<PAGE>
- --------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 333-58693
------------------------
LOGIX COMMUNICATIONS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OKLAHOMA 73-1533356
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3555 NW 58TH, 73112
TENTH FLOOR (Zip Code)
OKLAHOMA CITY, OKLAHOMA
(Address of principal executive
offices)
</TABLE>
(405) 516-8400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO 12(G) OF THE ACT: NONE
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of May 5, 2000, there were 71,250,000 shares of the registrant's $.01 par
value Class A Common Stock outstanding, of which 1,752,242 shares were
beneficially owned by persons not affiliated with the registrant. There is no
established market value for the registrant's Class A Common Stock.
- --------------------------------------------------------------------------------
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<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
- --------------------- --------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
1 Condensed Consolidated Financial Statements (Unaudited):.... 3
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999..................................... 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999................ 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999................ 5
Notes to Condensed Consolidated Financial Statements........ 6
2 Management's Discussion and Analysis of Financial Condition
and Results of
Operations................................................ 13
3 Quantitative and Qualitative Disclosure About Market Risk... 19
PART II. OTHER INFORMATION
1 Legal Proceedings........................................... 20
2 Changes in Securities and Use of Proceeds................... 20
3 Defaults Upon Senior Securities............................. 20
4 Submission of Matters to a Vote of Security Holders......... 20
5 Other Information........................................... 20
6 Exhibits and Reports on Form 8-K............................ 20
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,990 $ 672
Restricted cash and investments........................... 40,971 40,079
Accounts receivable, net.................................. 17,359 21,792
Receivables--affiliates................................... 999 1,376
Prepaid expenses.......................................... 1,189 3,269
Other current assets...................................... 1,576 1,581
--------- ---------
Total current assets.................................... 74,084 68,769
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 120,115 121,136
--------- ---------
OTHER ASSETS:
Restricted cash and investments........................... 21,005 21,062
Goodwill, net............................................. 119,063 121,279
Deferred financing costs, net............................. 11,449 13,345
Excess of cost over original cost of assets acquired,
net..................................................... 2,463 2,486
Investment in unconsolidated partnership and other........ 2,023 1,885
Other intangibles, net.................................... 4,408 4,698
--------- ---------
Total other assets...................................... 160,411 164,756
--------- ---------
Total assets............................................ $ 354,610 $ 354,661
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 13,735 $ 23,776
Accrued expenses.......................................... 22,255 9,086
Deferred revenue and customer deposits.................... 2,340 2,346
Current portion of long-term debt......................... 1,207 1,404
--------- ---------
Total current liabilities............................... 39,537 36,612
--------- ---------
LONG-TERM DEBT, net of current portion...................... 383,731 438,330
INVESTMENT TAX CREDITS...................................... 97 99
COMMITMENTS (Note 5)
SENIOR EXCHANGEABLE PREFERRED STOCK......................... 90,000 --
STOCKHOLDER'S DEFICIT:
Common stock, $.01 par value, 100,000,000 shares
authorized and 71,250,000 shares issued and outstanding
in 2000 and 1999........................................ 713 713
Paid-in capital........................................... 11,448 11,448
Retained deficit.......................................... (170,916) (132,541)
--------- ---------
Total stockholder's deficit............................. (158,755) (120,380)
--------- ---------
Total liabilities and stockholder's deficit................. $ 354,610 $ 354,661
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUE..................................................... $ 27,014 $ 28,554
OPERATING EXPENSES:
Cost of service........................................... 24,857 20,295
Selling, general and administrative....................... 15,676 13,299
Severance costs........................................... 2,579 --
Depreciation and amortization............................. 6,221 4,538
----------- -----------
Total operating expenses................................ 49,333 38,132
----------- -----------
OPERATING LOSS.............................................. (22,319) (9,578)
----------- -----------
OTHER INCOME (EXPENSES):
Interest income........................................... 978 1,776
Interest expense.......................................... (14,508) (11,681)
Other..................................................... 4 42
----------- -----------
Total other expenses.................................... (13,526) (9,863)
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM.............................. (35,845) (19,441)
----------- -----------
EXTRAORDINARY ITEM (Note 2)................................. (2,533) --
----------- -----------
NET LOSS.................................................... $ (38,378) $ (19,441)
----------- -----------
BASIC NET LOSS PER SHARE:
Before extraordinary item................................. $ (.50) $ (.27)
Extraordinary item........................................ (.04) --
----------- -----------
BASIC NET LOSS PER SHARE.................................... $ (.54) $ (.27)
=========== ===========
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............ 71,250,000 71,250,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(38,378) $(19,441)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................... 6,221 4,538
Amortization of bond premium and financing costs........ 382 515
Deferred investment tax credits......................... (2) (2)
Equity in income of unconsolidated partnership.......... (1) (46)
Extraordinary loss on financing costs................... 2,533 --
Changes in current assets and liabilities--
Accounts receivable..................................... 4,433 (1,466)
Prepaid expenses........................................ 2,080 126
Other current assets.................................... 5 (554)
Accounts payable........................................ (10,041) (9,318)
Accrued expenses........................................ 13,169 10,207
Deferred revenue and customer deposits.................. (6) (23)
-------- --------
Net cash used in operating activities................. (19,605) (15,464)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (2,523) (9,893)
Purchase of other assets.................................. (145) (37)
Decrease in receivable--affiliates........................ 377 4,208
Investment in unconsolidated partnership and other........ (137) 171
-------- --------
Net cash used in investing activities................. (2,428) (5,551)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 45,000 --
Repayments of long-term debt.............................. (49,796) (365)
Sale of senior exchangeable preferred stock............... 40,000 --
Interest on restricted investments........................ (892) (1,275)
Deferred financing costs.................................. (961) (18)
-------- --------
Net cash provided by (used in) financing activities... 33,351 (1,658)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 11,318 (22,673)
CASH AND CASH EQUIVALENTS, beginning of period.............. 672 31,675
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 11,990 $ 9,002
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)....... $ 2,190 $ 961
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. ORGANIZATION:
Logix Communications Enterprises, Inc. (the "Company" or "Logix") was
incorporated as an Oklahoma corporation under the name Dobson Wireline Company
in December 1997, as part of a reorganization by its former parent company,
Dobson Communications Corporation ("Dobson Communications"). Its name was
changed to Logix Communications Enterprises, Inc. in October 1998. On
January 24, 2000, Dobson Communications distributed Logix's stock to certain
Dobson Communications' shareholders.
Logix is a leading provider of integrated local and long distance, data and
other telecommunications services to small and medium-sized business customers
throughout its region. The Company provides these services through two business
segments: integrated communications provider ("ICP") operations and incumbent
local exchange carrier ("ILEC") operations. The Company has operations in
Oklahoma, Texas, Missouri and Arkansas.
ICP
The Company commenced its ICP operations in December 1997 through its
subsidiary, Logix Communications Corporation ("LCC"). The Company's ICP
operations generate revenue from local exchange, intrastate and interstate
services, enterprise network, enhanced data, Internet and intranet services,
private line, integration services, long-haul transport services and customer
premise equipment. The Company currently provides these services primarily to
customers in markets in Arkansas, Colorado, Missouri, Oklahoma and Texas. As of
March 31, 2000, the Company's ICP operations served 57,355 access lines
equivalents compared to 43,583 access lines equivalents as of March 31, 1999.
The increase was mainly due to the Company's internal growth and expansion into
seven additional cities in Texas, Missouri and Arkansas. The Company recently
re-evaluated the methodology utilized in reporting access line equivalents, and
as a result, restated the access line equivalents previously reported.
The Company has a 20% interest in and manages the Forte of Colorado, General
Partnership which provides fiber optic telecommunication service between
Springfield, Colorado and Colorado Springs, Colorado. The entity which holds the
20% interest is Dobson Fiber/FORTE of Colorado, Inc.
LCC's operations are affected by the competitive environment in which LCC
operates. LCC's performance will further be affected by its ability to lease
adequate trunking capacity from ILECs or other ICPs, complete the integration of
its operations support systems and other back office systems, develop a
sufficient customer base, and attract, retain, and motivate qualified personnel.
LCC's networks and telecommunications services are subject to significant
regulation at the federal, state and local levels. Delays in receiving required
regulatory approvals or the enactment of new adverse regulation or regulatory
requirements may have an adverse effect upon LCC. Although management believes
that LCC will be able to successfully mitigate these risks, there is no
assurance that LCC will be able to do so or that LCC will operate profitably in
the near future. Expenses are expected to exceed revenues in each location in
which LCC offers service until a sufficiently large customer base is established
to generate substantial additional revenues.
6
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
1. ORGANIZATION: (CONTINUED)
ILEC
The Company, through Dobson Telephone Company, Inc. ("Dobson Telephone"),
provides wireline telephone service to nine adjoining exchanges in western
Oklahoma and three adjoining exchanges adjacent to the eastern Oklahoma City
metropolitan area. Dobson Telephone operates under the authority of the Federal
Communications Commission ("FCC"). Rates charged by Dobson Telephone are
regulated by the FCC and the Oklahoma Corporation Commission. Dobson Telephone,
like other wireline companies that operate in rural areas where the cost to
provide service is higher than normal, receives high cost support funds from
state jurisdictions and the federal universal service fund. Approximately 31.7%
and 29.6% of the Company's revenue from its ILEC operations for the three months
ended March 31, 2000 and 1999, respectively, was from these two sources. The
Company's ILEC operations served 13,916 access lines as of March 31, 2000 and
13,588 access lines as of March 31, 1999.
CAPITAL RESOURCES AND GROWTH
The Company's successful implementation of its strategy, including the
further expansion of its customer base is dependent upon securing adequate
capital resources. The Company's resources include mortgage notes payable,
financing from Dobson CC Limited Partnership ("DCCLP"), cash flow from
operations and certain shareholder commitments. DCCLP is committed to assisting
the Company in obtaining funds to support the Company's operations, as needed,
if needed, in 2000. In addition, the Company expects to pursue additional
financing in the near term.
The Company's ability to manage future growth will depend upon its continued
ability to monitor operations, control costs and maintain effective quality
controls which could result in higher operating expenses. Any failure to
adequately manage these areas and to implement and improve such systems,
procedures and controls in an efficient manner at a pace consistent with the
growth of the Company's business could have an adverse effect on the Company's
business, financial condition and results of operations.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements of the Company include the accounts of
Logix, Dobson Telephone, LCC and Dobson Fiber/FORTE of Colorado, Inc. For
financial reporting puposes, the Company consolidates each subsidiary and
partnership in which it has a controlling interest. All significant intercompany
accounts and transactions have been eliminated. Investments in unconsolidated
partnerships where the Company does not have a controlling interest are
accounted for under the equity method. In the opinion of management, the
consolidated financial statements reflect all normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods presented.
The significant accounting policies followed in the preparation of the
quarterly financial statements are the same as those disclosed in the 1999 Logix
Communications Enterprises, Inc. Annual Report on Form 10-K. Reference is made
herein to the "Notes to Consolidated Financial Statements" under Item 8 of the
1999 Form 10-K for additional disclosure.
7
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
1. ORGANIZATION: (CONTINUED)
SEVERANCE COSTS
As a result of the changes in executive officers and a reduction in force,
the Company incurred approximately $2.6 million in severance costs for the
quarter ending March 31, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the previously presented 1999
balances to conform them to the 2000 presentation.
2. LONG-TERM DEBT:
The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
($ IN THOUSANDS)
<S> <C> <C>
Senior Notes.......................................... $350,000 $350,000
Mortgage notes payable................................ 34,938 35,234
DCCLP Credit Facility................................. -- 5,000
Senior Credit Facility................................ -- 49,500
-------- --------
Total debt.......................................... 384,938 439,734
Less--Current maturities.............................. 1,207 1,404
-------- --------
Total long-term debt................................ $383,731 $438,330
======== ========
</TABLE>
DCCLP CREDIT FACILITY
In December 1999, the Company closed on a $20 million unsecured credit
facility with DCCLP, ("DCCLP Credit Facility"). The DCCLP Credit Facility was
structured as 12.25% zero coupon debt increasing by 1% after three months after
the issuance date and at the end of each subsequent three month period until the
rate cap reached 20%. On March 16, 2000, the Company increased its amount
outstanding on the DCCLP Credit Facility from $20 million to $50 million. Of the
additional $30 million in proceeds, $10 million was utilized to pay down the
Senior Credit Facility and the remaining availability was utilized to fund
operations. On March 30, 2000, the DCCLP Credit Facility was converted to senior
exchangeable preferred stock. (See Note 3.)
SENIOR CREDIT FACILITY
On April 8, 1999, LCC closed on a $75 million revolving credit facility
("Senior Credit Facility"). Borrowings under the Senior Credit Facility were
secured by all current and future assets of LCC. Interest on borrowings under
the Senior Credit Facility accrued at variable rates. The total commitment was
to be fully reduced by March 31, 2005. Upon closing the Senior Credit Facility,
the Company had availability of $30 million. On September 13, 1999, the Senior
Credit Facility was amended and restated to increase the availability
$20 million for a total commitment of $50 million. During the first quarter of
2000, the Senior
8
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
2. LONG-TERM DEBT: (CONTINUED)
Credit Facility was fully repaid with proceeds from the DCCLP Credit Facility
and issuance of senior exchangeable preferred stock. (See Note 3.) Deferred
financing costs previously capitalized relating to the Senior Credit Facility
were written-off as an extraordinary item in the first quarter 2000.
3. SENIOR EXCHANGEABLE PREFERRED STOCK
On March 30, 2000, the Company issued to DCCLP 90,000 shares of 15% Class A
Senior Exchangeable Preferred Stock manditorily redeemable in 2010 for $1,000
per share ("Preferred Stock"). The net proceeds from the sale of the Preferred
Stock were used to retire the Senior Credit Facility. The $50 million
outstanding under the DCCLP Credit Facility was converted to Preferred Stock,
and for cash flow purposes is a non-cash financing activity. Logix recognized a
pretax loss of $2.5 million as a result of writing off previously capitalized
financing costs associated with the Senior Credit Facility. Holders of the
Preferred Stock are entitled to cumulative dividends from the date of issuance
and a liquidation preference of $1,000 per share with rights over the other
classes of capital stock. Additionally, the Preferred Stock is redeemable at the
Company's option. Holders of the Preferred Stock have no voting rights.
4. REPORT OF BUSINESS SEGMENTS:
The Company operates in two reportable segments: ICP and ILEC. These
segments are strategic business units that offer different products and
services. These segments are managed separately because the ICP segment is a
competitive communications provider and the ILEC segment is a regulated public
utility. The accounting policies of the segments are the same as those of the
Company. The Company evaluates and measures performance of each segment based on
Adjusted EBITDA, which is defined by the Company as earnings before interest
expense, income taxes, depreciation and amortization, other income (expense) and
extrarodinary items. The Company accounts for intersegment sales and transfers
as if the sales or transfers were arm's length transactions with third parties
at current market prices. The Company allocates corporate overhead, income taxes
and amortization of deferred financing cost to both segments.
9
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
4. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
The segments do not have significant non-cash items other than depreciation and
amortization. A summary of the Company's operations by segment is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
------------------------------
ICP ILEC TOTAL
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
External.................................... $ 23,696 $3,318 $ 27,014
Intersegment................................ 1,139 -- 1,139
Intersegment revenue(1)..................... -- -- (1,139)
-------- ------ --------
Total operating revenue................... $ 24,835 $3,318 $ 27,014
-------- ------ --------
Adjusted EBITDA(2).............................. $(17,629) $1,531 $(16,098)
Depreciation and amortization................... (5,476) (745) (6,221)
Interest expense, net(3)........................ (13,085) (445) (13,530)
Other income (expense), net..................... 4 -- 4
-------- ------ --------
Income (loss) before extraordinary items.... $(36,186) $ 341 $(35,845)
======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------------------
ICP ILEC TOTAL
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue--
External.................................... $ 24,552 $4,002 $ 28,554
Intersegment................................ 912 -- 912
Intersegment revenue(1)..................... -- -- (912)
-------- ------ --------
Total operating revenue................... $ 25,464 $4,002 $ 28,554
-------- ------ --------
Adjusted EBITDA(2)............................ $ (7,940) $2,900 $ (5,040)
Depreciation and amortization................. (3,820) (718) (4,538)
Interest expense, net(3)...................... (9,462) (443) (9,905)
Other income (expense), net................... 42 -- 42
-------- ------ --------
Income (loss) extraordinary items......... $(21,180) $1,739 $(19,441)
======== ====== ========
</TABLE>
10
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
4. REPORT OF BUSINESS SEGMENTS: (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
INVESTMENT INFORMATION:
Segment assets--
ICP............................................... $300,331 $300,846
ILEC.............................................. 56,429 55,965
Intersegment receivables(1)....................... (2,150) (2,150)
-------- --------
Total segment assets............................ $354,610 $354,661
======== ========
OTHER INFORMATION:
Capital expenditures--
ICP............................................... $ 2,113 $ 36,037
ILEC.............................................. 410 11,389
-------- --------
Total capital expenditures...................... $ 2,523 $ 47,426
======== ========
</TABLE>
- ------------------------
1) The intersegment eliminations were included to reconcile reportable segment
activities to the Company's consolidated totals.
2) Adjusted EBITDA, which is defined by the Company as earnings before interest
expense, income taxes, depreciation and amortization, other income (expense)
and extraordinary items.
3) Included in interest expense is amortization expense of deferred financing
costs.
5. COMMITMENTS:
In May 1998, the Company entered into a three year carrier service agreement
with Sprint for long distance capacity which provided for a minimum commitment
of $8.3 million, subject to upward adjustment depending on actual use. In
January 2000, the Company amended its agreement to reduce its total minimum
commitment to $7.4 million. Of this commitment, $2.9 million remained at
March 31, 2000.
In June 1998, the Company entered into an agreement with MCI WorldCom to
lease long distance capacity for thirty-six months with an aggregate minimum
commitment during the term of the lease of $18 million. In December 1999, the
Company amended the agreement to reduce its minimum monthly commitment from
$.5 million to $.4 million and its total minimum commitment to $15.6 million,
effective in January 2000 through the end of the agreement. Of this commitment,
it is estimated that less than $6.0 million remains as of March 31, 2000.
On June 30, 1998, the Company agreed to purchase $25.2 million of switching
equipment from Nortel Networks Corporation ("Nortel") prior to June 30, 2000 for
its ICP operations. On March 29, 2000, Nortel agreed to release the Company from
any and all future obligations under this commitment.
Also on June 30, 1998, the Company agreed to purchase $13.7 million of
customer support services from ACE*COMM over a 60 month period ending in
July 2003. In October 1999, the Company and ACE*COMM amended the contract, and
the Company agreed to pay $1.5 million for software maintenance costs over a
three year period, and $1 million for software product enhancements over a one
year
11
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
5. COMMITMENTS: (CONTINUED)
period, for a total commitment of $2.5 million. Of this commitment,
$2.0 million remained at March 31, 2000.
On January 24, 2000, Dobson Communications distributed the stock of Logix to
the holders of its old Class A Common Stock and Class D Preferred Stock. Dobson
Communications executed an agreement with DCCLP under which DCCLP agreed not to
take any action which may result in Dobson Communications recognizing taxable
income because of the Logix spin-off unless DCCLP causes Logix to execute an
agreement to indemnify Dobson Communications for any income tax, together with
any penalties or interest thereon, incurred by Dobson Communications solely
attributable to the distribution of Logix stock and arising as a result of the
actions of the Logix shareholders. In connection with the distribution, the tax
sharing agreement with Dobson Communications was terminated. As a result of the
termination, Logix may owe Dobson Communications a net tax settlement. However,
Logix does not expect any tax settlement to be material to the results of
operations.
6. EMPLOYEE BENEFIT PLAN:
Effective January 1, 2000, Logix created a 401(k) plan ("Logix 401(k) Plan")
to replace the Dobson 401(k) Plan. The Logix employees' assets from the Dobson
401(k) Plan were transferred to the Logix 401(k) Plan. The Logix 401(k) Plan has
the same terms and conditions as the Dobson 401(k) Plan.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis presents factors we believe are
relevant to an assessment and understanding of our consolidated financial
position and results of operation. This financial and business analysis should
be read in conjunction with our consolidated financial statements and notes
thereto in Item 1.
OVERVIEW
We are an integrated communications provider, or ICP, and an incumbent local
exchange carrier, or ILEC. We were incorporated as an Oklahoma Corporation in
December 1997. We have network facilities in the southwestern United States and
serve small and medium-sized businesses in Amarillo, Austin, Corpus Christi,
Dallas, El Paso, Ft. Worth, Houston, Kansas City, Little Rock, Oklahoma City,
St. Louis, San Antonio, Springfield, Tulsa, and in other cities in Oklahoma and
Texas. We are a "one-stop" provider of integrated communications services with a
core suite of voice and data communications services including local, long
distance, long-haul transport, enhanced data, high speed Internet access and
customer premise equipment. We are continually evaluating additional products
and services to add to our offerings. For the three months ended March 31, 2000,
we provided our services to over 43,000 local and long distance customers, had
71,271 revenue-producing access lines equivalents and generated revenues of
$27.0 million. On June 15, 1998, we acquired American Telco for $131.5 million.
American Telco is included in our operations from the date of its acquisition.
REVENUE
ICP OPERATIONS. Our ICP operation generates revenue from local exchange,
intrastate and interstate services, enterprise network, enhanced data, Internet
and intranet services, private line, integration services, long-haul transport
services and customer premise equipment. As of March 31, 2000, our ICP
operations had 57,355 revenue-producing access lines equivalents compared to
43,583 access lines equivalents as of March 31, 1999. During the quarter, we
modified our definition of an access line equivalent, or ALE, to be a revenue
producing end user. As a result, of this change, we reduced our ALE count by
9,131 to 71,271 and restated the number of ALE's in prior periods. Excluding the
one-time adjustment, the increase in lines was mainly due to our growth and
expansion into seven additional cities in Texas, Missouri and Arkansas. We began
offering local facilities-based ICP services in October 1997 and currently
provide these services to customers in major markets in Oklahoma and Texas.
We offer ICP services at prices that are competitive to the incumbent local
exchange carriers. We believe that while pricing is an important element of our
marketing, small and medium-sized businesses are also focused on customer care,
bundled telecommunications services with one point of contact for sales and
service, and consistent quality of service when making their purchase decisions.
During recent years, the market prices for many telecommunications services
have declined. We believe that this trend is likely to continue and may have a
negative effect on our gross margins that may not be offset completely by
savings from the decrease in our cost of service.
Current industry statistics demonstrate that there is a significant turnover
of customers within our industry. We believe that the turnover is especially
high when customers are buying resold services or only long distance services.
We believe that by offering an integrated package of telecommunications and data
services, and by providing superior customer care, we will be able to enhance
our customer retention rate.
Our facilities-based customers provide higher gross margins than do our
resale customers. Beginning in December 1998, we initiated a plan to focus on
providing only facilities-based services. In March 1999, as part of this
strategy, we increased the rates for all resale services to equal those charged
by the Regional Bell Operating Companies, or RBOCs. As a result, some of our
resale customers terminated our services. In July 1999, we began converting our
resale customers to our unbundled network element platform, or
13
<PAGE>
UNE-P facilities-based services. We expect to maintain a base of resale
customers for the foreseeable future due to some product offerings that are
available via resale but are not available (or are prohibitively costly to
offer) via facilities-based service. The table below sets forth the historical
composition, including the one-time adjustment, of access lines between resale
and facilities-based and the recent additions for both resale and
facilities-based lines:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
ACCESS LINES
Facilities-Based....................................... 42,124 11,314
Resale................................................. 15,231 32,269
------ ------
TOTAL ACCESS LINES................................... 57,355 43,583
====== ======
NET ADDITIONS
Facilities-Based....................................... 1,754 4,488
Resale................................................. (1,776) 253
------ ------
TOTAL NET ADDITIONS TO ACCESS LINES.................. (22) 4,741
====== ======
PERCENTAGE OF NET ADDITIONS
Facilities-Based....................................... 100.0% 94.6%
Resale................................................. -- 5.4%
</TABLE>
INCUMBENT LOCAL EXCHANGE CARRIER OPERATIONS. Through our predecessors, we
began providing ILEC services in 1936. We currently own and operate nine
adjoining exchanges in western Oklahoma and three adjoining exchanges adjacent
to the eastern Oklahoma City metropolitan area. As of March 31, 2000, our ILEC
operations served 13,916 access lines compared to 13,588 access lines as of
March 31, 1999.
Our ILEC revenues consist of:
- end user revenue, which includes charges for local service and enhanced
services such as call waiting and call forwarding;
- access revenue, which is paid by long distance carriers for providing
access from the long distance carrier's point of presence to the end user
who makes or receives a long distance call; and
- support revenue, which is paid by federal and state agencies to companies,
such as us, which operate in areas where factors such as geographic
conditions and/or subscriber density increase the cost of providing
service.
Support revenue consists of high cost funds, or HCF, from state agencies and
universal service funds, or USF, from federal and state agencies.
The following table reflects the amount of support funds we received and the
share of our ILEC revenue it represented for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
-------- --------
($ IN MILLIONS)
<S> <C> <C>
Support revenue........................................... $ 1.1 $ 1.2
Percentage of incumbent local exchange carrier revenue.... 31.7% 29.6%
</TABLE>
The Telecommunications Act potentially impacts our sources of support
revenue. Under previous regulation, access charges contained implicit support
for high cost areas. Regulations adopted pursuant to
14
<PAGE>
the Telecommunications Act would remove implicit support from access charges and
place more emphasis for such support on HCF/USF. In May 1997, the FCC adopted
changes that may, over time, reduce or eliminate subsidies to telephone
companies in areas where the cost of connecting and maintaining phone lines is
demonstrated to be above the industry or area norm. We will continue to pursue
our strategy to lessen the impact of any future regulatory changes by reducing
our operating costs through consolidation of operational functions to achieve
economies of scale.
COSTS AND EXPENSES
Our primary expense categories include cost of service, selling, general and
administrative expenses, or SG&A, and depreciation and amortization.
Cost of service for our ICP operations consist primarily of fixed costs for
leased lines, the variable costs of origination, termination and access services
provided through ILECs and other telecommunications companies. We have deployed
several digital switching platforms with local and long distance capability and
we lease fiber trunking capacity from incumbent local exchange carriers and
other ICPs to connect our switches with our transmission equipment collocated in
ILEC central offices.
Depending on the type of services we provide, we may deploy high capacity
digital connections, including the lease of unbundled loops from the ILEC to
connect our customers' and other carriers' networks to our network. The lease
charges for unbundled loops vary by ILEC, and are regulated by state authorities
pursuant to the Telecommunications Act. ILECs typically charge both a startup
fee as well as monthly recurring fee for use of their central offices for
collocation.
We will use our own fiber network, where available, to carry long distance
traffic and will also enter into resale agreements with long distance carriers
for transmission services. These agreements typically provide for the resale of
long distance services on a per-minute basis and may contain minimum volume
commitments. We may be obligated to pay under-utilization charges in the event
we over-estimate our requirements; however, in the event we underestimate our
need for transmission capacity, we may be required to obtain capacity through
more expensive means. See "Liquidity and Capital Resources."
Our SG&A includes all infrastructure costs such as selling, customer
support, corporate administration, personnel and network maintenance. Selling
expenses include commissions for our sales program. We pay commissions to direct
sales persons for new business generated with additional incentives for multiple
service offerings and long-term contracts. We also pay commissions to
independent sales agents for generating new sales and ongoing sales to existing
customers. As our customer base grows, and if we expand into new geographic
markets, add new sales offices and facilities and enlarge our current product
offerings, the cost of service and SG&A would be expected to increase. As we
grow, over time we expect SG&A to decrease as a percentage of our revenues.
Our depreciation and amortization represents the costs associated with the
depreciation of our fixed assets and the amortization of our intangible assets,
primarily goodwill related to our acquisition of American Telco.
15
<PAGE>
RESULTS OF OPERATIONS
In the text below, financial statement numbers have been rounded; however,
the percentage changes are based on the actual financial statements.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
REVENUE. For the three months ended March 31, 2000, total revenue decreased
$1.6 million, or 5.4%, to $27.0 million from $28.6 million in 1999. The
following table sets forth the components of our revenue for the three months
ended March 31:
<TABLE>
<CAPTION>
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
ICP....................................................... $23,696 $24,552
ILEC...................................................... 3,318 4,002
------- -------
$27,014 $28,554
======= =======
</TABLE>
ICP. Our ICP revenue decreased $.9 million, or 3.5%, to $23.7 million for
the three months ended March 31, 2000, from $24.6 million for 1999. Although we
experienced increased equipment sales, increased sales by our fiber operations
and facilities-based access line growth, excluding the one-time adjustment,
additional customer credits and price deterioration of long distance charges
were the primary factors relating to the decrease in revenue. ICP revenue also
includes fiber long-haul transport services provided to both third parties and
to our affiliates.
ILEC. Our ILEC revenue decreased $.7 million, or 17.1%, to $3.3 million for
the three months ended March 31, 2000, compared to $4.0 million for the three
months ended March 31, 1999. The decrease in revenue primarily related to a
carrier access billing re-rate retroactively applied in the first quarter of
2000. Access lines were 13,916 as of March 31, 2000 compared to 13,588 as of
March 31, 1999.
COST OF SERVICE. For the three months ended March 31, 2000, our total cost
of service increased $4.6 million, or 22.5%, to $24.9 million from
$20.3 million in the comparable period of 1999. These costs consisted primarily
of wholesale charges from third party service providers relating to our ICP
segment. Wholesale cost increases were due to increases in fixed network
charges. The following table sets forth the components of the Company's cost of
service for the three months ended March 31:
<TABLE>
<CAPTION>
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
ICP....................................................... $24,278 $20,085
ILEC...................................................... 579 210
------- -------
Total................................................... $24,857 $20,295
======= =======
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE. For the three months ended March 31,
2000, our SG&A costs increased $2.4 million, or 17.9%, to $15.7 million compared
to $13.3 million for the three months ended March 31, 1999. The increase was
primarily related to increased reserves for uncollectible accounts of
$2.6 million. Excluding this item, SG&A decreased slightly from quarter to
quarter.
SEVERANCE COSTS. During the first quarter of 2000, we incurred
$2.6 million of severance costs as a result of changes in executive officers and
a reduction in force within the Company.
DEPRECIATION AND AMORTIZATION EXPENSE. For the three months ended
March 31, 2000, depreciation and amortization expense increased $1.7 million, or
37.1%, to $6.2 million from $4.5 million for the same period of 1999. Our ICP
segment's depreciation and amortization expense increased $1.7 million, to
$5.5 million from $3.8 million. This increase is primarily a result of
depreciation and amortization on assets
16
<PAGE>
purchased during the year and assets acquired, including goodwill, in our
acquisition of American Telco. Our ILEC segment's depreciation remained
consistent from period to period at $.7 million for the three months ended
March 31, 2000 and 1999.
INTEREST INCOME. Interest income decreased $.8 million, or 44.9%, to
$1.0 million for the three months ended March 31, 2000, from $1.8 million for
the same period in 1999. Decreased interest income was a result of a decrease of
funds held in escrow from the issuance of our 12.25% senior notes due 2008.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
2000 increased $2.8 million, to $14.5 million from $11.7 million for the three
months ended March 31, 1999. The ICP segment's interest expense increased
$2.9 million, or 25.2%, to $14.1 million in 2000, from $11.2 million in 1999.
The increase related to increased interest expense as a result of our
$50 million senior credit facility established in April 1999. The senior credit
facility was fully repaid on March 30, 2000. The ILEC segment's interest expense
remained consistent from period to period at $.4 million for the three months
ended March 31, 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have required, and will likely continue to require, substantial capital
to successfully implement our business plan. We have financed our operations
through cash flows from operating activities, as well as through debt and equity
financing. Significant sustained growth in our cash flows is necessary to meet
our debt service requirements, including our obligations on our senior notes. We
expect negative cash flows and loss before income taxes and extraordinary items
to continue at least through the fiscal year of 2000 and to continue as we
expand our ICP operations. In addition, our ILEC segment receives support
revenue from federal and state agencies that accounted for approximately 31.7%
and 29.6% of our ILEC revenue for the three months ended March 31, 2000 and
1999, respectively.
NET CASH FLOW
Our net cash used in operating activities was $19.6 million and
$15.5 million for the three months ended March 31, 2000 and 1999, respectively.
Our net cash used in investing activities was $2.4 million and $5.6 million
for the three months ended March 31, 2000 and 1999, respectively. Investing
activities for the first quarter of 2000 primarily related to capital
expenditures. During 1999, our first quarter investing activities primarily
related to capital expenditures offset by a decrease in affiliate receivables.
Our net cash provided by (used in) financing activities was $33.4 million
and $(1.7) million for the three months ended March 31, 2000 and 1999,
respectively. During 2000, our first quarter financing activities related to the
increase in the DCCLP credit facility and issuance of preferred stock (see
Capital Resources). This increase was offset by the repayment of the
$50 million senior credit facility. The net cash used in financing activities
during the first quarter of 1999 primarily resulted from interest earned on the
restricted investments purchased to finance the Senior Note offering and
repayments of long-term debt.
CAPITAL RESOURCES
On March 30, 2000, we issued to DCCLP 90,000 shares of 15% Class A Preferred
Stock manditorily redeemable in 2010 for $1,000 per share. The net proceeds from
the sale of the preferred stock were used to repay the senior credit facility.
The $50 million outstanding under the DCCLP credit facility was converted to
preferred stock. We recognized a pretax loss of approximately $2.5 million as a
result of writing off previously capitalized financing costs associated with the
senior credit facility. This appears as an extraordinary item in the statement
of operations. Holders of the preferred stock are entitled to cumulative
dividends from the date of issuance and a liquidation preference of $1,000 per
share with rights over the other classes of capital stock and junior to the
senior notes. The preferred stock is redeemable at
17
<PAGE>
our option at any time and must be redeemed by April 1, 2010. Holders of the
preferred stock have no voting rights.
We have outstanding $350 million aggregate principal senior notes that
mature in 2008. The senior notes bear interest at an annual rate of 12.25%,
payable semi-annually on each June 15 and December 15, beginning December 15,
1999. The senior note indenture contains restrictive covenants that place
limitations on our various activities to include indebtedness, asset sales,
liens and transactions with stockholders and affiliates. As of March 31, 2000,
we were in compliance with our restrictive covenants. Of the net proceeds from
the sale of these notes, we used $122 million to purchase securities we have
pledged to secure the first six semi-annual interest payments on these notes.
The restricted cash and investment balance at March 31, 2000, relating to these
purchased securities was $62.0 million
The ILEC has funded its operations through several RUS/RTB loans with
various origination dates. The RUS/RTB existing loans have scheduled maturities
between 2000 and 2028. In October 1998, RUS/ RTB approved an additional 17 year
loan facility that will provide us with $16.9 million in loan funds. As of
March 31, 2000, we had borrowed $8.7 million under this additional facility.
Under the RUS/RTB facility, we must maintain certain financial ratios, and our
failure to maintain these ratios would constitute an event of default,
notwithstanding our ability to meet our debt service obligations. As of
March 31, 2000, we were in compliance with our financial covenants.
CAPITAL COMMITMENTS
Our capital expenditures for the three months ended March 31, 2000 and 1999,
respectively, were $2.5 million and $9.9 million. We expect our capital
expenditures to total approximately $30-$35 million for 2000, of which
$24 million relates to the ICP operations. Our planned capital expenditures are
primarily to:
- upgrade switch and outside plant facilities;
- provide success-based customer premise equipment;
- provide operational support system, or OSS, enhancements; and
- enhance billing systems.
We expect continued capital expenditures for our ICP operations to be made
after 2000, primarily for OSS enhancements, switch expansion and/or upgrades and
collocation. The amount and timing of our capital expenditures may differ
materially from the foregoing estimate depending on numerous factors, including
the rate at which we expand and develop our networks and customer base, our
ability to negotiate favorable prices for purchases of equipment and to acquire
and integrate necessary operations support systems and other back office
systems, whether we consummate additional acquisitions and other factors beyond
our control, such as economic conditions, competition, market and regulatory
developments and availability of capital.
In May 1998, we entered into a three year carrier service agreement with
Sprint for long distance capacity which provides for a minimum commitment of
$8.3 million, subject to upward adjustment depending on actual use. In
January 2000, we amended our agreement to reduce our total minimum commitment to
$7.4 million. Of this committment, $2.9 million remained at March 31, 2000.
In June 1998, we entered into an agreement with MCI WorldCom to lease long
distance capacity for thirty-six months with an aggregate minimum commitment
during the term of the lease of $18 million. In December 1999, we amended our
agreement to reduce our minimum monthly commitment from $.5 million to
$.4 million and our total minimum commitment to $15.6 million, effective in
January 2000 through the end of the agreement. Of this commitment, it is
estimated that less than $6.0 million remains as of March 31, 2000.
18
<PAGE>
On June 30, 1998, we agreed to purchase $25.2 million of switching equipment
from Nortel Networks Corporation prior to June 30, 2000 for our ICP operations.
On March 29, 2000, Nortel agreed to release us from any and all future
obligations under this commitment.
Also on June 30, 1998, we agreed to purchase $13.7 million of customer
support services from ACE*COMM over a 60 month period ending in July 2003. In
October 1999, we amended our agreement, and we agreed to pay $1.5 million for
software maintenance costs over a three year period, and $1 million for software
product enhancements over a one year period, for a total commitment of
$2.5 million. Of this commitment, $2.0 million remained at March 31, 2000.
Although we cannot provide any assurance, we believe that borrowings under
our RUS/RTB facility, previously provided financings from DCCLP, cash flows from
operations and certain shareholder commitments will be sufficient to satisfy our
currently expected operating expenses, capital expenditures, working capital and
debt service obligations. The actual amount and timing of our future capital
requirements may differ materially from our estimates as a result of, among
other things, the demand for our services and regulatory, technological and
competitive developments. We currently expect to pursue additional financing in
the near term. DCCLP is committed to assisting us in obtaining funds to support
our operations, as needed, if needed, in 2000. Sources of additional financing
may include commercial bank borrowings, vendor financing and the sale of equity
or debt securities. We cannot assure you that any such financing will be
available on acceptable terms or at all.
FORWARD-LOOKING STATEMENTS
The description of our plans set forth herein, including our plans and
strategies, our anticipation of revenues from designated markets, the markets
for our services and products, planned capital expenditures and possible
regulatory requirements, and other statements which predict or forecast future
events which are dependent on future events for their accuracy, are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These plans involve a number
of risks and uncertainties. Important factors that could cause actual capital
expenditures, or our performance to differ materially from plans include,
without limitation, our ability to satisfy the financial covenants of our
existing debt instruments and to raise additional capital; our ability to
integrate acquired operations with existing operations, to manage our rapid
growth successfully and to compete effectively in our ILEC and ICP businesses
against competitors with greater financial, technical, marketing and other
resources; changes in end-user requirements and preferences; the development of
other technologies and products that may gain more commercial acceptance than
ours; our ability to successfully market our services to current and new
customers, interconnect with ILECs, expand or replace our operational support
systems and other back office systems, provision new customers, access markets,
install facilities, including switching electronics, and obtain leased trunking
capacity, rights-of-way, building access rights and any required governmental
authorizations, franchises and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions; as well as unexpected
regulatory, legislative and judicial developments. We cannot assure that the
future results will be achieved; actual events or results may differ materially
as a result of risks we face. You are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date hereof. We
undertake no obligation to update or revise these forward-looking statements to
reflect events or circumstances after the date hereof including, without
limitation, changes in our business strategy or planned capital expenditures, or
to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no change in our assessment of quantitative and qualitative
disclosures about market risk since December 31, 1999.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently aware of any pending or threatened litigation against
us or our subsidiaries that could have a material adverse affect on our
financial condition, results of operations or cash flows. We are party to
routine filings and customary regulatory proceedings relating to our operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 30, 2000, the holders of our common stock unanimously consented to
amend our Certificate of Incorporation and authorize two million shares of
senior exchangeable preferred stock.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
3.1 Registrant's Amended and Restated Certificate of
Incorporation, as amended.
3.2 Registrant's Class A Senior Exchangeable Preferred Stock
Certificate of Designation.
10.1 Letter Agreement dated March 29, 2000, between the
Registrant and Nortern Telecom, Inc. describing release of
Minimum Initial Systems Quantity Commitment.
10.2 First Amendment to Master Support Agreement, Systems
Acquisition Agreement and Data Processing Services Agreement
dated September 20, 1999, between Registrant and ACE*COMM
Corporation.
27 Financial Data Schedule-Three Months Ended March 31, 2000
</TABLE>
(b) Form 8-K filings
We filed a current report on Form 8-K during the quarter ended March 31,
2000, which reported $30 million in new financing and changes in executive
officers. The date of the report was March 17, 2000.
We filed a current report on Form 8-K during the quarter ended March 31,
2000, which reported the following: 1999 year end results; issuance of
$90 million of Preferred Stock; and naming Craig Sheetz as Chief Financial
Officer. The date of the report was March 31, 2000.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
LOGIX COMMUNICATIONS ENTERPRISES, INC.
Date: May 10, 2000 By: /s/ CRAIG T. SHEETZ
----------------------------------------
Craig T. Sheetz
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
21
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Logix Communications Enterprises, Inc., an Oklahoma corporation (the
"Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation's board of directors, by the
unanimous written consent of its members, filed with the minutes of the board,
duly adopted resolutions setting forth a proposed amendment to the Certificate
of Incorporation of the Corporation, declaring the amendment to be advisable and
submitted the proposed amendment to the shareholders of the Corporation for
consideration thereof. Article IV of the Corporation's Certificate of
Incorporation is proposed to be amended as follows:
ARTICLE IV.
CAPITAL STOCK
4.1 AUTHORIZED CAPITAL STOCK. The maxImum number of shares of capital
stock which the Corporation shall have authority to issue is One Hundred Two
Million (102,000,000) shares of capital stock, of which One Hundred Million
(100,000,000) shares shall be Common Stock, par value $.01 per share, (the
"Common Stock"), and of which Two Million (2,000,000) shares shall be preferred
stock, par value $1.00 per share (the "Preferred Stock"). The Common Stock and
the Preferred Stock are sometimes referred to herein as the "Capital Stock" of
the Corporation.
4.2 PREFERRED STOCK. The Preferred Stock may be issued in one or more
series. The Corporation's Board of Directors is hereby expressly authorized
without further action by the Corporation's stockholders, subject to limitations
prescribed by the Act, to authorize and otherwise provide for the issuance of
the shares of Preferred Stock in one or more series, and by filing a certificate
pursuant to the applicable law of the State of Oklahoma, to establish from time
to time the number of shares to be included in each such series, to determine
the powers, designations, preferences and relative, participating, optional or
other special rights, including voting rights, and the qualifications,
limitations and restrictions thereof, of each series of Preferred Stock and may
increase or decrease the number of shares within each such series; provided,
however, that the Corporation's Board of Directors may not decrease the number
of shares within a series to less than the number of shares within such series
that are then outstanding and may not increase the number of shares within a
series above the total number of authorized shares of Preferred Stock for which
the powers, designations, preferences and rights have not otherwise been set
forth herein. The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the following:
<PAGE>
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(c) whether that series shall have voting, optional and/or special
rights, in addition to the voting rights provided by law, and, if so, the
terms of such voting rights, including, without limitation, the right to
elect one or more members of the Board of Directors;
(d) whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and
at different redemption dates;
(f) whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(g) the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of that
series; and
(h) the preferences and relative rights among the series of the
Preferred Stock.
4.3 COMMON STOCK. The designations, preferences, privileges, and powers and
relative, participating, optional, or other special rights and qualifications,
limitations, or restrictions of the Common Stock are as follows:
(a) After the Corporation has complied with the dividend and sinking
fund requirements of any series of Preferred Stock, then the Board of
Directors may pay the holders of the Common Stock such dividends as the
Board of Directors may declare.
(b) After the Corporation has distributed any and all preferential
amount due to the holders of a series of Preferred Stock upon the voluntary
or involuntary liquidation, dissolution, or winding-up of the Corporation,
the Board of Directors shall distribute to holders of the Common Stock the
remaining assets available for distribution to the extent the Board of
Directors shall determine.
2
<PAGE>
(c) Except as may be otherwise required by law or by this Certificate
of Incorporation, each holder of Common Stock shall have one vote for each
share held on all matters voted upon by the shareholders.
SECOND: That, thereafter, the shareholders voted in favor of the
amendment pursuant to written consent given in accordance with the provisions of
Section 73 of the Oklahoma General Corporation Act.
THIRD: That the amendment was duly adopted in accordance with the
provisions of Section 77 of the Oklahoma General Corporation Act.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its President and its Secretary on March 29, 2000.
------------------------------------------
Albert H. Pharis, Jr., President
Attest:
- -------------------------------------
Herbert Kenney, Secretary
3
<PAGE>
LOGIX COMMUNICATIONS ENTERPRISES, INC.
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS
OF CLASS A SENIOR EXCHANGEABLE
PREFERRED STOCK AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
------------------------------------------------
Pursuant to Title 18, Section 1032(G) of the
General Corporation Act of the State of Oklahoma
------------------------------------------------
Logix Communications Enterprises, Inc., a corporation organized and
existing under the General Corporation Act of the State of Oklahoma (the
"Company"), does hereby certify that, pursuant to authority conferred upon the
board of directors of the Company (or any committee of such board of directors,
the "Board of Directors") by its Amended and Restated Certificate of
Incorporation, as amended (hereinafter referred to as the "Certificate of
Incorporation"), and pursuant to the provisions of Title 18, Section 1032(G) of
the General Corporation Act of the State of Oklahoma, said Board of Directors
with full power and authority to act on behalf of the Board of Directors, acting
by written consent dated March 28, 2000, duly approved and adopted the following
resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board of
Directors by its Certificate of Incorporation, the Board of Directors does
hereby create, authorize and provide for the issue of Class A Senior
Exchangeable Preferred Stock, par value $1.00 per share, with a liquidation
preference of $1,000 per share, consisting of 400,000 shares, having the
designations, voting power, preferences and relative, participating, optional
and other special rights, qualifications, limitations and restrictions thereof
that are set forth in the Certificate of Incorporation and in this Resolution as
follows (the terms used herein, unless otherwise defined herein, are used herein
as defined in paragraph (n) hereof):
(a) DESIGNATION. There is hereby created out of the authorized and
unissued shares of preferred stock of the Company a series of preferred stock
designated as the "Class A Senior Exchangeable Preferred Stock" (the "Class A
Preferred Stock"). The number of shares constituting such series shall be
400,000 shares of Class A Senior Exchangeable Preferred Stock, consisting of an
initial issuance of 90,000 shares of Class A Preferred Stock plus additional
shares of such Preferred Stock which may be issued to pay dividends on such
Preferred Stock if the Company elects to pay dividends in additional shares of
such Preferred Stock (collectively,
<PAGE>
the "Preferred Stock"). The liquidation preference of the Preferred Stock
shall be $1,000 per share (the "Liquidation Preference").
(b) RANK. The Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, rank (i) senior to all classes of Common Stock of
the Company, and to each other class of capital stock or series of preferred
stock hereafter created by the Board of Directors, the terms of which do not
expressly provide that it ranks senior to or on parity with the Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Company (collectively referred to herein,
together with all classes of common stock of the Company, as the "Junior
Securities"); (ii) subject to certain conditions, equally with any class of
capital stock or series of preferred stock hereafter created by the Board of
Directors, the terms of which expressly provide that such class or series
will rank on a parity with the Preferred Stock as to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of the
Company (collectively referred to as "Parity Securities"); and (iii) subject
to certain conditions, junior to each class of capital stock or series of
preferred stock hereafter created by the Board of Directors, the terms of
which have been approved by the Holders of the Preferred Stock in accordance
with subparagraph (f)(ii) hereof and which expressly provide that such class
or series will rank senior to the Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to as "Senior Securities").
(c) DIVIDENDS. (i) Beginning on the Issue Date, the Holders of the
outstanding shares of Preferred Stock in preference to holders of Junior
Securities, shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available therefor, cumulative
dividends in an amount equal to (as determined on a per annum basis) (i) the
sum of (A) the product of the Applicable Rate multiplied by the Liquidation
Preference and (B) the product of the Applicable Rate multiplied by all
accrued and unpaid dividends thereon from the date of issuance to the end of
the immediately preceding calendar year PLUS (ii) all accrued and unpaid
dividends compounded through December 31 of the prior calendar year. All
accrued but unpaid dividends will compound quarterly on March 31, June 30,
September 30 and December 31 of each year (each, a 'dividend date') (the
initial such calculation to be made at the Applicable Rate for the number of
days elapsed from the date of issue of the Preferred Stock to and including
the 31st day of March, 2000). Such dividends shall commence to accrue on each
share of Preferred Stock on a daily basis from the date of issuance thereof
whether or not declared by the Board of Directors and whether or not there
are profits, surplus or other funds of the Corporation legally available for
the payment of such dividends, and shall continue to accrue thereon until the
date the Liquidation Preference of such share is paid. For purposes of
determining the amount of dividends accrued on the Preferred Stock pursuant
to this subparagraph (c)(i) at any time prior to the last day of a calendar
quarter, the Applicable Rate for such period shall be multiplied by a
fraction, the numerator of which is the actual number of days elapsed in the
then current calendar quarter and the denominator of which is 360. Except as
otherwise expressly set forth herein, the Company may pay dividends, at its
option, in cash or in additional fully paid and nonassessable Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends. Dividends paid in additional shares of Preferred Stock will be
calculated and paid to registered holders to the nearest whole share. Each
distribution in the form of a dividend (whether in cash or in additional
shares of
-2-
<PAGE>
Preferred Stock) shall be payable to Holders of record as they appear on the
stock books of the Company on such record date, not less than 10 nor more
than 60 days preceding the relevant dividend payment date, as shall be fixed
by the Board of Directors. Dividends shall cease to accumulate in respect of
shares of the Preferred Stock on the Exchange Date (as defined in paragraph
(g)(i)(A) hereof) or on the date of their earlier redemption unless the
Company shall have failed to issue the appropriate aggregate principal amount
of Exchange Debentures in respect of the Preferred Stock on the Exchange Date
or shall have failed to pay the relevant redemption price on the date fixed
for redemption.
(i) Subject to any Credit Agreement, accrued dividends
shall be paid in cash upon any liquidation, dissolution or winding up of the
Company, upon a Change of Control of the Company, or upon any redemption of
Preferred Stock pursuant to paragraph (e) hereof.
(ii) All dividends paid with respect to shares of the
Preferred Stock pursuant to paragraph (c) hereof shall be paid pro rata to
the Holders entitled thereto.
(iii) Accrued and unpaid dividends and dividends in
connection with any redemption pursuant to paragraph (e) hereof may be
declared and paid at any time to Holders of record on a date fixed by the
Board of Directors which shall be not more than 45 days prior to the payment
thereof.
(iv) No full dividends shall be declared by the Board of
Directors or paid or funds set apart for payment of dividends by the Company
on any Parity Securities for any period unless all accrued and unpaid
cumulative dividends shall have been or contemporaneously shall be declared
and paid in full or declared and, if payable in cash, a sum in cash shall be
set apart sufficient for such payment on the Preferred Stock in full to the
date of payment of such full dividends on such Parity Securities. If all
accrued and unpaid dividends are not paid, as aforesaid, upon the shares of
the Preferred Stock, all dividends declared upon shares of the Preferred
Stock and any other Parity Securities shall be declared PRO RATA so that the
amount of dividends declared per share on the Preferred Stock and such Parity
Securities shall in all cases bear to each other the same ratio that accrued
dividends per share on the Preferred Stock and such Parity Securities bear to
each other.
(v) (A) Holders of shares of Preferred Stock shall be
entitled to receive the dividends provided for in paragraph (c)(i) hereof in
preference to and in priority over any dividends upon any of the Junior
Securities.
(B) So long as any shares of Preferred Stock are
outstanding, the Company shall not declare, pay or set apart for payment any
dividend on any of the Junior Securities (other than distributions or
dividends in Junior Securities to the holders of Junior Securities) or make
any payment on account of, or set apart for payment money for a sinking or
other similar fund for, the repurchase, redemption or other retirement of any
of the Junior Securities or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Securities except with
Majority Approval and without Majority Approval, the Company shall not permit
any corporation or other entity directly or indirectly controlled by the
Company to purchase or redeem any of the Junior Securities or any warrants,
rights, calls or options to acquire Junior Securities, unless full cumulative
dividends determined in accordance herewith
-3-
<PAGE>
have been paid in full on the Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of such dividends on such
Junior Securities.
(C) So long as any shares of the Preferred Stock are
outstanding, without Majority Approval, the Company shall not make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of any of
the Parity Securities or any warrants, rights, calls or options exercisable
for or convertible into any of the Parity Securities, and without Majority
Approval, shall not permit any corporation or other entity directly or
indirectly controlled by the Company to purchase or redeem any of the Parity
Securities or any such warrants, rights, calls or options, unless full
cumulative dividends determined in accordance herewith on the Preferred Stock
have been paid in full on or prior to the date of payment of such purchase or
redemption.
(vi) Dividends payable on shares of the Preferred Stock for
any period less than a calendar quarter shall be computed on the basis of a
360-day year of twelve 30-day months and the actual number of days elapsed in
the period for which dividends are payable. If any Dividend Payment Date
occurs on a day that is not a Business Day, any accrued dividends otherwise
payable on such Dividend Payment Date shall be paid on the next succeeding
Business Day.
(d) LIQUIDATION PREFERENCE. Upon any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Company, Holders
of Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its stockholders, $1,000
per share of Preferred Stock, plus an amount in cash equal to accumulated and
unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding-up before any payment shall be made on or any assets distributed to
the holders of any of the Junior Securities, including the Common Stock of
the Company. If, upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Company, the amounts payable with respect to the
Preferred Stock and all other Parity Securities are not paid in full, the
holders of the Preferred Stock and the Parity Securities shall share equally
and ratably in any distribution of assets of the Company in proportion to the
full liquidation preference and accumulated and unpaid dividends to which
each is entitled. After payment of the full amount of the liquidation
preferences and accumulated and unpaid dividends to which they are entitled,
the Holders of Preferred Stock shall not be entitled to any further
participation in any distribution of assets of the Company. However, a
merger, consolidation or sale, of all or substantially all of the assets of
the Company that complies with the provisions under subparagraph (m)(9) shall
not be deemed to be a liquidation, dissolution or winding-up of the Company.
(e) REDEMPTION. (i) OPTIONAL REDEMPTION. (A) The Preferred Stock may
be redeemed (subject to contractual and other restrictions with respect
thereto and the legal availability of funds therefor) at any time , at the
Company's option, in whole or in part, in the manner provided in subparagraph
(e)(iii), at the redemption prices (expressed as a percentage of the
liquidation preference thereof) set forth below, plus an amount in cash equal
to all accumulated and unpaid dividends accrued on or prior to the Redemption
Date, if redeemed during the 12-month period beginning April 1 of each of the
years set forth below:
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<PAGE>
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000-2005 ....................................... 107.500
2006 ............................................ 104.995
2007 ............................................ 102.500
2008 and thereafter .............................. 100.000%
</TABLE>
PROVIDED that no optional redemption pursuant to this subparagraph (e)(i)(A)
shall be authorized or made unless prior thereto full unpaid cumulative
dividends accrued on or prior to the Redemption Date, shall have been, or
immediately prior to the Redemption Date are, declared and paid in cash or
declared and a sum set apart sufficient for such cash payment on the
Redemption Date on the outstanding shares of such Preferred Stock.
(B) In the event of a redemption pursuant to
paragraph (e)(i) hereof of only a portion of the then outstanding shares of
the Preferred Stock, the Company shall effect such redemption as it
determines, PRO RATA according to the number of shares held by each Holder of
Preferred Stock, PROVIDED that the Company may redeem such shares held by any
Holder of fewer than 100 shares of Preferred Stock without regard to such PRO
RATA redemption requirement, or by lot, in each case, as may be determined by
the Company in its sole discretion.
(ii) MANDATORY REDEMPTION. On April 1, 2010, the Company
shall redeem from any source of funds legally available therefor, in the
manner provided in paragraph (e)(iii) hereof, all of the shares of the
Preferred Stock then outstanding at a redemption price equal to 100% of the
liquidation preference per share, plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends per share accrued on or
prior to the Redemption Date to the Redemption Date).
(iii) PROCEDURES FOR REDEMPTION. (A) At least 30 days and
not more than 60 days prior to the date fixed for any redemption of the
Preferred Stock, written notice (the "Redemption Notice") shall be given by
first-class mail, postage prepaid, to each Holder of record on the record
date fixed for such redemption of the Preferred Stock at such Holder's
address as the same appears on the stock register of the Company, PROVIDED
that no failure to give such notice nor any deficiency therein shall affect
the validity of the procedure for the redemption of any shares of Preferred
Stock to be redeemed except as to the Holder or Holders to whom the Company
has failed to give said notice or except as to the Holder or Holders whose
notice was defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to subparagraph
(e)(i)(A) or (e)(ii) hereof;
(2) the redemption price;
(3) whether all or less than all the outstanding
shares of the Preferred Stock are to be redeemed and the total number of
shares of the Preferred Stock being redeemed;
(4) the number of shares of Preferred Stock held, as
of the appropriate record date, by the Holder that the Company intends to
redeem;
-5-
<PAGE>
(5) the date fixed for redemption;
(6) that the Holder is to surrender to the Company,
at the place or places where certificates for shares of Preferred Stock are
to be surrendered for redemption, in the manner and at the price designated,
its certificate or certificates representing the shares of Preferred Stock to
be redeemed; and
(7) that dividends on the shares of the Preferred
Stock to be redeemed shall cease to accrue on such Redemption Date unless the
Company defaults in the payment of the redemption price.
(B) Each Holder of Preferred Stock shall surrender the
certificate or certificates representing such shares of Preferred Stock to
the Company, duly endorsed, in the manner and at the place designated in the
Redemption Notice and on the Redemption Date. The full redemption price for
such shares of Preferred Stock shall be payable in cash to the Person whose
name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired. In the event that
less than all of the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
(C) Unless the Company defaults in the payment in full of
the applicable redemption price, dividends on the Preferred Stock called for
redemption shall cease to accrue on the Redemption Date, and the Holders of
such redeemed shares shall cease to have any further rights with respect
thereto from and after the Redemption Date, other than the right to receive
the redemption price, without interest.
(f) VOTING RIGHTS. (i) The Holders of shares of the Preferred Stock,
except as otherwise required under Oklahoma law or as set forth in paragraphs
(f)(ii), (f)(iii) and (f)(iv) hereof, shall not be entitled or permitted to
vote on any general corporate matters.
(ii) (A) So long as any shares of the Preferred Stock are
outstanding, the Company shall not authorize any class of Senior Securities
without Majority Approval except that, without Majority Approval, the Company
may issue shares of Senior Securities in exchange for, or the proceeds of
which are used to redeem or repurchase (1) all (but not less than all) shares
of Preferred Stock then outstanding or (2) indebtedness of the Company.
(B) So long as any shares of the Preferred Stock are
outstanding, the Company shall not amend this Certificate of Designation
(including by way of merger, consolidation or otherwise) so as to affect
adversely the specified rights (including, without limitations, the covenants
described in paragraph (m)), preferences, privileges or voting rights of
Holders of Preferred Stock, or authorize the issuance of any additional
shares of Preferred Stock without Majority Approval. The Holders of at least
a majority of the outstanding shares of Preferred Stock, voting or
consenting, as the case may be, separately as one class, whether voting in
person or by proxy, either in writing or by resolution adopted at an annual
or special meeting, may waive compliance with any provision of this
Certificate of Designation.
-6-
<PAGE>
(C) Except as set forth in subparagraph (f)(ii) hereof,
(1) the creation, authorization or issuance of any shares of any Junior
Securities, Parity Securities or Senior Securities, or (2) the increase or
decrease in the amount of authorized capital stock of any class, including
any preferred stock, shall not require the consent of Holders of Preferred
Stock and shall not, unless not complying with subparagraph (f)(ii) hereof,
be deemed to affect adversely the rights, preferences, privileges or voting
rights of Holders of shares of Preferred Stock.
(iii) (A) If (1) the Company fails to discharge any
redemption obligation with respect to the Preferred Stock; (2) the Company
fails to make an Offer to Purchase (and complete such purchase of) all of the
outstanding shares of Preferred Stock following a Change of Control, if such
Offer to Purchase is required to be made pursuant to paragraph (h) hereof;
(3) the Company breaches or violates one of the provisions set forth in
paragraph (m) hereof and the breach or violation continues for a period of 30
consecutive days or more after notice thereof to the Company by Holders of
25% or more of the shares of the Preferred Stock then outstanding; (4) there
occurs with respect to any issue or issues of Indebtedness of the Company
and/or any Significant Subsidiary having an outstanding principal amount of
$10 million or more in the aggregate for all such issues of the Company
and/or any Significant Subsidiary, whether such Indebtedness now exists or
shall hereafter be created, (i) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (ii) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not
have been made, waived or extended within 30 days of such payment default; or
(5) there occurs (i) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Significant
Subsidiary a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustments or composition of or in
respect of the Company or any Significant Subsidiary under the Bankruptcy Act
of Title 11 of the United States Code, as amended from time to time (the
"Federal Bankruptcy Code"), or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Significant Subsidiary or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 90 consecutive days or (ii) the institution by the
Company or any Significant Subsidiary of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable federal or state law, or the consent
by it to the filing of any such petition or the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or similar official) of the
Company or any Significant Subsidiary or of any substantial part of its
property, or the making by it in writing of its inability to pay its debts
generally as they become due; then the number of directors constituting the
Board of Directors shall be adjusted to permit the Holders of the majority of
the then outstanding shares of Preferred Stock, voting separately as one
class, to elect two directors. For the purpose of determining the number of
quarterly periods for which accrued dividends have not been paid, any accrued
and unpaid dividend that is subsequently paid shall not be treated as unpaid.
Each event described in clauses (1), (2), (3), (4) and (5) of this
subparagraph (f)(iii)(A) is a "Voting Rights Triggering Event". Within 15
days of the time the Company becomes aware of the
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<PAGE>
occurrence of any default referred to in clause (3), (4) or (5), of this
subparagraph (f)(iii)(A), the Company shall give written notice thereof to
the Holders.
(B) The right of the Holders of Preferred Stock voting
separately as one class to elect two directors as described in subparagraph
(f)(iii)(A) shall continue until such time as in the event such right arises
due to any default referred to in clause (1), (2), (3), (4) or (5) of the
preceding paragraph, the Company remedies any such failure, breach or
default, at which time the term of any directors elected pursuant to
subparagraph (f)(iii)(A) hereof shall terminate and the number of directors
constituting the board of directors shall be reduced to the number necessary
to reflect the termination of the right of the Holders of the Preferred Stock
to elect directors, subject always to the same provisions for the renewal and
divestment of such special voting rights in the case of any future Voting
Rights Triggering Event.
At any time after voting power to elect directors
shall have become vested and be continuing in the Holders of shares of the
Preferred Stock pursuant to subparagraph (f)(iii)(A) hereof, or if vacancies
shall exist in the offices of directors elected by the Holders of shares of
the Preferred Stock, a proper Officer of the Company may, and upon the
written request of the Holders of record of at least 25% of the shares of
Preferred Stock then outstanding addressed to the Secretary of the Company
shall, call a special meeting of the Holders of Preferred Stock for the
purpose of electing the directors which such Holders are entitled to elect.
If such meeting shall not be called by the proper Officer of the Company
within 30 days after personal service of said written request upon the
Secretary of the Company, or within 30 days after mailing the same within the
United States by certified mail, addressed to the Secretary of the Company at
its principal executive offices, then the Holders of record of at least 25%
of the outstanding shares of the Preferred Stock may designate in writing one
of their number to call such meeting at the expense of the Company, and such
meeting may be called by the Person so designated upon the notice required
for the annual meetings of stockholders of the Company and shall be held at
the place for holding the annual meetings of stockholders or such other place
in the United States as shall be designated in such notice. Notwithstanding
the provisions of this subparagraph (f)(iii)(B), no such special meeting
shall be called if any such request is received less than 40 days before the
date fixed for the next ensuing annual or special meeting of stockholders of
the Company. Any Holder of shares of the Preferred Stock so designated shall
have, and the Company shall provide, access to the lists of Holders of shares
of the Preferred Stock for purposes of calling a meeting pursuant to the
provisions of this subparagraph (f)(iii)(B).
(C) At any meeting held for the purpose of electing
directors at which the Holders of Preferred Stock shall have the right,
voting separately as one class, to elect directors as aforesaid, the presence
in person or by proxy of the Holders of at least a majority of the
outstanding Preferred Stock shall be required to constitute a quorum of such
Preferred Stock.
(D) Any vacancy occurring in the office of a director
elected by the Holders of the Preferred Stock may be filled by the remaining
director elected by such Holders unless and until such vacancy shall be
filled by such Holders.
(iv) In any case in which the Holders of shares of the
Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or
pursuant to Oklahoma law, each Holder of
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<PAGE>
shares of the Preferred Stock shall be entitled to one vote for each share of
Preferred Stock held. Any action that may be taken hereunder by the Holders
of the Preferred Stock at a meeting may be taken by written consent of a
majority of the Holders of such Preferred Stock.
(g) EXCHANGE. (i) REQUIREMENTS. (A) The Company may, at the sole
option of the Board of Directors (subject to the legal availability of funds
therefor), exchange all, but not less than all, of the outstanding Preferred
Stock, including any Preferred Stock issued as payment for dividends, into
Exchange Debentures, subject to the conditions set forth in this subparagraph
(g)(i)(A). In order to effect such exchange, the Company shall (a) if
necessary to satisfy the condition set forth in clause (II) of this
subparagraph (g)(i)(A) based upon the written advice of counsel to the
Company, file a registration statement with the Commission relating to the
exchange, and (b) if a registration statement is filed with the Commission
pursuant to clause (a), use its best efforts to cause such registration
statement to be declared effective as soon as practicable by the Commission
unless the opinion referred to in clause (II) of this subparagraph (g)(i)(A)
shall have been subsequently delivered. In order to effectuate such exchange,
the Company shall send a written notice (the "Exchange Notice") of exchange
by mail to each Holder of record of shares of Preferred Stock, which notice
shall state: (v) that the Company is exchanging the Preferred Stock into
Exchange Debentures pursuant to this Certificate of Designation; (w) the date
fixed for exchange (the "Exchange Date"), which date shall not be less than
15 days nor more than 60 days following the date on which the Exchange Notice
is mailed (except as provided in the last sentence of this subparagraph
(g)(i)(A)); (x) that the Holder is to surrender to the Company, at the place
or places where certificates for shares of Preferred Stock are to be
surrendered for exchange, in the manner designated in the Exchange Notice,
such Holder's certificate or certificates representing the shares of
Preferred Stock to be exchanged; (y) that dividends on the shares of
Preferred Stock to be exchanged shall cease to accrue on the Exchange Date
whether or not certificates for shares of Preferred Stock are surrendered for
exchange on the Exchange Date unless the Company shall default in the
delivery of Exchange Debentures; and (z) that interest on the Exchange
Debentures shall accrue from the Exchange Date whether or not certificates
for shares of Preferred Stock are surrendered for exchange on the Exchange
Date. On the Exchange Date, if the conditions set forth in clauses (I)
through (VI) of this subparagraph (g)(i)(A) are satisfied and the exchange is
permitted under the Company's then outstanding Indebtedness, the Company
shall issue Exchange Debentures in exchange for the Preferred Stock as
provided in subparagraph (g)(ii)(A), PROVIDED that on the Exchange Date: (I)
there shall be legally available funds sufficient therefor (including,
without limitation, legally available funds sufficient therefor under Title
18, Sections 1032(B) and 1041 (or any successor provisions) of the Oklahoma
General Corporation Act); (II) either (x) a registration statement relating
to the Exchange Debentures shall have been declared effective under the
Securities Act of 1933, as amended (the "Securities Act") prior to such
exchange and shall continue to be in effect on the Exchange Date or (y) (i)
the Company shall have obtained a written opinion of counsel that an
exemption from the registration requirements of the Securities Act is
available for such exchange and that upon receipt of such Exchange Debentures
pursuant to such exchange made in accordance with such exemption, each Holder
that is not an Affiliate of the Company will not be subject to any
restrictions imposed by the Securities Act upon the resale thereof and (ii)
such exemption is relied upon by the Company for such exchange; (III) the
Exchange Indenture shall have been duly executed by the Company and the
trustee thereunder (the "Trustee") with irrevocable instructions to
authenticate the Exchange Debentures necessary for
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<PAGE>
such exchange, (IV) the Exchange Indenture and the Trustee shall have been
qualified under the Trust Indenture Act of 1939, as amended; (V) immediately
after giving effect to such exchange, no Default or Event of Default (each as
defined in the Exchange Indenture) would exist under the Exchange Indenture;
and (VI) the Company shall have delivered to the Trustee a written opinion of
counsel, dated the date of the exchange, regarding the satisfaction of the
conditions set forth in clauses (I), (II), (III) and (IV). In the event that
the issuance of the Exchange Debentures is not permitted on the Exchange Date
or any of the conditions set forth in clauses (I) through (VI) of the
preceding sentence are not satisfied on the Exchange Date, the Company shall
use its best efforts to satisfy such conditions and effect such exchange as
soon as practicable.
(B) Upon any exchange pursuant to subparagraph
(g)(i)(A) hereof, the Holders of outstanding Preferred Stock shall be
entitled to receive a principal amount of Exchange Debentures for Preferred
Stock, the liquidation preference of which, plus the amount of accumulated
and unpaid dividends accrued on or prior to the Exchange Date with respect to
which, equals such principal amount; PROVIDED that the Company at its option
may pay cash for any or all accrued and unpaid dividends in lieu of issuing
Exchange Debentures in respect of such dividends and PROVIDED FURTHER that
the Company may, at the sole option of the Board of Directors, subject to the
restrictions in the Senior Note Indenture, any Credit Agreement and any of
its other then-existing Indebtedness, pay cash in lieu of issuing an Exchange
Debenture in a principal amount less than $1,000.
(ii) PROCEDURE FOR EXCHANGE. (A) On or before the Exchange
Date, each Holder of Preferred Stock shall surrender the certificate or
certificates representing such shares of Preferred Stock, in the manner and
at the place designated in the Exchange Notice. The Company shall cause the
Exchange Debentures to be executed on the Exchange Date and, upon surrender
in accordance with the Exchange Notice of the certificates for any shares of
Preferred Stock so exchanged (properly endorsed or assigned for transfer, if
the notice shall so state), such shares shall be exchanged by the Company
into Exchange Debentures. The Company shall pay interest on the Exchange
Debentures at the rate and on the dates described in the Memorandum.
(B) If notice has been mailed as aforesaid, and if
before the Exchange Date (1) the Exchange Indenture shall have been duly
executed and delivered by the Company and the Trustee and (2) all Exchange
Debentures necessary for such exchange shall have been duly executed by the
Company and delivered to the Trustee with irrevocable instructions to
authenticate the Exchange Debentures necessary for such exchange, then
dividends will cease to accrue on the Preferred Stock on and after the
Exchange Date and the rights of the Holders of the Preferred Stock as
stockholders of the Company shall cease on and after the Exchange Date
(except the right to receive Exchange Debentures, an amount in cash, to the
extent applicable, equal to the accrued and unpaid dividends to the Exchange
Date, and, if the Company so elects, cash in lieu of any Exchange Debenture
which is in an amount that is less than $1,000), and the Person or Persons
entitled to receive the Exchange Debentures issuable upon exchange shall be
treated for all purposes as the registered Holder or Holders of such Exchange
Debentures as of the Exchange Date.
(h) CHANGE OF CONTROL. (i) Within 30 days following the occurrence
of a Change of Control, the Company shall be required (subject to the legal
availability of funds therefor) to make an Offer to Purchase (the "Change of
Control Offer") to each Holder of Preferred Stock to
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repurchase all or any part of such Holder's Preferred Stock at a cash
purchase price equal to 101% of the liquidation preference thereof, plus an
amount in cash equal to all accumulated and unpaid dividends accrued on or
prior to the date of purchase (the "Change of Control Payment").
Notwithstanding the foregoing, the Company shall not be required to make a
Change of Control Offer or to repurchase any Preferred Stock tendered
pursuant to an Offer to Purchase if any Indebtedness of the Company or its
Restricted Subsidiaries outstanding which would prohibit such Change of
Control Offer until such Indebtedness is repaid, redeemed or repurchased in
full; PROVIDED that if the Company does not make a Change of Control Offer or
does not repurchase any Preferred Stock pursuant to a Change of Control
Offer, then such failure shall constitute a Voting Rights Triggering Event.
(ii) On the Change of Control Payment Date, the Company
shall, to the extent lawful, (1) accept for payment all shares of Preferred
Stock or portions thereof properly tendered pursuant to the Offer to Purchase
and not withdrawn, (2) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all shares of Preferred Stock or
portions thereof so tendered, and (3) deliver or cause to be delivered to the
Transfer Agent for the Preferred Stock so accepted together with an Officer's
Certificate stating the aggregate liquidation preference of the Preferred
Stock or portions thereof being purchased by the Company. The Company will
direct the Transfer Agent to promptly mail to each Holder of shares of
Preferred Stock so accepted payment in an amount equal to the Change of
Control Payment for such shares, and the Transfer Agent will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a certificate representing the Preferred Stock equal in liquidation
preference to any unpurchased portion of the Preferred Stock surrendered, if
any. Unless the Company defaults in the payment for the shares of Preferred
Stock tendered pursuant to the Offer to Purchase, dividends shall cease to
accrue with respect to the shares of Preferred Stock tendered and all rights
of Holders of such tendered shares shall terminate, except for the right to
receive payment therefor, on the Change of Control Payment Date. The Company
shall publicly announce the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date.
(iii) The Company shall comply with Rule 14e-1 under the
Exchange Act and any securities laws and regulations to the extent such laws
and regulations are applicable to the repurchase of shares of the Preferred
Stock in connection with a Change of Control. To the extent that the
provisions of any such securities laws or securities regulations conflict
with the provisions of this paragraph (h), the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this paragraph (h) by virtue thereof. In
addition, the Company shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in this paragraph (h) and purchases all Preferred Stock validly
tendered and not withdrawn under such Change of Control Offer.
(i) CONVERSION OR EXCHANGE. The Holders of shares of Preferred Stock
shall not have any rights hereunder to convert such shares into or exchange
such shares for shares of any other class or classes or of any other series
of any class or classes of Capital Stock of the Company.
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(j) PREEMPTIVE RIGHTS. No shares of Preferred Stock shall have any
rights of preemption whatsoever as to any securities of the Company, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities or such warrants, rights or options may be designated,
issued or granted.
(k) REISSUANCE OF PREFERRED STOCK. Shares of Preferred Stock that have
been issued and reacquired in any manner, including shares purchased or redeemed
or exchanged, shall (upon compliance with any applicable provisions of the laws
of Oklahoma) have the status of authorized but unissued shares of preferred
stock of the Company undesignated as to series and may be designated or
redesignated and issued or reissued, as the case may be, as part of any series
of preferred stock of the Company, PROVIDED that any issuance of such shares as
Preferred Stock must be in compliance with the terms hereof.
(l) BUSINESS DAY. If any payment, redemption or exchange shall be
required by the terms hereof to be made on a day that is not a Business Day,
such payment, redemption or exchange shall be made on the immediately succeeding
Business Day.
(m) CERTAIN ADDITIONAL PROVISIONS. (1) LIMITATION ON INDEBTEDNESS. (a)
Without Majority Approval, the Company shall not, and shall not permit any of
its Restricted Subsidiaries to, Incur any Indebtedness (other than Indebtedness
existing on the Issue Date).
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding under one or more Credit Agreements at any time in
an aggregate principal amount not to exceed $250 million less any amount of such
Indebtedness permanently repaid under paragraph (m)(8) below; (ii) Indebtedness
issued in exchange for, or the net proceeds of which are used to refinance or
refund, then outstanding Indebtedness, other than Indebtedness Incurred under
clause (i), (iii), (v) or (vii) of this paragraph, or this clause (ii), and any
refinancings thereof in an amount not to exceed the amount so refinanced or
refunded (plus premiums, accrued interest, accrued dividends, fees and
expenses); PROVIDED that such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature or have a mandatory
redemption or repurchase date prior to the Stated Maturity of the Indebtedness
to be refinanced or refunded, and the Average Life of such new Indebtedness is
at least equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded; and PROVIDED FURTHER that in no event may Indebtedness
of the Company be refinanced by means of any Indebtedness of any Restricted
Subsidiary pursuant to this clause (ii); (iii) Indebtedness (A) in respect of
performance, surety or appeal bonds provided in the ordinary course of business,
(B) under Currency Agreements and Interest Rate Agreements; PROVIDED that such
agreements (a) are designed solely to protect the Company or its Restricted
Subsidiaries against fluctuations in foreign currency exchange rates or interest
rates and (b) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange rates
or interest rates or by reason of fees, indemnities and compensation payable
thereunder; or (C) arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or performance bonds securing any obligations of
the Company or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business, assets
or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any
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portion of such business, assets or Restricted Subsidiary of the Company for
the purpose of financing such acquisition), in an amount not to exceed the
gross proceeds actually received by the Company or any Restricted Subsidiary
in connection with such disposition; (iv) Indebtedness of the Company, to the
extent the net proceeds thereof are promptly (A) used to purchase Preferred
Stock, pro rata, tendered in an Offer to Purchase made as a result of a
Change in Control or (B) deposited to defease the Senior Notes; (v)
Guarantees of Indebtedness of the Company by any Restricted Subsidiary or by
the Company of Indebtedness of any Restricted Subsidiary so long as
Indebtedness was permitted to be Incurred under another provision of this
paragraph (m)(1); (vi) Indebtedness of the Company not to exceed, at any one
time outstanding, two times the sum of (x) the Net Cash Proceeds received by
the Company after the Issue Date from the issuance and sale of its Capital
Stock (other than Disqualified Stock) to a Person that is not a Subsidiary of
the Company to the extent such Net Cash Proceeds have not been used pursuant
to clause (C) (2) of the first paragraph, or clause (viii) of the second
paragraph, of subparagraph (m)(4) to make a Restricted Payment and (y) 80% of
the fair market value of property other than cash received by the Company
after the Issue Date from the issuance and sale of its Capital Stock (other
than Disqualified Stock) to a Person that is not a Subsidiary of the Company;
PROVIDED that such Indebtedness does not mature prior to the Mandatory
Redemption Date; (vii) intercompany Indebtedness (other than any Guarantee to
the extent addressed in clause (v) above) by or among the Company and its
Restricted Subsidiaries; provided, however, that (A) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to
the prior payment in full in cash of all obligations in respect of the
Exchange Debentures (if issued) and the Exchange Debenture Indenture and
(B)(1) any subsequent issuance or transfer of Capital Stock that results in
any such Indebtedness being held by a Person other than the Company or
another Restricted Subsidiary thereof and (2) any sale or other transfer of
any such Indebtedness to a Person other than the Company or another
Restricted Subsidiary thereof shall be deemed, in each case, to constitute an
Incurrence of Indebtedness by the Company or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (vii); and (viii)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed $30 million.
(b) Notwithstanding any other provision of
this subparagraph (m)(1), the maximum amount of Indebtedness that the Company or
a Restricted Subsidiary may Incur pursuant to this subparagraph (m)(1), shall
not be deemed to be exceeded, with respect to any outstanding Indebtedness due
solely to the result of fluctuations in the exchange rates of currencies.
(c) For purposes of determining any
particular amount of Indebtedness under this subparagraph (m)(1), Guarantees,
Liens or obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included and any liens granted pursuant to the equal and ratable provisions
referred to in paragraph (m)(3) below, shall not be treated as Indebtedness.
(d) For purposes of determining compliance
with this paragraph (m)(1), in the event that an item of Indebtedness meets the
criteria of one or more of the types of Indebtedness described in the second
paragraph of subparagraph (a) above or would be entitled to be Incurred pursuant
to subparagraph (a) above, the Company, in its sole discretion, shall classify,
and from time to time may reclassify (in whole or in part), such item of
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Indebtedness in any manner that complies with this paragraph (m)(1). Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness or the payment of dividends on Preferred Shares
in the form of additional shares of the same class or series of Preferred Shares
will not be deemed an Incurrence of Indebtedness for purposes of this paragraph
(m)(1).
(2) LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS.
Without Majority Approval, the Company shall not Incur any Indebtedness that is
subordinate in right of payment to any Senior Indebtedness unless such
Indebtedness would be pari passu with, or subordinated in right of payment to,
the Exchange Debentures (if and when issued); PROVIDED that the foregoing
limitation shall not apply to distinctions between categories of Senior
Indebtedness of the Company that exist by reason of any Liens or Guarantees
arising or created in respect of some but not all such Senior Indebtedness.
(3) LIMITATION ON LIENS. Without Majority Approval,
the Company shall not Incur any Indebtedness secured by a Lien ("Secured
Indebtedness") which is not Senior Indebtedness unless effective provision is
made to have the Exchange Debentures (if and when issued) secured equally and
ratably with (or, if the Secured Indebtedness would be subordinated in right of
payment to the Exchange Debentures, prior to) such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien.
(4) LIMITATION ON RESTRICTED PAYMENTS. Without
Majority Approval, the Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on or with respect to its Junior Securities (other than (x)
dividends or distributions payable solely in shares of its Junior Securities
(other than Disqualified Stock) or in options, warrants or other rights to
acquire shares of such Junior Securities (other than Disqualified Stock), and
(y) pro rata dividends or distributions on Common Stock of Restricted
Subsidiaries held by minority stockholders, provided that such dividends do not
in the aggregate exceed the minority stockholders' pro rata share of such
Restricted Subsidiaries' net income from the first day of the fiscal quarter
beginning immediately following the Issue Date) held by Persons other than the
Company or any of its Restricted Subsidiaries, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Junior Securities of (A) the Company
or an Unrestricted Subsidiary (including options, warrants or other rights to
acquire such shares of Junior Securities) held by any Person or (B) a Restricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Junior Securities) held by any Affiliate of the Company (other than a Wholly
Owned Restricted Subsidiary) or any holder (or any Affiliate of such holder) of
5% or more of the Capital Stock of the Company, or (iii) make any Investment,
other than a Permitted Investment, in any Person (such payments or any other
actions described in clauses (i) through (iii) being collectively "Restricted
Payments").
(5) LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. Without Majority Approval, the
Company shall not, and shall not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted
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Subsidiary, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any
encumbrances or restrictions: (i) existing on the Issue Date, the Senior Note
Indenture, any Credit Agreement or any other agreements or Indebtedness of the
Company or its Restricted Subsidiaries in effect on the Issue Date, and any
amendments, extensions, refinancings, renewals or replacements of such
agreements; PROVIDED that the encumbrances and restrictions in any such
amendments, extensions, refinancings, renewals or replacements are no less
favorable in all material respects to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary, existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
subparagraph (m)(5), (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by this Certificate of Designation or (C) arising or agreed
to in the ordinary course of business, not relating to any Indebtedness, and
that do not, individually or in the aggregate, detract from the value of
property or assets of the Company or any Restricted Subsidiary in any manner
material to the Company or any Restricted Subsidiary; (v) with respect to a
Restricted Subsidiary and imposed pursuant to an agreement that has been entered
into for the sale or disposition of all or substantially all of the Capital
Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
contained in the terms of any Indebtedness (other than as contemplated by clause
(i) above) or any agreement creating Indebtedness, of a Restricted Subsidiary
entered into after the Issue Date, if the encumbrance or restriction applies
only in the event of a payment default, a default with respect to a financial
covenant contained in such Indebtedness or agreement, or an event of default
resulting in the acceleration of the final maturity of such Indebtedness, the
encumbrance or restriction is not materially more disadvantageous to the Holders
of the Preferred Stock than is customary in comparable financings (as determined
by the Company) and if the Company determines that any such encumbrance or
restriction will not materially affect the Company's ability to make dividend
payments on the Preferred Stock or principal or interest payments on the
Exchange Debentures. Nothing contained in this subparagraph (m)(5) shall prevent
the Company or any Restricted Subsidiary from (1) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in subparagraph (m)(3) or
(2) restricting the sale or other disposition of property or assets of the
Company or any of its Restricted Subsidiaries that secure Indebtedness of the
Company or any of its Restricted Subsidiaries.
(6) LIMITATION ON THE ISSUANCE AND SALE OF
CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. Without Majority Approval, the Company
shall not sell, and shall not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
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such Capital Stock) except (i) to the Company or a Wholly Owned Restricted
Subsidiary; (ii) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law; (iii) if, immediately after giving effect to
such issuance or sale, such Restricted Subsidiary would (A) continue to be a
Restricted Subsidiary or (B) if it would no longer constitute a Restricted
Subsidiary, any Investment in such Person remaining after giving effect to such
issuance or sale would have been permitted to be made under subparagraph (m)(4),
if made on the date of such issuance or sale; PROVIDED, HOWEVER, that in the
event of either (A) or (B), the Net Cash Proceeds of such sale are applied in
accordance with subparagraph (m)(8); and (iv) sales of Common Stock of a
Restricted Subsidiary, but only if the assets of such Restricted Subsidiary
consist solely of assets relating to the Company's PCS or resale business;
PROVIDED, HOWEVER, that the Net Cash Proceeds of such sale are applied as
provided in subparagraph (m)(8).
(7) LIMITATION ON TRANSACTIONS WITH
STOCKHOLDERS AND AFFILIATES. Without Majority Approval, the Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
engage in any transaction, including, without limitation, the purchase, sale,
lease or exchange of property or assets, or the rendering of any service, with
any Affiliate except (A) upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than could be obtained in a comparable
arm's-length transaction with an unrelated Person and (B) with respect to any
transaction or series of related transactions involving aggregate consideration
in excess of $2.0 million, such transaction is approved by at least a majority
of the disinterested members of the Board of Directors.
The foregoing limitation does not limit, and
shall not apply to (i) any transaction solely between the Company and any of its
Restricted Subsidiaries or solely between Restricted Subsidiaries; (ii) the
payment of reasonable and customary regular fees and indemnity payments to
directors of the Company who are not employees of the Company and the payment of
reasonable compensation and indemnity payments to officers of the Company; (iii)
any payments or other transactions pursuant to any tax-sharing agreement between
the Company and any other Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated group for tax
purposes; (iv) any Restricted Payments not prohibited by subparagraph (m)(4); or
(8) LIMITATIONS ON ASSET SALES. Without
Majority Approval, the Company shall not, and shall not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless
(1) the consideration
received by the Company or such Restricted
Subsidiary is at least equal to the fair
market value of the assets sold or disposed
of and
(2) at least 75% of the
consideration received consists of cash or
Temporary Cash Investments.
In the event and to the extent that the Net
Cash Proceeds received by the Company or any of its Restricted Subsidiaries from
one or more Asset Sales occurring on or after the Issue Date in any period of 12
consecutive months exceeds 10% of Adjusted
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Consolidated Net Tangible Assets (determined as of the date closest to the
commencement of such 12-month period then the Company shall or shall cause
the relevant Restricted Subsidiary, to (1) within 12 months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net
Tangible Assets, to
(a) apply an amount equal
to such excess Net Cash Proceeds to
permanently repay Senior Indebtedness of the
Company or Indebtedness of any Restricted
Subsidiary in each case owing to a Person
other than the Company or any of its
Restricted Subsidiaries, or
(b) invest an equal amount,
or the amount not so applied pursuant to
clause (a) (or enter into a definitive
agreement committing to so invest within 12
months after the date of such agreement), in
property or assets (other than current
assets) of a nature or type or that are used
in a business (or in a company having
property and assets of a nature or type, or
engaged in a business) related, ancillary or
complementary to the business of, the
Company and its Restricted Subsidiaries
existing on the date of such investment.
(9) CONSOLIDATION, MERGER AND SALE OF ASSETS.
Without Majority Approval, the Company shall not consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially an
entirety in one transaction or a series of related transactions) to any Person
or permit any Person to merge with or into the Company.
(n) DEFINITIONS. As used in this Certificate of Designation, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and VICE VERSA),
unless the context otherwise requires.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Applicable Rate" means fifteen percent (15%) per annum.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of a
division, operating unit or business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and
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assets of the Company or any of its Restricted Subsidiaries outside the
ordinary course of business of the Company or such Restricted Subsidiary and,
in each case, that is not governed by the provisions described under
subparagraph (m)(9); PROVIDED that "Asset Sale" shall not include (a) sales,
transfers or other dispositions of inventory, receivables and other current
assets in the ordinary course, (b) sales, transfers, or other dispositions of
assets for consideration at least equal to the fair market value of the
assets sold or disposed of, PROVIDED that the consideration received consists
of Capital Stock of a Person that becomes a Restricted Subsidiary engaged in,
or property or assets (other than current assets, except to the extent used
as a bona fide means of equalizing the value of the property or assets
involved in a swap transaction) of a nature or type or that are used in a
business (or a company having property or assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the
property and assets of, or business of, the Company and its Restricted
Subsidiaries existing on the date of such sale or other disposition, (c)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under subparagraph (m)(4), or (d) sales,
transfers or other dispositions of assets, including issuances of Capital
Stock, between or among the Company and its Restricted Subsidiaries.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board Resolution" means a copy of a resolution, certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Transfer Agent.
"Business Day" means any day except a Saturday or Sunday or other day
on which commercial banks in The City of New York are required or authorized by
law or other governmental action to be closed.
"By-Laws" means the Amended and Restated By-Laws of the Company, as the
same currently exist and are further amended, supplemented or modified.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether now outstanding or
issued after the Issue Date, including, without limitation, all Common Stock and
Preferred Shares.
"Change of Control" means (i) any "person" or "group" (within the
meaning of Section 13(d) or 14(d)(2) under the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of the Company on a
fully diluted basis and such ownership represents a greater percentage of the
total voting power of the Voting Stock of the Company, on a fully diluted basis,
than is held by the Existing Stockholders and their Affiliates on such date; or
(ii) individuals who on the Issue Date constitute the Board of Directors
(together with any new directors whose election by the Board of Directors or
whose nomination for election by the
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Company's stockholders was approved by a vote of at least a majority of the
members of the Board of Directors then in office who either were members of
the Board of Directors on the Issue Date or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office; (iii) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all the combined assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any Person other than a Wholly Owned
Restricted Subsidiary or the Existing Stockholder or any Affiliate thereof;
or (iv) the adoption of a plan of liquidation or dissolution of the Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Shares of
such Person, whether now outstanding or issued after the Issue Date, including
without limitation, all series and classes of such Common Stock.
"Credit Agreement" means one or more debt facilities or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case together with all other agreements, instruments and documents executed or
delivered pursuant thereto or in connection therewith, in each case as such
agreement, other agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Mandatory Redemption Date, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Mandatory
Redemption Date or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Mandatory Redemption Date; PROVIDED that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of a "change of control" occurring prior to
the Mandatory Redemption Date shall not constitute Disqualified Stock if the
"change of control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions contained in
subparagraph (h) and such Capital Stock specifically provides that the issuer of
such Capital Stock will not repurchase or redeem any such Capital Stock pursuant
to such provision prior to the Company's repurchase of such Preferred Stock as
is required to be repurchased pursuant to subparagraph (h).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Debentures" means the Company's 15% Senior Subordinated
Debentures due 2010 issued pursuant to the Exchange Indenture in exchange for
the Preferred Stock.
"Exchange Indenture" means the indenture for the Exchange Debentures,
the terms of which may be modified to the extent the corresponding terms in the
Preferred Stock have been modified in accordance with this Certificate of
Designation.
"Existing Stockholders" means Everett R. Dobson.
"Fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution; PROVIDED that for purposes of
clause (vi) of the second paragraph of subparagraph (m)(1), (x) the fair market
value of any security registered under the Exchange Act shall be the average of
the closing prices, regular way, of such security for the 20 consecutive trading
days immediately preceding the sale of Capital Stock and (y) in the event the
aggregate fair market value of any other property received by the Company
exceeds $10 million, the fair market value of such property shall be determined
by a nationally recognized investment banking firm and set forth in their
written opinion which shall be delivered to the Transfer Agent.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in this Certificate of Designation shall be computed in conformity with GAAP
applied on a consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with other provisions
of this Certificate of Designation shall be made without giving effect to,
except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means a holder of shares of Preferred Stock.
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"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Indebtedness by reason of a Person
becoming a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi),
(vii) or (viii) below) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if drawn
upon, to the extent such drawing is reimbursed no later than the third Business
Day following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; PROVIDED that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person, (viii) the maximum fixed redemption
or repurchase price of Disqualified Stock (or, in the case of any Restricted
Subsidiary, of Preferred Shares) of such Person outstanding at the time of
determination and (ix) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, PROVIDED that (A) the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the unamortized portion of the
original issue discount of such Indebtedness at the time of its issuance as
determined in conformity with GAAP, (B) money borrowed at the time of the
Incurrence of any Indebtedness in order to pre-fund the payment of interest on
such Indebtedness shall be deemed not to be "Indebtedness" and (C) that
Indebtedness shall not include any liability for federal, state, local or other
taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to
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others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of
(or in) any Person that has ceased to be a Restricted Subsidiary (other than
as a result of being designated as an Unrestricted Subsidiary under clause
(i) above), including without limitation, by reason of any transaction
permitted by clause (iii) of subparagraph (m)(6). For purposes of the
definition of "Unrestricted Subsidiary" and subparagraph (m)(4), (i)
"Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Subsidiaries))
of any Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary, (ii) the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of
its Subsidiaries)) of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Issue Date" means March 28, 2000.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof or any agreement
to give any security interest).
"Majority Approval" means, with respect to any action taken or proposed
to be taken by the Company, the affirmative vote or, notwithstanding any
contrary provision in the By-Laws, written consent by Holders of at least a
majority of the outstanding shares of Preferred Stock, voting or consenting, as
the case may be, separately as one class, given in person or by proxy, either in
writing, or by resolution adopted at an Annual Meeting.
"Mandatory Redemption Date" means April 1, 2010.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation (owing to a Person other than the Company or any Subsidiary of
the Company) outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by
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the Company or any Restricted Subsidiary of the Company as a reserve against
any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (b) with respect to any issuance or
sale of Capital Stock, the proceeds of such issuance or sale in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents
(except to the extent such obligations are financed or sold with recourse to
the Company or any Restricted Subsidiary of the Company) and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer by the Company to purchase Preferred
Stock from the Holders commenced by mailing a notice to the Transfer Agent and
each Holder stating: (i) the covenant pursuant to which the offer is being made
and that all Preferred Stock validly tendered and not withdrawn will be accepted
for payment on a pro rata basis; (ii) the purchase price and the date of
purchase (which shall be a Business Day no earlier than 30 days nor later than
60 days from the date such notice is mailed) (the "Payment Date"); (iii) that
any Preferred Stock not tendered will continue to accrue dividends pursuant to
its terms; (iv) that, unless the Company defaults in the payment of the purchase
price, any Preferred Stock accepted for payment pursuant to the Offer to
Purchase shall cease to accrue dividends on and after the Payment Date; (v) that
Holders electing to have Preferred Stock purchased pursuant to the Offer to
Purchase will be required to surrender the Preferred Stock, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Preferred Stock completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day immediately
preceding the Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Payment Date, a telegram,
facsimile transmission or letter setting forth the name of such Holder, the
liquidation preference of Preferred Stock delivered for purchase and a statement
that such Holder is withdrawing its election to have such Preferred Stock
purchased; and (vii) that Holders whose Preferred Stock is being purchased only
in part will be issued new shares of Preferred Stock equal in liquidation
preference to the unpurchased portion of the Preferred Stock surrendered;
PROVIDED that each share of Preferred Stock purchased and each new share of
Preferred Stock issued shall be in a liquidation preference of $1,000 or
integral multiples thereof. On the Payment Date, the Company shall (i) accept
for payment on a pro rata basis Preferred Stock or portions thereof validly
tendered and not withdrawn pursuant to an Offer to Purchase; (ii) deposit with
the Paying Agent money sufficient to pay the purchase price of all Preferred
Stock or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Transfer Agent all Preferred Stock or portions thereof so
accepted together with an Officers Certificate specifying the Preferred Stock or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail to the Holders of Preferred Stock so accepted payment in an amount
equal to the purchase price, and the Transfer Agent shall promptly countersign
and mail to such Holders new shares of Preferred Stock equal in liquidation
preference to any unpurchased portion of the Preferred Stock surrendered;
PROVIDED
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that each share of Preferred Stock purchased and each new share of Preferred
Stock issued shall be in a liquidation preference of $1,000 or integral
multiples thereof. The Company will publicly announce the results of an Offer
to Purchase as soon as practicable after the Payment Date. The Transfer Agent
shall act as the Paying Agent for an Offer to Purchase. The Company will
comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable to an Offer to Purchase.
"Officer" means (i) the Chairman of the Board, the President, any Vice
President or the Chief Financial Officer and (ii) the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary.
"Officers Certificate" means a certificate signed by one Officer listed
in clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof or any two Officers listed in clause (i) of the
definition thereof.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; PROVIDED that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; and (iv) stock, obligations or securities received in
satisfaction of judgments or pursuant to any court supervised plan of
reorganization or similar proceeding; (v) non-cash consideration acquired in any
Asset Sale effected in accordance with the subparagraph (m)(8); and (vi) any
acquisitions of assets used, or Capital Stock of a Person primarily engaged, in
a business related, ancillary or complementary to the business of the Company
and its Restricted Subsidiaries solely in exchange for Junior Securities (other
than Disqualified Stock) of the Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Shares" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference equity,
whether now outstanding or issued after the Issue Date, including, without
limitation, the Preferred Stock and all other series and classes of such
preferred stock or preference stock.
"Preferred Stock" means the Company's 15% Senior Exchangeable Preferred
Stock due 2010 issued by the Company, as further described in subparagraph (a).
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means (i) Indebtedness of the Company under the
Senior Notes, and all fees, expenses and indemnities payable in connection with
any of the foregoing and (ii)
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all other Indebtedness of the Company, including principal and interest on
such Indebtedness, unless such Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is issued,
would be PARI PASSU with, or subordinated in right of payment to, the
Exchange Debentures; PROVIDED that the term "Senior Indebtedness" shall not
include (a) any Indebtedness of the Company that, when Incurred and without
respect to any election under Section 1111(b) of the United States Bankruptcy
Code, was without recourse to the Company, (b) any Indebtedness of the
Company to a Subsidiary of the Company or to a joint venture in which the
Company has an interest, (c) any Indebtedness of the Company, to the extent
not permitted by subparagraph (m)(1) or subparagraph (m)(2), (d) the Senior
Exchange Debentures, or any other indebtedness of the Company that purports
to be subordinated to any other Indebtedness of the Company, (e) any
repurchase, redemption or other obligation in respect of Disqualified Stock,
(f) any Indebtedness to any employee of the Company or any of its
Subsidiaries, (g) any liability for federal, state, local or other taxes owed
or owing by the Company or (h) any Trade Payables. Senior Indebtedness will
also include interest accruing subsequent to events of bankruptcy of the
Company at the rate provided for in the document governing such Senior
Indebtedness, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under federal bankruptcy law.
"Senior Note Indenture" means the Indenture dated as of June 12, 1998
between the Company and United States Trust Company of New York, relating to the
Senior Notes, as such indenture may be amended, supplemented, extended, renewed,
replaced or otherwise modified from time to time.
"Senior Notes" means the 12 1/4% Senior Notes due 2008 issued by the
Company under the Senior Note Indenture.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any indebtedness, the date
specified in such indebtedness as the fixed date on which the final installment
of principal of such indebtedness is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any Indebtedness, the
date specified in such Indebtedness as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally
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<PAGE>
guaranteed by the United States of America or any agency thereof having
maturities of not more than one year from the date of acquisition, (ii) time
deposit accounts, certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of America,
any state thereof or any foreign country recognized by the United States, and
which bank or trust company has capital, surplus and undivided profits
aggregating in excess of $50 million (or the foreign currency equivalent
thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker dealer or
mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than 90 days after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P, and (v) securities with maturities of six months or
less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and
rated at least "A" or such similar equivalent or higher by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transfer Agent" means United States Trust Company of New York.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination after the Issue Date shall be designated an
Unrestricted Subsidiary by the Board of Directors in the manner provided below
and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors
may designate any Restricted Subsidiary (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; PROVIDED that (A) any Guarantee by
the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary
being so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under
subparagraph (m)(4) and (C) if applicable, the Incurrence of Indebtedness and
the Investment referred to in clause (A) of this proviso would be permitted
under subparagraphs (m)(1) and (m)(4). The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that immediately
after giving effect to such designation (x) all Liens and Indebtedness of such
Unrestricted Subsidiary outstanding immediately after such designation would, if
Incurred at such time, have been permitted to be incurred for all purposes of
this Certificate of Designation and (y) no
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Voting Rights Triggering Event, or an event which with the giving of notice
or the passage of time, or both, would become a Voting Rights Triggering
Event, shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Transfer Agent by promptly
providing the Transfer Agent a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
(o) TRANSFER AND LEGENDING OF SHARES. (i) No transfer of shares of the
Preferred Stock shall be effective until such transfer is registered on the
books of the Company. Until registered under the Securities Act, the expiration
of the time period referred to in Rule 144(k) (as then in effect) under the
Securities Act from the Issue Date, or the Company and the Holder of such shares
otherwise agree, all shares of Preferred Stock other than the Registered
Preferred Stock and Additional Registered Preferred Stock (together with any
dividends thereon paid in additional shares of Preferred Stock) (the Preferred
Stock subject to this paragraph (o) being the "Restricted Preferred Stock")
shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE
CERTIFICATE OF DESIGNATIONS OR THE EXCHANGE INDENTURE, AS APPLICABLE,
PURSUANT TO WHICH THIS SECURITY IS ISSUED) AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF LOGIX
COMMUNICATIONS ENTERPRISES, INC. THAT (A) SUCH SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(A) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (B) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE
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144 UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
UNDER THE SECURITIES ACT OR (D) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), AS LONG AS
THE REGISTRAR RECEIVES A CERTIFICATION OF THE TRANSFEROR AND AN
OPINION OF COUNSEL THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (2) TO LOGIX COMMUNICATIONS ENTERPRISES, INC. OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTION SET FORTH IN (A) ABOVE.
(ii) The Company shall refuse to register any attempted
transfer of shares of Restricted Preferred Stock not in compliance with this
paragraph (o).
(iii) In connection with proposed transfers of Preferred Stock
the Company may require the transferor or transferee, as the case may be, to
deliver an appropriate letter attached hereto as Exhibit A. Each Holder of
Restricted Preferred Stock shall notify the Company in the event of any transfer
by such Holder of any shares of Restricted Preferred Stock to a foreign
transferee.
IN WITNESS WHEREOF, Logix Communications Enterprises, Inc. has caused
this Certificate of Designation to be executed in its corporate name by Albert
H. Pharis, Jr., its President, and attested by Herbert Kenney, its Secretary,
this 29th day of March, 2000.
LOGIX COMMUNICATIONS
ENTERPRISES, INC.
By:
-----------------------------------
Albert H. Pharis, Jr.
President
Attest:
By:
-----------------------------
Herbert Kenney
Secretary
[Corporate Seal]
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EXHIBIT A
Form of Certificate to Be
Delivered in Connection with
TRANSFERS
_______________________, ________
Logix Communications Enterprises, Inc.
3555 Northwest 58th Street
Oklahoma City, OK 73112
Re: Logix Communications
Enterprises, Inc. (the "Company")
Senior Exchangeable Preferred Stock
(the "Securities")
Dear Ladies and Gentlemen:
In connection with our proposed purchase of ___ shares of the Securities,
we confirm that:
1. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Certificate of
Designation relating to the Securities (the "Certificate of Designation") and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as defined therein), (C)
inside the United States to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
that, prior to such transfer, furnishes to you a signed letter substantially in
the form of this letter and, if such transfer is in respect of Securities having
an aggregate liquidation preference at the time of transfer of less than
$100,000, an opinion of counsel acceptable to the Company that such transfer is
in compliance with the Securities Act, (D) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant
to the exemption from registration provided by Rule 144 under the Securities Act
(if available) or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing any of
the Securities from us a notice advising such purchaser that resales of the
Securities are restricted as stated herein.
3. We understand that, on any proposed resale of any Securities, we
will be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with
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<PAGE>
the foregoing restrictions. We further understand that the Securities
purchased by us will bear a legend to the effect set out in paragraph 2.
4. We are an "accredited investor" and have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we and any accounts
for which we are acting are each able to bear the economic risk of our or its
investment.
5. We are acquiring the Securities purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
6. We are not acquiring the Securities with a view to a distribution
thereof or with any present intention of offering or selling any of the
Securities, except as permitted above; provided that the disposition of our
property and property of our accounts for which we are acting as fiduciary will
remain at all times within our control.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Holder]
By:
-----------------------------
Authorized Signature
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[cad 157]<PAGE>
LETTER AGREEMENT
March 29, 2000
Mr. James Rutherford, VP, Operations
Logix Communications Corporation of Oklahoma
100 Park Avenue, Suite 900
Oklahoma City, Oklahoma 73102
Dear Mr. Rutherford:
Upon its execution by both parties, this letter agreement herewith releases
Logix Communications Corporation of Oklahoma ("Logix") from any further
obligations to issue Orders under its "Minimum Initial Systems Quantity
Committment", as defined in a Letter of Commitment dated June 19, 1998,
between Logix Communications Corporations of Oklahoma and Nortel Networks
Inc. (f/n/a "Northern Telecom Inc") ("Nortel Networks") ("Letter of
Commitment"). Initially capitalized terms used, but not defined, in this
Letter Agreement shall have the same meaning as in the Letter of Commitment.
In consideration of this release from the Minimum Initial Systems Quantity
Commitment, Logix herewith releases Nortel Networks from any further
obligation to provide any and all commitment-related credits or other
incentives, as specified in the Letter of Commitment, with respect to any
Orders that are received and accepted by Nortel Networks on or after the date
this Letter Agreement is executed by the parties. Such credits and other
incentives include, but are not necessarily limited to, training credits,
credits against translation services, product credits for every fifth (5th)
Initial System purchased, the product credits specified in Attachment 1 of
the Letter of Commitment, and Special Extension Pricing for DTE, DTEI and
ESMA configurations.
Credits or other Incentives that have already accrued and been issued to
Logix, or that are recognized by Nortel Networks as having been earned based
upon Orders received and accepted prior to the date this Letter Agreement is
executed by the parties, shall remain subject to use by Logix in accordance
with the terms of the Letter of Agreement and MPA. In addition, the
releases herein granted shall not operate to terminate Logix's commitment in
the last paragraph of the Letter of Commitment to purchase and/or license
exclusively from Nortel Networks all of its requirements for certain products
specified therein.
Please indicate Logix's acceptance of this Letter Agreement by signature of
an authorized company officer below, and the return of an original copy to
Nortel Networks.
<PAGE>
Agreed and accepted for: Agreed and accepted for:
NORTEL NETWORKS INC. LOGIX COMMUNICATIONS
CORPORATION OF OKLAHOMA
By: Patricia Smith By: James Rutherford
----------------------------- -------------------------------
Title: Director Contracts Title: VP Operations
-------------------------- ----------------------------
Date: 4-18-00 Date: 4-5-00
--------------------------- ----------------------------
<PAGE>
ACE*COMM
AMENDMENT TO
MASTER SUPPORT AGREEMENT, SYSTEMS
ACQUISITION AGREEMENT, AND DATA
PROCESSING SERVICES AGREEMENT
THIS AGREEMENT ("Amendment") is entered into effective as of September 20,
1999, by and between Logix Communications Corporation ("CUSTOMER") with
offices at 3555 N.W. 58th Street, Oklahoma City, Oklahoma 73112 and ACE*COMM
CORPORATION, a Maryland corporation ("ACE*COMM") with offices at 704 Quince
Orchard Road, Gaithersburg, Maryland 20878.
WHEREAS, the parties previously entered into a Master Support Agreement,
dated as of June 23, 1998, a Systems Acquisition Agreement, dated as of June 30,
1998, and a Data Processing Services Agreement, dated June 30, 1998, as
currently in effect (the "Agreements").
WHEREAS, the parties entered into a Memorandum of Understanding, dated
as of July 30, 1999 ("Memorandum of Understanding"), in order to come to an
agreement for plans to proceed with certain work to automate certain
processes for the CUSTOMER while terminating or changing certain other
portions of CUSTOMER's project; and
WHEREAS, it is the goal and intention of both CUSTOMER and ACE*COMM to
meet the billing and operations support system requirements of CUSTOMER for
its subscribers and move the Pro*Vision product to the next level of
functionality and architecture; and
WHEREAS, one short term goal of both CUSTOMER and ACE*COMM is to produce
accurate invoices for CUSTOMER's Macrologics customers with the first mailing
in November, 1999;
NOW THEREFORE, in consideration of the foregoing, the mutual promises,
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
1. This Amendment supercedes the Memorandum of Understanding. Logix and
ACE*COMM hereby confirm that, except as modified by this Amendment, all of
the remaining obligations under the Master Support Agreement, Data Processing
Services Agreement and Systems Acquisition Agreement remain in full force and
effect, without any diminution, and unconditionally and irrevocably agree to
be bound by all of the terms, provisions, covenants and conditions contained
therein. This Amendment shall not be deemed to novation; except as
specifically set forth herein and shall not limit, reduce or otherwise affect
Logix's or ACE*COMM's obligations as set forth in the Documents, and does not
constitute a waiver of ACE*COMM's or Logix's rights or remedies set forth
herein. Any claims or causes of action which CUSTOMER has or may have against
ACE*COMM shall be unaffected by this
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ACE*COMM
Amendment and any amounts otherwise due or which become due are unaffected by
this Amendment. The parties will enter into a Maintenance Agreement
supplement to the Master Support Agreement to take effect at the time that
the warranty period expires as provided in paragraph 4(a).
2. As used herein the following terms shall have the meanings given:
DCA - a set of customer accounts of CUSTOMER which have been migrated to
ACE*COMM.
Macrologix - a set of customer accounts of CUSTOMER which have historically
been billed through an outside vendor and which will be migrated to ACE*COMM.
Major Alarm - as defined in Article I of the System Acquisition Agreement.
Minor Alarm - as defined in Article I of the System Acquisition Agreement.
3. Data Processing Services Agreement.
a) The Data Processing Services Agreement will continue in effect until
the time that CUSTOMER has successfully redeployed CUSTOMER's equipment.
ACE*COMM will continue to work on completing the conversion of DCA and
Macrologics accounts to Pro*Vision in Gaithersburg. The CUSTOMER equipment at
ACE*COMM will be re-deployed by the CUSTOMER at some point in the future, and
the Data Processing Services Agreement will be cancelled at that time.
CUSTOMER will operate the billing system for its customers after
redeployment of the database to the CUSTOMER facility and after training by
ACE*COMM personnel. ACE*COMM will recommend the hardware configuration and
CUSTOMER will supply the necessary hardware to process subscriber data at a
CUSTOMER facility.
b) CUSTOMER will pay the contracted CDR processing rates for all
billing services as specified on page 15 and 16 of document T98.JMT.0837
dated 6/1/98 until completion of redeployment of CUSTOMER's equipment to a
CUSTOMER facility. CUSTOMER shall not be liable for the Termination Fee or
Migration Fee under the Data Processing Services Agreement however, CUSTOMER
agrees to pay for engineering and support services as may be requested by
CUSTOMER, which shall be charged on a time and expense basis in accordance
with the existing working arrangement between the parties and Attachment B to
the System Acquisition Agreement.
4. System Acquisition Agreement and Master Support Agreement.
a) CUSTOMER agrees that the warranty period commenced on December 31,
1998 and will end December 31, 1999. Maintenance fees will be in effect
January 1, 2000 and will be renewable every year thereafter should CUSTOMER
so choose.
b) ACE*COMM will provide maintenance support on a 7 day a week, 24 hour
per day basis, with a 4 hour response time on Emergency and Major Alarms.
Maintenance Support
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ACE*COMM
response for Minor Alarms will be provided by the end of the next "normal
business day". Normal business hours are defined as 8:30 a.m. through 5:00
p.m. East Coast Time Monday through Friday excluding ACE*COMM holidays.
c) Status will be provided by ACE*COMM to CUSTOMER every 4 hours on
every open Emergency trouble ticket. Such status may be provided via
telephone, fax, or email at Ace*COMM's sole choice. Logix shall provide one
telephone number, fax number and email address to which ACE*COMM will provide
the status.
d) ACE*COMM will provide CUSTOMER a Customer Guide which clearly
delineates all trouble reporting processes to include Phone Numbers, Names,
and Escalation List for all maintenance trouble reporting fifteen (15) days
after this agreement is executed by both parties.
e) The above specified services shall be provided at the rate of 18% as
specified in the System Acquisition Agreement.
5. Pro*Vision, CANS and N*Vision
a) CUSTOMER is authorized to use Pro*Vision, CANS and N*Vision at two
sites without paying two license fees: one used in ACE*COMM's Data Processing
Services Center, and one used at a single site at a CUSTOMER premises
location until all processing is consolidated at a CUSTOMER site. ACE*COMM
will work with Oracle to attempt to get Oracle's approval to allow for the
transition at no cost, however, if a cost is incurred, such cost will be paid
by CUSTOMER. All licensing terms, conditions, and pricing remain as stated in
the System Acquisition Agreement.
b) ACE*COMM will assign appropriate personnel with expert knowledge of
Pro*Vision and CANS products, to teach CUSTOMER personnel to administer the
system and to help load data into the system. These individuals will work in
Houston to specify software changes necessary to meet the automation
requirements of the CUSTOMER. ACE*COMM will supply an N*Vision person in
Houston later in the project. ACE*COMM and CUSTOMER will determine the actual
staffing level necessary for the software development aspects of the project
and ACE*COMM shall provide necessary staffing. Staffing levels will be
determined based on the number and complexity of requirements delivered by
the joint CUSTOMER-ACE*COMM analysis team.
c) CUSTOMER will assign a Program Manager to manage the overall project
and coordinate the tasks assigned to both ACE*COMM and CUSTOMER.
d) CUSTOMER will assign appropriate resources to the project on a
full-time basis.
e) Additional computing platforms will be installed in a CUSTOMER
facility sufficient to run the software.
f) A Project Plan will be developed to guide the efforts and staffing
levels by both parties.
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ACE*COMM
g) ACE*COMM and CUSTOMER management will conduct a conference call every
two weeks to review progress against the milestone schedule included in the
project plan. ACE*COMM and CUSTOMER executive management will meet formally
every six months to plan future activities and goals. These calls and
meetings will be scheduled by mutual agreement.
h) ACE*COMM source code software development will take place in ACE*COMM
facilities and may also take place in CUSTOMER facility depending upon how
source code is licensed.
i) CUSTOMER will be permitted to view the source code and documentation
in the presence of an ACE*COMM engineer and on a controlled basis at no
charge to the CUSTOMER, other than time and materials cost of the engineer.
If CUSTOMER requires additional access to the Pro*Vision source code or
documentation, then a license fee will be established. In the event that a
license to the source code is purchased, CUSTOMER will be provided copies of
all relevant system engineering documentation (architectural
diagrams/descriptions, design documents, information models, etc. then in use
by ACE*COMM personnel in conjunction with maintenance and enhancement of the
source code). CUSTOMER will restrict access to this information and the
source code to CUSTOMER employees and contractors with a need to know and who
have signed nondisclosure agreements. Such license will not constitute a
license to redistribute, sublicense, lease, rent or provide services using
the software to any third party. No access to N*Vision or CANS source code
will be provided.
j) ACE*COMM will manage a copy of the software for the project,
separately from any copy that is used to make modifications for other
ACE*COMM customers. ACE*COMM shall have right, title and interest to all
Software CUSTOMER shall have the right to use.
k) ACE*COMM and CUSTOMER will jointly develop a change control
methodology that will be used for the project. This methodology will be in
place by October 15, 1999.
6. Additional payments by CUSTOMER.
a) Logix will spend with ACE*COMM a minimum of $1M for software product
enhancements to Pro*Vision in equal monthly increments over the next twelve
months. These dollars will be credited to Logix and spent on specific
enhancements only after formal approval by Logix. Enhancements are defined as
development effort and professional services in support of those efforts
namely; design, coding, integration, testing and documentation. ACE*COMM will
provide monthly accounting statements which reflect how each credit dollar
has been spent and the overall account balance. Unless the authorized
spending rate is increased by Logix and staffed by ACE*COMM, then ACE*COMM
will provide development staffing and Logix shall pay for ACE*COMM's
development staffing at the rate of one twelfth of the total $1M for each
month from October 1, 1999 through September 30, 2000.
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ACE*COMM
b) CUSTOMER will pay for the shipping and reinstallation for equipment
to be re-deployed.
c) All additional features and system enhancements funded by CUSTOMER
may be offered by ACE*COMM to existing and future ACE*COMM customers.
d) Except as specifically stated in this Amendment, CUSTOMER shall give
no obligation to make any payments to ACE*COMM under the Data Processing
Services Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment.
CUSTOMER ACE*COMM CORPORATION
/s/ William Hoffman /s/ S. Joseph Dorr
- ------------------------------- -------------------------------
Signature Signature
William Hoffman S. Joseph Dorr
- ------------------------------- -------------------------------
Print Name Print Name
President, Logix Communications Vice President
- ------------------------------- -------------------------------
Title Title
10/22/99 10/27/99
- -------------------------- -------------------------------
Date Date
Page 5 of 5
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