<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
Commission file number 25737
USINTERNETWORKING, INC.
<TABLE>
<S> <C>
DELAWARE 52-2078325
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
</TABLE>
ONE USI PLAZA, ANNAPOLIS, MD 21401-7478
(Address of principal executive officers)
(Zip Code)
(410) 897-4400
(Registrant's telephone number, including area code)
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 / /
Shares outstanding of the Registrant's common stock
<TABLE>
<S> <C>
Class Outstanding at November 11, 1999
Common Stock, $.001 par value 40,635,140
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX
USINTERNETWORKING, INC.
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Part I. Financial Information
Item 1. CONSOLIDATED FINANCIAL STATEMENTS OF USINTERNETWORKING, INC.
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited)............................ 3
Consolidated Statements of Operations for the three months
ended September 30, 1999 and 1998 (unaudited) and for the
nine months ended September 30, 1999 (unaudited) and for
the period January 14, 1998 (date of inception) through
September 30, 1998 (unaudited)............................ 4
Consolidated Statements of Stockholders' Equity (Deficit)
for the
period January 14, 1998 (date of inception) through
December 31, 1998
and for the nine months ended September 30, 1999
(unaudited)............................................... 5
Consolidated Statements of Cash Flows for the three months
ended September 30, 1999 and 1998 (unaudited) and for the
nine months ended September 30, 1999 (unaudited) and for
the period January 14, 1998 (date of inception) through
September 30, 1998 (unaudited)............................ 6
Notes to Consolidated Financial Statements.................. 7
CONSOLIDATED FINANCIAL STATEMENTS OF I.I.T. HOLDING, INC.
AND SUBSIDIARIES (PREDECESSOR)
Consolidated Statements of Operations for the period from
July 1, 1998 through September 7, 1998 (unaudited) and for
the period from January 1, 1998 through September 7, 1998
(unaudited)............................................... 14
Consolidated Statements of Cash Flows for the period from
July 1, 1998 through September 7, 1998 (unaudited) and for
the period from January 1, 1998 through September 7, 1998
(unaudited)............................................... 15
Note to the Consolidated Financial Statements............... 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Item 3. Quantitative and Qualitative Disclosure of Market Risk...... 24
Part II. Other Information
Item 1. Legal Proceedings........................................... 24
Item 2. Changes In Securities....................................... 24
Item 6. Exhibits and Reports on Form 8-K............................ 25
Signatures..
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
USINTERNETWORKING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 43,802,465 $ 28,577,208
Restricted cash........................................... 581,712 506,712
Available-for-sale securities............................. -- 40,424,676
Accounts receivable, less allowance of $142,000 and
$341,012 in 1998 and 1999, respectively................. 2,882,119 9,875,202
Prepaid expenses and other current assets................. 2,436,247 4,993,163
------------ -------------
Total current assets........................................ 49,702,543 84,376,961
Deferred IMAP costs......................................... -- 5,370,347
Software licenses, net of accumulated amortization of
$2,525,573 in 1999........................................ 9,596,760 11,035,810
Property and equipment, net of accumulated depreciation of
$1,567,885 and $9,710,162 in 1998 and 1999,
respectively.............................................. 21,640,145 81,672,820
Goodwill, net of accumulated amortization of $1,611,763 and
$5,694,763 in 1998 and 1999, respectively................. 25,137,296 22,133,603
Other assets................................................ 439,734 482,113
------------ -------------
Total assets................................................ $106,516,478 $ 205,071,654
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 6,571,767 $ 12,094,324
Accrued compensation...................................... 4,870,690 7,074,536
Other accrued expenses.................................... 1,569,570 1,065,275
Deferred revenue.......................................... 51,247 3,601,823
Due to former shareholders of acquired businesses......... 10,826,735 --
Current portion of capital lease obligations.............. 1,503,947 3,749,318
Current portion of long-term debt......................... 1,757,588 10,055,592
------------ -------------
Total current liabilities................................... 27,151,544 37,640,868
Short-term obligations expected to be refinanced............ 5,282,450 --
Capital lease obligations, less current portion............. 3,427,254 8,086,680
Long-term debt, less current portion........................ 5,231,794 26,485,049
Dividends payable........................................... 1,503,004 --
------------ -------------
Total liabilities........................................... 42,596,046 72,212,597
Series B Convertible Redeemable Preferred Stock, $.01 par
value, 115,000 shares authorized, 59,279 shares issued and
outstanding in 1998, none in 1999......................... 62,242,500 --
Common stock subject to repurchase, 1,343,750 shares issued
and outstanding in 1998, none in 1999..................... 4,145,000 --
Commitments and contingent liabilities...................... -- --
Stockholders' equity (deficit):
Series A Convertible Preferred Stock, $.01 par value,
110,000 shares authorized, 55,000 shares issued and
outstanding in 1998, none in 1999....................... 550 --
Common stock, $.001 par value, 600,000,000 shares
authorized, 625,000 shares issued and outstanding in
1998, 40,542,469 in 1999................................ 625 40,542
Additional paid-in capital................................ 29,985,069 236,651,351
Note receivable from officer for purchase of common
stock................................................... -- (2,250,000)
Unearned compensation..................................... -- (361,822)
Accumulated deficit....................................... (32,453,312) (101,505,381)
Accumulated other comprehensive income.................... -- 284,367
------------ -------------
Total stockholders' equity (deficit)...................... (2,467,068) 132,859,057
------------ -------------
Total liabilities and stockholders' equity (deficit)........ $106,516,478 $ 205,071,654
============ =============
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
USINTERNETWORKING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM JANUARY 14,
THREE MONTHS ENDED 1998 (DATE OF
SEPTEMBER 30, NINE MONTHS INCEPTION) THROUGH
--------------------------- ENDED SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ ------------------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue............................... $ 9,776,622 $ 515,488 $ 20,851,714 $ 515,488
------------ ------------ ------------ ------------
Costs and expenses:
Direct costs of services............ 5,822,941 342,917 13,897,698 342,917
Network and infrastructure costs.... 4,613,826 -- 11,360,299 --
General and administrative.......... 4,959,316 7,449,170 15,841,863 10,407,416
Sales and marketing................. 10,960,212 1,536,335 24,552,985 1,802,383
Product research and development.... 1,197,379 259,181 2,005,107 259,181
Non-cash stock compensation
expense........................... 3,445,248 90,455 6,805,486 90,455
Depreciation and amortization....... 5,947,714 232,118 14,793,756 269,134
------------ ------------ ------------ ------------
Total costs and expenses.............. 36,946,636 9,910,176 89,257,194 13,171,486
------------ ------------ ------------ ------------
Operating loss........................ (27,170,014) (9,394,688) (68,405,480) (12,655,998)
Other income (expense):
Interest income..................... 725,445 206,869 2,146,810 307,335
Interest expense.................... (1,322,469) (20,706) (2,793,399) (74,551)
------------ ------------ ------------ ------------
(597,024) 186,163 (646,589) 232,784
------------ ------------ ------------ ------------
Net loss.............................. (27,767,038) (9,208,525) (69,052,069) (12,423,214)
Dividends accrued on Series A and
Series B Convertible Preferred
Stock............................... -- (657,742) (2,328,150) (843,004)
Accretion of common stock subject to
repurchase to fair value............ -- (1,338,437) (23,938,069) (1,475,000)
Accretion of Series B Convertible
Redeemable Preferred Stock to fair
value............................... -- -- (99,252) --
------------ ------------ ------------ ------------
Net loss attributable to common
stockholders........................ $(27,767,038) $(11,204,704) $(95,417,540) $(14,741,218)
============ ============ ============ ============
Basic and diluted loss per common
share attributable to common
stockholders........................ $ (0.69) $ (17.93) $ (3.73) $ (23.59)
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
USINTERNETWORKING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- PAID-IN NOTE RECEIVABLE
SHARES PAR VALUE SHARES PAR VALUE CAPITAL FROM OFFICER
---------- --------- ---------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 14, 1998........ -- $ -- -- $ -- $ -- $ --
Issuance of common stock to
founder upon inception......... -- -- 625,000 625 4,375 --
Issuance of Series A Convertible
Preferred Stock on May 28, 1998
for cash....................... 38,333 383 -- -- 22,999,617 --
Issuance of Series A Convertible
Preferred Stock on May 28, 1998
in exchange for $1,000,000
note........................... 1,667 17 -- -- 999,983 --
Issuance of Series A Convertible
Preferred Stock on June 22,
1998 for cash.................. 6,167 62 -- -- 3,699,938 --
Issuance of Series A Convertible
Preferred Stock on July 2, 1998
for cash....................... 5,833 58 -- -- 3,499,942 --
Issuance of Series A Convertible
Preferred Stock on July 30,
1998 for cash.................. 3,000 30 -- -- 1,799,970 --
Transaction costs associated with
the issuance of Series A
Convertible Preferred Stock.... -- -- -- -- (205,225) --
Issuance of warrants to purchase
50,000 shares of common stock
associated with the acquisition
of IIT on September 8, 1998.... -- -- -- -- 40,000 --
Issuance of warrants to purchase
974,450 shares of common stock
in connection with $9,095,000
of debt on September 7, 1998... -- -- -- -- 1,948,930 --
Issuance of warrants to purchase
74,404 shares of common stock
in connection with a $5,000,000
financing commitment on
September 22, 1998............. -- -- -- -- 148,810 --
Issuance of warrants to purchase
971 shares of Series B
Convertible Redeemable
Preferred Stock in connection
with a $10,000,000 financing
commitment on September 30,
1998........................... -- -- -- -- 606,875 --
Issuance of warrants to purchase
62,500 shares of common stock
associated with the acquisition
of ACR on October 2, 1998...... -- -- -- -- 50,000 --
Issuance of warrants to purchase
17,857 shares of common stock
in connection with a $2,000,000
financing commitment on
December 18, 1998.............. -- -- -- -- 35,714 --
Dividends accrued on Series A
Convertible Preferred Stock.... -- -- -- -- (1,503,004) --
Accretion of common stock subject
to repurchase to fair value.... -- -- -- -- (3,903,865) --
Accretion of Series B Convertible
Redeemable Preferred Stock to
fair value..................... -- -- -- -- (236,991) --
Net loss for the period
January 14, 1998 through
December 31, 1998.............. -- -- -- -- --
---------- ---- ---------- ------- ------------- -----------
Balance at December 31, 1998....... 55,000 550 625,000 625 29,985,069 --
---------- ---- ---------- ------- ------------- -----------
Dividends accrued on Series A and
Series B Convertible Preferred
Stock.......................... -- -- -- -- (2,328,150) --
Accretion of common stock subject
to repurchase to fair value.... -- -- -- -- (23,938,069) --
Accretion of Series B Convertible
Redeemable Preferred Stock to
fair value..................... -- -- -- -- (99,252) --
Conversion of Series A
Convertible Preferred Stock to
common stock................... (55,000) (550) 12,374,994 12,375 (11,825) --
Conversion of Series B
Convertible Redeemable
Preferred Stock to common
stock.......................... -- -- 18,524,532 18,524 62,223,976 --
Reclassification of common stock
subject to repurchase to common
stock.......................... -- -- 1,343,750 1,344 28,714,909 --
Issuance of common stock upon
initial public offering........ -- -- 6,900,000 6,900 144,893,100 --
Initial public offering issuance
costs.......................... -- -- -- -- (12,190,627) --
Issuance of common stock upon
exercise of stock options...... -- -- 210,337 210 554,947 --
Issuance of common stock upon
exercise of stock options in
exchange for note.............. -- -- 375,000 375 2,249,625 (2,250,000)
Issuance of common stock upon
exercise of warrants........... -- -- 296,740 297 73,416 --
Contribution of common stock to
employee benefit plan.......... -- -- 17,116 17 378,645 --
Repurchase of common stock....... -- -- (125,000) (125) (9,875) --
Amortization of unearned
compensation................... -- -- -- -- 135,681 --
Stock compensation expense for
issuance of common stock
options at below fair market
value.......................... -- -- -- -- 6,019,781 --
Comprehensive income:
Net loss for the period January
1, 1999 through September 30,
1999.......................... -- -- -- -- -- --
Other comprehensive
income--unrealized gain on
marketable securities......... -- -- -- -- -- --
Total comprehensive income
(loss)......................... -- -- -- -- -- --
---------- ---- ---------- ------- ------------- -----------
Balance at September 30, 1999
(unaudited)........................ -- $ -- 40,542,469 $40,542 $ 236,651,351 $(2,250,000)
========== ==== ========== ======= ============= ===========
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCKHOLDERS'
UNEARNED ACCUMULATED COMPREHENSIVE EQUITY
COMPENSATION DEFICIT INCOME (DEFICIT)
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at January 14, 1998........ $ -- $ -- $ -- $ --
Issuance of common stock to
founder upon inception......... -- -- -- 5,000
Issuance of Series A Convertible
Preferred Stock on May 28, 1998
for cash....................... -- -- -- 23,000,000
Issuance of Series A Convertible
Preferred Stock on May 28, 1998
in exchange for $1,000,000
note........................... -- -- -- 1,000,000
Issuance of Series A Convertible
Preferred Stock on June 22,
1998 for cash.................. -- -- -- 3,700,000
Issuance of Series A Convertible
Preferred Stock on July 2, 1998
for cash....................... -- -- -- 3,500,000
Issuance of Series A Convertible
Preferred Stock on July 30,
1998 for cash.................. -- -- -- 1,800,000
Transaction costs associated with
the issuance of Series A
Convertible Preferred Stock.... -- -- -- (205,225)
Issuance of warrants to purchase
50,000 shares of common stock
associated with the acquisition
of IIT on September 8, 1998.... -- -- -- 40,000
Issuance of warrants to purchase
974,450 shares of common stock
in connection with $9,095,000
of debt on September 7, 1998... -- -- -- 1,948,930
Issuance of warrants to purchase
74,404 shares of common stock
in connection with a $5,000,000
financing commitment on
September 22, 1998............. -- -- -- 148,810
Issuance of warrants to purchase
971 shares of Series B
Convertible Redeemable
Preferred Stock in connection
with a $10,000,000 financing
commitment on September 30,
1998........................... -- -- -- 606,875
Issuance of warrants to purchase
62,500 shares of common stock
associated with the acquisition
of ACR on October 2, 1998...... -- -- -- 50,000
Issuance of warrants to purchase
17,857 shares of common stock
in connection with a $2,000,000
financing commitment on
December 18, 1998.............. -- -- -- 35,714
Dividends accrued on Series A
Convertible Preferred Stock.... -- -- (1,503,004)
Accretion of common stock subject
to repurchase to fair value.... -- -- (3,903,865)
Accretion of Series B Convertible
Redeemable Preferred Stock to
fair value..................... -- -- (236,991)
Net loss for the period
January 14, 1998 through
December 31, 1998.............. -- (32,453,312) -- (32,453,312)
------------- ------------- -------- -------------
Balance at December 31, 1998....... -- (32,453,312) -- (2,467,068)
------------- ------------- -------- -------------
Dividends accrued on Series A and
Series B Convertible Preferred
Stock.......................... -- -- -- (2,328,150)
Accretion of common stock subject
to repurchase to fair value.... -- -- -- (23,938,069)
Accretion of Series B Convertible
Redeemable Preferred Stock to
fair value..................... -- -- -- (99,252)
Conversion of Series A
Convertible Preferred Stock to
common stock................... -- -- -- --
Conversion of Series B
Convertible Redeemable
Preferred Stock to common
stock.......................... -- -- -- 62,242,500
Reclassification of common stock
subject to repurchase to common
stock.......................... (633,184) -- -- 28,083,069
Issuance of common stock upon
initial public offering........ -- -- -- 144,900,000
Initial public offering issuance
costs.......................... -- -- -- (12,190,627)
Issuance of common stock upon
exercise of stock options...... -- -- -- 555,157
Issuance of common stock upon
exercise of stock options in
exchange for note.............. -- -- -- --
Issuance of common stock upon
exercise of warrants........... -- -- -- 73,713
Contribution of common stock to
employee benefit plan.......... -- -- -- 378,662
Repurchase of common stock....... -- -- -- (10,000)
Amortization of unearned
compensation................... 271,362 -- -- 407,043
Stock compensation expense for
issuance of common stock
options at below fair market
value.......................... -- -- -- 6,019,781
Comprehensive income:
Net loss for the period January
1, 1999 through September 30,
1999.......................... -- (69,052,069) -- (69,052,069)
Other comprehensive
income--unrealized gain on
marketable securities......... -- -- 284,367 284,367
-------------
Total comprehensive income
(loss)......................... -- -- -- (68,767,702)
------------- ------------- -------- -------------
Balance at September 30, 1999
(unaudited)........................ $ (361,822) $(101,505,381) $284,367 $ 132,859,057
============= ============= ======== =============
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
USINTERNETWORKING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
FOR THE PERIOD
FROM JANUARY 14,
NINE MONTHS 1998 (DATE OF
THREE MONTHS ENDED SEPTEMBER 30, ENDED INCEPTION)
--------------------------------------- SEPTEMBER 30, THROUGH SEPTEMBER 30,
1999 1998 1999 1998
------------------ ------------------ ------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................... $(27,767,038) $ (9,208,525) $(69,052,069) $(12,423,214)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation......................... 4,546,714 232,118 10,710,756 269,134
Amortization......................... 1,401,000 -- 4,083,000 --
Amortization of unearned compensation
related to the issuance of common
stock.............................. 135,681 -- 407,043 --
Non-cash stock compensation
expense............................ 3,309,567 90,455 6,398,443 90,455
Non-cash interest expense............ 62,974 -- 188,921 --
Changes in operating assets and
liabilities:
Accounts receivable................ (2,568,616) (1,309,469) (6,993,083) (1,309,469)
Prepaid expenses and other current
assets........................... 225,788 (739,713) (2,556,916) (834,533)
Deferred IMAP costs................ (2,373,366) -- (5,370,347) --
Accounts payable................... 251,712 2,133,936 522,557 2,659,047
Accrued compensation............... 747,013 457,203 2,203,846 457,203
Accrued expenses and other current
liabilities...................... 1,293,636 2,375,912 3,046,281 3,297,804
------------ ------------ ------------- ------------
Net cash used in operating
activities........................... (20,734,935) (5,968,083) (56,411,568) (7,793,573)
INVESTING ACTIVITIES
Purchases of property and equipment.... (9,804,036) (11,899,757) (58,867,670) (16,219,463)
Change in restricted cash.............. 375,000 (101,983) 75,000 (581,712)
Sales (purchases) of available-for-sale
securities........................... 7,794,192 -- (40,140,309) --
Acquisitions, net of cash acquired..... -- (14,193,796) (1,079,307) (14,193,796)
Change in other assets................. (79,579) (9,643) (42,379) (262,616)
------------ ------------ ------------- ------------
Net cash used in investing
activities........................... (1,714,423) (26,205,179) (100,054,665) (31,257,587)
------------ ------------ ------------- ------------
FINANCING ACTIVITIES
Proceeds from issuance of Series A
Convertible Preferred Stock.......... -- 5,205,907 -- 31,905,907
Proceeds from loan from officer,
subsequently converted into Series A
Convertible Preferred Stock.......... -- -- -- 1,000,000
Expenses from issuance of Series B
Convertible Redeemable Preferred
Stock................................ -- -- (99,252) --
Proceeds from issuance of common stock
upon initial public offering, net of
issuance costs....................... (90,806) -- 132,709,373 --
Proceeds from issuance of common
stock................................ -- 15,000 -- 15,000
Dividends paid to preferred
stockholders......................... -- -- (3,831,154) --
Proceeds from exercise of stock options
and warrants......................... 453,723 -- 628,870 --
Proceeds from issuance of long-term
debt................................. 15,843,909 16,614,307 27,124,538 17,385,179
Payment to former shareholders of
acquired businesses.................. (45,302) -- (10,826,735) --
Payments on long-term debt............. (1,645,560) (13,086) (3,054,650) (16,190)
Payments on capital lease
obligations.......................... (747,158) (8,301) (1,410,014) (8,301)
------------ ------------ ------------- ------------
Net cash provided by financing
activities........................... 13,768,806 21,813,827 141,240,976 50,281,595
------------ ------------ ------------- ------------
Net increase (decrease) in cash........ (8,680,552) (10,359,435) (15,225,257) 11,230,435
Cash and cash equivalents at beginning
of period............................ 37,257,760 21,589,870 43,802,465 --
------------ ------------ ------------- ------------
Cash and cash equivalents at end of
period............................... $ 28,577,208 $ 11,230,435 $ 28,577,208 $ 11,230,435
============ ============ ============= ============
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
USINTERNETWORKING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
The consolidated balance sheet at December 31, 1998 has been derived from
the audited consolidated financial statements at that date but does not include
all of the information and disclosures required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements for
the period from January 14, 1998 (date of inception) through December 31, 1998
included in the Company's registration statement on Form S-1, File No.
333-70717, effective April 8, 1999, as amended (the "Registration Statement").
2. ACCOUNTING CHANGE
On July 1, 1999, the Company changed its estimate of the useful life of its
computer equipment from three to five years. The change in estimate will be
accounted for prospectively, with depreciation expense for periods subsequent to
June 30, 1999 calculated so as to depreciate the remaining book value of the
equipment at June 30, 1999 equally over the revised estimated useful life.
The effect of this change was to decrease depreciation expense and net loss
by $1,316,000 for the three and nine months ended September 30, 1999. Basic and
diluted loss per share for the three and nine months ended September 30, 1999
was lower by $.03 per share and $.05 per share, respectively, as a result of the
change.
3. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss per
common share:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
THREE MONTHS ENDED JANUARY 14, 1998
SEPTEMBER 30, NINE MONTHS (DATE OF INCEPTION)
--------------------------- ENDED SEPTEMBER THROUGH
1999 1998 30, 1999 SEPTEMBER 30, 1998
------------ ------------ ---------------- -------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss............................................ $(27,767,038) $ (9,208,525) $(69,052,069) $(12,423,214)
Dividends on Series A and Series B Convertible
Preferred Stock................................... -- (657,742) (2,328,150) (843,004)
Accretion of common stock subject to repurchase to
fair value........................................ -- (1,338,437) (23,938,069) (1,475,000)
Accretion of Series B Convertible Redeemable
Preferred Stock to fair value..................... -- -- (99,252) --
------------ ------------ ------------ ------------
$(27,767,038) $(11,204,704) $(95,417,540) $(14,741,218)
============ ============ ============ ============
Denominator:
Weighted-average number of shares of common stock
outstanding and not subject to repurchase during
the period........................................ 40,028,808 625,000 25,575,285 625,000
------------ ------------ ------------ ------------
Basic and diluted loss per common share............... $ (0.69) $ (17.93) $ (3.73) $ (23.59)
============ ============ ============ ============
</TABLE>
7
<PAGE>
USINTERNETWORKING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 (UNAUDITED)
3. LOSS PER SHARE (CONTINUED)
Basic loss per share is based upon the average number of shares of common
stock outstanding during the periods. The 1998 computations exclude 1,343,750
shares of common stock subject to repurchase.
Diluted loss per common share is equal to basic loss per common share
because if potentially dilutive securities were included in the computation, the
result would be anti-dilutive. These potentially dilutive securities consist of
common stock subject to repurchase, convertible preferred stocks, stock options
and warrants in the 1998 periods and stock options and warrants in the 1999
periods.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Building and land.................................. $ 959,124 $14,458,390
Furniture and fixtures............................. 779,332 2,336,762
Equipment and automobiles.......................... 2,151,877 3,241,954
Computers and software............................. 16,018,565 63,343,718
Leasehold improvements............................. 3,299,132 8,002,158
----------- -----------
23,208,030 91,382,982
Accumulated depreciation........................... (1,567,885) (9,710,162)
----------- -----------
Total.............................................. $21,640,145 $81,672,820
=========== ===========
</TABLE>
Substantially all property and equipment is collaterialized under financing
arrangements.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Note payable to a bank due June 30, 2001 and bearing
interest at 9.0% per annum. The note is payable in monthly
installments of principal and interest of $6,644 with all
unpaid principal and interest due at maturity. The note is
secured by a mortgage on the real property purchased with
the proceeds and with a $79,929 letter of credit pledged
as additional security.................................... $ 639,517 $ 623,352
Note payable to a bank due July 21, 2001 and bearing
interest at 9.0% per annum. The note is payable in monthly
installments of principal and interest of $2,249 with all
unpaid principal and interest due at maturity. The note is
secured by a mortgage on the property purchased with the
proceeds and with a $26,984 letter of credit pledged as
additional security....................................... 217,689 212,306
Notes payable due on August 1, 2001 and bearing interest at
13.0% per annum. The notes are payable in monthly
installments of principal and interest of $77,429 and are
collateralized by certain furniture, fixtures, equipment
and software purchased by the Company..................... 2,081,563 1,567,264
</TABLE>
8
<PAGE>
USINTERNETWORKING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 (UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Note payable due on September 1, 2001 and bearing interest
at 13.0% per annum. The note is payable in monthly
installments of principal and interest of $4,868 and is
collateralized by certain furniture, fixtures, equipment
and software purchased by the Company..................... $ 134,519 $ 102,427
Note payable due on October 1, 2001 and bearing interest at
17.1% per annum. The note is payable in monthly
installments of principal and interest of $158,000 with
all unpaid principal and interest due at maturity. This
note is collateralized by certain software licenses
purchased by the Company.................................. 4,501,175 3,606,628
Notes payable due on February 1, 2002 and bearing interest
at 15.0% per annum. The note is payable in monthly
installments of principal and interest ranging from
$35,730 to $40,348 and is collateralized by certain
furniture, fixtures, equipment and software purchased by
the Company............................................... -- 1,840,915
Note payable due on October 1, 2002 and bearing interest at
13.6% per annum. The note is payable in monthly
installments of principal and interest of $58,522 and is
collateralized by certain furniture, fixtures and
equipment purchased by Company............................ -- 1,850,736
Note payable due on April 1, 2002 and bearing interest at
17.1% per annum. The note is payable in monthly
installments of principal and interest of $78,650 and is
collateralized by certain furniture, fixtures, equipment
and software purchased by the Company..................... -- 2,127,287
Note payable due on January 1, 2002 and bearing interest at
11.9% per annum. The note is payable in monthly
installments of principal and interest of $209,028 and is
collateralized by certain software licenses purchased by
the Company............................................... -- 1,911,653
Notes payable due on July 1, 2003 and bearing interest at
14.1% per annum. The notes are payable in monthly
installments of principal and interest of $94,894 and are
collateralized by certain equipment and software purchased
by the Company............................................ -- 2,743,634
Note payable due on June 1, 2002 and bearing interest at 14%
per annum. The note is payable in monthly installments of
principal and interest of $396,694 and is collateralized
by certain equipment and software purchased by the
Company................................................... -- 10,680,130
Note payable due on September 1, 2002 and bearing interest
at 13.4% per annum. The note is payable monthly
installments of principal and interest of $68,614 and is
collateralized by certain furniture, fixtures, equipment
and software purchased by the Company..................... -- 2,022,312
</TABLE>
9
<PAGE>
USINTERNETWORKING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 (UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Note payable due on May 1, 2006 and bearing interest at 7.5%
per annum. The note is payable in monthly installments of
principal and interest of $44,063 with all unpaid
principal and interest due at maturity. The note is
secured by a mortgage on the real property purchased with
the proceeds. $ -- $ 7,028,874
Note payable due on March 1, 2001 and bearing interest at
6.6% per annum. The note is payable in monthly
installments of principal and interest ranging from
$19,908 to $28,237 and is collateralized by the general
assets of the Company..................................... -- 633,688
Notes payable due between February 28, 2003 and March 11,
2004 and bearing interest at rates ranging from 8.25% to
9.99% per annum. The notes are payable in monthly
installments of principal and interest ranging from $542
to $1,274 and are secured by automobiles purchased with
the proceeds.............................................. 107,630 93,225
----------- -----------
Total....................................................... 7,682,093 37,044,431
Less: current portion....................................... 1,757,588 10,055,592
Less: discounts............................................. 692,711 503,790
----------- -----------
$ 5,231,794 $26,485,049
=========== ===========
</TABLE>
Aggregate maturities of long-term debt at September 30, 1999 are as follows:
<TABLE>
<S> <C>
October 1, 1999 through December 31, 1999................... $ 2,319,476
2000........................................................ 11,294,001
2001........................................................ 11,892,297
2002........................................................ 4,439,325
2003........................................................ 390,045
2004 and thereafter......................................... 6,709,287
-----------
Total....................................................... $37,044,431
===========
</TABLE>
At September 30, 1999, the fair value of long-term debt approximates its
carrying value.
6. SHORT-TERM OBLIGATIONS EXPECTED TO BE REFINANCED
At December 31, 1998, the Company had outstanding current liabilities for
the purchase of fixed assets of $7,500,000, for which the Company had
outstanding commitments to finance on a long-term basis. The Company executed
the financings in early 1999, and therefore classified at December 31, 1998
$5,282,450, or the portion of the $7,500,000 financing that is due after 1999,
as long-term. The remaining $2,217,550, which is due in 1999, is included in
accounts payable at December 31, 1998. These obligations bear interest at rates
from 9% to 17% per annum, and will mature in varying installments through
January 2002. The balance sheet at September 30, 1999 includes these amounts in
long-term debt.
10
<PAGE>
USINTERNETWORKING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 (UNAUDITED)
7. SEGMENT INFORMATION
During 1998 and through June 1999, the Company was organized into two
business units -- IMAP and Professional IT Services. In the third quarter of
1999, the Company changed the manner in which it manages its operations and
reports the activities of those operations. The Company is now organized into
seven business units that offer unique software solutions. These operating
segments have been aggregated for reporting purposes into two segments, as
follows:
- ENTERPRISE WIDE SOLUTIONS -- provides enterprise relationship management,
financial management, human resource, and professional services automation
software product offerings; and
- E-COMMERCE AND WEB BASED SOLUTIONS-- provides electronic commerce,
enhanced messaging and decision support product offerings.
Management believes that the aggregation of the operating segments helps
users of the financial statements better understand performance. The combined
operating segments have similar economic characteristics and products and meet
other criteria for aggregation. Both business units utilize an Internet-based
network, which enables clients to use leading business software applications
without the burden of owning, or managing the underlying technology. These
services are delivered to customers through a network of Enterprise Data Centers
located in Maryland, California, Amsterdam and Tokyo.
The Company evaluates the performance of its new operating segments based on
contribution margin, or revenues less variable direct costs. This contribution
margin excludes an allocation of network and infrastructure costs, selling,
general and administrative costs, non-cash stock compensation expense, and
depreciation and amortization.
The Company does not prepare information regarding segment assets. The
accounting policies used by the reportable segments are the same as those used
by the Company as described in Note 1 to the December 31, 1998 consolidated
financial statements.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
THREE MONTHS ENDED NINE MONTHS JANUARY 14, 1998
SEPTEMBER 30, ENDED (DATE OF INCEPTION)
--------------------------- SEPTEMBER 30, THROUGH
1999 1998 1999 SEPTEMBER 30, 1998
---------- ---------- ------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Enterprise Wide Solutions............ $5,251,700 $ 515,488 $10,774,249 $ 515,488
E-Commerce and Web Based Solutions... 4,524,922 -- 10,077,465 --
---------- ---------- ----------- -----------
Consolidated......................... $9,776,622 $ 515,488 $20,851,714 $ 515,488
========== ========== =========== ===========
Segment operating profit:
Enterprise Wide Solutions............ $3,031,209 $ 172,571 $ 5,610,255 $ 172,571
E-Commerce and Web Based Solutions... 922,472 -- 1,343,761 --
---------- ---------- ----------- -----------
Consolidated......................... $3,953,681 $ 172,571 $ 6,954,016 $ 172,571
========== ========== =========== ===========
</TABLE>
11
<PAGE>
USINTERNETWORKING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 (UNAUDITED)
7. SEGMENT INFORMATION (CONTINUED)
A reconciliation of segment operating loss to net loss during the periods
presented is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
NINE MONTHS JANUARY 14, 1998
THREE MONTHS ENDED SEPTEMBER 30, ENDED (DATE OF INCEPTION)
------------------------------------- SEPTEMBER 30, THROUGH
1999 1998 1999 SEPTEMBER 30, 1998
----------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C>
Segment operating loss for all
segments........................... $ 3,953,681 $ 172,571 $ 6,954,016 $ 172,571
Network and infrastructure costs..... (4,613,826) -- (11,360,299) --
Selling, general and
administrative..................... (17,116,907) (9,244,686) (42,399,955) (12,468,980)
Non-cash stock compensation
expense............................ (3,445,248) (90,455) (6,805,486) (90,455)
Depreciation and amortization........ (5,947,714) (232,118) (14,793,756) (269,134)
Interest income...................... 725,445 206,869 2,146,810 307,335
Interest expense..................... (1,322,469) (20,706) (2,793,399) (74,551)
------------- ------------- ------------- -------------
Net loss............................. $ (27,767,038) $ (9,208,525) $ (69,052,069) $ (12,423,214)
============= ============= ============= =============
</TABLE>
Revenues from one customer of the Company's Enterprise Wide Solutions
segment accounted for approximately 18% and 16% of the Company's consolidated
revenue for the three and nine months ended September 30, 1999, respectively.
8. INITIAL PUBLIC OFFERING
In April 1999 the Company completed an initial public offering of 6,900,000
shares of common stock which resulted in net proceeds of approximately
$132,700,000, after deducting underwriting discounts, commissions and offering
expenses. Upon the closing of the offering, the Series A Preferred Stock and
Series B Preferred Stock automatically converted into 30,899,526 shares of
common stock, and the common stock subject to repurchase no longer became
mandatorily redeemable by the Company.
In February 1999, the Company's Board of Directors approved an 8 for 1
reverse stock split of common stock, options and warrants which became effective
on April 8, 1999. Accordingly, all share and per share data including stock
option, warrant and loss per share information have been restated in the
consolidated financial statements to retroactively reflect the stock split.
9. STOCK COMPENSATION PLAN
In May 1999 the Company granted non-qualified stock options to purchase
561,250 shares of common stock at $6.00 per share. These options vested
immediately, but any shares exercised will be subject to the Company's right to
repurchase them at the option exercise price upon the termination of employment.
The repurchase right will lapse with respect to one-third of the shares
purchasable upon exercise of an option in March 2000, and the remainder of the
shares purchasable upon exercise of an option will lapse in equal quarterly
installments over the subsequent eight calendar quarters.
The options were granted at an exercise price less than the quoted market
value of the Company's common stock at the date of grant. The Company will
record stock compensation expense of approximately $15.4 million as a result of
these option grants that will be recognized ratably over the four-year period
that the employees earn the right to retain the shares obtained upon exercise of
the stock options without regard to continued employment.
12
<PAGE>
USINTERNETWORKING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999 (UNAUDITED)
10. RELATED PARTY TRANSACTION
In September 1999, the Company loaned $2,250,000 to an officer to purchase
375,000 shares of common stock. The loan is evidenced by a note that bears
interest at 5% per annum, is payable on or before July 31, 2000, and is secured
by shares of common stock held by the officer. The Company has classified the
note as a reduction of stockholders' equity at September 30, 1999.
11. SUBSEQUENT EVENTS
On October 8, 1999 the Company purchased the assets of Conklin & Conklin,
Inc. for $8.0 million in cash, $0.6 million in assumed debt and $2.0 million
represented by a secured note. In addition, Conklin's shareholders will be
entitled to contingent payments of up to $4.0 million, payable in up to 333,333
shares of common stock, if the acquired business meets certain milestones.
Conklin & Conklin, Inc. is a comprehensive provider of Lawson financial and
human resources system implementation services and a certified reseller of
Lawson software licenses.
In October and November 1999, the Company issued $125,000,000 of convertible
subordinated notes, due November 1, 2004. The net proceeds from the issuance
were approximately $120,100,000. The Notes pay interest semi-annually on May 1
and November 1 at 7%, and are convertible into Common Stock at the holder's
option at a price of $37.275 per common share.
13
<PAGE>
I.I.T. HOLDING, INC. AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JULY 1, 1998 JANUARY 1, 1998
THROUGH THROUGH
SEPTEMBER 7, SEPTEMBER 7,
1998 1998
-------------- ----------------
<S> <C> <C>
(UNAUDITED)
Consulting revenue............................... $1,332,312 $ 4,405,560
Cost of revenue.................................. 1,235,491 2,976,499
---------- -------------
Gross profit..................................... 96,821 1,429,061
Operating expenses:
General and administrative..................... 769,875 1,803,611
Sales and marketing............................ 1,054 4,632
Depreciation................................... 9,601 27,580
---------- -------------
780,530 1,835,823
---------- -------------
Loss from operations............................. (683,709) (406,762)
Interest expense................................. (3,730) (17,353)
---------- -------------
Net loss......................................... $ (687,439) $ (424,115)
========== =============
</TABLE>
SEE ACCOMPANYING NOTE.
14
<PAGE>
I.I.T. HOLDING, INC. AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
JULY 1, 1998 JANUARY 1, 1998
THROUGH THROUGH
SEPTEMBER 7, 1998 SEPTEMBER 7, 1998
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss..................................... $ (687,439) $ (424,115)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation............................... 9,601 27,580
Change in assets and liabilities:
Accounts receivable...................... (415,746) (665,254)
Other current assets..................... (24,753) (54,897)
Other assets............................. 33,472 618
Accounts payable......................... 48,417 46,625
Accrued expenses......................... 1,189,707 1,607,710
---------- ----------
Net cash provided by operating activities.... 153,259 538,267
INVESTING ACTIVITIES
Acquisition of equipment and vehicle......... (1,618) (44,948)
Proceeds from sale of vehicle................ -- 17,504
---------- ----------
Net cash used in investing activities........ (1,618) (27,444)
FINANCING ACTIVITIES
Repayment of note payable to stockholder..... (45,884) (53,660)
Bank overdraft............................... -- (157,056)
Repayments of note payable................... -- (10,036)
Repayments of capital leases................. (4,626) (15,784)
---------- ----------
Net cash used in financing activities........ (50,510) (236,536)
Effect of exchange rate changes on cash...... 10,143 42,283
---------- ----------
Net increase in cash and cash equivalents.... 111,274 316,570
Cash and cash equivalents at beginning of
period..................................... 219,739 14,443
---------- ----------
Cash and cash equivalents at end of period... $ 331,013 $ 331,013
========== ==========
</TABLE>
SEE ACCOMPANYING NOTE.
15
<PAGE>
I.I.T. HOLDING, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 7, 1998 (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
I.I.T. Holding, Inc. and subsidiaries was acquired by USINTERNETWORKING,
Inc. on September 8, 1998, and is considered a predecessor to USINTERNETWORKING,
Inc. For further information, refer to the consolidated financial statements for
the period from January 1, 1998 through September 7, 1998 included in
USINTERNETWORKING, Inc.'s registration statement on Form S-1, File No.
333-70717, effective April 8, 1999, as amended.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED NOTES AND THE CONSOLIDATED FINANCIAL STATEMENTS OF IIT HOLDING INC.
AND RELATED NOTES INCLUDED ELSEWHERE IN THIS FORM 10-Q. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER
SIGNIFICANTLY FROM THOSE PROJECTED IN SUCH FORWARD-LOOKING STATEMENTS DUE TO A
NUMBER OF FACTORS.
OVERVIEW
I.I.T. Holding, Inc., the predecessor of USI for accounting purposes,
specialized in systems analysis and design and systems integration solutions.
IIT provided PeopleSoft human resource management and financial system
implementation. IIT's consulting professionals have expertise in human resource
management as well as accounting and financial systems.
We acquired IIT in September 1998 as a part of our program to develop a new
Internet-based service offering. IIT provides implementation capabilities that
enable us to provide human resource and financial management functionality as
part of our IMAP offerings.
We have developed an advanced, integrated service offering that provides our
clients the ability to use leading business software applications through our
state-of-the-art Internet-based network. Since our inception in January 1998, we
have devoted substantially all of our efforts to developing our network
infrastructure, recruiting and training personnel, establishing strategic
business partnerships with application software providers, completing three
strategic acquisitions and raising capital. We have incurred a cumulative net
loss since inception and expect to incur additional losses for at least the next
twelve months, due primarily to additional start-up costs related to
implementation of our services and the continued expansion and enhancement of
our network. As of September 30, 1999, we had an accumulated deficit of
approximately $101.5 million.
In April 1999, we completed an initial public offering of our common stock.
The net proceeds from the sale of the 6,900,000 shares of common stock were
approximately $132.7 million. The initial public offering of common stock met
the criteria for the automatic conversion of our outstanding Series A
Convertible Preferred Stock and Series B Redeemable Convertible Preferred Stock
into common stock. In addition, the repurchase rights lapsed with respect to all
common stock subject to repurchase.
REVENUE. We currently generate revenue from both traditional IT services
and IMAP services. We expect that as IMAP services grow, they will represent an
increasing proportion of our revenue. Revenue from IMAP services consists of
monthly recurring fees from ongoing services and is recognized ratably as earned
over the contract term. Non-refundable client deposits, if any, are recognized
as revenue ratably over the contract term. Revenue from the delivery of
professional information technology services not included in IMAP solutions is
recognized as the services are performed.
COSTS AND EXPENSES. We incur operating costs and expenses related to the
delivery of IMAP services.
Costs and expenses include product development, network and data center
support, marketing, and selling, general and administrative expenses. Since
inception, we have incurred expenses consisting primarily of compensation and
benefits, recruiting, occupancy and consulting. We have expensed all start-up
costs as incurred.
We incur up-front costs related to the delivery of IMAP services. Product
development costs and the cost to operate our network and data centers are
recognized as period costs. Costs related to the acquisition of hardware are
capitalized and depreciated over the estimated useful life of the hardware of
five years. Costs related to the acquisition of software licenses are
capitalized and amortized over either the term of the license agreement, or the
term of the individual client contract, depending on the nature of the software
license agreement. Amortization is based on current and future revenue from each
product
17
<PAGE>
and annual amortization will not be less than that computed on a straight-line
basis over the remaining useful life. Direct costs related to the integration of
software applications for a client on our network are capitalized and amortized
over the related contract period.
HISTORICAL RESULTS OF OPERATIONS--USINTERNETWORKING
COMPARISON OF THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 TO THE THREE-MONTH
PERIOD ENDED
SEPTEMBER 30, 1998
REVENUE. For the three months ended September 30, 1999, we generated
$6.7 million in IMAP revenue, and $3.1 million in professional IT services
revenue. We generated $0.5 million in professional IT services revenue for the
same period in 1998, primarily from our newly acquired subsidiary, IIT.
GROSS MARGINS, DIRECT COSTS OF SERVICES, NETWORK AND INFRASTRUCTURE
COSTS. For the three months ended September 30, 1999, we incurred $5.8 million
and $0.3 million of direct costs related to the delivery of our IMAP and
professional IT services, respectively. For the same period in 1998, we incurred
$0.3 million related to professional IT services and no costs related to IMAP
services. Additionally, we incurred $4.6 million of costs related to the
maintenance of our network and infrastructure for the three months ended
September 30, 1999 and no related costs during the same period in 1998. Gross
margins, including IMAP network and infrastructure costs, for the three months
ended September 30, 1999 were (24.6)% and 33.5% for IMAP and professional IT
services, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended
September 30, 1999, we incurred $4.9 million of general and administrative
expenses compared to $7.4 million for the same period in 1998. The decrease of
$2.5 million reflects the costs associated start-up activities during 1998 that
were not incurred during the same period in 1999.
SALES AND MARKETING EXPENSES. For the three months ended September 30,
1999, we incurred $10.9 million of sales and marketing expenses compared to
$1.5 million for the same period in 1998. The increase of $9.4 million reflects
the costs associated with the sales and marketing initiatives required to
support our IMAP services during a full quarter of operations in the period
ended September 30, 1999, compared to start-up activities during 1998.
PRODUCT RESEARCH AND DEVELOPMENT EXPENSES. For the three months ended
September 30, 1999, we incurred $1.2 million of product research and development
expenses compared to $0.3 million for the same period in 1998. The increase of
$0.9 million reflects the costs associated with the continued development of our
new products and infrastructure during a full quarter of operation in the period
ended September 30, 1999, compared to start-up activities during 1998.
NON-CASH STOCK COMPENSATION EXPENSE. For the three months ended
September 30, 1999, we incurred $3.4 million in non-cash compensation expense.
Of this amount, $3.0 million reflects the period's expense in connection with
employee stock options issued at an exercise price of $6.00 and an estimated
fair market value of $20 to $33.50 per share at the date of grant. The remaining
amount of $0.4 million reflects the Company's contribution of common stock to
the employee benefit plan and the amortization of unearned compensation. The
Company will record stock compensation expense of approximately $39.9 million
through 2003 as a result of 1999 stock option grants. There was minimal non-cash
stock compensation expense for the comparable period in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended September 30, 1999 totaled $5.9 million. Of this amount,
$1.4 million represents the amortization of the goodwill recorded upon our
acquisitions of ACR and IIT; the remaining $3.5 million represents depreciation
of our property and equipment and the amortization of our prepaid software
licenses. There was minimal depreciation and no amortization expense for the
comparable period in 1998.
18
<PAGE>
INTEREST INCOME AND EXPENSE. For the three months ended September 30, 1999,
we incurred $0.7 million in interest expense and generated $1.3 million of
interest income. We had minimal interest income and expense during the period
ended September 30, 1998.
COMPARISON OF THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 TO THE PERIOD ENDED
SEPTEMBER 30, 1998
REVENUE. For the nine months ended September 30, 1999, we generated
$11.3 million in IMAP revenue, and $9.5 million in professional IT services
revenue. We generated $0.5 million in professional IT services revenue for the
period January 14, 1998, our date of inception, through September 30, 1998
primarily from our newly acquired subsidiary, IIT.
GROSS MARGINS, DIRECT COSTS OF SERVICES, NETWORK AND INFRASTRUCTURE
COSTS. For the nine months ended September 30, 1999, we incurred $7.6 million
and $6.3 million of direct costs related to the delivery of our IMAP and
professional IT services, respectively. For the period from January 14, 1998,
our date of inception, through September 30, 1998, we incurred no and
$0.3 million of direct costs related to the delivery of our IMAP and
professional IT services, respectively. Additionally, we also incurred
$11.3 million of costs related to the maintenance of our network and
infrastructure for the nine months ended September 30, 1999 and no related costs
during the same period in 1998. Gross margins, including IMAP network and
infrastructure costs, for the three months ended September 30, 1999 were (67.8)%
and 33.5% for IMAP and professional IT services, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended
September 30, 1999, we incurred $15.8 million of general and administrative
expenses compared to $10.4 million for the period from January 14, 1998, our
date of inception, through September 30, 1998. The increase of $5.4 million
reflects the costs required to support three full quarters of operations in 1999
that were not incurred during the same period in 1998, offset by one time
start-up costs incurred in 1998.
SALES AND MARKETING EXPENSES. For the nine months ended September 30, 1999,
we incurred $24.6 million of sales and marketing expenses compared to
$1.8 million for the period from January 14, 1998, our date of inception,
through September 30, 1998. The increase of $22.8 million reflects the costs
associated with the sales and marketing initiatives required to support our IMAP
services during three quarters of operations in the period ended September 30,
1999, compared to start-up sales activities during 1998.
PRODUCT RESEARCH AND DEVELOPMENT EXPENSES. For the nine months ended
September 30, 1999, we incurred $2.0 million of product research and development
expenses compared to $0.3 million for the period from January 14, 1998, our date
of inception, through September 30, 1998. The increase of $1.7 million reflects
the costs associated with the continued development of our new products and
infrastructure during a full quarter of operation in the period ended
September 30, 1999, compared to start-up activities during 1998.
NON-CASH STOCK COMPENSATION EXPENSE. For the nine months ended
September 30, 1999, we incurred $6.8 million in non-cash compensation expense.
Of this amount, $6.2 million reflects the period's expense in connection with
employee stock options issued at an exercise price of $6.00 and an estimated
fair market value of $20 to $33.50 per share at the date of grant. The remaining
amount of $0.6 million reflects the Company's contribution of common stock to
the employee benefit plan and the amortization of unearned compensation. There
was minimal non-cash stock compensation expense for the comparable period in
1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the nine
months ended September 30, 1999 totaled $14.8 million. Of this amount,
$4.1 million represents the amortization of the goodwill recorded upon our
acquisitions of ACR and IIT; the remaining $10.7 million represents depreciation
of our property and equipment and the amortization of our prepaid software
licenses. There was minimal depreciation and no amortization expense for the
comparable period in 1998.
19
<PAGE>
INTEREST INCOME AND EXPENSE. For the three months ended September 30, 1999,
we incurred $2.1 million in interest expense and generated $2.8 million of
interest income. We had minimal interest income and expense during the period
ended September 30, 1998.
HISTORICAL RESULTS OF OPERATIONS--PREDECESSOR
COMPARISON OF THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 OF USI TO THE
PERIOD FROM JANUARY 1, 1998 THROUGH SEPTEMBER 7, 1998 OF PREDECESSOR
REVENUE. For the nine months ended September 30, 1999, we generated
$11.3 million in IMAP revenue, and $9.5 million in professional IT services
revenue. For the period from January 1, 1998, through September 7, 1998, IIT
generated $4.4 million in professional IT services revenue and no IMAP revenue.
The increase in professional IT services revenue is attributable to the
acquisition of ACR in October 1998, and the inclusion of its professional IT
services revenue in the period ended September 30, 1999.
GROSS MARGINS, DIRECT COSTS OF SERVICES, NETWORK AND INFRASTRUCTURE
COSTS. For the nine months ended September 30, 1999, we incurred $13.9 million
of direct costs related to the delivery of our IMAP and professional IT
services. For the period from January 1, 1998, through September 7, 1998, IIT
incurred $3.0 million of direct costs related to the delivery of professional IT
services. Additionally, we also incurred $11.3 million of costs related to the
maintenance of our network and infrastructure. Our gross margin, including IMAP
network and infrastructure costs, for the nine months ended September 30, 1999
was (67.8)%. The gross margin for IIT for the period from January 1, 1998,
through September 7, 1998, was 32.4%.
GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended
September 30, 1999, we incurred $15.8 million of general and administrative
expenses compared to IIT's $1.8 million for the period from January 1, 1998,
through September 7, 1998. The significant increase reflects costs associated
with the continued development and maintenance of a much larger infrastructure
required to support our IMAP services in the period ended September 30, 1999.
SALES AND MARKETING EXPENSES. For the nine months ended September 30, 1999,
we incurred $24.6 million of sales and marketing expenses compared to IIT's
$0.1 million for the period from January 1, 1998, through September 7, 1998. The
significant difference reflects costs associated sales and marketing efforts
required to support our IMAP services in the period ended September 30, 1999.
PRODUCT RESEARCH AND DEVELOPMENT EXPENSES. For the nine months ended
September 30, 1999, we incurred $2.0 million of product research and development
expenses. IIT incurred no related expenses for the period from January 1, 1998,
through September 7, 1998. The difference reflects the costs associated with the
continued development of our new products and infrastructure during three full
quarters of operations for the period ended September 30, 1999.
NON-CASH STOCK COMPENSATION EXPENSE. For the nine months ended
September 30, 1999, we incurred $6.8 million in non-cash compensation expense.
IIT had no non-cash stock compensation expense for the period from January 1,
1998, through September 7, 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the nine
months ended September 30, 1999, totaled $14.8 million. Of this amount,
$4.1 million represents the amortization of the goodwill created through our
acquisitions of ACR and IIT; the remaining $10.7 million represents depreciation
of our property and equipment and the amortization of our prepaid software
licenses. IIT incurred approximately $28,000 in depreciation expense for the
period from January 1, 1998, through September 7, 1998.
INTEREST INCOME AND EXPENSE. For the nine months ended September 30, 1999,
we incurred $2.1 million in interest expense and generated $2.8 million of
interest income. IIT had minimal interest expense and no interest income during
the period from January 1, 1998, through September 7, 1998.
20
<PAGE>
ACQUIRED COMPANIES
The acquisitions of IIT and ACR were made primarily with cash and were
accounted for using the purchase method of accounting. The assets and
liabilities of the acquired companies have been recorded at their fair market
value as of the acquisition closing date. The excess of the purchase price over
the fair market value of the identifiable net assets of IIT and ACR has been
accounted for as goodwill, which is being amortized over its estimated useful
life of 5 years.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, we had cash and cash equivalents of $28.6 million and
available-for-sale securities of $40.4 million.
For the nine months ended September 30, 1999, we have used $56.4 million in
operating activities, $100.1 million in investing activities and generated
$141.2 million through financing activities. Included in financing activities
was $132.7 million raised from an initial public offering in April 1999.
We have used debt and capital leases to partially finance our capital
purchases. As of September 30, 1999, we had obtained commitments for secured
financing from several sources, including Cisco System Capital Corporation
($10.0 million), Venture Lending & Leasing II, Inc. ($10.0 million), Finova
Capital Corporation ($11.7 million), Transamerica Business Credit Corporation
($4.0 million) and EMC Corporation ($6.4 million). At September 30, 1999, the
total of our secured financing commitments was $73.3 million, of which
$56.5 million had been funded.
In October and November 1999, we issued $125 million of convertible
subordinated notes, due November 1, 2004. The net proceeds from the issuance
were approximately $120.1 million. The Notes pay interest at 7% and are
convertible into common stock at the holder's option at a price of $37.275 per
common share.
In April 1999 we purchased an office building for $11.8 million. The seller
financed $7.1 million of the purchase price through a first mortgage note due
May 2006 bearing interest at 7.5% per annum. We expect to spend approximately
$12 million in 1999 on improvements to the building and have arranged financing
for $5.0 million of these improvements.
We believe that these resources will be sufficient to fund our operations
for the next twelve months. The majority of the base infrastructure required to
provide our IMAP services has been purchased. As a result, our capital
expenditures for the next several years will now largely be success-based,
consisting of software licenses and hardware required to implement IMAP
solutions for our new customers. These new customer contracts are expected to
have an average term of three to five years; however, we anticipate that many of
our customers will renew their contracts due to the cost and complexity of
switching service providers.
If we expand more rapidly than currently anticipated, if our working capital
needs exceed our current expectations or if we make acquisitions, we will need
to raise additional capital from equity or debt sources. We cannot be sure that
we will be able to obtain the additional financing to satisfy our cash
requirements or to implement our growth strategy on acceptable terms or at all.
If we cannot obtain such financing on terms acceptable to us, we may be forced
to curtail our planned business expansion and may be unable to fund our ongoing
operations. We are presently pursuing a variety of sources of other debt
financing, but no additional commitments have been obtained to date.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED FOR OR OBTAINED FOR INTERNAL USE (SOP 98-1). This SOP requires the
capitalization of costs to purchase or develop internal-use software, including
external direct costs of materials and services, payroll and payroll related
costs for employees who are
21
<PAGE>
directly associated with and devote time to an internal-use software development
project. Allocations of overhead to capitalized costs are not permitted.
Computer software costs related to research and development are expensed as
incurred, as are training and maintenance costs. SOP 98-1 is effective for years
beginning after December 15, 1998 and application is prospective. Through
December 31, 1998, approximately $1 million of costs related to the
implementation of internal use software were expensed. We have adopted SOP 98-1
in the first half of 1999, and have capitalized $1.0 million of costs in
implementing our internal use software.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, REPORTING THE COSTS OF START-UP ACTIVITIES (SOP
98-5). This SOP requires that start-up costs and organizational costs be
expensed as incurred. Start-up activities include one-time activities related to
opening a new facility, introducing a new product or service, conducting
business in a new territory, conducting business with a new class of customer,
initiating new process in an existing facility, or commencing some new
operation. SOP 98-5 is effective for years beginning after December 15, 1998. We
currently expense the costs of all start-up and organizational activities.
YEAR 2000 COMPLIANCE
YEAR 2000 ISSUE. The Year 2000 issue is a result of computer programs or
systems, which store or process date-related information using only two digits
to represent the year. These programs or systems may not be able to properly
distinguish between a year in the 1900's and a year in the 2000's. Failure of
these programs or systems to distinguish between the two centuries could cause
the programs or systems to yield erroneous results or even to fail.
STATE OF READINESS. Since its inception in January 1998, USI has been
cognizant of the Year 2000 issue. Hardware and software selections, network
architecture, and client contract terms have all been designed with the Year
2000 issue in mind.
We have established a Year 2000 compliance team to carry out a program of
testing and remediation on our information technology and
non-information-technology systems, for systems used by USI as well as those
provided by USI to its clients. The compliance team includes a Year 2000 outside
consulting firm and members from all levels of our management, engineering and
operations organization. The compliance team meets as a group on a regular basis
and subgroups of the team will meet as needed to address specific issues. The
compliance team is in the process of carrying out a program consisting of the
following phases:
- inventory of all potentially affected software products and
software-related services;
- analysis of such products and services to identify any areas that require
change or replacement;
- development of appropriate changes or replacements for the identified
areas;
- testing;
- implementation of the changes or replacements; and
- contingency planning.
Because USI is not only a user of software products and software-related
services, but also provides software products and software-related services to
its clients, the compliance program is addressing both software products and
software-related services used by USI and those provided by USI to its clients.
While different areas of USI face different Year 2000 problems, USI has given
priority to software products and software-related services that it provides to
its clients.
Our compliance team has completed the following tasks under our compliance
program.
- We have conducted in depth discussions with all of our software suppliers.
We have received assurances from all our software suppliers that the
programs provided to us are in compliance, and we do not believe that any
of the software applications provided to our clients requires remediation.
Even so, we continue to perform testing on the programs and applications
in production.
22
<PAGE>
- We have inventoried existing hardware and software used in our systems.
Our hardware and software purchases were made beginning in March 1998 and
no systems were in service before then, excluding systems maintained by
the acquired companies. Systems manufactured and released after 1996 are
generally believed to be free of Year 2000 compliance problems.
- Although the companies we recently acquired have been in existence longer
than we have and have older systems in place, we concluded, based on Year
2000 assessments performed for the acquired companies, that there are no
material exposures related to the hardware or software used by the
acquired companies.
- We are performing Year 2000 and subsequent leap year roll-over tests up to
the year 2008 on each of our server platforms. To date, these tests have
found only one system to be non-compliant. This system was brought into
compliance with an operating system upgrade in October 1998.
- Our network infrastructure units, like routers and switches, were put
through a Year 2000 roll-over test and found to be compliant.
- We have inventoried our internally developed source code and determined
that there is a minimal amount, consisting primarily of custom web scripts
and UNIX shell scripts, which require testing.
The Year 2000 compliance team has the following tasks to complete.
- Determine if additional analysis, remediation, testing or implementations
of new or existing systems, including software developed by the acquired
companies, are required.
- Complete analysis and, if necessary, testing and remediation of warranted
consulting services provided by ACR, IIT and Conklin.
- Complete implementation of any necessary changes and replacements to
software products and software-related services used and provided by USI.
- Implement procedures to ensure that any future software products and
software-related services, as well as enhancements to existing software
products and software-related services are developed in accordance with
USI's Year 2000 compliance program. We anticipate that inventory and
analysis of our existing systems will be completed by the middle of the
fourth quarter of 1999. We anticipate that implementation of any required
changes or replacements to existing systems as well as contingency
planning for systems identified as having a high risk of non-compliance
will be completed by the middle of the fourth quarter of 1999.
- Revise contingency and business continuation plans, as necessary, in the
event of the failure of the systems used by USI due to the Year 2000
millennium change.
COSTS. As of September 30, 1999, USI has incurred approximately
$0.75 million in expenses in connection with its Year 2000 compliance program.
All expenses relating to Year 2000 compliance to date have been incurred in the
normal course of our business, as we have developed our products, network, and
implemented specific client applications. The cost of completing the Year 2000
compliance program is expected to be principally in the form of the opportunity
costs of employees' time and consulting fees. USI may also need to purchase
replacement products or other providers to assist in Year 2000 compliance
efforts. Currently, the estimated final cost of the Year 2000 compliance program
is approximately $1.0 million, which includes internal labor costs, the hiring
of the Year 2000 consulting firm and reserves for additional outside consultants
and additional hardware and software. We expect that this estimate will be
refined as the analysis testing and implementation phases are completed.
RISKS. Should we fail to solve a Year 2000 compliance problem to one of our
systems the result could be a failure or interruption of normal business
operations. We believe that, due to the relative newness of our systems and the
tasks undertaken and completed by our compliance team, the potential for
significant interruptions to normal operations should be minimized. Our primary
risks with regard to Year 2000 failures are those which impact our IMAP
business.
23
<PAGE>
The reasonably likely worst-case risks inherent in our business are as
follows.
- If a product or service provided by USI or its subsidiaries is found to
cause damage or injury to a client because of Year 2000 noncompliance, USI
could be liable to the client for breach of warranty. USI's client
contracts generally limit USI's liability. USI cannot accurately predict
what legal claims may be brought against it. In addition, USI cannot
predict the outcome of any legal claims. USI has contracts which make Year
2000 warranties. Some of these contracts make broader warranties than
those made by the manufacturers of the software provided. The potential
liability arising from some of these warranties is not capped and does not
exclude consequential damages.
- Significant and protracted interruption of electrical power to our data
center operations could materially and negatively impact our ability to
provide data center operations. To mitigate this risk, we have deployed
back-up power systems at our data centers and have the capability to
transfer all of the operations of one data center to another. However,
electrical power interruptions that impact Internet connectivity providers
could adversely impact us because of our reliance upon Internet-based
operations for our day-to-day business.
- Significant and protracted interruption of telecommunications and data
network services in any of our data centers could materially and
negatively impact our ability to provide data center operations. We have
conducted detailed assessments of the components of our telecommunications
infrastructure and are working to identify appropriate system testing
guidelines. In addition, we have plans to seek additional assurances and a
better understanding of the compliance programs of its telecommunications
and data circuit providers.
- The failure of components of our systems used in the data centers could
materially and negatively impact our business. However, based on the time
period in which the data centers were developed we believe the risk of
failure is small. In addition, we have conducted a technical assessment of
the current systems and believe them to be compliant.
- In the course of our business, we use software products provided by other
companies, and some of our products and services interface to other
companies' systems. We have received information from various other
third-party providers regarding the Year 2000 readiness of their products
and we continue to review such information. We are also sending requests
to other third parties for information regarding the Year 2000 readiness
of their products and systems. As we do not have any control over these
third parties, we cannot guarantee that such third-party products and
systems will not suffer any adverse effects due to the Year 2000 issue,
which may result in a material adverse effect on our business.
- We have completed our Year 2000 contingency plans. However, if the
contingency plans prove inadequate, our potential Year 2000 liabilities
may be increased.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk principally as a result of changes in interest
rates. Through September 30, 1999, we invested our excess cash in cash
equivalents. Our long-term debt outstanding at September 30, 1999 requires the
payment of interest at fixed rates of interest. As of September 30, 1999, our
exposure to reasonably possible near-term changes in interest rates was not
significant to our financial position, results of operations, and cash flows.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) -- (c) None.
24
<PAGE>
On April 8, 1999, in connection with USINTERNETWORKING's initial public
offering, a Registration Statement on Form S-1 (No. 333-70717) was declared
effective by the Securities and Exchange Commission, pursuant to which 6,900,000
shares of USINTERNETWORKING's common stock were offered and sold for the account
of USINTERNETWORKING at a price of $21 per share. Generating gross offering
proceeds of $144.9 million. The managing underwriters were Credit Suisse First
Boston, Bear, Stearns & Co. Inc., BT Alex. Brown and Legg Mason Wood Walker
Incorporated. After deducting approximately $10.1 million in underwriting
discounts and $2.1 million in other related expenses, the net proceeds to
USINTERNETWORKING were approximately $132.7 million.
The net proceeds to USINTERNETWORKING were invested in short-term,
investment-grade interest-bearing securities. USINTERNETWORKING used a portion
of the net proceeds to pay accrued dividends on its preferred stock.
USINTERNETWORKING has no specific plans at this time for the use of the
remaining proceeds and expects to use such proceeds for working capital and
general corporate purposes.
(d) The Company filed its first registration statement under the Securities
Act effective April 8, 1999, File No. 333-70717. From the effetive date of the
registration statement to September 30, 1999, the Company's use of net offering
proceeds was as follows:
<TABLE>
<CAPTION>
<S> <C>
Net offering proceeds to issuer............................. $132,700,000
============
Use of proceeds:
Property and equipment.................................... $ 50,565,000
Working capital........................................... 2,278,000
Repayment of indebtness................................... 3,619,000
Payments to former shareholders of acquired businesses.... 3,405,000
Temporary investments:
Cash and cash equivalents................................. 28,577,000
Available-for-sale securities............................. 40,425,000
Other expenses:
Payment of accrued dividends.............................. 3,831,000
------------
$132,700,000
============
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.1 Indenture relating to the Company's 7% Convertible Subordinated Notes
due November 1, 2004.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K dated October 22, 1999 under which we
filed exhibits relating to our recent purchase of the assets of Conklin &
Conklin, Inc. ("Conklin") for $8.0 million in cash, $0.6 million in assumed debt
and $2.0 million represented by a secured note. Because the Conklin acquisition
did not involve the acquisition of a significant business under Rule 305(a) or
Rule 11-01(b) of Regulation S-X, financial statements of Conklin or pro forma
financial information for the Conklin acquisition were not filed.
We filed a Current Report on Form 8-K dated October 28, 1999 under which we
filed a press release relating to our recent placement of $100,000,000 aggregate
principal amount of 7% Convertible Subordinated Notes due November 1, 2004.
25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, AS AMENDED,
USINTERNETWORKING, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN ANNAPOLIS,
MARYLAND ON NOVEMBER 15, 1999.
<TABLE>
<S> <C> <C>
USINTERNETWORKING, INC.
By: /s/ CHRISTOPHER R. MCCLEARY
-----------------------------------------
Christopher R. McCleary
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
By: /s/ MARK J. MCENEANEY
-----------------------------------------
Mark J. McEneaney
SENIOR VICE PRESIDENT
AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
26
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 Indenture relating to the Company's 7% Convertible
Subordinated Notes due November 1, 2004.
27.1 Financial Data Schedule (EDGAR version only)
</TABLE>
27
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
USINTERNETWORKING, INC.
7% CONVERTIBLE SUBORDINATED NOTES
DUE NOVEMBER 1, 2004
------------------
INDENTURE
DATED AS OF OCTOBER 29, 1999
------------------
THE BANK OF NEW YORK,
AS TRUSTEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- --------------
<C> <S> <C>
Section 310(a)(1)................................................... 9.10
(a)(2)...................................................... 9.10
(a)(3)...................................................... N.A.**
(a)(4)...................................................... N.A.
(a)(5)...................................................... 9.10
(b)......................................................... 9.8; 9.10
(c)......................................................... N.A.
Section 311(a)...................................................... 9.11
(b)......................................................... 9.11
(c)......................................................... N.A.
Section 312(a)...................................................... 2.5
(b)......................................................... 12.3
(c)......................................................... 12.3
Section 313(a)...................................................... 9.6
(b)(1)...................................................... N.A.
(b)(2)...................................................... 9.6
(c)......................................................... 9.6; 12.2
(d)......................................................... 9.6
Section 314(a)...................................................... 6.2; 6.4; 12.2
(b)......................................................... N.A.
(c)(1)...................................................... 12.4(a)
(c)(2)...................................................... 12.4(a)
(c)(3)...................................................... N.A.
(d)......................................................... N.A.
(e)......................................................... 12.4(b)
(f)......................................................... N.A.
Section 315(a)...................................................... 9.1(b)
(b)......................................................... 9.5; 12.2
(c)......................................................... 9.1(a)
(d)......................................................... 9.1(c)
(e)......................................................... 8.11
Section 316(a)(last sentence)....................................... 2.9
(a)(1)(A)................................................... 8.5
(a)(1)(B)................................................... 8.4
(a)(2)...................................................... N.A.
(b)......................................................... 8.7
(c)......................................................... 12.5
Section 317(a)(1)................................................... 8.8
(a)(2)...................................................... 8.9
(b)......................................................... 2.4
</TABLE>
- ------------------------
* This Cross-Reference Table shall not, for any purpose, be deemed a part of
this Indenture.
** N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. DEFINITIONS................................................. 1
SECTION 1.2. OTHER DEFINITIONS........................................... 7
SECTION 1.3. TRUST INDENTURE ACT PROVISIONS.............................. 8
SECTION 1.4. RULES OF CONSTRUCTION....................................... 8
ARTICLE 2
THE SECURITIES
SECTION 2.1. FORM AND DATING............................................. 9
SECTION 2.2. EXECUTION AND AUTHENTICATION................................ 10
SECTION 2.3. REGISTRAR, PAYING AGENT AND CONVERSION AGENT................ 11
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST......................... 12
SECTION 2.5. SECURITYHOLDER LISTS........................................ 12
SECTION 2.6. TRANSFER AND EXCHANGE....................................... 12
SECTION 2.7. REPLACEMENT SECURITIES...................................... 14
SECTION 2.8. OUTSTANDING SECURITIES...................................... 15
SECTION 2.9. TREASURY SECURITIES......................................... 15
SECTION 2.10. TEMPORARY SECURITIES........................................ 15
SECTION 2.11. CANCELLATION................................................ 16
SECTION 2.12. ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS............... 16
SECTION 2.13. CUSIP NUMBERS............................................... 23
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.1. RIGHT TO REDEEM; NOTICE TO TRUSTEE.......................... 23
SECTION 3.2. SELECTION OF SECURITIES TO BE REDEEMED...................... 24
SECTION 3.3. NOTICE OF REDEMPTION........................................ 24
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.............................. 25
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE................................. 26
SECTION 3.6. SECURITIES REDEEMED IN PART................................. 26
SECTION 3.7. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION............... 26
SECTION 3.8. PURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON CHANGE
IN CONTROL.................................................. 27
SECTION 3.9. EFFECT OF CHANGE IN CONTROL PURCHASE NOTICE................. 30
SECTION 3.10. DEPOSIT OF CHANGE IN CONTROL PURCHASE PRICE................. 31
SECTION 3.11. SECURITIES PURCHASED IN PART................................ 31
SECTION 3.12. COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF
SECURITIES.................................................. 32
SECTION 3.13. REPAYMENT TO THE COMPANY.................................... 32
ARTICLE 4
CONVERSION
SECTION 4.1. CONVERSION PRIVILEGE........................................ 32
SECTION 4.2. CONVERSION PROCEDURE........................................ 33
SECTION 4.3. FRACTIONAL SHARES........................................... 35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 4.4. TAXES ON CONVERSION......................................... 35
SECTION 4.5. COMPANY TO PROVIDE STOCK.................................... 35
SECTION 4.6. ADJUSTMENT OF CONVERSION PRICE.............................. 35
SECTION 4.7. NO ADJUSTMENT............................................... 41
SECTION 4.8. ADJUSTMENT FOR TAX PURPOSES................................. 42
SECTION 4.9. NOTICE OF ADJUSTMENT........................................ 42
SECTION 4.10. NOTICE OF CERTAIN TRANSACTIONS.............................. 42
SECTION 4.11. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE ON
CONVERSION PRIVILEGE........................................ 43
SECTION 4.12. TRUSTEE'S DISCLAIMER........................................ 44
SECTION 4.13. VOLUNTARY REDUCTION......................................... 44
ARTICLE 5
SUBORDINATION
SECTION 5.1. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.............. 45
SECTION 5.2. SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION, REORGANIZATION,
ETC., OF THE COMPANY........................................ 45
SECTION 5.3. HOLDERS TO BE SUBROGATED TO RIGHT OF HOLDERS OF SENIOR
INDEBTEDNESS................................................ 47
SECTION 5.4. OBLIGATIONS OF THE COMPANY UNCONDITIONAL.................... 47
SECTION 5.5. COMPANY NOT TO MAKE PAYMENT WITH RESPECT TO SECURITIES IN
CERTAIN CIRCUMSTANCES....................................... 48
SECTION 5.6. NOTICE TO TRUSTEE........................................... 49
SECTION 5.7. APPLICATION BY TRUSTEE OF MONEY DEPOSITED WITH IT........... 50
SECTION 5.8. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS................... 50
SECTION 5.9. TRUSTEE TO EFFECTUATE SUBORDINATION......................... 51
SECTION 5.10. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS................ 51
SECTION 5.11. ARTICLE 5 NOT TO PREVENT EVENTS OF DEFAULT.................. 51
SECTION 5.12. NO FIDUCIARY DUTY CREATED TO HOLDERS OF SENIOR
INDEBTEDNESS................................................ 51
SECTION 5.13. ARTICLE APPLICABLE TO PAYING AGENTS......................... 51
ARTICLE 6
COVENANTS
SECTION 6.1. PAYMENT OF SECURITIES....................................... 52
SECTION 6.2. SEC REPORTS................................................. 52
SECTION 6.3. COMPLIANCE CERTIFICATES..................................... 53
SECTION 6.4. FURTHER INSTRUMENTS AND ACTS................................ 53
SECTION 6.5. MAINTENANCE OF CORPORATE EXISTENCE.......................... 53
ARTICLE 7
SUCCESSOR CORPORATION
SECTION 7.1. WHEN COMPANY MAY MERGE, ETC................................. 54
SECTION 7.2. SUCCESSOR CORPORATION SUBSTITUTED........................... 55
SECTION 7.3. LIMITATION ON APPLICABILITY................................. 55
</TABLE>
ii
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<TABLE>
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ARTICLE 8
DEFAULT AND REMEDIES
SECTION 8.1. EVENTS OF DEFAULT........................................... 55
SECTION 8.2. ACCELERATION................................................ 57
SECTION 8.3. OTHER REMEDIES.............................................. 58
SECTION 8.4. WAIVER OF DEFAULTS AND EVENTS OF DEFAULT.................... 58
SECTION 8.5. CONTROL BY MAJORITY......................................... 58
SECTION 8.6. LIMITATIONS ON SUITS........................................ 59
SECTION 8.8. RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT......... 59
SECTION 8.7. COLLECTION SUIT BY TRUSTEE.................................. 59
SECTION 8.9. TRUSTEE MAY FILE PROOFS OF CLAIM............................ 60
SECTION 8.10. PRIORITIES.................................................. 60
SECTION 8.11. UNDERTAKING FOR COSTS....................................... 61
SECTION 8.12. WAIVER OF USURY, STAY OR EXTENSION LAWS..................... 61
ARTICLE 9
TRUSTEE
SECTION 9.1. DUTIES OF TRUSTEE........................................... 62
SECTION 9.2. RIGHTS OF TRUSTEE........................................... 63
SECTION 9.3. INDIVIDUAL RIGHTS OF TRUSTEE................................ 64
SECTION 9.4. TRUSTEE'S DISCLAIMER........................................ 64
SECTION 9.5. NOTICE OF DEFAULT OR EVENTS OF DEFAULT...................... 64
SECTION 9.6. REPORTS BY TRUSTEE TO HOLDERS............................... 65
SECTION 9.7. COMPENSATION AND INDEMNITY.................................. 65
SECTION 9.8. REPLACEMENT OF TRUSTEE...................................... 66
SECTION 9.9. SUCCESSOR TRUSTEE BY MERGER, ETC............................ 67
SECTION 9.10. ELIGIBILITY; DISQUALIFICATION............................... 67
SECTION 9.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY........... 68
ARTICLE 10
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 10.1. SATISFACTION AND DISCHARGE OF INDENTURE..................... 68
SECTION 10.2. APPLICATION OF TRUST MONEY.................................. 69
SECTION 10.3. REPAYMENT TO COMPANY........................................ 69
SECTION 10.4. REINSTATEMENT............................................... 70
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.1. WITHOUT CONSENT OF HOLDERS.................................. 70
SECTION 11.2. WITH CONSENT OF HOLDERS..................................... 71
SECTION 11.3. COMPLIANCE WITH TRUST INDENTURE ACT......................... 72
SECTION 11.4. REVOCATION AND EFFECT OF CONSENTS........................... 72
SECTION 11.5. NOTATION ON OR EXCHANGE OF SECURITIES....................... 73
SECTION 11.6. TRUSTEE TO SIGN AMENDMENTS, ETC............................. 73
</TABLE>
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ARTICLE 12
MISCELLANEOUS
SECTION 12.1. TRUST INDENTURE ACT CONTROLS................................ 73
SECTION 12.2. NOTICES..................................................... 73
SECTION 12.3. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS................ 74
SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.......... 74
SECTION 12.5. RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS.......... 75
SECTION 12.6. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION
AGENT....................................................... 76
SECTION 12.7. LEGAL HOLIDAYS.............................................. 76
SECTION 12.8. GOVERNING LAW............................................... 76
SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS............... 76
SECTION 12.10. NO RECOURSE AGAINST OTHERS.................................. 76
SECTION 12.11. SUCCESSORS.................................................. 76
SECTION 12.12. MULTIPLE COUNTERPARTS....................................... 77
SECTION 12.13. SEPARABILITY................................................ 77
SECTION 12.14. TABLE OF CONTENTS, HEADINGS, ETC............................ 77
EXHIBIT A: FORM OF SECURITY
</TABLE>
iv
<PAGE>
THIS INDENTURE dated as of October 29, 1999 is between
USINTERNETWORKING, Inc., a Delaware corporation (the "Company"), and The Bank of
New York, a New York banking corporation duly organized and existing under the
laws of the United States, as Trustee (the "Trustee").
In consideration of the premises and the purchase of the Securities by the
Holders thereof, both parties agree as follows for the benefit of the other and
for the equal and ratable benefit of the registered Holders of the Company's 7%
Convertible Subordinated Notes Due November 1, 2004.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. DEFINITIONS.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Applicable Procedures" means, with respect to any transfer or exchange of
beneficial ownership interests in a global Security, the rules and procedures of
the Depositary that are applicable to such transfer or exchange.
"Board of Directors" means the board of directors of the Company or any
authorized committee of the Board of Directors.
"Business Day" means each day that is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, but excluding any debt securities
convertible into such equity.
"Cash" or "cash" means such coin or currency of the United States as at any
time of payment is legal tender for the payment of public and private debts.
"Certificated Security" means a Security that is in substantially the form
attached hereto as Exhibit A and that does not include the information or the
schedule called for by footnotes 1, 3 and 4 thereof.
"Common Stock" means the common stock of the Company, $.001 par value, as it
exists on the date of this Indenture and any shares of any class or classes of
capital stock of the Company resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company and which are not subject to redemption
by the Company; PROVIDED, HOWEVER, that if at any time there shall be more than
one such resulting class, the shares of each such class then so issuable on
conversion of Securities shall be substantially in the proportion which the
total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all such
reclassifications.
<PAGE>
"Company" means the party named as such in this Indenture until a successor
replaces it pursuant to this Indenture, and thereafter means the successor.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered which
office at the date of the execution of this Indenture is located at 101 Barclay
Street 21W, New York, New York 10271, Attention: Corporate Trust Trustee
Administration or at any other time at such other address as the Trustee may
designate from time to time by notice to the Company.
"Currency Agreement" means in respect of a Person, any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement
designed to protect such Person against fluctuations in currency values.
"Default" or "default" means, when used with respect to the Securities, any
event which is or, after notice or passage of time or both, would be an Event of
Default.
"Final Maturity Date" means November 1, 2004.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in
(1) the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (2) the statements and
pronouncements of the Financial Accounting Standards Board, (3) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (4) the rules and regulations of the Commission
governing the inclusion of financial statements (including PRO FORMA financial
statements) in registration statements filed under the Securities Act of 1933
and periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the Commission.
"Global Security" means a permanent global Security that is in substantially
the form attached hereto as Exhibit A and that includes the information and
schedule called for by footnotes 1, 3 and 4 thereof and which is deposited with
the Depositary or its custodian and registered in the name of the Depositary or
its nominee,
"Holder" or "Securityholder" means the person in whose name a Security is
registered on the Primary Registrar's books.
"Indebtedness" means, with respect to any Person, without duplication,
(a) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade accounts payable and
other current liabilities incurred in the ordinary course of business; (b) all
obligations of such Person evidenced by bonds, notes, debentures, or other
similar instruments; (c) all Capital Lease Obligations of such Person; (d) all
guarantees of Indebtedness referred to in this definition by such Person;
(e) all obligations of such Person under or in respect of Currency Agreements
and Interest Rate Protection Obligations of such person; and (f) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (a) through (e) above.
"Indenture" means this Indenture as amended or supplemented from time to
time pursuant to the terms of this Indenture.
"Initial Issuance Date" means October 29, 1999.
"Interest Rate Agreement" means in respect of any Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company against fluctuations in interest
rates.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to an Interest Rate Agreement.
2
<PAGE>
"Officer" means the Chairman or any Co-Chairman of the Board, any Vice
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer, the Controller, the Secretary or any
Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers;
PROVIDED, HOWEVER, that for purposes of Sections 4.11 and 6.3, "Officers'
Certificate" means a certificate signed by the principal executive officer,
principal financial officer or principal accounting officer of the Company and
by one other Officer.
"Opinion of Counsel" means a written opinion from legal counsel. The counsel
may be an employee of or counsel to the Company or the Trustee.
"Person" or "person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Principal" or "principal" of a debt security, including the Securities,
means the principal of the security plus, when appropriate, the premium, if any,
on the security.
"Redemption Date" or "redemption date," when used with respect to any
Security to be redeemed, means the date fixed for such redemption pursuant to
this Indenture.
"Redemption Price" or "redemption price," when used with respect to any
Security to be redeemed, means the price fixed for such redemption pursuant to
this Indenture, as set forth in the form of Security annexed as Exhibit A
hereto.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of October 29, 1999 among the Company and Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., Legg
Mason Wood Walker, Incorporated, Wasserstein Perella Securities, Inc., C.E.
Unterberg, Towbin and The Robinson-Humphrey Company, LLC.
"Restricted Certificated Security" means a Certificated Security which is a
Transfer Restricted Security.
"Restricted Global Security" means a global Security that is a Transfer
Restricted Security.
"Rule 144" means Rule 144 under the Securities Act or any successor to such
Rule.
"Rule 144A" means Rule 144A under the Securities Act or any successor to
such Rule.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities" means the 7% Convertible Subordinated Notes Due November 1,
2004 or any of them (each, a "Security"), as amended or supplemented from time
to time, that are issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the Trustee, as custodian with respect to the
Securities in global form, or any successor thereto.
"Senior Indebtedness" means the principal of and premium, if any, interest
(including, without limitation, interest accruing subsequent to the filing of,
or which would have accrued but for the filing of, a petition for bankruptcy,
whether or not the interest is an allowable claim in the bankruptcy proceeding),
and other amounts payable on or in respect of any Indebtedness of the Company,
whether outstanding on the date of this Indenture or thereafter created,
incurred or assumed, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to, or shall be junior in right of payment to, or shall be PARI
PASSU in right of payment with, the Securities. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include (a) Indebtedness evidenced by the
Securities, (b) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title
3
<PAGE>
11, United States Code (or any successor provision thereto), is without recourse
to the Company, (c) trade accounts payable or other current liabilities incurred
in the ordinary course of business, (d) Indebtedness of or amounts owed by the
Company for compensation to employees or for services rendered to the Company,
(e) any liability for federal, state, local or other taxes owed or owing by the
Company, (f) Indebtedness of the Company to a Subsidiary of the Company and
(g) amounts owing under leases (other than Capital Lease Obligations).
"Significant Subsidiary" means any Subsidiary of the Company which would be
a "significant subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission, as such Rule is in effect on the
date of this Indenture.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers, general partners or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i) such
Person; (ii) such Person and one or more Subsidiaries of such Person; or
(iii) one or more Subsidiaries of such Person.
"TIA" means the Trust Indenture Act of 1939, as amended, as in effect on the
date of this Indenture, except as provided in Section 11.3, and except to the
extent any amendment to the Trust Indenture Act expressly provides for
application of the Trust Indenture Act as in effect on another date.
"Trading Day" means, with respect to any security, each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any day on which securities are not
generally traded on the principal exchange or market in which such security is
traded.
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture, and thereafter
means the successor.
"Trust Officer" means, with respect to the Trustee, any officer assigned to
the Corporate Trust Office, including any vice president, assistant vice
president, assistant treasurer, assistant secretary or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above-designated officers and having direct responsibility for the
administration of this Indenture, and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Unrestricted Certificated Security" means a Certificated Security which is
not a Transfer Restricted Security.
"Unrestricted Global Security" means a global Security which is not a
Transfer Restricted Security.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
4
<PAGE>
SECTION 1.2. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
- ---- ------------------
<S> <C>
"Agent Members"............................................. 2.1
"Bankruptcy Law"............................................ 8.1
"Change in Control"......................................... 3.8
"Change in Control Purchase Date"........................... 3.8
"Change in Control Purchase Notice"......................... 3.8
"Change in Control Purchase Price".......................... 3.8
"closing price"............................................. 4.6
"Company Order"............................................. 2.2
"Conversion Agent".......................................... 2.3
"Conversion Date"........................................... 4.2
"Conversion Price".......................................... 4.6
"current market price"...................................... 4.6
"Custodian"................................................. 8.1
"DTC"....................................................... 2.1
"Default Notice"............................................ 5.5
"Depositary"................................................ 2.1
"Determination Date"........................................ 4.6
"Distribution Date"......................................... 4.6
"Event of Default".......................................... 8.1
"Exchange Act".............................................. 2.12
"Expiration Date"........................................... 4.6
"Expiration Time"........................................... 4.6
"Legal Holiday"............................................. 12.7
"NYSE"...................................................... 4.6
"Paying Agent".............................................. 2.3
"Primary Registrar"......................................... 2.3
"Purchase Agreement"........................................ 2.1
"Purchased Shares".......................................... 4.6
"QIB"....................................................... 2.1
"Registrar"................................................. 2.3
"Transfer Certificate"...................................... 2.12
"Transfer Restricted Security".............................. 2.12
"Triggering Distribution"................................... 4.6
</TABLE>
SECTION 1.3. TRUST INDENTURE ACT PROVISIONS.
Whenever this Indenture refers to a provision of the TIA, that provision is
incorporated by reference in and made a part of this Indenture. The Indenture
shall also include those provisions of the TIA required to be included herein by
the provisions of the Trust Indenture Reform Act of 1990. The following TIA
terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other obligor on
the Securities.
5
<PAGE>
All other terms used in this Indenture that are defined in the TIA, defined
by TIA reference to another statute or defined by SEC rule and not otherwise
defined herein have the meanings assigned to them therein.
SECTION 1.4. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) words in the singular include the plural, and words in the plural
include the singular;
(4) provisions apply to successive events and transactions;
(5) the term "merger" includes a statutory share exchange and the term
"merged" has a correlating meaning;
(6) the masculine gender includes the feminine and the neuter;
(7) references to agreements and other instruments include subsequent
amendments thereto; and
(8) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE 2
THE SECURITIES
SECTION 2.1. FORM AND DATING.
The Securities and the Trustee's certificate of authentication shall be
substantially in the respective forms set forth in Exhibit A, which Exhibit is
incorporated in and made part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Security shall be dated the date of its authentication. The
Securities are being offered and sold by the Company pursuant to a Purchase
Agreement, dated October 25, 1999 (the "Purchase Agreement"), between the
Company and Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc.,
Legg Mason Wood Walker, Incorporated, Morgan Stanley & Co. Incorporated,
Wasserstein Perella Securities, Inc., C.E. Unterberg, Towbin and The
Robinson-Humphrey Company, LLC, in transactions exempt from, or not subject to,
the registration requirements of the Securities Act.
(a) RESTRICTED GLOBAL SECURITIES. All of the Securities are initially
being offered and sold to qualified institutional buyers as defined in
Rule 144A (collectively, "QIBs" or individually a "QIB") in reliance on
Rule 144A under the Securities Act and shall be issued initially in the form of
one or more Restricted Global Securities, which shall be deposited on behalf of
the purchasers of the Securities represented thereby with the Trustee, at its
Corporate Trust Office, as custodian for the depositary, The Depository Trust
Company ("DTC") (such depositary, or any successor thereto, being hereinafter
referred to as the "Depositary"), and registered in the name of its nominee,
Cede & Co., duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Restricted Global
Security may from time to time be increased or decreased by adjustments made on
the records of the Securities Custodian as hereinafter provided, subject in each
case to compliance with the Applicable Procedures.
(b) GLOBAL SECURITIES IN GENERAL. Each global Security shall represent
such of the outstanding Securities as shall be specified therein and each shall
provide that it shall represent the aggregate amount
6
<PAGE>
of outstanding Securities from time to time endorsed thereon and that the
aggregate amount of outstanding Securities represented thereby may from time to
time be reduced or increased, as appropriate, to reflect exchanges, redemptions,
purchases or conversions of such Securities. Any endorsement of a global
Security to reflect the amount of any increase or decrease in the amount of
outstanding Securities represented thereby shall be made by the Securities
Custodian in accordance with the standing instructions and procedures existing
between the Depositary and the Securities Custodian.
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this Indenture with respect to any global Security held on their
behalf by the Depositary or under the global Security, and the Depositary
(including, for this purpose, its nominee) may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner and
Holder of such global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall (A) prevent the Company, the Trustee or any
agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or
(B) impair, as between the Depositary and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Security.
(c) CERTIFICATED SECURITIES. Certificated Securities shall be issued only
under the limited circumstances provided in Section 2.12(a)(1) hereof.
SECTION 2.2. EXECUTION AND AUTHENTICATION.
An Officer shall sign the Securities for the Company by manual or facsimile
signature. The Company's seal or a facsimile thereof shall be affixed to or
reproduced on the Securities and attested by the manual or facsimile signature
of the Secretary or an Assistant Secretary of the Company. Typographic and other
minor errors or defects in any such reproduction of the seal or any such
facsimile signature shall not affect the validity or enforceability of any
Security which has been authenticated and delivered by the Trustee.
If an Officer whose signature is on a Security no longer holds that office
at the time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. The signature
shall be conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate and make available for delivery Securities
for original issue in the aggregate principal amount of up to $100 million (plus
up to an additional $25 million aggregate principal amount issuable upon
exercise of the option described in the Purchase Agreement) upon receipt of a
written order or orders of the Company signed by two Officers of the Company (a
"Company Order"). The Company Order shall specify the amount of Securities to be
authenticated, shall provide that all such Securities will be represented by a
Restricted Global Security and the date on which each original issue of
Securities is to be authenticated. The aggregate principal amount of Securities
outstanding at any time may not exceed $125,000,000, except as provided above
and in Section 2.7.
The Trustee shall act as the initial authenticating agent. Thereafter, the
Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent shall have the same rights as an Agent to deal with the
Company or an Affiliate of the Company.
The Securities shall be issuable only in registered form without coupons and
only in denominations of $1,000 and any integral multiple thereof.
7
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SECTION 2.3. REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain one or more offices or agencies where Securities
may be presented for registration of transfer or for exchange (each, a
"Registrar"), one or more offices or agencies where Securities may be presented
for payment (each, a "Paying Agent"), one or more offices or agencies where
Securities may be presented for conversion (each, a "Conversion Agent") and one
or more offices or agencies where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will at
all times maintain a Paying Agent, Conversion Agent, Registrar and an office or
agency where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served in the Borough of Manhattan, the
City of New York. One of the Registrars (the "Primary Registrar") shall keep a
register of the Securities and of their transfer and exchange.
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall notify the Trustee
of the name and address of any Agent not a party to this Indenture. If the
Company fails to maintain a Registrar, Paying Agent, Conversion Agent or agent
for service of notices and demands in any place required by this Indenture, or
fails to give the foregoing notice, the Trustee shall act as such. The Company
or any Affiliate of the Company may act as Paying Agent (except for the purposes
of Section 6.1 and Article 10).
The Company initially appoints the Trustee, acting through its Corporate
Trust Office in New York, New York as Registrar, Paying Agent, Conversion Agent
and agent for service of notices and demands in connection with the Securities.
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST.
Prior to 10:00 a.m., New York City time, on each due date of the principal
of or interest on any Securities, the Company shall deposit with a Paying Agent
a sum sufficient to pay such principal or interest so becoming due. Subject to
Section 5.7, a Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities, and shall notify the
Trustee of any default by the Company (or any other obligor on the Securities)
in making any such payment. If the Company or an Affiliate of the Company acts
as Paying Agent, it shall, before 10:00 a.m., New York City time, on each due
date of the principal of or interest on any Securities, segregate the money and
hold it as a separate trust fund. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee, and the Trustee may at any
time during the continuance of any default, upon written request to a Paying
Agent, require such Paying Agent to forthwith pay to the Trustee all sums so
held in trust by such Paying Agent. Upon doing so, the Paying Agent (other than
the Company) shall have no further liability for the money.
SECTION 2.5. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably practicable
the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Primary Registrar, the Company shall
furnish to the Trustee on or before each semiannual interest payment date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of Securityholders.
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) Subject to compliance with any applicable additional requirements
contained in Section 2.12, when a Security is presented to a Registrar with a
request to register a transfer thereof or to exchange such Security for an equal
principal amount of Securities of other authorized denominations, the Registrar
shall register the transfer or make the exchange as requested; PROVIDED,
HOWEVER, that every Security presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by an
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assignment form and, if applicable, a transfer certificate each in the form
included in Exhibit A, and in form satisfactory to the Registrar duly executed
by the Holder thereof or its attorney duly authorized in writing. To permit
registration of transfers and exchanges, upon surrender of any Security for
registration of transfer or exchange at an office or agency maintained pursuant
to Section 2.3, the Company shall execute and the Trustee shall authenticate
Securities of a like aggregate principal amount at the Registrar's request. Any
exchange or transfer shall be without charge, except that the Company or the
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto, and PROVIDED
FURTHER that this sentence shall not apply to any exchange pursuant to
Section 2.10, 2.12(a)(1), 3.6, 3.11, 4.2 (last paragraph) or 11.5.
Neither the Company, any Registrar nor the Trustee shall be required to
exchange or register a transfer of (a) any Securities for a period of 15 days
next preceding any mailing of a notice of Securities to be redeemed, (b) any
Securities or portions thereof selected or called for redemption (except, in the
case of redemption of a Security in part, the portion not to be redeemed) or
(c) any Securities or portions thereof in respect of which a Change in Control
Purchase Notice has been delivered and not withdrawn by the Holder thereof
(except, in the case of the purchase of a Security in part, the portion not to
be purchased).
All Securities issued upon any transfer or exchange of Securities shall be
valid obligations of the Company, evidencing the same debt and entitled to the
same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
(b) Any Registrar appointed pursuant to Section 2.3 hereof shall provide to
the Trustee such information as the Trustee may reasonably require in connection
with the delivery by such Registrar of Securities upon transfer or exchange of
Securities
(c) Each Holder of a Security agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Security in violation of any provision of this
Indenture and/or applicable United States Federal or state securities law.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Depositary
Participants or beneficial owners of interests in any Global Security) other
than to require delivery of such certificates and other documentation or
evidence as are expressly required by, and to do so if and when expressly
required by the terms of, this Indenture, and to examine the same to determine
substantial compliance as to form with the express requirements hereof.
SECTION 2.7. REPLACEMENT SECURITIES.
If any mutilated Security is surrendered to the Company, a Registrar or the
Trustee, or the Company, a Registrar and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Security, and there is
delivered to the Company, the applicable Registrar and the Trustee such Security
or indemnity as will be required by them to save each of them harmless, then, in
the absence of notice to the Company, such Registrar or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute,
and upon its written request the Trustee shall authenticate and deliver, in
exchange for any such mutilated Security or in lieu of any such destroyed, lost
or stolen Security, a new Security of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, or is about to be redeemed or purchased by
the Company pursuant to Article 3, the Company in its discretion may, instead of
issuing a new Security, pay, redeem or purchase such Security, as the case may
be.
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Upon the issuance of any new Securities under this Section 2.7, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the reasonable fees and expenses of the Trustee
or the Registrar) in connection therewith.
Every new Security issued pursuant to this Section 2.7 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section 2.7 are (to the extent lawful) exclusive and
shall preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.
SECTION 2.8. OUTSTANDING SECURITIES.
Securities outstanding at any time are all Securities authenticated by the
Trustee, except for those canceled by it, those delivered to it for cancellation
and those described in this Section 2.8 as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Company receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If a Paying Agent (other than the Company or an Affiliate of the Company)
holds on a redemption date, a Change in Control Purchase Date or the Final
Maturity Date money sufficient to pay the principal of (including premium, if
any) and accrued interest on Securities (or portions thereof) payable on that
date, then on and after that date such Securities (or portions thereof, as the
case may be) cease to be outstanding and interest on them ceases to accrue.
Subject to the restrictions contained in Section 2.9, a Security does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the Security.
SECTION 2.9. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any notice, direction, waiver or consent,
Securities owned by the Company or any other obligor on the Securities or by any
Affiliate of the Company or of such other obligor shall be disregarded, except
that, for purposes of determining whether the Trustee shall be protected in
relying on any such notice, direction, waiver or consent, only Securities which
a Trust Officer of the Trustee actually knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith shall not
be disregarded if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to the Securities and that the pledgee is
not the Company or any other obligor on the Securities or any Affiliate of the
Company or of such other obligor.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may prepare
and execute, and, upon receipt of a Company Order, the Trustee shall
authenticate and deliver, temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations that
the Company with the consent of the Trustee considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate and deliver definitive Securities in exchange for
temporary Securities.
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SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, the Paying Agent and the Conversion Agent shall
forward to the Trustee or its agent any Securities surrendered to them for
transfer, exchange, payment or conversion. The Trustee and no one else shall
cancel, in accordance with its standard procedures, all Securities surrendered
for transfer, exchange, redemption, payment, conversion or cancellation and
shall deliver the canceled Securities to the Company. All Securities which are
redeemed, purchased or otherwise acquired by the Company or any of its
Subsidiaries prior to the Final Maturity Date shall be delivered to the Trustee
for cancellation and the Company may not hold or resell such Securities or issue
any new Securities to replace any such Securities or any Securities that any
Holder has converted pursuant to Article 4. Without limitation to the foregoing,
any Securities acquired by any investment bankers or other purchasers pursuant
to Section 3.7 shall be surrendered for conversion and thereafter cancelled, and
may not be reoffered, sold or otherwise transferred.
SECTION 2.12. ADDITIONAL TRANSFER AND EXCHANGE REQUIREMENTS.
(a) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES.
(1) Certificated Securities shall be issued in exchange for interests
in the global Securities only if (x) the Depositary notifies the Company
that it is unwilling or unable to continue as depositary for the global
Securities or if it at any time ceases to be a "clearing agency" registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
if so required by applicable law or regulation and a successor depositary is
not appointed by the Company within 90 days, or (y) an Event of Default has
occurred and is continuing. In either case, the Company shall execute, and
the Trustee shall, upon receipt of a Company Order (which the Company agrees
to delivery promptly), authenticate and deliver Certificated Securities in
an aggregate principal amount equal to the principal amount of such global
Securities in exchange therefor. Only Restricted Certificated Securities
shall be issued in exchange for beneficial interests in Restricted Global
Securities, and only Unrestricted Certificated Securities shall be issued in
exchange for beneficial interests in Unrestricted Global Securities.
Certificated Securities issued in exchange for beneficial interests in
global Securities shall be registered in such names and shall be in such
authorized denominations as the Depositary, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver or cause to be delivered such
Certificated Securities to the persons in whose names such Securities are so
registered. Such exchange shall be effected in accordance with the
Applicable Procedures.
(2) Notwithstanding any other provisions of this Indenture other than
the provisions set forth in Section 2.12(a)(1), a global Security may not be
transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(b) TRANSFER AND EXCHANGE OF CERTIFICATED SECURITIES. When Certificated
Securities are presented by a Holder to a Registrar with a request:
(x) to register the transfer of the Certificated Securities to a
person who will take delivery thereof in the form of Certificated
Securities only; or
(y) to exchange such Certificated Securities for an equal principal
amount of Certificated Securities of other authorized denominations,
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such Registrar shall register the transfer or make the exchange as requested;
PROVIDED, HOWEVER, that the Certificated Securities presented or surrendered for
register of transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in accordance with the proviso to the first paragraph of
Section 2.6; and
(2) in the case of a Restricted Certificated Security, such request
shall be accompanied by the following additional information and documents,
as applicable:
(A) if such Restricted Certificated Security is being delivered to
the Registrar by a Holder for registration in the name of such Holder,
without transfer, or such Restricted Certificated Security is being
transferred to the Company or a Subsidiary of the Company, a
certification to that effect from such Holder (in substantially the form
set forth in the Transfer Certificate);
(B) if such Restricted Certificated Security is being transferred to
a person the Holder reasonably believes is a QIB in accordance with
Rule 144A or pursuant to an effective registration statement under the
Securities Act, a certification to that effect from such Holder (in
substantially the form set forth in the Transfer Certificate); or
(C) if such Restricted Certificated Security is being transferred
(i) pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 or (ii) pursuant to an
exemption from the registration requirements of the Securities Act (other
than pursuant to Rule 144A or Rule 144) and as a result of which, in the
case of a Security transferred pursuant to this clause (ii), such
Security shall cease to be a "restricted security" within the meaning of
Rule 144, a certification to that effect from the Holder (in
substantially the form set forth in the Transfer Certificate) and, if the
Company or such Registrar so requests, a customary opinion of counsel,
certificates and other information reasonably acceptable to the Company
and such Registrar to the effect that such transfer is in compliance with
the Securities Act.
(c) TRANSFER OF A BENEFICIAL INTEREST IN A RESTRICTED GLOBAL SECURITY FOR A
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL SECURITY. Any person having a
beneficial interest in a Restricted Global Security may upon request, subject to
the Applicable Procedures, transfer such beneficial interest to a person who is
required or permitted to take delivery thereof in the form of an Unrestricted
Global Security. Upon receipt by the Trustee of written instructions or such
other form of instructions as is customary for the Depositary, from the
Depositary or its nominee on behalf of any person having a beneficial interest
in a Restricted Global Security and the following additional information and
documents in such form as is customary for the Depositary from the Depositary or
its nominee on behalf of the person having such beneficial interest in the
Restricted Global Security (all of which may be submitted by facsimile or
electronically):
(1) if such beneficial interest is being transferred pursuant to an
effective registration statement under the Securities Act, a certification
to that effect from the transferor (in substantially the form set forth in
the Transfer Certificate); or
(2) if such beneficial interest is being transferred (i) pursuant to an
exemption from the registration requirements of the Securities Act in
accordance with Rule 144 or (ii) pursuant to an exemption from the
registration requirements of the Securities Act (other than pursuant to
Rule 144A or Rule 144) and as a result of which, in the case of a Security
transferred pursuant to this clause (ii), such Security shall cease to be a
"restricted security" within the meaning of Rule 144, a certification to
that effect from the transferor (in substantially the form set forth in the
Transfer Certificate) and, if the Company or the Trustee so requests, a
customary opinion of counsel, certificates and other information reasonably
acceptable to the Company and the Trustee to the effect that such transfer
is in compliance with the Securities Act,
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the Trustee, as a Registrar and Securities Custodian, shall reduce or cause to
be reduced the aggregate principal amount of Restricted Global Security by the
appropriate principal amount and shall increase or cause to be increased the
aggregate principal amount of the Unrestricted Global Security by a like
principal amount. Such transfer shall otherwise be effected in accordance with
the Applicable Procedures. If no Unrestricted Global Security is then
outstanding, the Company shall execute and the Trustee shall, upon receipt of a
Company Order (which the Company agrees to deliver promptly), authenticate and
deliver an Unrestricted Global Security.
(d) TRANSFER OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL SECURITY
FOR A BENEFICIAL INTEREST IN A RESTRICTED GLOBAL SECURITY. Any person having a
beneficial interest in an Unrestricted Global Security may upon request, subject
to the Applicable Procedures, transfer such beneficial interest to a person who
is required or permitted to take delivery thereof in the form of a Restricted
Global Security (it being understood that only QIBs may own beneficial interests
in Restricted Global Securities). Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for the
Depositary, from the Depositary or its nominee, on behalf of any person having a
beneficial interest in an Unrestricted Global Security and the following
additional information and documents in such form as is customary for the
Depositary from the Depositary or its nominee on behalf of the person having
such beneficial interest in the Unrestricted Global Security (all of which may
be submitted by facsimile or electronically):
(1) a certification from the transferor (in substantially the form set
forth in the Transfer Certificate) to the effect that such beneficial
interest is being transferred to a person that the transferor reasonably
believes is a QIB in accordance with Rule 144A;
the Trustee, as a Registrar and Securities Custodian, shall reduce or cause to
be reduced the aggregate principal amount of the Unrestricted Global Security by
the appropriate principal amount and shall increase or cause to be increased the
aggregate principal amount of the Restricted Global Security by a like principal
amount. Such transfer shall otherwise be effected in accordance with the
Applicable Procedures. If no Restricted Global Security is then outstanding, the
Company shall execute and the Trustee shall, upon receipt of a Company Order
(which the Company agrees to deliver promptly), authenticate and deliver a
Restricted Global Security.
(e) TRANSFERS OF CERTIFICATED SECURITIES FOR BENEFICIAL INTEREST IN GLOBAL
SECURITIES. In the event that Certificated Securities are issued in exchange for
beneficial interests in Global Securities and, thereafter, the events or
conditions specified in Section 2.12(a)(1) which required such exchange shall
have ceased to exist, the Company shall mail notice to the Trustee and to the
Holders stating that Holders may exchange Certificated Securities for interests
in global Securities by complying with the procedures set forth in this
Indenture and briefly describing such procedures and the events or circumstances
requiring that such notice be given. Thereafter, if Certificated Securities are
presented by a Holder to a Registrar with a request:
(x) to register the transfer of such Certificated Securities to a
person who will take delivery thereof in the form of a beneficial
interest in a global Security, which request shall specify whether such
global Security will be a Restricted Global Security or an Unrestricted
Global Security; or
(y) to exchange such Certificated Securities for an equal principal
amount of beneficial interests in a global Security, which beneficial
interests will be owned by the Holder transferring such Certificated
Securities (provided that in the case of such an exchange, Restricted
Certificated Securities may be exchanged only for Restricted Global
Securities and Unrestricted Certificated Securities may be exchanged only
for Unrestricted Global Securities),
the Registrar shall register the transfer or make the exchange as requested by
canceling such Certificated Security and causing, or directing the Securities
Custodian to cause, the aggregate principal amount of the applicable global
Security to be increased accordingly and, if no such global Security is then
outstanding,
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the Company shall issue and the Trustee shall authenticate and deliver a new
global Security; PROVIDED, HOWEVER, that the Certificated Securities presented
or surrendered for registration of transfer or exchange:
(1) shall be duly endorsed or accompanied by a written instrument of
transfer in accordance with the proviso to Section 2.6;
(2) in the case of a Restricted Certificated Security to be transferred
for a beneficial interest in an Unrestricted Global Security, such request
shall be accompanied by the following additional information and documents,
as applicable:
(A) if such Restricted Certificated Security is being transferred
pursuant to an effective registration statement under the Securities Act,
a certification to that effect from such Holder (in substantially the
form set forth in the Transfer Certificate); or
(B) if such Restricted Certificated Security is being transferred
pursuant to (i) an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 or (ii) pursuant to an
exemption from the registration requirements of the Securities Act (other
than pursuant to Rule 144A or Rule 144) and as a result of which, in the
case of a Security transferred pursuant to this clause (ii), such
Security shall cease to be a "restricted security" within the meaning of
Rule 144, a certification to that effect from such Holder (in
substantially the form set forth in the Transfer Certificate), and, if
the Company or the Registrar so requests, a customary opinion of counsel,
certificates and other information reasonably acceptable to the Company
and the Trustee to the effect that such transfer is in compliance with
the Securities Act;
(3) in the case of a Restricted Certificated Security to be transferred
or exchanged for a beneficial interest in a Restricted Global Security, such
request shall be accompanied by a certification from such Holder (in
substantially the form set forth in the Transfer Certificate) to the effect
that such Restricted Certificated Security is being transferred to a person
the Holder reasonably believes is a QIB (which, in the case of an exchange,
shall be such Holder) in accordance with Rule 144A;
(4) in the case of an Unrestricted Certificated Security to be
transferred or exchanged for a beneficial interest in an Unrestricted Global
Security, such request need not be accompanied by any additional information
or documents; and
(5) in the case of an Unrestricted Certificated Security to be
transferred or exchanged for a beneficial interest in a Restricted Global
Security, such request shall be accompanied by a certification from such
Holder (in substantially the form set forth in the Transfer Certificate) to
the effect that such Unrestricted Certificated Security is being transferred
to a person the Holder reasonably believes is a QIB (which, in the case of
an exchange, shall be such Holder) in accordance with Rule 144A.
(f) LEGENDS.
(1) Except as permitted by the following paragraphs (2) and (3), each
global Security and Certificated Security (and all Securities issued in
exchange therefor or upon registration of transfer or replacement thereof)
shall bear a legend in substantially the form called for by footnote 2 to
Exhibit A hereto (each a "Transfer Restricted Security" for so long as it is
required by this Indenture to bear such legend). Each Transfer Restricted
Security shall have attached thereto a certificate (a "Transfer
Certificate") in substantially the form called for footnote 5 to Exhibit A
hereto.
(2) Upon any sale or transfer of a Transfer Restricted Security
(x) pursuant to Rule 144, (y) pursuant to an effective registration
statement under the Securities Act or (z) pursuant to any other available
exemption (other than Rule 144A) from the registration requirements of the
Securities
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Act and as a result of which, in the case of a Security transferred pursuant
to this clause (z), such Security shall cease to be a "restricted security"
within the meaning of Rule 144:
(A) in the case of any Restricted Certificated Security, any
Registrar shall permit the Holder thereof to exchange such Restricted
Certificated Security for an Unrestricted Certificated Security, or
(under the circumstances described in Section 2.12(e)) to transfer such
Restricted Certificated Security to a transferee who shall take such
Security in the form of a beneficial interest in an Unrestricted Global
Security, and in each case shall rescind any restriction on the transfer
of such Security; PROVIDED, HOWEVER, that the Holder of such Restricted
Certificated Security shall, in connection with such exchange or
transfer, comply with the other applicable provisions of this
Section 2.12; and
(B) in the case of any beneficial interest in a Restricted Global
Security, the Trustee shall permit the beneficial owner thereof to
transfer such beneficial interest to a transferee who shall take such
interest in the form of a beneficial interest in an Unrestricted Global
Security and shall rescind any restriction on transfer of such beneficial
interest; PROVIDED, that such Unrestricted Global Security shall continue
to be subject to the provisions of Section 2.12(a)(2); and PROVIDED,
FURTHER, that the owner of such beneficial interest shall, in connection
with such transfer, comply with the other applicable provisions of this
Section 2.12.
(3) Upon the exchange, registration of transfer or replacement of
Securities not bearing the legend described in paragraph (1) above, the
Company shall execute, and the Trustee shall authenticate and deliver
Securities that do not bear such legend and that do not have a Transfer
Certificate attached thereto.
(g) Transfers to the Company. Nothing in this Indenture or in the
Securities shall prohibit the sale or other transfer of any Securities
(including beneficial interests in global Securities) to the Company or any of
its Subsidiaries, which Securities shall thereupon be cancelled in accordance
with the last sentence of Section 2.11.
SECTION 2.13. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the "CUSIP" numbers.
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.1. RIGHT TO REDEEM; NOTICE TO TRUSTEE.
The Securities may be redeemed at the election of the Company, as a whole or
from time to time in part, at any time on or after November 5, 2002, at the
redemption prices specified in paragraph 5 of the form of Security attached
hereto as Exhibit A, together with accrued interest up to but not including the
Redemption Date; provided that installments of interest that are due and payable
on interest payment dates falling on or prior to the relevant Redemption Date
will be payable to the Holders in whose name the Securities are registered at
the close of business on the relevant record dates.
If the Company elects to redeem Securities pursuant to this Section 3.1 and
paragraph 5 of the Securities, it shall notify the Trustee at least 45 days
prior to the redemption date as fixed by the Company
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(unless a shorter notice shall be satisfactory to the Trustee) of the redemption
date and the principal amount of Securities to be redeemed. If fewer than all of
the Securities are to be redeemed, the record date relating to such redemption
shall be selected by the Company and given to the Trustee, which record date
shall not be less than ten days after the date of notice to the Trustee.
SECTION 3.2. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed, the Trustee shall,
not more than 60 days prior to the redemption date, select the Securities to be
redeemed. The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption, by lot, pro rata or by another method
the Trustee considers fair and appropriate. Securities in denominations of
$1,000 may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 or any multiple thereof) of the principal of
Securities that have denominations larger than $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed to be the
portion selected for redemption. Securities which have been converted during a
selection of Securities to be redeemed shall be treated by the Trustee as
outstanding for the purpose of such selection.
SECTION 3.3. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed a notice of redemption to each Holder
of Securities to be redeemed at such Holder's address as it appears on the
Primary Registrar's books.
The notice shall identify the Securities (including CUSIP numbers to be
redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the then current Conversion Price;
(4) the name and address of each Paying Agent and Conversion Agent;
(5) that Securities called for redemption must be presented and
surrendered to a Paying Agent to collect the redemption price;
(6) that the Securities called for redemption may be converted at any
time before the close of business on the Business Day immediately preceding
the redemption date;
(7) that Holders who wish to convert Securities must surrender such
Securities for conversion no later than the close of business on the
Business Day immediately preceding the redemption date and must satisfy the
other requirements in paragraph 8 of the Securities;
(8) that, unless the Company defaults in making the redemption payment,
interest on Securities called for redemption shall cease accruing on and
after the redemption date and the only remaining right of the Holder shall
be to receive payment of the redemption price, plus accrued interest, if any
upon presentation and surrender to a Paying Agent of the Securities; and
(9) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, upon presentation and surrender of such Security, a new
Security or Securities in aggregate principal amount equal to the unredeemed
portion thereof will be issued.
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If any of the Securities to be redeemed is in the form of a global Security,
then the Company shall modify such notice to the extent necessary to accord with
the procedures of the Depositary applicable to redemptions.
At the Company's written request, which request shall (i) be irrevocable
once given and (ii) set forth all relevant information required by clauses
(1) through (9) of the second preceding paragraph, the Trustee shall give the
notice of redemption in the Company's name and at the Company's expense.
SECTION 3.4. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for redemption become
due and payable on the redemption date and at the redemption price stated in the
notice, together with accrued interest, if any, except for Securities that are
converted in accordance with the provisions of Article 4. Upon presentation and
surrender to a Paying Agent, Securities called for redemption shall be paid at
the redemption price, plus accrued interest up to but not including the
redemption date; provided that installments of interest which are due and
payable on interest payment dates falling on or prior to a redemption date will
be payable to the Holders in whose names the Securities are registered at the
close of business on the relevant record dates.
SECTION 3.5. DEPOSIT OF REDEMPTION PRICE.
Prior to 10:00 a.m. New York City time, on the redemption date, the Company
shall deposit with a Paying Agent (or, if the Company acts as Paying Agent,
shall segregate and hold in trust) money sufficient to pay the redemption price
of and accrued interest on all Securities to be redeemed on that date, other
than Securities or portions thereof called for redemption on that date which
have been delivered by the Company to the Trustee for cancellation or have been
converted. The Paying Agent shall return to the Company any money not required
for that purpose because of the conversion of Securities pursuant to Article 4
or, if such money is then held by the Company in trust and is not required for
such purpose, it shall be discharged from the trust.
SECTION 3.6. SECURITIES REDEEMED IN PART.
Upon presentation and surrender of a Security that is redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.
SECTION 3.7. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION.
In connection with any redemption of Securities, the Company may arrange for
the purchase and conversion of any Securities called for redemption by an
agreement with one or more investment bankers or other purchasers to purchase
such Securities by paying to a Paying Agent (other than the Company or any of
its Affiliates) in trust for the Securityholders, on or before 10:00 A.M. New
York City time on the Redemption Date, an amount that, together with any amounts
deposited with such Paying Agent by the Company for the redemption of such
Securities, is not less than the Redemption Price, together with interest
accrued to, but not including, the Redemption Date, of such Securities.
Notwithstanding anything to the contrary contained in this Article 3, the
obligation of the Company to pay the Redemption Price of such Securities,
including all accrued interest, shall be deemed to be satisfied and discharged
to the extent such amount is so paid by such purchasers; PROVIDED, HOWEVER, that
nothing in this Section 3.7 shall relieve the Company of its obligation to pay
the Redemption Price, plus accrued interest to but excluding the relevant
redemption date, on Securities called for redemption. If such an agreement is
entered into, any Securities called for redemption and not surrendered for
conversion by the Holders thereof prior to the relevant redemption date may, at
the option of the Company upon written notice to the Trustee, be deemed, to the
fullest extent permitted by law, acquired by such purchasers from such Holders
and (notwithstanding anything to the contrary contained in Article 4)
surrendered by such purchasers for conversion, all as of 10:00 A.M. New York
City time on the Redemption Date, subject to payment of the
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above amount as aforesaid. The Paying Agent shall hold and pay to the Holders
whose Securities are selected for redemption any such amount paid to it for
purchase in the same manner as it would money deposited with it by the Company
for the redemption of Securities. Without the Paying Agent's prior written
consent, no arrangement between the Company and such purchasers for the purchase
and conversion of any Securities shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Paying Agent as set forth
in this Indenture, and the Company agrees to indemnify the Paying Agent from,
and hold it harmless against, any loss, liability or expense arising out of or
in connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers, including the costs and
expenses incurred by the Paying Agent in the defense of any claim or liability
arising out of or in connection with the exercise or performance of any of its
powers, duties, responsibilities or obligations under this Indenture.
SECTION 3.8. PURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON CHANGE IN
CONTROL.
(a) If at any time that Securities remain outstanding there shall occur a
Change in Control, Securities shall be purchased by the Company at the option of
the Holders thereof as of the date that is 30 Business Days after the occurrence
of the Change in Control (the "Change in Control Purchase Date") at a purchase
price equal to 100% of the principal amount thereof (the "Change in Control
Purchase Price") plus accrued interest up to but not including the Change in
Control Purchase Date, subject to satisfaction by or on behalf of any Holder of
the requirements set forth in subsection (c) of this Section 3.8.
A "Change in Control" shall be deemed to have occurred if any of the
following occurs after the Initial Issuance Date:
(1) the consolidation with or merger by the Company into any other
Person, or any other Person merges into the Company, unless the stockholders
of the Company immediately before such transaction own, directly or
indirectly immediately following such transaction, at least a majority of
the combined voting power of the outstanding voting securities entitled to
vote generally in the election of directors of the Company or the Person
resulting from such transaction;
(2) the sale, lease or transfer of all or substantially all of the
assets of the Company, directly or indirectly, to any "person" or "group",
within the meaning of Section 13(d)(3) and 14(d)(2) of the Exchange Act or
any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities
within the meaning of Rule 13d-5(b)(1) under the Exchange Act, and excluding
any wholly owned Subsidiary of the Company;
(3) the approval by the requisite stockholders of the Company of a plan
of liquidation or dissolution of the Company;
(4) any "person" or "group," within the meaning of Section 13(d) and
14(d)(2) of the Exchange Act or any successor provision to either of the
foregoing, including any group acting for the purpose of acquiring, holding
or disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act, becomes the "beneficial owner," as defined in Rule 13d-3 under
the Exchange Act, of more than 50% of the total voting power of all classes
of our voting stock and/or warrants or options to acquire such voting stock,
calculated on a fully diluted basis, unless, as a result of such
transaction, the ultimate direct or indirect ownership of the Company is
substantially the same immediately after such transaction as it was
immediately prior to such transaction; or
(5) during any period of two consecutive years, individuals who at the
beginning of such period constituted our Board of Directors, together with
any new directors whose election or appointment by such board or whose
nomination for election by stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved, cease for any reason to constitute
a majority of the Board of Directors then in office.
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(b) Within 10 Business Days after the occurrence of a Change in Control,
the Company shall mail a written notice of the Change in Control to the Trustee
and to each Holder (and to beneficial owners as required by applicable law) and
shall cause a copy of such notice to be published in a daily newspaper of
national circulation. The notice shall include the form of a Change in Control
Purchase Notice to be completed by the Holder and shall state:
(1) the date of such Change in Control and, briefly, the events causing
such Change in Control;
(2) the date by which the Change in Control Purchase Notice pursuant to
this Section 3.8 must be given;
(3) the Change in Control Purchase Date;
(4) the Change in Control Purchase Price;
(5) briefly, the conversion rights of the Securities;
(6) the name and address of each Paying Agent and Conversion Agent;
(7) the then current Conversion Price;
(8) that Securities as to which a Change in Control Purchase Notice has
been given may be converted into Common Stock only to the extent that the
Change in Control Purchase Notice has been withdrawn in accordance with the
terms of this Indenture;
(9) the procedures that the Holder must follow to exercise rights under
this Section 3.8;
(10) the procedures for withdrawing a Change in Control Purchase
Notice, including a form of notice of withdrawal; and
(11) that the Holder must satisfy the requirements set forth in the
Securities in order to convert the Securities.
If any of the Securities is in the form of a global Security, then the
Company shall modify such notice to the extent necessary to accord with the
procedures of the Depositary applicable to the repurchase of global securities.
(c) A Holder may exercise its rights specified in subsection (a) of this
Section 3.8 upon delivery of a written notice (which shall be in substantially
the form included in Exhibit A hereto and which may be delivered by letter,
overnight courier, hand delivery, facsimile transmission or in any other written
form and, in the case of global Securities, may be delivered electronically or
by other means in accordance with the Depositary's customary procedures) of the
exercise of such rights (a "Change in Control Purchase Notice") to any Paying
Agent at any time prior to the close of business on the Business Day next
preceding the Change in Control Purchase Date.
The delivery of such Security to any Paying Agent (together with all
necessary endorsements) at the office of such Paying Agent shall be a condition
to the receipt by the Holder of the Change in Control Purchase Price therefor.
The Company shall purchase from the Holder thereof, pursuant to this
Section 3.8, a portion of a Security if the principal amount of such portion is
$1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Security pursuant to Sections 3.8 through 3.13
also apply to the purchase of such portion of such Security.
Notwithstanding anything herein to the contrary, any Holder delivering to a
Paying Agent the Change in Control Purchase Notice contemplated by this
subsection (c) shall have the right to withdraw such Change in Control Purchase
Notice in whole or in a portion thereof that is $1,000 or in an integral
multiple thereof at any time prior to the close of business on the Business Day
next preceding the Change in
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Control Purchase Date by delivery of a written notice of withdrawal to the
Paying Agent in accordance with Section 3.9.
A Paying Agent shall promptly notify the Company of the receipt by it of any
Change in Control Purchase Notice or written withdrawal thereof.
Anything herein to the contrary notwithstanding, in the case of global
Securities, any Change in Control Purchase Notice may be delivered or withdrawn
and such Securities may be surrendered or delivered for purchase in accordance
with the applicable procedures of the Depositary as in effect from time to time.
SECTION 3.9. EFFECT OF CHANGE IN CONTROL PURCHASE NOTICE.
Upon receipt by any Paying Agent of the Change in Control Purchase Notice
specified in Section 3.8(c), the Holder of the Security in respect of which such
Change in Control Purchase Notice was given shall (unless such Change in Control
Purchase Notice is withdrawn as specified below) thereafter be entitled to
receive the Change in Control Purchase Price with respect to such Security plus
accrued interest thereon up to but not including the Change in Control Purchase
Date. Such Change in Control Purchase Price and accrued interest shall be paid
to such Holder promptly following the later of (a) the Change in Control
Purchase Date with respect to such Security (provided the conditions in
Section 3.8(c) have been satisfied) and (b) the time of delivery of such
Security to a Paying Agent by the Holder thereof in the manner required by
Section 3.8(c). Securities in respect of which a Change in Control Purchase
Notice has been given by the Holder thereof may not be converted into shares of
Common Stock on or after the date of the delivery of such Change in Control
Purchase Notice unless such Change in Control Purchase Notice has first been
validly withdrawn.
A Change in Control Purchase Notice may be withdrawn by means of a written
notice (which may be delivered by letter, overnight courier, hand delivery,
facsimile transmission or in any other written form and, in the case of global
Securities, may be delivered electronically or by other means in accordance with
the Depositary's customary procedures) of withdrawal delivered by the Holder to
a Paying Agent at any time prior to the close of business on the Business Day
immediately preceding the Change in Control Purchase Date, specifying the
principal amount of the Security or portion thereof (which must be $1,000 or an
integral multiple of $1,000 in excess thereof) with respect to which such notice
of withdrawal is being submitted.
SECTION 3.10. DEPOSIT OF CHANGE IN CONTROL PURCHASE PRICE.
On the Change in Control Purchase Date, the Company shall deposit with the
Trustee or with a Paying Agent (other than the Company or an Affiliate of the
Company) an amount of money sufficient to pay the aggregate Change in Control
Purchase Price of all the Securities or portions thereof that are to be
purchased as of such Change in Control Purchase Date plus accrued interest
thereon up to but not including the Change in Control Purchase Date. The manner
in which the deposit required by this Section 3.10 is made by the Company shall
be at the option of the Company, provided that such deposit shall be made in a
manner such that the Trustee or a Paying Agent shall have immediately available
funds on the Change in Control Purchase Date.
If a Paying Agent holds, in accordance with the terms hereof, money
sufficient to pay the Change in Control Purchase Price of any Security tendered
for purchase plus accrued interest thereon to but not including the Change in
Control Purchase Date, then, on the Change in Control Purchase Date, such
Security will cease to be outstanding and the rights of the Holder in respect
thereof shall terminate (other than the right to receive the Change in Control
Purchase Price plus accrued interest as aforesaid). The Company shall publicly
announce the principal amount of Securities purchased as a result of such Change
in Control on or as soon as practicable after the Change in Control Purchase
Date.
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SECTION 3.11. SECURITIES PURCHASED IN PART.
Any Security that is to be purchased only in part shall be surrendered at
the office of a Paying Agent and promptly after the Change in Control Purchase
Date the Company shall execute and the Trustee shall authenticate and deliver to
the Holder of such Security, without service charge, a new Security or
Securities, of such authorized denomination or denominations as may be requested
by such Holder, in aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Security so surrendered that is not
purchased.
SECTION 3.12. COMPLIANCE WITH SECURITIES LAWS UPON PURCHASE OF SECURITIES.
In connection with any offer to purchase or purchase of Securities under
Section 3.8, the Company shall (a) comply with Rule 13e-4 and Rule 14e-1 (or any
successor to either such Rule), if applicable, under the Exchange Act, (b) file
the related Schedule 13E-4 (or any successor or similar schedule, form or
report) if required under the Exchange Act, and (c) otherwise comply with all
federal and state securities laws in connection with such offer, all so as to
permit the rights of the Holders and obligations of the Company under Sections
3.8 through 3.11 to be exercised in the time and in the manner specified
therein.
SECTION 3.13. REPAYMENT TO THE COMPANY.
Subject to the provisions of Section 5.7, to the extent that the aggregate
amount of cash deposited by the Company pursuant to Section 3.10 exceeds the
aggregate Change in Control Purchase Price of the Securities or portions thereof
that the Company is obligated to purchase, plus accrued interest thereon up to
but not including the Change in Control Purchase Date, then promptly after the
Change in Control Purchase Date the Trustee or a Paying Agent, as the case may
be, shall return any such excess to the Company.
ARTICLE 4
CONVERSION
SECTION 4.1. CONVERSION PRIVILEGE.
Subject to the further provisions of this Section 4.1, a Holder of a
Security may convert the principal amount of such Security (or any portion
thereof equal to $1,000 or any integral multiple of $1,000 in excess thereof)
into Common Stock at any time prior to the close of business on the Final
Maturity Date, at the Conversion Price then in effect; PROVIDED, HOWEVER, that,
if such Security is called for redemption pursuant to Article 3, such conversion
right shall terminate at the close of business on the Business Day immediately
preceding the redemption date for such Security or such earlier date as the
Holder presents such Security for redemption (unless the Company shall default
in making the redemption payment when due, in which case the conversion right
shall terminate at the close of business on the date such default is cured and
such Security is redeemed). The number of shares of Common Stock issuable upon
conversion of a Security shall be determined by dividing the principal amount of
the Security or portion thereof surrendered for conversion by the Conversion
Price in effect on the Conversion Date. The initial Conversion Price is set
forth in paragraph 8 of the Securities and is subject to adjustment as provided
in this Article 4.
A Holder may convert a portion of a Security equal to $1,000 or any integral
multiple thereof. Provisions of this Indenture that apply to conversion of all
of a Security also apply to conversion of a portion of a Security.
A Security in respect of which a Holder has delivered a Change in Control
Purchase Notice pursuant to Section 3.8(c) exercising the option of such Holder
to require the Company to purchase such Security may be converted only if such
Change in Control Purchase Notice is withdrawn by a written notice of withdrawal
delivered to a Paying Agent prior to the close of business on the Business Day
immediately preceding the Change in Control Purchase Date in accordance with
Section 3.9.
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A Holder of Securities is not entitled to any rights of a holder of Common
Stock until such Holder has converted its Securities to Common Stock, and only
to the extent such Securities are deemed to have been converted into Common
Stock pursuant to this Article 4.
SECTION 4.2. CONVERSION PROCEDURE.
To convert a Security, a Holder must (a) complete and manually sign the
conversion notice on the back of the Security and deliver such notice to a
Conversion Agent, (b) surrender the Security to a Conversion Agent, (c) furnish
appropriate endorsements and transfer documents if required by a Registrar or a
Conversion Agent, and (d) pay any transfer or similar tax, if required. The date
on which the Holder satisfies all of those requirements is the "Conversion
Date." As soon as practicable after the Conversion Date, the Company shall
deliver to the Holder through a Conversion Agent a certificate for the number of
whole shares of Common Stock issuable upon the conversion and cash in lieu of
any fractional shares pursuant to Section 4.3. Anything herein to the contrary
notwithstanding, in the case of global Securities, conversion notices may be
delivered and such Securities may be surrendered for conversion in accordance
with the applicable procedures of the Depositary as in effect from time to time.
The person in whose name the Common Stock certificate is registered shall be
deemed to be a stockholder of record on the Conversion Date; PROVIDED, HOWEVER,
that no surrender of a Security on any date when the stock transfer books of the
Company shall be closed shall be effective to constitute the person or persons
entitled to receive the shares of Common Stock upon such conversion as the
record holder or holders of such shares of Common Stock on such date, but such
surrender shall be effective to constitute the person or persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes at the close of business on the next succeeding day on which such
stock transfer books are open; provided, further, that such conversion shall be
at the Conversion Price in effect on the Conversion Date as if the stock
transfer books of the Company had not been closed. Upon conversion of a
Security, such person shall no longer be a Holder of such Security. No payment
or adjustment will be made for dividends or distributions on shares of Common
Stock issued upon conversion of a Security.
Except as otherwise provided in this Section 4.2, no payment or adjustment
will be made for accrued interest on a converted Security; PROVIDED, HOWEVER,
that interest accrued to but excluding November 1, 2002 shall be paid on any
Security called for redemption pursuant to Article 3 and surrendered for
conversion pursuant to this Article 4 on or before the close of business on
November 1, 2002. If any Holder surrenders a Security for conversion after the
close of business on the record date for the payment of an installment of
interest and before the close of business on the related interest payment date,
then, notwithstanding such conversion, the interest payable on such interest
payment date shall be paid to the Holder in whose name such Security was
registered at the close of business on such record date; and, in such event,
unless such Security has been called for redemption, such Security, when
surrendered for conversion, must be accompanied by delivery by such Holder of
payment (which may be in the form of a check or draft payable to the Conversion
Agent) in an amount equal to the interest payable on such interest payment date
on the principal amount of such Security or portion thereof so converted. If the
Company defaults in the payment of interest payable on such interest payment
date, the Company shall promptly repay such funds to such Holder.
Nothing in this Section shall affect the right of a Holder in whose name any
Security is registered at the close of business on a record date to receive the
interest payable on such Security on the related interest payment date in
accordance with the terms of this Indenture and the Securities.
If a Holder converts more than one Security at the same time, the number of
shares of Common Stock issuable upon the conversion shall be based on the
aggregate principal amount of Securities converted.
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Upon surrender of a Security that is converted in part, the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder, a new
Security equal in principal amount to the unconverted portion of the Security
surrendered.
SECTION 4.3. FRACTIONAL SHARES.
The Company will not issue fractional shares of Common Stock upon conversion
of Securities. In lieu thereof, the Company will pay an amount in cash based
upon the closing price of the Common Stock on the Trading Day immediately prior
to the Conversion Date.
SECTION 4.4. TAXES ON CONVERSION.
If a Holder converts a Security, the Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon such conversion. However, the Holder shall pay any such tax which is
due because the Holder requests the shares to be issued in a name other than the
Holder's name. The Conversion Agent may refuse to deliver the certificate
representing the Common Stock being issued in a name other than the Holder's
name until the Conversion Agent receives a sum sufficient to pay any tax which
will be due because the shares are to be issued in a name other than the
Holder's name. Nothing herein shall preclude any tax withholding required by law
or regulation.
SECTION 4.5. COMPANY TO PROVIDE STOCK.
The Company shall, prior to issuance of any Securities hereunder, and from
time to time as may be necessary, reserve, out of its authorized but unissued
Common Stock, a sufficient number of shares of Common Stock to permit the
conversion of all outstanding Securities into shares of Common Stock.
All shares of Common Stock delivered upon conversion of the Securities shall
be newly issued shares, shall be duly authorized, validly issued, fully paid and
nonassessable and shall be free from preemptive rights and free of any lien or
adverse claim.
The Company will endeavor promptly to comply with all federal and state
securities laws regulating the offer and delivery of shares of Common Stock upon
conversion of Securities, if any, and will list or cause to have quoted such
shares of Common Stock on each national securities exchange or on the Nasdaq
National Market or other over-the-counter market or such other market on which
the Common Stock is then listed or quoted.
SECTION 4.6. ADJUSTMENT OF CONVERSION PRICE.
The conversion price as stated in paragraph 8 of the Securities (the
"Conversion Price") shall be adjusted from time to time by the Company as
follows:
(a) In case the Company shall (i) pay a dividend on its Common Stock in
shares of Common Stock, (ii) make a distribution on its Common Stock in
shares of Common Stock, (iii) subdivide its outstanding Common Stock into a
greater number of shares, or (iv) combine its outstanding Common Stock into
a smaller number of shares, the Conversion Price in effect immediately prior
thereto shall be adjusted so that the Holder of any Security thereafter
surrendered for conversion shall be entitled to receive that number of
shares of Common Stock which it would have owned had such Security been
converted immediately prior to the happening of such event. An adjustment
made pursuant to this subsection (a) shall become effective immediately
after the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of
subdivision or combination.
(b) In case the Company shall issue rights or warrants to all or
substantially all holders of its Common Stock entitling them (for a period
commencing no earlier than the record date described below and expiring not
more than 60 days after such record date) to subscribe for or purchase
shares of Common Stock (or securities convertible into Common Stock) at a
price per share (or having a conversion price per share) less than the
current market price per share of Common Stock (as
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determined in accordance with subsection (e) of this Section 4.6) on the
record date for the determination of stockholders entitled to receive such
rights or warrants, the Conversion Price in effect immediately prior thereto
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to such record
date by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares which
the aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible securities
so offered, which shall be determined by multiplying the number of shares of
Common Stock issuable upon conversion of such convertible securities by the
conversion price per share of Common Stock pursuant to the terms of such
convertible securities) would purchase at the current market price per share
(as defined in subsection (e) of this Section 4.6) of Common Stock on such
record date, and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered (or into which the convertible securities so
offered are convertible). Such adjustment shall be made successively
whenever any such rights or warrants are issued, and shall become effective
immediately after such record date. If at the end of the period during which
such rights or warrants are exercisable not all rights or warrants shall
have been exercised, the adjusted Conversion Price shall be immediately
readjusted to what it would have been based upon the number of additional
shares of Common Stock actually issued (or the number of shares of Common
Stock issuable upon conversion of convertible securities actually issued).
(c) In case the Company shall distribute to all or substantially all
holders of its Common Stock any shares of capital stock of the Company
(other than Common Stock), evidences of indebtedness or other non-cash
assets (including securities of any person other than the Company but
excluding (1) dividends on distributions paid exclusively in cash,
(2) dividends or distributions referred to in subsection (a) of this
Section 4.6 or (3) distributions in connection with a reclassification,
consolidation or sale referred to in Section 4.11), or shall distribute to
all or substantially all holders of its Common Stock rights or warrants to
subscribe for or purchase any of its securities (excluding those rights and
warrants referred to in subsection (b) of this Section 4.6 and also
excluding the distribution of rights to all holders of Common Stock pursuant
to the adoption of a stockholders rights plan or the detachment of such
rights under the terms of such stockholder rights plan), then in each such
case the Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the current Conversion Price by a fraction
of which the numerator shall be the current market price per share (as
defined in subsection (e) of this Section 4.6) of the Common Stock on the
record date mentioned below less the fair market value on such record date
(as determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and which shall be evidenced
by an Officers' Certificate delivered to the Trustee) of the portion of the
capital stock, evidences of indebtedness or other non-cash assets so
distributed or of such rights or warrants applicable to one share of Common
Stock (determined on the basis of the number of shares of Common Stock
outstanding on the record date), and of which the denominator shall be the
current market price per share (as defined in subsection (e) of this
Section 4.6) of the Common Stock on such record date. Such adjustment shall
be made successively whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(d) (1) In case the Company shall, by dividend or otherwise, at any
time distribute (a "Triggering Distribution") to all or substantially all
holders of its Common Stock cash in an aggregate amount that, together with
the aggregate amount of (A) any cash and the fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive evidence thereof and which shall be evidenced by an Officers'
Certificate delivered to the Trustee) of any other consideration payable in
respect of any tender offer by the Company or a Subsidiary of the Company
for Common Stock consummated within the 12 months preceding the date of
payment of the Triggering Distribution and in respect of which no Conversion
Price adjustment pursuant to this Section 4.6 has been made and
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(B) all other cash distributions to all or substantially all holders of its
Common Stock made within the 12 months preceding the date of payment of the
Triggering Distribution and in respect of which no Conversion Price
adjustment pursuant to this Section 4.6 has been made, exceeds an amount
equal to 10.0% of the product of the current market price per share of
Common Stock (as determined in accordance with subsection (e) of this
Section 4.6) on the Business Day (the "Determination Date") immediately
preceding the day on which such Triggering Distribution is declared by the
Company multiplied by the number of shares of Common Stock outstanding on
the Determination Date (excluding shares held in the treasury of the
Company), the Conversion Price shall be reduced so that the same shall equal
the price determined by multiplying such Conversion Price in effect
immediately prior to the Determination Date by a fraction of which the
numerator shall be the current market price per share of the Common Stock
(as determined in accordance with subsection (e) of this Section 4.6) on the
Determination Date less the sum of the aggregate amount of cash and the
aggregate fair market value (determined as aforesaid) of any such other
consideration so distributed, paid or payable within such 12 months
(including, without limitation, the Triggering Distribution) applicable to
one share of Common Stock (determined on the basis of the number of shares
of Common Stock outstanding on the Determination Date) and the denominator
shall be such current market price per share of the Common Stock (as
determined in accordance with subsection (e) of this Section 4.6) on the
Determination Date, such reduction to become effective immediately prior to
the opening of business on the day following the date on which the
Triggering Distribution is paid.
(2) In case any tender offer made by the Company or any of its Subsidiaries
for Common Stock shall expire and such tender offer (as amended upon the
expiration thereof) shall involve the payment of aggregate consideration in an
amount (determined as the sum of the aggregate amount of cash consideration and
the aggregate fair market value (as determined by the Board of Directors, whose
determination shall be conclusive evidence thereof and which shall be evidenced
by an Officers' Certificate delivered to the Trustee thereof) of any other
consideration) that, together with the aggregate amount of (A) any cash and the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive evidence thereof and which shall be evidenced by an
Officers' Certificate delivered to the Trustee) of any other consideration
payable in respect of any other tender offers by the Company or any Subsidiary
of the Company for Common Stock consummated within the 12 months preceding the
date of the Expiration Date (as defined below) and in respect of which no
Conversion Price adjustment pursuant to this Section 4.6 has been made and
(B) all cash distributions to all or substantially all holders of its Common
Stock made within the 12 months preceding the Expiration Date and in respect of
which no Conversion Price adjustment pursuant to this Section 4.6 has been made,
exceeds an amount equal to 10.0% of the product of the current market price per
share of Common Stock (as determined in accordance with subsection (e) of this
Section 4.6) as of the last date (the "Expiration Date") tenders could have been
made pursuant to such tender offer (as it may be amended) (the last time at
which such tenders could have been made on the Expiration Date is hereinafter
sometimes called the "Expiration Time") multiplied by the number of shares of
Common Stock outstanding (including tendered shares but excluding any shares
held in the treasury of the Company) at the Expiration Time, then, immediately
prior to the opening of business on the day after the Expiration Date, the
Conversion Price shall be reduced so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
close of business on the Expiration Date by a fraction of which the numerator
shall be the product of the number of shares of Common Stock outstanding
(including tendered shares but excluding any shares held in the treasury of the
Company) at the Expiration Time multiplied by the current market price per share
of the Common Stock (as determined in accordance with subsection (e) of this
Section 4.6) on the Trading Day next succeeding the Expiration Date and the
denominator shall be the sum of (x) the aggregate consideration (determined as
aforesaid) payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly tendered and
not withdrawn as of the Expiration Time (the shares deemed so accepted, up to
any such maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less
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any Purchased Shares and excluding any shares held in the treasury of the
Company) at the Expiration Time and the current market price per share of Common
Stock (as determined in accordance with subsection (e) of this Section 4.6) on
the Trading Day next succeeding the Expiration Date, such reduction to become
effective immediately prior to the opening of business on the day following the
Expiration Date. In the event that the Company is obligated to purchase shares
pursuant to any such tender offer, but the Company is permanently prevented by
applicable law from effecting any or all such purchases or any or all such
purchases are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price which would have been in effect based upon the number of shares
actually purchased. If the application of this Section 4.6(d)(2) to any tender
offer would result in an increase in the Conversion Price, no adjustment shall
be made for such tender offer under this Section 4.6(d)(2).
(3) For purposes of this Section 4.6(d), the term "tender offer" shall mean
and include both tender offers and exchange offers, all references to
"purchases" of shares in tender offers (and all similar references) shall mean
and include both the purchase of shares in tender offers and the acquisition of
shares pursuant to exchange offers, and all references to "tendered shares" (and
all similar references) shall mean and include shares tendered in both tender
offers and exchange offers.
(e) For the purpose of any computation under subsections (b), (c) and
(d) of this Section 4.6, the current market price per share of Common Stock
on any date shall be deemed to be the average of the daily closing prices
for the 30 consecutive Trading Days commencing 45 Trading Days before
(i) the Determination Date or the Expiration Date, as the case may be, with
respect to distributions or tender offers under subsection (d) of this
Section 4.6 or (ii) the record date with respect to distributions, issuances
or other events requiring such computation under subsection (b) or (c) of
this Section 4.6. The closing price for each day shall be the last reported
sales price or, in case no such reported sale takes place on such date, the
average of the reported closing bid and asked prices in either case on the
Nasdaq National Market (the "NNM") or, if the Common Stock is not listed or
admitted to trading on the NNM, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if
not listed or admitted to trading on the NNM or any national securities
exchange, the last reported sales price of the Common Stock as quoted on
NASDAQ or, in case no reported sales takes place, the average of the closing
bid and asked prices as quoted on NASDAQ or any comparable system or, if the
Common Stock is not quoted on NASDAQ or any comparable system, the closing
sales price or, in case no reported sale takes place, the average of the
closing bid and asked prices, as furnished by any two members of the
National Association of Securities Dealers, Inc. selected from time to time
by the Company for that purpose. If no such prices are available, the
current market price per share shall be the fair value of a share of Common
Stock as determined by the Board of Directors (which shall be evidenced by
an Officers' Certificate delivered to the Trustee).
(f) In any case in which this Section 4.6 shall require that an
adjustment be made following a record date or a Determination Date or
Expiration Date, as the case may be, established for purposes of this
Section 4.6, the Company may elect to defer (but only until five Business
Days following the filing by the Company with the Trustee of the certificate
described in Section 4.9) issuing to the Holder of any Security converted
after such record date or Determination Date or Expiration Date the shares
of Common Stock and other capital stock of the Company issuable upon such
conversion over and above the shares of Common Stock and other capital stock
of the Company issuable upon such conversion only on the basis of the
Conversion Price prior to adjustment; and, in lieu of the shares the
issuance of which is so deferred, the Company shall issue or cause its
transfer agents to issue due bills or other appropriate evidence prepared by
the Company of the right to receive such shares. If any distribution in
respect of which an adjustment to the Conversion Price is required to be
made as of the record date or Determination Date or Expiration Date therefor
is not thereafter made or paid by the Company for any reason, the Conversion
Price shall be readjusted to the Conversion
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Price which would then be in effect if such record date had not been fixed
or such effective date or Determination Date or Expiration Date had not
occurred.
SECTION 4.7. NO ADJUSTMENT.
No adjustment in the Conversion Price shall be required unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price as last adjusted; PROVIDED, HOWEVER, that any adjustments which
by reason of this Section 4.7 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article 4 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
No adjustment need be made for a transaction referred to in Section 4.6 if
all Securityholders are entitled to participate in the transaction on a basis
and with notice that the Board of Directors determines to be fair and
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction. The Company shall give notice to the Trustee of
any such determination.
No adjustment need be made for issuances of Common Stock pursuant to a
Company plan for reinvestment of dividends or interest or for a change in the
par value or a change to no par value of the Common Stock.
To the extent that the Securities become convertible into the right to
receive cash, no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
SECTION 4.8. ADJUSTMENT FOR TAX PURPOSES.
The Company shall be entitled to make such reductions in the Conversion
Price, in addition to those required by Section 4.6, as it in its discretion
shall determine to be advisable in order that any stock dividends, subdivisions
of shares, distributions of rights to purchase stock or securities or
distributions of securities convertible into or exchangeable for stock hereafter
made by the Company to its stockholders shall not be taxable.
SECTION 4.9. NOTICE OF ADJUSTMENT.
Whenever the Conversion Price or conversion privilege is adjusted, the
Company shall promptly mail to Securityholders a notice of the adjustment and
file with the Trustee an Officers' Certificate briefly stating the facts
requiring the adjustment and the manner of computing it.
SECTION 4.10. NOTICE OF CERTAIN TRANSACTIONS.
In the event that:
(1) the Company takes any action which would require an adjustment in
the Conversion Price;
(2) the Company consolidates or merges with, or transfers all or
substantially all of its property and assets to, another corporation and
shareholders of the Company must approve the transaction; or
(3) there is a dissolution or liquidation of the Company, the Company
shall mail to Holders and file with the Trustee a notice stating the
proposed record or effective date, as the case may be. The Company shall
mail the notice at least ten days before such date. Failure to mail such
notice or any defect therein shall not affect the validity of any
transaction referred to in clause (1), (2) or (3) of this Section 4.10.
SECTION 4.11. EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE ON
CONVERSION PRIVILEGE.
If any of the following shall occur, namely: (a) any reclassification or
change of shares of Common Stock issuable upon conversion of the Securities
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination, or any
other change for which an adjustment is provided in Section 4.6); (b) any
consolidation or merger to which the Company is a party other than a merger in
which the Company is the continuing corporation and which
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does not result in any reclassification of, or change (other than a change in
name, or in par value, or from par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination) in, outstanding
shares of Common Stock; or (c) any sale or conveyance of all or substantially
all of the property and assets of the Company, directly or indirectly, to any
person other than a wholly owned Subsidiary of the Company, then the Company, or
such successor, purchasing or transferee corporation, as the case may be, shall,
as a condition precedent to such reclassification, change, consolidation,
merger, sale or conveyance, execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Security then outstanding shall have
the right to convert such Security into the kind and amount of shares of stock
and other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock deliverable upon conversion of such
Security immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Such supplemental indenture shall provide for
adjustments of the Conversion Price which shall be as nearly equivalent as may
be practicable to the adjustments of the Conversion Price provided for in this
Article 4. If, in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including cash)
receivable thereupon by a holder of Common Stock include shares of stock or
other securities and property of a person other than the successor, purchasing
or transferee corporation, as the case may be, in such consolidation, merger,
sale or conveyance, then such supplemental indenture shall also be executed by
such other person and shall contain such additional provisions to protect the
interests of the Holders of the Securities as the Board of Directors shall
reasonably consider necessary by reason of the foregoing. The provisions of this
Section 4.11 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales or conveyances.
In the event the Company shall execute a supplemental indenture pursuant to
this Section 4.11, the Company shall promptly file with the Trustee (x) an
Officers' Certificate briefly stating the reasons therefor, the kind or amount
of shares of stock or other securities or property (including cash) receivable
by Holders of the Securities upon the conversion of their Securities after any
such reclassification, change, consolidation, merger, sale or conveyance, any
adjustment to be made with respect thereto and that all conditions precedent
have been complied with and (y) an Opinion of Counsel that all conditions
precedent have been complied with, and shall promptly mail notice thereof to all
Holders.
SECTION 4.12. TRUSTEE'S DISCLAIMER.
The Trustee shall have no duty to determine when an adjustment under this
Article 4 should be made, how it should be made or what such adjustment should
be, but may accept as conclusive evidence of that fact or the correctness of any
such adjustment, and shall be protected in relying upon, an Officers'
Certificate including the Officers' Certificate with respect thereto which the
Company is obligated to file with the Trustee pursuant to Section 4.9. The
Trustee makes no representation as to the validity or value of any securities or
assets issued upon conversion of Securities, and the Trustee shall not be
responsible for the Company's failure to comply with any provisions of this
Article 4.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture executed
pursuant to Section 4.11, but may accept as conclusive evidence of the
correctness thereof, and shall be fully protected in relying upon, the Officers'
Certificate with respect thereto which the Company is obligated to file with the
Trustee pursuant to Section 4.11.
SECTION 4.13. VOLUNTARY REDUCTION.
The Company from time to time may reduce the Conversion Price by any amount
for any period of time if the period is at least 20 days or such longer period
as may be required by law and if the reduction is irrevocable during the period;
PROVIDED, HOWEVER, that in no event may the Company reduce the Conversion Price
to be less than the par value of a share of Common Stock.
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ARTICLE 5
SUBORDINATION
SECTION 5.1. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of Securities issued
hereunder by its acceptance thereof likewise covenants and agrees, that all
Securities shall be issued subject to the provisions of this Article 5; and each
person holding any Security, whether upon original issue or upon transfer or
assignment thereof, accepts and agrees to be bound by such provisions.
The payment of all amounts on account of all Securities issued hereunder
shall, to the extent and in the manner hereinafter set forth, be subordinated
and junior in right of payment to the prior payment in full of all Senior
Indebtedness, whether outstanding at the date of this Indenture or thereafter
created, assumed or guaranteed.
SECTION 5.2. SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION, REORGANIZATION, ETC., OF THE COMPANY.
Upon the payment or distribution of the assets of the Company of any kind or
character, whether in cash, property or securities (including any collateral at
any time securing the Securities), to creditors upon any dissolution,
winding-up, liquidation or reorganization of the Company (whether voluntary or
involuntary, or in bankruptcy, insolvency, reorganization, liquidation,
receivership proceedings, or upon an assignment for the benefit of creditors, or
any other marshaling of the assets and liabilities of the Company, or in any
similar proceedings), then in such event:
(a) all Senior Indebtedness shall first be paid in full, in cash, before
any payment is made on account of the Securities, whether by way of the payment
of principal of or interest on the indebtedness evidenced by the Securities, a
deposit pursuant to Section 10.1, a repurchase, redemption or other acquisition
of the Securities or otherwise (collectively, "pay the Securities");
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than securities of the
Company as reorganized or readjusted, or securities of the Company or any other
person provided for by a plan of reorganization or readjustment, junior, or the
payment of which is otherwise subordinate, at least to the extent provided in
this Article 5, with respect to the Securities, to the payment of all Senior
Indebtedness), to which the Holders or the Trustee on behalf of the Holders
would be entitled except for the provisions of this Article 5, including any
such payment or distribution which may be payable or deliverable by reason of
the payment of another debt of the Company being subordinated to the payment of
the Securities, shall be paid or delivered by any debtor, Custodian or other
person making such payment or distribution, directly to the holders of the
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness have been issued, ratably according
to the aggregate amounts remaining unpaid on account of the Senior Indebtedness
held or represented by each, for application to payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness;
and
(c) in the event that, notwithstanding the foregoing provisions of this
Section 5.2, any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than securities of the
Company as reorganized or readjusted, or securities of the Company or any other
person provided for by a plan of reorganization or readjustment, junior, or the
payment of which is otherwise subordinate, at least to the extent provided for
in this Article 5, with respect to the Securities, to the payment of all Senior
Indebtedness), shall be received by the Trustee or any Paying Agent or the
Holders before all Senior Indebtedness is paid in full, such payment or
distribution (subject to the provisions of Sections 5.6 and 5.7) shall be held
in trust for the benefit of, and shall be immediately paid or
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delivered by the Trustee, such Paying Agent or such Holders, as the case may be,
to, the holders of Senior Indebtedness remaining unpaid or unprovided for, or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness held or represented by
each, for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of such Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of the Company.
Upon any distribution of assets of the Company referred to in this
Article 5, the Trustee and the Holders shall be entitled to rely conclusively
upon any order or decree by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceeding is pending, or
a certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or to the Holders, for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 5.
SECTION 5.3. HOLDERS TO BE SUBROGATED TO RIGHT OF HOLDERS OF SENIOR
INDEBTEDNESS.
Subject to the prior payment in full of all Senior Indebtedness then due,
the Holders shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the principal of and interest on the
Securities shall be paid in full, and, for purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of assets,
whether in cash, property or securities, distributable to the holders of Senior
Indebtedness under the provisions hereof to which the Holders would be entitled
except for the provisions of this Article 5, and no payment pursuant to the
provisions of this Article 5 to the holders of Senior Indebtedness by the
Holders shall, as among the Company, its creditors other than the holders of
Senior Indebtedness, and the Holders, be deemed to be a payment by the Company
to or on account of Senior Indebtedness, it being understood that the provisions
of this Article 5 are, and are intended, solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
SECTION 5.4. OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article 5 or elsewhere in this Indenture or in any
Security is intended to or shall impair, as among the Company, its creditors
other than the holders of Senior Indebtedness, and the Holders, the obligation
of the Company, which is absolute and unconditional, to pay to the Holders the
principal of and interest on the Securities, as and when the same shall become
due and payable in accordance with the terms of the Securities and this
Indenture, or to affect the relative rights of the Holders and other creditors
of the Company other than the holders of Senior Indebtedness, nor shall anything
herein or therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon the happening of an Event of Default
under this Indenture, subject to the provisions of Article 8 and to the rights,
if any, under this Article 5 of the holders of Senior Indebtedness to receive
assets, whether in cash, property or securities, of the Company otherwise
payable or deliverable to the Trustee or such Holder upon the exercise of any
such remedy.
SECTION 5.5. COMPANY NOT TO MAKE PAYMENT WITH RESPECT TO SECURITIES IN
CERTAIN CIRCUMSTANCES.
(a) Upon the happening of a default in payment (whether at maturity or at a
date fixed for prepayment or by acceleration or otherwise) of the principal of,
or premium, if any, or interest on any Senior Indebtedness, as such default is
defined under or in respect of such Senior Indebtedness or in any
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agreement pursuant to which such Senior Indebtedness has been incurred, then,
unless and until the amount of such Senior Indebtedness then due shall have been
paid in full or provision made therefor in a manner satisfactory to the holders
of such Senior Indebtedness, or such default shall have been cured or waived or
shall have ceased to exist, the Company shall not pay the Securities.
(b) Upon the happening of an event of default with respect to any Senior
Indebtedness (other than under circumstances when the terms of subsection
(a) of this Section 5.5 are applicable), as such event of default is defined
under or in respect of such Senior Indebtedness or in any agreement pursuant to
which such Senior Indebtedness has been incurred, permitting the holders thereof
to accelerate the maturity thereof, and upon written notice thereof given to the
Company and the Trustee by any one or more holders of such Senior Indebtedness
or their representative or representatives or the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness have been issued (a "Default Notice"), then, unless and until such
event of default shall have been cured or waived or shall have ceased to exist,
the Company shall not pay the Securities; provided, however, that the foregoing
provisions of this sentence shall not prevent the making of any such payment
(which is not otherwise prohibited by subsection (a) of this Section 5.5) for
more than 180 days after the Default Notice shall have been given unless the
Senior Indebtedness in respect of which such event of default exists has been
declared due and payable in its entirety, in which case no such payment may be
made until such acceleration has been waived, rescinded or annulled, or such
Senior Indebtedness shall have been paid in full, or payment thereof shall be
duly provided for in cash or in any other manner satisfactory to the holders of
such Senior Indebtedness. Notwithstanding the foregoing, not more than one
Default Notice shall be given with respect to the same issue of Senior
Indebtedness within a period of 360 consecutive days, and no event of default
which existed or was continuing on the date of any Default Notice and was known
to the holders of such issue of Senior Indebtedness shall be made the basis for
the giving of a subsequent Default Notice by the holders of such issue of Senior
Indebtedness.
(c) In the event that, notwithstanding the foregoing provisions of this
Section 5.5, the Company shall pay the Securities and such payment shall be
received by the Trustee, any Holder or any Paying Agent (or, if the Company is
acting as its own Paying Agent, money for any such payment shall be segregated
and held in trust), after the happening of a default or event of default, as the
case may be, under any Senior Indebtedness of the type specified in subsections
(a) and (b) of this Section 5.5, then, unless and until the amount of such
Senior Indebtedness then due shall have been paid in full or provision made
therefor or such default or event of default, as the case may be, shall have
been cured or waived or shall have ceased to exist or any such acceleration
referred to in the proviso to subsection (b) of this Section 5.5 shall have been
waived, rescinded or annulled, such payment (subject, in each case, to the
provisions of Sections 5.6 and 5.7 and the proviso contained in subsection
(b) of this Section 5.5) shall be held in trust for the benefit of, and shall be
immediately paid over to, the holders of Senior Indebtedness or their
representative or representatives or the trustee or trustees under any indenture
under which any instruments evidencing any of the Senior Indebtedness may have
been issued ratably according to the aggregate amounts remaining unpaid on
account of the Senior Indebtedness held or represented by each, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the benefit of
the holders of Senior Indebtedness.
SECTION 5.6. NOTICE TO TRUSTEE.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article 5 or any other provision of this Indenture, the Trustee shall not at any
time be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee, unless and until the
Trustee shall have received written notice thereof from the Company or from the
holder or holders of Senior Indebtedness or from their representative or
representatives or from the trustee or trustees under any indenture pursuant to
which any instruments evidencing any
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of such Senior Indebtedness have been issued; and, prior to the receipt of any
such written notice, the Trustee shall be entitled to assume conclusively that
such facts do not exist.
The Trustee shall be entitled to rely conclusively on the delivery to it of
a written notice by a person representing himself or herself to be a holder of
Senior Indebtedness (or a representative of such holder or the trustee under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness have been issued) to establish that such notice has been given by a
holder of Senior Indebtedness or a representative of any such holder. In the
event that the Trustee determines in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article 5, the Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such person, the extent to which such person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
each person under this Article 5, and, if such evidence is not furnished, the
Trustee may defer any payment to such person pending judicial determination as
to the right of such person to receive such payment.
SECTION 5.7. APPLICATION BY TRUSTEE OF MONEY DEPOSITED WITH IT.
Money deposited in trust with the Trustee pursuant to Section 10.1 and not
in violation of this Article 5 shall be for the sole benefit of Holders and
shall thereafter not be subject to the subordination provisions of this
Article 5. Otherwise, any deposit of money by the Company with the Trustee or
any Paying Agent (whether or not in trust) for the payment of the principal of
or interest on any Securities shall be subject to the provisions of Sections
5.1, 5.2, 5.3 and 5.5; except that, if two Business Days prior to the date on
which by the terms of this Indenture any such money may become payable for any
purpose (including, without limitation, the payment of either the principal of
or interest on any Security) the Trustee shall not have received with respect to
such money the notice provided for in Section 5.6, then the Trustee or any
Paying Agent shall have full power and authority to receive such money and to
apply such money to the purpose for which it was received, and shall not be
affected by any notice to the contrary which may be received by it on or after
such date. This Section 5.7 shall be construed solely for the benefit of the
Trustee and the Paying Agent and shall not otherwise affect the rights that
holders of Senior Indebtedness may have to recover any such payments from the
Holders in accordance with the provisions of this Article 5.
SECTION 5.8. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination, as herein provided, shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with. The holders of any Senior Indebtedness may extend,
renew, modify or amend the terms of such Senior Indebtedness or any security
therefor and release, sell or exchange such security and otherwise deal freely
with the Company, all without affecting the liabilities and obligations of the
parties to this Indenture or the Holders.
SECTION 5.9. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Security by its acceptance thereof authorizes and directs
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate the subordination provided in this Article 5 and appoints the
Trustee its attorney-in-fact for any and all such purposes.
SECTION 5.10. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee, in its individual capacity, shall be entitled to all of the
rights set forth in this Article 5 in respect of any Senior Indebtedness at any
time held by it to the same extent as any other holder of Senior
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Indebtedness, and nothing in this Indenture shall be construed to deprive the
Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 9.7.
SECTION 5.11. ARTICLE 5 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of the principal of or interest on
the Securities by reason of any provision in this Article 5 shall not be
construed as preventing the occurrence of a default or an Event of Default.
SECTION 5.12. NO FIDUCIARY DUTY CREATED TO HOLDERS OF SENIOR INDEBTEDNESS.
Notwithstanding any other provision in this Article 5, the Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness by
virtue of the provisions of this Article 5.
SECTION 5.13. ARTICLE APPLICABLE TO PAYINGAGENTS.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article 5 shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if such Paying Agent were named
in this Article 5 in addition to or in place of the Trustee; PROVIDED, HOWEVER,
that Sections 5.6, 5.10 and 5.12 shall not apply to the Company if it acts as
Paying Agent.
ARTICLE 6
COVENANTS
SECTION 6.1. PAYMENT OF SECURITIES.
The Company shall promptly make all payments in respect of the Securities on
the dates and in the manner provided in the Securities and this Indenture. An
installment of principal or interest shall be considered paid on the date it is
due if the Paying Agent (other than the Company) holds by 11:00 a.m., New York
City time, on that date money, deposited by the Company or an Affiliate thereof,
sufficient to pay the installment. The Company shall, to the fullest extent
permitted by law, pay interest on overdue principal (including premium, if any)
and overdue installments of interest at the rate borne by the Securities per
annum.
SECTION 6.2. SEC REPORTS.
The Company shall file all reports and other information and documents which
it is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act, and within 15 days after it files them with the SEC, the Company
shall file copies of all such reports, information and other documents with the
Trustee.
In the event the Company is at any time no longer subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will
prepare, for the first three quarters of each fiscal year, quarterly financial
statements substantially equivalent to the financial statements required to be
included in a report on Form 10-Q under the Exchange Act. The Company will also
prepare, on an annual basis, complete audited consolidated financial statements,
including, but not limited to, a balance sheet, a statement of operations, a
statement of cash flows and all appropriate notes. All such financial statements
will be prepared in accordance with generally accepted accounting principles.
The Company will cause a copy of such financial statements to be filed with the
Trustee and mailed to the Holders of the Securities within 50 days after the end
of each of the first three quarters of each fiscal year and within 95 days after
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the close of each fiscal year. The Company will also comply with the other
provisions of TIA Section 314(a).
If at any time while any of the Securities are "restricted securities"
within the meaning of Rule 144, the Company is no longer subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will prepare and will furnish to any Holder, any beneficial owner of Securities
and any prospective purchaser of Securities designated by a Holder or a
beneficial owner of Securities, promptly upon request, the information required
pursuant to Rule 144A(d)(4) (or any successor thereto) under the Securities Act
in connection with the offer, sale or transfer of Securities.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 6.3. COMPLIANCE CERTIFICATES.
The Company shall deliver to the Trustee, within 90 days after the end of
each fiscal year of the Company (beginning with the fiscal year ending
December 31, 1999), an Officers' Certificate as to the signer's knowledge of the
Company's compliance with all conditions and covenants on its part contained in
this Indenture and stating whether or not the signer knows of any default or
Event of Default. If such signer knows of such a default or Event of Default,
the Officers' Certificate shall describe the default or Event of Default and the
efforts to remedy the same. For the purposes of this Section 6.3, compliance
shall be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
The Company shall deliver to the Trustee, as soon as possible and in any
event within five days after the Company becomes aware of the occurrence of any
Event of Default or an event which, with notice or the lapse of time or both,
would constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default and the action which the Company
proposes to take with respect thereto.
SECTION 6.4. FURTHER INSTRUMENTS AND ACTS.
Upon request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purposes of this Indenture.
SECTION 6.5. MAINTENANCE OF CORPORATE EXISTENCE.
Subject to Article 7, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises, and the existence, rights
(charter and statutory) and franchises of its Subsidiaries; PROVIDED, HOWEVER,
that the Company will not be required to preserve any such right or franchise or
the existence of any Subsidiary if the Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the outstanding Securities.
ARTICLE 7
SUCCESSOR CORPORATION
SECTION 7.1. WHEN COMPANY MAY MERGE, ETC.
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The Company shall not consolidate with or merge with or into, or, directly
or indirectly, sell, lease, convey, assign or otherwise transfer all or
substantially all of its property and assets to, any person unless:
(a) either the Company shall be the resulting or surviving corporation
or such person is a corporation organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia, and
such person expressly assumes, by supplemental indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of and interest on all of the outstanding
Securities and the due and punctual performance and observance of all other
covenants, agreements and conditions contained in this Indenture and the
Securities to be performed or observed by the Company (including, without
limitation, the obligations of the Company under Article 4 hereof); and
(b) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or such
successor corporation as a result of such transaction as having been
incurred by the Company or such successor corporation, as the case may be,
at the time of such transaction, no default or Event of Default shall have
occurred and be continuing.
The Company shall deliver to the Trustee prior to the proposed transaction
an Officers' Certificate and an Opinion of Counsel, each of which shall comply
with Section 12.4 and shall state that such transaction and any such
supplemental indenture comply with this Article 7 and that all conditions
precedent herein provided for relating to such transaction have been complied
with; provided, however, that such Opinion of Counsel shall address only the
matters referred to in clause (a) of this Section 7.1.
SECTION 7.2. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance, assignment
or other transfer of all or substantially all of the property and assets of the
Company in accordance with Section 7.1, the successor corporation (if other than
the Company) formed by such consolidation or into which the Company is merged or
to which such sale, lease, conveyance, assignment or other transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
corporation had been named as the Company herein, and the predecessor
corporation (except in the case of a lease) shall be released from all of its
obligations under this Indenture and the Securities.
SECTION 7.3. LIMITATION ON APPLICABILITY
The provisions of Section 7.1 and 7.2 shall not apply to the sale, lease,
conveyance, assignment or other transfer of all or substantially all of the
properties and assets of the Company to a wholly owned subsidiary of the
Company.
ARTICLE 8
DEFAULT AND REMEDIES
SECTION 8.1. EVENTS OF DEFAULT.
An "Event of Default" shall occur if:
(1) the Company defaults in the payment of any interest on any Security
when the same becomes due and payable and the default continues for a period
of 30 days, whether or not such payment shall be prohibited by the
provisions of Article 5 hereof;
(2) the Company defaults in the payment of any principal of (including,
without limitation, any premium, if any, on) any Security when the same
becomes due and payable (whether at maturity, upon redemption, on a Change
of Control Purchase Date or otherwise), whether or not such payment shall be
prohibited by the provisions of Article 5 hereof;
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(3) the Company fails to comply with any of its other agreements
contained in the Securities or this Indenture and the default continues for
the period and after the notice specified below;
(4) a default shall occur under any bond, debenture, note or other
evidence of indebtedness for money borrowed of the Company or any
Significant Subsidiary having an aggregate outstanding principal amount in
excess of $15,000,000 which default shall have resulted in such indebtedness
becoming or being declared due and payable prior to the date on which it
would otherwise have been due and payable, without such indebtedness having
been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days following the occurrence of such acceleration;
(5) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding;
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or
(D) makes a general assignment for the benefit of its creditors; or
(6) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant Subsidiary
in an involuntary case or proceeding;
(B) appoints a Custodian of the Company or any Significant Subsidiary
or for all or substantially all of the property of the Company or any
Significant Subsidiary; or
(C) orders the liquidation of the Company or any Significant
Subsidiary; and in each case the order or decree remains unstayed and in
effect for 60 days.
The term "Bankruptcy Law" means Title 11 of the United States Code (or any
successor thereto) or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
A default under clause (3) above is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Securities then outstanding notify the Company and the
Trustee, of the default, and the Company does not cure the default within
60 days after receipt of such notice. The notice given pursuant to this
Section 8.1 must specify the default, demand that it be remedied and state that
the notice is a "Notice of Default." When any default under this Section 8.1 is
cured, it ceases.
The Trustee shall not be charged with knowledge of any Event of Default
unless written notice thereof shall have been given to a Trust Officer at the
Corporate Trust Office of the Trustee by the Company, a Paying Agent, any Holder
or any agent of any Holder.
SECTION 8.2. ACCELERATION.
If an Event of Default (other than an Event of Default specified in
clause (5) or (6) of Section 8.1) occurs and is continuing, the Trustee may, by
notice to the Company, or the Holders of at least 25% in aggregate principal
amount of the Securities then outstanding may, by notice to the Company and the
Trustee, declare all unpaid principal of and accrued interest to the date of
acceleration on the Securities then outstanding (if not then due and payable) to
be due and payable upon any such declaration, and the same shall become and be
immediately due and payable. If an Event of Default specified in clause (5) or
(6) of Section 8.1 occurs, all unpaid principal of and accrued interest on the
Securities then outstanding
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shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in aggregate principal amount of the Securities then outstanding
by notice to the Trustee may rescind an acceleration and its consequences if
(a) all existing Events of Default, other than the nonpayment of the principal
of and accrued interest on the Securities which has become due solely by such
declaration of acceleration, have been cured or waived; (b) to the extent the
payment of such interest is lawful, interest (calculated at the rate per annum
borne by the Securities) on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid; (c) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction; and (d) all payments
due to the Trustee and any predecessor Trustee under Section 9.7 have been made.
No such rescission shall affect any subsequent default or impair any right
consequent thereto.
SECTION 8.3. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may, but shall
not be obligated to, pursue any available remedy by proceeding at law or in
equity to collect the payment of the principal of or interest on the Securities
or to enforce the performance of any provision of the Securities or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the
Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 8.4. WAIVER OF DEFAULTS AND EVENTS OF DEFAULT.
Subject to Sections 8.7 and 11.2, the Holders of a majority in principal
amount of the Securities then outstanding by notice to the Trustee may waive an
existing default or Event of Default and its consequence, except a default or
Event of Default in the payment of the principal of or interest on any Security
or any default or Event of Default in respect of any provision of this Indenture
or the Securities which, under Section 11.2, cannot be modified or amended
without the consent of the Holder of each Security affected. When a default or
Event of Default is waived, it is cured and ceases.
SECTION 8.5. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the Securities then
outstanding may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of another Holder or the Trustee, or that may involve
the Trustee in personal liability unless the Trustee is offered indemnity
satisfactory to it; PROVIDED, HOWEVER, that the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction.
SECTION 8.6. LIMITATIONS ON SUITS.
A Holder may not pursue any remedy with respect to this Indenture or the
Securities (except actions for payment of overdue principal or interest or for
the conversion of the Securities pursuant to Article 4) unless:
(1) the Holder gives to the Trustee written notice of a continuing Event
of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity satisfactory
to the Trustee against any loss, liability or expense;
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(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Securities then outstanding.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 8.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT AND TO CONVERT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of the principal of and interest on the
Security, on or after the respective due dates expressed in the Security and
this Indenture, to convert such Security in accordance with Article 4 and to
bring suit for the enforcement of any such payment on or after such respective
dates or the right to convert, is absolute and unconditional and shall not be
impaired or affected without the consent of the Holder.
SECTION 8.8. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in the payment of principal or interest specified in
clause (1) or (2) of Section 8.1 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or another obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with, to the extent that payment
of such interest is lawful, interest on overdue principal and on overdue
installments of interest, in each case at the rate per annum borne by the
Securities and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 8.9. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relative to the Company (or any other obligor on the
Securities), its creditors or its property and shall be entitled and empowered
to collect and receive any money or other property payable or deliverable on any
such claims and to distribute the same, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 9.7, and to the extent that such payment of the reasonable compensation,
expenses, disbursements and advances in any such proceedings shall be denied for
any reason, payment of the same shall be secured by a lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
property which the Holders may be entitled to receive in such proceedings,
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to, or, on behalf of any Holder, to authorize, accept or
adopt any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 8.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 8, it shall pay
out the money in the following order:
First, to the Trustee for amounts due under Section 9.7;
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Second, to the holders of Senior Indebtedness to the extent required by
Article 5;
Third, to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Fourth, to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 8.10.
SECTION 8.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit, having due regard to the
merits and good faith of the claims or defenses made by the party litigant. This
Section 8.11 does not apply to a suit made by the Trustee, a suit by a Holder
pursuant to Section 8.7, or a suit by Holders of more than 10% in principal
amount of the Securities then outstanding.
SECTION 8.12. WAIVER OF USURY, STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 9
TRUSTEE
SECTION 9.1. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and use
the same degree of care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties as are specifically set
forth in this Indenture and no others; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. The
Trustee, however, shall examine any certificates and opinions which by any
provision hereof are specifically required to be delivered to the Trustee to
determine whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(1) this paragraph does not limit the effect of subsection (b) of this
Section 9.1;
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(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by it
pursuant to Section 8.5.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or powers
unless the Trustee shall have received adequate indemnity in its opinion against
potential costs and liabilities incurred by it relating thereto.
(e) Every provision of this Indenture that in any way relates to the Trustee
is subject to subsections (a), (b), (c) and (d) of this Section 9.1.
(f) The Trustee shall not be liable for interest on any money received by it
except as the Trustee may agree in writing with the Company. Money held in trust
by the Trustee need not be segregated from other funds except to the extent
required by law.
SECTION 9.2. RIGHTS OF TRUSTEE.
Subject to Section 9.1:
(a) The Trustee may rely conclusively on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to
Section 12.4(b). The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Certificate or Opinion.
(c) The Trustee may act through its agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take
in good faith which it believes to be authorized or within its rights or powers.
(e) The Trustee may consult with counsel of its selection, and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection in respect of any such action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee security or indemnity satisfactory to the Trustee against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction.
(g) The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such further inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney at the sole cost of the
Company and shall incur no liability or additional liability of any kind by
reason of such inquiry or investigation.
(h) The Trustee shall not be deemed to have notice of any Default or Event
of Default unless a Trust Officer of the Trustee has actual knowledge thereof or
unless written notice of any event which is in fact
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such a default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Securities and this Indenture.
(i) The rights, privileges, protections, immunities and benefits given to
the Trustee, including, without limitation, its right to be indemnified, are
extended to, and shall be enforceable by, the Trustee in each of its capacities
hereunder, and to each agent, custodian and other Person employed to act
hereunder.
SECTION 9.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or an Affiliate of
the Company with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
9.10 and 9.11.
SECTION 9.4. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than its certificate of authentication.
SECTION 9.5. NOTICE OF DEFAULT OR EVENTS OF DEFAULT.
If a default or an Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each Securityholder notice of
the default or Event of Default within 90 days after it occurs. Except in the
case of a default or an Event of Default in payment of the principal of or
interest on any Security, the Trustee may withhold the notice if and so long as
a committee of its Trust Officers in good faith determines that withholding
notice is in the interests of Securityholders.
SECTION 9.6. REPORTS BY TRUSTEE TO HOLDERS.
If such report is required by TIA Section 313, within 60 days after each
January 15, beginning with the January 15 following the date of this Indenture,
the Trustee shall mail to each Securityholder a brief report dated as of such
January 15 that complies with TIA Section 313(a). The Trustee also shall comply
with TIA Section 313(b)(2) and (c).
A copy of each report at the time of its mailing to Securityholders shall be
mailed to the Company and filed with the SEC and each stock exchange, if any, on
which the Securities are listed. The Company shall notify the Trustee whenever
the Securities become listed on any stock exchange or listed or admitted to
trading on any quotation system and any changes in the stock exchanges or
quotation systems on which the Securities are listed or admitted to trading and
of any delisting thereof.
SECTION 9.7. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such compensation (as
agreed to from time to time by the Company and the Trustee in writing) for its
services (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust). The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses may include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee or any predecessor Trustee (which
for purposes of this Section 9.7 shall include its officers, directors,
employees and agents) for, and hold it harmless against, any and all loss,
liability or expense including taxes (other than taxes based upon, measured by
or determined by the income of the Trustee), (including reasonable legal fees
and expenses) incurred by it in connection with the acceptance or administration
of its duties under this Indenture or any action or failure to act as authorized
or within the discretion or rights or powers conferred upon the Trustee
hereunder including the reasonable costs and expenses of the Trustee and its
counsel in defending itself against any claim or liability
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in connection with the exercise or performance of any of its powers or duties
hereunder. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. The Company need not pay
for any settlement without its written consent, which shall not be unreasonably
withheld.
The Company need not reimburse the Trustee for any expense or indemnify it
against any loss or liability incurred by it resulting from its gross negligence
or bad faith.
To secure the Company's payment obligations in this Section 9.7, the Trustee
shall have a senior claim to which the Securities are hereby made subordinate on
all money or property held or collected by the Trustee, except such money or
property held in trust to pay the principal of and interest on the Securities.
The obligations of the Company under this Section 9.7 shall survive the
satisfaction and discharge of this Indenture or the resignation or removal of
the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (5) or (6) of Section 8.1 occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 9.8. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities then outstanding may remove the
Trustee by so notifying the Trustee and may, with the Company's written consent,
appoint a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 9.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trustee.
The resignation or removal of a Trustee shall not be effective until a successor
Trustee shall have delivered the written acceptance of its appointment as
described below.
If a successor Trustee does not take office within 45 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of 10% in principal amount of the Securities then outstanding may
petition any court of competent jurisdiction for the appointment of a successor
Trustee at the expense of the Company.
If the Trustee fails to comply with Section 9.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. Immediately after that, the retiring
Trustee shall transfer all property held by it as Trustee to the successor
Trustee and be released from its obligations (exclusive of any liabilities that
the retiring Trustee may have incurred while acting as Trustee) hereunder, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession to
each Holder.
A retiring Trustee shall not be liable for the acts or omissions of any
successor Trustee after its succession.
Notwithstanding replacement of the Trustee pursuant to this Section 9.8, the
Company's obligations under Section 9.7 shall continue for the benefit of the
retiring Trustee.
42
<PAGE>
SECTION 9.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust assets to, another corporation, the
resulting, surviving or transferee corporation, without any further act, shall
be the successor Trustee, provided such transferee corporation shall qualify and
be eligible under Section 9.10. Such successor Trustee shall promptly mail
notice of its succession to the Company and each Holder.
SECTION 9.10. ELIGIBILITY; DISQUALIFICATION.
The Trustee shall always satisfy the requirements of paragraphs (1),
(2) and (5) of TIA Section 310(a). The Trustee (or its parent holding company)
shall have a combined capital and surplus of at least $50,000,000. If at any
time the Trustee shall cease to satisfy any such requirements, it shall resign
immediately in the manner and with the effect specified in this Article 9. The
Trustee shall be subject to the provisions of TIA Section 310(b). Nothing herein
shall prevent the Trustee from filing with the SEC the application referred to
in the penultimate paragraph of TIA Section 310(b).
SECTION 9.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 10
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 10.1. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange of
Securities herein expressly provided for and except as further provided below),
and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.7 and (ii) Securities for whose
payment money has theretofore been deposited in trust and thereafter repaid
to the Company as provided in Section 10.3) have been delivered to the
Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at the Final Maturity Date within
one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee or a Paying Agent (other than the Company or any of its
Affiliates) as trust funds in trust for the purpose cash in an amount
sufficient to pay and discharge the entire indebtedness on such
Securities not theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Final Maturity
Date or Redemption Date, as the case may be;
43
<PAGE>
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.7 shall survive and,
if money shall have been deposited with the Trustee pursuant to subclause
(B) of clause (1) of this Section, the provisions of Sections 2.3, 2.4, 2.5,
2.6, 2.7, 2.12, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13 and 12.5, Article 4, the last
paragraph of Section 6.2 and this Article 10, shall survive until the Securities
have been paid in full.
SECTION 10.2. APPLICATION OF TRUST MONEY.
Subject to the provisions of Section 10.3, the Trustee or a Paying Agent
shall hold in trust, for the benefit of the Holders, all money deposited with it
pursuant to Section 10.1 and shall apply the deposited money in accordance with
this Indenture and the Securities to the payment of the principal of and
interest on the Securities. Money so held in trust shall not be subject to the
subordination provisions of Article 5.
SECTION 10.3. REPAYMENT TO COMPANY.
The Trustee and each Paying Agent shall promptly pay to the Company upon
request any excess money (i) deposited with them pursuant to Section 10.1 and
(ii) held by them at any time.
The Trustee and each Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains
unclaimed for two years after a right to such money has matured; PROVIDED,
HOWEVER, that the Trustee or such Paying Agent, before being required to make
any such payment, may at the expense of the Company cause to be published once
in a newspaper of general circulation in The City of New York or mail to each
Holder entitled to such money notice that such money remains unclaimed and that
after a date specified therein, which shall be at least 30 days from the date of
such publication or mailing, any unclaimed balance of such money then remaining
will be repaid to the Company. After payment to the Company, Holders entitled to
money must look to the Company for payment as general creditors.
SECTION 10.4. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 10.2 by reason of any legal proceeding or by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to Section 10.1 until such
time as the Trustee or such Paying Agent is permitted to apply all such money in
accordance with Section 10.2; PROVIDED, HOWEVER, that if the Company has made
any payment of the principal of or interest on any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive any such payment from the money
held by the Trustee or such Paying Agent.
ARTICLE 11
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 11.1. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or the
Securities without notice to or consent of any Securityholder:
(a) to comply with Sections 4.11 and 7.1;
44
<PAGE>
(b) to cure any ambiguity, defect or inconsistency;
(c) to make any other change that does not adversely effect the rights
of any Securityholder;
(d) to comply with the provisions of the TIA; or
(e) to appoint a successor Trustee.
SECTION 11.2. WITH CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or the
Securities with the written consent of the Holders of at least a majority in
aggregate principal amount of the Securities then outstanding. The Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Securities without notice to any
Securityholder. However, notwithstanding the foregoing but subject to
Section 11.4, without the written consent of each Securityholder affected, an
amendment, supplement or waiver, including a waiver pursuant to Section 8.4, may
not:
(1) reduce the percentage of the aggregate principal amount of the
outstanding Securities whose Holders must consent to an amendment,
supplement or waiver;
(2) reduce the rate of or change the time for payment of interest on any
Security;
(3) reduce the principal of or premium on or change the fixed maturity
of any Security;
(4) alter the conversion provisions with respect to any Security in a
manner adverse to the Holder thereof;
(5) waive a default in the payment (whether at maturity, upon
redemption, on an interest payment date, on a Change in Control Purchase
Date or otherwise) of the principal of (including any premium) or interest
on any Security;
(6) make any changes in Section 8.4 or in this Section 11.2, except to
increase any percentage in aggregate principal amount of outstanding
Securities required for any amendment, supplement or waiver;
(7) modify the provisions of Article 5 in a manner adverse to the
Holders; or
(8) make any Security payable in money other than that stated in the
Security.
It shall not be necessary for the consent of the Holders under this
Section 11.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 11.2 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, HOWEVER, in any
way impair or affect the validity of any such amendment, supplement or waiver.
An amendment or supplement under this Section 11.2 or under Section 11.1 may
not make any change that adversely affects the rights under Article 5 of any
holder of an issue of Senior Indebtedness unless the holders of that issue,
pursuant to its terms, consent to the change.
SECTION 11.3. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Securities shall
comply with the TIA as in effect at the date of such amendment or supplement.
SECTION 11.4. REVOCATION AND EFFECT OF CONSENTS.
45
<PAGE>
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder is a continuing consent by the Holder and every subsequent Holder of
a Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. However, any such Holder or subsequent Holder may revoke the consent
as to its Security or portion of a Security if the Trustee receives the notice
of revocation before the date the amendment, supplement or waiver becomes
effective.
After an amendment, supplement or waiver becomes effective, it shall bind
every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 11.2. In that case the amendment, supplement or
waiver shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security.
SECTION 11.5. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security, the
Trustee may require the Holder of the Security to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
SECTION 11.6. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 11 if the amendment or supplemental indenture does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may, in its sole discretion, but need not sign it. In
signing or refusing to sign such amendment or supplemental indenture, the
Trustee shall be entitled to receive and, subject to Section 9.1, shall be fully
protected in relying upon, an Opinion of Counsel stating that such amendment or
supplemental indenture is authorized or permitted by this Indenture. The Company
may not sign an amendment or supplement indenture until the Board of Directors
approves it.
ARTICLE 12
MISCELLANEOUS
SECTION 12.1. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the TIA through
operation of Section 318(c) thereof, such imposed duties shall control.
SECTION 12.2. NOTICES.
Any notice, request or communication shall be given in writing and delivered
in person or mailed by first-class mail, postage prepaid, addressed as follows:
If to the Company:
USINTERNETWORKING, Inc.
One USI Plaza
Annapolis, MD 21401-7478
Attention: Chief Financial Officer
If to the Trustee:
The Bank of New York
101 Barclay Street, 21st Floor West
46
<PAGE>
New York, NY 10286
Attention: Corporate Trust Department
Such notices or communications shall be effective when received.
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed by
first-class mail to it at its address shown on the register kept by the Primary
Registrar.
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders. If
a notice or communication to a Securityholder is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.3. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person shall
have the protection of TIA Section 312(c).
SECTION 12.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
(a) Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee at the
request of the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent (including any covenants, compliance with
which constitutes a condition precedent), if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent (including any covenants, compliance with
which constitutes a condition precedent) have been complied with.
(b) Each Officers' Certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with; provided, however, that
with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 12.5. RECORD DATE FOR VOTE OR CONSENT OF SECURITYHOLDERS.
The Company (or, in the event deposits have been made pursuant to
Section 10.1, the Trustee) may set a record date for purposes of determining the
identity of Holders entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture, which record date shall not be
more than thirty (30) days prior to the date of the commencement of solicitation
of such action. Notwithstanding the provisions of Section 11.4, if a record date
is fixed, those persons who were Holders of Securities at the close of business
on such record date (or their duly designated proxies), and only those
47
<PAGE>
persons, shall be entitled to take such action by vote or consent or to revoke
any vote or consent previously given, whether or not such persons continue to be
Holders after such record date.
SECTION 12.6. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR AND CONVERSION
AGENT.
The Trustee may make reasonable rules (not inconsistent with the terms of
this Indenture) for action by or at a meeting of Holders. Any Registrar, Paying
Agent or Conversion Agent may make reasonable rules for its functions.
SECTION 12.7. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, Sunday or a day on which state or federally
chartered banking institutions in New York, New York are not required to be
open. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record
shall not be affected.
SECTION 12.8. GOVERNING LAW.
This Indenture and the Securities shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
SECTION 12.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. NO RECOURSE AGAINST OTHERS.
All liability described in paragraph 18 of the Securities of any director,
officer, employee or shareholder, as such, of the Company is waived and
released.
SECTION 12.11. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
SECTION 12.12. MULTIPLE COUNTERPARTS.
The parties may sign multiple counterparts of this Indenture. Each signed
counterpart shall be deemed an original, but all of them together represent the
same agreement.
SECTION 12.13. SEPARABILITY.
In case any provisions in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.14. TABLE OF CONTENTS, HEADINGS, ETC.
The table of contents, cross-reference sheet and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SIGNATURE PAGE FOLLOWS
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the date and year first above written.
<TABLE>
<S> <C> <C>
USINTERNETWORKING, INC.
By: /s/ WILLIAM T. PRICE
-----------------------------------------
Name: William T. Price
Title: VP General Counsel
THE BANK OF NEW YORK, as Trustee
By: /s/ REMO J. REALE
-----------------------------------------
Name: Remo J. Reale
Title: Vice President
</TABLE>
<PAGE>
EXHIBIT A
[FORM OF FACE OF SECURITY]
[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED
IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY
OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.](1)
[THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT"), AND THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION THEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
(1) These paragraphs should be included only if the Security is a global
Security.
<PAGE>
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
THEREOF MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN
THE UNITED STATES 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, (II) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (III) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH OF CASES (I) THROUGH (III) IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.]
THE HOLDER OF THIS SECURITY IS ENTITLED TO THE BENEFITS OF A REGISTRATION
RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE INDENTURE REFERRED TO ON THE
REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF, AGREES TO BE BOUND BY AND TO
COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION RIGHTS AGREEMENT.](2)
(2) These paragraphs to be included only if the Security is a Transfer
Restricted Security.
2
<PAGE>
USINTERNETWORKING, INC.
CUSIP: [ --FOR RESTRICTED GLOBAL SECURITIES] R-______
7% CONVERTIBLE SUBORDINATED NOTES DUE NOVEMBER 1, 2004
USinternetworking, Inc., a Delaware corporation (the "Company"), which terms
shall include any successor corporation under the Indenture referred to on the
reverse hereof), promises to pay to , or registered assigns, the
principal sum of Dollars ($ ) on November 1, 2004 [or
such greater or lesser amount as is indicated on the Schedule of Exchanges of
Notes on the other side of this Note].(3)
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
This Note is convertible as specified on the other side of this Note.
Additional provisions of this Note are set forth on the other side of this Note.
[SIGNATURE PAGE FOLLOWS]
(3) This phrase should be included only if the Security is a global Security.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
<TABLE>
<S> <C> <C>
USINTERNETWORKING, INC.
By:
-----------------------------------------
Name:
Title:
</TABLE>
<TABLE>
<S> <C> <C>
[SEAL]
Attest:
-----------------------------------------
Name:
Title:
By:
Dated:
Trustee's Certificate of Authentication: This
is one of the Securities referred to in the
within-mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee
-----------------------------------------
Authorized Signatory
By:
</TABLE>
<PAGE>
[FORM OF REVERSE SIDE OF SECURITY]
USINTERNETWORKING, INC.
7% CONVERTIBLE SUBORDINATED NOTES DUE NOVEMBER 1, 2004
1. INTEREST
USINTERNETWORKINg, Inc., a Delaware corporation (the "Company", which terms
shall include any successor corporation under the Indenture hereinafter referred
to), promises to pay interest on the principal amount of this Note at the rate
of 7% per annum. The Company shall pay interest semiannually on May 1 and
November 1 of each year, commencing May 1, 2000. Interest on the Notes shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from October 29, 1999; PROVIDED, HOWEVER, that if there
is not an existing default in the payment of interest and if this Note is
authenticated between a record date referred to on the face hereof and the next
succeeding interest payment date, interest shall accrue from such interest
payment date. Interest will be computed on the basis of a 360-day year of twelve
30-day months.
2. METHOD OF PAYMENT
The Company shall pay interest on this Note (except defaulted interest) to
the person who is the Holder of this Note at the close of business on April 15
or October 15, as the case may be, next preceding the related interest payment
date. The Holder must surrender this Note to a Paying Agent to collect payment
of principal. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. The Company may, however, pay principal and interest in respect
of any Certificated Security by check or wire payable in such money. It may mail
an interest check to the Holder's registered address. Notwithstanding the
foregoing, so long as this Note is registered in the name of a Depositary or its
nominee, all payments hereon shall be made by wire transfer of immediately
available funds to the account of the Depositary or its nominee.
3. PAYING AGENT, REGISTRAR AND CONVERSION AGENT
Initially, The Bank of New York (the "Trustee", which term shall include any
successor trustee under the Indenture hereinafter referred to) will act as
Paying Agent, Registrar and Conversion Agent. The Company may change any Paying
Agent, Registrar or Conversion Agent without notice to the Holder. The Company
or any of its Subsidiaries may, subject to certain limitations set forth in the
Indenture, act as Paying Agent or Registrar.
4. INDENTURE, LIMITATIONS
This Note is one of a duly authorized issue of Securities of the Company
designated as its 7% Convertible Subordinated Notes Due November 1, 2004 (the
"Notes"), issued under an Indenture dated as of October 29, 1999 (together with
any supplemental indentures thereto, the "Indenture"), between the Company and
the Trustee. The terms of this Note include those stated in the Indenture and
those required by or made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended, as in effect on the date of the Indenture.
This Note is subject to all such terms, and the Holder of this Note is referred
to the Indenture and said Act for a statement of them.
The Notes are subordinated unsecured obligations of the Company limited to
$125,000,000 aggregate principal amount, subject to Section 2.2 of the
Indenture. The Indenture does not limit other debt of the Company, secured or
unsecured, including Senior Indebtedness.
<PAGE>
5. OPTIONAL REDEMPTION
The Notes are subject to redemption, at any time on or after November 5,
2002, as a whole or from time to time in part, at the election of the Company.
The Redemption Prices (expressed as percentages of the principal amount) are as
follows for Notes redeemed during the periods set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ------ ----------------
<S> <C>
November 5, 2002 through October 31, 2003................... 101.75%
November 1, 2003 and thereafter............................. 100.00%
</TABLE>
in each case together with accrued interest up to but not including the
Redemption Date; PROVIDED that installments of interest that are due and payable
on interest payment dates falling on or prior to the relevant Redemption Date
will be payable to the Holders in whose names the Notes are registered at the
close of business on the relevant record dates.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed by first-class mail at least 30 days but
not more than 60 days before the Redemption Date to each Holder of Notes to be
redeemed at its registered address. Notes in denominations larger than $1,000
may be redeemed in part, but only in whole multiples of $1,000. On and after the
Redemption Date, subject to the deposit with the Paying Agent of funds
sufficient to pay the Redemption Price plus accrued interest, if any, accrued to
but excluding the Redemption Date, interest shall cease to accrue on Notes or
portions of them called for redemption.
7. PURCHASE OF NOTES AT OPTION OF HOLDER UPON A CHANGE IN CONTROL
At the option of the Holder and subject to the terms and conditions of the
Indenture, the Company shall become obligated to purchase all or any part
specified by the Holder (so long as the principal amount of such part is $1,000
or an integral multiple of $1,000 in excess thereof) of the Notes held by such
Holder on the date that is 30 Business Days after the occurrence of a Change in
Control, at a purchase price equal to 100% of the principal amount thereof
together with accrued interest up to but not including the Change in Control
Purchase Date. The Holder shall have the right to withdraw any Change in Control
Purchase Notice (in whole or in a portion thereof that is $1,000 or an integral
multiple of $1,000 in excess thereof) at any time prior to the close of business
on the Business Day next preceding the Change in Control Purchase Date by
delivering a written notice of withdrawal to the Paying Agent in accordance with
the terms of the Indenture.
8. CONVERSION
A Holder of a Note may convert the principal amount of such Note (or any
portion thereof equal to $1,000 or any integral multiple of $1,000 in excess
thereof) into shares of Common Stock at any time prior to the close of business
on November 1, 2004; PROVIDED, HOWEVER, that if the Note is called for
redemption, the conversion right will terminate at the close of business on the
Business Day immediately preceding the redemption date for such Note or such
earlier date as the Holder presents such Note for redemption (unless the Company
shall default in making the redemption payment when due, in which case the
conversion right shall terminate at the close of business on the date such
default is cured and such Note is redeemed). The initial Conversion Price is
$37.275 per share, subject to adjustment under certain circumstances. The number
of shares of Common Stock issuable upon conversion of a Note is determined by
dividing the principal amount of the Note or portion thereof converted by the
Conversion Price in effect on the Conversion Date. No payment or adjustment will
be made for accrued interest on a converted Note, except as described in the
next succeeding paragraph, or for dividends or distributions on shares of Common
Stock issued upon conversion of a Note. No fractional shares will be issued upon
conversion; in
2
<PAGE>
lieu thereof, an amount will be paid in cash based upon the closing price (as
defined in the Indenture) of the Common Stock on the Trading Day immediately
prior to the Conversion Date.
To convert a Note, a Holder must (a) complete and manually sign the
conversion notice set forth below and deliver such notice to a Conversion Agent,
(b) surrender the Note to a Conversion Agent, (c) furnish appropriate
endorsements and transfer documents if required by a Registrar or a Conversion
Agent, and (d) pay any transfer or similar tax, if required. Interest accrued to
but excluding November 1, 2002 shall be paid on any Note called for redemption
and surrendered for conversion on or before the close of business on
November 1, 2002. If a Holder surrenders a Note for conversion after the close
of business on the record date for the payment of an installment of interest and
before the close of business on the related interest payment date then,
notwithstanding such conversion, the interest payable on such interest payment
date shall be paid to the Holder in whose name such Note was registered at the
close of business on such record date. In such event, unless the Note has been
called for redemption, such Note, when surrendered for conversion, must be
accompanied by payment of an amount equal to the interest payable on such
interest payment date on the principal amount of the Note or portion thereof
then converted. If the Company defaults in the payment of interest payable on
such interest payment date, the Company shall promptly repay such funds to such
Holder. A Holder may convert a portion of a Note equal to $1,000 or any integral
multiple thereof.
A Note in respect of which a Holder had delivered a Change in Control
Purchase Notice exercising the option of such Holder to require the Company to
purchase such Note may be converted only if the Change in Control Purchase
Notice is withdrawn in accordance with the terms of the Indenture.
9. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION
Any Notes called for redemption, unless surrendered for conversion before
the close of business on the Business Day immediately preceding the Redemption
Date, may be deemed to be purchased from the Holders of such Notes at an amount
not less than the Redemption Price, together with accrued interest, if any, to,
but not including, the Redemption Date, by one or more investment bankers or
other purchasers who may agree with the Company to purchase such Notes from the
Holders, to convert them into Common Stock of the Company and to make payment
for such Notes to the Paying Agent in trust for such Holders.
10. SUBORDINATION
The indebtedness evidenced by the Notes is, to the extent and in the manner
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness of the Company. Any Holder by
accepting this Note agrees to and shall be bound by such subordination
provisions and authorizes the Trustee to give them effect.
In addition to all other rights of Senior Indebtedness described in the
Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any terms of any instrument relating to the
Senior Indebtedness or any extension or renewal of the Senior Indebtedness.
11. DENOMINATIONS, TRANSFER, EXCHANGE
The Notes are in registered form without coupons in denominations of $1,000
and integral multiples of $1,000. A Holder may register the transfer of or
exchange Notes in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes or other governmental charges that may be imposed
in relation thereto by law or permitted by the Indenture.
3
<PAGE>
12. PERSONS DEEMED OWNERS
The Holder of a Note may be treated as the owner of it for all purposes.
13. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent will pay the money back to the Company at its
written request. After that, Holders entitled to money must look to the Company
for payment.
14. AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding, and an existing default or Event of
Default and its consequence or compliance with any provision of the Indenture or
the Notes may be waived in a particular instance with the consent of the Holders
of a majority in principal amount of the Notes then outstanding. Without the
consent of or notice to any Holder, the Company and the Trustee may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency or make any other change that does not
adversely affect the rights of any Holder.
15. SUCCESSOR CORPORATION
When a successor corporation assumes all the obligations of its predecessor
under the Notes and the Indenture in accordance with the terms and conditions of
the Indenture, the predecessor corporation will (except in certain circumstances
specified in the Indenture) be released from those obligations.
16. DEFAULTS AND REMEDIES
Under the Indenture, an Event of Default includes: (i) default for 30 days
in payment of any interest on any Notes; (ii) default in payment of any
principal (including, without limitation, any premium, if any) on the Notes when
due (whether at maturity, upon redemption, on a Change of Control Purchase Date,
or otherwise); (iii) failure by the Company for 60 days after notice to it to
comply with any of its other agreements contained in the Indenture or the Notes;
(iv) certain events of bankruptcy, insolvency or reorganization of the Company
or any Significant Subsidiary; and (v) the acceleration of certain other
indebtedness of the Company or any Significant Subsidiary. If an Event of
Default (other than as a result of certain events of bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Notes then outstanding may declare all unpaid principal of and accrued
interest to the date of acceleration on the Notes then outstanding to be due and
payable immediately, all as and to the extent provided in the Indenture. If an
Event of Default occurs as a result of certain events of bankruptcy, insolvency
or reorganization of the Company or any Significant Subsidiary, unpaid principal
of and accrued interest on the Notes then outstanding shall become due and
payable immediately without any declaration or other act on the part of the
Trustee or any Holder, all as and to the extent provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interests. The Company is required to file periodic reports with the Trustee as
to the absence of default.
4
<PAGE>
17. TRUSTEE DEALINGS WITH THE COMPANY
The Bank of New York, the Trustee under the Indenture, in its individual or
any other capacity, may make loans to, accept deposits from and perform services
for the Company or an Affiliate of the Company, and may otherwise deal with the
Company or an Affiliate of the Company, as if it were not the Trustee.
18. NO RECOURSE AGAINST OTHERS
A director, officer, employee or shareholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Notes or the
Indenture nor for any claim based on, in respect of or by reason of such
obligations or their creation. The Holder of this Note by accepting this Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Note.
19. DISCHARGE PRIOR TO MATURITY
If all of the Notes have been delivered to the Trustee for cancellation
(subject to certain exceptions provided in the Indenture) or all the Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable or will become due and payable at their Final Maturity Date within one
year or are to be called for redemption within one year, all on the terms and
conditions provided in the Indenture, and if the Company deposits with the
Trustee or a Paying Agent cash in an amount sufficient to pay the principal of
and interest on the Notes to the date of such deposit (in the case of Notes
which have become due and payable) or to the Final Maturity Date or the
Redemption Date, as the case may be, the Company will be discharged from the
Indenture except for certain provisions thereof.
20. AUTHENTICATION
This Note shall not be valid until the Trustee or an authenticating agent
manually signs the certificate of authentication on the other side of this Note.
21. ABBREVIATIONS AND DEFINITIONS
Customary abbreviations may be used in the name of the Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and UGMA (= Uniform Gifts to Minors Act).
All terms defined in the Indenture and used in this Note but not
specifically defined herein are defined in the Indenture and are used herein as
so defined.
22. INDENTURE TO CONTROL; GOVERNING LAW
In the case of any conflict between the provisions of this Note and the
Indenture, the provisions of the Indenture shall control. This Note shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to principals of conflicts of law.
The Company will furnish to any Holder, upon written request and without
charge, a copy of the Indenture. Requests may be made to:
USINTERNETWORKING, Inc. One USI Plaza, Annapolis, Maryland 21401-7478,
Attention: Chief Financial Officer.
5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint
________________________________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him or her.
<TABLE>
<S> <C>
Your Signature:
Date:
(Sign exactly as your name appears on the
other side of this Note)
*Signature guaranteed by:
By:
</TABLE>
* The signature must be guaranteed by an institution which is a member of one
of the following recognized signature guaranty programs: (i) the Securities
Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
or (iv) such other guaranty program acceptable to the Trustee.
<PAGE>
CONVERSION NOTICE
To convert this Note into Common Stock of the Company, check the box: / /
To convert only part of this Note, state the principal amount to be
converted (must be $1,000 or a multiple of $1,000): $____________
If you want the stock certificate made out in another person's name, fill in
the form below:
________________________________________________________________________________
(Insert other person's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type other person's name, address and zip code)
<TABLE>
<S> <C>
Your Signature:
Date:
(Sign exactly as your name appears on the
other side of this Note)
*Signature guaranteed by:
By:
</TABLE>
* The signature must be guaranteed by an institution which is a member of one
of the following recognized signature guaranty programs: (i) the Securities
Transfer Agent Medallion Program (STAMP); (ii) the New York Stock Exchange
Medallion Program (MSP); (iii) the Stock Exchange Medallion Program (SEMP);
or (iv) such other guaranty program acceptable to the Trustee.
<PAGE>
SCHEDULE OF EXCHANGES OF NOTES(4)
The following exchanges, redemptions, repurchases or conversions of a part
of this global Note have been made:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
AMOUNT OF AMOUNT OF OF THIS GLOBAL AUTHORIZED
DECREASE IN INCREASE IN NOTE FOLLOWING SIGNATORY OF
PRINCIPAL AMOUNT PRINCIPAL AMOUNT SUCH DECREASE SECURITIES
DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE (OR INCREASE) CUSTODIAN
- ---------------- ------------------- ------------------- ---------------- ------------
<S> <C> <C> <C> <C>
</TABLE>
- ------------------------
(4) This schedule should be included only if the Security is a global
Security.
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
TRANSFER RESTRICTED SECURITIES(5)
Re: 7% Convertible Subordinated Notes Due November 1, 2004 (the "Notes") of
USINTERNETWORKING, Inc.
This certificate relates to $ principal amount of Notes owned in (check
applicable box)
/ / book-entry or / / definitive form by (the "Transferor").
The Transferor has requested a Registrar or the Trustee to exchange or
register the transfer of such Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify that the Transferor is familiar with transfer
restrictions relating to the Notes as provided in Section 2.12 of the Indenture
dated as of October 29, 1999 between USINTERNETWORKING, Inc. and The Bank of New
York (the "Indenture"), and the transfer of such Note is being made pursuant to
an effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") (check applicable box) or the transfer or exchange, as
the case may be, of such Note does not require registration under the Securities
Act because (check applicable box):
/ / Such Note is being transferred pursuant to an effective registration
statement under the Securities Act.
/ / Such Note is being acquired for the Transferor's own account, without
transfer.
/ / Such Note is being transferred to the Company or a Subsidiary (as
defined in the Indenture) of the Company.
/ / Such Note is being transferred to a person the Transferor reasonably
believes is a "qualified institutional buyer" (as defined in Rule 144A
or any successor provision thereto ("Rule 144A") under the Securities
Act) that is purchasing for its own account or for the account of a
"qualified institutional buyer", in each case to whom notice has been
given that the transfer is being made in reliance on such Rule 144A, and
in each case in reliance on Rule 144A.
/ / Such Note is being transferred pursuant to and in compliance with an
exemption from the registration requirements under the Securities Act in
accordance with Rule 144 (or any successor thereto) ("Rule 144") under
the Securities Act.
Such Note is being transferred pursuant to and in compliance with an
exemption from the registration requirements of the Securities Act (other than
an exemption referred to above) and as a result of which such Note will, upon
such transfer, cease to be a "restricted security" within the meaning of
Rule 144 under the Securities Act.
The Transferor acknowledges and agrees that, if the transferee will hold any
such Notes in the form of beneficial interests in a global Note which is a
"restricted security" within the meaning of Rule 144 under the Securities Act,
then such transfer can only be made pursuant to Rule 144A under the Securities
Act and such transferee must be a "qualified institutional buyer" (as defined in
Rule 144A).
----------------------------------------------------------------------
(Insert Name of Transferor)
By:
----------------------------------------------------------------------
Date:
- ----------------------------
- ------------------------
(5) This certificate should only be included if this Security is a Transfer
Restricted Security.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OUR THIRD
QUARTER 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 28,577
<SECURITIES> 40,425
<RECEIVABLES> 9,875
<ALLOWANCES> (341)
<INVENTORY> 0
<CURRENT-ASSETS> 84,377
<PP&E> 91,383
<DEPRECIATION> (9,710)
<TOTAL-ASSETS> 205,072
<CURRENT-LIABILITIES> 37,641
<BONDS> 0
0
0
<COMMON> 40,542
<OTHER-SE> 92,317
<TOTAL-LIABILITY-AND-EQUITY> 205,072
<SALES> 9,777
<TOTAL-REVENUES> 9,777
<CGS> 0
<TOTAL-COSTS> 36,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 725
<INCOME-PRETAX> (27,767)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,767)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,767)
<EPS-BASIC> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
