As filed with the Securities and Exchange Commission on September 22, 1998
Registration No. 333-59747
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Commonwealth Telephone Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2093008
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CTE Drive
Dallas, PA 18612-9774
(717) 674-2700
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
John J. Jones
Executive Vice President, General Counsel
and Corporate Secretary
Commonwealth Telephone Enterprises, Inc.
100 CTE Drive
Dallas, PA 18612-9774
(717) 674-2700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Winthrop B. Conrad, Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
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Approximate date of commencement of proposed sale of the
securities to the public: From time to time after the Registration Statement
becomes effective.
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
Title of Each Class of Proposed Maximum Aggregate
Securities to be Registered Offering Price (1)(2)(3) Amount of Registration Fee(4)(5)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Subordinated Debt Securities, Preferred Stock,
Common Stock and Subscription Rights
(collectively, "Securities") of Commonwealth
Telephone Enterprises, Inc...................... $200,000,000.00 $59,000.00
====================================================================================================================
(1) Such indeterminate number or amount of Securities of Commonwealth
Telephone Enterprises, Inc. as may from time to time be issued at
indeterminate prices. Such amount includes such indeterminable number of
shares of common stock that may be issued upon the conversion of
convertible securities.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) and exclusive of accrued interest, if any.
(3) If any Securities are issued at original issue discount, such greater
amount as shall result in an aggregate initial offering price of
$200,000,000.
(4) Pursuant to Rule 457(i), there is no filing fee with respect to the shares
of Common Stock issuable upon conversion of convertible securities, because
no additional consideration will be received in connection with the
exercise of the conversion privilege.
(5) Pursuant to Rule 457(g), no registration fee is payable with respect to
the subscription rights since the subscription rights are being registered
in the same registration statement as the securities to be offered pursuant
thereto.
</TABLE>
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
PROSPECTUS
Subject to Completion, Dated [ ], 1998
$200,000,000
Commonwealth Telephone Enterprises,
Inc.
Subordinated Debt, Preferred Stock, Common Stock and Subscription Rights
Commonwealth Telephone Enterprises, Inc., a Pennsylvania
corporation (the "Company"), may from time to time offer or, in the case of
the Rights (as defined herein), distribute, together or separately, (i)
subordinated debt securities (the "Notes"), (ii) shares of its preferred stock
(the "Preferred Stock"), (iii) shares of its common stock, par value $1.00 per
share (the "Common Stock"), and (iv) subscription rights (the "Rights") to
subscribe for and purchase shares of the Common Stock, in each case in one or
more series and in amounts, at prices and on terms to be determined at or
prior to the time of sale. The Common Stock, the Preferred Stock, the Notes
and the Rights are collectively referred to herein as the "Securities."
The Common Stock, Preferred Stock and Rights offered pursuant
to this Prospectus may be issued in one or more series or issuances. The
Notes offered pursuant to this Prospectus may consist of debentures, notes or
other evidences of indebtedness in one or more series and in amounts, at
prices and on terms to be determined at or prior to the time of any such
offering. Specific terms of the Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in
a Prospectus Supplement ("Prospectus Supplement") with respect to such Offered
Securities, which Prospectus Supplement will describe, without limitation and
where applicable, the following: (i) in the case of the Notes, the specific
designation, aggregate principal amount, denomination, maturity, rate (which
may be fixed or variable) or method of calculation of interest and dates for
payment thereof, any conversion, exchangeability, redemption, prepayment or
sinking fund provisions and any listing on a securities exchange and other
specific terms of the offering; (ii) in the case of Preferred Stock, the
specific designation, number of shares, purchase price and the rights,
preferences and privileges thereof and any qualifications or restrictions
thereon (including dividends, liquidation value, voting rights, terms for the
redemption, conversion or exchange thereof and any other specific terms of the
Preferred Stock) and any listing on a securities exchange; (iii) in the case of
Common Stock, the specific designation, number of shares, purchase price and
the rights and privileges thereof, together with any qualifications or
restrictions thereon and any listing on a securities exchange; and (iv) in the
case of Rights, the specific designation, number of Rights, transferability,
subscription price and terms and any oversubscription privileges, together with
any qualifications or restrictions thereon and any listing on a securities
exchange. Unless otherwise indicated in the Prospectus Supplement, the
Company does not intend to list any of the Securities other than the Common
Stock and the Rights on a national securities exchange or for quotation on the
Nasdaq National Market ("NASDAQ"). Any Prospectus Supplement relating to any
series of Offered Securities will contain information concerning certain
United States federal income tax considerations, if applicable, to the Offered
Securities.
Unless otherwise specified in a Prospectus Supplement, upon a
Change in Control (as defined herein), holders of Notes will have the right,
subject to certain conditions and restrictions, to require the Company to
purchase all or any part of their Notes at the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase. See
"Description of Notes." The Notes, when issued, will be subordinated in right
of payment to all secured senior indebtedness ("Senior Indebtedness") of the
Company and all current and future obligations of subsidiaries of the Company,
including trade obligations. See "Risk Factors--Subordination; No Limitation
on Senior Indebtedness" and "--Holding Company Status."
The Offered Securities may be offered directly, through agents
designated from time to time, through dealers or through underwriters and, in
the case of the Rights, may be distributed directly to shareholders. Such
agents or underwriters may act alone or with other agents or underwriters.
See "Underwriting." Any such agents, dealers or underwriters will be set forth
in a Prospectus Supplement. If an agent of the Company, or a dealer or
underwriter is involved in the offering of the Offered Securities, the agent's
commission, dealer's purchase price, underwriter's discount and net proceeds
to the Company, as the case may be, will be set forth in, or may be calculated
from, the Prospectus Supplement. Any underwriters, dealers or agents
participating in the offering may be deemed "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus may not be used to consummate sales of Offered
Securities unless accompanied by a Prospectus Supplement.
See "Risk Factors" beginning on page 9 for a discussion of
certain factors that should be considered by prospective purchasers of the
Securities offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
________________
The date of this Prospectus is [ ], 1998.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-800-SEC-0330. Such material may also be inspected
at the regional offices of the Commission located at Citicorp, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York,
New York 10048 or accessed electronically by means of the Commission's home page
on the Internet at http://www.sec.gov.
This Prospectus constitutes part of a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Commission under the Securities Act.
This Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement for
further information with respect to the Company and the securities offered
hereby. Any statement contained herein concerning the provisions of any document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission is not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
(File No. 0-11053) pursuant to the Exchange Act are incorporated by reference
and made a part hereof:
(a) the Company's Annual Report on Form 10-K and Form 10-K/A (as
filed on September 21, 1998) for the year ended December 31, 1997 (the
"Company's 10-K"), as amended;
(b) the Company's Quarterly Report on Form 10-Q and Form 10-Q/A
for the quarter ended March 31, 1998 (the "Company's March 10-Q"), as amended;
and
(c) the Company's Quarterly Report on Form 10-Q and Form 10-Q/A
for the quarter ended June 30, 1998 (the "Company's June 10-Q"), as amended.
All documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of the offering pursuant hereto, shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such document. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to any person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the documents
referred to above which have been incorporated by reference in this Prospectus
(other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into such documents). Such requests should be
directed to the office of David G. Weselcouch, Vice President of Investor
Relations, Commonwealth Telephone Enterprises, Inc., 100 CTE Drive, Dallas, PA
18612-9774, telephone number (717) 674-2700.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Prospectus contains or incorporates by reference certain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby.
Such forward-looking statements involve risks and uncertainties and include,
but are not limited to, statements regarding future events and the Company's
plans, goals and objectives. Such statements are generally accompanied by
words such as "intend," "anticipate," "believe," "estimate," "expect" or
similar statements. The Company's actual results may differ materially from
such statements. Factors that could cause or contribute to such differences
are set forth below as well as those factors discussed elsewhere in this
Prospectus and in the documents incorporated herein by reference. Although
the Company believes that the assumptions underlying its forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation by the
Company or any other person that the future events, plans or expectations
contemplated by the Company will be achieved. Furthermore, past performance
in operations and share price is not necessarily predictive of future
performance.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
incorporated herein by reference to the Company's 10-K, the Company's March
10-Q and the Company's June 10-Q and appearing elsewhere in this
Prospectus. Unless the context otherwise requires, "Commonwealth" or the
"Company" refers to Commonwealth Telephone Enterprises, Inc., a
Pennsylvania corporation, and its consolidated subsidiaries. In addition,
unless otherwise indicated, all information in the Prospectus assumes no
exercise of the Underwriters' over-allotment option. All share and per
share data and market prices of the Company's Common Stock have been
restated to reflect the two-for-three reverse stock split of the Company's
Common Stock effective October 9, 1997.
The Company
Commonwealth Telephone Enterprises, Inc., formerly known as
C-TEC Corporation, consists primarily of Commonwealth Telephone Company
("CT"), which provides telephony service to approximately 267,500 access lines
in rural parts of eastern Pennsylvania, and CTSI, Inc. ("CTSI"), a competitive
local exchange carrier ("CLEC"), which provides competitive telephony services
to Tier II cities adjacent or proximate to CT's service areas. The Company's
operations also include epix Internet Services, Inc. ("epix[Registered]"),
an Internet service provider, Commonwealth Long Distance Company ("CLD"),
which provides long distance service for both CT and CTSI customers, among
others, and Commonwealth Communications ("CC"), which provides telecom
engineering and consulting services.
CT benefits from a technologically-advanced, fiber-rich
network, strong barriers to competition, favorable regulatory conditions and
strong growth prospects. CT's market encompasses approximately 5,200 square
miles in mountainous, rural Pennsylvania--a market that is protected from
competition not only by its lack of concentration and low basic service rates,
but also by regulatory hurdles to effective competition. CT's network has
been upgraded to a 100% digital platform, facilitating the provisioning of
value added services and reducing operating costs. CT's access line growth
rate of 7.5% between June 30, 1997 and June 30, 1998 has been fueled largely
by an increase in residential second lines. Despite this growth, CT's second
line penetration, currently 17.2%, is still lower than the national average of
18.9%. CT believes it has good relationships with regulators and expects to
benefit from recent developments in its regulatory position which will allow
CT to implement basic service rate increases beginning in 1999 that are
indexed to inflation, rather than historical rate-of-return methodology. The
Company believes that CT is less likely to face competition in its service
area from alternate local exchange service providers due to several economic
factors, including (i) the rural, low-density characteristics of its operating
area, (ii) the high cost of entry to the market due to topography, (iii) the
lack of concentration of medium and large business users and (iv) its low
basic service rates. The Company further believes that CT's status as a Rural
Telephone Company, which exempts it from many of the interconnection
requirements of the Federal Telecommunications Act of 1996 (the "1996 Act"),
provides a further barrier to competition.
CTSI, the Company's CLEC, commenced operations in 1996 and
currently has over 29,000 access lines in service, 94% of which are connected
to the Company's switches and 36% of which are served solely by the Company's
network. CTSI markets local and all distance telephone service and Internet
access primarily to business customers who have historically been served by
incumbent providers such as Bell Atlantic. CTSI's target markets are Tier II
cities in eastern Pennsylvania and southern New York state which are proximate
to CT's service area. These target markets have a population density that is
almost twenty-five times that of CT's markets. The Company believes that the
geographical juxtaposition of these target markets with CT's service areas
allows CTSI to efficiently leverage CT's switching, billing and administrative
infrastructure while also benefitting from the positive cash flow of CT,
thereby enhancing CTSI's speed to market while reducing the risks typically
associated with CLECs. The Company expects that modest penetration into CT's
adjacent markets will significantly increase the Company's combined access
lines, revenue, and future cash flow.
The Company's other businesses, epix[Registered], CLD and CC,
support CT and CTSI, offering a depth of expertise and products to their
existing customer base as well as creating opportunities to source new
customers through cross-selling efforts. epix[Registered] provides dial-up
and dedicated Internet access as well as website development and hosting
services to residential and business customers. CLD serves as CT's and CTSI's
long distance service provider and also markets to and serves third parties.
CC provides engineering and consulting services.
The Company's principal executive offices are located at 100
CTE Drive, Dallas, Pennsylvania 18612-9774 and its telephone number is (717)
674-2700. The Company maintains a website at http://www.ct-enterpises.com
where general information about the Company is available. Reference to the
website shall not be deemed to incorporate the contents of the website into
this Prospectus.
Summary Consolidated Financial Data
The summary consolidated financial data set forth below should
be read in conjunction with the Consolidated Financial Statements of the
Company and the Notes thereto incorporated herein by reference to the
Company's 10-K and the Condensed Consolidated Financial Statements of the
Company and the Notes thereto incorporated herein by reference to the
Company's June 10-Q and included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
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Six Months Ended
For the Years Ended December 31, June 30,
-------------------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- ------- -------
(dollars in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales:
CT..................................... $125,293 $121,981 $127,842 $135,575 $144,538 $70,591 $76,334
CTSI................................... -- -- -- 89 5,329 1,112 8,879
Other.................................. 35,753 38,291 46,349 50,842 46,729 23,263 23,701
Total sales............................. $161,046 $160,272 $174,191 $186,506 $196,596 $94,966 $108,914
Income from continuing operations
before extraordinary item.............. $16,990 $17,033 $31,206 $25,869 $22,184 $13,071 $11,027
Net (loss) income:
CT..................................... $17,389 $22,304 $26,994 $23,901 $27,942 $14,076 $15,979
CTSI................................... -- -- -- (620) (6,791) (2,421) (3,296)
Other.................................. (24,038) 49,412 (3,715) (12,896) (35,116) (30,953) (1,687)
Total net (loss) income................. $(6,649) $71,716 $23,279 $10,385 $(13,965) $(19,298) $10,996
Earnings per average common share
from continuing operations before
extraordinary item:
Basic................................ $1.54 $1.50 $1.71 $1.20 $0.98 $0.60 $0.48
Diluted.............................. $1.54 $1.50 $1.65 $1.19 $0.96 $0.59 $0.47
Balance Sheet Data:
Total Assets............................ $360,760 $572,277 $639,132 $627,653 $373,667 $604,813 $401,690
Long-term debt, net of current
maturities............................. $228,049 $119,376 $110,366 $101,356 $167,347 $96,853 $182,343
Redeemable preferred stock.............. $276 $257 $39,493 $40,867 $42,517 $41,692 $43,341
Other Financial Data:
EBITDA (before management fees) (1):
CT..................................... $72,463 $71,648 $76,238 $81,181 $87,404 $42,974 $46,547
CTSI................................... -- -- -- (941) (9,458) (3,488) (4,551)
Other.................................. 6,312 7,738 2,170 3,608 3,014 1,159 1,690
Total EBITDA............................ $78,775 $79,386 $78,408 $83,848 $80,960 $40,645 $43,686
Capital Expenditures:
CT..................................... $37,384 $34,192 $27,258 $28,834 $30,739 $14,686 $18,330
CTSI................................... -- -- -- $6,692 $36,615 $17,956 $23,139
Ratio of earnings to fixed charges (2).. 2.48 2.40 5.03 5.06 4.15 5.32 3.67
Ratio of combined fixed charges and
preferred stock dividends to
earnings (3)........................... 2.48 2.40 5.03 3.86 3.27 3.97 3.00
Operating Data:
CT access lines......................... 210,829 218,737 227,235 240,255 258,803 248,834 267,542
CTSI access lines....................... -- -- -- 804 18,018 4,796 29,169
Total................................ 210,829 218,737 227,235 241,059 276,821 253,630 296,711
</TABLE>
(1) EBITDA represents earnings before interest, depreciation and amortization,
and income taxes ("EBITDA"). EBITDA is commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity. EBITDA is not intended to represent cash flows for
the period and should not be considered as an alternative to cash flows
from operating, investing or financing activities as determined in
accordance with U.S. GAAP. EBITDA is not a measurement under U.S. GAAP and
may not be comparable with other similarly titled measures of other
companies.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes, extraordinary item(s) and fixed
charges. Fixed charges include interest expense and a percentage of rents
which management deems representative of an interest factor.
(3) For purposes of calculating the ratio of combined fixed charges and
preferred stock dividends to earnings, earnings consist of income before
income taxes, extraordinary item(s) and fixed charges. Fixed charges
include interest expense and a percentage of rents which management deems
representative of an interest factor. Preferred stock dividends are the
amount of earnings before income taxes that is required to pay the
dividends on outstanding preferred stock.
RISK FACTORS
Competition
CT operates primarily as a monopoly provider of local telephone
service in its service area, and accordingly faces only limited direct
competition, mostly in its local (intraLATA) toll business. Like other local
exchange carriers ("LECs"), CT faces some competition from long distance
providers of intraLATA toll services (primarily the large inter-exchange (long
distance) carriers ("IXCs")) and dedicated access services from competitive
access providers ("CAPs"). As is the case generally with incumbent LECs, CT's
local exchange business is not legally protected against competitive entry
(although CT's status as a rural telephone company provides it some relief from
the interconnection obligations imposed on larger LECs). See "Business --
Commonwealth Telephone Company -- Regulation." CT currently faces limited
competition in its service territory from wireless telecommunication
providers, Internet service providers ("ISPs") and private networks built by
large end users. In the future, CT may face potential competitive entry by
these entities and others such as CLECs, IXCs, other incumbent LECs, cable
television companies, electric utilities and microwave carriers. However,
due to the rural, low-density characteristics of its operating area, the high
cost of entry to the market, the lack of concentration of medium and large
business users, and its low basic service rates, CT believes that compared to
most other LECs, it is less likely to face competition in its existing service
area.
The markets serviced by CTSI are more competitive than CT's
markets. The services offered by CTSI in each market compete principally with
the services offered by the incumbent LEC serving that area, primarily Bell
Atlantic. Incumbent LECs have relationships with their customers, have the
potential to subsidize services, and benefit from favorable state and federal
regulations. The incumbent LECs are generally larger and better financed than
CTSI. In light of the passage of the 1996 Act and recent concessions by some
of the Regional Bell Operating Companies ("RBOCs"), federal and state
regulatory initiatives will provide increased business opportunities to CLECs,
but incumbent LECs may obtain increased pricing flexibility for their services
as competition increases. If, in the future, incumbent LECs are permitted by
regulators to lower their rates substantially, engage in significant volume
and term discount pricing practices for their customers, or charge CLECs
significantly higher fees for interconnection to the incumbent LECs' networks,
CTSI's competitive position would be adversely affected. For example, the FCC
is reportedly likely to grant incumbent LECs, including Bell Atlantic,
additional flexibility to offer broadband data services through a separate
subsidiary on a deregulated basis. Bell Atlantic is also seeking authority
pursuant to Section 271 of the 1996 Act to offer long-distance services to its
Pennsylvania customers along with local services. If approved by the FCC,
this could allow Bell Atlantic to offer more attractive service packages to
compete with CTSI's offerings.
CTSI also faces, and will continue to face, competition from
other current and potential future market entrants, including IXCs, cable
television companies, electric utilities, microwave carriers, wireless
telecommunications providers, Internet service providers and private networks
built by large end users. A number of markets served by the Company are also
served by one or more CLECs, including NEXTLINK Communications Inc. and
Hyperion Telecommunications Inc., and competition from CLECs and other
companies is expected to increase in the future.
Regulation
The Company's businesses are subject to regulation by numerous
state and federal authorities, including the Federal Communications Commission
(the "FCC") and the Pennsylvania Public Utility Commission ("Pennsylvania
PUC"). The following is only a summary of some of the more important
regulatory matters affecting the Company. The telecommunications regulatory
environment has been changed dramatically by the 1996 Act, and may be subject
to additional change in the future by actions of Congress, State legislatures,
the FCC, State regulatory agencies, and courts. No assurances can be given
that existing regulations (including those not summarized below), or future
changes therein, will not have a material adverse effect on the Company's
business and results of operations in the future.
CT, in providing telecommunications services in the
Commonwealth of Pennsylvania, is subject to regulation by the Pennsylvania
PUC. CT submitted a Petition for Alternative Regulation and Network
Modernization Plan (the "Plan") to the Pennsylvania PUC pursuant to a state
law whereby local exchange carriers may agree to enhance their network's
bandwidth capability in exchange for lessened regulatory oversight. On
February 19, 1997, the Pennsylvania PUC approved CT's Plan, which provides CT
with authority to (i) increase its basic service rates based on the rate of
inflation minus 2.0 percent beginning in 1999, subject to certain limitations;
(ii) implement revenue-neutral rate rebalancing; and (iii) adjust rates to
compensate for exogenous events such as jurisdictional cost shifts or
legislative mandates. CT agreed to maintain current price levels in the
aggregate for basic or non-competitive services for two years, but maintained
the right to rebalance rates for such services, including dialtone, intraLATA
toll and access rates, immediately, subject to approval of the Pennsylvania
PUC. On March 26, 1998, the Pennsylvania PUC approved CT's rate rebalancing
plan, which, among other things, raised basic service rates on primary lines
by $2.45 from April 1, 1998. The Company does not expect the rate rebalancing
to have an impact on margins. In exchange for this favorable regulatory
environment, CT committed to ensuring the availability of certain broadband
technology in its service areas by the year 2015. However, the Pennsylvania
PUC has reserved the right to review any rate changes proposed by CT to
implement the provisions of the Plan. There can be no assurance that the PUC
will permit CT to implement desired rate changes pursuant to the Plan. In
addition, to the extent that the rate of inflation is below 2.0 percent in any
year, the Plan will require CT to reduce its rates accordingly.
CT is subject to the jurisdiction of the FCC with respect to
CT's interstate rates, services and other matters, including the prescription
of a uniform system of accounts, the prescription of principles and procedures
used to separate investments, revenues, expenses, taxes and reserves between
the interstate and intrastate jurisdictions and the imposition of accounting
and cost allocation rules for the separation of costs of regulated and
non-regulated telecommunications services for interstate rate-making purposes.
With respect to its interstate access services, CT benefits
from its classification by the FCC as an "average schedule" company, which
allows CT to receive compensation from a nationwide "pool" of smaller local
exchange carriers based upon formulas developed by the National Exchange
Carrier Association, Inc. ("NECA") that reflect the average reported costs of
other telephone companies in the pool. The formulas used to compensate average
schedule companies are revised by NECA each year, and are subject to review
and revision by the FCC. Future changes in the formulas could be adverse to
the interest of CT, although CT does have the right to withdraw from average
schedule status and to be compensated for access services based upon its
actual costs if that became desirable. Under the current formulas, if the FCC
were to require CT to convert from receiving compensation on an average
schedule basis to receiving compensation based on CT's actual costs, CT's
interstate access revenues could be reduced. However, CT believes that in
this event it would be allowed to increase its local rates on a dollar for
dollar basis to compensate for any resulting loss of interstate access
revenues under the exogenous events provision of the Plan.
Under the 1996 Act, LECs are generally required to provide
competitors with access to their systems and services, including providing
access to resale services, providing number portability, dialing parity and
access to their poles, conduits and rights-of-way and establishing reciprocal
compensation arrangements with other carriers for transporting and terminating
each other's traffic. In addition, incumbent LECs are required to (i) provide
discounted "wholesale" rates to resellers of their services; (ii) provide
competitors with access to unbundled network elements; (iii) interconnect with
the facilities of other carriers on a non-discriminatory basis; and (iv)
permit collocation of competitors' equipment in their central offices where
technically feasible. However, in 1996, CT's status as Rural Telephone
Company under the 1996 Act was recognized by the Pennsylvania PUC. This
status exempts CT from the special "incumbent LEC" interconnection and
unbundling requirements described above (although it remains subject to the
more general LEC requirements described in the first sentence of this
paragraph) unless and until a requesting carrier is able to demonstrate to the
Pennsylvania PUC that terminating this exemption is not unduly economically
burdensome, is technically feasible, and is consistent with the universal
service requirements of the 1996 Act.
Telecommunications services provided by CTSI and its networks
are subject to regulation by federal, state and local government agencies. The
FCC has jurisdiction over CTSI's interstate services, including access charges
as well as long-distance services. In addition, as a CLEC, CTSI is subject to
the general duties of all LECs under the 1996 Act. State regulatory
commissions exercise jurisdiction over CTSI's intrastate services (including
basic local exchange service and in-state toll services). Although specific
regulatory requirements and practices vary from state to state, CTSI's rates
and services are generally subject to much less regulatory scrutiny than those
of incumbent LECs. Additionally, municipalities and other local government
agencies may regulate limited aspects of CTSI's business, such as its use of
rights-of-way. For additional information concerning regulatory matters
affecting the Company, see "Business--Commonwealth Telephone Company --
Regulation" and "--CTSI -- Regulation."
Need to Obtain and Maintain Interconnection Agreements, Permits and
Rights-of-Way
In order to develop its CLEC business, the Company must obtain
and maintain interconnection agreements and local permits including rights to
utilize underground conduit and pole space and other rights-of-way from
entities such as incumbent LECs and other utilities, railroads, long distance
companies, state highway authorities, local governments and transit
authorities. There can be no assurance that the Company will be able to
maintain its existing permits and rights or to obtain and maintain the other
permits and rights needed to implement its business plan on acceptable terms.
Although the Company does not believe that any of the existing arrangements
will be canceled or will not be renewed as needed in the near future,
cancellation or non-renewal of certain of such arrangements could materially
adversely affect the Company's business in the affected area. In addition,
the failure to enter into and maintain any such required arrangements for a
new target market may affect the Company's ability to acquire or develop a
network in that market.
Rapid Technological Change
The telecommunications industry is subject to rapid and
significant changes in technology. While the Company believes that for the
foreseeable future these changes will neither materially affect the continued
use of the Company's telecommunications networks nor materially hinder its
ability to competitively deliver its services, the effect of technological
changes on the business of the Company cannot be predicted.
Control by Level 3 Telecom Holdings, Inc.; Conflicts of Interest
Level 3 Telecom Holdings, Inc. ("Level 3 Telecom"), formerly
Kiewit Telecom Holdings, Inc., beneficially owns approximately 48% of the
Company's Common Stock on a fully diluted basis. Consequently, Level 3
Telecom effectively has the power to elect a majority of the Company's
directors and to determine the outcome of substantially all matters to be
decided by a vote of shareholders. The control of the Company by Level 3
Telecom may tend to deter non-negotiated tender offers or other efforts to
obtain control of the Company and thereby deprive shareholders of
opportunities to sell shares at prices higher than those prevailing in the
market. Moreover, a disposition by Level 3 Telecom of a significant portion
of the Company's Common Stock, or the perception that such a disposition may
occur, could affect the trading price of the Common Stock and could affect the
control of the Company. The common stock of Level 3 Telecom is owned 90% by
Level 3 Communications, Inc. ("Level 3") and 10% by David C. McCourt, the
Chairman and Chief Executive Officer of the Company. Mr. McCourt is a member
of the Board of Directors of Level 3. On July 20, 1998, Level 3 announced
that it had entered into a cost-sharing network construction agreement with
Internext LLC ("Internext"), which is beneficially owned by NEXTLINK
Communications Inc., Nextel Communications Inc. and Eagle River Investments
LLC. Pursuant to the agreement, Internext will acquire the right to use fiber
optic cable and associated facilities to be installed by Level 3. There can
be no assurance that this agreement will not lead to conflicts of interest for
Level 3.
On September 30, 1997, the Company distributed 100 percent of
the outstanding shares of common stock of its wholly-owned subsidiaries, RCN
Corporation ("RCN") and Cable Michigan Inc. ("Cable Michigan") to holders of
record of the Company's Common Stock as of the close of business on September
19, 1997 (the "Distribution") in accordance with the terms of a Distribution
Agreement dated September 5, 1997 (the "Distribution Agreement") among the
Company, RCN and Cable Michigan. As a result of the Distribution, there exist
relationships that may lead to conflicts of interest. Level 3 Telecom
effectively controls the Company, RCN and Cable Michigan. In addition,
certain of the Company's named executive officers are also directors and/or
executive officers of RCN or Cable Michigan. In particular, David C. McCourt,
Chairman and Chief Executive Officer of the Company, also serves as a director
and Chairman and Chief Executive Officer of Cable Michigan and as a director
and Chairman and Chief Executive Officer of RCN. Mr. McCourt expects to
devote approximately 70% of his time to managing the affairs of RCN. In
addition, Bruce C. Godfrey, Executive Vice President and Chief Financial
Officer of the Company is also a director and Executive Vice President and
Chief Financial Officer of RCN. Mr. Godfrey expects to devote approximately
80% of his time to managing the affairs of RCN. The success of the Company
may be affected by the degree of involvement of its officers and directors in
the Company's business and the abilities of the Company's officers, directors
and employees in managing both the Company and the operations of Cable
Michigan and/or RCN. Potential conflicts of interest will be dealt with on a
case-by-case basis taking into consideration relevant factors including the
requirements of NASDAQ and prevailing corporate practices.
In connection with the Distribution, RCN has agreed to provide
or cause to be provided to the Company and to Cable Michigan certain specified
services for a transitional period after the Distribution. The fees for such
services will be 3.5% of the first $175 million of revenue of the Company and
1.75% of any additional revenue. See "Business--Relationship Among
Commonwealth Telephone, RCN and Cable Michigan." The aforementioned
arrangements were not the result of arm's length negotiation between unrelated
parties as the Company and RCN have certain common officers and directors.
Although the transitional service arrangements in such agreements are designed
to reflect arrangements that would have been agreed upon by parties
negotiating at arm's length, there can be no assurance that the Company would
not be able to obtain better terms from unrelated third parties. Additional
or modified agreements, arrangements and transactions may be entered into
between the Company and either or both of RCN and Cable Michigan, which will
be negotiated at arm's length.
Requirement to Repurchase Notes Upon Change in Control
Unless otherwise specified in the applicable Prospectus
Supplement, in the event of a Change in Control (as defined in the Indenture
as defined below) each Holder will have the option, subject to the terms of
the Indenture, to require the Company to purchase all or any part of any Note
for a purchase price equal to 100% of the outstanding principal amount
thereof, plus accrued but unpaid interest. If a Change in Control were to
occur, there can be no assurance that the Company would have sufficient funds
to repurchase all Notes tendered by the Holders thereof. In addition, the
Company's Revolving Credit Facility (the "Credit Facility"), which constitutes
Senior Indebtedness, provides that a change in control (as described therein)
will constitute an event of default thereunder, the occurrence of which would
cause the repurchase of the Notes, absent a waiver, to be blocked by the
subordination provisions of the Notes. Even if such event of default did not
occur or was waived, the exercise by any Holder of Notes of the right to
require the Company to repurchase Notes as a result of the occurrence of a
Change in Control could create an event of default under other Senior
Indebtedness of the Company, as a result of which any repurchase could, absent
a waiver, also be blocked by the subordination provisions of the Notes. See
"Description of Notes--Subordination of Notes." Further, the terms of other
future Senior Indebtedness of the Company or other future indebtedness ranking
pari passu in right of payment with the Notes could require that such
indebtedness be repaid upon the occurrence of a Change in Control. Failure by
the Company to repurchase the Notes when required will result in an Event of
Default (as defined in the Indenture), whether or not such repurchase is
permitted by the subordination provisions thereof. See "Description of
Notes--Purchase of Notes at the Option of Holders Upon a Change in Control"
for a summary of these provisions.
Subordination; No Limitation on Senior Indebtedness
The Notes will be general unsecured obligations of the Company,
will be contractually subordinate in right of payment to all existing and
future Senior Indebtedness of the Company, will rank pari passu in right of
payment with all existing and future senior indebtedness of the Company that
is unsecured and will rank senior in right of payment to all future
subordinated indebtedness of the Company. The Notes will be effectively
subordinated to all current and future obligations of subsidiaries of the
Company, including trade obligations. As of June 30, 1998, the Company had
approximately $94.5 million of Senior Indebtedness outstanding (excluding
accrued interest thereon), and the Company's subsidiaries had approximately
$97 million of indebtedness outstanding (excluding accrued interest thereon).
See "Capitalization" and "Description of Notes--Subordination."
The Indenture will not restrict the incurrence of Senior
Indebtedness or the incurrence of other indebtedness by the Company or its
subsidiaries. The incurrence of Senior Indebtedness or other indebtedness by
the Company or its subsidiaries could adversely affect the Company's ability
to pay its obligations on the Notes. All indebtedness incurred from time to
time under the Credit Facility will be Senior Indebtedness of the Company.
In the event of any insolvency, bankruptcy, liquidation, reorganization,
dissolution or winding up of the business of the Company or upon acceleration
of the Notes due to an Event of Default, the assets of the Company's
subsidiaries with respect to any indebtedness of such subsidiaries and the
assets of the Company pledged as security on any outstanding Senior
Indebtedness will be available to pay obligations on the Notes only after all
such indebtedness has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes and any other
indebtedness which ranks pari passu in right of payment with the Notes.
Holding Company Structure
The Company is a holding company whose principal assets are the
shares of capital stock of its subsidiaries. The Company does not generate
any operating revenues of its own. Consequently, it depends on dividends,
advances and payments from its subsidiaries to fund its activities and meet
its cash needs, including its debt service requirements. The subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make funds
available therefor. Their ability to pay dividends or make other payments or
advances to the Company will depend on their operating results and will be
subject to various business considerations and to applicable state laws. In
addition, Holders of the Notes are effectively subordinated to the claims of
creditors of the Company's subsidiaries to the extent of the assets of those
subsidiaries. If any insolvency, bankruptcy, liquidation, reorganization,
dissolution or winding up of the business of any subsidiary of the Company
occurs, creditors of that subsidiary generally will have the right to be paid
in full before any distribution is made to the Company or the holders of the
Notes. See "Description of Notes."
Anti-Takeover Provisions
The Company's Amended and Restated Articles of Incorporation
("Charter") and Amended and Restated Bylaws ("Bylaws") contain provisions that
may have the effect of discouraging, delaying or preventing a change in
control of the Company or unsolicited acquisition proposals that a stockholder
might consider favorable. Certain of these provisions are described in
"Description of Capital Stock--Description of Certain Provisions of Charter
and Bylaws."
The Change in Control purchase feature of the Notes, described
in "Description of Notes--Purchase of Notes at the Option of Holders Upon a
Change in Control," may in certain circumstances discourage a change in control
of the Company or acquisition proposals with respect to the Company.
Litigation and Regulatory Proceedings
From time to time, the Company and its affiliates are parties
to litigation and regulatory proceedings. Prospective investors should review
the descriptions of such matters contained in the Company's annual, quarterly
and current reports filed with the Commission and incorporated by reference
herein. In particular, the Company is currently involved in the litigation
discussed in "Business--Legal Proceedings." There can be no assurances that
the outcome of such matters will not have a material adverse effect on the
Company's consolidated financial position and results of operations.
Uncertain Market
The Notes, the Preferred Stock and the Rights will be new
securities for which there currently is no established trading market.
Although the underwriters of a particular issue of securities may make a
market in the securities, they are not obligated to do so, and any such market-
making may be discontinued at any time without notice. Accordingly, there
can be no assurance as to the development or liquidity of any market for
the Notes, the Preferred Stock or the Rights. There also can be no
assurance that the shares of Common Stock issuable upon exercise of the
Rights will trade at or above the price at which such shares are purchased.
Unless otherwise specified in the applicable Prospectus Supplement, the
Company does not intend to apply for listing of the Notes, the Rights or
the Preferred Stock on any securities exchange or for quotation through
NASDAQ.
Dilution in Connection with Rights Offerings
Holders who do not exercise their Rights will experience a
decrease in their proportionate interest in the equity ownership and voting
power of the Company. The sale of the Rights may not compensate a holder for
all or any part of any reduction in the market value of such shareholder's
Common Stock resulting from an offering of the Rights. Shareholders who do
not exercise or sell their Rights will relinquish any value inherent in the
Rights. Accordingly, holders are strongly urged to exercise or sell their
Rights.
There can be no assurance that the market price of the Common
Stock will not decline during the period the Rights are outstanding or that,
following the issuance of the Rights and the sale of shares upon exercise of
Rights, a subscribing Rights holder will be able to sell shares purchased at a
price equal to or greater than the purchase price.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus
Supplement, the net proceeds of the Offering will be used to finance capital
expenditures and for general corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock and Class B Common Stock are traded
on NASDAQ under the symbols "CTCO" and "CTCOB," respectively.
The table below sets forth, for the periods indicated, the
reported high and low bid prices of the Common Stock and the Class B Common
Stock on NASDAQ. Such data have been restated to reflect the two-for-three
reverse stock split of the Company's Common Stock and Class B Common Stock
effective October 9, 1997, but has not been restated to reflect the effects of
the Distribution of RCN Corporation and Cable Michigan effective September 30,
1997. Accordingly, historical trading information for periods prior to the
fourth quarter of 1997 do not provide a meaningful basis for comparison.
<TABLE>
<CAPTION>
Common Stock Class B Common Stock
Bid Price Bid Price
----------------------- --------------------------
High Low High Low
Calendar Period -------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRE-DISTRIBUTION
1996
Third quarter........... $45.17 $35.23 $45.73 $35.61
Fourth quarter......... 41.23 34.67 41.23 34.48
1997
First quarter.......... $44.98 $34.11 $44.61 $33.73
Second quarter......... 54.69 38.98 53.59 38.80
Third quarter.......... 74.97 50.97 75.34 50.22
POST-DISTRIBUTION
Fourth quarter......... $32.88 $20.98 $32.03 $19.75
1998
First quarter.......... $29.75 $21.25 $29.25 $19.88
Second quarter......... 30.63 26.00 29.63 26.25
Third quarter (through
September 18, 1998)... 27.25 21.50 28.13 23.94
</TABLE>
As of August 31, 1998, there were 15,779,617 shares of Common
Stock and 2,613,440 shares of Class B Common Stock outstanding (excluding
treasury shares). As of August 31, 1998, there were approximately 828 and 354
holders of record of the Common Stock and the Class B Common Stock,
respectively. The closing prices of the Common Stock and of the Class B
Common Stock quoted on NASDAQ on September 18, 1998 were $22.75 and $24,
respectively.
The Company anticipates that future cash flows will be used
principally to support operations and finance growth of the business and,
thus, the Company does not intend to pay cash dividends on the Common Stock in
the foreseeable future. Any future determinations to pay dividends will be at
the discretion of the Board of Directors and will be dependent upon a number
of factors, including the Company's financial condition, capital requirements,
funds from operations, future business prospects and such other factors as the
Board of Directors may deem relevant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" below.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data relating to the Company
have been taken or derived from the historical financial statements of the
Company and are qualified in their entirety by reference to such financial
statements and notes included therein which are incorporated herein by
reference to the Company's 10-K. Certain information at June 30, 1998 and
June 30, 1997 and for the respective six month periods ended June 30, 1997 and
June 30, 1998 has been derived from the Company's unaudited interim condensed
consolidated financial statements, which are incorporated herein by reference
to the Company's June 10-Q, and which, in the opinion of the Company, reflect
all adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation. Results for the periods ended June 30, 1998 and June 30,
1997 are not necessarily indicative of results for the full year.
<TABLE>
<CAPTION> Six Months Ended
For the Years Ended December 31, June 30,
------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C><C> <C>
Income Statement Data:
Sales:
CT........................................ $125,293 $121,981 $127,842 $135,575 $144,538 $70,591 $76,334
CTSI...................................... -- -- -- 89 5,329 1,112 8,879
Other..................................... 35,753 38,291 46,349 50,842 46,729 23,263 23,701
-------- -------- -------- -------- -------- -------- --------
Total sales................................ $161,046 $160,272 $174,191 $186,506 $196,596 $94,966 $108,914
Income from continuing operations before
extraordinary item........................ $16,990 $17,033 $31,206 $25,869 $22,184 $13,071 $11,027
Net (loss) income:
CT........................................ $17,389 $22,304 $26,994 $23,901 $27,942 $14,076 $15,979
CTSI...................................... -- -- -- (620) (6,791) (2,421) (3,296)
Other..................................... (24,038) 49,412 (3,715) (12,896) (35,116) (30,953) (1,687)
-------- -------- -------- -------- -------- -------- --------
Total net (loss) income.................... $(6,649) $71,716 $23,279 $10,385 $(13,965) $(19,298) $10,996
Earnings per average common share from
continuing operations before extraordinary
item:
Basic................................... $1.54 $1.50 $1.71 $1.20 $0.98 $0.60 $0.48
Diluted................................. $1.54 $1.50 $1.65 $1.19 $0.96 $0.59 $0.47
Balance Sheet Data:
Total Assets............................... $360,760 $572,277 $639,132 $627,653 $373,667 $604,813 $401,690
Long-term debt, net of current maturities.. $228,049 $119,376 $110,366 $101,356 $167,347 $96,853 $182,343
Redeemable preferred stock................. $276 $257 $39,493 $40,867 $42,517 $41,692 $43,341
Other Financial Data:
EBITDA (before management fees)(1):
CT........................................ $72,463 $71,648 $76,238 $81,181 $87,404 $42,974 $46,547
CTSI...................................... -- -- -- (941) (9,458) (3,488) (4,551)
Other..................................... 6,312 7,738 2,170 3,608 3,014 1,159 1,690
-------- -------- -------- -------- -------- -------- --------
Total EBITDA............................... $78,775 $79,386 $78,408 $83,848 $80,960 $40,645 $43,686
Capital Expenditures:
CT........................................ $37,384 $34,192 $27,258 $28,834 $30,739 $14,686 $18,330
CTSI...................................... -- -- -- $6,692 $36,615 $17,956 $23,139
Ratio of earnings to fixed charges(2)...... 2.48 2.40 5.03 5.06 4.15 5.32 3.67
Ratio of combined fixed charges and
preferred stock dividends to
earnings(3)............................... 2.48 2.40 5.03 3.86 3.27 3.97 3.00
Operating Data:
CT access lines............................ 210,829 218,737 227,235 240,255 258,803 248,834 267,542
CTSI access lines.......................... -- -- -- 804 18,018 4,796 29,169
-------- -------- -------- -------- -------- -------- --------
Total................................... 210,829 218,737 227,235 241,059 276,821 253,630 296,711
</TABLE>
(1) EBITDA represents earnings before interest, depreciation and amortization,
and income taxes ("EBITDA"). EBITDA is commonly used in the communications
industry to analyze companies on the basis of operating performance,
leverage and liquidity. EBITDA is not intended to represent cash flows for
the period and should not be considered as an alternative to cash flows
from operating, investing or financing activities as determined in
accordance with U.S. GAAP. EBITDA is not a measurement under U.S. GAAP and
may not be comparable with other similarly titled measures of other
companies.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes, extraordinary item(s) and fixed
charges. Fixed charges include interest expense and a percentage of rents
which management deems representative of an interest factor.
(3) For purposes of calculating the ratio of combined fixed charges and
preferred stock dividends to earnings, earnings consist of income before
income taxes, extraordinary item(s) and fixed charges. Fixed charges
include interest expense and a percentage of rents which management deems
representative of an interest factor. Preferred stock dividends are the
amount of earnings before income taxes that is required to pay the
dividends on outstanding preferred stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of results of operations and financial
condition is based upon and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto incorporated herein by
reference to the Company's 10-K and the Condensed Consolidated Financial
Statements and Notes thereto incorporated herein by reference to the Company's
June 10-Q and the Selected Financial Data and other financial data appearing
elsewhere in this Prospectus. The financial data, except for per share data,
included herein are denominated in thousands of dollars.
General Overview
Six Months Ended June 30, 1998 Compared to Six Months Ended
June 30, 1997
For the six months ended June 30, 1998, the Company's EBITDA
was $43,686 as compared to $40,645 for the same period in 1997. Sales
increased 14.7% and were $108,914 and $94,966 for the six months ended June
30, 1998 and 1997, respectively. The increase was primarily due to higher
sales at CT of $5,743, CTSI of $7,767, and other operations of $438. Income
from continuing operations was $11,027 and $13,071 for the six months ended
June 30, 1998 and 1997, respectively. This decrease reflects higher interest
and depreciation expense, partially offset by lower income tax expense and the
increased EBITDA discussed above. Net income to common shareholders was
$8,871 or $.47 per diluted average common share for the six months ended June
30, 1998 as compared to net loss to common shareholders of ($21,423) or
($1.16) per diluted average common share for the six months ended June 30,
1997. Net income to common shareholders for the six months ended June 30,
1997 includes a loss from discontinued operations of ($32,369) or ($1.75) per
diluted average common share.
Year Ended December 31, 1997 Compared to Year Ended December
31, 1996
For the year ended December 31, 1997, EBITDA was $80,960 as
compared to $83,848 in 1996. Higher costs associated with the development of
CTSI were offset by higher EBITDA of CT of $6,223. Sales increased 5.4% and
were $196,596 and $186,506 for the years ended December 31, 1997 and 1996,
respectively. Higher sales of CT of $8,963, CTSI of $5,240 and
epix[Registered] of approximately $2,500, were partially offset, primarily by
lower sales of CC. Income from continuing operations before extraordinary
charges was $22,184 and $25,869 for the years ended December 31, 1997 and
1996, respectively. The decrease of $3,685 primarily reflects the lower
EBITDA of $2,888 discussed above, higher depreciation and amortization of
$3,826 and lower other income of $1,245 partially offset by a lower provision
for income taxes of $4,500. Net loss to common shareholders was ($18,214), or
($.97) per diluted average common share, for the year ended December 31, 1997
as compared to net income to common shareholders of $6,411, or $.35 per
diluted average common share, for the year ended December 31, 1996. Net loss
to common shareholders includes discontinued operations of ($36,149) in 1997.
Net income to common shareholders includes discontinued operations of
($13,556) and an extraordinary charge of ($1,928) in 1996.
Year Ended December 31, 1996 Compared to Year Ended December
31, 1995
For the year ended December 31, 1996, the Company's operating
income before depreciation, amortization and management fees was $83,848 as
compared to $78,408 in 1995. Higher EBITDA of CT of $4,943 was primarily
offset by costs associated with the development of CTSI. Sales increased 7.1%
and were $186,506 and $174,191 for the years ended December 31, 1996 and 1995,
respectively. Higher sales of CT of $7,733, epix[Registered] of approximately
$2,399 and CLD of approximately $2,400 primarily account for the increase.
Income from continuing operations before extraordinary charges was $25,869 and
$31,206 for the years ended December 31, 1996 and 1995, respectively. The
decrease of $5,337 primarily reflects the higher EBITDA of $5,440 discussed
above, offset by a higher provision for income taxes of $6,418. Additionally,
the Company realized a gain of $3,038 on the sale of its interest in an
alternative access telephone provider in 1995 which did not recur in 1996.
Net income to common shareholders was $6,411, or $.35 per diluted average
common share, for the year ended December 31, 1996 as compared to $23,279, or
$1.23 per diluted average common share, for the year ended December 31, 1995.
Net income to common shareholders includes discontinued operations of
($13,556), an extraordinary charge of ($1,928), and preferred stock dividend
and accretion requirements of $3,974 in 1996. Net income to common
shareholders includes discontinued operations of ($7,927) in 1995.
Selected data by business segment was as follows for the six
months ended June 30, 1998 and 1997 and the years ended December 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------------------ ---------------------
1997 1996 1995 1998 1997
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales
Commonwealth Telephone Company...... $144,538 $135,575 $127,842 $76,334 $70,591
CTSI, Inc........................... 5,329 89 -- 8,879 1,112
46,729 50,842 46,349 23,701 23,263
-------- -------- -------- ------- -------
Other...............................
$196,596 $186,506 $174,191 $108,914 $94,966
======== ======== ======== ======== =======
Total..............................
Operating income (loss) before depreciation and amortization
Commonwealth Telephone Company...... $87,404 $81,181 $76,238 $46,547 $42,974
CTSI, Inc........................... (9,458) (941) -- (4,551) (3,488)
Management fees..................... (8,283) (8,382) (6,223) (3,813) (3,480)
Other............................... 3,014 3,608 2,170 1,690 1,159
-------- -------- -------- ------- -------
Total.............................. $72,677 $75,466 $72,185 $39,873 $37,165
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
------------------ ------------------
1997 1996 1998 1997 % Change
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CT access lines..... 258,803 240,255 267,542 248,834 7.5%
CTSI access lines*.. 18,018 804 29,169 4,796 508.2%
Total............ 276,821 241,059 296,711 253,630 17.0%
</TABLE>
* Excludes customer circuits in service ("VGEs") of 9,312 and 3,624 for the
six months ended June 30, 1998 and 1997, respectively, and 7,872 and 1,680
for the years ended December 31, 1997 and 1996, respectively. VGEs are
another measure of network utilization.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997
Sales--Sales include primarily local, local toll, long distance
and vertical service telephone revenue, and telecommunications design and
engineering revenue. CT sales increased $5,743 or 8.1% for the six months
ended June 30, 1998, and were $76,334 and $70,591 for the six months ended
June 30, 1998 and 1997, respectively. This increase is primarily due to
higher access and local service revenue as a result of the increase in
residential second lines. Interstate access revenue increased $2,247 as a
result of the growth in access lines and access minutes. State access revenue
increased $819 due to an increase in IntraLATA minutes, partially offset by a
decrease in the average rate per minute. CTSI revenues were $8,879 for the
six months ended June 30, 1998 and $1,112 for the same period of 1997. The
increase of $7,767 is due to the first quarter 1998 expansion into the
Southern Upstate New York market and the continued penetration in the
Northeastern, Harrisburg and Central Pennsylvania markets. For the six month
period ended June 30, 1998, other sales were $23,701 as compared to $23,263
for the same period of 1997. The increase of $438 is a result of increased
epix[Registered] sales of $1,767 or 68.6%, CC sales of $524, partially offset
by an expected decline in CLD sales of $1,853.
Costs and expenses, excluding depreciation, amortization and
corporate management fees ("costs and expenses")--Costs and expenses primarily
include access charges and other direct costs of sales, payroll and related
benefits, advertising, software and information systems services, and general
and administrative expenses. Operating expenses excluding depreciation,
amortization and management fees for CT for the six months ended June 30, 1998
were $29,787 as compared to $27,617 for the six months ended June 30, 1997.
Contributing to the increase of $2,170 or 7.9% is an increase in payroll and
benefits resulting from installation costs for second line sales, annual
salary increases and additional customer service positions and outside
technicians. Operating expenses, excluding depreciation and amortization and
management fees for CTSI were $13,430 and $4,600 for the six months ended June
30, 1998 and 1997, respectively. The increase of $8,830 is due to the
expansion in the first quarter of 1998 into the Central Pennsylvania and
Southern Upstate New York markets and the increased penetration into the
Northeastern and Harrisburg Pennsylvania markets. These expenses represent
payroll and benefits associated with sales, operations, and support staff,
building rental expense, circuit rental expense, leased loop charges, MIS
expenses, and terminating access from ILECs. Other costs and expenses,
excluding depreciation, amortization and corporate management fees were
$22,011 and $22,104 for the six months ended June 30, 1998 and 1997,
respectively. The decrease of $93 represents lower costs of CLD due in part
to lower sales offset by increased costs, primarily payroll and benefits,
advertising and transport costs associated with the growth of epix[Registered]
and increased costs of CC associated with higher sales.
Depreciation and amortization--Depreciation and amortization
increased $2,780 or 18.8% for the six months ended June 30, 1998, as compared
to the six months ended June 30, 1997. This increase is due to a higher
depreciable plant balance as a result of CT and CTSI capital expenditures
during 1997 and 1998.
Interest expense--Interest expense includes interest on CT's
mortgage note payable to the National Bank for Cooperatives, interest on the
Company's Credit Facility and amortization of debt issuance costs. Interest
expense was $6,202 and $4,133 for the six months ended June 30, 1998 and 1997,
respectively. The increase is primarily due to interest on borrowings of
$75,000 in the third quarter of 1997 against the Credit Facility. These
proceeds were used to fund an equity contribution to RCN prior to the
distribution of 100% of the outstanding shares of RCN and Cable Michigan to
the Company's stockholders on September 30, 1997 and are partially offset by
lower interest expense on the mortgage note payable to the National Bank for
Cooperatives. In the second quarter of 1998, the Company borrowed an
additional $19,500 against the Credit Facility primarily to fund CTSI's
expansion.
Income taxes--The Company's effective income tax rates for
continuing operations were 42.7% and 41.4% for the six months ended June 30,
1998 and 1997, respectively. The difference between the effective rates and
the amounts computed by applying the statutory federal rate is primarily
attributable to state income taxes net of federal benefit. The effective rate
is higher in 1998 since state tax benefits have not been fully realized on the
losses of CTSI due to valuation allowances offsetting state deferred tax
assets and state limitations on the amount of net operating loss carryforwards.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Sales--Sales were $196,596 and $186,506 for the years ended
December 31, 1997 and 1996, respectively. The increase of $10,090, or 5.4%,
is primarily due to higher sales of CT of $8,963. The increase in CT sales
includes higher local network service revenue of approximately $2,000, which
resulted from an increase in access lines of 18,548, or 7.7% due principally
to a successful second line promotion and higher vertical services revenue.
Network access revenue increased approximately $6,700 which includes higher
interstate access revenue of approximately $3,500 due to growth in access
lines and rate of return adjustments partially offset by a lower average rate
per minute. The increase in network access revenue also includes higher
intrastate access revenue of approximately $3,200 primarily due to growth in
access minutes and a higher average rate per minute. Also contributing to the
increase in sales in 1997 as compared to 1996 is higher revenue of CTSI of
$5,240, which represents the start-up of the Company's competitive local
telephony operations. At December 31, 1997, CTSI had 18,018 installed access
lines as compared to 804 installed access lines at December 31, 1996.
epix[Registered] sales increased approximately $2,500 in 1997 as compared to
1996 which reflects the growing popularity of, and demand for, high-speed
Internet access. epix[Registered] had approximately 28,700 customers at
December 31, 1997 as compared to 16,600 customers at December 31, 1996. The
above increases were partially offset by lower sales of CC which resulted from
a high volume of less predictable premises distribution systems contracts
during 1996 which did not recur in 1997. The nature of CC's business is
inherently risky due to project cost estimates, sub-contractor performance and
economic conditions. The operating results of CC are continually subject to
fluctuations due to its less predictable revenue streams, market conditions,
and the effect of competition on margins. At December 31, 1997, CC had a
minimal sales backlog.
Costs and expenses, excluding depreciation, amortization and
corporate management fees--Costs and expenses were $115,636 and $102,658 for
the years ended December 31, 1997 and 1996, respectively, an increase of
$12,978, or 12.6%. The increase is primarily due to higher costs of $13,757
associated with development of a competitive local telephony effort. CLEC
operations are expected to allow the Company to increase its customer base
significantly. The CLEC operations are generally concentrated within twelve
miles of existing CT franchise areas, and will allow CTSI access to an
additional 1.2 million access lines in a densely populated area that includes
target markets with more than 1,200 access lines per square mile. This
expansion will position the Company to begin competing with Bell Atlantic.
Costs and expenses of CT increased $2,740, or 5.0%. Payroll and related
benefits increased as a result of a one-time postemployment benefit adjustment
in the first quarter of 1996 which did not recur in 1997. Additionally
contributing to increase in payroll and related benefits were higher overtime
resulting from a successful second line promotion, headcount additions and
normal salary increases. Advertising expenses, primarily for vertical
services and second line promotion, and information systems services expenses,
primarily for year 2000 consulting, also contributed to the increase in costs
and expenses. These increases were partially offset primarily by lower access
charges resulting from a decrease in the average local transport rate charged
by a neighboring local carrier.
Costs and expenses of other operations decreased $3,519, or
7.5%, primarily due to lower costs of sales of CC, which are directly
associated with its decrease in sales.
Depreciation and amortization--Depreciation and amortization
was $31,216 for the year ended December 31, 1997 as compared to $27,390 for
the year ended December 31, 1996. The increase is primarily associated with
a full year of depreciation in 1997 on capital expenditures of $86,812 made in
1996 and depreciation on capital expenditures of $123,432 in 1997.
Interest expense--Interest expense was $9,933 and $9,577 for
the years ended December 31, 1997 and 1996, respectively. The increase of
$356 or 3.7%, is primarily due to interest on borrowings of $75,000 in the
third quarter of 1997 against the Credit Facility, the proceeds of which were
used to fund an equity contribution to RCN prior to the Distribution,
partially offset by lower interest expense on the mortgage note payable to the
National Bank for Cooperatives. Interest on the mortgage note payable
decreased primarily due to scheduled principal payments of $9,010 during 1997.
Other income, net--Other income was $1,041 for the year ended
December 31, 1997 as compared to $2,286 for the year ended December 31, 1996.
The decrease is primarily related to the receipt, in the second quarter of
1996, of a royalty fee of approximately $1,700. This fee represented the
remaining minimum royalty fee on cellular software products sold through
January 1, 1998 owed to the Company by the buyer of the assets of the
Company's Information Services Group and corporate data processing function
which were sold in 1991.
Income taxes--The Company's effective income tax rates for
continuing operations were 41.1% and 43.6% for the years ended December 31,
1997 and 1996, respectively. For an analysis of the change in income taxes,
see the reconciliation of the effective income tax rate in Note 13 to the
consolidated financial statements which are incorporated herein by reference
to the Company's 10-K.
Discontinued operations--Discontinued operations represents the
results of operations of RCN and Cable Michigan prior to the Distribution.
Discontinued operations were ($36,149) and ($13,556) for the years ended
December 31, 1997 and 1996, respectively. The higher loss in 1997 is
primarily the result of lower EBITDA of RCN resulting from increased expenses
associated with the development of the bundled services business, including
advertising, payroll and related benefits and origination and programming
costs. Additionally, RCN paid $10,000 in nonrecurring charges associated with
the termination of a marketing services agreement held by Freedom. RCN's
interest income decreased primarily as a result of lower average cash balances
which resulted from the acquisition of Freedom and capital expenditures
associated with network expansion. RCN incurred an extraordinary charge of
$3,210 due to its prepayment of Senior Secured Notes. Offsetting these
expense increases was a decrease in interest expense resulting from the
required principal payment of $18,750 on 9.65% Senior Secured Notes in
December 1996. Interest expense also declined in 1997 as a result of RCN's
payments of $940 to Kiewit Telecom Holdings, Inc. in 1996 in connection with
the August 1996 acquisition of Kiewit Telecom Holdings, Inc.'s 80.1% interest
in Freedom. Such amount represents compensation to Kiewit Telecom Holdings,
Inc. for forgone interest on the amount it had invested in Freedom.
Extraordinary item--In 1996, as a result of filing an
alternative regulation plan with the Pennsylvania Public Utility Commission,
CT determined that it no longer met criteria for the continued application of
the accounting required by Statement of Financial Accounting Standards No.
71--"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71").
In accordance with SFAS 71, the effects of SFAS 109 on CT were deferred on the
balance sheet as regulatory assets and liabilities which represented the
anticipated future regulatory recognition of SFAS 109. In this filing, CT
requested approval of a change from cost-based, rate-of-return regulation to
incentive-based regulation using price caps. CT believed approval of the plan
was probable and, as a result, discontinued application of SFAS 71 and wrote
off the previously recorded regulatory assets and liabilities, resulting in an
extraordinary charge of $1,928.
Since CT performs an annual study to determine the remaining
economic useful lives of regulated plants and adjusts them, when necessary,
for both financial reporting and regulatory purposes, discontinuation of the
application of SFAS 71 did not impact recorded fixed asset values.
CT received approval for an Alternative Regulation and Network
Modernization Plan in January 1997.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Sales--Sales were $186,506 and $174,191 for the years ended
December 31, 1996 and 1995, respectively. The increase of $12,315, or 7.1%,
was primarily due to higher sales of Commonwealth Telephone Company of $7,733,
or 6.0%, and epix[Registered] of $2,399. The remaining increase was primarily
attributable to higher switched business and 800 service sales of CLD. CT
sales increased due to higher intrastate access revenue of approximately
$3,167 due to growth in access minutes. Local network service revenue
increased approximately $1,853 resulting from an increase in access lines of
approximately 13,000, primarily due to a second line promotion, an increase in
vertical services and the availability of custom calling features to a broader
section of CT's market. Additionally, nonregulated revenue was positively
impacted by higher video conferencing system sales. epix[Registered] sales
increased as a result of the start up of the Company's Internet access
business.
Costs and expenses were $102,658 and $95,783 for the years
ended December 31, 1996 and 1995, respectively, an increase of $6,875, or
7.2%. The increase was primarily due to costs associated with the start-up
of epix[Registered] of approximately $2,156, higher costs of CLD of
approximately $2,200, principally carrier expense, and higher costs of CT of
approximately $2,790, principally, higher overtime resulting from the second
line promotion, consulting services on a variety of regulatory and operational
matters and materials expense associated with higher video conferencing system
sales.
Management fees--Corporate management fees increased $2,159, or
34.7%, in 1996 as compared to 1995, primarily due to the Company's allocable
share of expenses associated with the evaluation of strategic alternatives for
enhancing its shareholder value, which culminated in the Distribution in 1997.
Depreciation and amortization--Depreciation and amortization
was $27,390 for the year ended December 31, 1996 as compared to $25,501 for
the year ended December 31, 1995. The increase of $1,889, or 7.4%, was
primarily related to epix[Registered] depreciation of approximately $800
resulting from depreciation on equipment used in the start up of the Company's
Internet access business and higher depreciation of CT, primarily resulting
from capital expenditures.
Gain on sale of investments--In 1995, the Company sold its
equity position in Northeast Networks, Inc., an alternative access telephone
service provider in Westchester County, New York, for cash of $5,007. The
Company realized a pretax gain of $3,038 on the disposal.
Other income, net--Other income was $2,286 for the year ended
December 31, 1996 as compared to $240 for the year ended December 31, 1995.
The increase is primarily related to the receipt, in the second quarter of
1996, of a royalty fee of approximately $1,700. This fee represented the
remaining minimum royalty fee on cellular software products sold through
January 1, 1998 owed to the Company by the buyer of the assets of the
Company's Information Services Group and corporate data processing function
which were sold in 1991.
Income taxes--The Company's effective income tax rates for
continuing operations were 43.6% and 30.3% for the years ended December 31,
1996 and 1995, respectively. For an analysis of the change in income taxes,
see the reconciliation of the effective income tax rate in Note 13 to the
consolidated financial statements incorporated herein by reference.
Discontinued operations--Discontinued operations were ($13,556)
and ($7,927) for the years ended December 31, 1996 and 1995, respectively.
The higher loss in 1996 primarily reflects costs associated with the start up
of RCN.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
December 31, June 30,
-------------------- ------------
1997 1996 1998
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Cash and temporary cash investments...................... $14,017 $11,004 $9,466
Working capital.......................................... (4,018) (8,673) (7,010)
Long-term debt (including current maturities)............ 176,357 110,366 191,353
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1998 1997
------- -------
<S> <C> <C>
Net cash provided by operating activities...... $24,545 $34,977
Investing activities:
Additions to property, plant and equipment.... 43,552 61,093
</TABLE>
Cash and temporary cash investments was $9,466 at June 30, 1998
as compared to $14,017 at December 31, 1997. The Company's working capital ratio
for continuing operations was 0.91 to 1 at June 30, 1998 as compared to 0.95 to
1 at December 31, 1997. Cash and temporary cash investments was $14,017 at
December 31, 1997 as compared to $11,004 at December 31, 1996. The Company's
working capital ratio was .95 to 1 at December 31, 1997 as compared to .85 to 1
at December 31, 1996. In July 1997, the Company obtained a $125,000 committed
Credit Facility which provides credit availability through July 2002. In
September 1997, the Company borrowed $75,000 against this facility. The Company
utilized the proceeds to fund an equity contribution to RCN prior to the
Distribution. In the second quarter of 1998, the Company borrowed $19,500
against the Credit Facility primarily to fund CTSI's expansion. The Company
currently has adequate resources to meet its short-term obligations, including
cash on hand of $9,466 and $30,500 of availability under the Credit Facility.
The Company presently intends to judge the success of its initial rollout of
the CTSI business in deciding whether to undertake additional capital
expenditures to further expand the network to additional areas. The Company
expects that the further expansion of the CTSI business will require significant
capital to fund the network development and operations, including funding the
development of its fiber optic networks and funding operating losses. The
Company's operations have required and will continue to require substantial
capital investments for the design, construction, and development of additional
networks and services. The Company plans on funding current expansion plans
through internally generated funds from operations. Sources of funding for the
Company's further capital requirements may include financing from public
offerings or private placements of equity and/or debt securities, and bank
loans. There can be no assurance that additional financing will be available to
the Company, or, if available, that it can be obtained on a timely basis and on
acceptable terms. Failure to obtain such financing could result in the delay or
curtailment of the Company's development and expansion plans and expenditures.
The Company anticipates that future cash flows will be used
principally to support operations and finance growth of the business and,
thus, the Company does not intend to pay cash dividends on its Common Stock in
the foreseeable future. The payment of any cash dividends in the future will
be at the discretion of the Company's Board of Directors. The declaration of
any dividends and the amount thereof will depend on a number of factors,
including the Company's financial condition, capital requirements, funds from
operations, future business prospects and such other factors as the Company's
Board of Directors may deem relevant.
As a result of factors such as the significant expenses
associated with the development of new networks and services, the Company
anticipates that its operating results could vary significantly from period to
period.
For the six months ended June 30, 1998, the Company's net cash
provided by operating activities was $24,545 comprised primarily of net income
of $10,996 adjusted by non-cash depreciation and amortization of $17,543, other
non-cash items ($2,640) and working capital changes of $176. Net cash used in
investing activities of $42,742 consisted primarily of additions to property,
plant and equipment of $43,552. Net cash provided by financing activities of
$13,646 consisted primarily of borrowings of $19,500 on the Credit Facility,
and proceeds from exercise of stock options of $601, partially offset by
redemption of long-term debt of $4,505 and preferred dividends of $1,950.
Impact of the Year 2000 Issue
The Company has certain financial, administrative and
operational systems which are not Year 2000 compliant. The Company has
performed a study to identify those specific systems which require remediation
and developed a plan to correct such situations in a timely fashion. The
Company's plan is proceeding on target. The plan includes ensuring that those
systems for which the Company is dependent on external vendors, such as certain
billing systems, will be Year 2000 compliant by the end of 1999 based on the
status of external vendors' remediation efforts.
For those internal systems that require corrective action, the
Company has contracted with its information systems services provider to
rewrite the relevant programming code. Finally, the Company is well along on a
conversion of its suite of financial systems to a state-of-the-art Oracle
system. Such system is expected to ensure Year 2000 compliance in financial
applications, enable the Company to process and report its financial
transactions more efficiently and provide a greater level of detailed
information to facilitate management's analysis which is critical to its
business decisions.
The Company is employing a team approach across its MIS,
financial and operational groups in addressing the above issue, as well as
utilizing the assistance of external consultants in the case of the Oracle
implementation. Such team approach facilitates a consistent progress along
plans without disruption of other areas of the business.
There is no assurance that the Company's plans will continue to
progress as intended. While the Company has continually been refining its Year
2000 remediation efforts and the associated costs, based on the information
most currently available, the Company does not believe that its cost of Year
2000 remediation will be material.
BUSINESS
General
Commonwealth Telephone Enterprises, Inc. consists primarily of
CT, which provides telephony service to approximately 267,500 access lines in
rural parts of eastern Pennsylvania, and CTSI, a CLEC, which provides
competitive telephony services to Tier II cities adjacent or proximate to CT's
service areas. The Company's operations also include epix[Registered], an
Internet service provider, CLD, which provides long distance service for both CT
and CTSI customers, among others, and CC, which provides telecom engineering and
consulting services.
CT benefits from a technologically-advanced fiber-rich network,
strong barriers to competition, favorable regulatory conditions and strong
growth prospects. CT's market encompasses approximately 5,200 square miles in
mountainous, rural Pennsylvania--a market that is protected from competition not
only by its lack of concentration and low basic service rates, but also by
regulatory hurdles to effective competition. CT's network has been upgraded to a
100% digital platform, facilitating the provisioning of value added services and
reducing operating costs. CT's access line growth rate of 7.5% between June 30,
1997 and June 30, 1998 has been fueled largely by an increase in residential
second lines. Despite this growth, CT's second line penetration, currently
17.2%, is still lower than the national average of 18.9%. CT believes it has
good relationships with regulators and expects to benefit from recent
developments in its regulatory position which will allow CT to implement basic
service rate increases beginning in 1999 that are indexed to inflation, rather
than historical rate-of-return methodology. The Company believes that CT is less
likely to face competition in its service area from alternate local exchange
service providers due to several economic factors, including (i) the rural,
low-density characteristics of its operating area, (ii) the high cost of entry
to the market due to topography, (iii) the lack of concentration of medium and
large business users and (iv) its low basic service rates. The Company further
believes that CT's status as a Rural Telephone Company, which exempts it from
many of the interconnection requirements of the 1996 Act, provides a further
barrier to competition.
CTSI, the Company's CLEC, commenced operations in 1997 and
currently has over 29,000 access lines in service, 94% of which are connected to
the Company's switches and 36% of which are served solely by the Company's
network. CTSI markets local and all distance telephone service and Internet
access primarily to business customers who have historically been served by
incumbent providers such as Bell Atlantic. CTSI's target markets are Tier II
cities in eastern Pennsylvania and southern New York state which are proximate
to CT's service area. These target markets have a population density that is
almost twenty-five times that of CT's markets. The Company believes that the
geographical juxtaposition of these target markets with CT's service areas
allows CTSI to efficiently leverage CT's switching, billing and administrative
infrastructure while also benefitting from the positive cash flow of CT, thereby
enhancing CTSI's speed to market while reducing the risks typically associated
with CLECs. The Company expects that modest penetration into CT's adjacent
markets will significantly increase the Company's combined access lines,
revenue, and future cash flow.
The Company's other businesses, epix[Registered], CLD and CC,
support CT and CTSI, offering a depth of expertise and products to their
existing customer base as well as creating opportunities to source new customers
through cross-selling efforts. epix[Registered] provides dial-up and dedicated
Internet access as well as website development and hosting services to
residential and business customers. CLD serves as CT's and CTSI's long distance
service provider and also markets to and serves third parties. CC provides
engineering and consulting services.
The Company's principal executive offices are located at 100 CTE
Drive, Dallas, Pennsylvania 18612-9774 and its telephone number is (717)
674-2700. The Company maintains a website at http://www.ct-enterpises.com where
general information about the Company is available. Reference to the website
shall not be deemed to incorporate the contents of the website into this
Prospectus.
The following table reflects the development of certain customer
connections over the past five years:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 June 30, 1998
--------- ---------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
CT access lines........ 210,829 218,737 227,235 240,255 258,803 267,542
CTSI access lines...... -- -- -- 804 18,018 29,169
Total............... 210,829 218,737 227,235 241,059 276,821 296,711
</TABLE>
The expansion and development of the Company's operations
(including the construction and development of additional networks) will depend
on, among other things, the Company's ability to assess markets, design fiber
optic network backbone routes, install or lease fiber optic cable and other
facilities, including switches, and obtain rights-of-ways, and any required
government authorizations and permits, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions.
Background
On September 30, 1997, the Company distributed 100 percent of
the outstanding shares of common stock of its wholly-owned subsidiaries, RCN
and Cable Michigan to holders of record of the Company's Common Stock and its
Class B Common Stock as of the close of business on September 19, 1997 (the
"Distribution") in accordance with the terms of a Distribution Agreement dated
September 5, 1997 (the "Distribution Agreement") among the Company, RCN and
Cable Michigan. RCN consists primarily of the Company's bundled residential
voice, video and Internet access operations in the Boston to Washington D.C.
corridor, its existing New York, New Jersey and Pennsylvania cable television
operations, a portion of its long-distance operations and its international
investment in Megacable, S.A. de C.V. Cable Michigan, Inc. consists of the
Company's Michigan cable operations, including its 62% ownership in Mercom,
Inc.
As part of the restructuring, the Company changed its name to
Commonwealth Telephone Enterprises, Inc. (from C-TEC Corporation) and effected
a two-for-three reverse stock split. All share and per share data, stock
option data and market prices of the Company's Common Stock and Class B Common
Stock have been restated to reflect this reverse stock split.
Commonwealth Telephone Company
CT provides a full range of high quality, low cost telephone
and related services over a state-of-the-art network in a 19 county, 5,191
square mile service territory in Pennsylvania. As of June 30, 1998, CT
provided service to approximately 267,500 access lines and was the 11th
largest independent LEC in the United States based on access lines. In
addition to providing local telephone service, CT provides long distance
services and network access to IXCs. CT offers value-added calling features
including call waiting, voice mail, advanced calling services such as return
call, repeat call and call trace, and caller identification services such as
caller ID, call block and selective call acceptance/rejection. CT also
delivers complex communications services such as video conferencing and
distance learning. epix[Registered] allows CT to provide product packaging,
including basic telephone and Internet access. Through epix[Registered], CT
creates cross-promotional opportunities for second lines, business upgrades and
residential service packages. CT has certain revenues which have been
qualified as non-regulated; these include telecommunications equipment sales
and services and billing and collection services for IXCs. CT has consistently
achieved positive earnings growth over the past five years. CT's capital
expenditures are met entirely through internally generated funds.
CT was one of the first telephone companies in the United
States. CT's history includes a record of innovation and leadership in the
telecommunications industry, including the following: (i) CT was the first U.S.
telephone company to purchase a digital switch; (ii) CT was the first
Pennsylvania telephone company to install a working fiber optic cable; (iii)
CT was the first U.S. telephone company to deploy host/remote switching
architecture (an efficient way of extending capacity from a central office);
and (iv) CT was the first Pennsylvania local exchange carrier to become an ISP.
CT's operating area is primarily rural, containing
approximately 50 access lines per square mile as compared to an estimated
Pennsylvania average of 162 lines per square mile. CT operates 79 exchanges,
each serving an average of 3,276 lines and 66 square miles. Its access lines
are approximately 76% residential and 24% business. CT's business customer
base is diverse in size as well as industry, with little concentration. The
ten largest business customers combined accounted for 1.0% of 1997 total
revenue, with the largest single customer accounting for 0.2%. Due to the
rural, low-density characteristics of its operating area, the high cost of
entry to the market due to topography, the lack of large business users, and
its low basic service rates, CT believes that compared to most other LECs, it
is less likely to face competition in its existing service area from new local
exchange service providers.
CT owns and maintains all of its facilities, including a
state-of-the-art network featuring 100% digital switching, a modern service
center and 100% interoffice fiber connectivity. CT's fully digital switching
results in lower maintenance costs and greater speed to market for new
products and services. In addition, the network is efficiently designed in a
consolidated host switching architecture which allows multiple remote
switching access for shared software and featuring functionality. The outside
plant features approximately 80-90% gel filled cable, with the remainder
comprised of air core cable.
CT's network architecture positions it well for additional
broadband service deployment. One hundred percent of the interoffice trunking
is on fiber optic facilities. CT has 1,353 miles of fiber distribution
facilities which are 97% aerial construction. This technology provides CT with
extensive capacity and bandwidth in outside plant facilities.
All of CT's customers have full access to multiple long
distance carriers, and daily toll message polling is performed by a
centralized computer. Messages are transported out of CT's territory in an SS7
signaling format, and the equipment to provide SS7 capability is redundant to
protect this valuable toll revenue stream. SS7 technology is a universal, high
speed link connecting CT's network with other networks and allows for high
margin products such as caller ID and caller ID with name.
CT has installed sophisticated operating support systems to
complement its network. The service center operation is supported by: (i) a
mainframe service order, billing and collections system; (ii) a NORTEL Private
Branch Exchange ("PBX") with adjunct automated call distribution systems to
monitor demand and forecast future call loads; and (iii) a combination of PC
and mainframe software for automated cable assignment systems and the
Centralized Automated Loop Repair System ("CALRS") which performs trouble
reporting and testing. At the heart of the network is a Network Control
Center which provides for network surveillance 365 days a year, 24 hours a
day. Every CT switched and toll fiber route is monitored, as well as the ISP
network and CT customer PBXs.
This combination of systems allows CT to be a low cost, high
quality provider of services. The network allows for uniform service
provisioning and universal availability of calling features and voice mail. It
also allows for the rapid development of new advanced calling services such as
return call, repeat call, call trace and caller identification services such
as caller ID, call block and selective call acceptance/rejection. In addition,
the network supports complex services such as video conferencing, distance
learning and the epix[Registered] Internet service.
CT has achieved a high rate of customer satisfaction, and has
been named by the Pennsylvania PUC as the top major telephone provider in the
state (based on customer service studies and responsiveness to customer
complaints) in six of the past eight annual surveyors conducted by the
Pennsylvania PVC.
Regulation
CT, in providing telecommunications services in the
Commonwealth of Pennsylvania, is subject to regulation by the Pennsylvania
PUC. CT submitted its Plan to the Pennsylvania PUC pursuant to a state law
whereby local exchange carriers may agree to enhance their network's
bandwidth capability in exchange for lessened regulatory oversight. On
February 19, 1997, the Pennsylvania PUC approved CT's Plan, which provides CT
with authority to (i) increase its basic service rates based on the rate of
inflation minus 2.0 percent beginning in 1999, subject to certain limitations;
(ii) implement revenue-neutral rate rebalancing; and (iii) adjust rates to
compensate for exogenous events such as jurisdictional cost shifts or
legislative mandates. CT agreed to maintain current price levels in the
aggregate for basic or non-competitive services for two years, but maintained
the right to rebalance rates for such services, including dialtone, intraLATA
toll and access rates, immediately, subject to approval of the Pennsylvania
PUC. On March 26, 1998, the Pennsylvania PUC approved CT's rate rebalancing
plan, which, among other things, raised basic service rates on primary lines
by $2.45 from April 1, 1998. The Company does not expect the rate rebalancing
to have an impact on margins. In exchange for this favorable regulatory
environment, CT committed to ensuring of the availability of certain broadband
technology in its service areas by the year 2015. However, the Pennsylvania
PUC has reserved the right to review any rate changes proposed by CT to
implement the provisions of the Plan. There can be no assurance that the PUC
will permit CT to implement desired rate changes pursuant to the Plan. In
addition, to the extent that the rate of inflation is below 2.0 percent in any
year, the Plan will require CT to reduce its rates accordingly.
CT is subject to the jurisdiction of the FCC with respect to
CT's interstate rates, services and other matters, including the prescription
of a uniform system of accounts. Interstate service, for purposes of
determining FCC jurisdiction, includes the use of CT's local facilities for
the origination and termination of interstate and international calls. The
rates for these origination and termination services are known as "access
charges." The FCC also prescribes the principles and procedures (referred to
as "separations procedures") used to separate investments, revenues, expenses,
taxes and reserves between the interstate and intrastate jurisdictions. In
addition, the FCC has adopted accounting and cost allocation rules for the
separation of costs of regulated and non-regulated telecommunications services
for interstate rate-making purposes.
With respect to its interstate access services, CT is
classified by the FCC as an "average schedule" company. Under this status, CT
participates in the interstate access tariffs filed by NECA as part of a
nationwide "pool" of smaller local exchange carriers. CT receives
compensation from the "pool" based upon formulas developed by NECA that
reflect the average reported costs of other telephone companies with
characteristics similar to those of CT. Under FCC rules, average schedule
companies such as CT are permitted (but not required) to convert to receiving
compensation based on their own actual costs, but actual-cost companies are
not permitted to convert to average schedule status without a waiver by the
FCC. The formulas used to compensate average schedule companies are revised
by NECA each year, and are subject to review and revision by the FCC. Future
changes in the formulas could be adverse to the interest of CT, although CT
does have the right to withdraw from average schedule status and to be
compensated for access services based upon its actual costs if that became
desirable. Under the current formulas, if the FCC were to require CT to
convert from receiving compensation on an average schedule basis to an
actual-cost basis, CT's interstate access revenues could be reduced. However,
CT believes that it would be allowed to increase its local rates on a dollar
for dollar basis to compensate for any resulting loss of interstate access
revenues under the exogenous events provision of the Plan.
Under the 1996 Act, LECs are generally required to: (i) permit
resale of their service; (ii) provide number portability; (iii) provide
dialing parity; (iv) provide access to their poles, conduits and
rights-of-way; and (v) establish reciprocal compensation arrangements with
other carriers for transporting and terminating each other's traffic. In
addition, incumbent LECs (defined generally as the pre-1996 franchised
telephone companies and their successors in interest) are required to (i)
provide discounted "wholesale" rates to resellers of their services; (ii)
provide competitors with access to unbundled network elements; (iii)
interconnect with the facilities of other carriers on a non-discriminatory
basis; and (iv) permit collocation of competitors' equipment in their central
offices where technically feasible. However, in 1996, CT's status as Rural
Telephone Company under the 1996 Act was recognized by the Pennsylvania PUC.
This status exempts CT from the special "incumbent LEC" interconnection and
unbundling requirements described above (although it remains subject to the
more general LEC requirements described in the first sentence of this
paragraph) unless and until a requesting carrier is able to demonstrate to the
Pennsylvania PUC that terminating this exemption is not unduly economically
burdensome, is technically feasible, and is consistent with the universal
service requirements of the 1996 Act.
Pursuant to the 1996 Act, the FCC has adopted a number of
comprehensive new rules to implement various requirements of the legislation,
including interconnection, number portability, universal service, and
infrastructure sharing. Although some of these FCC decisions have been and
are being challenged in court, most of the FCC decisions are in the process of
being implemented. Pursuant to orders of the FCC and the Pennsylvania PUC, CT
has implemented intraLATA presubscription (allowing customers to select a
carrier to handle their short-distance 1+ toll calls) throughout its service
territory. CT has also begun paying contributions to the FCC's new Universal
Service Fund (for which it has been reimbursed through the NECA access pool
arrangement). Otherwise, CT has generally not been required to implement any
material changes in its operations due to new FCC requirements, because of its
average-schedule and rural company status and the absence of any local
exchange competitors in its service territory at present.
Competition
CT operates primarily as a monopoly provider of local telephone
service in its service area, and accordingly faces only limited direct
competition, mostly in its local (intraLATA) toll business. Like other LECs,
CT faces some competition from long distance providers of intraLATA toll
services (primarily the large IXCs) and dedicated access services from CAPs.
As is the case generally with incumbent LECs, CT's local exchange business in
not legally protected against competitive entry (although CT's status as a
rural telephone company provides it some relief from the interconnection
obligations imposed on larger LECs). CT currently faces limited competition in
its service territory from wireless telecommunication providers, ISPs and
private networks built by large end users. In the future, CT may face
potential competitive entry by these entities and others such as CLECs, IXCs,
other incumbent LECs, cable television companies, electric utilities and
microwave carriers. However, due to the rural, low-density characteristics of
its operating area, the high cost of entry to the market, the lack of
concentration of medium and large business users, and its low basic service
rates, CT believes that compared to most other LECs, it is less likely to face
competition in its existing service area.
CTSI
CTSI, which formally commenced operations in 1996, is a CLEC
operating in areas adjacent to CT's traditional service area. CTSI is a
full-service provider offering flat rate and bundled local, all distance
telephone, vertical services and Internet access. As of June 30, 1998,
CTSI was the 10th largest LEC in the state out of a total of 37 and, as of
June 30, 1998, had installed 29,169 access lines.
CTSI seeks to take advantage of CT's proximity to more densely
populated larger communities that are located adjacent to CT's service area.
CTSI estimates that those adjacent markets contain a population over five
times that of CT's present telephone service area in approximately one-fifth
the geography. This population is concentrated in secondary cities with much
higher densities than CT's current territory. CT's existing service area
includes approximately 400,000 people and a density of approximately 50 lines
per square mile, while the areas adjacent to CT's existing service territory
include an additional 2.0 million people with markets targeted by CTSI having
a density of approximately 1,200 lines per square mile. In these adjacent,
second tier markets, the Company estimates that there are over one million
additional access lines. Through CTSI, the Company believes that it has the
opportunity to achieve strong revenue growth with only a relatively small
penetration into these areas. The Company believes that CTSI has several
competitive advantages, including: (i) the ability to utilize the expertise,
experience, network and positive cash flow of the Company; (ii) the ability to
bundle services (local, all distance telephone, vertical services and
Internet); (iii) the simplicity of one bill, a single point of contact and
flat rates (local calls and long distance); and (iv) 5-10% savings compared to
similar LEC offerings.
Initially, CTSI's business plan is based on accessing markets
adjacent to CT's service area through deploying fiber optic cable. CTSI
provides services via remote switches linked to CT's central offices, which
allows for speed to market. CTSI compensates CT for access to these
facilities. CTSI has focused its initial marketing efforts primarily on
business customers and on the concept of success based capital spending,
whereby capital is committed based upon demonstrable customer demand.
Due to the 1996 Act, all LECs, including Bell Atlantic, the
primary LEC in the service areas initially targeted by CTSI, are required to:
(i) permit resale of their service; (ii) provide number portability; (iii)
provide dialing parity; (iv) provide access to their facilities; and (v)
establish reciprocal compensation arrangements with other carriers for
transporting and terminating each other's traffic. This enabling legislation
permits CTSI to compete effectively with the larger LECs. CTSI has an
interconnection and resale agreement with Bell Atlantic and is currently
located in 21 Bell Atlantic offices. In addition, CTSI has a limited
interconnection agreement with GTE Corporation.
Although CTSI's initial customer focus is on business
customers, it is also extending its service to certain specific, high density,
relatively affluent residential enclaves adjacent to its existing facilities.
In these enclaves, CTSI is offering several bundled packages of local and all
distance telephone, vertical services and Internet.
Regulation
Telecommunications services provided by CTSI and its networks
are subject to regulation by federal, state and local government agencies. The
FCC has jurisdiction over CTSI's interstate services, including access charges
as well as long-distance services. CTSI's rates, terms, and conditions of
service are filed with the FCC in tariffs and are subject to the FCC's
complaint jurisdiction, but otherwise are not ordinarily reviewed or
prescribed by the FCC. State regulatory commissions exercise jurisdiction
over CTSI's intrastate services (including basic local exchange service and
in-state toll services). Although specific regulatory requirements and
practices vary from state to state, CTSI's rates and services are generally
subject to much less regulatory scrutiny than those of incumbent LECs. CTSI
currently offers local services pursuant to tariffs filed with the
Pennsylvania and New York commissions, and has authority to offer such
services in Maryland and Ohio. Additionally, municipalities and other local
government agencies may regulate limited aspects of CTSI's business, such as
its use of rights-of-way.
As a CLEC, CTSI is subject to the general duties of all LECs
under the 1996 Act. It has exercised its right under the 1996 Act to
negotiate interconnection and resale agreements with Bell Atlantic for
Pennsylvania, New York, and Maryland, with GTE for its service territory in
Pennsylvania, and with Ameritech for Ohio. CTSI has also been required to
comply with FCC and Pennsylvania PUC requirements for number portability,
intraLATA presubscription, and Universal Service Fund contributions.
Competition
The markets serviced by CTSI are more competitive than CT's
markets. The services offered by CTSI in each market compete principally with
the services offered by the incumbent LEC serving that area, primarily Bell
Atlantic. Incumbent LECs have relationships with their customers, have the
potential to subsidize services, and benefit from favorable state and federal
regulations. The incumbent LECs are generally larger and better financed than
CTSI. In light of the passage of the 1996 Act and recent concessions by some
of the RBOCs, federal and state regulatory initiatives will provide increased
business opportunities to CLECs, but incumbent LECs may obtain increased
pricing flexibility for their services as competition increases. If, in the
future, incumbent LECs are permitted by regulators to lower their rates
substantially, engage in significant volume and term discount pricing
practices for their customers, or charge CLECs significantly higher fees for
interconnection to the incumbent LECs' networks, CTSI's competitive position
would be adversely affected. For example, the FCC is reportedly likely to
grant incumbent LECs, including Bell Atlantic, additional flexibility to offer
broadband data services through a separate subsidiary on a deregulated basis.
Bell Atlantic is also seeking authority pursuant to Section 271 of the 1996
Act to offer long-distance services to its Pennsylvania customers along with
local services. If approved by the FCC, this could allow Bell Atlantic to
offer more attractive service packages to compete with CTSI's offerings.
CTSI also faces, and will continue to face, competition from
other current and potential future market entrants, including other CLECs,
IXCs, cable television companies, electric utilities, microwave carriers,
wireless telecommunications providers, Internet service providers and private
networks built by large end users. A number of markets served by the Company
are also served by one or more CLECs, including NEXTLINK Communications Inc.
and Hyperion Telecommunications Inc., and from competition from CLECs and
other companies is expected to increase in the future.
Other Operations
epix[Registered]
epix[Registered], founded in 1994, provides internet service to
both CT and CTSI, as well as third parties. epix[Registered] provides dial-up
and dedicated Internet access as well as website development and hosting
services to residential and business customers.
Commonwealth Communications
Commonwealth Communications ("CC") provides telecommunication
engineering and technical services and designs, installs and manages telephone
systems for corporations, hospitals and universities located principally in
Pennsylvania. CC initially provided services only to the Company and its
affiliates. Since 1989, however, CC has also provided such services to third
parties. For the last five years CC has derived approximately 80 percent of
its revenues from unrelated third parties. CC provides a solid technical base
from which to support the growth of CT and CTSI.
CLD
Since 1990, the Company's wholly-owned subsidiary, CLD, has
conducted the business of providing long distance telephone services (the
"Long Distance Business"). Through a wholesale agreement with RCN Long
Distance Company, CLD provides long-distance services to CT's and CTSI's
customers. The Long Distance Business primarily represents that portion of the
Company's long distance operations that relate to customers in CT's service
area. The remainder of the Company's long distance operations were distributed
to the Company's shareholders as a subsidiary of RCN.
Relationship Among the Company, RCN and Cable Michigan
The Distribution Agreement defines certain aspects of the
relationship among the Company, RCN and Cable Michigan and provides for the
allocation of certain assets and liabilities among the Company, RCN and Cable
Michigan. The Company, RCN and Cable Michigan have also entered into a Tax
Sharing Agreement dated as of September 5, 1997 (the "Tax Sharing Agreement")
to define certain aspects of their relationship with respect to taxes and to
provide for the allocation of tax assets and liabilities.
Indemnification
RCN, Cable Michigan and the Company have agreed to indemnify
one another against certain liabilities. RCN has agreed to indemnify the
Company and its subsidiaries at the time of the Distribution (collectively,
the "CTE Group") and the respective directors, officers, employees and
affiliates of each Person in the CTE Group (collectively, the "CTE
Indemnitees") and Cable Michigan and its subsidiaries at the time of the
Distribution (collectively, the "Cable Michigan Group") and the respective
directors, officers, employees and affiliates of each Person in the Cable
Michigan Group (collectively, the "Cable Michigan Indemnitees") from and
against any and all damage, loss, liability and expense ("Losses") incurred or
suffered by any of the CTE Indemnitees or the Cable Michigan Indemnitees,
respectively, (i) arising out of, or due to the failure of RCN or any of its
subsidiaries at the time of the Distribution (collectively, the "RCN Group")
to pay, perform or otherwise discharge any of the RCN Liabilities (as defined
below); (ii) arising out of the breach by any member of the RCN Group of any
obligation under the Distribution Agreement or any of the other distribution
documents and (iii) in the case of the CTE Indemnitees arising out of the
provision by the CTE Group of the services described below to the RCN Group
except to the extent that such Losses result from the gross negligence or
willful misconduct of a CTE Indemnitee. "RCN Liabilities" refers to (i) all
liabilities of the RCN Group under the Distribution Agreement or any of the
other distribution documents, (ii) all other liabilities of Cable Michigan,
RCN or the Company (or their respective subsidiaries), except as specifically
provided in the Distribution Agreement or any of the other distribution
documents and whether arising before, on or after the date of the Distribution
("Distribution Date") to the extent such liabilities arise primarily from or
relate primarily to the management or conduct of the business of RCN prior to
the effective time of the Distribution (the liabilities in clauses (i) and
(ii) collectively, the "True RCN Liabilities") and (iii) 30% of the Shared
Liabilities (as defined below).
Cable Michigan has agreed to indemnify the RCN Group and the
respective directors, officers, employees and affiliates of each Person in the
RCN Group (collectively, the "RCN Indemnitees") and the CTE Indemnitees from
and against any and all Losses incurred or suffered by any of the RCN
Indemnitees or the CTE Indemnitees, respectively, (i) arising out of, or due
to the failure of any Person in the Cable Michigan Group to pay, perform or
otherwise discharge any of the Cable Michigan Liabilities (as defined below),
(ii) arising out of the breach by any member of the Cable Michigan Group of
any obligation under the Distribution Agreement or any of the other
distribution documents, (iii) in the case of the CTE Indemnitees, arising out
of the provision by the CTE Group of services to the Cable Michigan Group
except to the extent that such Losses result from the gross negligence or
willful misconduct of a CTE Indemnitee and (iv) in the case of the RCN
Indemnitees, arising out of the provision by RCN of the services described
below to the Cable Michigan Group except to the extent that such Losses result
from the gross negligence or willful misconduct of an RCN Indemnitee. "Cable
Michigan Liabilities" refers to (i) all liabilities of the Cable Michigan
Group under the Distribution Agreement or any of the other distribution
documents, (ii) all other liabilities of Cable Michigan, RCN or the Company
(or their respective subsidiaries), except as specifically provided in the
Distribution Agreement or any of the other distribution documents and whether
arising before, on or after the Distribution Date, to the extent such
liabilities arise primarily from or relate primarily to the management or
conduct of the business of the Cable Michigan Group prior to the effective time
of the Distribution (the liabilities in clauses (i) and (ii) collectively, the
"True Cable Michigan Liabilities") and (iii) 20% of the Shared Liabilities (as
defined below).
The Company has agreed to indemnify the Cable Michigan
Indemnitees and the RCN Indemnitees from and against any and all Losses
incurred or suffered by any of the Cable Michigan Indemnitees or the RCN
Indemnitees, respectively, (i) arising out of, or due to the failure of any
Person in the CTE Group to pay, perform or otherwise discharge any of the CTE
Liabilities (as defined below), (ii) arising out of the breach by any member
of the CTE Group of any obligation under the Distribution Agreement or any of
the other distribution documents and (iii) in the case of the RCN Indemnitees,
arising out of the provision by RCN of the services described below to the CTE
Group except to the extent that such Losses result from the gross negligence
or willful misconduct of an RCN Indemnitee. "CTE Liabilities" refers to (i)
all liabilities of the CTE Group under the Distribution Agreement or any of
the other distribution documents, (ii) all other liabilities of Cable
Michigan, RCN or the Company (or their respective subsidiaries), except as
specifically provided in the Distribution Agreement or any of the other
distribution documents and whether arising before, on or after the
Distribution Date, to the extent such liabilities arise primarily from or
relate primarily to the management or conduct of the business of the CTE Group
prior to the effective time of the Distribution (the liabilities in clauses
(i) and (ii) collectively, the "True CTE Liabilities") and (iii) 50% of the
Shared Liabilities (as defined below).
"Shared Liability" means any liability (whether arising before,
on or after the Distribution Date) of Cable Michigan, RCN or the Company or
their respective subsidiaries which (i)(a) arises from the conduct of the
corporate overhead function with respect to the Company and its subsidiaries
prior to the effective time of the Distribution with certain exceptions or (b)
is one of certain fees and expenses incurred in connection with the
restructuring and (ii) is not a True CTE Liability, a True RCN Liability or a
True Cable Michigan Liability.
RCN, Cable Michigan and the Company have also generally agreed
to indemnify each other and each other's affiliates and controlling persons
from certain liabilities under the securities laws in connection with certain
information provided to shareholders in connection with the Distribution.
The Distribution Agreement also includes procedures for notice
and payment of indemnification claims and provides that the indemnifying party
may assume the defense of claims or suits brought by third parties for
non-Shared Liabilities and may participate in the defense of claims or suits
brought by third parties for Shared Liabilities. RCN is entitled to assume the
defense of claims or suits brought by third parties for Shared Liabilities.
Any indemnification paid under the foregoing indemnities is to be paid net of
the amount of any insurance or other amounts that would be payable by any
third party to the indemnified party in the absence of such indemnity.
The Company does not believe that any of the foregoing
indemnities will have a material adverse effect on the business, financial
condition or results of operations of the Company.
Employee Matters
Under the Distribution Agreement, RCN, Cable Michigan and the
Company agreed generally to assume employee benefits-related liabilities with
respect to its current, and in some cases, former employees.
Transitional Services and Agreements
RCN has agreed to provide or cause to be provided to the CTE
Group certain specified services for a transitional period after the
Distribution. The transitional services to be provided are the following: (i)
accounting, (ii) payroll, (iii) management supervision, (iv) cash management,
(v) human resources and benefit plan administration, (vi) insurance
administration, (vii) legal, (viii) tax, (ix) internal audit, and (x) other
miscellaneous administrative services. The fee per year for these services
will be 3.5% of the first $175 million of revenue of the CTE Group and 1.75%
of any additional revenue. The total fee for 1997 was approximately
$8,332,000. The fee paid for 1997 exceeded 3.5% of revenues due to the
inclusion of certain one-time expenses related to the Distribution and due to
a different basis for calculation of the management fee prior to the
Distribution.
The Company has agreed to provide or cause to be provided to
the RCN Group and the Cable Michigan Group financial data processing
applications, lockbox services, storage facilities, LAN and WAN support
services, building maintenance and other miscellaneous administrative services
for a transitional period after the Distribution. The fees for such services
and arrangements will be an allocated portion (based on relative usage) of the
cost incurred by the Company to provide such services and arrangements to all
three groups.
The nature, scope and timing of the foregoing services are to
be substantially consistent with the nature, scope and timing of the service
provider's services prior to the Distribution, provided that the service
provider shall not be obligated to hire additional or replacement employees or
increase the compensation of its existing employees in order to provide the
services. The services are to commence on the Distribution Date and will
terminate upon 60 days notice by either the service provider or the relevant
service recipient. A service recipient may also terminate individual services
by giving 60 days notice to the applicable service provider.
The aforementioned arrangements are not the result of arm's
length negotiation between unrelated parties as the Company, RCN and Cable
Michigan have certain common officers and directors. Although the transitional
service arrangements in such agreements are designed to reflect arrangements
that would have been agreed upon by parties negotiating at arm's length, there
can be no assurance that the Company would not be able to obtain similar
services at a lower cost from unrelated third parties. Additional or modified
agreements, arrangements and transactions may be entered into between the
Company and either or both of RCN and Cable Michigan after the Distribution,
which will be negotiated at arm's length.
Miscellaneous
The Distribution Agreement also contains provisions concerning
access to information and records and rights to technology, software,
intellectual property, know-how or other proprietary rights owned, licensed or
held for use by the respective Groups. The Distribution Agreement provides
that any dispute arising out of or in connection with the Distribution
Agreement will be submitted to arbitration in accordance with the procedures
described in the Agreement.
There exist relationships among the Company, RCN and Cable
Michigan that may lead to conflicts of interest. Each of the Company, RCN and
Cable Michigan is effectively controlled by Level 3 Telecom. In addition,
certain of the directors and/or executive officers of the Company, RCN and
Cable Michigan also hold one or more offices at other Group companies. The
success of the Company may be affected by the degree of involvement of its
officers and directors in the Company's business and the abilities of the
Company's officers, directors, and employees in managing both the Company and
the operations of RCN and/or Cable Michigan. Potential conflicts of interest
will be dealt with on a case-by-case basis taking into consideration relevant
factors including the requirements of NASDAQ and prevailing corporate
practices.
Tax Sharing Agreement
The Tax Sharing Agreement governs contingent tax liabilities
and benefits, tax contests and other tax matters with respect to tax returns
filed with respect to tax periods, in the case of RCN and Cable Michigan,
ending or deemed to end on or before the Distribution Date. Under the Tax
Sharing Agreement, Adjustments (as defined in the Tax Sharing Agreement) to
taxes that are clearly attributable to the Cable Michigan Group, the RCN Group
or the CTE Group will be allocated solely to such group. Adjustments to all
other tax liabilities will generally be allocated 50% to the Company, 20% to
Cable Michigan and 30% to RCN.
Employees
The Company employed a total of 1,081 employees as of December
31, 1997. The Company's contract with the union expired on November 30, 1997.
Currently, the Company and the union are working under the terms of the old
contract. There are no new negotiation sessions scheduled at this time.
Legal Proceedings
On September 30, 1997, the Yee Family Trusts, as holders of the
Company's Series A Preferred Stock and Series B Preferred Stock, filed an
action against the Company, RCN and Cable Michigan in the Superior Court of
New Jersey, Chancery Division. The complaint alleges that the Company's
distribution of the common stock of RCN and Cable Michigan in connection with
the Distribution (1) constituted a fraudulent conveyance; (2) breached the
terms of a contract between the plaintiffs and the Company; (3) breached the
covenant of good faith and fair dealing allegedly owed to the plaintiffs; and
(4) breached fiduciary duties allegedly owed to the plaintiffs. On December 1,
1997, the complaint was amended to allege that the Company's distribution of
the common stock of RCN and Cable Michigan was an unlawful distribution in
violation of 15 Pa.C.S. 1551(b)(2). The plaintiffs are seeking to set aside
the alleged fraudulent conveyance and unspecified monetary damages alleged to
be in excess of $52 million. The Company believes this lawsuit is without
merit and intends to contest this action vigorously. On January 9, 1998, the
defendants filed a Motion to Dismiss, or in the Alternative, for Summary
Judgment. The plaintiffs filed their response on March 9, 1998 and the
defendants filed their reply on April 6, 1998. On September 15, 1998 the
court granted the plaintiffs' motion with respect to the breach of
fiduciary duty and unlawful distribution claims, but denied the motion with
respect to the plaintiffs' other claims. Pretrial discovery is under way.
No scheduling order has been entered for the completion of discovery or a
trial.
In the normal course of business, there are various legal
proceedings outstanding, including both commercial and regulatory litigation.
In the opinion of management, these proceedings will not have a material
adverse effect on the results of operations or financial condition of the
Company.
DESCRIPTION OF NOTES
The Notes will be issued pursuant to an indenture (the
"Indenture") between the Company, as issuer, and The Chase Manhattan Bank, as
trustee (the "Trustee"). The terms of the Notes will include those stated in
the Indenture and those provisions required by, or made a part of the
Indenture by reference to, the Trust Indenture Act of 1939, as in effect on
the date of the Indenture (the "Trust Indenture Act"). The Notes will be
subject to all such terms, and prospective investors are referred to the
Indenture for a statement thereof. The Indenture is an exhibit to the
Registration Statement of which this Prospectus is a part.
The following summary of the Notes is qualified in its entirety
by express reference to the Notes and the Indenture, which are incorporated by
reference as a part of such summary. Capitalized terms not defined herein
have the meanings ascribed to such terms in the Indenture.
General
The Indenture does not limit the amount of Notes which may be
issued thereunder. The Notes will be general unsecured obligations of the
Company and will be contractually subordinated in right of payment to all
existing and future Senior Indebtedness of the Company. In addition, the
Notes will be effectively subordinated to all current and future obligations
of subsidiaries of the Company, including trade obligations. Any right of the
Company to receive assets of its subsidiaries upon their liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in
which case the claims of the Company would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. The Indenture will not
restrict the incurrence of indebtedness by the Company or its subsidiaries.
The Notes will bear interest from the date of initial issuance
at the rate per annum shown on the cover page of the applicable Prospectus
Supplement, and interest will be payable at the rates and at such times as are
specified therein. Principal of and interest on the Notes will be payable at
the office of the Paying Agent. The Trustee will initially act as the Paying
Agent. With respect to any Notes listed on the Luxembourg Stock Exchange,
Banque Internationale a Luxembourg will initially act as Paying Agent in
Luxembourg. Interest may, at the Company's option, be paid either (i) by
check mailed to the address of the person entitled thereto as it appears in
the Note register or (ii) by transfer to an account maintained by such person
located in the United States, provided, however, that payments to The
Depository Trust Company, New York, New York ("DTC") will be made by wire
transfer of immediately available funds to the account of DTC or its nominee.
Interest will be computed on the basis of a 360-day year composed of twelve
30-day months. In the event that the Notes are issued to Holders in definitive
form (the "Definitive Notes"), all interest payments will be paid by check
mailed to the address of the person entitled thereto as it appears in the Note
register. Payment of the principal amount on Notes represented by a
Definitive Note will be made against presentation of such Definitive Note at
the office of the Trustee in The City of New York or at the office of the
Paying Agent in Luxembourg, if any.
In the event that Definitive Notes are issued to the Holders,
transfers of the Notes may be made by presenting Definitive Notes at the
office of the Transfer Agent in Luxembourg, if any, during the term of the
Definitive Notes. Where not all of the Notes represented by a Definitive
Note are the subject of a transfer, a new Definitive Note in respect of the
principal amount of the Notes that have not been so transferred will be
issued to the transferor, and will be available at the office of the
Trustee in The City of New York or (with respect to Notes listed on the
Luxembourg Stock Exchange) at the office of the Transfer Agent in
Luxembourg, as applicable. As soon as reasonably practicable after
surrender of a Definitive Note in accordance with the previous sentence,
the Trustee will register the transfer and deliver a new Definitive Note in
a principal amount equal to the principal amount of the Notes so
transferred to the transferee at the office of the Trustee in the City of
New York or at (with respect to Notes listed on the Luxembourg Stock
Exchange) the office of the Transfer Agent in Luxembourg, as the case may
be.
Notes may be presented for conversion at the office of the
Conversion Agent and for exchange or registration of transfer at the office of
the Registrar or at the office of any Transfer Agent. The Trustee will
initially act as the Conversion Agent and Registrar. With respect to Notes
listed on the Luxembourg Stock Exchange, Banque Internationale a Luxembourg
will initially act as Conversion Agent and Transfer Agent in Luxembourg.
So long as the Notes are listed on the Luxembourg Stock
Exchange and the rules of the Luxembourg Stock Exchange so require, the
Company will at all times maintain a Paying Agent, Conversion Agent and
Transfer Agent in Luxembourg.
Form and Denomination
Except as hereinafter described, the Notes will be issued in
definitive registered form, without coupons, in denominations of $1,000 and
integral multiples thereof. Beneficial interest in the Notes will be
represented by one or more global Notes without coupons (the "Global Notes")
deposited with, or on behalf of, DTC and registered in the name of Cede & Co.,
as DTC's nominee. Except as set forth below, the record ownership of a Global
Note may be transferred, in whole or in part, only to another nominee of DTC
or to a successor of DTC or its nominee.
A Holder may hold its interest in a Global Note directly
through DTC if such Holder is a participant in DTC, or indirectly through
organizations which are participants in DTC (the "Participants"), which
include Euroclear and Cedel. Transfers between Participants are effected in
the ordinary way in accordance with DTC rules and will be settled in same day
funds.
Holders who are not Participants may beneficially own interests
in the Global Notes held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede & Co., as the nominee
of DTC, is the registered owner of the Global Notes, Cede & Co., for all
purposes is considered the sole holder of the Global Notes. The laws of some
states may require that certain persons take physical delivery in definitive
form of securities that they own and that security interests in negotiable
instruments can only be perfected by delivery of certificates representing the
instruments. Consequently, the ability to transfer Notes evidenced by Global
Notes will be limited to such extent.
Payment of interest on and the redemption and repurchase price
of the Global Notes will be made to Cede & Co., the nominee for DTC, as
registered owner of the Global Notes, by wire transfer of immediately available
funds on each interest payment date, each redemption date and each repurchase
date, as applicable. None of the Company, the Trustee or any paying agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interest.
The Company has been informed by DTC, that, with respect to any
payment of interest on or the redemption or repurchase price of the Global
Notes, DTC's practice is to credit Participants' accounts on the payment date,
redemption date or repurchase date, as applicable, therefor with payments in
amounts proportionate to their respective beneficial interests in the
principal amount represented by the Global Notes as shown on the records of
DTC, unless DTC has reason to believe that it will not receive payment on such
payment date. Payments by Participants to owners of beneficial interests in
the principal amount represented by the Global Notes held through such
Participants are the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in street name.
Because DTC can only act on behalf of Participants, who in turn
act on behalf of Indirect Participants and certain banks, the ability of a
person having a beneficial interest in the principal amount represented by the
Global Notes to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of a physical certificate evidencing
such interest.
Neither the Company nor the Trustee (or any registrar, paying
agent or conversion agent under the Indenture) will have any responsibility
for the performance of DTC, or its Participants or Indirect Participants of
their respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action
permitted to be taken by a Holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below) only at the direction
of one or more Participants to whose account with DTC interests in the Global
Notes are credited and only in respect of the principal amount of the Notes
represented by the Global Notes as to which such Participant or Participants
has or have given such direction.
The Company has been advised as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and to facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes to accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. Certain of such Participants (or their representatives),
together with other entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust companies that
clear through, or maintain a custodial relationship with, a Participant,
either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among Participants, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. If DTC is at any time
unwilling or unable to continue as depository and a successor depository is
not appointed by the Company within 90 days, the Company will cause the Notes
to be issued in definitive form in exchange for the Global Notes.
Conversion Rights
If specified in a Pricing Supplement, a Holder may, at any time
prior to maturity, convert the principal amount of a Note (or any portion
thereof equal to $1,000) into shares of Common Stock at the conversion price
set forth on the cover page of the applicable Prospectus Supplement, subject
to adjustment as described below and any additional or different adjustment
terms as may be set forth in the applicable Prospectus Supplement (the
"Conversion Price"). The right to convert a Note called for redemption 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
the 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). A Note for which a Holder has 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 such notice is
withdrawn by a written notice of withdrawal delivered by the Holder to the
Paying Agent prior to the close of business on the Business Day prior to the
Change in Control Purchase Date in accordance with the Indenture.
No payment or adjustment will be made for dividends or
distributions with respect to shares of Common Stock issued upon conversion of
a Note. Except as otherwise provided in the Indenture and the applicable
Prospectus Supplement, interest accrued shall not be paid on Notes converted.
If any Holder surrenders a Note for conversion between the record date for the
payment of an installment of interest and the related interest payment date,
then notwithstanding such conversion, the interest payable on such interest
payment date will be paid to the Holder on such record date. However, in such
event, unless such Note has been called for redemption, such Note, when
surrendered for conversion, must be accompanied by delivery by such Holder of
a check or draft payable in an amount equal to the interest payable on such
interest payment date on the portion so converted. No fractional shares will
be issued upon conversion, but a cash payment will be made for any fractional
interest based upon the current market price of the Common Stock.
The Conversion Price will be subject to adjustment upon the
occurrence of certain events, including (i) the issuance of shares of Common
Stock as a dividend or distribution on the Common Stock, (ii) the subdivision
or combination of the outstanding Common Stock, (iii) the issuance to all or
substantially all holders of Common Stock of rights or warrants to subscribe
for or purchase Common Stock (or securities convertible into Common Stock) at
a price per share less than the then current market price per share, as
defined, (iv) the distribution to all or substantially all holders of Common
Stock of shares of capital stock of the Company (other than Common Stock),
evidences of indebtedness or other non-cash assets (including securities of
any company other than the Company), (v) the distribution to all or
substantially all holders of Common Stock of rights or warrants to subscribe
for its securities (other than those referred to in (iii) above), and (vi) the
distribution to all or substantially all holders of Common Stock of cash in an
aggregate amount that (together with all other cash distributions to all or
substantially all holders of Common Stock made within the preceding 12 months
not triggering a Conversion Price adjustment) exceeds an amount equal to a
specified percentage of the Company's market capitalization on the Business
Day immediately preceding the day on which the Company declares such
distribution. In the event of a distribution pro rata to holders of Common
Stock of rights to subscribe for additional shares of the Company's capital
stock (other than those referred to in (iii) above), the Company may,
instead of making any adjustment in the Conversion Price, make proper
provisions so that each Holder who converts a Note (or any portion thereof)
after the record date for such distribution and prior to the expiration or
redemption of such rights shall be entitled to receive upon such
conversion, in addition to the shares of Common Stock issuable upon
conversion, an appropriate number of such rights. 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 Conversion Price be less than the par
value of a share of Common Stock. No adjustment of the Conversion Price
will be required to be made until the cumulative adjustments require an
increase or decrease of at least 1% in the Conversion Price as last
adjusted.
Subject to any applicable right of the Holders upon a Change in
Control, if the Company reclassifies or changes its outstanding Common Stock,
or consolidates with or merges into or sells or conveys all or substantially
all of the property and assets of the Company to any person, or is a party to
a merger that reclassifies or changes its outstanding Common Stock, the Notes
will become convertible into the kind and amount of shares of stock and other
securities and property (including cash) that the Holders would have owned
immediately after the transaction if the Holders had converted the Notes
immediately before the effective date of the transaction.
The term "all or substantially all" as used in the previous two
paragraphs has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the Holders of the Notes were to assert that an
adjustment to the conversion privilege of the Notes was required under the
Indenture and the Company were to contest such assertion, there could be no
assurance as to how a court would interpret the phrase under New York law,
which may have the effect of preventing the Trustee or the Holders of the
Notes from successfully asserting that the Conversion Price is subject to
adjustment or that the Notes are convertible into other shares of stock and
other securities and property that the Holders would have owned immediately
after the transaction if the Holders had converted the Notes immediately
before the effective date of the transaction.
Certain adjustments to the Conversion Price to reflect the
Company's issuance of certain rights, warrants, evidences of indebtedness,
securities or other property (including cash) to holders of the Common Stock
may result in constructive distributions taxable as dividends to Holders of
the Notes. Similarly, if instead of adjusting the Conversion Price upon a pro
rata distribution of rights to subscribe for additional shares of the
Company's capital stock, as described above, the Company elects at such time
to alter the consideration receivable by the Holders of the Notes upon
conversion to include the rights such Holders would have been entitled to if
conversion had occurred prior to the record date for such distribution of
rights, the alteration may result in constructive distributions taxable as
dividends to Holders of the Notes.
With respect to any Notes listed on the Luxembourg Stock
Exchange, the Company will publish a notice of any change in the Conversion
Price in the Luxemburger Wort and will notify the Luxembourg Stock Exchange of
the Conversion Price when determined.
In the event that Definitive Notes are issued to the Holders,
such Definitive Notes may be presented for conversion at the office of the
Conversion Agent. Upon presentation for conversion of Definitive Notes, the
Conversion Agent will, as soon as practicable thereafter, deliver by certified
mail (i) the shares of Common Stock issuable on conversion and (ii) a cash sum
which, in accordance with the Indenture, such Definitive Note holder is
entitled to receive in lieu of the issuance of fractional shares. Such cash
sum shall be paid by way of a U.S. dollar check drawn on a bank in the City of
New York.
Optional Redemption by the Company
The Notes will be subject to redemption at the option of the
Company as set forth in the applicable Prospectus Supplement.
With respect to any optional redemption by the Company, if less
than all of the outstanding Notes are to be redeemed, the Trustee shall select
the Notes to be redeemed in principal amounts of $1,000 or multiples thereof
by lot, pro rata or by another method the Trustee considers fair and
appropriate. If a portion of a holder's Notes is selected for partial
redemption and such holder converts a portion of such Notes such converted
portion shall be deemed to be of the portion selected for redemption.
All Notes which are redeemed or otherwise acquired by the
Company or any of its subsidiaries prior to maturity will be immediately
canceled and may not be held, reissued or resold.
The Company will publish all notices related to redemption of
Notes in the Luxemburger Wort if and for so long as the Notes are listed on
the Luxembourg Stock Exchange.
Purchase of Notes at the Option of Holders Upon a Change in Control
Unless otherwise specified in the applicable Prospectus
Supplement, in the event a Change in Control (as defined below), each Holder
will have the option, subject to the terms and conditions of the Indenture, to
require the Company to purchase all or any part (provided that the principal
amount must be $1,000 or an integral multiple thereof) of the Holder's Notes
as of the date that is 50 Business Days after the occurrence of such Change in
Control (the "Change in Control Purchase Date") for a purchase price equal to
100% of the principal amount thereof, plus accrued interest up to but not
including the Change in Control Purchase Date.
Within 20 Business Days after the occurrence of a Change in
Control, the Company shall mail to the Trustee and to each Holder and cause to
be published a written notice of the Change in Control, setting forth, among
other things, the terms and conditions, and the procedures required for
exercise of, the Holder's right to require the purchase of such Holder's
Notes. The Company will publish such written notice in the Luxemburger Wort
if and for so long as the Notes are listed on the Luxembourg Stock Exchange.
To exercise the purchase right upon a Change in Control, a
Holder must deliver written notice of such exercise to the Paying Agent at any
time prior to the close of business on the Business Day prior to the Change
in Control Purchase Date, specifying the Notes with respect to which the
purchase right is being exercised. Such notice of exercise may be withdrawn
by the Holder by a written notice of withdrawal delivered to the Paying Agent
at any time prior to the close of business on the Business Day prior to the
Change in Control Purchase Date.
A Change in Control shall be deemed to have occurred if any of
the following occurs after the initial issuance of the Notes:
(a) any person or group, other than the Permitted Holders, is
or becomes owner, directly or indirectly, of shares of capital stock of the
Company representing 50% of the total voting power of all shares of capital
stock of the Company entitling the holders thereof to vote generally in
elections of directors; (b) the Company consolidates with, or merges with or
into, another person or the Company sells, assigns, conveys, transfers, leases
or otherwise disposes of all or substantially all of the assets of the
Company, or any person consolidates with, or merges with or into, the Company,
in any such event other than pursuant to a transaction in which the person or
persons that "beneficially owned," directly or indirectly, shares of capital
stock of the Company representing a majority of the total voting power of all
classes of capital stock of the Company immediately prior to such transaction,
"beneficially own," directly or indirectly, shares of capital stock of the
Company representing a majority of the total voting power of all classes of
capital stock of the surviving or transferee person; or (c) during any
consecutive two year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by the Board of Directors of the Company or whose
nomination for election by the 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 (other than by
action of the Permitted Holders) to constitute a majority of the Board of
Directors of the Company, then in office. For purposes of this definition,
(i) "group" has the meaning under Section 13 (d) and 14 (d) 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 l3d-5 (b)(1) under the Exchange Act and (ii) a "beneficial
owner", shall be determined in accordance with Rule l3d-3 promulgated by the
Commission under the Exchange Act, as in effect on the date of execution of
the Indenture, except that the Indenture requires that the number of shares of
capital stock of the Company entitling the holders thereof to vote generally
in the election of directors shall be deemed to include, in addition to all
outstanding shares of capital stock of the Company entitling the holders
thereof to vote generally in the election of directors and Unissued Shares
deemed to be held by the person with respect to which the Change in Control
determination is being made, all Unissued Shares deemed to be held by all
other persons. As defined in the Indenture, "Unissued Shares" means shares of
capital stock of the Company not outstanding that are subject to options,
warrants, rights to purchase, or conversion privileges exercisable within 60
days of the date of determination of a Change in Control and that, upon
issuance, will entitle the holders thereof to vote generally in the election
of directors.
Notwithstanding the foregoing, a Change in Control will be
deemed not to have occurred (i) if the last sale price of the Common Stock for
any five trading days during the ten trading days immediately preceding the
Change in Control is at least equal to a specified percentage of the
Conversion Price in effect immediately preceding the Change in Control
or (ii) if at least a specified percentage of the consideration (excluding
cash payments for fractional shares or cash payments for appraisal rights)
in the transaction or transactions constituting the Change in Control
consists of shares of common stock or securities convertible into shares of
common stock that are, or upon issuance will be, traded on a national
securities exchange or through NASDAQ.
The term "all or substantially all" as used in clause (ii) of
the definition of Change in Control has not been interpreted under New York
law (which is the governing law of the Indenture) to represent a specific
quantitative test. As a consequence, in the event the Holders of the Notes
elected to exercise their rights under the Indenture and the Company elected
to contest such election, there could be no assurance as to how a court would
interpret the phrase under New York law, which may have the effect of
preventing the Trustee or the Holders of the Notes from successfully asserting
that a Change in Control has occurred.
The Company will comply with the provisions of Rule 13e-4 and
Rule l4e-1 under the Exchange Act, will file Schedule 13E-4 or any successor
or similar schedule required thereunder, and will otherwise comply with all
federal and state securities laws in connection with any offer by the Company
to purchase Notes at the option of the Holders upon a Change in Control.
The Change in Control purchase feature of the Notes may in
certain circumstances make more difficult or discourage a takeover of the
Company and the removal of incumbent management. The Company is not aware of
any specific effort to accumulate shares of Common Stock or to obtain control
of the Company by means of a merger, tender offer, solicitation or otherwise,
nor is the Change in Control purchase feature part of a plan by management to
adopt a series of anti-takeover provisions. Instead, the Change in Control
purchase feature is a result of negotiations between the Company and the
Underwriters.
Subject to the limitation on mergers and consolidations
discussed below, the Company could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that would
not constitute a Change in Control under the Indenture, but that would
increase the amount of Indebtedness outstanding at such time or otherwise
adversely affect the Holders of the Notes. There will be no restrictions in
the Indenture on the creation of additional Indebtedness by the Company or its
subsidiaries, and, under certain circumstances, the incurrence of significant
amounts of additional indebtedness could have an adverse effect on the
Company's ability to service its indebtedness, including the Notes.
If a Change in Control were to occur, there can be no assurance
that the Company would have sufficient funds to pay the Change in Control
Purchase Price for all Notes tendered by the Holders thereof. Failure by the
Company to repurchase the Notes when required will result in an Event of
Default (as defined in the Indenture) whether or not such repurchase is
permitted by the subordination provisions thereof.
Other than granting Holders the option to require the Company
to purchase all or part of their Notes upon the occurrence of a Change in
Control as described in "Purchase of Notes at the Option of Holders Upon a
Change in Control," the Indenture will not contain any covenants or other
provisions designed to afford Holders protection in the event of takeovers,
recapitalizations, highly leveraged transactions or similar restructuring
involving the Company.
In the event that Definitive Notes are issued to the Holders,
Notes may be submitted for purchase upon a Change in Control in accordance
with the terms of the Indenture by presenting such Definitive Notes at the
office of the Paying Agent. Where not all of the Notes represented by a
Definitive Note are submitted for purchase, a new Definitive Note in respect
of the principal amount of the Notes that have not been so submitted for
purchase will be issued to the Holder, and will be available at the office of
the Trustee in The City of New York and, if and so long as the Notes are
listed on the Luxembourg Stock Exchange, at the office of the Paying Agent.
Subordination of Notes
To the extent set forth in the Indenture, the Notes will be
subordinated and subject in right of payment to the prior payment in full of
all Senior Indebtedness of the Company, whether outstanding on the date of the
Indenture or thereafter created, assumed or guaranteed. Upon any payment or
distribution of assets of the Company in any dissolution, winding-up,
liquidation or reorganization of the Company (whether in insolvency or
bankruptcy proceeding or otherwise), all Senior Indebtedness must be paid in
full (including the principal thereof, interest thereon and fees and expenses
relating thereto) before any payment is made in respect of the Notes. In the
event of a default in payment (whether at maturity or at a date fixed for
prepayment or by acceleration or otherwise) of principal or interest on, or
other discount due in respect of Senior Indebtedness, no payment may be made
by the Company in respect of the Notes until payment in full of the Senior
Indebtedness then due or cure, waiver or cessation of the default. Upon a
default with respect to any Senior Indebtedness (other than a default in the
payment of principal of or interest on Senior Indebtedness) permitting a
holder thereof to accelerate its maturity, and upon written notice of such
default to the Trustee and the Company by any holder of such Senior
Indebtedness or its representative, then, unless and until such default has
been cured, waived in writing or has ceased to exist, no payment may be made
by the Company in respect of the Notes; provided that nothing in the
above-described provision will prevent the making of any payment in respect of
the Notes for a period of more than 180 days after the date such written
notice of default is given unless the maturity of the Senior Indebtedness has
been accelerated, in which case no payment on the Notes may be made until such
acceleration has been waived or such Senior Indebtedness has been paid in
full. No such subordination will prevent the occurrence of any Event of
Default with respect to the Notes, but, as a result of these subordination
provisions, in the event of insolvency, Holders of Notes may recover less
ratably than other creditors of the Company.
In the event that, notwithstanding the foregoing, the Trustee
or any Holder of the Notes receives any payment or distribution of assets of
the Company of any kind in contravention of any of the subordination
provisions of the Indenture, whether in cash, property or securities, in
respect of the Notes before all Senior Indebtedness is paid in full, then such
payment or distribution will be held by the recipient in trust for the benefit
of holders of Senior Indebtedness or their representatives to the extent
necessary to make payment in full of all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness.
By reason of the subordination provisions described above, in
the event of the Company's bankruptcy, dissolution or reorganization, holders
of Senior Indebtedness may receive more ratably, and holders of the Notes may
receive less ratably, than other creditors of the Company. Such subordination
will not prevent the occurrence of any Event of Default under the Indenture.
The Indenture will not limit the amount of future or other
additional indebtedness, including Senior Indebtedness, that the Company can
create, incur, assume or guarantee, nor will the Indenture limit the amount
of indebtedness that any subsidiary can incur. As of June 30, 1998, the
Company had approximately $94.5 million of Senior Indebtedness outstanding
(excluding interest accrued thereon), and the Company's subsidiaries had
approximately $97 million of indebtedness outstanding (excluding interest
accrued thereon).
Certain Definitions
"Permitted Holders" means Peter Kiewit Sons' Inc., Level 3
Communications Inc. and Level 3 Telecom Holdings, Inc. and any of their
respective controlled affiliates.
"Senior Indebtedness" means the principal of, premium, if any,
interest and other amounts payable on or in respect of (i) any indebtedness of
the Company, now or hereafter outstanding, in respect of borrowed money, (ii)
any indebtedness of the Company, now or hereafter outstanding, evidenced by a
bond, note , debenture, capitalized lease, letter of credit or other similar
instrument, (iii) any other written obligation of the Company, now or
hereafter outstanding, to pay money issued or assumed as all or part of the
consideration for the acquisition of property, assets or securities and (iv)
any guaranty or endorsements (other than for collection or deposit in the
ordinary course of business) or discount with recourse of, or other agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire, to
supply or advance funds or to become liable with respect to (directly or
indirectly), any indebtedness or obligation of any person of the type referred
to in the preceding clauses (i), (ii) and (iii) now or hereafter outstanding.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
indebtedness evidenced by the Notes, (b) indebtedness that is pursuant to the
instrument creating such indebtedness expressly pari passu or subordinate or
junior in right of payment to the Notes of the Company, (c) indebtedness
which, when incurred and without respect to any election under Section 1111(b)
or Title 11, United States Code, is without recourse to the Company, (d)
indebtedness for goods, materials or services purchased in the ordinary course
of business or indebtedness consisting of trade account payables or other
current liabilities incurred in the ordinary course of business, (e)
indebtedness of or amounts owed by the Company for compensation to employees
or for services rendered to the Company, (f) any liability for federal, state,
local or other taxes owed or owing by the Company, (g) indebtedness of the
Company to any Subsidiary of the Company and (h) amounts owing under leases
(other than capital leases).
"Subsidiary" means, with respect to the Company, (i) a
corporation a majority of whose Voting Stock is at the time, directly or
indirectly, owned by the Company, by one or more Subsidiaries of the Company
or by the Company and one or more Subsidiaries and (ii) any other person
(other than a corporation), including, without limitation, a joint venture, in
which the Company, one or more Subsidiaries of the Company or the Company and
one or more Subsidiaries, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other person
performing similar functions). For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
"Voting Stock" means any class or classes of Capital Stock
pursuant to which the holders thereof under ordinary circumstances have the
power to vote in the election of the board of directors, managers or trustees
of any person (irrespective of whether or not, at the time, Capital Stock of
any other class or classes shall have, or might have, voting power by reason
of the happening of any contingency).
Events of Default; Notice and Waiver
If an Event of Default (other than an Event of Default
resulting from bankruptcy, insolvency or reorganization) occurs and is
continuing, the Trustee may, by notice to the Company, declare all unpaid
principal of and accrued interest to the date of acceleration on the Notes
then outstanding to be due and payable immediately. Also, in such event, the
Holders of at least 25% in principal amount of the Notes then outstanding may
notify the Company and the Trustee with respect thereto, and upon the request
of such Holders, the Trustee shall declare all unpaid principal of and accrued
interest to the date of acceleration on the Notes then outstanding to be due
and payable immediately. If an Event of Default resulting from certain events
of bankruptcy, insolvency or reorganization shall occur, all unpaid principal
of and accrued interest on the Notes then outstanding shall become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holders.
The Indenture will provide that the Holders of a majority in
principal amount of the Notes may on behalf of all Holders waive any existing
default or Event of Default and its consequences except a default in the
payment of principal of or accrued interest on the Notes or any default in
respect of any provision of the Indenture that cannot be modified or amended
without the consent of the Holder of each Note affected.
The following will be Events of Default under the Indenture:
(i) failure of the Company to pay interest for 30 days after the same is due
or failure to pay principal when due, (ii) failure of the Company to comply
with any of its other agreements contained in the Notes or the Indenture for
60 days after receipt of notice of such failure, (iii) default under any bond,
Note, note or other evidence of indebtedness for money borrowed of the Company
having an aggregate outstanding principal amount in excess of an amount to
be specified, which default shall have resulted in such indebtedness being
accelerated, without such indebtedness being discharged, or such
acceleration having been rescinded or annulled, within ten days from the
date of such acceleration; and (iv) certain events of bankruptcy or
insolvency, including without limitation appointment of a custodian of the
Company's property.
The Trustee shall, within 90 days after the occurrence of any
default known to it, give to the Holders notice of such default; provided
that, except in the case of a default in the payment of principal of or
interest on any of the Notes, the Trustee may withhold such notice if it in
good faith determines that the withholding of such notice is in the interests
of the Holders. Any such notices related to an Event of Default will be
published in the Luxemburger Wort if and for so long as the Notes are listed
on the Luxembourg Stock Exchange.
No Holder may pursue any remedy under the Indenture or the
Notes against the Company (except actions for payment of overdue principal or
interest or for the conversion of the Notes), unless (i) the Holder gives to
the Trustee written notice of a continuing Event of Default, (ii) the Holders
of at least 25% in principal amount of the outstanding Notes make a written
request to the Trustee to pursue the remedy, (iii) such Holder or Holders offer
satisfactory indemnity to the Trustee against any loss, liability or expense,
(iv) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity and (v) the Trustee shall not have
received during such 60-day period a contrary direction from the Holders of at
least a majority in principal amount of the outstanding Notes.
The Company must deliver an Officer's Certificate to the
Trustee within 90 days after the end of each fiscal year of the Company as to
the signer's knowledge of the Company's compliance with all conditions and
covenants on its party contained in the 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 Officer's Certificate shall describe
the default or Event of Default and the efforts to remedy the same.
Amendment
The Company and the Trustee may amend or supplement the
Indenture or the Notes with the written consent of the Holders of at least a
majority in principal amount of the outstanding Notes. The Holders of a
majority in principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of the
Indenture or the Notes without notice to any Holder. Without the consent of
the Holder of each Note affected thereby, however, an amendment, supplement or
waiver may not (i) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver, (ii) reduce the rate of or
change the time for payment of interest on any Note, (iii) reduce the
principal of or premium on or change the fixed maturity of any Note or alter
the redemption provisions with respect thereto in a manner adverse to the
Holder thereof, (iv) alter the conversion provisions with respect to any Note
in a manner adverse to the Holder thereof, (v) waive a default in the payment
of the principal of or premium or interest on any Note, (vi) reduce the
percentage of Notes necessary to waive defaults or Events of Default or to
amend or supplement the Indenture or the Notes, (vii) change the ranking of
the Notes or (viii) make any Note payable in money other than that stated in
the Note.
The Company and the Trustee may amend or supplement the
Indenture or the Notes without notice to or consent of any Holder in certain
events, such as to comply with the certain conversion, adjustment, liquidation
and merger provisions described in the Indenture, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to cure
any ambiguity, defect or inconsistency, or to make any other change that does
not adversely affect the rights of the Holders, to comply with the provisions
of the Trust Indenture Act or to appoint a successor Trustee.
No amendment may be made that adversely affects the rights
under the provisions described under "-- Subordination of Notes" above of a
holder of an issue of Senior Indebtedness unless the holders of that issue,
pursuant to its terms, consent to such amendment.
Satisfaction and Discharge
The Company may terminate all of its obligations under the
Indenture, other than its obligation to pay the principal of and interest on
the Notes and certain other obligations (including its obligation to deliver
shares of Common Stock upon conversion of the Notes), at any time, by
depositing with the Trustee or a paying agent other than the Company, money or
non-callable U.S. Government Obligations sufficient to pay the principal of
and interest on the Notes then outstanding to maturity.
Mergers and Consolidations
Subject to the right of the Holders to require the Company to
purchase the Notes in the event of a Change in Control, the Company may
consolidate or merge with or into any other corporation, and the Company may
transfer all or substantially all its property and assets to any other
corporation, provided (i) either the Company is the resulting or surviving
corporation, or the successor corporation is a domestic corporation and the
successor expressly assumes, by supplemental indenture executed and delivered
to the Trustee, payment of the principal of and interest on the Notes and
performance and observance of every covenant of the Indenture, and (ii)
immediately after giving effect to such transaction, no default or Event of
Default shall have occurred and be continuing. Thereafter, all obligations of
the Company under the Indenture and the Notes will terminate.
Notices
Notice to Holders shall be validly given if (i) mailed to them
at their respective addresses in the register and (ii) if and so long as the
Notes are listed on the Luxembourg Stock Exchange, published in a daily
newspaper having a general circulation in Luxembourg, which is expected to be
the Luxemburger Wort.
Governing Law
The Indenture and the Notes will be governed by, and construed
and enforced in accordance with, the laws of the State of New York.
Concerning the Trustee
The Chase Manhattan Bank will be the Trustee under the
Indenture.
The Indenture will contain certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Indenture) and there exists a default
with respect to the Notes, it must eliminate such conflict or resign.
The Holders of a majority in principal amount of all
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy or power available to the
Trustee, provided that such direction does not conflict with any law or the
Indenture, is not unduly prejudicial to the rights of another Holder or the
Trustee and does not involve the Trustee in personal liability.
DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the capital stock of the Company
set forth below does not purport to be complete and is qualified by reference
to the Charter and Bylaws of the Company.
Authorized Capital Stock
Under the Charter, the Company's authorized capital stock
consists of 85,000,000 shares of Common Stock, par value $1.00 per share,
15,000,000 shares of Class B Common Stock, par value $1.00 per share and
25,000,000 shares of Preferred Stock.
Common Stock and Class B Common Stock
As of August 31, 1998, there were 15,779,617 shares of
Common Stock and 2,613,440 shares of Class B Common Stock outstanding
(excluding treasury shares). The holders of Common Stock and Class B Common
Stock are entitled to receive, from funds legally available for the payment
thereof, dividends when and as declared by resolution of the Board of
Directors, subject to any preferential dividend rights granted to the holders
of any outstanding Preferred Stock. The Charter also provides that, in
relation to cash dividends, the dividend payable on Common Stock is to be at
least 105% of that payable on Class B Common Stock. In the event of
liquidation, each share of Common Stock and Class B Common Stock is entitled
to share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Each holder of Common Stock is entitled to one
vote for each share of Common Stock held of record on the applicable record
date and each holder of Class B Common Stock is entitled to fifteen votes for
each share of Class B Common Stock held of record on the applicable record
date on all matters submitted to a vote of shareholders, including the
election of directors.
Holders of Common Stock have no cumulative voting rights or
preemptive rights to purchase or subscribe for any stock or other securities
and there are no conversion rights or redemption rights or sinking fund
provisions with respect to the Common Stock or the Class B Common Stock except
that the Class B Common Stock is convertible, at the option of the holder,
into shares of Common Stock on a one-for-one basis at any time and from time
to time. The outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and nonassessable, and any shares of Common Stock in
respect of which this Prospectus is being delivered will be fully paid and
non-assessable.
Preferred Stock
Under the Company's Charter, up to 25,000,000 shares of
Preferred Stock may be issued in such series and with such rights and
preferences as the Board of Directors may determine from time to time. The
Board of Directors has the authority to amend the Bylaws of the Company by
resolution or resolutions from time to time (to the extent permitted by the
Business Corporation Law of Pennsylvania), to divide the Preferred Stock into
one or more classes or series, to determine the designation and the number of
shares of any class or series Preferred Stock, to determine the voting rights,
preferences, limitations and special rights, if any and other terms of the
shares of any class or series of Preferred Stock and to increase or decrease
the number of shares of any such class or series.
The applicable Prospectus Supplement will describe the
following terms of any Preferred Stock in respect of which the Prospectus is
being delivered (to the extent applicable to such Preferred Stock): (i) the
specific designation, number of shares, seniority and purchase price; (ii) any
liquidation preference per share; (iii) any date of maturity; (iv) any
redemption, repayment or sinking fund provisions; (v) any dividend rate or
rates and the dates on which any such dividends will be payable (or the method
by which such rates or dates will be determined); (vi) any voting rights;
(vii) the method by which amounts in respect of such Preferred Stock may be
calculated and any commodities, currencies or indices, or value, rate or
price, relevant to such calculation (viii) whether such Preferred Stock is
convertible or exchangeable and, if so, the securities or rights into which
such Preferred Stock is convertible or exchangeable, and the terms and
conditions upon which such conversions or exchanges will be effected including
conversion or exchange prices or rates, the conversion or exchange period and
any other provisions; (ix) the place or places where dividends and other
payments on the Preferred Stock will be payable; and (x) any additional
voting, dividend, liquidation, redemption and other rights, preferences,
privileges, limitations and restrictions. Unless otherwise specified in a
Prospectus Supplement, the Preferred Stock offered hereby will not restrict
the Company's ability to repurchase or redeem shares while there is an
arrearage in the payment of dividends or sinking fund installments.
All shares of Preferred Stock offered hereby will, when issued,
be fully paid and nonassessable. Any shares of Preferred Stock that are
issued would have priority over the Common Stock and the Class B Common Stock
with respect to dividend or liquidation rights or both.
As of August 31, 1998, there were 4,100,000 shares of Series A
Preferred Stock ("Preferred Series A") and 1,100,000 shares of Series B
Preferred Stock ("Preferred Series B") outstanding (together, the "Preferred
Stock"). The Preferred Series A and the Preferred Series B each has a stated
value of $10 per share ("Stated Value") and is entitled to receive $10 per
share in liquidation. Dividends on the Preferred Series A and the Preferred
Series B are cumulative at 5% per annum beginning January 1, 1996 and must be
paid in the event of liquidation (as must the $10 per share liquidation
preference) before any distribution to holders of Common Stock and Class B
Common Stock. The Company paid dividends on the Preferred Series A and the
Preferred Series B of, in aggregate, $2,600,000 in 1996, $1,950,000 in 1997
and $650,000 in January 1998.
Holders of the Preferred Series A and the Preferred Series B
have no voting rights. However, there are certain exceptions, including the
right to elect an additional director if the Company fails to pay dividends
for 12 consecutive months sufficient to provide a cumulative return of 5% per
annum. Such director will remain on the Board of Directors until the holders
of such Stock have received dividends sufficient to provide a cumulative return
of 5%.
The Preferred Series A and the Preferred Series B are
convertible into Common Stock at conversion prices of $35.00 and $38.50,
respectively, at the election of the holders commencing in September 1998 and
ending in September 2003 (the "Exchange Period"). An election to convert
shares will be effective only if the total number of shares to be converted by
the holder, alone or together with other holders (if electing at the same
time), equals at least 5% of the total number of shares of Preferred Series A
and Preferred Series B outstanding at the time the election is made.
At any time during the Exchange Period, the Company may elect
to acquire all, but not less than all, of either series of the Preferred
Series A and Preferred Series B for Common Stock or cash as herein described.
If on the day the Company gives notice of its election (the "Notice Date"),
the trading price on the day preceding the Notice Date (the "Market Value") of
the shares of Common Stock, into which such shares of Preferred Series A or
Preferred Series B could be converted as described above, is greater than or
equal to the aggregate conversion price for such shares, then the Company will
transfer and deliver Common Stock based on the conversion price of the shares
of such Preferred Series A or Preferred Series B. If such Market Value is
less than the conversion price, then the Company will, at the holders' option
(acting as a whole), either deliver cash equal to the aggregate conversion
price of such shares or transfer and deliver Common Stock based upon the
conversion price of such shares.
All remaining Preferred Series A and Preferred Series B shall
be redeemed by the Company for an amount equal to the aggregate Stated Value
thereof, plus any accrued and unpaid dividends, in September 2003, whether or
not the holders so elect.
Description of Certain Provisions of Charter and Bylaws
The Charter and Bylaws contain provisions that may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a stockholder might consider
favorable. Set forth below is a description of certain of these provisions in
the Charter and Bylaws.
Voting Rights--As described above, the Charter provides that
each holder of Common Stock is entitled to one vote for each share of Common
Stock held and each holder of Class B Common Stock is entitled to fifteen votes
for each share of Class B Common Stock held on all matters submitted to a vote
of shareholders.
"Blank Check"Preferred Stock--The Charter empowers the Board of
Directors, to the extent permitted by the Business Corporation Law of
Pennsylvania, to amend the Charter by resolution or resolutions from time to
time to divide the Preferred Stock into one or more classes or series, to
determine the designation and the number of shares of any class or series of
Preferred Stock, to determine the voting rights, preferences, limitations and
special rights, if any and other terms of the shares of any class or series of
Preferred Stock and to increase or decrease the number of shares of any such
class or series.
Special Meetings of Shareholders--The Bylaws provide that,
except in relation to Preferred Stock, special meetings of shareholders may be
called by the Board of Directors, the Chairman or the Chief Executive Officer
of the Company and may not be called by any other person. Whenever holders of
one or more classes or series of Preferred Stock, however, have the right,
voting separately as a class or series, to elect directors, such holders may
call, pursuant to the privileges and powers of such Preferred Stock set out in
the Charter, special meetings of holders of such Preferred Stock.
Shareholder Nomination of Directors--The Bylaws contain a
procedure for shareholder nomination of directors. Nominations of persons for
election to the Board of Directors may be made at a meeting of shareholders
(a) by or at the direction of the Board of Directors or (b) by any shareholder
who is a shareholder of record at the time of giving of notice as provided for
herein, who shall be entitled to vote for the election of directors at the
meeting and who complies with the notice procedures set forth herein. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the secretary
of the Company. To be timely, a shareholder's notice shall be delivered to or
mailed and received not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting or such public disclosure was given or
made. Such shareholder's notice shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Exchange Act; and (b) as to
the shareholder giving the notice (i) the name and address, as they appear on
the books, of such shareholder, (ii) the class and number of shares of the
Company which are beneficially owned by such shareholder, (iii) a description
of all arrangements or understandings between such shareholder and each
proposed nominee and any other person or persons (including their names and
addresses) pursuant to which the nomination(s) are to be made by such
shareholder and (iv) any other information relating to such shareholder that
is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Section 14A
under the Exchange Act.
Staggered Terms for Directors--The Bylaws provide that the
directors of the Company shall be divided into three classes as nearly equal
in number as possible, and that one class shall be elected at each annual
meeting of the shareholders for a term of three years to succeed the directors
whose term then expires.
Provisions of Business Corporation Law--The Business
Corporation Law of Pennsylvania provides that the directors of a corporation,
in making decisions concerning takeovers or any other matters, may consider,
to the extent that they deem appropriate, among other things, (i) the effects
of any proposed transaction upon any or all groups affected by such action,
including, among others, shareholders, employees, suppliers, customers and
creditors, (ii) the short-term and long-term interests of the corporation and
(iii) the resources, intent and conduct of the person seeking control. The
Charter or Bylaws do not provide an exemption from these provisions.
Pennsylvania has, however, adopted other anti-takeover legislation from which
the Company has elected to exempt itself in the Bylaws.
Transfer Agent and Registrar
First Union National Bank is the transfer agent and registrar
for the Common Stock. The transfer agent for each series of Preferred Stock
offered hereby will be described in the applicable Prospectus Supplement.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities in any of three ways
(or in any combination thereof): (i) through underwriters or dealers; (ii)
directly to a limited number of purchasers or to a single purchaser; or (iii)
through agents. In addition, the Company may from time to time distribute the
Rights and issue Common Stock directly to purchasers or through agents in
connection with the exercise of Rights. The Prospectus Supplement with respect
to any Offered Securities will set forth the terms of the offering of such
Offered Securities, including (a) the name or names of any underwriters,
dealers or agents and the respective amounts of such Offered Securities
underwritten or purchased by each of them, (b) the initial public offering
price of such Offered Securities and the proceeds to the Company from such
sale, any discounts, commissions or other items constituting compensation from
the Company and any discounts, commissions or concessions allowed or reallowed
or paid to dealers and (c) any securities exchanges on which such Offered
Securities may be listed. Any initial public offering price and any discounts
or concessions allowed or reallowed or paid to dealers may be changed from time
to time.
If underwriters are used in the sale of any Offered Securities,
such Offered Securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. Such Offered Securities may be
either offered to the public through underwriting syndicates represented by
managing underwriters, or directly by underwriters. Unless otherwise set
forth in the Prospectus Supplement, the obligations of the underwriters to
purchase such Offered Securities will be subject to certain conditions
precedent and the underwriters will be obligated to purchase all of such
Offered Securities if any are purchased.
The Offered Securities may be sold directly by the Company or
through agents designated by the Company from time to time. Any agent
involved in the offer or sale of the Offered Securities in respect of which
this Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth, in the Prospectus Supplement. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will
authorize underwriters, dealers or agents to solicit offers by certain
purchasers to purchase the Offered Securities from the Company at the public
offering price set forth in the Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in
the future. Such contracts will be subject only to those conditions set forth
in the Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents and underwriters may be entitled under agreements
entered into with the Company to indemnification by the Company against
certain civil liabilities, including liabilities under the Securities Act, or
to contribution with respect to payments which the agents or underwriters may
be required to make in respect thereof. Agents and underwriters may be
customers of, engage in transactions with, or perform services for the Company
in the ordinary course of business.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996
and the consolidated statements of operations, changes in common shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997, incorporated by reference in this registration statement, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the Offered Securities
will be passed upon for the Company by Davis Polk & Wardwell, New York, New
York and John Filipowicz, Senior Vice President and Assistant General
Counsel of the Company.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses, other
than underwriting discounts and commissions, payable by the Company in
connection with the Offering. All of such expenses except the Securities and
Exchange Commission registration fee are estimated:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee....... $ 59,000
Printing and engraving expenses........................... 100,000
Accounting fees and expenses.............................. 100,000
Legal fees and expenses................................... 300,000
Miscellaneous............................................. 81,000
Total.................................................. $ 640,000
<FN>
- -------------
* To be completed by amendment.
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 1713 of Subchapter B of the Pennsylvania Business
Corporation Law of 1988, as amended (the "BCL"), provides that, if the bylaws of
a business corporation so provide, no director shall be personally liable for
monetary damages for any action or failure to act unless the director has
breached or failed to perform his or her duties under Subchapter B of Chapter 17
of the BCL and the breach or failure to perform constitutes self-dealing, wilful
misconduct or recklessness, provided that such provision does not apply to the
responsibility or liability of a director with respect to any criminal statute
or for the payment of taxes. The Company's Bylaws ("Bylaws") contain provisions
which limit the liability of directors as described in Section 1713.
Subchapter D (Sections 1741 through 1750) of Chapter 17 of the
BCL contains provisions for mandatory and discretionary indemnification of a
corporation's directors, officers, employees and agent (collectively,
"Representatives") and related matters.
Under Section 1741, subject to certain limitations, a
corporation has the power to indemnify directors, officers and other
Representatives under certain prescribed circumstances against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with a threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative, to which any of them is a party or threatened to be made a
party by reason of his being a Representative of the corporation or serving at
the request of the corporation or serving at the request of the corporation as
a Representative of another corporation, partnership, joint venture, trust or
other enterprise, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful.
Section 1742 provides for indemnification with respect to
derivative actions similar to that provided by Section 1741. However,
indemnification is not provided under Section 1742 in respect of any claim,
issue or matter as to which a Representative has been adjudged to be liable to
the corporation unless and only to the extent that the proper court determines
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, a Representative is fairly and reasonably
entitled to indemnity for the expenses that the court deems proper.
Section 1743 provides that indemnification against expenses is
mandatory to the extent that a Representative has been successful on the
merits or otherwise in defense of any such action or proceeding referred to in
Section 1741 or 1742.
Section 1744 provides that unless ordered by a court, any
indemnification under Section 1741 or 1742 shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of a Representative is proper because the Representative met
the applicable standard of conduct, and such determination will be made by the
board of directors by a majority vote of a quorum of directors not parties to
the action or proceeding; if a quorum is not obtainable or if obtainable and a
majority of disinterested directors so directs, by independent legal counsel;
or by the shareholders.
Section 1755 provides that expenses incurred by a
Representative in defending any action or proceeding referred to in Subchapter
D of Chapter 17 of the BCL may be paid by the corporation in advance of the
final disposition of such action or proceeding upon receipt of an undertaking
by or on behalf of the Representative to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation.
Section 1746 provides generally that except in any case where
the act or failure to act giving rise to the claim for indemnification is
determined by a court to have constituted willful misconduct or recklessness,
the indemnification and advancement of expenses provided by Subchapter D of
Chapter 17 of the BCL shall not be deemed exclusive of any other rights to
which a Representative seeking indemnification or advancement of expenses may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors of otherwise, both as to action in his official capacity and as to
action in another capacity while holding that office and that the corporation
may create a fund or otherwise secure or insure its indemnification
obligation, whether arising by law or otherwise.
Section 1747 grants a corporation the power to purchase and
maintain insurance on behalf of any Representative against any liability
incurred by him in his capacity as a Representative, whether or not the
corporation would have the power to indemnify him against that liability under
Subchapter D of Chapter 17 of the BCL.
Sections 1748 and 1749 apply the indemnification and
advancement of expenses provisions contained in Subchapter D of Chapter 17 of
the BCL to successor corporations resulting from consolidation, merger or
division and to service as a representative of a corporation with respect to
an employee benefit plan.
Section 1750 provides that the indemnification and advancement
of expenses provided by, or granted pursuant to, Subchapter D of Chapter 17 of
the BCL shall, unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a Representative and shall inure to the
benefit of the heirs and personal representatives of such Representatives.
The Company's Bylaws provide that each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suits or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "Proceeding"), by reason of the fact that he is
or was a director or officer of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
entity, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Company, to the extent such person is not
otherwise entitled to indemnification (including indemnification under any
insurance policy maintained by the person, the Company or any other entity),
to the fullest extent authorized by Pennsylvania law, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. Such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his heirs,
executors and administrators. The Company shall indemnify any such person
seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the board of directors of the
Company. Indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the board of directors of the
Company. Indemnification hereunder shall apply whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director,
officer, employee or agent. The right to indemnification conferred shall be a
contract right and shall include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition. If Pennsylvania law so requires, the payment of such expenses
incurred by a director or officer in his capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
person while a director or officer, including, without limitation, service to
an employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Company of an undertaking, by or on
behalf of such person, to repay all amounts so advanced if it shall ultimately
be determined that such person is not entitled to be indemnified.
The Company may, by action of its board of Directors, enter
into contracts with its directors, officers, employees and/or agents to
provide such indemnification for such actions as it may deem appropriate not
inconsistent with the provisions of applicable Pennsylvania law.
The Company's Bylaws authorize the Company to purchase and
maintain insurance to protect itself and/or any director, officer, employee or
agent of the Company or another entity against any expense, liability or loss,
whether or not the company would have the power to indemnify such person
against such expense, liability or loss pursuant to applicable Pennsylvania
law now or hereafter in effect. The Company has purchased such insurance.
Item 16. Exhibits.
The list of exhibits is incorporated herein by reference to the
Index to Exhibits on page E-1.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the securities registered hereby, a post-effective amendment to
this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in
this registration statement or any material change to such
information in this registration statement;
provided, however, that the undertakings set forth in paragraph (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered herein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby further undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is incorporated by reference in
this registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions set forth or described in
Item 15 of this Registration Statement, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person, in connection with
the securities registered hereby, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the township of Dallas, Commonwealth of
Pennsylvania, on this 22nd day of September, 1998.
Commonwealth Telephone Enterprises, Inc.
By: /s/ Bruce C. Godfrey
-------------------------------------
Name: Bruce C. Godfrey
Title: Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David C. McCourt Chairman and Chief Executive Officer and September 22, 1998
- ------------------------------ Director
David C. McCourt
/s/ Michael I. Gottdenker President and Chief Operating Officer and September 22, 1998
- ------------------------------ Director
Michael I. Gottdenker
/s/ Bruce C. Godfrey Executive Vice President and Chief September 22, 1998
- ------------------------------ Financial Officer and Director
Bruce C. Godfrey
/s/ Ralph S. Hromisin Vice President and Chief Accounting September 22, 1998
- ------------------------------ Officer
Ralph S. Hromisin
/s/ James Q. Crowe
- ------------------------------
James Q. Crowe Director September 22, 1998
/s/ Walter Scott, Jr.
- ------------------------------
Walter Scott, Jr. Director September 22, 1998
/s/ Richard R. Jaros
- ------------------------------
Richard R. Jaros Director September 22, 1998
/s/ David C. Mitchell
- ------------------------------
David C. Mitchell Director September 22, 1998
/s/ Frank M. Henry
- ------------------------------
Frank M. Henry Director September 22, 1998
/s/ Daniel E. Knowles
- ------------------------------
Daniel E. Knowles Director September 22, 1998
/s/ Eugene Roth
- ------------------------------
Eugene Roth Director September 22, 1998
/s/ Stuart E. Graham
- ------------------------------
Stuart E. Graham Director September 22, 1998
/s/ John J. Whyte
- ------------------------------
John J. Whyte Director September 22, 1998
/s/ Michael J. Mahoney
- ------------------------------
Michael J. Mahoney Director September 22, 1998
</TABLE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
1.01 Form of Underwriting Agreement**
2.01 Distribution agreement among C-TEC Corporation, RCN and Cable
Michigan, Inc. (incorporated by reference to Exhibit 2.1 to Amendment
No. 2 to Form 10/1 of RCN dated September 15, 1997 (Commission
File No. 0-22825)).
2.02 Articles of Merger between C-TEC Corporation and Commonwealth
Communications, Inc. dated September 29, 1997 (incorporated by
reference to Exhibit 2(b) of the Company's Annual Report on Form 10-K
for period ending December 31, 1997)
4.01 Form of Indenture between the Company and The Chase Manhattan
Bank, as Trustee**
4.02 Form of Note (included in Exhibit 4.01)**
4.03 Loan Agreement dated as of March 29, 1994, made by and between
Commonwealth Telephone Company and the National Bank for
Cooperatives (incorporated by reference to the Company's report on
Form 10-Q for the quarter ended March 31, 1994, (Commission File
No. 0-11-53))
4.04 Credit Agreement dated as of June 30, 1997 by and among C-TEC
corporation, the Lenders and First Union National Bank, as
administrative agent for the Lenders (incorporated by reference to
Exhibit 4(b) of the Company's Annual Report filed on Form 10-K for
the fiscal year ended December 31, 1997))
5.01 Opinion of Davis Polk & Wardwell, as to the validity of the
Subordinated Debt Securities**
5.02 Opinion of Pennsylvania counsel as to the validity of the Common
Stock, the Preferred Stock and the Rights**
12.01 Statements re: computation of ratios**
23.01 Consent of PricewaterhouseCoopers LLP**
23.02 Consent of Davis Polk & Wardwell (included in their
opinion filed as Exhibit 5.01)**
23.03 Consent of Pennsylvania counsel (included in their opinion filed as
Exhibit 5.02)**
24.01 Powers of Attorney of certain officers and directors
of the Registrant*
25.01 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of The Chase Manhattan Bank, as Trustee**
99.01 Form of Subscription Certifficate**
* Previously filed
** Filed herewith
</TABLE>
EXHIBIT 1.01
===============================================================================
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
(a Pennsylvania corporation)
UNDERWRITING AGREEMENT
Dated as of
===============================================================================
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
(a Pennsylvania corporation)
UNDERWRITING AGREEMENT
Ladies and Gentlemen:
COMMONWEALTH TELEPHONE ENTERPRISES, INC., a Pennsylvania
corporation (the "Company"), confirms its agreement with
(collectively, the "Underwriters"), which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), with
respect to the issue and sale by the Company and the purchase by the
Underwriters, acting severally and not jointly, of the respective principal
amounts set forth in Schedule A hereto of the $ aggregate principal
amount of the Company's [securities], and with respect to the grant by the
Company to the Underwriters, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of an additional
$ principal amount of Securities to cover over-allotments, if any.
The aforesaid $ of Securities (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the $ of
Securities subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities." [The
Securities are to be issued pursuant to an Indenture dated as of ,
(the "Indenture") between the Company and , as trustee
(the "Trustee").]
[The Securities are convertible into shares of common stock,
par value $1.00 per share, of the Company (the "Common Stock"), in accordance
with the terms of the Securities and the Indenture, at the initial conversion
price specified in Schedule B hereto.]
The Company understands that the Underwriters propose to make a
public offering of the Securities as soon as they deem advisable after this
Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange
Commission (the "Commission") in accordance with the Securities Act of 1933, as
amended (the "Act"), a registration statement on Form S-3 (No. 333- ),
including a Prospectus relating to certain securities of the Company, to be
issued from time to time by the Company. Promptly after execution and
delivery of this Agreement, the Company will prepare and file a prospectus
supplement in accordance with the provisions of paragraph (b) of Rule 424
("Rule 424(b)") of the rules and regulations of the Commission under the Act
(the "1933 Act Regulations") specifically relating to the Securities. Each
prospectus used before such registration statement became effective and any
prospectus that was used after such effectiveness and prior to the execution
and delivery of this Agreement is herein called a "preliminary prospectus."
Such registration statement, including the exhibits thereto, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act at the time it became effective is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the
1933 Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus including
the documents incorporated by reference therein pursuant to Item 12 of Form
S-3 under the Act in the form first furnished to the Underwriters for use in
connection with the offering of the Securities is herein called the
"Prospectus." Further, the items "preliminary prospectus" and "Prospectus"
shall refer to any prospectus supplement used to consummate any offering
pursuant to Rule 415 under the Act. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
Section 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time (as defined in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof), and agrees with each
Underwriter as follows:
(i) The Company meets the requirements for use of Form S-3
under the Act. The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement
has been issued under the Act and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of the Company, are
contemplated by the Commission, and any request on the part of the Commission
for additional information has been complied with.
At the respective times the Registration Statement and any
post-effective amendments thereto became effective and at the
Closing Time (and, if any Option Securities are purchased, at the
Date of Delivery), the Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the Act and the 1933 Act
Regulations and did not and will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading. Neither the Prospectus nor any amendments or
supplements thereto, at the time the Prospectus or any such
amendment or supplement was issued and at the Closing Time (and,
if any Option Securities are purchased, at the Date of Delivery),
included or will include an untrue statement of a material fact or
omitted or will omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The representations
and warranties in this subsection shall not apply to statements in
or omissions from the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished to the
Company in writing by any Underwriter through
expressly for use in the Registration Statement or Prospectus.
The Prospectus, when filed pursuant to Rule 424(b) under the
Act, will comply in all material respects with the 1933 Act
Regulations and the Prospectus delivered to the Underwriters for
use in connection with this offering was substantially identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) The documents incorporated or deemed to be incorporated
by reference in the Registration Statement and the Prospectus, at the time
they were or hereafter are filed with the Commission, complied and will comply
in all material respects with the requirements of the Act and the 1933 Act
Regulations or the Securities Exchange Act of 1934 (the "Exchange Act") and
the rules and regulations of the Commission thereunder (the "Exchange Act
Regulations"), as applicable, and, when read together with the other
information in the Prospectus, at the time the Registration Statement became
effective, at the time the Prospectus was issued and at the Closing Time, did
not and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(iii) Each of the Company and each "significant subsidiary" (as
defined in Section 210.1-02 of Regulation S-X) of the Company (each a
"Subsidiary" and collectively, the "Subsidiaries") has been duly organized and
is validly existing and in good standing under the laws of its jurisdiction of
organization, with all requisite power and authority under such laws, and all
necessary authorizations, approvals, orders, licenses, certificates and
permits of and from regulatory or governmental officials, bodies and
tribunals, (a) to own, lease and operate their respective properties and to
conduct their respective businesses as now conducted and as described in the
Prospectus and (b), in the case of the Company, to enter into, deliver and
perform its obligations under this Agreement, [the Indenture] and the
Securities, except, in the case of the foregoing subclause (a) for
authorizations, approvals, orders, leases, certificates and permits, the
failure of which to possess could not reasonably be expected to have a
Material Adverse Effect (as defined below); and are all duly qualified to do
business and in good standing in all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a material adverse effect
(i) on the business, condition (financial or otherwise), results of
operations, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business or (ii) on the ability of the Company to perform
any of its obligations under this Agreement or to consummate any of the
transactions contemplated hereby (a "Material Adverse Effect").
(iv) The Securities have been duly authorized by the Company,
and the Company has all requisite corporate power and authority to execute,
issue and deliver the Securities, and to incur and perform its obligations
provided for therein.
[(v) The Securities, when executed, authenticated and issued
in accordance with the terms of the Indenture (assuming the due authorization,
execution and delivery of the Indenture by the Trustee) and when delivered
against payment of the purchase price therefor as provided in this Agreement,
will constitute valid and binding obligations of the Company, entitled to the
benefits of the Indenture and enforceable against the Company in accordance
with the terms thereof; subject, in the case of each of the foregoing, to (a)
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, (b) general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity
or at law) and (c) the discretion of the court before which any proceeding
therefor may be brought (clauses (a), (b) and (c) being referred to herein as
the "Enforceability Limitations").]
(vi) The Company has all requisite corporate power and
authority to execute and deliver this Agreement [and the Indenture] and
perform its obligations provided for therein. This Agreement has been[, and,
as of the Closing Date, the Indenture will have been,] duly authorized,
executed and delivered by the Company [and upon such execution by the Company
(assuming the due authorization, execution and delivery by parties thereto
other than the Company) and, as of the Closing Date, the Indenture will
constitute, the valid and binding obligation of the Company, enforceable
against the Company in accordance with the terms hereof or thereof, subject
only to the Enforceability Limitations.]
(vii) No consent, waiver, authorization, approval, license,
qualification or order of, or filing or registration with, any court or
governmental or regulatory agency or body, is required for the performance by
the Company of its obligations hereunder in connection with the offering,
issuance or sale of the Securities under this Agreement, or for the
consummation of any of the transactions contemplated to be taken by the
Company pursuant to this Agreement [or the Indenture,] except such as have
been obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters in the manner contemplated in this
Agreement and in the Prospectus.
(viii) The issuance, sale and delivery of the Securities, the
execution, delivery and performance by the Company of this Agreement, [the
Indenture and the Securities] and the consummation by the Company of the
transactions contemplated hereby and in the Prospectus (including the use of
proceeds from the sale of the Securities as described in the Prospectus under
the caption "Use of Proceeds") and the compliance by the Company with the
terms of the foregoing do not, and, at the Closing Time, will not conflict
with or constitute or result in a breach or violation by the Company or any of
the Subsidiaries of (A) any of the terms or provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) by any of the Company or the Subsidiaries or give rise
to any right to accelerate the maturity or require the prepayment of any
indebtedness under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or the
Subsidiaries under any contract, indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, authorization, permit,
certificate or other agreement or document to which any of the Company or the
Subsidiaries is a party or by which any of them may be bound, or to which any
of them or any of their respective assets or businesses is subject
(collectively, "Contracts") (and the Company has no knowledge of any conflict,
breach or violation of such terms or provisions or of any such default, in any
such case, which has occurred or will so result), except for any such
conflict, breach or violation which would not, individually or in the
aggregate, have a Material Adverse Effect, (B) the articles of incorporation,
by-laws or similar organizational documents (each, an "Organizational
Document") of each of the Company or the Subsidiaries or (C) any law, statute,
rule or regulation, or any judgment, decree or order, in any such case, of any
domestic or foreign court or governmental or regulatory agency or other body
having jurisdiction over the Company or any of the Subsidiaries or any of their
respective properties or assets.
[(ix) The Securities and the Indenture will conform in all
material respects to the respective statements relating thereto contained in
the Prospectus and will be in substantially the respective forms filed or
incorporated by reference, as the case may be, as exhibits to the Registration
Statement. The Indenture has been qualified under the Trust Indenture Act of
1939, as amended (the "TIA") and complies in all material respects with the
requirements of the Trust Indenture Act.]
[(x) The Common [Preferred] Stock conforms to all statements
relating thereto contained in the Prospectus and such description conforms to
the rights set forth in the instruments defining the same. The shares of
Common Stock issuable hereunder have been duly authorized by all necessary
corporate action and such shares, when issued hereunder will be validly issued
and will be fully paid and non-assessable; no holder of such shares will be
subject to personal liability by reason of being such a holder; and the
issuance of such shares will not be subject to the preemptive or other similar
rights of any security holder of the Company.]
(xi) The audited and unaudited consolidated financial
statements of the Company included in the Registration Statement and the
Prospectus, including the notes thereto, present fairly in all material
respects the financial position of the Company and its consolidated
subsidiaries at the dates indicated, and the statement of operations,
stockholders' equity and cash flows of the Company and its consolidated
subsidiaries for the periods have been prepared in conformity with United
States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. Coopers & Lybrand L.L.P.,
which certified the financial statements included in the Registration
Statement and Prospectus, is an independent public accounting firm as required
by the Act and the 1933 Act Regulations. The selected financial data and the
summary financial information included in the Prospectus present fairly in all
material respects the information shown therein and have been compiled on a
basis consistent with that of the financial statements included in the
Prospectus.
(xii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
specifically stated therein, there has been no (A) material adverse change in
the business, condition (financial or otherwise), results of operations,
business affairs or business prospects of the Company and the Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Change"), (B) transaction entered into by the
Company or the Subsidiaries, other than in the ordinary course of business,
that is material to the Company and the Subsidiaries considered as one
enterprise, or (C) dividend or distribution of any kind declared, paid or made
by the Company on its capital stock.
(xiii) The Company has the authorized, issued and outstanding
capitalization set forth in the Prospectus under the column entitled "Actual"
under the caption "Capitalization"; all of the outstanding capital stock of
the Company has been duly authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of any preemptive or similar
rights (whether provided contractually or pursuant to any Organizational
Document). Except as set forth in the Prospectus, the Company does not own,
directly or indirectly, any material amount of shares, or any other material
amount of equity or long-term debt securities or have any material equity
interest in any firm, partnership, joint venture or other entity. Except as
set forth in the Prospectus, no holder of any securities of the Company is
entitled to have such securities under the Registration Statement or otherwise
registered by the Company under the Act. All of the outstanding capital stock
of each of the Subsidiaries has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Company, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(xiv) Neither the Company nor any of the Subsidiaries is (A) in
violation of its respective Organizational Documents, (B) in default (or, with
notice or lapse of time or both, would be in default) in the performance or
observance of any obligation, agreement, covenant or condition contained in
any Contract or (C) in violation of any law, statute, judgment, decree, order,
rule or regulation of any domestic or foreign court with jurisdiction over the
Company or the Subsidiaries or any of their respective assets or properties,
or other governmental or regulatory authority, agency or other body, other
than, in the case of clause (B) or (C), such defaults or violations which
could not, individually or in the aggregate, reasonably be expected to have or
result in a Material Adverse Effect; and any real property and buildings held
under lease by the Company or the Subsidiaries are held by the Company or such
Subsidiary, as the case may be, under valid, subsisting and enforceable leases
with such exceptions which could not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect.
(xv) Except as described in the Prospectus, each of the
Company and the Subsidiaries has obtained all consents, approvals, orders,
certificates, licenses, permits, franchises and other authorizations, in each
case material to the operations of the Company (collectively, the "Licenses")
of and from, and has made all declarations and filings with, all governmental
and regulatory authorities, all self-regulatory organizations and all courts
and other tribunals necessary to own, lease, license and use its properties and
assets and to conduct its businesses in the manner described in the
Prospectus, except where the failure to do so could not, singly or in the
aggregate, reasonably be expected to have or result in a Material Adverse
Effect.
(xvi) Except as described in the Prospectus, there is no legal
action, suit, proceeding inquiry or investigation before or by any court or
governmental body or agency, domestic or foreign, now pending or, to the best
knowledge of the Company, threatened against the Company or any of the
Subsidiaries or any of their respective properties which would be required to
be disclosed in a registration statement filed under the Act which could,
individually or in the aggregate, reasonably be expected to have or result in
a Material Adverse Effect. Except as set forth in the Prospectus, none of the
Company nor any of the Subsidiaries has received any notice or claim of any
material default (or event, condition or omission which with notice or lapse
of time or both would result in a default) under any of its respective
Contracts or has knowledge of any material breach of any of such Contracts by
the other party or parties thereto, in each case which would, individually or
in the aggregate have a Material Adverse Effect.
(xvii) Each of the Company and the Subsidiaries has good and
marketable title to all real and personal property described in the Prospectus
as being owned by it and good and marketable title to a leasehold estate in
the real and personal property described in the Prospectus as being leased by
it, free and clear of all liens, charges, encumbrances or restrictions, except
to the extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions could not, individually or in the
aggregate, reasonably be expected to have or result in a Material Adverse
Effect.
(xviii) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
therefrom as described in the Prospectus, will not be an "investment company"
as such term is defined in the Investment Company Act of 1940, as amended.
(xix) There are no contracts or documents which are required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described or filed as required.
(b) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters pursuant to
the terms of this Agreement shall be deemed a representation and warranty by
the Company to the Underwriters as to the matters covered thereby.
Section 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price set forth in Schedule B, the amount of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
$ of Securities at the same price set forth in Schedule B for the Initial
Securities, plus accrued interest, if any, from the Closing Time to the Date
of Delivery (as defined below). The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial Securities upon
notice by the Underwriters to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time and date of delivery (a "Date of Delivery") shall be determined by
the Underwriters, but shall not be later than seven full business days after
the exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of
the Option Securities, each of the Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of Option
Securities then being purchased which the number of Initial Securities set
forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
, or at such other place as shall be agreed upon by the
Underwriters and the Company, at 9:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Underwriters and the Company
(such time and date of payment and delivery being herein called "Closing
Time").
In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price
for, and delivery of certificates for, such Option Securities shall be made at
the above-mentioned offices, or at such other place as shall be agreed upon by
the Underwriters and the Company, on each Date of Delivery as specified in the
notice from the Underwriters to the Company.
Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by the Company
against delivery to the Underwriters for the respective accounts of the
Underwriters of certificates for the Securities to be purchased by them.
, individually and not as representative of the Underwriters,
may (but shall not be obligated to) make payment of the purchase price for the
Initial Securities or the Option Securities, if any, to be purchased by any
Underwriter whose funds have not been received by the Closing Time or the
relevant Date of Delivery, as the case may be, but such payment shall not
relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
and registered in such names as the Underwriters may request in writing at
least one full business day before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Underwriters in The City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
Section 3. Covenants of the Company. The Company covenants
with each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of the Act, and, prior to the completion of the distribution of
the Securities by the Underwriters, will notify the Underwriters as soon as
practicable, (i) when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or
of any order preventing or suspending the use of the Prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any
of such purposes. The Company will promptly effect the filings necessary
pursuant to Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event that
it was not, it will promptly file such prospectus. The Company will make
reasonable efforts to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest practicable
moment.
(b) Filing of Amendments. Prior to the completion of the
distribution of the Securities by the Underwriters hereunder, the Company will
give the Underwriters notice of its intention to file or prepare any amendment
to the Registration Statement (including any filing under Rule 462(b) but
excluding reports filed under the Exchange Act) or any amendment, supplement or
revision to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, will furnish the Underwriters
with copies of any such documents prior to such proposed filing or use, as the
case may be, and will not file or use any such document to which the
Underwriters or counsel for the Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Underwriters and counsel for the Underwriters, without
charge, photocopies of signed copies (or duplicates thereof) of the
Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein or
deemed to be incorporated by reference therein) and signed copies (or
duplicates thereof) of all consents and certificates of experts, and will also
deliver to the Underwriters, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the
Underwriters will be substantially identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the Act or the Exchange Act, such
number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be substantially
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the Act, the 1933 Act Regulations, the Exchange Act, the Exchange
Act Regulations, [the TIA and the rules and regulations of the Commission
under the TIA (the "TIA Regulations")] so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the Act to be
delivered in connection with sales of the Securities any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or
the Prospectus comply with such requirements, and the Company will furnish to
the Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Underwriters may designate
and to maintain such qualifications in effect for a period of not less than
one year from the later of the effective date of the Registration Statement
and any Rule 462(b) Registration Statement; provided, however, that the
Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities in
any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have been
so qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the Exchange Act as are necessary in order to make generally available to
its security holders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph
of Section 11(a) of the Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds".
(i) Reporting Requirements. The Company, during the period when
the Prospectus is required to be delivered under the Act or the Exchange Act,
will file all documents required to be filed with the Commission pursuant to
the Exchange Act within the time periods required by the Exchange Act and the
rules and regulations of the Commission thereunder.
Section 4. Payment of Expenses. (a) Whether or not any sale
of the Securities is consummated, the Company agrees to pay and bear all costs
and expenses incident to the performance of all of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto and the cost of furnishing copies thereof to
the Underwriters, (ii) the preparation, of this Agreement[, the Indenture] and
certificates for the Securities, including any stock or other transfer taxes
and any stamp or other duties payable upon the sale, issuance or delivery of
the Securities to the Underwriters and such other documents as may be required
in connection with the offering, purchase, sale, issuance or delivery of the
Securities to the Underwriters, (iii) the fees and disbursements of the
Company's counsel and, accountants, (iv) the qualification of the Securities
under the applicable state securities or "blue sky" laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and up to $10,000 in
respect of fees and disbursements of counsel to the Underwriters in connection
therewith and in connection with the preparation of any survey of state
securities or "blue sky" laws or legal investment memoranda required for the
sale of the Securities, (v) the printing and delivery to the Underwriters of
copies of each preliminary prospectus and of the Prospectus and any amendments
or supplements thereto prepared, (vi) the fees and expenses of any transfer
agent or registrar for the Securities, (vii) the filing fees incident to, and
the reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Securities, (viii) the fees
and expenses incurred in connection with the listing of the Securities, [(ix)
the fees and expenses of the Trustee in connection with the Indenture and the
Securities, (x) any fees payable in connection with the rating of the
Securities] and (xi) all expenses (including travel expenses) of the Company
in connection with any meetings with prospective investors in the Securities.
(b) If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 5 hereof is not satisfied or because this Agreement is
terminated pursuant to Section 9(a)(i) or because of any failure, refusal or
inability on the part of the Company to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder other than by
reason of a default by an Underwriter in payment for the Securities at the
Closing Time, the Company agrees to reimburse the Underwriters promptly upon
demand for all reasonable out-of-pocket expenses (including reasonable fees
and disbursements of their counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
Section 5. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Securities
are subject to the continued accuracy, as of the Closing Time and at each Date
of Delivery, of the representations and warranties of the Company herein
contained, to the accuracy of the statements of the Company and officers of
the Company made in any certificate pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) The Registration Statement has become effective and at the
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A Prospectus shall
have been filed with the Commission in accordance with Rule 424(b).
(b) At the Closing Time, the Underwriters shall have received the
opinion of Davis Polk & Wardwell, counsel to the Company, dated as of the
Closing Time, in substantially the form set forth below and otherwise
reasonably satisfactory to the Underwriters and counsel for the Underwriters,
to the effect that:
(i) No consent, waiver, approval, authorization, license,
qualification or order of or filing or registration with any court or
governmental or regulatory agency or body is required for the execution and
delivery by the Company of this Agreement [or the Indenture] or for the issue
and sale of the Securities, or the performance by the Company of its
obligations under this Agreement [or the Indenture], or for the consummation
of any of the transactions contemplated hereby, except such as have been
obtained under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of the
Securities by the Underwriters in the manner contemplated in this Agreement
and in the Prospectus;
(ii) The execution and delivery of this Agreement [and the
Indenture], the issuance, sale and delivery of the Securities and performance
by the Company of this Agreement and the Indenture and the consummation by the
Company of the transactions contemplated in this Agreement, and the Prospectus
and the compliance by the Company with the terms of the foregoing do not, and,
at the Closing Time, will not, conflict with or constitute or result in a
breach or violation by the Company, any of the "significant subsidiaries" (as
defined in Section 210.1-02 of Regulation S-X) of the Company (each a
"Significant Subsidiary") of any law, statute, rule, or regulation or any
order, decree or judgment known to such counsel to be applicable to the
Company or any Significant Subsidiary, of any court or governmental or
regulatory agency or body or arbitrator known to such counsel to have
jurisdiction over the Company or any of the Subsidiaries or any of their
respective properties or assets;
[(iii) The Indenture (assuming due authorization) has been duly
executed and delivered by the Company and (assuming due authorization and
execution by the Trustee) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
as the enforcement thereof may be limited by the Enforceability Limitations;]
[(iv) Each of the Securities, when executed and authenticated
in accordance with the provisions of the Indenture and delivered and paid for
in accordance with the terms of this Agreement, will be entitled to the
benefits of the Indenture and will be valid and binding obligations of the
Company, enforceable in accordance with its terms except as the enforceability
thereof may be limited by the Enforceability Limitations;]
(v) The Indenture has been duly qualified under the TIA;
(vi) The statements in the Prospectus under the headings
"Description of the [Securities]" insofar as such statements purport to
summarize certain provisions of the [Securities] provide a fair summary of
such provisions of such agreements and instruments;
(vii) The Company is not and, after giving effect to the
offering and sale of the Securities and the application of the proceeds
therefrom as described in the Prospectus, will not be an "investment company"
as such term is defined in the Investment Company Act of 1940, as amended;
(viii) The Registration Statement has been declared effective
under the Act; any required filing of the Prospectus pursuant to Rule 424(b)
has been made in the manner and within the time period required by Rule
424(b); and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued under the Act and
no proceedings for that purpose have been instituted or are pending or
threatened by the Commission;
(ix) The Registration Statement, the Prospectus and each
amendment or supplement to the Registration Statement and Prospectus as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included therein or omitted therefrom, as to which
such counsel need express no opinion) complied as to form in all material
respects with the requirements of the Act and the 1933 Act Regulations;
(x) The documents incorporated by reference in the Prospectus
(other than the financial statements and supporting schedules included therein
or omitted therefrom, as to which we need express no opinion), comply as to
form in all material respects with the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission thereunder;
and
[In addition such counsel shall state that such counsel has
participated in conferences with representatives of the Underwriters, officers
and other representatives of the Company and representatives of the
independent certified accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and the business and
affairs of the Company and the Subsidiaries were discussed, and although such
counsel has not verified and does not pass upon or assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement (except and only to the extent set forth in clause (6)
above), on the basis of the foregoing, no facts have come to the attention of
such counsel which lead such counsel to believe that the Registration Statement
or any amendment thereto, at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto at the time the Prospectus was issued, at the
time any such amended or supplemented prospectus was issued or at the Closing
Time, included or includes an untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need not express any comment
with respect to the financial statements, including the notes thereto and
supporting schedules, or any other financial or statistical data set forth or
referred to in the Registration Statement or Prospectus)].
In rendering such opinions, such counsel (A) need not express
any opinion with regard to the application of laws of any jurisdiction other
than the Federal law of the United States and the laws of the State of New
York and (B) may rely, as to matters of fact, to the extent they deem proper on
representations or certificates of responsible officers of the Company and
certificates of public officials.
(c) At the Closing Time, the Underwriters shall have received the
opinion of [ ] counsel for the Company, dated as
of the Closing Time, in the form set forth below and otherwise reasonably
satisfactory to the Underwriters and counsel for the Underwriters, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing under the laws of the State of Pennsylvania, with corporate power and
authority to own, lease and operate its assets and properties and conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement, the Securities [and the Indenture;] the
Company is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect;
(ii) The execution and delivery of this Agreement has been
duly authorized by the Company.
(iii) The execution and delivery of the Securities have been
duly authorized by the Company;
[(iv) The Indenture has been duly authorized by the Company.]
(v) The shares of Common Stock /Preferred Stock issuable
hereunder have been duly authorized and reserved for issuance and, when issued
and delivered pursuant to the terms of the Indenture, will be validly issued,
fully paid and non-assessable and will not be subject to preemptive rights
arising by operation of law, the Articles of Incorporation or the By-laws of
the Company.
(vi) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the column "Actual" under
the caption "Capitalization"; the shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; and none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or other
similar rights of any security holder of the Company.
(vii) The statements in the Prospectus under "Description of
Capital Stock," insofar as such statements constitute a summary of the legal
matters, documents or proceedings referred to therein, fairly summarize the
matters referred to therein.
(viii) The issuance, sale and delivery of the Securities, the
execution, delivery and performance by the Company of this Agreement and the
Indenture and the consummation by the Company of the transactions contemplated
hereby and the compliance by the Company with the terms of the foregoing do
not, and, at the Closing Time, will not, conflict with or constitute or result
in a breach or violation by the Company or any of the Subsidiaries of any
provision of the Articles of Incorporation or By-laws of the Company.
(ix) Each of the Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, has the requisite power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing individually or in the
aggregate would not result in a Material Adverse Effect; all of the issued and
outstanding capital stock or other ownership interests of each of the
Subsidiaries has been duly authorized and validly issued, is fully paid and
non-assessable and, to such counsel's knowledge and information, except as set
forth in the Prospectus, is owned by the Company directly, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, claim or equity;
(x) The issuance, sale and delivery of the Securities, the
execution, delivery and performance by the Company of this Agreement [and the
Indenture] and the consummation by the Company of the transactions
contemplated hereby and the compliance by the Company with the terms of the
foregoing do not, and, at the Closing Time, will not, conflict with or
constitute or result in a breach or violation by the Company or any of the
Subsidiaries of any of the terms or provisions of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) by the Company, or give rise to any right to accelerate the maturity
or require the prepayment of any indebtedness under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any Subsidiary under any material Contract known to such
counsel, except where any such conflict, breach, violation or default would
not result in a Material Adverse Effect;
(xi) To the knowledge of such counsel, other than as described
in the Prospectus, no legal, regulatory or governmental proceedings are
pending to which the Company or any of the Subsidiaries is a party or to which
the property or assets of the Company or any of the Subsidiaries are subject
which, individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect or which, individually or in the aggregate, could
have a material adverse effect on the power or ability of the Company to
perform its obligations under this Agreement or the Indenture or to consummate
the transactions contemplated hereby or by the Prospectus and to the knowledge
of such counsel, no such material proceedings have been threatened against the
Company or any of the Subsidiaries or with respect to any of their respective
assets or properties;
(xii) Neither the Company nor any of the Subsidiaries is in
violation of its respective Organizational Documents; to the knowledge of such
counsel, no default by the Company or any of the Subsidiaries exists in the
due performance or observance of any material obligation, agreement, covenant
or condition contained in any Contract; and to the knowledge of such counsel,
none of the Company or the Subsidiaries is in breach or violation of any law,
statute, rule or regulation, or any judgment, decree or order or governmental
or regulatory agency or other body having jurisdiction over the Company or any
of the Subsidiaries or any of their respective properties or assets except, in
each case, violations, defaults or breaches that individually or in the
aggregate would not have a Material Adverse Effect.
In addition such counsel shall state that such counsel has
participated in conferences with representatives of the Underwriters, officers
and other representatives of the Company and representatives of the
independent certified accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and the business and
affairs of the Company and the Subsidiaries were discussed, and although such
counsel has not verified and does not pass upon or assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement, on the basis of the foregoing, no facts have come to
the attention of such counsel which lead such counsel to believe that the
Registration Statement or any amendment thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which such counsel need not express any statement), at the
time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
at the time the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading (it being
understood that such counsel need not express any comment with respect to the
financial statements, including the notes thereto and supporting schedules, or
any other financial data set forth or referred to in the Registration
Statement or Prospectus).
In rendering such opinions, such counsel (A) need not express
any opinion with regard to the application of laws of any jurisdiction other
than the Federal law of the United States and the laws of the State of New
York and the laws of the Commonwealth of Pennsylvania and (B) may rely, as to
matters of fact, to the extent they deem proper on representations or
certificates of responsible officers of the Company and certificates of public
officials.
(d) At the Closing Time, the Underwriters shall have received the
opinion of ___________, regulatory counsel to the Company, dated as of the
Closing Time, with respect to certain matters as one reasonably requested by
the Underwriters.
(e) The Underwriters shall have received the opinion, dated as of
the Closing Time, of , counsel for the Underwriters, with
respect to certain matters as are reasonably requested by the Underwriters.
In rendering such opinions, such counsel (A) need not express
any opinion with regard to the application of laws of any jurisdiction other
than the Federal laws of the United States and the laws of the State of New
York and (B) may rely, as to matters of fact, to the extent they deem proper on
representations or certificates of responsible officers of the Company and
certificates of public officials.
In addition, such counsel shall additionally state that such
counsel has participated in conferences with officers and other
representatives of the Company and representatives of the independent
accountants for the Company at which conferences the contents of the
Prospectus and the Registration Statement and related matters were discussed
and, although given the limitations inherent in the role of outside counsel
and the character of determinations involved in the preparation of the
Registration Statement, such counsel is not passing upon and does not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and has made no independent
check or verification thereof, on the basis of the foregoing, no facts have
come to the attention of such counsel which would lead such counsel to believe
that the Registration Statement or any amendment thereto, at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement thereto at
the time the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief with respect to the
financial statements, including the notes thereto, or any other financial or
statistical data found in or derived from the internal accounting and other
records of the Company and its subsidiaries set forth or referred to in the
Registration Statement or Prospectus).
(f) The following conditions contained in clauses (i) and (ii) of
this subsection (g) shall have been satisfied at and as of the Closing Time
and the Company shall have furnished to the Underwriters a certificate, signed
by the Chairman of the Board or the President and the principal financial or
accounting officer of the Company, dated as of the Closing Time, to the effect
that the signers of such certificate have carefully examined the Registration
Statement and Prospectus, any amendment or supplement thereto, and this
Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of the
Closing Time with the same effect as if made at the Closing Time;
(ii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any amendment or supplement thereto),
there has been no Material Adverse Change, whether or not arising in the
ordinary course of business. As used in this subparagraph, the term
"Prospectus" means the Prospectus in the form first used to confirm sales of
the Securities;
(iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior
to the Closing Time; and
(iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are contemplated by the Commission.
(g) On the date hereof and at the Closing Time, Pricewaterhouse
Coopers LLP shall have furnished to the Underwriters a letter or letters, dated
respectively as of the date of this Agreement and as of the Closing Time, in
form and substance satisfactory to the Underwriters, confirming that they are
independent certified public accountants within the meaning of the Act and the
applicable published rules and regulations thereunder and containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to financial statements of the Company
and certain financial information contained in the Registration Statement, in
form and substance satisfactory to counsel for the Underwriters.
(h) Subsequent to the date hereof or, if earlier, the dates as of
which information is given in the Prospectus (exclusive of any amendment or
supplement thereto), there shall not have been any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company and its Subsidiaries the effect of which is, in the sole judgment
of the Underwriters, so material and adverse as to make it impractical or
inadvisable to proceed with the purchase and the delivery of the Securities as
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).
(i) In the event that the Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company or any
subsidiary of the Company hereunder shall be true and correct as of each Date
of Delivery and, at the relevant Date of Delivery, the Underwriters shall have
received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the Chairman of the Board or the President and the principal
financial or accounting officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(g) hereof remains true and
correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion
of Davis Polk & Wardwell, counsel for the Company, together with the favorable
opinion of [ ] counsel for the Company, [ ]
+regulatory counsel for the Company, each in form and substance satisfactory
to counsel for the Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinions required by Sections 5(b), (c), and (d)
hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
opinion of , counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by Section
5(e) hereof.
(iv) Bring-down Comfort Letter. A letter from
Pricewaterhouse Coopers LLP, in form and substance satisfactory to the
Underwriters and dated such Date of Delivery, substantially in the same form
and substance as the letter furnished to the Underwriters pursuant to Section
5(h) hereof, except that the "specified date" in the letter furnished pursuant
to this paragraph shall be a date not more than five days prior to such Date
of Delivery.
(j) At the Closing Time and at each Date of Delivery, counsel for
the Underwriters shall have been furnished with such information, certificates
and documents as they may reasonably require for the purpose of enabling them
to pass upon the issuance and sale of the Securities as contemplated herein and
related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all opinions and certificates mentioned above or
elsewhere in this Agreement shall be reasonably satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
If any condition specified in this Section 5 shall not have
been fulfilled when and as required to be fulfilled, this Agreement or, in the
case of any condition to the purchase of Option Securities on a Date of
Delivery which is after the Closing Time, the obligations of the Underwriters
to purchase the relevant Option Securities, may be terminated by the
Underwriters by notice to the Company, and such termination shall be without
liability of any party to any other party except as provided in Section 4.
Notwithstanding any such termination, the provisions of Sections 1, 6, 7 and 8
shall remain in effect. Notice of such cancellation shall be given to the
Company in writing or by telephone, facsimile transmission or telegraph
confirmed in writing. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and counsel for the Underwriters shall
reasonably request.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriters, their respective affiliates, and each person, if any, who
controls any Underwriter or their respective affiliates within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, and their respective
directors, officers, employees and agents, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
Registration Statement (or any amendment thereto), or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact included in
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, joint or several, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or of
any claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of one counsel chosen by
(in addition to any local counsel)), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not
apply to any loss, liability, claim, damage or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through expressly
for use in the Registration Statement (or any amendment or supplement thereto)
or the Prospectus (or any amendment or supplement thereto).
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, each of its officers
who signed the Registration Statement and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section 6, as
incurred, but only with respect untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment or supplement thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, enclosing a
copy of all papers properly served on such indemnified party, but failure to so
notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. In the
case of parties indemnified pursuant to Section 6(a) or (b) above, one counsel
to the indemnified parties shall be selected by , and, in the
case of parties indemnified pursuant to Section 6(c) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party
may participate at its own expense in the defense of any such action;
provided, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party.
Notwithstanding the foregoing, if it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action. In no
event shall the indemnifying parties be liable for the fees and expenses of
more than one counsel (in addition to local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances. No indemnifying party
shall, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or
Section 7 hereof (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and the
offer and sale of any Securities and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as to which such indemnified party is liable pursuant to Section 6(a)
or (b), as the case may be, such indemnifying party agrees that it shall be
liable for any settlement of the nature contemplated by Section 6(a)(ii)
effected without its written consent if (i) such settlement is entered into
more than 45 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms
of such settlement at least 30 days prior to such settlement being entered
into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
Section 7. Contribution. If the indemnification provided for
in Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as
well as any other relevant equitable considerations.
The relative benefits received by the Company and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 7.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial Securities set forth
opposite their respective names in Schedule A hereto and not joint.
Section 8. Representations, Warranties and Agreements To
Survive Delivery. All representations, warranties, indemnities, agreements
and other statements of the Company and its officers contained in or made
pursuant to this Agreement shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, by or on behalf of the Company, and shall
survive delivery and payment for the Securities to the Underwriters.
Section 9. Termination of Agreement.
(a) Termination: General. The Underwriters may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing
Time if (i) there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Prospectus
and on or prior to the Closing Time, any Material Adverse Change with respect
to the Company and its subsidiaries, taken as a whole and whether or not
arising in the ordinary course of business, or (ii) since the date of this
Agreement and on or prior to the Closing Time, (A) there has occurred any
outbreak of hostilities or escalation of existing hostilities or other
national or international calamity or crisis or any change or development
involving a prospective change in national or international political,
financial or economic conditions, in each case, the effect of which on the
financial securities markets of the United States is such as to make it, in
the judgment of the Underwriters, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (B) trading in any
securities of the Company has been suspended or limited by the Commission or
trading generally on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market has been suspended, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices for
securities generally have been required, by any such exchange or by order of
the Commission, the NASD or any other governmental authority or (C) a general
banking moratorium has been declared by either Federal or New York
authorities. As used in this Section 9(a), the term "Prospectus" means the
Prospectus in the form first used to confirm sales of the Securities.
(b) If this Agreement is terminated pursuant to this Section 9,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, provided that Sections 1, 6, 7, and 8
shall survive such termination and remain in full force and effect.
(c) This Agreement may also terminate pursuant to the provisions of
Section 5, with the effect stated in such Section.
Section 10. Default by One or More of the Underwriters. If
one or more of the Underwriters shall fail at the Closing Time or a Date of
Delivery to purchase the Securities which it is obligated to purchase under
this Agreement (the "Defaulted Securities"), the other Underwriters shall have
the right, but not the obligation, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Underwriters shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Company to sell the
Option Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the Underwriters to purchase and the Company to sell the
relevant Option Securities, as the case may be, either the Underwriters or the
Company shall have the right to postpone Closing Time or the relevant Date of
Delivery, as the case may be, for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectus or
in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
Section 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to
, attention: , and notices to the Company shall be
directed to Commonwealth Telephone Enterprises, Inc., 105 Carnegie Center,
Princeton, NJ 08540, attention: Chief Executive Officer, with a copy to
[ ].
Section 12. Information Supplied by the Underwriters.
[ ]
Section 13. Parties. This Agreement shall inure to the
benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters, their respective affiliates and the Company and its
successors and legal representatives and the controlling persons and officers,
directors, employees and agents referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under, by virtue of or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriters their
respective affiliates and the Company and its successors and legal
representatives, and said controlling persons and officers, directors,
employees and agents and their heirs and legal representatives, and said
controlling persons and officers, directors, employees and agents and their
heirs and legal representatives, and for the benefit of no other person, firm
or corporation. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
Section 14. Governing Law and Time. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
Specified times of day refer to New York time.
Section 15. Counterparts. This Agreement may be executed in
one or more counterparts and, when each party has executed a counterpart, all
such counterparts taken together shall constitute one and the same agreement.
[Signature page follows]
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Underwriters and the Company in accordance with its terms.
Very truly yours,
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
By:
-----------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
By:
By:
---------------------------------
Name:
Title:
SCHEDULE A
Principal
Amount of
Initial
Name of Underwriter Securities
- ------------------- -----------
.......................................... $
..........................................
..........................................
_________
Total............................... $
SCHEDULE B
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
% Convertible Subordinated Notes due
1. The initial public offering price of the Securities shall be
100% of the principal amount thereof, plus accrued interest, if any, from the
date issuance.
2. The purchase price to be paid by the several Underwriters
shall be % of the principal amount thereof.
3. The interest rate on the Securities shall be % per
annum.
4. The Securities shall be convertible into shares of Common
Stock, par value $1.00 per share, of the Company at an initial conversion
price of $ per share.
SCHEDULE C
List of persons and entities subject to lock-up
Exhibit A
[Form of lock-up from directors, officers or other stockholders
pursuant to Section 5(l)]
, 1998
[Underwriters]
Re: Proposed Public Offering by Commonwealth Telephone
Enterprises, Inc.
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director] of
Commonwealth Telephone Enterprises, Inc., a Pennsylvania corporation (the
"Company"), understands that [Underwriters] propose to enter into a
Underwriting Agreement (the "Underwriting Agreement") with the Company
providing for the public offering of shares (the "Securities") of the Company's
common stock, par value $1.00 per share (the "Common Stock"). In recognition
of the benefit that such an offering will confer upon the undersigned as a
stockholder [and an officer and/or director] of the Company, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agrees with each underwriter to be named
in the Underwriting Agreement that, during a period of [90] days from the date
of the Underwriting Agreement, the undersigned will not, without the prior
written consent of [Underwriter], directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale
of, or otherwise dispose of or transfer any shares of the Company's Common
Stock or any securities convertible into or exchangeable or exercisable for
Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or file any registration statement under the Securities Act of
1933, as amended, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
-------------------------------
Print Name: (i)(a)(1)(i)
- --------------------------------------------------------------------------------
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
------------------------------------
INDENTURE
Dated as of , 1998
------------------------------------
Trustee
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions...................................................2
SECTION 1.02. Other Definitions.............................................7
SECTION 1.03. Trust Indenture Act Provisions................................7
SECTION 1.04. Rules of Construction.........................................8
ARTICLE 2
THE SECURITIES
SECTION 2.01. Form and Dating...............................................9
SECTION 2.02. Execution and Authentication..................................10
SECTION 2.03. Registrar, Paying Agent and Conversion Agent..................11
SECTION 2.04. Paying Agent to Hold Money in Trust...........................11
SECTION 2.05. Securityholder Lists..........................................12
SECTION 2.06. Transfer and Exchange.........................................12
SECTION 2.07. Replacement Securities........................................13
SECTION 2.08. Outstanding Securities........................................14
SECTION 2.09. Treasury Securities...........................................14
SECTION 2.10. Temporary Securities..........................................15
SECTION 2.11. Cancellation..................................................15
SECTION 2.12. CUSIP, ISIN and CINS Numbers..................................15
SECTION 2.13. Book-entry Provisions for the Global Certificates.............15
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01. Right to Redeem; Notice to Trustee............................17
SECTION 3.02. Selection of Securities to Be Redeemed........................17
SECTION 3.03. Notice of Redemption..........................................18
SECTION 3.04. Effect of Notice of Redemption................................19
SECTION 3.05. Deposit of Redemption Price...................................19
SECTION 3.06. Securities Redeemed in Part...................................19
SECTION 3.07. Conversion Arrangement on Call for Redemption.................19
SECTION 3.08. Purchase of Securities at Option of the Holder Upon
Change in Control...................................................20
SECTION 3.09. Effect of Change in Control Purchase Notice...................24
SECTION 3.10. Deposit of Change in Control Purchase Price...................25
SECTION 3.11. Securities Purchased in Part..................................26
SECTION 3.12. Compliance with Securities Laws Upon Purchase of
Securities..........................................................26
SECTION 3.13. Repayment to the Company......................................26
ARTICLE 4
CONVERSION
SECTION 4.01. Conversion Privileges.........................................27
SECTION 4.02. Conversion Procedure..........................................28
SECTION 4.03. Fractional Shares.............................................29
SECTION 4.04. Taxes on Conversion...........................................29
SECTION 4.05. Company to Provide Stock......................................29
SECTION 4.06. Adjustment of Conversion Price................................30
SECTION 4.07. No Adjustment.................................................33
SECTION 4.08. Adjustment for Tax Purposes...................................34
SECTION 4.09. Notice of Adjustment..........................................34
SECTION 4.10. Notice of Certain Transactions................................34
SECTION 4.11. Effect of Reclassification, Consolidation, Merger or Sale
on Conversion Privilege.............................................35
SECTION 4.12. Trustee's Disclaimer..........................................36
SECTION 4.13. Voluntary Reduction...........................................37
ARTICLE 5
COVENANTS
SECTION 5.01. Payment of Securities.........................................37
SECTION 5.02. SEC Reports...................................................37
SECTION 5.03. Compliance Certificates.......................................38
SECTION 5.04. Notice of Defaults............................................38
SECTION 5.05. Further Instruments and Acts..................................39
SECTION 5.06. Liquidation...................................................39
SECTION 5.07. Reservation of Shares of Common Stock for Issuance Upon
Conversion..........................................................39
ARTICLE 6
SUCCESSOR CORPORATION
SECTION 6.01. When Company May Merge, Etc...................................39
SECTION 6.02. Successor Corporation Substituted.............................40
ARTICLE 7
DEFAULT AND REMEDIES
SECTION 7.01. Events of a Default...........................................40
SECTION 7.02. Acceleration..................................................42
SECTION 7.03. Other Remedies................................................43
SECTION 7.04. Waiver of Defaults and Events of Default......................43
SECTION 7.05. Control by Majority...........................................43
SECTION 7.06. Limitations on Suits..........................................44
SECTION 7.07. Rights of Holders to Receive Payment and to Convert...........44
SECTION 7.08. Collection Suite by Trustee...................................44
SECTION 7.09. Trustee May File Proofs of Claim..............................45
SECTION 7.10. Priorities....................................................45
SECTION 7.11. Undertaking for Costs.........................................46
SECTION 7.12. Waiver of Usury, Stay or Extension Laws.......................46
ARTICLE 8
TRUSTEE
SECTION 8.01. Duties of Trustee.............................................46
SECTION 8.02. Rights of Trustee.............................................48
SECTION 8.03. Individual Rights of Trustee..................................48
SECTION 8.04. Trustee's Disclaimer..........................................48
SECTION 8.05. Notice of Default or Events of Default........................49
SECTION 8.06. Reports by Trustee to Holders.................................49
SECTION 8.07. Compensation and Indemnity....................................49
SECTION 8.08. Replacement of Trustee........................................50
SECTION 8.09. Successor Trustee by Merger, Etc..............................51
SECTION 8.10. Eligibility, Disqualification.................................52
SECTION 8.11. Preferential Collection of Claims Against Company.............52
ARTICLE 9
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 9.01. Satisfaction and Discharge of Indenture.......................52
SECTION 9.02. Application of Trust Money....................................53
SECTION 9.03. Repayment to Company..........................................53
SECTION 9.04. Reinstatement.................................................54
ARTICLE 10
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders...................................54
SECTION 10.02. With Consent of Holders......................................55
SECTION 10.03. Compliance with Trust Indenture Act..........................56
SECTION 10.04. Revocation and Effect of Consents............................56
SECTION 10.05. Notation on or Exchange of Securities........................57
SECTION 10.06. Trustee to Sign Amendments, Etc..............................57
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act Controls.................................57
SECTION 11.02. Notices......................................................57
SECTION 11.03. Communications by Holders with Other Holders.................58
SECTION 11.04. Certificate and Opinion as to Conditions Precedent...........58
SECTION 11.05. Record Date for Vote or Consent of Securityholders...........59
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar and
Conversion..........................................................60
SECTION 11.07. Legal Holidays...............................................60
SECTION 11.08. Governing Law................................................60
SECTION 11.09. No Adverse Interpretation of Other Agreements................60
SECTION 11.10. No Recourse Against Others...................................60
SECTION 11.11. Successors...................................................60
SECTION 11.12. Multiple Counterparts........................................61
SECTION 11.13. Separability.................................................61
SECTION 11.14. Table of Contents, Headings, Etc.............................61
ARTICLE 12
SUBORDINATION
SECTION 12.01. Securities Subordinated to Senior Indebtedness...............61
SECTION 12.02. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation, Reorganization, Etc., of
the Company.........................................................62
SECTION 12.03. Securityholders to be Subrogated to Right of Holders of
Senior Indebtedness.................................................63
SECTION 12.04. Obligations of the Company Unconditional.....................64
SECTION 12.05. Company Not to Make Payment with Respect to
Securities in Certain Circumstances.................................64
SECTION 12.06. Notice to Trustee............................................66
SECTION 12.07. Application by Trustee of Money Deposited with It............66
SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions
of Company or Holders of Senior Indebtedness........................67
SECTION 12.09. Trustee to Effectuate Subordination..........................67
SECTION 12.10. Right of Trustee to Hold Senior Indebtedness.................67
SECTION 12.11. Article 12 Not to Prevent Events of Default..................68
SECTION 12.12. No Fiduciary Duty Created to Holders of Senior
Indebtedness........................................................68
SECTION 12.13. Article Applicable to Paying Agents..........................68
EXHIBIT A-1
THIS INDENTURE dated as of , 1998, is between Commonwealth Telephone
Enterprises, Inc., a Pennsylvania corporation (the "Company"), and
, a New York banking corporation, as Trustee (the "Trustee").
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 %
[Convertible Subordinated Notes] due [ ]:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. 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.
"Agent" means any Registrar, Paying Agent or Conversion Agent.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board of Directors.
"Business Day" means a day that is not a Legal Holiday.
"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.
"Cedel" means Cedel Bank, societe anonyme.
"Common Stock" means the common stock of the Company, $1.00 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.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture, and thereafter means the
successor.
"Conversion Agent" has the meaning set forth in Section 2.3.
"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 , 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.
"Default" or "default" means any event which is, or after notice or
passage of time, or both, would be an Event of Default.
"Definitive Securities" has the meaning set forth in Section 2.1.
"Depository" or "DTC" means The Depository Trust Company, its nominees
and their respective successors.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.
"Global Certificates" has the meaning set forth in Section 2.1.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time
to time pursuant to the terms of this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or preference
or priority or other encumbrance upon or with respect to any property of any
kind; provided, that in no event shall an operating lease be deemed to
constitute a Lien. A person shall be deemed to own subject to Lien any property
which such person has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement.
"Material Joint Venture" means a Joint Venture that, as of the end of
the most recent four-quarter period, had (i) total assets which exceeded 10
percent of the total combined assets of the Company at the end of such period
or (ii) total revenues which exceeded 15 percent of the total combined revenues
of the Company for such period.
"Maturity" means (i) when used with respect to the Securities, , [ ]
and (ii) when used with respect to any indebtedness of the Company other than
the Securities, the date specified in the instrument governing such
indebtedness as the fixed date on which the principal of such indebtedness, or
any installment of interest thereon, is due and payable.
"Officer" means the Chairman or any Co-Chairman of the Board, any Vice
Chairman of the Board, the President, any Vice President, the Chief Financial
Officer, the Secretary or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers;
provided, however, that for purposes of Section 5.3, "Officers' Certificate"
means a certificate signed by the principal executive officer, principal
financial officer or principal accounting officer of the Company.
"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.
"Paying Agent" has the meaning set forth in Section 2.3.
"Permitted Holders" means Peter Kiewit Sons' Inc., Level 3
Communications Inc. and Level 3 Telecom Holdings, Inc. and any of their
respective controlled affiliates.
"Person" or "person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock
company, trust, or any other entity or organization, including a government or
political subdivision or instrumentality thereof.
"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.
"Registrar" has the meaning set forth in Section 2.3.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities" means the % Convertible Subordinated Notes due [ ] or any
of them (each, a "Security"), as amended or supplemented from time to time,
that are issued under this Indenture.
"Senior Indebtedness" means the principal of, premium, if any,
interest and other amounts payable on or in respect of (i) any indebtedness of
the Company, now or hereafter outstanding, in respect of borrowed money, (ii)
any indebtedness of the Company, now or hereafter outstanding, evidenced by a
bond, note, debenture, capitalized lease, letter of credit or other similar
instrument, (iii) any other written obligation of the Company, now or hereafter
outstanding, to pay money issued or assumed as all or part of the consideration
for the acquisition of property, assets or securities and (iv) any guaranty or
endorsements (other than for collection or deposit in the ordinary course of
business) or discount with recourse of, or other agreement (contingent or
otherwise) to purchase, repurchase or otherwise acquire, to supply or advance
funds or to become liable with respect to (directly or indirectly), any
indebtedness or obligation of any Person of the type referred to in the
preceding clauses (i), (ii) and (iii) now or hereafter outstanding.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
indebtedness evidenced by the Securities, (b) indebtedness that is pursuant to
the instrument creating such indebtedness expressly pari passu or subordinate
or junior in right of payment to Securities, (c) indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company, (d) indebtedness for
goods, materials or services purchased in the ordinary course of business or
indebtedness consisting of trade accounts payable or other current liabilities
incurred in the ordinary course of business, (e) indebtedness of or amounts
owed by the Company for compensation to employees or for services rendered to
the Company, (f) any liability for federal, state, local or other taxes owed or
owing by the Company, (g) indebtedness of the Company to any Subsidiary of the
Company and (h) amounts owing under leases (other than capital leases).
"Subsidiary" means, with respect to the Company, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
the Company, by one or more Subsidiaries of the Company or by the Company and
one or more Subsidiaries and (ii) any other person (other than a corporation),
including, without limitation, a joint venture, in which the Company, one or
more Subsidiaries of the Company or the Company and one or more Subsidiaries,
directly or indirectly, at the date of determination thereof, has at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other person performing similar functions).
For purposes of this definition, any directors' qualifying shares or
investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary.
"TIA" means the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990 and as in effect on the date of this Indenture,
except as provided in Section 10.3, and except to the extent an 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 an security, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not generally traded on the 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 managing director, 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.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof under ordinary circumstances have the power to vote
in the election of the board of directors, managers or trustees of any person
(irrespective of whether or not, at the time, Capital Stock of any other class
or classes shall have, or might have, voting power by reason of the happening
of any contingency).
SECTION 1.02. Other Definitions.
Term Defined In Section
"Bankruptcy Law" 7.1
"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
"Company Order" 2.2
"Conversion Agent" 2.3
"Conversion Date" 4.2
"Conversion Price" 4.6
"Conversion Shares" 4.6
"Custodian" 7.1
"Determination Date" 4.6
"Distribution Date" 4.6
"Event of Default" 7.1
"Exchange Act" 3.8
"Legal Holiday" 11.7
"NASDAQ" 4.6
"NYSE" 4.6
"Paying Agent" 2.3
"Registrar" 2.3
"Rights" 4.6
"Triggering Distribution" 4.6
"Unissued Shares" 3.8
"U.S. Government Obligations" 9.1
SECTION 1.03. 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.
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 1.04. 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 generally accepted accounting principles in the United
States of America and in effect on the date hereof, and any other reference in
this Indenture to "generally accepted accounting principles" refers to
generally accepted accounting principles in the United States of America and in
effect on the date hereof;
(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 2.01. Form and Dating.
The Securities and the Trustee's certificate of authentication shall
be substantially in the form set forth in Exhibit A, which 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 shall be issued in the form of one or more global
certificates in definitive, fully registered form, without interest coupons,
substantially in the form set forth in Exhibit A (the "Global Certificates"),
deposited with the Trustee, as custodian for the Depository, and registered in
the name of a nominee of the Depository, duly executed by the Company and
authenticated by the Trustee as herein provided. In the event that the
Depository is at any time unwilling or unable to continue as a depository and a
successor depository is not appointed by the Company within 90 days, the
Securities shall be issued in the form of physical Securities in registered
form, without interest coupons, in substantially the form set forth in Exhibit
A (the "Definitive Securities").
Each Global Certificate shall bear the following legend:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR IN SUCH OTHER NAME AS IS REQUIRED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUIRED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL, INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN."
SECTION 2.02. Execution and Authentication.
An Officer shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be affixed to or reproduced on
the Securities and attested by 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 $
(plus up to an additional $ issued pursuant to the exercise of the
over-allotment option described in Section 2(b) of the Purchase Agreement dated
between the Company and ) 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 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
$ , 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.
SECTION 2.03. Registrar, Paying Agent and Conversion Agent.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the "Registrar"), an
office or agency where Securities may be presented for payment (the "Paying
Agent"), an office or a agency where Securities may be presented for conversion
(the "Conversion Agent") 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. The 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, 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 5.1 and Article 9), Registrar or Conversion Agent.
The Company also shall maintain a Registrar, Paying Agent, Transfer
Agent and Conversion Agent in Luxembourg so long as the Securities are listed
on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange
so require.
The Company initially appoints the Trustee as Registrar, Transfer
Agent, Conversion Agent, Paying Agent and agent for service of notices and
demands in connection with the Securities in New York [and [Banque
Internationale a Luxembourg S.A.,] as additional Registrar, Transfer Agent,
Conversion Agent and Paying Agent in Luxembourg.]
SECTION 2.04. Paying Agent to Hold Money in Trust.
Prior to 11:00 a.m., New York City time, on each due date of the
principal of or interest on any Securities, the Company shall deposit with the
Paying Agent a sum sufficient to pay such principal or interest so becoming
due. Subject to Section 12.7, the 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
promptly 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 11:00 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 2.05. 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 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 2.06. Transfer and Exchange.
When a Security is presented to the 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 a written instrument of
transfer in form satisfactory to the Registrar duly executed by the Holder
thereof or its attorney duly authorized in writing. Furthermore, the Depository
shall, by acceptance of a Global Certificate, agree that transfers of
beneficial interests in such Global Certificate may be effected only through a
book-entry system maintained by the Depository (or its agent), and that
ownership of a beneficial interest in the Security shall be required to be
reflected in a book-entry. To permit registration of transfers and exchanges,
upon surrender of any Security for registration of transfer or exchange at the
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. An 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, assessment 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, 3.6, 3.11, 4.2 (last
paragraph) or 10.5.
Neither the Company, the 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 selection 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 there 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.
SECTION 2.07. Replacement Securities.
If any mutilated Security is surrendered to the Company, the Registrar
or the Trustee, or the Company, the 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 Registrar and the Trustee such Security
or indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Company, the 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.
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,
assessment or other governmental charge that may be imposed in relation thereto
and any other expenses (including the 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 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 2.08. 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 the Paying Agent (other than the Company) holds on a redemption
date or maturity date money sufficient to pay the principal of (including
premium, if any) and accrued interest on Securities payable on that date, then
on and after that date such Securities cease to be outstanding and interest on
them ceases to accrue.
Subject to the restriction contained in Section 2.9, a Security does
not cease to be outstanding and need not be cancelled if the Company or an
Affiliate of the Company holds the Security.
SECTION 2.09. 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 or by any Affiliate of the
Company or 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 the Trustee 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.
Notwithstanding the foregoing, for so long as the Securities are listed on the
Luxembourg Stock Exchange, a Security which is held by the Company or an
Affiliate shall be immediately cancelled and may not be held reissued or
resold.
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.
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. The Company may not issue
new Securities to replace Securities it has paid or delivered to the Trustee
for cancellation or that any Holder has converted pursuant to Article 4.
SECTION 2.12. CUSIP, ISIN and CINS Numbers.
The Company in issuing the Securities may use "CUSIP," "ISIN" and
"CINS" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP," "ISIN" and "CINS" numbers, as the case may be, 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," "ISIN" or "CINS"
numbers.
SECTION 2.13. Book-entry Provisions for the Global Certificates.
(a) The Global Certificates initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for the Depository and (iii) bear legends as set forth
in Section 2.1. Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Certificates held on their behalf by the Depository, or the Trustee as its
custodian, and the Depository shall be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Certificates for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall 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 Depository or impair, as between the
Depository and its Agent Members, the operation of customary practices
governing the exercise of the rights of a holder of any Security.
(b) Transfers of any Global Certificate shall be limited to transfers
of such Global Certificate in whole, but not in part, to the Depository, its
successors or their respective nominees. Beneficial interests in any Global
Certificates may be transferred in accordance with the applicable rules and
procedures of the Depository and, if applicable, Euroclear and Cedel. Other
than as permitted in the next sentence, a beneficial owner may not exchange an
interest in a Global Certificate for Definitive Securities. Definitive
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in any Security only if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for such
Global Certificate and a successor Depository is not appointed by the Company
within 90 days of such notice or (ii) the Trustee has instituted or been
directed to institute any judicial proceedings in a court to enforce the rights
of Holders under the Securities and has been advised by counsel that it is
necessary or appropriate to obtain possession of Definitive Securities.
(c) In connection with the transfer of an entire Global Certificate
to beneficial owners pursuant to paragraph (b) of this Section, such Global
Certificate shall be deemed to be surrendered to the Trustee for cancellation,
and the Company shall execute, and the Trustee shall authenticate and deliver,
to each beneficial owner identified by the Depository in exchange for its
beneficial interest in such Global Certificate an equal aggregate principal
amount of Definitive Securities of authorized denominations.
(d) The registered holder of a Global Certificate may grant proxies
and otherwise authorize any person, including Agent Members and persons that
may hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
ARTICLE 3
REDEMPTION AND PURCHASES
SECTION 3.01. 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 , [ ], 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.
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 (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 3.02. 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 by lot, pro rata or by another method the Trustee
considers fair and appropriate. 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
for purposes of selection only (so far as may be) to be the portion selected
for redemption; provided, however, subject to compliance with Article 4, such
Security shall be converted. 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 3.03. Notice of Redemption.
At least 20 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 Registrar's books.
The notice shall identify the Securities to be redeemed and shall
include the CUSIP, ISIN and CINS numbers (if any) and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the then current Conversion Price;
(4) the name and address of the Paying Agent and the Conversion
Agent;
(5) that Securities called for redemption must be presented and
surrendered to the Paying Agent to collect the redemption price;
(6) that the Securities called for redemption may be converted at any
time up to one business day prior to the redemption date;
(7) that Holders who wish to convert Securities must satisfy the
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 upon presentation and surrender
to the 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.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
All notices required to be furnished to the Holders hereunder shall
concurrently therewith be furnished to the Trustee. For so long as the
Securities are listed on the Luxembourg Stock Exchange, the Company shall,
concurrently with the furnishing of such notices to the Holders, furnish such
notices to the Luxembourg Stock Exchange and publish such notices once in the
Luxemburger Wort.
SECTION 3.04. 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, except for Securities that are converted in accordance
with the provisions of Section 4.1. Upon presentation and surrender to the
Paying Agent, Securities called for redemption shall be paid at the redemption
price, plus accrued interest up to but not including the redemption date.
SECTION 3.05. Deposit of Redemption Price.
Prior to 11:00 a.m. New York City time, on the redemption date, the
Company shall deposit with the 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 otherwise. 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 3.06. 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 for and
deliver to the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
SECTION 3.07. Conversion Arrangement on Call for Redemption.
In connection with any redemption of Securities having conversion
privileges specified in paragraph 8 of the form of Security attached hereto as
Exhibit A, 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 the Paying
Agent in trust for the Securityholders, on or before the close of business on
the Redemption Date, an amount that, together with any amounts deposited with
the Paying Agent by the Company for the redemption of such Securities, is not
less than the Redemption Price, together with interest, if any, 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, if any, shall be deemed to be satisfied and discharged to the extent
such amount is so paid by such purchasers. If such an agreement is entered
into, any Securities not duly surrendered for conversion by the Holders thereof
may, at the option of the Company, 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 immediately prior to the close of business on the
Redemption Date, subject to payment of the 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 and conversion 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, including counsel fees.
SECTION 3.08. Purchase of Securities at Option of the Holder Upon
Change in Control.
(a) If at any time that Securities remain outstanding there shall
have occurred a Change in Control, each Holder will have the option to require
the Company to purchase all or any part of such Holder's Securities, as of the
date that is 50 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 at such time
after the initial issuance of the Securities if any of the following shall
occur:
(1) any Person or group, other than the Permitted Holders, is or
becomes owner, directly or indirectly, of shares of capital stock of the
Company representing 50% of the total voting power of all shares of capital
stock of the Company entitling the holders thereof to vote generally in
elections of directors of the Company;
(2) the Company consolidates with, or merges with or into, another
Person or the Company sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of the assets of the Company, or any
Person consolidates with, or merges with or into, the Company, in any such
event other than pursuant to a transaction in which the Person or Persons that
"beneficially owned," directly or indirectly, shares of capital stock of the
Company representing a majority of the total voting power of all classes of
capital stock of the Company immediately prior to such transaction,
"beneficially own," directly or indirectly, shares of capital stock of the
Company representing a majority of the total voting power of all classes of
capital stock of the surviving or transferee Person; or
(3) during any consecutive two year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors of
the Company or whose nomination for election by the 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 (other
than by action of the Permitted Holders) to constitute a majority of the Board
of Directors of the Company then in office.
For purposes of a Change in Control, (i) "group" has the meaning under
Section 13(d) and 14(d) 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 (ii) a "beneficial owner" shall be
determined in accordance with Rule 13d-3 promulgated by the Commission under
the Exchange Act, as in effect on the date of execution of this Indenture,
except that, for purposes of this definition, the number of shares of capital
stock of the Company entitling the holders thereof to vote generally in
elections of directors shall be deemed to include, in addition to all
outstanding shares of capital stock of the Company entitling the holders
thereof to vote generally in the election of directors and Unissued Shares
deemed to be held by the Person with respect to which the Change in Control
determination is being made, all Unissued Shares deemed to be held by all other
Persons. As used herein, "Unissued Shares" shall mean shares of capital stock
of the Company not outstanding that are subject to options, warrants, rights to
purchase or conversion privileges exercisable within 60 days following the date
of determination of a Change in Control and that, upon issuance, will entitle
the holders thereof to vote generally in the election of directors.
Notwithstanding the foregoing, a Change in Control will be deemed not
to have occurred (i) if the last sale price of the Common Stock for any five
Trading Days during the ten Trading Days immediately preceding the Change in
Control is at least equal to % of the Conversion Price in effect immediately
preceding the Change in Control or (ii) if at least % of the consideration
(excluding cash payments for fractional shares or cash payments for appraisal
rights) in the transaction or transactions constituting the Change in Control
consists of shares of Common Stock or securities convertible into shares of
Common Stock that are, or upon issuance will be, traded on a national
securities exchange or through NASDAQ.
(b) Within 20 Business Days after the occurrence of a Change in
Control, the Company shall mail a written notice of 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. For so long as the Securities are listed on the
Luxembourg Stock Exchange, such notice shall also be furnished to the
Luxembourg Stock Exchange and published once in the Luxemburger Wort. The
notice shall include the form of a Change in Control Purchase Notice to be
completed by the Holder and shall include the CUSIP, ISIN and CINS numbers (if
any) 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 the Paying Agent and the 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.
(c) A Holder may exercise its rights specified in subsection (a) of
this Section 3.8 upon delivery of a written notice of the exercise of such
rights (a "Change in Control Purchase Notice") to the Paying Agent at any time
prior to the close of business on the Business Day next preceding the Change in
Control Purchase Date, stating:
(1) the name of the Holder;
(2) the certificate number of each Security that the Holder will
deliver to be purchased;
(3) the portion of the principal amount of each Security that the
Holder will deliver to be purchased, which portion must be $1,000 or an
integral multiple thereof; and
(4) that such Security shall be purchased pursuant to the terms and
conditions specified in this Indenture.
The delivery of such Security to the Paying Agent (together with all
necessary endorsements) at the office of the Paying Agent shall be a condition
to the receipt by the Holder of the Change in Control Purchase Price therefor;
provided, however, that such Change in Control Purchase Price shall be so paid
pursuant to this Section 3.8 only if the Security so delivered to the Paying
Agent shall conform in all respects to the description thereof set forth in the
related Change in Control Purchase Notice.
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 the 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 Control Purchase Date by delivery of a written
notice of withdrawal to the Paying Agent in accordance with Section 3.9.
The Paying Agent shall promptly notify the Company of the receipt by
it of any Change in Control Purchase Notice or written withdrawal thereof.
SECTION 3.09. Effect of Change in Control Purchase Notice.
Upon receipt by the 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 solely 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 the 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 of withdrawal delivered by the Holder to the office of the
Paying Agent at any time prior to the close of business on the Business Day
immediately preceding the Change in Control Purchase Date, specifying:
(1) the name of the Holder;
(2) the certificate number of each Security in respect of which such
notice of withdrawal is being submitted;
(3) the principal amount of the Security or portion thereof with
respect to which such notice of withdrawal is being submitted; and
(4) the principal amount, if any, of such Security that remains
subject to the original Change in Control Purchase Notice and that has been or
will be delivered for purchase by the Company.
There shall be no purchase of any Securities pursuant to Section 3.8
if there has occurred (prior to, on or after, as the case may be, the giving,
by the Holders of such Securities, of the required Change in Control Purchase
Notice) and is continuing an Event of Default (other than a default in the
payment of the Change in Control Purchase Price with respect to such
Securities).
SECTION 3.10. Deposit of Change in Control Purchase Price.
At or before 11:00 a.m., New York City time, on the second Business
Day immediately following a Change in Control Purchase Date, the Company shall
deposit with the Trustee or with the Paying Agent (or, if the Company is acting
as the Paying Agent, shall segregate and hold in trust as provided in Section
2.4) 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 the Paying Agent shall have immediately
available funds on the second Business Day immediately following the Change in
Control Purchase Date.
If the 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, then, on the second Business Day immediately following to the
Change in Control Purchase Date, such Security will cease to be outstanding and
will be deemed paid, whether or not such Security is delivered to the Paying
Agent, and all other rights of the Holder in respect thereof shall terminate
(other than the right to receive the Change in Control Purchase Price upon
delivery of such Security).
SECTION 3.11. Securities Purchased in Part.
Any Security that is to be purchased only in part shall be surrendered
at the office of the Paying Agent (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or such Holder's attorney-in-fact duly authorized in writing), 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 (provided that such offer or purchase constitutes an "issuer
tender offer" for purposes of Rule 13e-4 under the Exchange Act (which term, as
used herein, includes any successor provision thereto) at the time of such
offer or purchase), the Company shall (a) comply with Rule 13e-4 and Rule 14e-1
under the Exchange Act (b) file the related Schedule 13E-4 (or any successor or
similar schedule, form or report) under the Exchange Act, an (c) otherwise
comply with all federal and state securities laws 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 12.7, 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 second Business Day immediately following the Change in
Control Purchase Date, the Trustee or the Paying Agent, as the case may be,
shall return any such excess to the Company.
ARTICLE 4
CONVERSION
SECTION 4.01. Conversion Privileges.
Conversion privileges, if any, shall be specified in paragraph 8 of
the form of Security attached hereto as Exhibit A. Subject to the further
provisions of this Section 4.1, a Holder of a Security that is a convertible
security may convert such Security (or any portion thereof, subject to this
Section 4.1) into Common Stock at any time prior to Maturity, 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 (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); provided, further, that, if the Holder of a Security presents such
Security for redemption prior to the close of business on the Business Day
immediately preceding the redemption date for such Security, the right of
conversion shall terminate upon presentation of the Security to the Trustee
(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 the 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.
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 4.02. Conversion Procedure.
To convert a Security, a Holder mus (a) complete and manually sign the
conversion notice on the back of the Security and deliver such notice to the
Conversion Agent (b) surrender the Security to the Conversion Agent (c) furnish
appropriate endorsements and transfer documents if required by the Registrar or
the Conversion Agent, an (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 the Conversion Agent a certificate for the number
of whole shares of Common Stock issuable upon the conversion, payment for
accrued interest on such Security to the extent required by this Section 4.2
and cash in lieu of any fractional shares pursuant to Section 4.3.
The person in whose name the certificate is registered shall be deemed
to be a shareholder 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. Interest
accrued through and including , [ ] shall be paid on any Security called for
redemption pursuant to Article 3 and surrendered for conversion pursuant to
this Article 4 before the close of business on , [ ]. 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 of
such Security on such record date. In such event, unless such Security has been
called for redemption, such Security, when surrendered for conversion, must be
accompanied by delivery 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
portion so converted. If such payment does not accompany such Security, the
Security shall not be converted. If the Company defaults in the payment of
interest payable on the interest payment date, the Conversion Agent shall repay
such funds to the Holder.
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.
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 4.03. 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 sale price of the Common Stock on the Trading Day
immediately prior to the date of conversion.
SECTION 4.04. 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 4.05. Company to Provide Stock.
The Company shall, prior to issuance of any Securities hereunder, and
from time to time as it 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 or treasury 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 in
the over-the-counter market or such other market on which the Common Stock is
then listed or quoted.
SECTION 4.06. 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 in shares of Common
Stock to all holders of Common Stock, (ii) make a distribution in shares of
Common Stock to all holders 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 in shares 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 less than the current market price per share of Common Stock (as
determined in accordance with subsection (e) of this Section 4.6) at the record
date for the determination of shareholders 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) would
purchase at such current market price, 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 company other than the Company), 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
referred to in subsection (b) of this Section 4.6), then in each such case the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the date of such distribution 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) 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 become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution. Notwithstanding the
foregoing, in the event that the Company shall distribute rights or warrants
(other than those referred to in subsection (b) of this Section 4.6) ("Rights")
pro rata to holders of Common Stock, the Company may, in lieu of making any
adjustment pursuant to this Section 4.6, make proper provision so that each
holder of a Security who converts such Security (or any portion thereof) after
the record date for such distribution and prior to the expiration or redemption
of the Rights shall be entitled to receive upon such conversion, in addition to
the shares of Common Stock issuable upon such conversion (the "Conversion
Shares"), a number of Rights to be determined as follows: (i) if such
conversion occurs on or prior to the date for the distribution to the holders
of Rights of separate certificates evidencing such Rights (the "Distribution
Date"), the same number of Rights to which a holder of a number of shares of
Common Stock equal to the number of Conversion Shares is entitled at the time
of such conversion in accordance with the terms and provisions of and
applicable to the Rights and (ii) if such conversion occurs after the
Distribution Date, the same number of Rights to which a holder of the number of
shares of Common Stock into which the principal amount of the Security so
converted was convertible immediately prior to the Distribution Date would have
been entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights.
(d) 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 all 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 % 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 such 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 amount of cash (plus the fair market value of such
other consideration) so distributed 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.
(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 (1) the
Determination Date with respect to distributions 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 New York
Stock Exchange (the "NYSE") or, if the Common Stock is not listed or admitted
to trading on the NYSE, 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 any national securities exchange, the closing sales price of the
Common Stock as quoted by the Nasdaq National Market ("NASDAQ") or, in case no
reported sale takes place, the average of the closing bid and asked prices as
quoted by 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.
(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, 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
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, effective date or Determination Date therefor is not thereafter made or
paid by the Company for any reason, the Conversion Price shall be readjusted to
the Conversion Price which would then be in effect if such record date had not
been fixed or such effective date or Determination Date had not occurred.
SECTION 4.07. 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 rights to purchase Common Stock or
issuances of Common Stock pursuant to a Company plan for reinvestment of
dividends or interest.
No adjustment need be made 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 4.08. 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 shareholders shall not be taxable.
SECTION 4.09. Notice of Adjustment.
Whenever the Conversion Price 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. For so long as the Securities are listed on the
Luxembourg Stock Exchange, such notice shall also be furnished to the
Luxembourg Stock Exchange and published once in the Luxemburger Wort.
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 Securityholders and file with the Trustee a notice
stating the proposed record or effective date, as the case may be. For so long
as the Securities are listed on the Luxembourg Stock Exchange, such notice
shall also be furnished to the Luxembourg Stock Exchange and published once in
the Luxemburger Wort. The Company shall mail and publish the notice (as
applicable) 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 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; (c) any sale or conveyance of all or substantially all of the property
and assets of the Company to any person, then the Company, or such successor or
purchasing 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
corporation other than the successor or purchasing corporation, as the case may
be, in such consolidation, merger, sale or conveyance, then such supplemental
indenture shall also be executed by such other corporation 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 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.
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 Conversion Price be less
than the par value of a share of Common Stock.
ARTICLE 5
COVENANTS
SECTION 5.01. 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. To the extent lawful, the
Company shall pay interest on overdue principal at the rate borne by the
Securities per annum and shall pay interest on overdue installments of interest
at the same rate.
SECTION 5.02. 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. The Company will cause any quarterly and annual reports which
it makes to its shareholders to be mailed to Holders of the 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.
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 GAAP. 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 60 days after the
end of each of the first three quarters of each fiscal year and within 135 days
after the close of each fiscal year. The Company will also comply with the
other provisions of TIA Section 314(a).
For so long as the Securities are listed on the Luxembourg Stock
Exchange, the Company shall furnish to the Paying and Transfer Agent in
Luxembourg copies of the most recent consolidated financial statements of the
Company for the preceding financial year and any quarterly financial statements
published by the Company.
SECTION 5.03. Compliance Certificates.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company, 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
5.3, compliance shall be determined without regard to any grace period or
requirement of notice provided pursuant to the terms of this Indenture.
SECTION 5.04. Notice of Defaults.
In the even (a) that indebtedness of the Company in an aggregate
principal amount in excess of $ is declared due and payable before its maturity
because of the occurrence of any default under such indebtedness, or (b) of the
occurrence of any event which entitles the holder or holders of such
indebtedness to declare such indebtedness due and payable before its maturity
and with respect to which any applicable grace period has lapsed or expired,
the Company will promptly give written notice to the Trustee of such
declaration or event.
SECTION 5.05. 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 5.06. Liquidation.
The Company shall not adopt any plan of liquidation which provides
for, contemplates or the effectuation of which is preceded b (a) the sale,
lease, conveyance or other disposition of all or substantially all the assets
of the Company otherwise than substantially as an entirety in accordance with
Article 6 an (b) the distribution of all or substantially all the proceeds of
such sale, lease, conveyance or other disposition and the remaining assets of
the Company to holders of the Capital Stock of the Company, unless the Company
shall in connection with the adoption of such plan make provision for, or agree
that prior to making any liquidating distributions it will make provision for,
the satisfaction of the Company's obligations under this Indenture and under
the Securities as to the payment of principal and interest thereof.
SECTION 5.07. Reservation of Shares of Common Stock for Issuance Upon
Conversion.
The Company will at all times cause there to be authorized and
reserved for issuance upon conversion of the Securities such number of shares
of Common Stock as would be issuable upon conversion of all the Securities then
outstanding.
ARTICLE 6
SUCCESSOR CORPORATION
SECTION 6.01. When Company May Merge, Etc.
The Company shall not consolidate with or merge with or into, or
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, a 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, all the obligations of the
Company under the Securities and this Indenture (in which case all such
obligations of the Company shall terminate); and
(b) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company as a result of such
transaction as having been incurred by the Company 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 11.4 and shall state that such consolidation, merger
or transfer and any such supplemental indenture comply with this Article 6 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 6.1.
SECTION 6.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any transfer of all or
substantially all of the property and assets of the Company in accordance with
Section 6.1, the successor corporation formed by such consolidation or into
which the Company is merged or to which such 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.
ARTICLE 7
DEFAULT AND REMEDIES
SECTION 7.01. Events of a Default. An "Event of Default" shall occur
if:
(1) the Company defaults in the payment of interest on any Security
when the same becomes due and payable and the default continues for a period of
30 days;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at maturity, upon redemption or
otherwise;
(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 by the Company having an aggregate
outstanding principal amount in excess of $ , 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, such acceleration having been rescinded or
annulled or there having been deposited in trust a sum of money sufficient to
discharge in full such indebtedness, in each case within a period of 10 days
following the occurrence of such acceleration;
(5) the Company 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 in an involuntary
case or proceeding;
(B) appoints a Custodian of the Company or for all or
substantially all of its property; or
(C) orders the liquidation of the Company;
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 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 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 7.1 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 7.1 is cured, it
ceases.
Subject to the provisions of Sections 8.1 and 8.2, 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, the Paying Agent, any Holder or any agent of any
Holder.
SECTION 7.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (5) or (6) of Section 7.1) occurs and is continuing, the Trustee may, by
notice to the Company, or the Holders of at least 25% in principal amount of
the Securities then outstanding may, by notice to the Company and the Trustee,
and the Trustee shall, upon the request of such Holders, 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 7.1 occurs,
all unpaid principal of and accrued interest on the Securities then outstanding
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of a Trust Officer of the Trustee or any
Securityholder. The Holders of a majority in principal amount of the Securities
then outstanding by notice to a Trust Officer of 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 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 8.7 have been made. Anything herein contained
to the contrary notwithstanding, in the event of any acceleration pursuant to
this Section 7.2, the Company shall not be obligated to pay any premium which
it would have had to pay if it had then elected to redeem the Securities
pursuant to paragraph 5 of the Securities, except in the case of any Event of
Default occurring by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding payment of
the premium which it would have had to pay if it had then elected to redeem the
Securities pursuant to paragraph 5 of the Securities, in which case an
equivalent premium shall also become and be immediately due and
payable to the extent permitted by law.
SECTION 7.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
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 7.04. Waiver of Defaults and Events of Default.
Subject to Sections 7.7 and 10.2, the Holders of a majority in
principal amount of the Securities then outstanding by notice to a Trust
Officer of the Trustee may waive an existing default or Event of Default and
its consequence, except a default in the payment of the principal of or
interest on any Security as specified in clauses (1) and (2) of Section 7.1.
When a default or Event of Default is waived, it is cured and ceases.
SECTION 7.05. 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 Securityholder or the Trustee, or that may
involve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
SECTION 7.06. Limitations on Suits.
A Securityholder 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 a Trust Officer of 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 a Trust Officer of 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;
(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 a Trust Officer of 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 7.07. 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,
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 7.08. Collection Suite by Trustee.
If an Event of Default in the payment of principal or interest
specified in clause (1) or (2) of Section 7.1 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 7.09. 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
Securityholders 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
Securityholder 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
Securityholders, 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 8.7, 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 Securityholders 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 Securityholder, 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 Securityholder
in any such proceeding.
SECTION 7.10. Priorities.
If the Trustee collects any money pursuant to this Article 7, it shall
pay out the money in the following order:
First, to the Trustee for amounts due under Section 8.7;
Second, to the holders of Senior Indebtedness to the extent required
by Article 12;
Third, to Securityholders 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
Securityholders pursuant to this Section 7.10.
SECTION 7.11. 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, 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 7.11 does not apply to a suit made by the Trustee, a suit by a
Holder pursuant to Section 7.7, or a suit by Holders of more than 10% in
principal amount of the Securities then outstanding.
SECTION 7.12. 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 8
TRUSTEE
SECTION 8.01. 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 8.1;
(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 7.5.
(d) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability, expense or fee.
(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 8.1.
(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 8.02. Rights of Trustee.
Subject to Section 8.1:
(a) The Trustee may conclusively rely 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 11.4(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.
SECTION 8.03. 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 8.10 and 8.11.
SECTION 8.04. 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 8.05. Notice of Default or Events of Default.
If a default or an Event of Default occurs and is continuing and if it
is actually known to a Trust Officer of the Trustee, the Trustee shall mail to
each Securityholder notice of the default or Event of Default within 90 days
after it occurs. At the expense of the Company, the Trustee shall also publish
in the Luxemburger Wort any notice mailed to Securityholders pursuant to this
section. 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 8.06. Reports by Trustee to Holders.
If such report is required by TIA Section 313, within 60 days after
each September 1, beginning with the September 1 following the date of this
Indenture, the Trustee shall mail to each Securityholder a brief report dated
as of such September 1 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 and any
changes in the stock exchanges on which the Securities are listed.
SECTION 8.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation for its services as the parties shall agree (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 (which for purposes of this
Section 8.7 shall include its officers, directors, employees and agents) for,
and hold it harmless against, any loss, liability or expense (including
reasonable legal fees and expenses) incurred by it in connection with 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 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
negligence or bad faith.
To secure the Company's payment obligations in this Section 8.7, the
Trustee shall have a lien 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 particular
Securities. The obligations of the Company under this Section 8.7 to compensate
or indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall be secured by a lien prior to that of the
Securities upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the benefit of the Holders of particular
Securities. The obligations of the Company under this Section 8.7 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 7.1 occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 8.08. 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 8.10;
(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.
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 l0% in principal amount of the Securities then outstanding may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 8.10, any Securityholder
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 after receipt of payment for its fees and expenses (including
its fees of counsel and agents) 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 Securityholder.
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
8.8, the Company's obligations under Section 8.7 shall continue for the benefit
of the retiring Trustee.
SECTION 8.09. 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 8.10. Such successor
Trustee shall promptly mail notice of its succession to the Company and each
Securityholder.
SECTION 8.10. Eligibility, Disqualification.
The Trustee shall always satisfy the requirements of paragraphs (1),
(2) and (5) of TIA Section 310(a). 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 8. 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 8.11. 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 9
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 9.01. Satisfaction and Discharge of Indenture.
Subject to applicable rules of any stock exchange or system on which
the Securities are listed or quoted, the Company may terminate all of its
obligations under the Securities and this Indenture (except as to any surviving
rights of conversion, registration of transfer or exchange of Securities herein
expressly provided for), 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 9.3)
have been delivered to the Trustee or Paying Agent for cancellation
and the Company has paid all sums payable by it hereunder; or
(B) the Company irrevocably deposits in trust with the Trustee or the
Paying Agent, pursuant to a written trust agreement satisfactory to
the Trustee, money or U.S. Government Obligations maturing as to
principal and interest in such amounts and at such times as are
sufficient, without consideration of any reinvestment of such
interest, to pay the principal of and interest on the Securities then
outstanding to maturity or to the date fixed for redemption and to pay
all other sums payable by it hereunder. The Company may make an
irrevocable deposit pursuant to this Section 9.1 only if at such time
it is not prohibited from doing so under the provisions of Article 12;
and
(2) the Company has delivered to the Trustee and any such Paying Agent
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 and the provisions of
Article 12 have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 8.7 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 9.2 and the last
paragraph of Section 9.3 shall survive.
"U.S. Government Obligations" means direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States is pledged.
SECTION 9.02. Application of Trust Money.
Subject to the provisions of Section 9.3, the Trustee or the Paying
Agent shall hold in trust, for the benefit of the Holders, all money or U.S.
Government Obligations deposited with it pursuant to Section 9.1, and shall
apply the deposited money and the money from U.S. Government Obligations in
accordance with this Indenture to the payment of the principal of and interest
on the Securities. Money and U.S. Government Obligations so held in trust shall
not be subject to the subordination provisions of Article 12.
SECTION 9.03. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company
upon request any excess money or U.S. Government Obligations held by them at
any time.
The Trustee and the 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 and, for so long
as the Securities are listed on the Luxembourg Stock Exchange, the Luxemburger
Wort, 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, Securityholders entitled to money must look to the
Company for payment as general creditors unless otherwise prohibited by law.
SECTION 9.04. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 9.2 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 9.1 until such time as the Trustee or the Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 9.2; 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 the Paying Agent.
ARTICLE 10
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. 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 6.1;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(c) to cure any ambiguity, defect or inconsistency, or to make any
other change that does not adversely affect the rights of any Securityholder;
(d) to comply with the provisions of the TIA; or
(e) to appoint a successor Trustee.
SECTION 10.02. 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 principal amount of the Securities then outstanding. The Holders of at least
a majority in 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. Subject to
Section 10.4, without the written consent of each Securityholder affected,
however, an amendment, supplement or waiver, including a waiver pursuant to
Section 7.4, may not:
(1) reduce the principal amount of 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 or alter the redemption provisions with respect thereto in a
manner adverse to the Holder thereof;
(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 of the principal of (including any
premium) or interest on any Security;
(6) make any changes in Section 7.4 or in this Section 10.2, except to
increase any percentage in principal amount of outstanding Securities required
for any amendment, supplement or waiver;
(7) modify the provisions of Article 12 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 10.2 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 10.2
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 under this Section 10.2 may not make any change that
adversely affects the rights under Article 12 of any holder of an issue of
Senior Indebtedness unless the holders of that issue, pursuant to its terms,
consent to the change.
SECTION 10.03. 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 10.04. Revocation and Effect of Consents.
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 (7) of Section 10.2. 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 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Company 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 10.06. Trustee to Sign Amendments, Etc.
The Trustee shall sign any amendment or supplement authorized pursuant
to this Article 10 if the amendment or supplement does not adversely affect the
rights, duties, liabilities or immunities of the Trustee, but need not sign any
amendment or supplement that adversely affects the Trustee's rights, duties,
liabilities or immunities. In signing or refusing to sign such amendment or
supplement, the Trustee shall be entitled to receive and, subject to Section
8.1, shall be fully protected in relying upon, an Opinion of Counsel stating
that such amendment or supplement is authorized or permitted by this Indenture.
The Company may not sign an amendment or supplement until the Board of
Directors approves it.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. 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 11.02. 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:
Commonwealth Telephone Enterprises, Inc.
100 CTE Drive
Dallas, Pennsylvania 18612
Attention:Chief Financial Officer
If to the Trustee:
Attention: Corporate Trust Trustee
Administration
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.
Notices to Holders shall be validly given if (i) mailed by first class
mail to them at their respective addresses in the Register and (ii) so long as
the Securities are listed on the Luxembourg Stock Exchange, published in a
daily newspaper having a general circulation in Luxembourg, which is expected
to be the Luxemburger Wort.
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 11.03. 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 11.04. 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 11.05. Record Date for Vote or Consent of Securityholders.
The Company (or, in the event deposits have been made pursuant to
Section 5.6 or 9.1, the Trustee) may set a record date for purposes of
determining the identity of Securityholders entitled to vote or consent to any
action by vote or consent authorized or permitted under this Indenture, which
record date shall be the later of ten days prior to the first solicitation of
such vote or consent or the date of the most recent list of Securityholders
furnished to the Trustee pursuant to Section 2.5 prior to such solicitation.
Notwithstanding the provisions of Section 10.4, if a record date is fixed,
those persons who were Holders of Securities at such record date (or their duly
designated proxies), and only those 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 11.06. Rules by Trustee, Paying Agent, Registrar and
Conversion.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar, Paying Agent or Conversion Agent may make reasonable
rules for its functions.
SECTION 11.07. 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 (or such other
city and state where the Trustee's corporate trust operations are then located)
are not required to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 11.08. Governing Law.
This Indenture and the Securities shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, without
regard to principles of conflicts of law.
SECTION 11.09. 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. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 11.10. No Recourse Against Others.
All liability described in paragraph 17 of the Securities of any
director, officer, employee or shareholder, as such, of the Company is waived
and released.
SECTION 11.11. 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 11.12. 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 11.13. 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 11.14. 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.
ARTICLE 12
SUBORDINATION
SECTION 12.01. 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 12; 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 (including, without limitation, in connection with any redemption of
Securities) shall, to the extent and in the manner hereinafter set forth, be
subordinated and subject 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 12.02. 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, 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 otherwise), then in such event:
(a) all Senior Indebtedness and the reasonable fees and expenses of
the Trustee 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 9.1, 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 12, 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 12,
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 12.2, 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 12, with respect to the
Securities, to the payment of all Senior Indebtedness), shall be received by
the Trustee or the Holders before all Senior Indebtedness is paid in full, such
payment or distribution (subject to the provisions of Sections 12.6 and 12.7)
shall be held in trust for the benefit of, and shall be immediately paid or
delivered by the Trustee 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 12, the Trustee, subject to the provisions of Sections 8.1 and 8.2, 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 12.
SECTION 12.03. Securityholders 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 12, and no payment pursuant to the
provisions of this Article 12 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 12 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 12.04. Obligations of the Company Unconditional.
Nothing contained in this Article 12 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, 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 7, and the rights,
if any, under this Article 12 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 12.05. 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, interest on or other amount due in respect of any Senior
Indebtedness, as such default is defined under or in respect of such Senior
Indebtedness or in any 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 12.5 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 immediately accelerate the maturity thereof, and upon
written notice thereof given to the Company and a Trust Officer of the Trustee
by any one or more holders of such 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 (a "Default Notice"), then, unless and until such event of default shall
have been cured or waived in writing by the holders of such Senior Indebtedness
or shall have ceased to exist, the Company shall not pay the Securities;
provided, however, that this subsection (b) shall not prevent the making of any
such payment (which is not otherwise prohibited by subsection (a) of this
Section 12.5) 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 12.5, 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 under any
Senior Indebtedness of the type specified in subsections (a) and (b) of this
Section 12.5, 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 shall have been cured or waived or shall have ceased to exist, such
payment (subject, in each case, to the provisions of Sections 12.6 and 12.7 and
the proviso contained in subsection (b) of this Section 12.5) 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 12.06. 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 12 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 a
Trust Officer of 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 of such Senior
Indebtedness have been issued; and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Sections 8.1 and 8.2, 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 12, 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 12, 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 12.07. Application by Trustee of Money Deposited with It.
Money or U.S. Government Obligations deposited in trust with the
Trustee pursuant to Section 9.1 and not in violation of this Article 12 shall
be for the sole benefit of Securityholders and shall thereafter not be subject
to the subordination provisions of this Article 12. 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 12.1, 12.2, 12.3 and 12.5; 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)
a Trust Officer of the Trustee shall not have received with respect to such
money the notice provided for in Section 12.6, 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 12.7 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 12.
SECTION 12.08. 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. No provision in
any supplemental indenture which affects the superior position of the holders
of the Senior Indebtedness shall be effective against the holders of the Senior
Indebtedness unless the holders of such Senior Indebtedness (required pursuant
to the terms of such Senior Indebtedness to give such consent) have consented
thereto.
SECTION 12.09. 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 12 and
appoints the Trustee its attorney-in-fact for any and all such purposes.
SECTION 12.10. 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 12 in respect of any Senior Indebtedness
at any time held by it to the same extent as any other holder of Senior
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 8.7.
SECTION 12.11. Article 12 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 12 shall
not be construed as preventing the occurrence of an Event of Default under
Section 7.1.
SECTION 12.12. No Fiduciary Duty Created to Holders of Senior
Indebtedness.
Notwithstanding any other provision in this Article 12, 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 12.
SECTION 12.13. Article Applicable to Paying Agents.
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 12 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 12 in addition to or in place of the Trustee;
provided, however, that Sections 12.6, 12.10 and 12.12 shall not apply to the
Company if it acts as Paying Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the th day of , 1998.
COMMONWEALTH TELEPHONE
ENTERPRISES, INC.
By:
---------------------------------------
Name:
Title:
, as Trustee
By:
---------------------------------------
Name:
Title:
[FORM OF FACE OF SECURITY]
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
INCORPORATED UNDER THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
CUSIP: ______ R-_____
% [CONVERTIBLE] SUBORDINATED NOTES DUE [ ]
Commonwealth Telephone Enterprises, Inc. promises to pay to Cede &
Co. or registered assigns, the principal sum of ____________ Dollars on ,
2008.
Interest Payment Dates: 1 and 1
Record Dates: 15 and 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.
In Witness Whereof, Commonwealth Telephone Enterprises, Inc. has
caused this instrument to be duly executed in its corporate name and its
corporate seal to be affixed hereunto or imprinted hereon.
COMMONWEALTH TELEPHONE
ENTERPRISES, INC.
By:
---------------------------------------
Name:
Title:
[SEAL]
Attest:
By:
---------------------------------------
Name:
Title:
Trustee's Certificate of Authentication:
This is one of the Securities referred to in the within-mentioned Indenture.
,
as Trustee
By:
------------------------------------
Authorized Signatory
Dated:
[FORM OF REVERSE SIDE OF SECURITY]
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
% [CONVERTIBLE] SUBORDINATED NOTES DUE [ ]
1. Interest
Commonwealth Telephone Enterprises, Inc., a Pennsylvania corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate per annum shown above. The Company shall pay interest semiannually
on 1 and 1 of each year, commencing 1, [ ]. 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 the date of first issuance of the Notes under the Indenture
(as defined below); 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 the 15th or 15th next preceding the related interest payment date. The
Holder must surrender this Note to the 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 by its check
or wire payable in such money. It may mail an interest check to the Holder's
registered address.
3. Paying Agent, Registrar and Conversion Agent
Initially, (the "Trustee") 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 act as Paying Agent, Registrar or Conversion Agent.
4. Indenture, Limitations
This Note is one of a duly authorized issue of Notes of the Company
designated as its % [Convertible] Subordinated Notes due [ ] (the "Notes"),
issued under an Indenture dated as of , 1998 (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 Note by reference to the
Trust Indenture Act of 1939, as amended, and 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 up to $ 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.
5. Optional Redemption
The Notes are subject to redemption, at any time on or after , 2001,
as a whole or in part, at the election of the Company. The Redemption Prices
(expressed as percentages of the principal amount) beginning 1 of the years
indicated are as follows:
Year Redemption Price
[ ] [ ]%
in each case together with accrued interest up to but not including the
Redemption Date.
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, interest ceases 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 thereof) of the Notes held by such Holder on the date
that is 50 Business Days after 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 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 such Note into shares of Common Stock
of the Company at any time prior to maturity; 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 (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);
provided, further, that if the Holder of a Note presents such Note for
redemption prior to the close of business on the Business Day immediately
preceding the redemption date for such Note, the right of conversion shall
terminate upon presentation of the Note to the Trustee (unless the Company
shall default in making the redemption payment when due, in which case the
conversion right shall terminate on the close of business on the date such
default is cured and such Note is redeemed). The initial Conversion Price is $
per share, subject to adjustment under certain circumstances. The number of
shares issuable upon conversion of a Note is determined by dividing the
principal amount 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 lieu thereof, an amount
will be paid in cash based upon the closing sale price of the Common Stock on
the last Trading Day 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 the Conversion
Agent, (b) surrender the Note to the Conversion Agent, (c) furnish appropriate
endorsements or transfer documents if required by the Registrar or Conversion
Agent, and (d) pay any transfer or similar tax, if required. Interest accrued
through and including 1, 2001 shall be paid on any Note called for redemption
and surrendered for conversion before the close of business on 1, 2001. 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 of such Note on such record date. In such event, unless the Note has
been called for redemption, the Note 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. 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 as provided above and in accordance with the terms of the
Indenture.
9. Conversion Arrangement on Call for Redemption
Any Securities 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 Securities 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 Securities from the Holders, to convert them into
Common Stock of the Company and to make payment for such Securities 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 by law or permitted by the Indenture.
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 any past default or
compliance with any provision 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, provide for uncertificated Notes in addition to or in place of
certificated Notes, or to 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 be released from
those obligations.
16. Defaults and Remedies
An Event of Default is: default for 30 days in payment of interest on
the Notes; default in payment of principal on the Notes when due; 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; certain events of
bankruptcy, insolvency or reorganization of the Company; and the acceleration
of certain other indebtedness. If an Event of Default (other than as a result
of certain events of bankruptcy, insolvency or reorganization) 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, 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.
17. Trustee Dealings With the Company
, 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 the Company deposits with the Trustee or the Paying Agent money or
U.S. Government Obligations sufficient to pay the principal of and interest on
the Notes to maturity, the Company will be discharged from the Indenture except
for certain sections 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 U/G/M/A (= Uniform Gifts to Minors
Act).
All capitalized terms used in this Note and not specifically defined
herein are defined in the Indenture and are used herein as so defined.
22. Indenture to Control
In the case of any conflict between the provisions of this Note and
the Indenture, the provisions of the Indenture shall control.
The Company will furnish to any Holder, upon written request and
without charge, a copy of the Indenture. Requests may be made to: Commonwealth
Telephone Enterprises, Inc., 100 CTE Drive, Dallas, PA 18612, Attention: Chief
Financial Officer.
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.
Date:
------------------
Your signature:
------------------------------------
(Sign exactly as your name appears on the other side of this Note)
- ------------------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
a Signature guaranteed by:
---------------------------------------------------
By:
--------------------------------------------------------------------------
- ------------------------------------
a The signature must be guaranteed by a bank, a trust company or a member
firm of the Nasdaq National Market.
CONVERSION NOTICE
To convert this Note into Common Stock of the Company, check the box: [ ]
To convert only part of this Note, state the amount to be converted: $
--------
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 assignee's name, address and zip code)
Date:
------------------
Your signature:
------------------------------------
(Sign exactly as your name appears on the other side of this Note)
- -------------------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
a Signature guaranteed by:
-----------------------------------------------------
By:
----------------------------------------------------------------------------
- ------------------------------------
a The signature must be guaranteed by a bank, a trust company or a member
firm of the Nasdaq National Market.
EXHIBIT 5.01
[Letterhead of Davis Polk & Wardwell]
September 22, 1998
Commonwealth Telephone Enterprises, Inc.
105 Carnegie Center
Princeton, New Jersey 08540
Ladies and Gentlemen:
We have acted as special counsel to Commonwealth Telephone
Enterprises, Inc., a Pennsylvania corporation (the "Company"), in connection
with the preparation of a Registration Statement on Form S-3 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of Convertible Debt Securities which may be issued by the Company
from time to time (the "Notes"). The Notes will be issued under an indenture,
substantially in the form filed as an exhibit to the Registration Statement
(the "Indenture"), between the Company and The Chase Manhattan Bank, as trustee
(the "Trustee"). Capitalized terms used herein have the meanings set forth in
the Registration Statement, unless otherwise defined herein.
We have examined the originals, or certified, conformed or
reproduction copies, of all such records, agreements, instruments and
documents as we have deemed relevant or necessary as the basis for the
opinions hereinafter expressed. In all such examinations, we have relied upon
the genuineness of all signatures, the authenticity of all original or
certified copies and the conformity to original or certified copies of all
copies submitted to us as conformed or reproduction copies. We also have
assumed, with respect to all parties to agreements or instruments relevant
hereto other than the Company, that such parties had the requisite power and
authority (corporate or otherwise) to execute, deliver and perform such
agreements or instruments, that such agreements or instruments have been duly
authorized by all requisite action (corporate or otherwise), executed and
delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties. As to various
questions of fact relevant to such opinions, we have relied upon, and have
assumed the accuracy of, certificates and oral or written statements and other
information of or from public officials, officers or representatives of the
Company and others.
Based upon the foregoing and subject to the other limitations,
qualifications and assumptions set forth herein, we are of the opinion that,
assuming the Company has duly authorized the Notes, when the Company has duly
executed and delivered the Indenture and the Notes have been duly executed by
the Company and authenticated by the Trustee in accordance with the terms of
the Indenture, the Notes will constitute valid and binding obligations of the
Company, enforceable in accordance with their terms and entitled to the
benefits of the Indenture, subject to (A) bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other laws now or hereafter
in effect affecting creditors' rights generally, and (B) general principles of
equity (including, without limitation, standards of materiality, good faith,
fair dealing and reasonableness) whether considered in a proceeding in equity
or at law.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the General
Corporation Law of the Commonwealth of Pennsylvania and the federal laws of
the United States of America.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement and to any related supplemental Registration
Statement filed pursuant to Rule 462 (b) of the Securities Act and to the
reference to this firm under the caption "Legal Matters" in the Prospectus
contained in the Registration Statement.
The opinions expressed herein are solely for your benefit and
may not be relied upon for any purpose except as specifically provided for
herein, or relied upon by any other person, firm or corporation for any
purpose, without our prior written consent.
Very truly yours,
/s/ Davis Polk & Wardwell
EXHIBIT 5.02
[Letterhead of Commonwealth Telephone
Enterprises, Inc.]
September 22, 1998
Commonwealth Telephone Enterprises, Inc.
105 Carnegie Center
Princeton, NJ 08540
I am Senior Vice President and Assistant General Counsel of
Commonwealth Telephone Enterprises, Inc., a Pennsylvania corporation (the
"Company"), and as such I have acted as Pennsylvania counsel to the Company in
connection with the Registration Statement on Form S-3 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
registration of common stock ("Common Stock"), preferred stock ("Preferred
Stock") and subscription rights ("Rights") to purchase Common Stock, which may
be issued by the Company from time to time.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates and other instruments, and have conducted such other
investigations of fact and law, as I have deemed necessary or advisable for
the purposes of this opinion.
On the basis of the foregoing, and assuming the Company has duly
authorized the Common Stock, the Preferred Stock and the Rights, I am of the
opinion that:
1. The Common Stock and the Preferred Stock will, when issued by
the Company (in the case of the Common Stock, pursuant to
exercise of Rights or otherwise), be validly issued, fully
paid and non-assessable.
2. The Rights will, when issued by the Company, constitute
valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, subject
to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting creditors'
rights generally and equitable principles of general
applicability.
I am a member of the bar of the Commonwealth of Pennsylvania
and the foregoing opinion is limited to the laws of the Commonwealth of
Pennsylvania and the federal laws of the United States of America.
I hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to my name under the caption
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours
/s/ John Filipowicz
-------------------------
John Filipowicz. Esq.
EXHIBIT 12.01
Commonwealth Telephone Enterprises, Inc.
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend
Requirements
(Dollars in Thousands)
Six Months
For the Years Ended December 31, Ended June 30,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1998 1997
------- ------- ------- ------- ------- ------- -------
Income from
continuing
operations
before income
taxes.......... $28,016 $27,125 $43,555 $44,286 $35,991 $18,070 $21,081
Minority ------- ------- ------- ------- ------- ------- -------
interest in
income of
consolidated
entities....... -- -- -- - -- -- --
Fixed Charges:
Interest on
long-term and
short-term
debt including
amortization
of debt
expense........ 17,696 18,154 9,621 9,577 9,933 6,202 4,133
Interest portion
of rental
expense 1,261 1,258 1,198 1,321 1,479 565 742
Preferred
stock dividend. -- -- -- 4,606 4,412 2,271 2,218
------- ------- ------- ------- ------- ------- -------
Total fixed
charges....... 18,957 19,412 10,819 15,504 15,824 9,038 7,093
------- ------- ------- ------- ------- ------- -------
Earnings before
income taxes
and fixed
charges........ $46,973 $46,537 $54,374 $59,790 $51,815 $27,108 $28,174
======= ======= ======= ======= ======= ======= =======
Ratio of
earnings to
combined fixed
charges and
preferred stock
dividend
requirements... 2.48 2.40 5.03 3.86 3.27 3.00 3.97
For purposes of computing the ratio, earnings are income from continuing
operations plus fixed charges. Fixed charges consist of interest on long and
short-term debt including amortization of debt expense, preferred stock
dividend requirements and the interest portion of rental expense.
Commonwealth Telephone Enterprises, Inc.
Ratio of Earnings to Fixed Charges
(Dollars in Thousands)
Six Months
For the Years Ended December 31, Ended June 30,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1998 1997
------- ------- ------- ------- ------- ------- -------
Income from
continuing
operations
before income
taxes.......... $28,016 $27,125 $43,555 $44,286 $35,991 $18,070 $21,081
Minority ------- ------- ------- ------- ------- ------- -------
interest in
income of
consolidated
entities....... -- -- -- - -- -- --
Fixed Charges:
Interest on
long-term and
short-term
debt including
amortization
of debt
expense........ 17,696 18,154 9,621 9,577 9,933 6,202 4,133
Interest portion
of rental
expense........ 1,261 1,258 1,198 1,321 1,479 565 742
------- ------- ------- ------- ------- ------- -------
Total fixed
charges........ 18,957 19,412 10,819 10,898 11,412 6,767 4,875
------- ------- ------- ------- ------- ------- -------
Earnings before
income taxes
and fixed
charges........ $46,973 $46,537 $54,374 $55,184 $47,403 $24,837 $25,956
======= ======= ======= ======= ======= ======= =======
Ratio of
earnings to
fixed charges.. 2.48 2.40 5.03 5.06 4.15 3.67 5.32
For purposes of calculating the ratio, earnings are income from continuing
operations plus fixed charges. Fixed charges consist of interest on long and
short-term debt including amortization of debt expense, and the interst portion
of rental expense.
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of Commonwealth Telephone Enterprises, Inc. on Form S-3 of our report
dated February 27, 1998, on our audits of the consolidated financial statements
and financial statement schedules of Commonwealth Telephone Enterprises, Inc.
as of December 31, 1997 and 1996 and for the years ended December 31, 1997,
1996 and 1995, which report is included in the Annual Report on Form 10-K. We
also consent to the reference to our Firm under the caption "Experts."
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 22, 1998
/s/ PricewaterhouseCoopers LLP
EXHIBIT 25.01
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2)
----------
----------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
identification No.) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
----------
Commonwealth Telephone Enterprises, Inc.
(Exact name of obligor as specified in its charter)
Pennsylvania 23-2093008
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
100 CTE Drive
Dallas, Pennsylvania 18612-9774
(Address of principal executive offices) (Zip Code)
----------
Subordinated Debt Securities
(Title of the indenture securities)
----------
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington, D.C.,
20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty
Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
333-06249, which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which
is incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939
the Trustee, The Chase Manhattan Bank, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 31st day
of July, 1998.
THE CHASE MANHATTAN BANK
By
--------------------------------
James P. Freeman
Assistant Vice President
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see
Exhibit 1 to Form T-1 filed in connection with Registration Statement No.
333-06249, which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996,
in connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which
is incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939
the Trustee, The Chase Manhattan Bank, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York and State of New York, on the 31st day
of July, 1998.
THE CHASE MANHATTAN BANK
By /s/ James P. Freeman
-------------------------------
James P. Freeman
Assistant Vice President
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business March 31, 1998, in
accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
in Millions
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin................................................................ $12,037
Interest-bearing balance............................................................... 4,054
Securities:............................................................................
Held to maturity securities.................................... 2,340
Available for sale securities.......................................................... 50,134
Federal funds sold and securities purchased under
agreements to resell............................................................. 24,982
Loans and lease financing receivables:
Loans and leases, net of unearned income $127,958
Less: Allowance for loan and lease losses 2,797
--------
Less: Allocated transfer risk reserve............. 0
--------
Loans and leases, net of unearned income,
allowance, and reserve........................................................... 125,161
Trading Assets ........................................................................ 61,820
Premises and fixed assets (including capitalized
leases).......................................................................... 2,961
Other real estate owned................................................................ 347
Investments in unconsolidated subsidiaries and
associated companies............................................................. 242
Customers' liability to this bank on acceptances
outstanding...................................................................... 1,380
Intangible assets...................................................................... 1,549
Other assets........................................................................... 11,727
-----------
TOTAL ASSETS........................................................................... $298,734
===========
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits
In domestic offices.................................................................... $96,682
Noninterest-bearing..................................... $38,074
Interest-bearing ........................................ 58,608
----------
In foreign offices, Edge and Agreement,
subsidiaries and IBF's................................................................. 72,630
Noninterest-bearing...................................... $ 3,289
Interest-bearing......................................... 69,341
Federal funds purchased and securities sold under agree-
ments to repurchase.................................................................... 42,735
Demand notes issued to the U.S. Treasury............................................... 872
Trading liabilities.................................................................... 45,545
Other borrowed money (includes mortgage indebtedness
and obligations under capitalized leases):
With a remaining maturity of one year or less.................................... 4,454
With a remaining maturity of more than one year . 231
through three years.......................................................
With a remaining maturity of more than three years............................... 106
Bank's liability on acceptances executed and outstanding 1,380
Subordinated notes and debentures...................................................... 5,708
Other liabilities...................................................................... 11,295
TOTAL LIABILITIES...................................................................... 281,638
EQUITY CAPITAL
Perpetual preferred stock and related surplus 0
Common stock........................................................................... 1,211
Surplus (exclude all surplus related to preferred stock).............................. 10,291
Undivided profits and capital reserves................................................. 5,579
Net unrealized holding gains (losses)
on available-for-sale securities....................................................... (1)
Cumulative foreign currency translation adjustments ................................... 16
TOTAL EQUITY CAPITAL .................................................................. 17,096
-----------
TOTAL LIABILITIES AND EQUITY CAPITAL ...................................... $298,734
===========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the in-structions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE )DIRECTORS
WILLIAM B. HARRISON, JR.)
EXHIBIT 99.01
COMMONWEALTH TELEPHONE ENTERPRISES, INC. SUBSCRIPTION CERTIFICATE NO.
CUSIP NO. [ ] NUMBER OF RIGHTS
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
COMPANY'S PROSPECTUS DATED [ ], AS SUPPLEMENTED BY
THE COMPANY'S PROSPECTUS SUPPLEMENT DATED [RECORD DATE], (AS SUPPLEMENTED, THE
"PROSPECTUS") ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS
ARE AVAILABLE UPON REQUEST FROM THE SUBSCRIPTION AGENT AND THE INFORMATION
AGENT.
THIS CERTIFICATE OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY
THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK CITY TIME,
ON [INSERT DATE 30 DAYS AFTER RECORD DATE], (AS IT MAY BE EXTENDED, THE
"EXPIRATION DATE"), PROVIDED THAT THE EXPIRATION DATE SHALL IN NO EVENT BE
LATER THAN [INSERT DATE].
- ------------------------------------------------------------------------------
The Rights represented by this subscription certificate may be exercised by
duly completing Form 1; and may be transferred, assigned or exercised or
sold through a bank or broker by duly completing Form 2. Rights holders are
advised to review the Prospectus and instructions, copies of which are
available from the Subscription Agent or the Information Agent, before
exercising or selling their Rights.
IMPORTANT: Complete appropriate FORM and, if applicable, delivery
instructions, and SIGN on reverse side.
- ------------------------------------------------------------------------------
SUBSCRIPTION PRICE $[ ] PER SHARE RIGHTS TO PURCHASE SHARES OF COMMON
STOCK OF COMMONWEALTH TELEPHONE ENTERPRISES, INC.
The registered owner whose name is inscribed hereon, or assigns, is
entitled to subscribe for shares of Common Stock upon the terms and subject to
the conditions set forth in the Prospectus and instructions relating thereto.
<TABLE>
<S> <C> <C>
By________________________________ By____________________________________________ By________________________________
[Name] David McCourt Bruce Godfrey
First Union National Bank President and Chief Executive Officer Executive Vice President and Chief
of Commonwealth Telephone Enterprises, Inc. Financial Officer of Commonwealth
Telephone Enterprises, Inc.
</TABLE>
THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR
DIVIDED (BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF
RIGHTS) AT THE OFFICE OF THE SUBSCRIPTION AGENT.
RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR
TRANSFER LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A
NEW SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING
RIGHTS EVIDENCED THEREBY.
FORM 1--EXERCISE AND SUBSCRIPTION: The undersigned hereby exercises one
or more Rights to subscribe for shares of Common Stock, as indicated below,
on the terms and subject to the conditions specified in the Prospectus,
receipt of which is hereby acknowledged.
(a) Number of shares subscribed for pursuant to the Basic Subscription
Privilege (one Right needed to subscribe for each full share): ______________
(b) Number of shares subscribed for pursuant to the Oversubscription
Privilege: ______________
(c) Total Subscription Price (total number of shares subscribed
for--pursuant to both the Basic Subscription Privilege and the
Oversubscription Privilege--times the Subscription Price of $[ ]):
$______________(1)
- --------------------
(1) If the amount enclosed or transmitted is not sufficient to pay the
Subscription Price for all shares that are stated to be subscribed for, or if
the number of shares being subscribed for is not specified, the number of
shares subscribed for will be assumed to be the maximum number that could be
subscribed for upon payment of such amount. If the number of shares to be
subscribed for pursuant to the Oversubscription Privilege is not specified and
the amount enclosed or transmitted exceeds the Subscription Price for all
shares represented by this Subscription Certificate (the "Subscription
Excess"), the person subscribing pursuant hereto shall be deemed to have
exercised the Oversubscription Privilege to purchase, to the extent available,
that number of whole shares of Common Stock equal to the quotient obtained by
dividing the Subscription Excess by $[ ]. Any amount remaining after
such division shall be returned to the subscriber.
METHOD OF PAYMENT (CHECK ONE)
[ ] CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO "FIRST UNION NATIONAL
BANK"
[ ] FOR WIRE TRANSFER PLEASE CONTACT FIRST UNION NATIONAL BANK.
(d) If the number of Rights being exercised pursuant to the Basic
Subscription Privilege is less than all of the Rights represented by the
Subscription Certificate (check only one):
[ ] DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE
REMAINING RIGHTS TO WHICH I AM ENTITLED.
[ ] DELIVER A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING
RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (which include any required
signature guarantees).
(e) Name of Soliciting Dealer, if any
[ ] _______________________________________________________
[ ] CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE
HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s)...........................................
Window Ticket number (if any)............................................
Date of Execution of Notice of Guaranteed Delivery.......................
Name of Institution which Guaranteed Delivery............................
FORM 2--TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR
RIGHTS OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER: For value
received, ____________ Rights represented by this Subscription Certificate are
hereby assigned to (please print name and address and Social Security Number
of transferee in full) (if the transferee is not a bank or broker, your
signature must be guaranteed):
Name_____________________________________________________________________
Address__________________________________________________________________
_________________________________________________________________________
Social Security Number
FORM 3--DELIVERY INSTRUCTIONS: Name and/or address for mailing any
stock certificates, new Subscription Certificate or cash payment if other than
shown on the reverse hereof:
Name____________________________________________
Address_________________________________________
________________________________________________
(Including Zip Code)
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IMPORTANT
RIGHTS HOLDER SIGN HERE
AND, IF RIGHTS ARE BEING SOLD OR EXERCISED,
COMPLETE SUBSTITUTE FORM W-9
<S> <C>
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
(Signature(s) of Holder(s))
Dated ______________________________, 199__
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on this Subscription Certificate. If signature is by
trustee(s), executor(s), administrator(s), guardian(s), attorney(s)-in-fact, agent(s), officer(s) of a corporation or another
acting in a fiduciary or representative capacity, please provide the following information. See Instructions.)
Name(s) __________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
(Please Print)
Capacity _________________________________________________________________________________________________________________________
Address __________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
(Including Zip Code)
Area Code and
Telephone Number _________________________________________________________________________________________________________________
(Home)
__________________________________________________________________________________________________________________________________
(Business)
Tax Identification or
Social Security No. ______________________________________________________________________________________________________________
(Complete Substitute Form W-9)
GUARANTEE OF SIGNATURE(S)
Note: See Section 5(c) of Instructions
Authorized Signature _____________________________________________________________________________________________________________
Name _____________________________________________________________________________________________________________________________
Title ____________________________________________________________________________________________________________________________
Name of Firm _____________________________________________________________________________________________________________________
Address __________________________________________________________________________________________________________________________
Area Code and Telephone Number ___________________________________________________________________________________________________
Dated ____________________________________________, 199__
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