares of Common Stock as to which the Option has become
exercisable, by giving written notice of such exercise to the Committee or to
such individual(s) as the Committee may from time to time designate.
Notwithstanding anything in the Plan to the contrary, in the case of the
termination of service of an Optionee as a director, the Committee or, to the
extent determined necessary to satisfy the requirements for an exemption from
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board, in its sole discretion. may determine that all or a portion of
the Options that are then held by the Optionee (or, as applicable. by a
permissible transferee of such Options (as provided in Section 6(j)) shall, to
the extent not then exercisable, become exercisable in accordance with the first
sentence of this Section 6(g) or as provided in Section 6(k) and that all or a
portion of the Options held by the Optionee or by a transferee at the time of
the Optionee's termination of service may be exercised by the Optionee or, as
applicable, by a transferee (or, as applicable, by their beneficiaries,
executors, administrators, heirs and successors) during such period as
determined by the Committee (or, as applicable, the Board), provided that such
period shall terminate no earlier than the end of the exercise period that
otherwise would apply under Section 6(h) or Section 6(i) following such
termination of service under the Plan and no later than the end of the
applicable Option term.
(h) TERMINATION. Except as provided in this Section 6(h) and in Section
6(i) hereof, an Option may not be exercised by the Optionee to whom it was
granted or by a transferee to whom such Option was transferred (as provided in
Section 6(j)) unless the Optionee is then in service as a director of the
Corporation and unless the Optionee has remained continuously in the
Corporation's service as a director since the date of grant of the Option. In
the event that the service of an Optionee as a director shall terminate (other
than by reason of death, Disability or retirement), all Options granted to such
Optionee or transferred by such Optionee (as provided in Section 6(j)) that are
exercisable at the time of such termination may, unless earlier terminated in
accordance with their terms, be exercised by the Optionee or by a transferee
within three (3) months after such termination, provided, however, that if the
service of an Optionee as a director of the Corporation shall terminate for
cause (as determined by the Committee in its good faith discretion), all
5
<PAGE> 6
Options theretofore granted to such Optionee or transferred by such Optionee (as
provided in Section 6(j)), shall, to the extent not theretofore exercised,
terminate forthwith. Nothing in the Plan or in any Option granted pursuant
hereto shall confer upon an individual any right to continue in service as a
director of the Corporation or interfere in any way with the right of the
Corporation to terminate such service.
(i) DEATH, DISABILITY OR RETIREMENT OF OPTIONEE. If an Optionee shall
die while in service as a director of the Corporation or within three (3) months
after the termination of such Optionee's service (other than a termination for
cause), or if the Optionee's service as a director shall terminate by reason of
Disability, or retirement, all Options theretofore granted to such Optionee or
transferred by such Optionee (as provided in Section 6(j)), to the extent
otherwise exercisable at the time of death or termination of service may, unless
earlier terminated in accordance with their terms, be exercised by the Optionee
or by the Optionee's estate or by a person who acquired the right to exercise
such option by bequest or inheritance or otherwise by reason of the death or
Disability of the Optionee, or by a transferee at any time within one year after
the date of death, Disability or retirement of the Optionee.
(j) NONTRANSFERABILITY OF OPTIONS. Except as provided in this Section
6(j), no Option granted hereunder shall be transferable by the Optionee to whom
granted, other than by will or the laws of descent and distribution, and the
Option may be exercised during the lifetime of such Optionee only by the
Optionee or such Optionee's guardian or legal representative. To the extent the
Option Agreement so provides, and subject to such conditions as the Committee
may prescribe (provided such prescription of conditions does not cause the
acquisition or disposition of securities hereunder to fail to qualify for an
exemption under Section 16(b) of the Exchange Act), an Optionee may, upon
providing written notice to the General Counsel of the Corporation, elect to
transfer the stock options granted to such Optionee pursuant to such agreement,
without consideration therefor, to members of his or her "immediate family" (as
defined below), to a trust or trusts maintained solely for the benefit of the
Optionee and/or the members of his or her immediate family, or to a partnership
or partnerships whose only partners are the Optionee and/or the members of his
or her immediate family. Any purported assignment, alienation, pledge,
attachment, sale, transfer, or encumbrance that does not qualify as a
permissible transfer under this Section 6(j), shall be void and unenforceable
against the Plan and the Corporation. For purposes of this Section 6(j), the
term "immediate family" shall mean, with respect to a particular Optionee, the
Optionee's spouse, children or grandchildren, and such other persons as may be
6
<PAGE> 7
determined by the Committee. The terms of any such Option and the Plan shall be
binding upon a permissible transferee, and the beneficiaries, executors,
administrators, heirs and successors of the Optionee and, as applicable, a
permissible transferee.
(k) EFFECT OF CERTAIN CHANGES.
(1) If there is any change in the number of shares of Common
Stock through the declaration of stock or cash dividends, or recapitalization
resulting in stock splits, or combinations or exchanges of such shares, the
aggregate number of shares of Common Stock available for Options, the number of
such shares covered by outstanding Options, and the exercise price per share of
such Options shall be proportionately adjusted by the Committee to reflect any
increase or decrease in the number of issued shares of Common Stock; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated. In the event of any other extraordinary corporate transaction,
including, but not limited to, distributions of cash or other property to the
Corporation's shareholders, the Committee shall equitably adjust outstanding
Options to preserve, but not increase, the benefits of such Options.
(2) In the event of the proposed dissolution or liquidation of
the Corporation, in the event of any corporate separation or division,
including, but not limited to, split-up, split-off or spin-off, or in the event
of a merger or consolidation of the Corporation with another corporation, the
Committee shall provide that the holder of each Option then exercisable shall
have the right to exercise such Option (at its then Option Price) solely for the
kind and amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such dissolution, liquidation, or corporate
separation or division, or merger or consolidation by a holder of the number of
shares of Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate separation or
division, or merger or consolidation.
(3) If while unexercised Options remain outstanding under
the Plan;
(i) any corporation, person or other entity
(other than the Corporation) makes a tender
or exchange offer for shares of Common Stock
pursuant to which purchases are made
("Offer"), or
7
<PAGE> 8
(ii) the stockholders of the Corporation approve
a definitive agreement to merge or
consolidate the Corporation with or into
another corporation or to sell or otherwise
dispose of all or substantially all of its
assets, or adopt a plan of liquidation, or
(iii) the "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) of
securities representing more than 15% of the
combined voting power of the Corporation is
acquired by any "person" as defined in
sections 13(d) and 14(d) of the Exchange
Act, or
(iv) during any period of two consecutive years,
individuals who at the beginning of such
period were members of the Board cease for
any reason to constitute at least a majority
thereof (unless the election, or the
nomination for election by the Corporation's
stockholders, of each new director was
approved by a vote of at least two-thirds of
the directors then still in office who were
directors at the beginning of such period),
then from and after the date of the first purchase of Common Stock pursuant to
such Offer, or the date of any such stockholder approval of adoption, or the
date on which public announcement of the acquisition of such percentage shall
have been made, or the date on which the change in the composition of the Board
set forth above shall have occurred, whichever is applicable (the applicable
date being referred to hereinafter as the "Acceleration Date"), all outstanding
Options shall be exercisable in full, whether or not otherwise exercisable,
Following the Acceleration Date, the Committee shall, in the case of a merger,
consolidation or sale or disposition of assets, promptly make an appropriate
adjustment to the number and class of shares of Common Stock available for
Options, and to the amount and kind of shares or other securities or property
receivable upon exercise of any outstanding Options after the effective date of
such transaction, and the price thereof.
(4) Paragraphs (2) and (3) of this Section 6(k) shall not
apply to a merger or consolidation in which the Company is the surviving
corporation and shares of Common Stock are not converted into or exchanged for
stock, securities of any other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any consolidation or merger
of another corporation
8
<PAGE> 9
into the Corporation in which the Corporation is the surviving corporation and
in which there is a reclassification or change (including a change to the right
to receive cash or other property) of the shares of Common Stock (other than a
change in par value or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into two or
more classes or series of shares), the Committee shall provide that the holder
of each Option then exercisable shall have the right to exercise such Option
solely for the kind and amount of shares of stock and other securities
(including those of any new direct or indirect parent of the Corporation),
property, cash or any combination thereof receivable upon such reclassification,
change, consolidation or merger by the holder of the number of shares of Common
Stock for which such Option might have been exercised.
(5) In the event of a change in the Common Stock of the
Corporation as presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the Plan.
(6) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
(7) Except as hereinbefore expressly provided in this Section
6(k), the Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class or by reason of any dissolution, liquidation, merger, or consolidation
or spin-off of assets or stock of another corporation, and any issue by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to the Option. The grant of an Option pursuant to the Plan shall
not affect in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structures or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or part of its business or assets.
(l) RIGHTS AS A STOCKHOLDER. An Optionee or a transferee of an Option
shall have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a stock certificate to him or her for
such
9
<PAGE> 10
shares. No adjustment shall be made for dividends (ordinary, or extraordinary,
whether in cash, securities or other property) or distribution of other rights
for which the record date is prior to the date such stock certificate is issued,
except as provided in Section 6(k) hereof.
(m) OTHER PROVISIONS. The Option Agreements authorized under the Plan
shall contain such other provisions, including, without limitation, the
imposition of restrictions upon the exercise of an Option, unless the inclusion
of such provisions would cause the acquisition or disposition of shares of
Common Stock in connection with such Option Agreements to fail to qualify for an
exemption from Section 16(b) of the Exchange Act.
7. TERM OF PLAN.
Options may be granted pursuant to the Plan from time to time
within a period of ten (10) years from the date the Plan is adopted by the
Board.
8. AMENDMENT AND TERMINATION OF THE PLAN.
The Board at any time and from time to time may suspend, terminate,
modify or amend the Plan; provided, however, that no amendment that requires
stockholder approval under applicable law, under the rules or regulations of any
securities exchange or regulatory agency, or in order for the Plan to continue
to comply with Rule 16b-3 (as promulgated under Section 16(b) of the Exchange
Act) shall be effective unless the same shall be approved by the requisite vote
to the stockholders of the Corporation. Except as provided in Section 6 hereof,
no suspension, termination, modification or amendment of the Plan may adversely
affect any Option previously granted, unless the written consent of the Optionee
or, as applicable, a permissible transferee (as provided in Section 6(j)) is
obtained.
9. APPROVAL AND RATIFICATION BY STOCKHOLDERS.
The Plan shall take effect as set forth in Section 12 upon its adoption
by the Board, but shall be subject to its approval and ratification by the
holders of a majority of the issued and outstanding shares of Common Stock of
the Corporation, which approval and ratification must occur within twelve months
after the date that the Plan is adopted by the Board.
10
<PAGE> 11
10. EFFECT OF HEADINGS.
The section and subsection headings contained herein are for
convenience only and shall not affect the construction hereof
11. GOVERNING LAW.
The Plan shall be governed by the laws of the State of Delaware.
12. EFFECTIVE DATE OF PLAN.
The effective date of the Plan is the date the Plan is adopted by the
Board.
11
<PAGE> 1
Exhibit 21.1
CoreComm Limited Subsidiaries
CoreComm Billing, Inc.
CoreComm Newco, Inc.
CoreComm Ohio Limited (Bermuda)
CoreComm Operating Co. Ltd. (Bermuda)
CoreComm Services, Inc.
CoreComm Telco, Inc.
CoreComm Arizona, Inc.
CoreComm California, Inc.
CoreComm Colorado, Inc.
CoreComm Connecticut, Inc.
CoreComm Delaware, Inc.
CoreComm District of Columbia, Inc.
CoreComm Florida, Inc.
CoreComm Georgia, Inc.
CoreComm Illinois, Inc.
CoreComm Indiana, Inc.
CoreComm Kansas, Inc.
CoreComm Louisiana, Inc.
CoreComm Maryland, Inc.
CoreComm Massachusetts, Inc.
CoreComm Michigan, Inc.
CoreComm Minnesota, Inc.
CoreComm Missouri, Inc.
CoreComm Nevada, Inc.
CoreComm New Jersey, Inc.
CoreComm North Carolina, Inc.
CoreComm Oklahoma, Inc.
CoreComm Oregon, Inc.
CoreComm Pennsylvania, Inc.
CoreComm Texas, Inc.
CoreComm Virginia, Inc.
CoreComm Washington, Inc.
CoreComm Wisconsin, Inc.
Cortelyou Communications Corp.
Digicom, Inc.
FCC Holdco I, Inc.
FCC Holdco II, Inc.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Independent
Auditors" and "Selected Financial Data" and to the use of our report dated April
24, 1998 with respect to the financial statements of OCOM Corporation Telecoms
Division appearing in this Information Statement.
ERNST & YOUNG, LLP
Columbus, Ohio
August 18, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Independent
Auditors" and "Selected Financial Data" and to the use of our report dated June
2, 1998 with respect to the balance sheet of CoreComm Limited appearing in this
Information Statement.
ERNST & YOUNG, LLP
New York, New York
August 18, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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