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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1997
REGISTRATION NO. 333-16265
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITED USN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 36-3947804
(STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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10 SOUTH RIVERSIDE PLAZA,
SUITE 401
CHICAGO, ILLINOIS 60606
(312) 906-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
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THOMAS A. MONSON, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
UNITED USN, INC.
10 SOUTH RIVERSIDE PLAZA, SUITE 401
CHICAGO, ILLINOIS 60606
(312) 906-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
GARY P. CULLEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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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.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 14, 1997
PROSPECTUS
UNITED USN, INC.
OFFER TO EXCHANGE ITS
14% SERIES B SENIOR DISCOUNT NOTES DUE 2003 [USN LOGO]
FOR ANY AND ALL OF ITS OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2003
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FEBRUARY
, 1997, UNLESS EXTENDED.
United USN, Inc. (the "Company") hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
$1,000 principal amount at maturity of 14% Series B Senior Discount Notes due
2003 (the "New Notes") of the Company for each $1,000 principal amount at
maturity of the issued and outstanding 14% Senior Discount Notes due 2003 (the
"Old Notes" and, together with the New Notes, the "Senior Notes") of the
Company from the holders (the "Holders") thereof. As of the date of this
Prospectus, there was $48.5 million aggregate principal amount at maturity of
the Old Notes outstanding. The terms of the New Notes are identical in all
material respects to the Old Notes, except that the New Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and, therefore, will not bear legends restricting their transfer and will not
contain certain terms providing for an increase in the interest rate on the Old
Notes under certain circumstances relating to the timing of the Exchange Offer.
The New Notes will be senior unsecured obligations of the Company that will
rank senior in right of payment to all subordinated indebtedness of the
Company, including $36.0 million in aggregate principal amount at maturity of
9% Convertible Subordinated Discount Notes due 2004 (the "Convertible Notes"
and, together with the Senior Notes, the "Notes") issued by the Company
pursuant to the terms of an indenture, dated as of September 30, 1996 (the
"Convertible Note Indenture"), by and between the Company and Harris Trust and
Savings Bank, as trustee (the "Convertible Note Trustee"). The New Notes will
rank pari passu in right of payment to all existing and future senior
indebtedness of the Company. The New Notes will be effectively subordinated to
all existing and future liabilities and obligations of the Company's
subsidiaries (approximately $5.3 million as of September 30, 1996, excluding
intercompany indebtedness). The Company's subsidiaries have no obligation to
pay amounts due on the New Notes and have not guaranteed the New Notes as of
the date hereof; however, if a subsidiary guarantees any other indebtedness of
the Company, such subsidiary will be obligated to guarantee the New Notes. See
"Description of the Notes--Certain Covenants." The indenture under which the
New Notes are to be issued, dated as of September 30, 1996 (the "Senior Note
Indenture" and, together with the Convertible Note Indenture, the
"Indentures"), between the Company and Harris Trust and Savings Bank (the
"Senior Note Trustee" and, together with the Convertible Note Trustee, the
"Trustees"), will permit the Company and its subsidiaries to incur, under
certain circumstances, additional indebtedness, including indebtedness pursuant
to a Credit Facility (as defined herein) which shall not exceed $45 million in
principal amount at any one time outstanding. See "Description of the Notes."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined herein). Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters issued to
third parties, including Exxon Capital Holdings Corporation, SEC No-Action
Letter (available April 13, 1988) (the "Exxon Capital Letter"), Morgan Stanley
& Co. Incorporated, SEC No-Action Letter (available June 5, 1991) (the "Morgan
Stanley Letter") and similar letters, the Company believes that the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any Holder
(cover page continued on next page)
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SEE "RISK FACTORS," BEGINNING ON PAGE 17, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE
EXCHANGE OFFER.
-----------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
, 1997
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(cover page continued from previous page)
thereof (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement with any person to
participate in the distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that (i) Old Notes tendered by
it in the Exchange Offer were acquired in the ordinary course of its business
as a result of market-making or other trading activities and (ii) it will
deliver a prospectus in connection with any resale of New Notes received in
the Exchange Offer. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with any resale of the New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading activities (other
than Old Notes acquired directly from the Company). The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein),
it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution." Any holder who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes cannot rely on the Morgan Stanley Letter or
similar letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer (which shall
not include the expenses of any Holder in connection with resales of the New
Notes). Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. The Exchange Offer is subject to
certain customary conditions. In the event the Company terminates the Exchange
Offer and does not accept for exchange any Old Notes, the Company will
promptly return the Old Notes to the Holders thereof. The Company will give
oral or written notice of any extension, amendment, non-acceptance or
termination of the Exchange Offer to the Holders of the Old Notes as promptly
as practicable, such notice in the case of any extension to be issued by means
of a press release or other public announcement no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. The Company can, in its sole discretion, extend the Exchange
Offer indefinitely, subject to the Company's obligation to pay Special
Interest (as defined herein) if the Exchange Offer is not consummated by March
29, 1997 and, under certain circumstances, file a shelf registration statement
with respect to the Old Notes. See "The Exchange Offer."
Prior to the date of this Prospectus, there has been no public market for
the Notes. The Company does not currently intend to list the New Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. Accordingly, there can be no assurance as to the development
or liquidity of any public market for the New Notes.
The Company has been advised by Smith Barney Inc., BT Securities
Corporation, Chase Securities Inc. and CIBC Wood Gundy Securities Corp.
(collectively, the "Initial Purchasers") that they intend to make a market for
the Notes, the Warrants and the Class A Common Stock; however the Initial
Purchasers are not obligated to do so. Any market-making may be discontinued
at any time, and there is no assurance that an active public market for the
Notes, the Warrants or the Class A Common Stock will develop or, that if such
a market develops, that it will continue. This Prospectus has been prepared
for use by the Initial Purchasers in connection with offers and sales of the
Notes, the Warrants and the Class A Common Stock which may be made by them
from time to time in market-making transactions at negotiated prices relating
to prevailing market prices at the time of sale. Such Initial Purchasers may
act as principal or agent in such transactions. See "Plan of Distribution."
In connection with the issuance of the Old Notes by the Company on September
30, 1996, the Company also issued and sold (i) warrants to purchase 61,550
shares, subject to adjustment under certain circumstances, of Class A Common
Stock (the "Warrants") and (ii) $36 million in aggregate principal amount at
maturity of
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Convertible Notes. On November 27, 1996, the Company filed with the Commission
a registration statement on Form S-1, pursuant to which the Warrants and the
Convertible Notes, and the shares into which the Warrants and the Convertible
Notes may be converted, will be registered for resale by the Initial
Purchasers.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement") under the Securities Act
with respect to the New Notes being offered by this Prospectus. This
Prospectus does not contain all of the information set forth in the Exchange
Offer Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted pursuant to the rules and regulations of
the Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With
respect to each such contract, agreement or other document filed or
incorporated by reference as an exhibit to the Exchange Offer Registration
Statement, reference is made to such exhibit for a more complete description
of the matter involved, and each such statement is qualified in its entirety
by such reference.
The Exchange Offer Registration Statement and the exhibits and schedules
thereto may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and at 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a web
site (http://www.sec.gov) that contains reports, proxy statements and other
information regarding registrants that file electronically with the
Commission. Under the terms of the Indentures pursuant to which the Old Notes
and the Convertible Notes were, and the New Notes will be, issued and the
Warrant Agreement, the Company will be required to file with the Commission,
and to furnish holders of the Notes and the Warrants with, the information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act, including reports on Forms 10-K, 10-Q and 8-K.
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[INSERT MAP]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus is presented after giving effect to all
transactions that are described in this Prospectus as occurring prior to or
simultaneously with the closing of the Exchange Offer. Unless the context
indicates otherwise, all references to the Company refer to United USN, Inc.
and its subsidiaries. Please refer to the Glossary for the definitions of
certain capitalized terms used herein and elsewhere in this Prospectus without
definition.
THE COMPANY
United USN, Inc. ("USN" or the "Company") is one of the fastest growing
providers of integrated local and long distance telecommunications services in
the United States. The Company resells telecommunications services of certain
regional Bell operating companies ("RBOCs") and certain long distance carriers
to provide an integrated solution of local and long distance services to the
underserved small and medium-sized business segment. The Company primarily
focuses its marketing efforts on businesses with telecommunications usage of
less than $5,000 per month. The Company's approach simplifies the subscriber's
telecommunications procurement and management tasks and provides for the easy
addition of customized services, such as special local and long distance
pricing and enhanced and other value-added calling and billing features
designed to meet specific subscriber needs.
The Company's goal is to be more flexible, innovative and responsive to the
needs of its subscribers than the RBOCs and the large long distance carriers,
which primarily concentrate their sales and marketing efforts on residential
and large commercial subscribers. Market research combined with the Company's
experience indicates that its target subscribers would prefer a single source
and single bill for all of their telecommunications needs. The Company provides
local service using existing telephone lines obtained from the incumbent RBOCs
at wholesale rates, which allows subscribers to switch to local service
provided by the Company without changing their existing telephone numbers or
adding new facilities or equipment. The Company provides long distance services
by purchasing bulk capacity from long distance carriers and reselling those
services to the Company's subscribers. By providing an integrated, customized
package of local, long distance and enhanced and other value-added services on
a single bill through its proprietary software and responsive subscriber care
systems, the Company believes that it provides a differentiated and competitive
product.
The Company provides its local resold services pursuant to comprehensive
local exchange resale agreements with Ameritech Corporation ("Ameritech") for
the greater metropolitan Chicago area, Ohio and Michigan (collectively, the
"Ameritech Resale Agreements") and with NYNEX Corporation ("NYNEX") for the
state of New York, with the opportunity to expand into the entire territory
served by NYNEX (the "NYNEX Resale Agreement"). The Company has also entered
into a limited service offering ("LSO") agreement with NYNEX for the resale of
Centrex services over a private local network which provides access to the
majority of business lines in Manhattan, New York. After a nine month systems
test period with Ameritech, the Company commenced service in Illinois in August
1996, followed by Ohio in October 1996. The Company completed a systems test
period in New York in October 1996 and started offering service in November
1996. The Company began service in Michigan at the end of 1996. The Company
estimates, based on data compiled by the Federal Communications Commission (the
"FCC"), that the regions covered by the Ameritech Resale Agreements and NYNEX
Resale Agreement include access to over 30 million access lines, including over
10 million business access lines and approximately 20 million residential
access lines. The Company has implemented a resale task force to facilitate the
negotiation and implementation of additional long-term arrangements with other
RBOCs for the resale of telecommunications services. Additionally, the Company
has contracted with a number of long distance carriers, including MCI
Communications Corporation ("MCI"), Sprint Corporation ("Sprint") and WorldCom
Inc.
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("WorldCom"), to provide switching services and network transmission for its
long distance traffic. The Company continuously seeks to enter into agreements
with additional RBOCs, long distance carriers and enhanced and other value-
added service providers in order to aggressively build its subscriber base as
well as to provide additional services to its existing subscribers while
reducing costs.
MARKET OPPORTUNITY
The recently enacted Telecommunications Act of 1996 (the "Telecommunications
Act") is expected to result in a fundamental change in the competitive
structure of the local exchange market, greatly accelerating changes that have
been under way for several years as a result of FCC policy initiatives and
ongoing deregulatory trends at the state level. Specifically, the
Telecommunications Act lifted regulatory barriers to entry into the local
market, required the resale of local services by the RBOCs and put in place
various measures designed to further the development of a competitive market.
The Company believes that these developments will result in significant
opportunities for new entrants offering integrated local and long distance
telecommunications services. Due to the Company's Ameritech Resale Agreements,
the NYNEX Resale Agreement and the LSO agreement, as well as significant time
invested and experience gained in provisioning the resale of local exchange
services under such agreements, the Company believes it enjoys a competitive
advantage over other local service resellers with respect to the provisioning
of local resale services.
The Company estimates, based on industry sources, that in 1995 total revenues
from domestic local and long distance telecommunications services were
approximately $166 billion, of which approximately $96 billion was represented
by local exchange services and approximately $70 billion was represented by
long distance services. Since the divestiture of the Bell operating companies
from AT&T Corp. ("AT&T") in 1984 (the "Divestiture"), competition in the long
distance market has rapidly increased, and by 1995 AT&T had lost approximately
40% of its long distance market share to MCI, Sprint and a number of other long
distance competitors. Although the market for the provision of long distance
service has been open to competition since the Divestiture, the market for
local exchange services has until recently been essentially closed to
competition. The Company believes that competitive providers such as the
Company, by reselling local exchange services, will have the opportunity to
gain market share in the local exchange market just as long distance resellers
have gained market share in the long distance market. The Company believes that
it has several advantages that enable it to compete successfully in the new
competitive local telecommunications marketplace, including (i) locally
oriented marketing and subscriber service focusing on a defined, underserved
market segment, (ii) billing and information systems that have been interfaced
with the RBOCs and (iii) an experienced management team with significant
operational, technical, financial and regulatory expertise in both the local
and long distance telecommunications industry.
The Telecommunications Act has created an additional opportunity for the
Company to establish itself as a provider of integrated telecommunications
services before the RBOCs and the largest long distance carriers can offer
bundled local and long distance services. In order to provide long distance
services in their local service regions under the Telecommunications Act, the
RBOCs must seek FCC approval and comply with a series of regulations including
the requirement that they offer local resale and either enter into
interconnection agreements with at least one facilities-based carrier, or,
under certain circumstances, offer access and interconnection pursuant to
generally available terms and conditions approved by a state commission. Once
an RBOC obtains FCC approval, the RBOC must provide its in-region long distance
services through a separate operating subsidiary, and such subsidiary must,
among other things, maintain separate books, records and accounts, retain
different directors, officers and employees and secure financing independent of
the creditworthiness of the RBOC's local exchange operations for at least three
years. The Telecommunications Act also prevents the largest long distance
carriers from integrating local services resold from an RBOC in a particular
state with their long distance services until the earlier of (i) February 8,
1999 or (ii) the date the RBOCs are allowed to provide in-region long distance
services in that state. While it is probable that the RBOCs will seek and
obtain some long distance authority prior to 1999, the Company believes its
early entry into the RBOC markets may provide the Company with an opportunity
to grow a customer base prior to the RBOC's ability to offer both local and
long distance services.
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In order for facilities-based competitive access providers ("CAPs") to
provide ubiquitous local telecommunications services, such providers must
obtain access to buildings, negotiate complex interconnection agreements with
RBOCs and other local exchange carriers ("LECs"), address complex rate
structure and billing systems, provide directory listings and 911 and 411
services on their own or through the incumbent LECs, secure number portability
and create local marketing and subscriber care programs tailored for each
market. As a non-facilities based provider, the Company will not be required to
address such issues associated with operating as a facilities-based CAP in
order to provide ubiquitous local telecommunications services. As a result, the
Company believes it will be able to build a subscriber base quickly and
efficiently without incurring significant financial and management costs and
the developmental delays inherent in constructing network and transmission
facilities.
GROWTH STRATEGY
The Company's objective is to be a leading provider of integrated local and
long distance services and other telecommunications products to small and
medium-sized businesses. The Company expects to achieve this goal through the
successful implementation of its growth strategy which includes the following:
. Negotiate Attractive Resale Agreements with RBOCs. The Company seeks to
enter into additional local exchange resale agreements with RBOCs which
position it to offer a full range of local service over a broad
geographic area at a competitive cost to its targeted businesses. The
Ameritech Resale Agreements provide pricing protections designed to
maintain the competitiveness of rates and position the Company to
purchase capacity at rates at least as favorable as those of other
potential resellers of Ameritech local services. The NYNEX Resale
Agreement contains similar pricing protections. The Company intends to
negotiate similar pricing protections in all future RBOC resale
agreements. The Company believes the RBOCs will have an incentive to use
a wholesale strategy with respect to small and medium-sized businesses in
order to stabilize this revenue base and deter migration of the current
RBOCs' subscribers to facilities-based CAPs and other new entrant LECs.
. Provide Low-Cost Telecommunications Products and Services. The Company
believes its existing resale agreements will enable it to be among the
lowest cost providers of resold Ameritech and NYNEX local services. By
combining local and long distance services, the Company believes that it
is able to offer rates for integrated local and long distance services
that generally compare favorably with the rates enjoyed by large
commercial subscribers. The Company believes that as a non-facilities-
based telecommunications provider, it is able to build a subscriber base
quickly and efficiently without incurring significant financial and
management costs and the development delays inherent in constructing
network and transmission facilities.
. Focus on Large, Underserved Market. The Company primarily focuses its
marketing efforts on small and medium-sized businesses with
telecommunications usage of less than $5,000 per month. These businesses
generally do not employ in-house telecommunications specialists to manage
their telecommunications services and in most cases obtain services from
various vendors. The Company believes that the gross margins on services
provided to its target market are generally higher than for larger
commercial subscribers. Since the RBOCs and the large long distance
carriers primarily concentrate their sales and marketing efforts on
residential and large commercial subscribers, the Company believes an
opportunity to gain market share exists within its target market. As a
result, the Company plans to generate additional revenue by offering
enhanced and other value-added telecommunications products and services
to these small and medium-sized businesses.
. Rapid Market Entry. The Company intends to continue to be early to market
in providing an integrated package of local and long distance services.
The Company believes it will be able to move into new markets and
generate cash flow quickly because the Company, unlike facilities-based
CAPs, does not face large capital expenditures from building and/or
maintaining transmission facilities. Additionally, providing a ubiquitous
product offering will further enhance the Company's ability to rapidly
build a subscriber base across a large geographic area. Due to the
complexity of the provisioning process, the Company believes that the
RBOCs will have an incentive to work with competitive providers such as
the
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Company which have developed high quality management information and
billing systems that can interface with the RBOCs' systems and have
management teams with significant operational, technical, financial and
regulatory experience in the resale of local exchange service. In order to
develop a subscriber base and create brand awareness, the Company may sell
its long distance services in a new market prior to entering into a resale
agreement with an RBOC.
. Provide an Integrated Telecommunications Solution. The Company believes
that a key element in building its subscriber base while minimizing churn
is the implementation of a marketing and operating strategy which
emphasizes providing an integrated telecommunications solution to its
target market. The Company utilizes a marketing approach which combines
both direct and indirect sales efforts. The Company attracts and retains
subscribers by combining responsive subscriber care with a simple product
and pricing package to provide high-quality service at a cost which is
usually afforded to only large commercial subscribers. Specifically, the
Company will provide a single source and bill for integrated local and
long distance services and enhanced and other value-added
telecommunications services, with a single point of contact for
subscriber service, product inquiries, repairs and billing questions. The
Company believes that this marketing and subscriber service approach
reduces marketing costs, subscriber acquisition costs and churn.
. Capitalize on Experience in Provisioning the Resale of Local Service. The
Company is one of the first competitive providers to resell integrated
local and long distance telecommunications services. In contrast to the
resale of long distance service, providing local exchange service as a
reseller is a highly complex process involving: (i) providing numerous
technical and configuration options; (ii) ensuring number portability;
(iii) providing 911 and 411 services and directory listings; (iv)
providing multiple service options on an uninterrupted basis; and (v)
integrating complex rate structures and billing systems. The Company has
invested significant time in working with certain RBOCs to address these
issues and to develop systems which are designed to allow for the
implementation of its local exchange resale agreements. The Company
believes that its experience both in negotiating these agreements and in
implementing such service offerings will position it to compete
effectively.
. Geographic Market Expansion. The Company is engaged in ongoing
discussions with the RBOCs with regard to the resale of local exchange
services. The Company's decision to enter into a resale agreement with an
RBOC and expand into a new geographic region is based upon a series of
market selection criteria, including product availability, the ability of
the Company to position its products and services, the terms of the
resale agreement, the state of the regulatory environment and the
willingness of an RBOC to provide provisioning support. In an effort to
build its subscriber base and achieve additional economies of scale, the
Company continuously evaluates potential acquisitions, including other
resellers of local and/or long distance service or enhanced and other
value-added services, in both the geographic areas covered by its resale
agreements and new markets.
On September 30, 1996, the Company consummated a private placement (the
"Offering") under Rule 144A of the Securities Act, pursuant to which the
Company issued and sold to Merrill Lynch Global Allocation Fund, Inc. (i)
48,500 Units consisting of $48.5 million aggregate principal amount at maturity
of Senior Notes and warrants (the "Initial Warrants") to purchase 61,550
shares, subject to adjustment under certain circumstances, of Class A common
stock, par value $.01 per share (the "Class A Common Stock"), at an initial
exercise price of $.01 per share, and (ii) $36.0 million in aggregate principal
amount at maturity of Convertible Notes. The aggregate purchase price of the
Units was $30,203,375, and the aggregate purchase price of the Convertible
Notes was $27,644,400. The Senior Notes and the Convertible Notes were issued
pursuant to the terms of the respective Indentures. The Indentures also provide
that (i) in the event that, on or prior to March 30, 1998, the Company does not
consummate a Qualified Public Offering (as defined herein), or has not been
sold pursuant to a Qualified Sale of the Company (as defined herein), the
Company will be obligated to issue to the Holders of the Senior Notes Senior
Note Contingent Warrants (the "Senior Note Contingent Warrants") exercisable
for Class A Common Stock representing up to 3% of the Common Stock of the
Company on a fully diluted basis
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after giving effect to the issuance of such Senior Note Contingent Warrants and
(ii) in the event that, on or prior to September 30, 1999, the Company does not
consummate a Qualified Public Offering or has not been sold pursuant to a
Qualified Sale of the Company, the Company will be obligated to issue to the
Holders of the Convertible Notes Convertible Note Contingent Warrants (the
"Convertible Note Contingent Warrants" and, together with the Senior Note
Contingent Warrants, the "Contingent Warrants") exercisable for Class A Common
Stock representing up to 2.5% of the Common Stock of the Company on a fully
diluted basis after giving effect to the issuance of such Convertible Note
Contingent Warrants. The Initial Warrants and the Contingent Warrants are
collectively referred to herein as the "Warrants." In addition, under certain
conditions, if the Company has not consummated a Qualified Public Offering or a
Qualified Public Sale of the Company has not occurred by September 30, 1997,
the Company will be required to offer to Holders of Convertible Notes the right
to acquire additional convertible securities and warrants (the "Additional
Warrants"). See "Description of the Notes."
The Company, a Delaware corporation, was formed and commenced operations in
April 1994. The Company's principal executive office is located at 10 S.
Riverside Plaza, Suite 401, Chicago, Illinois 60606, and its telephone number
is (312) 906-3600.
9
<PAGE>
THE EXCHANGE OFFER
Registration Rights The Old Notes were sold by the Company on September
Agreement................ 30, 1996 to Smith Barney Inc., BT Securities
Corporation, Chase Securities Inc. and CIBC Wood
Gundy Securities Corp. (collectively, the "Initial
Purchasers"), who placed the Old Notes with
institutional investors. In connection therewith,
the Company executed and delivered for the benefit
of the holders of the Old Notes a registration
rights agreement (the "Registration Rights
Agreement") providing, among other things, for the
Exchange Offer.
The Exchange Offer........ New Notes are being offered in exchange for a like
face amount of Old Notes. As of the date hereof,
$48.5 million aggregate principal amount at
maturity of Old Notes are outstanding. The Company
will issue the New Notes to Holders promptly
following the Expiration Date. See "Risk Factors--
Consequences of Failure to Exchange." Holders of
the Old Notes do not have appraisal or dissenter's
rights in connection with the Exchange Offer under
the Delaware General Corporation Law, the governing
law of the state of incorporation of the Company.
Minimum Condition......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered or accepted for exchange.
Expiration Date...........
5:00 p.m., New York City time, on February ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
Interest on the New Notes
and the Old Notes........
Each New Note will accrete interest at a rate of
14% per annum from its Issue Date (as defined
herein) until March 30, 2000. Thereafter, each New
Note will bear interest at the rate of 14% per
annum which will be payable in cash semiannually on
March 30 and September 30 of each year, commencing
September 30, 2000. Interest on the Old Notes
accepted for exchange will cease to accrete upon
issuance of the New Notes.
Conditions to the The Exchange Offer is subject to certain customary
Exchange Offer........... conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions." The Company
reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration
Date upon the occurrence of any such condition. NO
VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED
TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR
PROXY THEREFOR) IS BEING SOUGHT HEREBY.
Procedures for Tendering
OldNotes.................
Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes and any other required
documentation to the exchange agent (the "Exchange
Agent") at the address set forth
10
<PAGE>
herein. By executing the Letter of Transmittal,
each Holder will represent to the Company, among
other things, that (i) the New Notes acquired
pursuant to the Exchange Offer by the Holder and
any beneficial owners of Old Notes are being
obtained in the ordinary course of business of the
person receiving such New Notes, (ii) neither the
Holder nor such beneficial owner is participating
in, intends to participate in or has an arrangement
or understanding with any person to participate in
the distribution of such New Notes and (iii)
neither the Holder nor such beneficial owner is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker or dealer as a result of
market-making activities or other trading
activities (other than
Old Notes acquired directly from the Company), may
participate in the Exchange Offer but may be deemed
an "underwriter" under the Securities Act and,
therefore, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker or dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--Procedures
for Tendering" and "Plan of Distribution."
Special Procedures for
Beneficial Owners........
Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered Holder
promptly and instruct such registered Holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering his Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered Holder. The transfer
of registered ownership may take considerable time.
See "The Exchange Offer--Procedures for Tendering."
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures............... Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer--Withdrawal of Tenders."
Acceptance of Old Notes
and Delivery of New
Notes.................... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
11
<PAGE>
Federal Income Tax The exchange of Old Notes for New Notes by
Consequences............. tendering holders will not be a taxable exchange
for federal income tax purposes, and such holders
will not recognize any taxable gain or loss or any
interest income for federal income tax purposes as
a result of such exchange.
Use of Proceeds........... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Effect on Holders of Old As a result of the making of this Exchange Offer,
Notes.................... and upon acceptance for exchange of all validly
tendered Old Notes pursuant to the terms of this
Exchange Offer, the Company will have fulfilled a
covenant contained in the terms of the Old Notes
and the Registration Rights Agreement and,
accordingly, the holders of the Old Notes will have
no further registration or other rights under the
Registration Rights Agreement, except under certain
limited circumstances. Holders of the Old Notes who
do not tender their Old Notes in the Exchange Offer
will continue to hold such Old Notes and will be
entitled to all the rights and limitations
applicable thereto under the Senior Note Indenture.
All untendered, and tendered but unaccepted, Old
Notes will continue to be subject to the
restrictions on transfer provided for in the Old
Notes and the Senior Note Indenture. To the extent
that Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the
Old Notes not so tendered could be adversely
affected. See "Risk Factors--Consequences of
Failure to Exchange Old Notes."
Exchange Agent............ Harris Trust Company of New York is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer--Exchange Agent."
12
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $48.5 million aggregate principal amount at
maturity of Old Notes. The terms of the New Notes are identical in all material
respects to the Old Notes, except that the New Notes have been registered under
the Securities Act and, therefore, will not bear legends restricting their
transfer and will not contain certain terms providing for an increase in the
interest rate on the Old Notes under certain circumstances relating to the
timing of the Exchange Offer, which rights will terminate when the Exchange
Offer is consummated. The New Notes will evidence the same debt as the Old
Notes and will be entitled to the benefits of the Senior Note Indenture, under
which both the Old Notes were, and the New Notes will be, issued. See
"Description of the Notes."
The New Notes.............
$48.5 million aggregate principal amount at
maturity of 14% Series B Senior Discount Notes due
2003.
Maturity Date............. September 30, 2003.
Yield..................... 14% per annum (computed on a semi-annual bond
equivalent basis) and calculated from September 30,
1996.
Interest.................. The New Notes offered hereby will accrete interest
at a rate of 14% per annum, compounded
semiannually, to an aggregate principal amount of
$48.5 million by March 30, 2000. Thereafter, the
New Notes will bear interest at the rate of 14% per
annum which will be payable in cash semiannually on
March 30 and September 30 of each year, commencing
September 30, 2000. See "Description of the Notes--
Principal, Maturity and Interest."
Original Issue Discount... For federal income tax purposes, the New Notes will
be treated as having been issued with "original
issue discount" generally equal to the difference
between the issue price of the New Notes and the
sum of all payments (whether designated as
principal or interest) to be made thereon. Each
holder of a New Note must include in gross income
for federal income tax purposes a portion of such
original issue discount for each day during each
taxable year in which a New Note is held. See
"Certain Federal Income Tax Considerations."
Ranking...................
The New Notes are senior and unsecured obligations
of the Company and will rank pari passu in right of
payment with all other unsubordinated and unsecured
indebtedness of the Company. The New Notes will be
effectively subordinated to any secured
indebtedness of the Company to the extent of the
value of the assets securing such indebtedness. As
a holding company that conducts virtually all of
its business through subsidiaries, the Company
currently has no source of operating cash flow
other than dividends and distributions from its
subsidiaries. The Company's subsidiaries will have
no obligation to pay amounts due on the New Notes
and will not guarantee the New Notes; provided,
that if a subsidiary guarantees any Indebtedness
(as defined herein) of the Company, such subsidiary
will be obligated to guarantee the New Notes.
Therefore, the New Notes will be effectively
subordinated to all liabilities of the Company's
subsidiaries, including trade payables. Any rights
of the Company and its creditors, including the
holders of the New Notes, to participate in a
distribution of the
13
<PAGE>
assets of any of the Company's subsidiaries upon
any liquidation or reorganization of any such
subsidiary will be subject to the prior claims of
that subsidiary's creditors (including trade
creditors). See "Risk Factors--Holding Company
Structure; Source of Repayment of Notes; Effective
Subordination of Notes to Indebtedness of
Subsidiaries."
Sinking Fund.............. None.
Optional Redemption....... The New Notes will be redeemable at the option
of the Company, in whole or in part, at any
time on or after September 30, 2001, at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, and
Special Interest, if any, to the date of
redemption. See "Description of the Notes--
Optional Redemption."
In addition, in the event that on or prior to
September 30, 1999, the Company consummates one
or more Public Equity Offerings (as defined
herein) or issues or sells Qualified Stock of
the Company (as defined herein) to a Strategic
Investor (as defined herein), in each case in
an aggregate amount equal to or exceeding $40
million, up to a maximum of 25% of the
aggregate principal amount at Stated Maturity
of the New Notes will be redeemable at the
option of the Company at a redemption price
equal to 114% of the Accreted Value (as defined
herein) thereof plus accrued and unpaid
interest, if any, and Special Interest, if any,
thereon to the date of redemption.
Change of Control......... Upon a Change of Control (as defined in each
Indenture), each holder of New Notes will have
the right to require the Company to repurchase
all or any part of such holder's New Notes, at
101% of the Accreted Value thereof, or, in the
case of any such repurchase on or after March
30, 2000, 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, and
Special Interest, if any, thereon, to the date
of repurchase. There can be no assurance that
the Company will have the financial resources
necessary to repurchase the New Notes upon a
Change of Control. See "Description of the
Notes--Repurchase at the Option of Holders upon
a Change of Control."
Guarantees................ The Senior Note Indenture provides that any
subsidiary that guarantees Indebtedness (as
defined herein) of the Company will guarantee
(a "Senior Note Guarantee") unconditionally, on
a senior basis, the payment of principal,
premium, if any, interest and Special Interest,
if any, on the New Notes and amounts payable
upon a Change of Control or an Asset Sale Offer
(as defined herein). See "Description of the
Notes--Certain Covenants--Limitation on
Issuances of Guarantees by Restricted
Subsidiaries."
Certain Covenants......... The Senior Note Indenture will contain certain
covenants which, among other things, will
restrict the ability of the Company and certain
of its subsidiaries to incur additional
indebtedness, pay dividends or make
distributions in respect of the Company's
capital stock or make certain other restricted
payments, make investments, create restrictions
on the ability of certain subsidiaries to make
distributions on their capital stock or to
issue capital stock, create liens, enter into
transactions with affiliates or related
persons, sell assets, or consolidate, merge or
sell all or substantially all of their assets
and engage in businesses other than the
telecommunications business. These covenants
are subject to important exceptions and
qualifications. See "Description of the Notes--
Certain Covenants."
14
<PAGE>
For additional information concerning the New Notes, see "Description of the
Notes."
RISK FACTORS
Holders of Old Notes should carefully consider the matters set forth under
the caption "Risk Factors" prior to making a decision with respect to the
Exchange Offer.
15
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary historical consolidated financial data for the periods
from inception of the Company in April 1994 to December 31, 1994 and for the
fiscal year ended December 31, 1995 was derived from, and should be read in
conjunction with, the consolidated audited financial statements of the Company
and the related notes thereto included elsewhere in this Prospectus. The
selected financial data as of and for the nine month periods ended September
30, 1996 and 1995, respectively, are derived from, and should be read in
conjunction with the unaudited financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus. However, in the
opinion of management, such interim financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
fairly present the information presented for such periods.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
INCEPTION TO ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------
1994 1995 1995 1996
------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION
AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net service revenue..... $ 1,737 $ 7,884 $ 5,826 $ 7,599
Cost of services........ 1,455 9,076 6,686 6,587
-------- -------- -------- --------
Gross margin............ 282 (1,192) (860) 1,012
Sales and marketing
expense................ 2,869 5,867 4,244 5,837
General and
administrative expense
(1).................... 4,686 11,100 7,366 10,920
Interest expense........ 26 734 500 46
Interest and other
income (2)............. 152 646 423 8,572
Minority interest....... -- 150 -- --
-------- -------- -------- --------
Net loss................ $ (7,147) $(18,097) $(12,547) $ (7,219)
======== ======== ======== ========
Accumulated unpaid
preferred dividends.... $ 707 $ 3,810 $ 2,679 $ --
Net loss to common
shareholder............ $ (7,854) $(21,907) $(15,226) $ (7,219)
Net loss per common
share.................. $ (65.63) $ (72.42) $ (57.82) $ (16.41)
Weighted average shares
outstanding............ 119,678 302,520 263,314 439,877
<CAPTION>
SEPTEMBER 30,
------------------
DECEMBER 31, DECEMBER 31, 1995 1996
1994 1995 -------- --------
<S> ------------ ------------ <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 5,979 $ 13,705 $ 19,239 $ 71,390
Total assets............ 12,747 20,471 35,040 88,083
Long-term debt (net of
current maturities).... 3,176 518 6,761 58,352
Redeemable preferred
stock.................. 15,306 44,396 42,127 9,853
Common stockholders'
equity (deficit)....... (7,830) (28,768) (22,099) 14,022
OTHER DATA:
EBITDA (3).............. $ (7,087) $(15,901) $(11,217) $(14,385)
Cash Flows from
Operating Activities... (6,141) (14,308) (8,554) (14,151)
Cash Flows from
Investing Activities... (1,708) (2,556) (2,499) 7,699
Cash Flows from
Financing Activities... 13,828 24,589 24,312 64,137
Depreciation and
amortization........... 186 2,258 1,253 1,360
Capital expenditures.... 1,728 1,740 1,606 232
Ratio of earnings to
fixed charges (4)...... -- -- -- --
</TABLE>
- --------
(1) General and administrative expense includes amortization of intangibles.
(2) Interest and other income for the nine months ended September 30, 1996
includes a gain of $8.1 million realized on the sale of the Company's
switching facilities in Ohio.
(3) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization and minority interest. While EBITDA should not
be construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles, EBITDA is
included because management believes that certain investors find it to be a
useful tool for measuring the ability of the Company to service its debt.
EBITDA is not necessarily a measure of the Company's ability to fund its
cash needs. See the Consolidated Statements of Cash Flows of the Company
and the related notes to the Consolidated Financial Statements thereto
included herein.
(4) The ratio of earnings to fixed charges is computed by dividing pretax
income (loss) from operations before interest charges by interest expense.
Earnings were insufficient to cover fixed charges for the periods ended
December 31, 1994 and 1995 by $7.1 million and $17.4 million, respectively,
and for the nine month period ended September 30, 1995 and 1996 by $12.0
million and $7.2 million, respectively.
16
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, before tendering
their Old Notes for the New Notes offered hereby, holders of Old Notes should
consider carefully the following factors, which may be generally applicable to
the Old Notes as well as to the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Except under certain
limited circumstances, the Company does not currently anticipate that it will
register the Old Notes under the Securities Act. Based on interpretations by
the staff of the Commission set forth in no-action letters issued to third
parties, including the Exxon Capital Letter, the Morgan Stanley Letter and
similar letters, the Company believes that the New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
or otherwise transferred by any Holder thereof (other than any such Holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such New Notes are
acquired in the ordinary course of such Holder's business and such Holder has
no arrangement with any person to participate in the distribution of such New
Notes. Notwithstanding the foregoing, each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with any resale of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (other than Old Notes
acquired directly from the Company). The Company has agreed that, for a period
of 180 days from the Expiration Date, it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes cannot rely on the Morgan
Stanley Letter or similar letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. However, the ability of any Holder to resell the
New Notes is subject to applicable state securities laws as described in "Blue
Sky Restrictions on Resale of New Notes" below. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, the trading market, if any,
for the Old Notes not so tendered could be adversely affected. See "The
Exchange Offer."
FAILURE TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on transfer
of the Old Notes, Holders of Old Notes must transmit a properly completed
Letter of Transmittal, including all other documents required by such Letter
of Transmittal, to the Exchange Agent at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent
along with the Letter of Transmittal or (ii) a timely confirmation of a book-
entry transfer of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedure for book-entry transfer described herein, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the Holder must comply
with the guaranteed delivery procedures described herein. See "The Exchange
Offer."
17
<PAGE>
BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration of qualification is available and the requirements of such
exemption have been satisfied. The Company does not currently intend to
register or qualify the resale of the New Notes in any such jurisdictions.
However, an exemption is generally available for sales to registered broker-
dealers and certain institutional buyers. Other exemptions under applicable
state securities laws may also be available.
NEGATIVE CASH FLOW AND OPERATING LOSSES; LIMITED OPERATING HISTORY
The Company has experienced pre-tax operating losses from its inception in
April 1994 through the date of this Prospectus, excluding the effect of a one-
time non-recurring gain, and has, to date, not generated positive cash flow.
For the nine months ended December 31, 1994 and the fiscal year ended December
31, 1995, the Company's pre-tax operating losses were $7.1 million and $18.1
million, respectively. These operating losses were primarily the result of the
one-time installation costs and fixed ongoing costs related to switching
facilities of the Company which were sold in February 1996, and the sales and
marketing and general and administrative expenses required to build the
Company's sales, customer, management information and marketing
infrastructure. Excluding an $8.1 million non-recurring gain on the sale of
such switching facilities, the Company would have lost $8.8 million for the
first nine months of 1996. The Company, following the Exchange Offer, expects
to realize additional operating losses on a consolidated basis while it
continues to expand and develop its service offerings and its subscriber base.
There can be no assurance that the Company will be able to develop or expand
its subscriber base or that it will achieve profitability in future years.
The Company has a limited operating history. Prospective investors,
therefore, have limited historical financial information about the Company
upon which to base an evaluation of its performance and an investment in the
New Notes offered hereby. Given the Company's limited operating history, there
can be no assurance that the Company will be able to achieve or sustain
positive cash flow from operating activities or to implement its growth
strategy.
SUBSTANTIAL LEVERAGE
The Company has and will continue to have consolidated indebtedness that is
substantial in relation to its stockholders' equity. As of September 30, 1996,
the Company had $58.6 million principal amount of long-term debt and $14.0
million of stockholders' equity. See "Capitalization." Pursuant to the terms
of the Indentures, the Company has the ability to issue an additional $72.0
million in aggregate principal amount at maturity of Senior Notes and an
additional $3.1 million in aggregate principal amount at maturity of
Convertible Notes, thus enabling the Company to issue additional indebtedness
in the amount of $75.1 million. As of the date hereof, it cannot be predicted
whether the Company will issue additional Senior Notes or Convertible Notes.
The Company's ability to make cash payments with respect to the Notes, to
repay its obligations on the Notes at maturity and to satisfy its other debt
obligations following the Exchange Offer will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the
Company's control. The Company believes that the Company's cash flow will be
sufficient to permit the Company to meet its operating expenses and to service
its debt requirements as they become due. Significant assumptions underlie
this belief, including, among other things, that (i) the Company will succeed
in implementing its business strategy and (ii) there will be no material
adverse developments in the business, liquidity or capital requirements of the
Company. However, because the Company currently has a consolidated cash flow
deficit, there can be no assurance that the Company will be able to make cash
interest payments on the Notes commencing in 2000 or to repay its obligations
on the Notes. See "Description of the Notes." The issuance by the Company of
additional Notes would affect the Company's ability to make cash payments with
respect to the Convertible Notes, to repay its obligations on the Convertible
Notes at maturity and to satisfy its other debt obligations. The Senior Note
Indenture will permit the Company
18
<PAGE>
and its subsidiaries to incur additional Indebtedness under certain
circumstances, including up to $45.0 million under a Credit Facility, $30.0
million of which may be secured. If the Company is unable to service its
indebtedness, it will be forced to examine alternative strategies that may
include actions such as reducing or delaying capital expenditures,
restructuring or refinancing its indebtedness, the sale of assets or of the
Company's ownership interest in its subsidiaries or seeking additional equity
and/or debt financing. There can be no assurance that any of these strategies
could be effected on satisfactory terms, if at all. In addition, pursuant to
the terms of the Senior Note Indenture, the ability of the Company to sell
assets is restricted. See "Description of the Notes--Asset Sales."
FUTURE CASH OBLIGATIONS
Since inception, the Company's consolidated cash flow from operations has
been negative. As a result, the Company has financed fixed charges (including
interest on existing indebtedness) and operating expenses with the proceeds
from private sales of its equity securities. Pursuant to the terms of the
Notes, the Company will, at such time as interest is payable on the Notes, be
required to satisfy substantially higher periodic cash debt service
obligations. Commencing September 30, 1999, cash interest on the Convertible
Notes will accrue semiannually at the rate of 9% per annum (approximately $3.2
million per year), and commencing March 30, 2000, cash interest on the Senior
Notes will accrue semiannually at the rate of 14% per annum (approximately
$6.8 million per year). The fully accreted principal amounts of the New Notes
offered hereby of $48.5 million and the Convertible Notes of $36.0 million,
will become due on September 30, 2003 and September 30, 2004, respectively.
Many factors, certain of which are beyond the Company's control, will affect
its performance and, therefore, its ability to meet its ongoing obligations to
repay the Notes and other debt. There can be no assurance that the Company
will be able to generate sufficient cash flow or otherwise obtain funds in the
future to cover interest and principal payments associated with the Notes and
its other debt obligations. See "Dividend Policy."
HOLDING COMPANY STRUCTURE; SOURCE OF REPAYMENT OF NOTES; EFFECTIVE
SUBORDINATION OF NOTES TO INDEBTEDNESS OF SUBSIDIARIES
As a holding company that conducts virtually all of its business through
subsidiaries, the Company has no source of operating cash flow other than from
dividends and distributions from its subsidiaries. In order to pay cash
interest on the Notes and to repay the principal amount of the Notes at
maturity, or to redeem or repurchase the Notes, the Company will be required
to obtain dividends or distributions from its subsidiaries, refinance its
indebtedness or raise funds in a public or private equity or debt offering.
However, the Indentures will limit the Company's ability to incur additional
indebtedness.
If the Company is required to conduct an offering of its capital stock or to
refinance the Notes, its ability to do so on acceptable terms, if at all, will
be affected by several factors, including financial market conditions and the
value and performance of the Company at the time of such offering or
refinancing, which in turn may be affected by many factors, including economic
and industry cycles. There can be no assurance that an offering of the
Company's capital stock or a refinancing of the Notes can or will be completed
on satisfactory terms, that such offering or refinancing would be sufficient
to enable the Company to make any payments with respect to the Notes if
required or that such offering or refinancing would be permitted by the terms
of the debt instruments of the Company and its subsidiaries then in effect.
The Old Notes are and the New Notes will be senior obligations of the
Company, pari passu in right of payment with certain other indebtedness of the
Company and not secured by any assets of the Company or its subsidiaries. The
Convertible Notes are subordinated to the Senior Notes. Otherwise, the
Convertible Notes are pari passu in right of payment with certain other
indebtedness of the Company and are not secured by any assets of the Company
or its subsidiaries. The Senior Note Indenture permits the Company to enter
into a Credit Facility under which the Company may incur up to $45.0 million
of Indebtedness, $30.0 million of which may be secured. If such Indebtedness
is secured, the Notes will be effectively subordinated to such Indebtedness to
the extent of the value of the assets securing such Indebtedness. The
Company's subsidiaries have no obligation to pay amounts due on the Notes and
have not guaranteed the Notes as of the date hereof; however, if a subsidiary
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guarantees any Indebtedness of the Company, such subsidiary will be obligated
to guarantee the Notes. See "Description of the Notes--Certain Covenants" and
"--Limitation on Issuances of Guarantees by Restricted Subsidiaries."
Therefore, the Notes, if not guaranteed in the future, will be effectively
subordinated to all existing liabilities of the Company's subsidiaries,
including trade payables. As of September 30, 1996, the total liabilities of
the Company's subsidiaries (after the elimination of loans and advances by the
Company to its subsidiaries) on a combined consolidated basis were
approximately $5.3 million. Pursuant to the Senior Note Indenture, the
Company's subsidiaries will not be able to incur Indebtedness other than $5
million of vendor financing and guarantees of the Credit Facility and the
Company's subsidiaries may guarantee the Company's obligations under the
Credit Facility. Any rights of the Company and its creditors, including the
holders of the Notes, to participate in a distribution of the assets of any of
the Company's subsidiaries upon any liquidation or reorganization of any such
subsidiary will be subject to the prior claims of that subsidiary's creditors,
including trade creditors.
DEPENDENCE ON RELATIONSHIP WITH THIRD PARTY FACILITIES-BASED PROVIDERS
The Company does not own any part of a local exchange network or a long
distance network. As a result, the Company depends entirely on facilities-
based carriers for the transmission of subscriber phone calls. For each local
exchange market in which the Company operates, there currently is a single
provider from whom the Company can purchase local exchange services. Under the
Telecommunications Act, the Company is entitled to access to local exchange
services in such markets. Although the Company believes that its relations
with its underlying carriers are good, the termination of any of the Company's
contracts with its carriers or a reduction in the quality or increase in cost
of such carriers' services could have a material adverse effect on the
Company's results of operations. In addition, the accurate and prompt billing
of the Company's subscribers is dependent upon the timeliness and accuracy of
call detail records provided by the carriers whose service the Company
resells. There can be no assurance that the current carriers will continue to
provide, or that new carriers will provide, accurate information on a timely
basis, the failure of which could have a material adverse effect on the
Company's results of operations. In particular, there were a number of
provisioning and billing difficulties related to the local and long distance
services provided to business subscribers in Manhattan, New York pursuant to
the NYNEX LSO agreement. The problems included failure to provision
subscribers, losing subscriber traffic information and subscribers receiving
multiple billings for the same service. Much of the difficulty was due to the
nature of the private local network with dedicated facilities designed for
resale purposes. NYNEX required the services of a third party billing vendor
to help implement the billing portion of the arrangement. The Company has now
contracted directly with that vendor for billing and systems support in order
to avoid problems associated with such provisioning. However, because other
RBOCs with which the Company may enter into agreements do not have significant
experience handling large volumes of resold local exchange traffic, there can
be no assurance as to the quality of the service that the Company will receive
or that similar problems will not occur.
In addition, physical damage, power loss and software defects of the RBOCs
may cause interruption in service and/or reduced capacity for the Company's
subscribers. In the event that the Company's long distance carriers are unable
to handle the growth in subscriber usage, the Company could transfer such
traffic to a carrier that had sufficient capacity, but there can be no
assurance that additional capacity will be available. If any of the LECs are
unable to handle the provisioning or growth in subscriber usage, then the
Company would be required to use another local carrier, which could be
difficult in light of the limited development of facilities-based competitive
local exchange networks. In the event the Company otherwise elects to use
other carriers, the charges for such services may exceed those under the
existing contracts, which could have a material adverse effect on the
Company's financial condition and results of operations. See "Business--Vendor
Agreements."
COMPETITION
The Company operates in a highly competitive environment and has no
significant market share in any market in which it operates. The Company
expects that competition will intensify in the future due to regulatory
changes, including the enactment of the Telecommunications Act and the
increase in the size, resources and
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number of market participants. In each of its markets, the Company faces
competition for local service from larger, better capitalized incumbent
providers, including providers from whom the Company purchases local exchange
and long distance services, many of whom have greater financial resources than
the Company. Additionally, the long distance market is significantly more
competitive than the local exchange market because the RBOC's have historically
had a monopoly position within the local exchange market. The incumbent LECs
have established relationships with their subscribers and provide those
subscribers with various transmission and switching services that the Company,
in many cases, has only recently begun to offer.
In the local exchange market, the Company also faces competition or
prospective competition from one or more CAPs, which have significantly greater
financial resources than the Company, and from other competitive providers,
including non-facilities-based providers like the Company. For example, AT&T,
MCI and Sprint, among other carriers, have each indicated their intention to
begin offering local telecommunications services as early as the first half of
1997 in major U.S. markets using their own facilities or by resale of the LECs'
or other providers' services. In addition to these long distance service
providers, entities potentially capable of offering competitive switched
services include CAPs, cable television companies, electric utilities, other
long distance carriers, microwave carriers, wireless telephone system operators
and large subscribers who build private networks. Many facilities-based CAPs
and long distance carriers, for example, have committed substantial resources
to building their networks. By building a network, a facilities-based provider
can enter the local exchange market by using its own network or entering into
interconnection agreements or resale agreements with incumbent LECs, including
RBOCs. Such additional alternatives may provide the CAPs with greater
flexibility and a lower cost structure than the Company. In addition, those
competitive providers who enter the local exchange market by successfully
negotiating contracts with the RBOCs may have substantially greater financial
resources than the Company.
With respect to wireless telephone system operators, the FCC recently
authorized cellular, personal communications service ("PCS"), and other
commercial mobile radio service ("CMRS") providers to offer wireless services
to fixed locations, rather than just to mobile subscribers, in whatever
capacity such CMRS providers choose. Previously, cellular providers could
provide service to fixed locations only on an ancillary or incidental basis.
This authority to provide fixed as well as mobile services will enable CMRS
providers to offer wireless local loop service and other services to fixed
locations (e.g. office and apartment buildings) in direct competition with the
Company and other providers of traditional fixed telephone service. In
addition, in August 1996 the FCC promulgated regulations that classify CMRS
providers as telecommunications carriers, thus giving them the same rights to
interconnection and reciprocal compensation under the Telecommunications Act as
other non-LEC telecommunications carriers, including the Company.
Under the Telecommunications Act and ensuing federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
availability of broad-based local resale and introduction of facilities-based
local competition are required before the RBOCs may provide in-region
interexchange long distance services in the states where they offer local
telephone service ("in-region long distance authority"). Also, the largest
interexchange carriers (AT&T, MCI, Sprint and any other carrier with 5% or more
of the pre-subscribed access lines) are prevented under the Telecommunications
Act from bundling local services resold from an RBOC in a particular state with
their long distance services until the earlier of (i) February 8, 1999 or (ii)
the date on which the RBOC whose services are being resold obtains in-region
long distance authority in that state. The RBOCs are currently allowed to offer
certain in-region "incidental" long distance services (such as cellular, audio
and visual programming and certain interactive storage and retrieval functions)
and to offer virtually all out-of-region long distance services.
In January 1997, Ameritech, the RBOC in several states where the Company
operates, filed an application for in-region long distance authority in
Michigan. The Company anticipates that Ameritech will soon file applications
for most or all of its other states--including Illinois and Ohio. Other RBOCs,
including NYNEX in New York, are expected to file such applications as early as
the first half of 1997. The FCC will have 90 days from the date such an
application is filed to decide whether to grant or deny the application. Once
the RBOCs
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are allowed to offer widespread in-region long distance services, both they
and the largest interexchange carriers will be in a position to offer single-
source local and long distance services similar to those offered or planned to
be offered by the Company. While new business opportunities will be made
available to the Company through the Telecommunications Act and other federal
and state regulatory initiatives, regulators are likely to provide the
incumbent LECs with an increased degree of flexibility with regard to pricing
of their services as competition increases. Although the Ameritech and NYNEX
Resale Agreements contain certain pricing protections, including adjustments
in the wholesale rates to be consistent with any changes in the Ameritech and
NYNEX retail rates, if the incumbent LECs elect to lower their rates and are
able to sustain lower rates over time, this may adversely affect the revenues
of the Company and place downward pressure on the rates the Company can
charge. While the Ameritech and NYNEX Resale Agreements ensure that the
Company will receive any lower rate provided to any other reseller, under the
NYNEX Resale Agreement if such lower rate is provided to a reseller committing
to both a longer term and a greater volume commitment, the Company receives
the lower rate, but must negotiate with NYNEX a reasonable transition to
similar commitments. If the Company cannot successfully negotiate such a
transition with NYNEX, then the Company may be unable to maintain the lowest
rate. The Company believes the effect of lower rates may be offset by the
increased revenues available by offering new products and services to its
target subscribers, but there can be no assurance that this will occur. In
addition, if future regulatory decisions afford the LECs excessive pricing
flexibility or other regulatory relief, such decisions could have a material
adverse effect on the Company.
Competition for the Company's products and services is based on price,
quality, network reliability, service features and responsiveness to
subscriber needs. While the Company believes that it currently has certain
advantages relating to the timing, ubiquity and cost savings resulting from
its resale agreements, there can be no assurance that the Company will be able
to maintain these advantages. A continuing trend toward business combinations
and alliances in the telecommunications industry may create significant new
competitors to the Company. Many of the Company's existing and potential
competitors have financial, technical and other resources significantly
greater than those of the Company.
ABILITY TO MEET MINIMUM COMMITMENTS; TERMINATION OF AGREEMENTS
Substantially all of the resale agreements between the Company and local
exchange carriers or long distance carriers contain term and volume
commitments. The local exchange resale agreements typically provide a minimum
usage which requires the Company to have a minimum number of lines in place at
the end of the applicable measurement period (typically one year) (each, a
"Minimum Commitment"). The long distance resale agreements typically require
the Company to meet a minimum dollar threshold of usage in order to be
eligible for discounted rates. The inability of the Company to meet its
Minimum Commitments or thresholds may result in substantial underutilization
charges, and, in the case of the long distance agreements, a significant
increase in the rates charged to the Company. The majority of the resale
agreements also contain carryover provisions which permit the Company to
carryforward volume shortfalls and may serve to delay, or possibly eliminate,
the payment of a significant portion of any shortfall the Company may
experience. While these "carryover pools" may provide the Company with some
additional time to build its subscriber base, any underutilization charges or
rate increases could have a material adverse effect on the financial condition
and results of operations of the Company.
Historically, the Company had not met its minimum monthly threshold under
its original agreement with Sprint. As a result, the Company does not receive
the maximum discounted rates available from Sprint and therefore resells
Sprint long distance service at significantly lower margins. In addition, the
Company has not met its Minimum Commitment under the LSO agreement due to
NYNEX provisioning delays. Although the LSO agreement provides that
provisioning delays allow the Company to postpone its obligation to meet its
commitment, there can be no assurance that the failure to meet its commitment
will not result in a material adverse effect on the financial condition and
results of operations of the Company. See "Business--Vendor Agreements."
Each of the resale agreements contains termination provisions which, among
other things, require the Company to pay termination charges if the Company
terminates an agreement prior to the end of term. The
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incurrence of any termination charges could have a material adverse effect on
the Company's financial condition and results of operations.
LACK OF EXPERIENCE OFFERING ADDITIONAL PRODUCTS AND SERVICES
The Company's strategy includes offering additional telecommunications
products and services, which may include, among others, resold paging and
cellular phone service and Internet access. Entry into new markets entails
risks associated with the state of development of the markets, intense
competition from companies already operating in those markets, potential
competition from companies that may have greater financial resources and
experience than the Company and increased selling and marketing expenses. The
Company has not provided any paging, cellular or Internet products or services
to date. There can be no assurance that the Company's products or services
will receive market acceptance in a timely manner, or at all, or that prices
and demand in new markets will be at a level sufficient to provide profitable
operations. See "Industry Overview: The Local Telecommunications Service
Industry," "Business--Growth Strategy" and "--Competition."
REGULATION AND RISKS OF THE TELECOMMUNICATIONS ACT
The Company is currently subject to federal and state government regulation
of its telecommunications services. The Company is regulated at the federal
level by the FCC. It is required to obtain and maintain an FCC certificate in
connection with its international services, and to file and maintain both
domestic and international tariffs containing the currently effective rates,
terms and conditions of service for its resale long distance services. The FCC
recently issued regulations to eliminate this tariff filing requirement for
all interstate nondominant carriers, except for, under certain circumstances,
the RBOCs, effective in late 1996 or early 1997.
The intrastate long distance telecommunications operations of the Company
are also subject to various state laws and regulations. The Company must
obtain and maintain certificates of public convenience and necessity from
regulatory authorities in most states in which it offers service. In most
states, the Company must also file and obtain prior regulatory approval of
tariffs for intrastate services. In addition, the Company must update or amend
the tariffs and, in some cases, the certificates of public convenience and
necessity, when rates are adjusted or new products are added to the local and
long distance services offered by the Company. Challenges by third parties to
the Company's tariffs filed with the FCC or the state regulatory commissions
could cause the Company to incur substantial legal and administrative
expenses.
The Telecommunications Act has already resulted in comprehensive changes in
the regulatory environment for the telecommunications industry as a whole, and
will have a material impact on the local exchange industry and the competitive
environment in which the Company operates. The Company believes that the speed
with which competition in local exchange services develops will depend on a
number of factors, including the extent to which each incumbent LEC actively
attempts to maintain its local exchange market share or to enter new lines of
business, particularly, in the case of RBOCs, the in-region long distance
business. While each incumbent LEC now has the duty to negotiate on a good-
faith basis access and interconnection agreements with facilities-based
competitors and resale agreements with competitors such as the Company, the
timing and terms of such agreements are at least in part within the control of
the LEC. A LEC that places the highest priority on maintaining its market
share in local exchange service may have less incentive to negotiate such
agreements swiftly or on terms favorable to potential competitors. Indeed,
numerous potential competitors, including AT&T, have requested, under the
provisions of the Telecommunications Act, that various state regulatory
authorities mediate their negotiations with various RBOCs because they have
been unable to reach agreement with those RBOCs for access and interconnection
to provide competitive local exchange services. The speed with which
competition in local exchange services develops will also depend on the effect
of the rules and policies recently adopted by the FCC and individual states in
implementing the relevant provisions of the Telecommunications Act and on the
outcome of judicial review of those rules and policies. In that event, the
ability of the Company to compete may be adversely affected. In addition,
resale and long distance agreements must be submitted to and approved by the
relevant state public service commission.
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The concept of resale of local exchange services is a new development in the
telecommunications industry, and the Company cannot predict how the relevant
provisions of the Telecommunications Act will be interpreted and implemented
by the FCC, state regulators, courts and the incumbent LECs. In August 1996,
the FCC issued regulations that, among other things, established pricing
methodologies and interim default rates for resold incumbent LEC services and
unbundled LEC network elements. A number of parties have filed court appeals
challenging these and other regulations implementing the Telecommunications
Act. All of the court appeals have been consolidated before the U.S. Court of
Appeals for the Eighth Circuit, which has stayed the effect of certain of the
rules (including the provisions establishing pricing methodologies and default
rates for resold services and unbundled network elements). The U.S. Supreme
Court declined to dissolve the stay, and the court of appeals' decision is not
expected before the middle of 1997. Some of the same parties and certain other
parties also have asked the FCC to reconsider these and other regulations
implementing the Telecommunications Act. The Company cannot predict the
outcome of the FCC's reconsideration proceeding or the court appeals, either
of which could have a material adverse impact on the Company. In addition, no
assurance can be given that changes in current federal or state legislation or
regulations would not materially adversely affect the Company. See "Business--
Government Regulation" and "--Competition."
ABILITY TO MANAGE GROWTH; RAPID EXPANSION OF OPERATIONS
The Company's officers have had limited experience in managing companies as
large and as rapidly growing as the Company. Although the Company has not
generated significant revenue from the Ameritech and NYNEX Resale Agreements
since they have only recently been executed, the Company anticipates that such
agreements will constitute a significant source of revenue. The Company's
strategy of continuing its growth and expansion will place additional demands
upon the Company's current management and other resources and will require
additional working capital, information systems and management, operational
and other financial resources. The continued growth of the Company will depend
on various factors, including, among others, federal and state regulation of
the telecommunications industry, competition, and on the ability of LECs,
including the RBOCs, to provision the Company's additional subscribers. In
particular, the Company faced a number of problems with its LSO agreement with
NYNEX which has historically provided a substantial portion of the Company's
revenue. Although the Company believes that the majority of the provisioning
and billing problems have been resolved by replacing the billing vendor, there
can be no assurance that the RBOCs with which the Company has resale
agreements will be able to provision new subscribers or handle the volume of
traffic and billing. Not all of the foregoing factors are within the control
of the Company. The Company's ability to manage growth successfully will
require the Company to continue to enhance its operational, managerial,
financial and information systems and controls. The Company has modified its
billing and subscriber care systems to address the resale of local services
under the Ameritech and NYNEX agreements. However, there can be no assurance
that such systems will be adequate to manage the Company's anticipated
expansion. No assurance can be given that the Company will be able to manage
its expanding operations and, if the Company's management is unable to manage
growth effectively, the Company's business, operating results and financial
condition could be materially adversely affected. Furthermore, there can be no
assurance that the growth experienced by the Company in the past will
continue. See "Business--Growth Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a significant
extent upon the abilities and continued efforts of its senior management,
particularly members of its senior management team. The Company has employment
agreements with many senior management employees but does not maintain key man
life insurance on any of its employees except Mr. J. Thomas Elliott, President
and Chief Executive Officer of the Company. The beneficiaries of such policies
are the Initial Investors (as defined herein). Many of the Company's executive
officers and other key employees have only recently joined the Company. The
loss of the services of any of such individuals could have a material adverse
effect on the Company's results of operations. The success of the Company will
also depend, in part, upon the Company's ability to find, hire and retain
additional key management personnel, including senior management, who are also
being sought by other businesses. The Company currently is in the process of
selecting a new Chief Financial Officer. However, there can be no
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assurance of the success of such selection process. Competition for qualified
personnel in the telecommunications industry is intense. The inability to
find, hire and retain such personnel could have a material adverse effect on
the Company's results of operations. See "Management--Executive Officers and
Directors."
IMPACT OF TECHNOLOGICAL CHANGE
The telecommunications industry has been characterized by rapid
technological change, frequent new service introductions and evolving industry
standards. For example, increases in technological capabilities or
efficiencies could create an incentive for more entities to enter the
facilities-based local exchange business. Similarly, such changes could result
in lower retail rates for telecommunications services, which could have a
material adverse effect on the Company's ability to price its services
competitively. Although the effect of technological change on the future
business of the Company cannot be predicted, it could have a material adverse
effect on the Company's business, results of operations and financial
condition.
ORIGINAL ISSUE DISCOUNT; POSSIBLE TAX AND OTHER LEGAL CONSEQUENCES FOR HOLDERS
OF NOTES AND THE COMPANY
The Old Notes and the Convertible Notes were issued at a substantial
discount from their principal amount at maturity. Since the New Notes are
treated as a continuation of the Old Notes for federal income tax purposes,
the New Notes will also be considered to have been issued at a substantial
discount. Cash payments of interest on the Notes will not be paid prior to
2000. However, original issue discount (i.e., the difference between the
"stated redemption price at maturity" of the Notes and the "issue price" of
the Notes) has accrued from the Issue Date of the Old Notes and the
Convertible Notes and will continue to accrue with respect to the New Notes
from the Issue Date of the Old Notes. Such original issue discount will be
includable as interest income periodically in a holder's gross income for
federal income tax purposes in advance of receipt of the cash payments to
which the income is attributable. See "Certain Federal Income Tax
Considerations--Taxation of the Senior Notes--Original Issue Discount."
Similar results may apply under state tax laws. Furthermore, the Senior Notes
are subject to the applicable high-yield discount obligation rules.
Accordingly, the Company will not be able to deduct the original issue
discount attributable to the Senior Notes until paid in cash or property or,
in certain circumstances, at all. In addition, to the extent the Notes
constitute corporate acquisition indebtedness under Section 279 of the
Internal Revenue Code, the maximum amount of interest or original issue
discount the Company can deduct with respect thereto may be limited. See
"Certain Federal Income Tax Considerations--Certain Potential Federal Income
Tax Consequences to the Company and to Corporate Holders." To the extent the
rules applicable to high-yield discount obligations or corporate acquisition
indebtedness apply, the Company's after-tax cash flow may be less than if such
original issue discount were deductible when accrued or the Notes did not
constitute corporate acquisition indebtedness.
If a bankruptcy case were commenced by or against the Company under the
United States Bankruptcy Code after the respective Issue Dates of the Notes,
the claim of a holder of the Notes with respect to the principal amount
thereof may be limited to an amount equal to the sum of (i) the initial
offering price and (ii) that portion of the original issue discount that is
not deemed to constitute "unmatured interest" for purposes of the United
States Bankruptcy Code. Any original issue discount that had not amortized as
of the date of any such bankruptcy filing would constitute "unmatured
interest."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Old Notes and the Convertible Notes are eligible for trading in the
Private Offerings, Resale and Trading through Automated Linkages ("PORTAL")
Market by Qualified Institutional Buyers ("QIBs"). The New Notes will be new
securities for which there currently is no market. There can be no assurance
as to the liquidity of any markets that may develop for the New Notes, the
ability of holders of the New Notes to sell their New Notes, or the price at
which holders would be able to sell their New Notes. Future trading prices of
the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Each of the Initial Purchasers has advised the Company
that it currently intends to make a market in the New Notes. However, the
Initial Purchasers are not obligated to do so and any market making may be
discontinued at any time without notice. Therefore, there can
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be no assurance that any active market for the New Notes will develop. The
Company does not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Holders of Old Notes, Convertible Notes, shares of Class A Common Stock
underlying the Convertible Notes, Initial Warrants or shares of Class A Common
Stock underlying the Initial Warrants will be able to sell or transfer such
securities only if a registration statement relating to such securities is
then in effect, or the sale or transfer of such securities is exempt from
qualification under the applicable securities laws of the states in which the
various holders thereof reside. See "Registration Rights."
CONTROL BY EXISTING STOCKHOLDERS; CERTAIN ANTITAKEOVER MATTERS
As of the date of this Prospectus, over 90% of the outstanding Class A
Common Stock is owned by the management of the Company and Chase Capital
Partners, CIBC Wood Gundy Ventures, Inc., Hancock Venture Capital Associates,
Northwood Capital Partners LLC, Northwood Ventures, BT Capital Partners and
Enterprises & Transcommunications, L.P. (collectively, the "Original
Purchasers"). Five of the Original Purchasers have stock holdings that exceed
five percent ownership of the Class A Common Stock of the Company. Each of
these stockholders has exercised its right to appoint one director to the
Board of Directors of the Company. See "Stock Ownership." Consequently,
management and the Original Purchasers have the ability to control the
election of all the members of the Company's Board of Directors and the
outcome of all corporate actions requiring stockholder approval. In addition,
the Original Purchasers have certain contractual preemptive rights upon
issuance of any shares of capital stock of the Company. Further, as a result
of the Offering, Merrill Lynch Global Allocation Fund, Inc. ("MLGAFI") holds
Convertible Notes which were convertible into 206,179 shares of Class A Common
Stock as of September 30, 1996 (representing approximately 17% of the
outstanding common stock) and will be convertible into 268,497 shares of Class
A Common Stock as of September 30, 1999, assuming no prior conversion of
Convertible Notes and subject to adjustment as described herein (representing
approximately [21]% of the outstanding common stock (on a fully diluted basis)
as of the date of this Prospectus). In addition, MLGAFI holds Warrants which
will be exercisable at any time after March 29, 1997 for 61,550 shares of
Class A Common Stock, and, in certain circumstances, may be issued additional
Warrants to purchase Class A Common Stock, as described herein.
Section 203 ("Section 203") of the Delaware General Corporation Law (the
"DGCL") restricts certain business combinations with any "interested
stockholder," as defined by such statute. The Company has expressly decided
not to be governed by Section 203 but may in the future change such election.
In addition, the Company may adopt certain procedural and other requirements
and/or amend its Certificate of Incorporation and/or By-laws that could
further have the effect of delaying, deterring or preventing a change in
control of the Company and/or make it more difficult for stockholders to
effect certain corporate actions, including the ability to replace incumbent
directors and to accomplish transactions opposed by the incumbent Board of
Directors. See "Description of Capital Stock."
CHANGE OF CONTROL
In the event of a Change of Control, the Company will be required to offer
to repurchase all of the outstanding Notes at 101% of the Accreted Value or
101% of principal amount, as the case may be, of the Notes plus any accrued
and unpaid interest thereon, and Special Interest, if any, to the date of
repurchase. The exercise by the holders of the Notes of their rights to
require the Company to offer to purchase Notes upon a change of control could
also cause a default under other indebtedness of the Company, even if the
change of control itself does not, because of the financial effect of such
repurchase on the Company. The Company's ability to pay cash to any of the
holders of Notes upon a repurchase may be limited by the Company's then
existing capital resources. There can be no assurance that in the event of a
change of control, the Company will have, or will have access to, sufficient
funds or will be contractually permitted under the terms of outstanding
indebtedness to pay the required purchase price for any Notes. See
"Description of the Notes."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on September 30, 1996 to the Initial
Purchasers, who placed the Old Notes with institutional investors. In
connection therewith, the Company and the Initial Purchasers entered into the
Registration Rights Agreement, pursuant to which the Company agreed, for the
benefit of the holders of the Old Notes, that the Company would, at its sole
cost, (i) within 60 days following the original issuance of the Old Notes,
file with the Commission the Exchange Offer Registration Statement (of which
this Prospectus is a part) under the Securities Act with respect to an issue
of a series of new notes of the Company identical in all material respects to
the series of Old Notes and (ii) use its best efforts to cause such Exchange
Offer Registration Statement to become effective under the Securities Act
within 120 days following the original issuance of the Old Notes. Upon the
effectiveness of the Exchange Offer Registration Statement (of which this
Prospectus is a part), the Company will offer to the holders of the Old Notes
the opportunity to exchange their Old Notes for a like principal amount of New
Notes, to be issued without a restrictive legend and which might be reoffered
and resold by the holder without restrictions or limitations under the
Securities Act. The term "Holder" with respect to the Exchange Offer means any
person in whose name Old Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered holder.
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, including the Exxon Capital Letter,
the Morgan Stanley Letter and similar letters, the Company believes that New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder of such New
Notes (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes. Any Holder who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes cannot rely on the Morgan Stanley Letter or
similar letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). The
Company has agreed that, for a period of 180 days after the Expiration Date,
it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
Each Holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an affiliate of the Company, (ii) any
New Notes to be received by it were acquired in the ordinary course of its
business and (iii) at the time of commencement of the Exchange Offer, it has
no arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes. In addition, in connection
with any resales of New Notes, any broker-dealer (an "Exchanging Dealer") who
acquired the Old Notes for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Exchanging Dealers may fulfill their prospectus delivery requirements with
respect to the New Notes (other than a resale of an unsold allotment from the
original sale of the Old Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, the
Company is required to allow Exchanging Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such New Notes.
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In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange
Offer, or if for any reason the Exchange Offer Registration Statement is not
declared effective within 120 days following the date of original issuance of
the Old Notes, or upon the request of Smith Barney Inc. under certain
circumstances, the Company will, in lieu of or in addition to effecting the
registration of the New Notes pursuant to the Exchange Offer Registration
Statement and at its expense, (i) as promptly as practicable, file with the
Commission a shelf registration statement (the "Senior Note Shelf Registration
Statement") covering resales of the Senior Notes, (ii) cause the Senior Note
Shelf Registration Statement to be declared effective under the Securities Act
by the 180th day after the original issuance of the Old Notes (or promptly in
the event of a request by an Initial Purchaser) and (iii) keep effective the
Senior Note Shelf Registration Statement until three years after its effective
date. The Company will, in the event of the filing of a Senior Note Shelf
Registration Statement, provide to each holder of Old Notes covered by the
Senior Note Shelf Registration Statement copies of the prospectus which is a
part of the Senior Note Shelf Registration Statement, notify each such holder
when the Senior Note Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Old Notes. A holder of Old Notes that sells such Old Notes pursuant to the
Senior Note Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to the purchaser, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations). In
addition, each holder of Old Notes will be required to deliver information to
be used in connection with the Senior Note Shelf Registration Statement in
order to have its Old Notes included in the Senior Note Shelf Registration
Statement and to benefit from the provisions regarding Special Interest
described in the following paragraph.
If either (i) the Exchange Offer Registration Statement or the Senior Note
Shelf Registration Statement (either, a "Senior Note Registration Statement")
required to be filed is not filed with the Commission on or prior to the date
specified for such filing in the Registration Rights Agreement, (ii) any such
Exchange Offer Registration Statement or Senior Note Registration Statement
has not been declared effective by the Commission on or prior to the date
specified for such effectiveness in the Registration Rights Agreement, (iii)
the Exchange Offer has not been consummated on or prior to the date specified
in the Registration Rights Agreement, or (iv) any Exchange Offer Registration
Statement or Senior Note Registration Statement required by the Registration
Rights Agreement is filed and declared effective but shall thereafter cease to
be effective or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such Exchange Offer
Registration Statement or Senior Note Registration Statement that cures such
failure and that is itself declared effective for a period of more than 30
consecutive days (each such event referred to in clauses (i) through (iv), a
"Senior Note Registration Default"), then commencing on the day following the
date on which such Senior Note Registration Default occurs, the Company agrees
to pay to each holder of Old Notes during the first 90-day period immediately
following the occurrence of such Senior Note Registration Default additional
interest at a rate of 0.5% per annum ("Special Interest"). The amount of
Special Interest payable to each holder shall increase by an additional 0.5%
per annum for each subsequent 90-day period up to a maximum rate of 1.5% per
annum. A Senior Note Registration Default shall cease, and Special Interest
shall cease to be payable with respect to such Senior Note Registration
Default (1) upon the filing of the applicable Exchange Offer Registration
Statement or Senior Note Registration Statement in the case of clause (i)
above, (2) upon the effectiveness of the Exchange Offer Registration Statement
or Senior Note Registration Statement in the case of clause (ii) above, (3)
upon the consummation of the Exchange Offer in the case of clause (iii) above,
and (4) when the Exchange Offer Registration Statement or Senior Note
Registration Statement becomes effective or usable in the case of clause (iv)
above. Notwithstanding anything to the contrary, (i) the amount of Special
Interest payable shall not increase because more than one Senior Note
Registration Default has occurred and is pending, (ii) a holder of Old Notes
who is not entitled to the benefits of the Senior Note Shelf Registration
(i.e., such holder has not elected to include information) shall not be
entitled to Special Interest with respect to a Senior Note Registration
Default that pertains to the Senior Note Registration Statement and (iii) a
holder of Old Notes constituting an unsold allotment from the original sale of
the Old Notes or who otherwise is not entitled to participate in the Exchange
Offer shall not be entitled to Senior Note Special Interest by reason of a
Senior Note Registration Default that pertains to an exchange offer.
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All accrued Special Interest shall be paid to record holders in the same
manner in which payments of interest are made pursuant to the Senior Note
Indenture. See "Description of the Notes--Principal, Maturity and Interest."
Payment of Senior Note Special Interest is the sole remedy available to
holders of Old Notes in the event the Company does not comply with the
deadlines set forth in the Registration Rights Agreement with respect to the
conduct of an exchange offer for the Old Notes or the registration of the Old
Notes for resale under a shelf registration statement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
at maturity of New Notes in exchange for each $1,000 principal amount at
maturity of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
will have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (ii) the holders of the New Notes
will not be entitled to certain rights under the Registration Rights
Agreement, including the terms providing for an increase in the interest rate
on the Old Notes under certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
consummated. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Senior Note Indenture under which the
Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $48.5 million aggregate principal amount
at maturity of the Old Notes was outstanding. The Company has fixed the close
of business on January 10, 1997 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with the
Letter of Transmittal, will initially be sent. As of such date, there was one
registered Holder of the Old Notes.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the DGCL or the Senior Note Indenture in connection with the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
February , 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
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In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after each previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under the caption "Conditions" shall not have been
satisfied, to terminate the Exchange Offer, by giving oral or written notice
of such delay, extension or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure
to the registered Holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes offered hereby will accrete interest at a rate of 14% per
annum from their Issue Date until March 30, 2000. Thereafter, the New Notes
will bear interest at the rate of 14% per annum which will be payable in cash
semiannually on March 30 and September 30 of each year, commencing September
30, 2000. Interest on the Old Notes accepted for exchange will cease to
accrete upon issuance of the New Notes.
PROCEDURES FOR TENDERING
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
A Holder who wishes to tender Old Notes for exchange pursuant to the Exchange
Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents,
to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along with the Letter of Transmittal or (ii)
the Holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, the Old Notes, the Letter of Transmittal
and other required documents must be received by the Exchange Agent at the
address set forth below under "Exchange Agent" prior to 5:00 p.m., New York
City time, on the Expiration Date.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
The method of delivery of the Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holder. Instead of delivery by mail, it is recommended that Holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Old Notes should be sent to the Company. Holders
may request their respective brokers, dealers, commercial banks, trust
companies or nominees to effect the above transactions for such Holders.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered Holder. The transfer of registered ownership
may take considerable time.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company, among other things,
that (i) the New Notes to be acquired by the Holder and any beneficial owners
of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, (ii) the Holder and
each such beneficial owner are not participating, do not intend to participate
and have no arrangement or understanding with any person to participate in the
distribution of such New Notes and (iii) neither the Holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Company. Each broker or dealer that receives New Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such broker
or dealer as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from the Company), must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
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(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii)
be signed by the Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Old Notes register the
transfer of such Old Notes into the name of the person withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. If certificates for Old Notes have been
delivered or otherwise identified to the Exchange Agent, then, prior to the
release of such certificates, the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company in its sole discretion, which determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer
and no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without
cost to such Holder.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance
of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
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(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "--Withdrawal of Tenders" above) or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
Holders, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
EXCHANGE AGENT
Harris Trust Company of New York has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
By Registered or By Overnight Courier: By Hand:
Certified Mail: Harris Trust Company of New York
Harris Trust Company of New York
Harris Trust Company of New York
77 Water Street, 4th Floor Receive Window
Wall Street Station New York, NY 10005 77 Water Street, 5th
P.O. Box 1010 Floor
New York, NY 10268-1010 New York, NY
By Facsimile:
(212) 701-7636
(212) 701-7637
Confirm by telephone:
(212) 701-7618
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
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The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered Holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value less accrued original issue discount, as reflected in the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer and the unamortized expenses related to the issuance of the Old
Notes will be amortized over the term of the New Notes.
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Old Notes
and the Registration Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights, and limitations applicable
thereto, under the Senior Note Indenture, except for any such rights under the
Registration Rights Agreement which by their terms terminate or cease to have
further effect as a result of the making of this Exchange Offer. All
untendered Old Notes will continue to be subject to the restrictions on
transfer set forth in the Senior Note Indenture. To the extent that Old Notes
are tendered and accepted in the Exchange Offer, the trading market, if any,
for any remaining Old Notes could be adversely affected. See "Risk Factors--
Consequences of Failure to Exchange."
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes in the Exchange
Offer.
DIVIDEND POLICY
The Company anticipates substantial net losses and negative cash flow for
the foreseeable future. It is anticipated that earnings, if any, which might
be generated from operations of the Company will be used to finance the growth
of the Company and that cash dividends will not be paid to holders of Common
Stock. The Senior Note Indenture will include significant limitations on the
Company's ability to pay dividends to the holders of Common Stock. See
"Description of the Notes." In addition, the terms of the 9% Preferred Stock
and the Purchase Agreements (each as defined herein) entered into in
connection with the sale of Common Stock and Preferred Stock to the Original
Purchasers restrict the payment of dividends. See "Certain Relationships and
Related Transactions."
34
<PAGE>
CAPITALIZATION
The following table sets forth the total cash and cash equivalents and
capitalization of the Company as of September 30, 1996. This table should be
read in conjunction with the consolidated financial statements and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
--------------------
(IN THOUSANDS EXCEPT
SHARE INFORMATION)
<S> <C>
Cash and cash equivalents................................. $ 71,390
========
Long term liabilities
14% Senior Discount Notes due 2003....................... $ 48,500
Original Issue Discount--Senior Notes.................... (18,297)
9% Convertible Subordinated Discount Notes due 2004...... 36,000
Original Issue Discount--Convertible Notes............... (8,356)
Notes and leases payable................................. 505
--------
Total long term liabilities........................... 58,352
Redeemable Preferred Stock
9% Preferred Stock, par value $1.00 per share, 30,000
shares authorized; 10,000 shares issued and outstanding;
liquidation value $1,000 per share...................... 10
Additional paid-in capital............................... 9,843
--------
Total Preferred Stock................................. 9,853
Common stockholders' equity (deficit):
Class A Common Stock, $.01 par value, 2,500,000 shares
authorized, 716,525 shares issued and outstanding at
September 30, 1996 (/1/)................................ 7
Class A Common Stock held in Treasury.................... (1)
Additional paid-in capital............................... 54,177
Accumulated deficit...................................... (40,161)
--------
Total common stockholders' equity (deficit)........... 14,022
--------
Total capitalization................................ $ 82,227
========
</TABLE>
- --------
(1) Excludes 78,987 shares reserved for issuance upon exercise of options
outstanding at September 30, 1996, and 61,550 shares reserved for issuance
upon exercise of the Initial Warrants.
35
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected historical consolidated financial data
for the period from inception of the Company in April 1994 to December 31,
1994 and for the fiscal year ended December 31, 1995. The data for the periods
ending December 31, 1994 and 1995 has been derived from consolidated financial
statements (including those set forth elsewhere in this Prospectus) which have
been audited by Deloitte & Touche LLP, independent auditors. The selected
financial data as of and for the nine month periods ended September 30, 1996
and 1995, respectively, are derived from, and should be read in conjunction
with the unaudited financial statements of the Company and the related notes
thereto included elsewhere in this Prospectus. However, in the opinion of
management, such interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present
the information presented for such periods. The information set forth below
with respect to the historical financial statements should be read in
conjunction with the consolidated financial statements of the Company and the
related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR SEPTEMBER 30,
INCEPTION TO ENDED ------------------
DECEMBER 31, DECEMBER 31, ACTUAL ACTUAL
1994 1995 1995 1996
------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION
AND RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net service revenue............ $ 1,737 $ 7,884 $ 5,826 $ 7,599
Cost of services............... 1,455 9,076 6,686 6,587
-------- -------- -------- --------
Gross margin................... 282 (1,192) (860) 1,012
Sales and marketing expense.... 2,869 5,867 4,244 5,837
General and administrative
expense (1)................... 4,686 11,100 7,366 10,920
Interest expense............... 26 734 500 46
Interest and other income (2).. 152 646 423 8,572
Minority interest.............. -- 150 -- --
-------- -------- -------- --------
Net loss....................... $ (7,147) $(18,097) $(12,547) $ (7,219)
======== ======== ======== ========
Accumulated unpaid preferred
dividends..................... $ 707 $ 3,810 $ 2,679 $ --
Net loss to common
shareholders.................. $ (7,854) $(21,907) $(15,226) $ (7,219)
Net loss per common share...... $ (65.63) $ (72.42) $ (57.82) $ (16.41)
Weighted average shares
outstanding................... 119,678 302,520 263,314 439,877
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------
1994 1995 1995 1996
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 5,979 $ 13,705 $ 19,239 $ 71,390
Total assets................... 12,747 20,471 35,040 88,083
Long-term debt (net of current
maturities)................... 3,176 518 6,761 58,352
Redeemable preferred stock..... 15,306 44,396 42,127 9,853
Common stockholders' equity
(deficit)..................... (7,830) (28,768) (22,099) 14,022
OTHER DATA:
EBITDA (3)..................... $ (7,087) $(15,901) $(11,217) $(14,385)
Cash Flows from Operating
Activities.................... (6,141) (14,308) (8,554) (14,151)
Cash Flows from Investing
Activities.................... (1,708) (2,556) (2,499) 7,699
Cash Flows from Financing
Activities.................... 13,828 24,589 24,312 64,137
Depreciation and amortization.. 186 2,258 1,253 1,360
Capital expenditures........... 1,728 1,740 1,606 232
Ratio of earnings to fixed
charges (4)................... -- -- -- --
</TABLE>
- --------
(1)General and administrative expense includes amortization of intangibles.
(2) Interest and other income for the nine months ended September 30, 1996
includes a gain of $8.1 million realized on the sale of the Company's
switching facilities in Ohio.
(3) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization and minority interest. While EBITDA should not
be construed as a substitute for operating income or a better indicator of
liquidity than cash flow from operating activities, which are determined
in accordance with generally accepted accounting principles, EBITDA is
included because management believes that certain investors find it to be
a useful tool for measuring the ability of the Company to service its
debt. EBITDA is not necessarily a measure of the Company's ability to fund
its cash needs. See the Consolidated Statements of Cash Flows of the
Company and the related notes to the Consolidated Financial Statements
thereto included herein.
(4) The ratio of earnings to fixed charges is computed by dividing pretax
income (loss) from operations before interest charges by interest expense.
Earnings were insufficient to cover fixed charges for the periods ended
December 31, 1994 and 1995 by $7.1 million and $17.4 million,
respectively, and for the nine month period ended September 30, 1995 and
1996 by $12.0 million and $7.2 million, respectively.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Historical Consolidated Financial and Operating Data" and the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company commenced operations in April 1994 as a provider of local and
long distance telecommunications services to meet the needs of small and
medium-sized business subscribers. Initially, the Company entered the local
telecommunications market as a facilities-based CAP with network facilities in
Ohio. Due to the high costs associated with the initial construction,
installation and expansion of each local network facility, including right-of-
way costs, franchise fees, interconnection charges and other operating
expenses and in light of the recent regulatory developments under the
Telecommunications Act, the Company refocused its operations. The Company
divested its transmission facilities and certain other assets in February 1996
to pursue a non-facilities-based approach to the local telecommunications
market. The Company consummated various agreements with certain RBOCs and long
distance carriers for the resale of local, long distance and enhanced and
other value-added services and commenced the marketing and provision of
services under those agreements during the latter half of 1996. Although
management believes that its current strategy will have a positive effect on
the Company's results of operations over the long-term, this strategy is
expected to have a negative effect on the Company's results of operations over
the short-term. The Company anticipates losses and negative cash flow for the
foreseeable future, attributable in part to significant investments in
operating, sales, marketing, management information systems and general and
administrative expenses. To date, the Company's growth, including capital
expenditures, has been funded primarily by the capital contributions of Chase
Venture Capital Associates, L.P., CIBC Wood Gundy Ventures, Inc., Hancock
Venture Capital Associates, BT Capital Partners, Inc., Northwood Capital
Partners, LLC, Northwood Ventures and Enterprise & Transcommunications, L.P.
The Company resells telecommunications services of certain RBOCs and certain
long distance carriers to provide an integrated telecommunications solution of
local and long distance services to the underserved small and medium-sized
business segment. This strategy affords the Company the ability to offer a
broad range of integrated services to virtually any subscriber in the United
States without incurring significant financial and management costs and the
developmental delays inherent in constructing network and transmissions
facilities.
As part of the Company's strategy to refocus its operations, the Company,
through a newly formed wholly owned acquisition subsidiary, Quest United, Inc.
("Quest"), acquired certain assets and assumed certain liabilities of Quest
America, L.P., a telecommunications reseller and consulting firm, in October
1995 (the "Quest Acquisition"). In addition, the Company (i) negotiated for
the first broad based resale agreement with Ameritech for local services which
was signed in November 1995; (ii) sold its existing local facilities in Ohio
pursuant to which it transferred its liabilities with respect to those
facilities effective December 1995; and (iii) negotiated with NYNEX for a
comprehensive local resale agreement which was signed in July 1996. The
Company intends to seek other providers of local, long distance and enhanced
and other value-added services in order to increase its subscriber base and
product offerings and reduce expenses.
The Company's net service revenue, which is recognized on a resale basis,
primarily consists of sales revenue from telecommunications services which is
net of the effect of certain adjustments, including unbillable call records.
The Company bills its subscribers for local and long distance usage based on
the type of local service utilized, the number, time and duration of calls,
the geographic location of the terminating phone numbers and the applicable
rate plan in effect at the time of the call. Net service revenue for the Quest
operations, which is recognized on an agency basis, primarily consists of
commissions earned from carriers on telecommunications services provided to
their subscribers.
Cost of services includes the cost of local and long distance services
charged by carriers for recurring charges, per minute usage charges and
feature charges, as well as the cost of fixed facilities for dedicated
services
37
<PAGE>
and special regional calling plans. In 1995, cost of services also included
fixed and one-time charges associated with the Ohio switching facilities owned
by the Company. These costs were transferred to a third party subsequent to
December 31, 1995, when the obligations with respect to the switching
facilities were effectively transferred.
Sales and marketing expense consists of the costs of providing sales and
other support services for subscribers. General and administrative expense
consists of the costs of the billing and information systems and personnel
required to support the Company's operations and growth as well as all
depreciation and amortization expenses.
The Company has experienced significant growth in the past and, depending on
the extent of its future growth, may experience significant strain on its
management, personnel and information systems. To accommodate this growth, the
Company will continue to implement and improve operational, financial and
management information systems. In an effort to support its growth, the
Company added several senior management positions and approximately 85
employees in 1995. Also, the Company is implementing new information systems
that will provide improved recordkeeping for subscriber information and
management of uncollectible accounts and fraud control.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net service revenue increased to $7.6 million in the first nine months of
1996 from $5.8 million in the first nine months of 1995. The increase in net
service revenue was due primarily to the addition of new subscribers in each
of the Company's geographic markets and the consulting revenues attributable
to the Quest Acquisition.
Gross margin of $1.0 million for the first nine months of 1996 improved from
last year's negative margin for the same period due primarily to the
elimination of fixed costs upon the sale of the over-provisioned switching
facilities in Ohio and a reduction in the amount of unbillable minutes in New
York.
Sales and marketing expense increased to $5.8 million in the first three
quarters of 1996 from $4.2 million in the first three quarters of 1995.
General and administrative expense increased to $10.9 million in the first
nine months of 1996 from $7.4 million in the first nine months of 1995. These
increases were due to the addition of personnel, information systems and
office facilities, as well as the Quest Acquisition.
Interest and other income increased to $8.6 million in the first three
quarters of 1996 from $423,000 for the first three quarters of 1995 due to an
$8.1 million non-recurring gain on the sale of its switching facilities in
Ohio.
Interest expense decreased to $46,000 in the first three quarters of 1996
from $500,000 in the first three quarters of 1995. This decrease was
attributable to the retirement of capital lease obligations in connection with
the sale of the Company's switching facilities in Ohio.
Year Ended December 31, 1995 versus Inception to December 31, 1994
The results for fiscal 1995 are not comparable with the results for fiscal
1994 as fiscal 1995 represents a full fiscal year and fiscal 1994 represents
nine months of operations since the Company's inception in April 1994.
Net service revenue increased to $7.9 million in fiscal 1995 from $1.7
million in fiscal 1994. This increase was due to a full year of operations and
the addition of new subscribers.
Cost of services increased to $9.1 million in fiscal 1995 from $1.5 million
in fiscal 1994. The increase was due to the one-time installation costs and
fixed ongoing costs related to the Ohio switching facilities, as well as
increased costs associated with an increase in the number of subscribers.
38
<PAGE>
Sales and marketing expense increased to $5.9 million in fiscal 1995 from
$2.9 million in fiscal 1994 due to increased personnel and related expenses
and the inclusion of expenses related to the operations of Quest.
General and administrative expense increased to $11.1 million in fiscal 1995
from $4.7 million in fiscal 1994. Increased general and administrative
expenses were primarily due to depreciation and amortization and other
expenses related to the Quest Acquisition and increased personnel and expenses
required to build the Company's customer service and administrative
information systems and office facilities.
Interest and other income increased to $646,000 in fiscal 1995 from $152,000
in fiscal 1994, due to significantly higher investable cash balances in fiscal
1995 as well as fiscal 1995 being a full year.
Interest expense increased to $734,000 in fiscal 1995 from $26,000 in fiscal
1994. This increase was due to interest expense associated with the
capitalized leases for the Ohio switch sites which began in December 1994.
RECENT DEVELOPMENTS
The Company had cash and cash equivalents of approximately $67.6 million at
October 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily through
cash from its investors. As of September 30, 1996, the Company had cash and
cash equivalents of $71.4 million and working capital of $68.6 million. The
Company's operating activities utilized cash of approximately $14.2 million
for the nine months ended September 30, 1996, $14.3 million for the year
ended December 31, 1995 and $6.1 million for the period ended December 31,
1994.
The Company's investing activities have consisted primarily of property and
equipment purchases of $1.7 million each for the year ended December 31, 1995
and for the period ended December 31, 1994. These expenditures were primarily
for fiber optic rings, leasehold improvements and furniture in Ohio that were
sold as of December 31, 1995. In addition, the Company entered into capital
leases of $3.4 million and $3.1 million in 1995 and 1994, respectively,
related to the Ohio switch sites. Effective December 31, 1995 these leases
were assumed by another party in connection with the sale of the Ohio
facilities. The Company remains liable on these leases, but the Company
believes that it has secured adequate protection from the assignee. In
February 1996, the Company received $9.5 million in proceeds from the December
1995 sale of the Ohio facilities.
In 1994 and 1995, the Company's financing activities consisted primarily of
raising capital in the form of Common Stock and Preferred Stock placements to
venture capital organizations. During 1994 and 1995, the Company raised $14.2
million and $26.3 million, respectively, net of issuance costs. In 1995, the
Company also assumed notes payable to investors in the Quest Acquisition. On
September 30, 1996, the Company raised an additional $10 million through the
sale to Chase Capital Partners, CIBC Wood Gundy Ventures, Inc., Hancock
Venture Capital Associates, Northwood Capital Partners LLC, Northwood
Ventures, BT Capital Partners and Enterprises & Transcommunications, L.P. of
10,000 shares of the Company's newly created 9% Cumulative Convertible Pay-In-
Kind Preferred Stock (the "9% Preferred Stock"). Also on September 30, 1996,
the Company raised approximately $56 million through the sale to Merrill Lynch
Global Allocation Fund, Inc. of (i) 48,500 Units consisting of $48.5 million
in aggregate principal amount at maturity of Senior Notes and Initial Warrants
to purchase 61,550 shares, subject to adjustment under certain circumstances,
of Class A Common Stock, at an initial exercise price of $.01 per share, and
(ii) $36.0 million in aggregate principal amount at maturity of Convertible
Notes. The aggregate purchase price of the Units was $30,203,375, and the
aggregate purchase price of the Convertible Notes was $27,644,400, generating
net proceeds to the Company that equalled $55,967,722.
The Company believes that the net proceeds from the Offering, together with
the proceeds from the sale of the 9% Preferred Stock, the proceeds of the
December 1995 sale of the Ohio facilities and cash from operations
39
<PAGE>
from each of the Company's operating subsidiaries, will be, in part,
sufficient to fund its capital expenditures, working capital and other cash
requirements through the next 12 months. To the extent that such funds are
insufficient to fund the Company's activities in the long term, the Company
may need to raise additional funds through public or private financing. There
can be no assurance that additional financing will be available or, if
available, will be on terms acceptable to the Company.
The Company incurred net losses of $18.1 million and $7.1 million in 1995
and 1994, respectively. Accordingly, no provision for current Federal or state
income taxes has been made to the financial statements. At December 31, 1995
and 1994, the Company had net operating loss carry-forwards for income tax
purposes of approximately $24.1 million and $6.9 million, respectively. The
ability of the Company or the Company's subsidiaries, as the case may be, to
utilize their net operating loss carry-forwards to offset future taxable
income may be subject to certain limitations contained in the Internal Revenue
Code of 1986, as amended (the "Code"). These operating losses begin to expire
in 2009 for Federal income tax purposes. Of the net operating loss carry-
forwards remaining at December 31, 1995, $12.3 million can be applied only
against future taxable income of the Company's subsidiary USN Communications
Northeast, Inc. (formerly United Telemanagement Services, Inc.) ("USNCN"). In
addition, if the Company or the Company's subsidiaries experience an
"ownership change" within the meaning of Section 382 of the Code, the net
operating loss carry-forwards allocable to such entity will be subject to an
annual limitation in an amount generally equal to the value of the entity
immediately before the ownership change at the long-term tax-exempt rate (the
"Section 382 limitation"). Any unused Section 382 limitation in one year is
added to the limitation for the next year. Generally, an ownership change
occurs with respect to an entity if the aggregate increase in the percentage
stock ownership (by value) of such entity by one or more of its five-percent
stockholders exceeds 50 percentage points within a testing period. The tax
laws for determining whether an ownership change of an entity has occurred are
complex and subject to differing interpretations in certain respects. It is
possible that the Company or the Company's subsidiaries have experienced an
ownership change under Section 382 of the Code and that the Company or the
Company's subsidiaries may experience an ownership change as a result of the
Company's future transactions including, but not limited to, the issuance of
the Warrants and consummation of one or more public offerings of Common Stock.
In such event, the ability of the Company or the Company's subsidiaries to
utilize their operating loss carry-forwards to offset future taxable income
would be subject to limitations as discussed above.
INFLATION
Management believes that inflation has not had a material effect on the
Company's results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
New accounting standards have been issued by the Financial Accounting
Standards Board that may apply to the Company in fiscal 1996. Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets," requires a review of long-term tangible and intangible
assets (such as goodwill) for impairment of recorded value and resulting write
downs if value is impaired.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), establishes accounting and disclosure
requirements using a fair value based method of accounting for stock-based
employee compensation plans. Under SFAS 123, the Company may either adopt the
new fair value based method or provide pro forma disclosure of net income
(loss) as if the accounting provisions of SFAS 123 had been adopted. The
Company intends to elect the intrinsic method of accounting for stock-based
employee compensation plans as allowed under SFAS 123 and Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees."
These statements are not expected to have a material effect on the Company's
financial position or results of operations.
40
<PAGE>
INDUSTRY OVERVIEW:
THE LOCAL TELECOMMUNICATIONS SERVICE INDUSTRY
The current structure of the U.S. telecommunications market resulted largely
from the divestiture of AT&T, then referred to as the "Bell System." Pursuant
to the Divestiture, the RBOCs were separated from the long distance provider
AT&T, resulting in the creation of two distinct industries: local exchange and
interexchange (commonly known as long distance). Following the Divestiture,
each RBOC continued to offer local telephone and other telecommunications
services only within Local Access and Transport Areas ("LATAs"), and was
generally prohibited from providing telecommunications services between LATAs.
Prior to the Divestiture, the Bell operating companies and other LECs not
affiliated with the Bell System had government-regulated monopolies for most
local telephone services. The Divestiture encouraged the growth of competition
for long distance services and terminal network equipment by prohibiting the
RBOCs from entering these markets, but the RBOCs retained monopoly control
over the market for local telephone services. Since the Divestiture in 1984,
competition in the long distance market has rapidly increased, and by 1995
AT&T had lost approximately 40% of its long distance market share to MCI,
Sprint and a number of other long distance competitors.
The Divestiture did not directly provide for competition in local markets.
After the Divestiture, however, a number of factors served to promote
competition in the local telecommunications market, including (i) increasing
subscriber desire for alternatives to the services provided by the LECs,
particularly among business subscribers, prompted in part by competition in
the long distance market; (ii) technological advances in the transmission of
data and video requiring greater capacity and reliability levels than the
existing copper-based LEC networks were able to accommodate; (iii) a monopoly
position and rate of return-based pricing structure which provided little
incentive for the LECs to upgrade their networks or meet specialized
subscriber needs; (iv) the development of fiber optics and digital electronic
technology, which combined the ability to economically build a high-capacity
digital network with the ability to transmit voice, data and video signals at
high speeds; and (v) the significant "access charges" that long distance
carriers were required to pay to originate and terminate long distance
telephone calls on the RBOCs' networks.
The first competitors in the local market were the CAPs, which provided
special access services by installing fiber optic facilities connecting long
distance carriers' "points of presence" (or "POPs") within a metropolitan area
and, in some cases, connecting subscribers (primarily large businesses) to
long distance carriers' POPs. CAPs also provided private line services
connecting multiple locations of a single subscriber within a local market
area with dedicated fiber optic lines. CAPs used the technological advantage
and substantial capacity and economies of scale inherent in fiber optic
technology to offer subscribers service that initially was generally less
expensive and of higher quality than could be obtained from the LECs, due in
part to the LECs' more antiquated copper-based facilities and higher overhead
costs. In addition, CAPs generally offered shorter installation and repair
intervals and improved reliability in comparison to the LECs. In recent years,
the LECs have been steadily upgrading the technology of their networks,
including increasing the amount of fiber used in such networks, thereby
decreasing the competitive advantage held by the CAPs in the special access
and private line markets. As CAPs proliferated during the latter part of the
1980's, federal and some state regulators issued rulings which permitted and
sometimes encouraged local competition and opened some local market segments
to new entrants. However, legal and tariff restrictions historically prevented
entry on a resale basis and limited competitive local entry to facilities-
based providers.
The Telecommunications Act, which was enacted on February 8, 1996, is
considered to be the most comprehensive reform of the nation's
telecommunications laws and will substantially affect the development of
competition for local telecommunications services. Specifically, certain
provisions of the Telecommunications Act provide for: (i) the removal of legal
barriers to entry to the local telecommunications services market; (ii) the
interconnection of incumbent LEC networks with competitors' networks; (iii)
the establishment of procedures and requirements to be followed by the RBOCs,
including the requirement that RBOCs offer local services for resale in order
to enter into the long distance and telecommunications equipment manufacturing
markets; and
41
<PAGE>
(iv) the relaxation of the regulation of certain telecommunications services
provided by LECs and others. The Company believes the Telecommunications Act
will promote significant growth in the local telecommunications market as new
market entrants, including resellers, provide expanded service offerings and
increased levels of subscriber service.
In addition to the Telecommunications Act and other FCC actions and
proposals, an increasing number of states have encouraged competition in
various aspects of the local telecommunications market. While the majority of
state initiatives were originally limited to private line and special access
services, many states are in the process of changing their statutes or
regulations to permit competition for switched services, including basic local
exchange telephone services. By the time the Telecommunications Act was
enacted, approximately half the states had removed legal prohibitions on the
provision of competitive local exchange service. Those states that have not
made these changes are required to do so under the Telecommunications Act. The
Company believes, based on data compiled by the FCC, that the passage of the
Telecommunications Act combined with earlier state regulatory developments,
has expanded the market for competitive local providers from dedicated
services, which was estimated to have been approximately $5 billion in 1995,
to include the local switched access market for business subscribers, which
was estimated to have comprised approximately $55 billion of the approximately
$96 billion represented by local exchange services in 1995.
The Telecommunications Act further increases the opportunities available to
competitive local providers by requiring the RBOCs and other incumbent LECs to
offer various network elements such as switching, transport and loops (i.e.,
the facilities connecting a subscriber's premises to a LEC central office) on
an unbundled and non-discriminatory basis. RBOCs also are required to offer
their retail services at wholesale rates for resale by other companies,
including the Company. By offering such services, the RBOCs are also meeting
certain of the requirements contained in the Telecommunications Act in order
to gain FCC approval to provide in-region long distance services. The Company
believes regulatory reform, together with increased demand from the large
underserved small and medium-sized business market, will provide growth
opportunities for local telecommunications resellers who meet the RBOCs'
requirements for integrated billing and information systems and have
significant management and operational expertise. This new market opportunity
will permit competitive providers who can manage the operational and marketing
implementation to offer a full range of local telecommunications services,
including local calling, custom calling features and intra-LATA toll services
to virtually any subscriber in the United States. The Company believes that
carriers such as the Company reselling local exchange services have the
opportunity to gain market share in the local exchange market just as long
distance resellers have gained market share in the long distance market. In
addition, competitors other than the Company, including the major
interexchange carriers, will be able to take advantage of the unbundling and
resale requirements imposed on the RBOCs and other incumbent LECs under the
Telecommunications Act, thereby facilitating entry of competitors that
previously have not invested in local distribution facilities.
42
<PAGE>
BUSINESS
INTRODUCTION
The Company is one of the fastest growing providers of integrated local and
long distance telecommunications services in the United States. The Company
resells telecommunications services of certain RBOCs and certain long distance
carriers to provide an integrated solution of local and long distance services
to the underserved small and medium-sized business segment. The Company
primarily focuses its marketing efforts on businesses with telecommunications
usage of less than $5,000 per month. The Company's approach simplifies the
subscriber's telecommunications procurement and management tasks and provides
for the easy addition of customized services, such as special local and long
distance pricing and enhanced and other value-added calling and billing
features designed to meet specific subscriber needs.
The Company's goal is to be more flexible, innovative and responsive to the
needs of its subscribers than the RBOCs and the large long distance carriers,
which primarily concentrate their sales and marketing efforts on residential
and large commercial subscribers. Market research combined with the Company's
experience indicates that its target subscribers prefer a single source and
single bill for all of their telecommunications needs. The Company provides
local service using existing telephone lines obtained from the incumbent RBOCs
at wholesale rates, which allows subscribers to switch to local service
provided by the Company without changing their existing telephone numbers or
adding new facilities or equipment. The Company provides long distance
services by purchasing bulk capacity from long distance carriers and reselling
those services to the Company's subscribers. By providing an integrated,
customized package of local, long distance and enhanced and other value-added
services on a single bill through its proprietary software and responsive
subscriber care systems, the Company believes that it provides a
differentiated and competitive product.
The Company obtains its resold local services pursuant to comprehensive
local exchange resale agreements, including the Ameritech Resale Agreements
for the greater metropolitan Chicago area, Ohio and Michigan and the NYNEX
Resale Agreement for the state of New York, with the opportunity to expand
into the entire territory served by NYNEX. The Company has also entered into
an LSO agreement with NYNEX for the resale of Centrex services over a private
local network which provides access to the majority of business lines in
Manhattan, New York. After a nine month systems test period with Ameritech,
the Company commenced service in Illinois in August 1996, followed by Ohio in
October 1996. The Company completed a system test period in New York in
October 1996 and started offering service in November 1996. The Company began
service in Michigan at the end of 1996. The Company estimates, based on data
compiled by the FCC, that the regions covered by the Ameritech Resale
Agreements and the NYNEX Resale Agreement include access to over 30 million
access lines, including over 10 million business access lines and
approximately 20 million residential access lines. The Company has implemented
a resale task force to facilitate the negotiation and implementation of
additional long-term arrangements with other RBOCs for the resale of
telecommunications services. Additionally, the Company has contracted with a
number of long distance carriers, including MCI, Sprint and WorldCom, to
provide switching services and network transmission for its long distance
traffic. The Company continuously seeks to enter into agreements with
additional RBOCs, long distance carriers and enhanced and other value-added
service providers in order to aggressively build its subscriber base as well
as to provide additional services to its existing subscribers while reducing
costs. See "--Vendor Agreements."
MARKET OPPORTUNITY
The recently enacted Telecommunications Act is expected to result in a
fundamental change in the competitive structure of the local exchange market,
greatly accelerating changes that have been under way for several years as a
result of FCC policy initiatives and ongoing deregulatory trends at the state
level. Specifically, the Telecommunications Act lifted regulatory barriers to
entry into the local market, required the resale of local services by the
RBOCs and put in place various measures designed to further the development of
a competitive market. The Company believes that these developments will result
in significant opportunities for new entrants offering integrated local and
long distance telecommunications services. Due to the Company's Ameritech
Resale Agreements, the NYNEX Resale Agreement and the LSO agreement, as well
as significant time invested and experience gained in provisioning the resale
of local exchange services under such agreements, the Company believes it
enjoys a competitive advantage over other local service resellers with respect
to the provisioning of local resale services.
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The Company estimates, based on industry sources, that in 1995 total
revenues from domestic local and long distance telecommunications services
were approximately $166 billion, of which approximately $96 billion was
represented by local exchange services and approximately $70 billion was
represented by long distance services. Since the Divestiture of the Bell
operating companies from AT&T in 1984, competition in the long distance market
has rapidly increased and by 1995 AT&T had lost approximately 40% of its long
distance market share to MCI, Sprint and a number of other long distance
competitors. Although the market for the provision of long distance service
has been open to competition since the Divestiture, the market for local
exchange services has until recently been essentially closed to competition.
The Company believes that competitive providers such as the Company, by
reselling local exchange services, will have the opportunity to gain market
share in the local exchange market just as long distance resellers have gained
market share in the long distance market. The Company believes that it has
several advantages that enable it to compete successfully in the new
competitive local telecommunications marketplace, including (i) locally
oriented marketing and subscriber service focusing on a defined, underserved
market segment, (ii) billing and information systems that have been interfaced
with the RBOCs and (iii) an experienced management team with significant
operational, technical, financial and regulatory expertise in both the local
and long distance telecommunications industry.
The Telecommunications Act created an additional short term opportunity for
the Company to establish itself as a provider of integrated telecommunications
services before the RBOCs and the largest long distance carriers began to
offer bundled local and long distance services. The Company believes that the
steps it has taken position it to take advantage of such opportunity. At the
same time, the Telecommunications Act has also presented various competitors
with the opportunity to begin offering local telecommunications services. Many
of these competitors, which include CAPs and very large IXCs, have more
experienced management, greater financial resources and broader name
recognition than the Company. Some of these competitors have completed
interconnection negotiations with RBOCs and other ILECs, and are beginning to
provide service in selected local exchange markets.
In addition, certain RBOCs may soon be offering other telecommunications
services, including in-region long distance services. In January 1997,
Ameritech filed an application for in-region long distance authority in
Michigan, one of the states where the Company operates. The Company
anticipates that RBOCs will file other such applications, including
applications for New York, Illinois, Ohio and perhaps other states where the
Company operates, as early as the first half of 1997. In order to provide long
distance services in their local service regions under the Telecommunications
Act, the RBOCs must seek FCC approval and comply with a series of regulations
including the requirement that they offer local resale and either enter into
interconnection agreements with at least one facilities-based carrier or,
under certain circumstances, offer access and interconnection pursuant to
generally available terms and conditions approved by a state commission. Once
an RBOC obtains FCC approval, the RBOC must provide its in-region long
distance services through a separate operating subsidiary, and such subsidiary
must, among other things, maintain separate books, records and accounts,
retain different directors, officers and employees and secure financing
independent of the creditworthiness of the RBOC's local exchange operations
for at least three years. The Telecommunications Act also prevents the largest
long distance carriers from jointly marketing local services resold from an
RBOC in a particular state with their long distance services until the earlier
of (i) February 8, 1999 or (ii) the date the RBOCs are allowed to provide in-
region long distance services in that state. While it is probable that the
RBOCs will seek and obtain some long distance authority prior to 1999, the
Company believes its early entry into the RBOC markets may provide the Company
with an opportunity to grow a customer base prior to the RBOC's ability to
offer both local and long distance services.
In order for facilities-based CAPs to provide ubiquitous local
telecommunications services, such providers must obtain access to buildings,
negotiate complex interconnection agreements with RBOCs and other LECs,
address complex rate structure and billing systems, provide directory listings
and 911 and 411 services on their own or through the incumbent LECs, secure
number portability and create local marketing and subscriber care programs
tailored for each market. As a non-facilities-based provider, the Company will
not be required to address such issues associated with operating as a
facilities-based CAP in order to provide ubiquitous local telecommunications
services. As a result, the Company believes it will be able to build a
subscriber base quickly and efficiently without incurring significant
financial and management costs and the developmental delays inherent in
constructing network and transmission facilities.
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GROWTH STRATEGY
The Company's objective is to be a leading provider of integrated local and
long distance services and other telecommunications products to small and
medium-sized businesses. The Company expects to achieve this goal through the
successful implementation of its growth strategy which includes the following:
.Negotiate Attractive Resale Agreements with RBOCs. The Company seeks to
enter into additional local exchange resale agreements with RBOCs which
position it to offer a full range of local service over a broad
geographic area at a competitive cost to its targeted businesses. The
Ameritech Resale Agreements provide pricing protections designed to
maintain the competitiveness of rates and position the Company to
purchase capacity at rates at least as favorable as those of other
potential resellers of Ameritech local services. The NYNEX Resale
Agreement contains similar pricing protections. The Company intends to
negotiate similar pricing protections in all future RBOC resale
agreements. The Company believes the RBOCs will have an incentive to use
a wholesale strategy with respect to small and medium-sized businesses in
order to stabilize this revenue base and deter migration of the current
RBOCs' subscribers to facilities-based CAPs and other new entrant LECs.
.Provide Low-Cost Telecommunications Products and Services. The Company
believes its existing resale agreements will enable it to be among the
lowest cost providers of resold Ameritech and NYNEX local services. By
combining local and long distance services, the Company believes that it
is able to offer rates for integrated local and long distance services
that generally compare favorably with the rates enjoyed by large
commercial subscribers. The Company believes that as a non-facilities-
based telecommunications provider, it is able to build a subscriber base
quickly and efficiently without incurring significant financial and
management costs and the developmental delays inherent in constructing
network and transmission facilities.
.Focus on Large, Underserved Market. The Company primarily focuses its
marketing efforts on small and medium-sized businesses with
telecommunications usage of less than $5,000 per month. These businesses
generally do not employ in-house telecommunications specialists to manage
their telecommunications services and in most cases obtain services from
various vendors. The Company believes that the gross margins on services
provided to its target market are generally higher than for larger
commercial subscribers. Since the RBOCs and the large long distance
carriers primarily concentrate their sales and marketing efforts on
residential and large commercial subscribers, the Company believes an
opportunity to gain market share exists within its target market. As a
result, the Company plans to generate additional revenue by offering
enhanced and other value-added telecommunications products and services
to these small and medium-sized businesses.
.Rapid Market Entry. The Company intends to continue to be early to market
in providing an integrated package of local and long distance services.
The Company believes it will be able to move into new markets and
generate cash flow quickly because the Company, unlike facilities-based
CAPs, does not face large capital expenditures from building and/or
maintaining transmission facilities. Additionally, providing a ubiquitous
product offering will further enhance the Company's ability to rapidly
build a subscriber base across a large geographic area. Due to the
complexity of the provisioning process, the Company believes that the
RBOCs will have an incentive to work with competitive providers such as
the Company which have developed high quality management information and
billing systems that can interface with the RBOCs' systems and have
management teams with significant operational, technical, financial and
regulatory experience in the resale of local exchange service. In order
to develop a subscriber base and create brand awareness, the Company may
sell its long distance services in a new market prior to entering into a
resale agreement with an RBOC.
.Provide an Integrated Telecommunications Solution. The Company believes
that a key element in building its subscriber base while minimizing churn
is the implementation of a marketing and operating strategy which
emphasizes providing an integrated telecommunications solution to its
target market. The Company utilizes a marketing approach which combines
both direct and indirect sales efforts. The Company attracts and retains
subscribers by combining responsive subscriber care with a simple product
and pricing package to provide high-quality service at a cost which is
usually afforded to only large commercial subscribers. Specifically, the
Company will provide a single source and bill for integrated local and
long distance services and enhanced and other value-added
telecommunications services, with a single point of contact for
subscriber service, product inquiries, repairs and billing questions. The
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Company believes that this marketing and subscriber service approach
reduces marketing costs, subscriber acquisition costs and churn.
.Capitalize on Experience in Provisioning the Resale of Local Service. The
Company is one of the first competitive providers to resell integrated
local and long distance telecommunications services. In contrast to the
resale of long distance service, providing local exchange service as a
reseller is a highly complex process involving: (i) providing numerous
technical and configuration options; (ii) ensuring number portability;
(iii) providing 911 and 411 services and directory listings; (iv)
providing multiple service options on an uninterrupted basis; and (v)
integrating complex rate structures and billing systems. The Company has
invested significant time in working with certain RBOCs to address these
issues and to develop systems which are designed to allow for the
implementation of its local exchange resale agreements. The Company
believes that its experience both in negotiating these agreements and in
implementing such service offerings will position it to compete
effectively.
.Geographic Market Expansion. The Company is engaged in ongoing discussions
with the RBOCs with regard to the resale of local exchange services. The
Company's decision to enter into a resale agreement with an RBOC and
expand into a new geographic region is based upon a series of market
selection criteria, including product availability, the ability of the
Company to position its products and services, the terms of the resale
agreement, the state of the regulatory environment and the willingness of
an RBOC to provide provisioning support. In an effort to build its
subscriber base and achieve additional economies of scale, the Company
continuously evaluates potential acquisitions, including other resellers
of local and/or long distance service or enhanced and other value-added
services, in both the geographic areas covered by its resale agreements
and new markets.
SUBSCRIBERS AND MARKETING
The Company's subscribers include small and medium-sized businesses which
principally have telecommunications usage of less than $5,000 per month. The
Company believes that the RBOCs historically have chosen not to concentrate
their sales and marketing efforts on this business segment, which the Company
believes represents a significant portion of the local service market. The
Company has sought to establish itself as a recognized brand name for its
products and services emphasizing responsive subscriber support systems,
competitive product and pricing packages and a targeted marketing strategy.
The Company's services are sold through a multi-channel marketing approach,
which combines both direct and indirect sales efforts. The Company believes
this marketing approach increases market coverage and reduces marketing costs,
subscriber acquisition costs and churn. The Company focuses on the
structuring, management and control of the marketing program which allows the
Company to modify its marketing programs to effectively integrate with the
billing and information systems of the RBOCs.
The Company is building a highly motivated and experienced sales force in
each of the markets in which it operates. The Company recruits salespeople
with experience in selling competitive telecommunications services in the
markets where they are based. The Company's sales force is trained in-house
with a rigorous subscriber-focused training program that promotes activity-
based selling with a scripted 13 step program for subscriber acquisition. The
sales force makes calls to prospective subscribers, conducts an extensive
analysis of their existing bill, calling patterns, contracts and future needs
and prepares and presents a formal recommendation and proposal. Salespeople
are given an incentive through a commission structure, with a target of 40% of
a salesperson's compensation based on such person's performance. Currently,
the Company employs a total of 107 sales and customer service personnel with
approximately 65 dedicated to direct sales, 18 senior salespersons with
management responsibilities, 15 in account development and enhancement and
nine in maintenance and general administrative support. The organizational
structure at each office includes a sales director and three to four sales
managers with sales teams reporting to each sales manager.
The Company also plans to include distributors and resellers in its sales
and marketing program. Distributors will generally enter into agreements
providing for commissions based on the business they generate for the Company.
Typically, such distributors are equipment consultants, distributors of
interconnect equipment or other communications suppliers that have an existing
customer base to which the Company's products and services would appeal (such
as Internet access providers). Resellers of the Company's services will
purchase the Company's products and services on a wholesale basis that will
enable the Company to enter markets with minimal cost or risk where resellers
have already built strong direct relationships with their subscribers.
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MANAGEMENT INFORMATION SYSTEMS
Introduction
The Company is committed to the continued development and successful
implementation of proprietary billing and subscriber care systems that provide
accurate and timely information to both the Company and its subscribers. The
provisioning interface of the Company's management information systems has
been developed in cooperation with Ameritech and NYNEX, with which the Company
has entered into resale agreements. The Company believes this method of
development is a critical element to successfully providing local
telecommunications services and is an advantage, as the RBOCs will have an
incentive to work with resellers that have sophisticated billing and
information systems that can interface with the RBOCs' systems. The Company
believes its experience in developing these systems will allow it to offer
services quickly in new markets. The existing billing and subscriber care
systems have been developed in a client/server environment allowing for
flexibility to accommodate an expanding subscriber base, efficient entry into
new markets and rapid development of additional functionality.
As a result of the Ameritech Resale Agreements and the NYNEX Resale
Agreement, as well as changes in the Company's subscriber base and product
mix, the Company has modified its billing and subscriber care systems. The new
systems were developed to run in a multi-site wide area network configuration
allowing the Company to decentralize data processing and subscriber care
activities as desired. Due to the modular nature of this hardware and software
setup, new servers may be added to the Company's system to meet the increasing
need for processing power in order to accommodate subscriber growth. The
Company believes that its new systems will be a strategic asset to its growth
strategy through their ability to:
. Enhance the Company's ability to serve subscribers in a timely and
efficient manner;
. Provide sophisticated information tailored to subscriber requirements;
. Identify usage patterns and feature availability to reduce churn and
enhance marketing efforts;
. Enable subscriber care representatives to access information on-line; and
. Integrate information across departments and divisions.
The systems are designed to provide access to a broad range of information
on individual subscribers, including their volume, patterns of usage and
billing history. This same information is used by the Company to identify
subscriber trends and will allow for proactive support of the Company's
marketing efforts.
Billing and Management Systems
The Company currently outsources the rating, printing and mailing of
subscriber bills. Since these functions require a high volume of processing in
a limited time frame, the Company has determined that the most economical way
to process bills is to share the hardware resources with others. The
subscriber usage information for billing and the tables and procedures used in
the rating of call records are maintained separately by the Company to manage
the ongoing needs of each subscriber.
Standard management reports are generated for every billing cycle. These
reports cover system status which include statistics of all call records such
as invalid calls, carrier minute records and cost and duplicate records.
Management receives trend reports comparing current to previous months
processing and database matching reports. In order to minimize errors and
subscriber complaints, early "mismatch" reports are generated to identify and
correct potential errors before bills are mailed to subscribers. The Company
also generates account reports which detail payments and adjustments, credit
limits, aging, status, invoice analysis, commission summaries, cash tracking,
traffic and usage reports and rate profiles. Management's receipt of such
detailed and up-to-date information allows for proactive business and
marketing decisions and allows management to better predict and meet
subscriber needs.
Provisioning and Subscriber Information/Subscriber Care
Provisioning of subscribers is accomplished through the Company's
proprietary systems. The new communications gateway systems are designed to
interface with the RBOCs' systems through a variety of delivery mechanisms
including Internet mail, direct connect, fax and network data mover.
Information regarding new subscribers will be electronically requested from
the RBOCs and long-distance carriers, evaluated by the
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Company in terms of credit risk and potential revenue and subsequently
processed into the Company's subscriber care system. In addition, the
Company's information systems generate margin analysis reports on existing
businesses of the Company and accounts receivable information which is posted
to the accounting system for standard general ledger processing. Aging reports
allow the Company to manage 30, 60, 90 and 120 day receivable status and
assign risks to potential new subscribers by building subscriber profiles. The
new systems, when implemented, are designed to assist in the timely posting of
receivable information to each account.
Maintenance and repair information will be contained within the system and
will be linked to the subscriber setup, billing and credit history as well as
past maintenance and repair reports. Maintenance and repair reports will be
generated for all subscriber problems and allow the Company to track the
frequency and type of problems encountered and allow management to improve the
service to the Company's subscribers.
The Company believes there are several benefits to its method of data
processing. Initial access to subscriber information gives the Company the
time to discuss other features that may enhance the subscriber's services.
Information regarding subscriber charges is available for review in order to
highlight new marketing opportunities or potential areas of concern. The
Company believes that this will allow it to market more effectively and cross
sell new or enhanced features. Historical bill images are kept and made
available to the subscriber care advisor, as well as to the subscriber, for
review and adjustments.
VENDOR AGREEMENTS
Introduction
The Company has executed comprehensive local exchange resale agreements,
including the Ameritech Resale Agreements for the greater metropolitan Chicago
area, Ohio and Michigan, and the NYNEX Resale Agreement for the state of New
York, with the opportunity to expand into the entire territory served by
NYNEX. Additionally, the Company has entered into an LSO agreement with NYNEX
for the resale of Centrex over a private local network which provides access
to a majority of the business lines in Manhattan, New York. The Company
estimates, based on data compiled by the FCC, that the regions covered by the
Ameritech Resale Agreements and the NYNEX Resale Agreement include access to
over 10 million business access lines and over 25 million residential access
lines. The Company has implemented a resale task force to facilitate the
negotiation and implementation of long-term arrangements with the RBOCs for
the resale of telecommunications services. The Company continuously seeks to
enter into agreements with additional RBOCs, long distance carriers and
enhanced and other value-added service providers in order to aggressively
build its subscriber base as well as to provide additional services to its
existing subscribers while reducing costs.
The Company currently has long distance resale agreements with MCI, Sprint
and WorldCom. Such agreements allow the Company to offer its subscribers
integrated local and long distance telecommunications services. In addition,
such agreements have allowed the Company to enter and establish itself as a
telecommunications provider in strategically targeted markets prior to
establishing a local exchange resale agreement.
Ameritech Resale Agreements
Pursuant to the Ameritech Resale Agreements, the Company purchases local
exchange services at discounted rates based on a ten-year term. These
agreements contain pricing protections designed to maintain the
competitiveness of the Company's discounted rates and position the Company to
purchase capacity at rates at least as favorable as those of competitors that
may eventually negotiate a resale agreement. The level of discounts of the
resold services provided under these agreements vary based on the state and
the nature of services resold (i.e., access lines, local calls, toll calls or
features).
Services offered for resale include most of the telecommunications products
and services engineered and provided by Ameritech, such as local exchange
calling and attendant features including call waiting, call forwarding, caller
ID and three-way calling. The rates for these services are filed with the
public utilities
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commission of each respective state. The Company also has an agreement with
Ameritech for the resale of certain non-tariffed services to its subscribers,
including inside wire maintenance.
The Ameritech Resale Agreements include a Minimum Commitment of resold
business access lines per region covered. The Minimum Commitment in Illinois
is 150,000 business access lines and in Ohio and Michigan, 100,000 business
access lines and 10,000 residential lines. The Minimum Commitment is not a
limitation on the Company's overall ability to sell access lines at discounted
rates. However, if the Company fails to meet its Minimum Commitment, the
Company is subject to an underutilization charge equal to the number of
unutilized lines multiplied by a fixed average business line rate. The
measurement period of the Minimum Commitment does not commence, however, until
the completion of a three month trial or "beta period" and an 18 month "ramp
up" period which gives the Company the ability to build its subscriber base.
In addition, the Ameritech Resale Agreements provide a "carryforward"
provision designed to minimize the potential for any liability resulting from
a failure to meet the Minimum Commitment by carrying forward underutilization
amounts which may be met in the future. As of the date of this Prospectus, the
Company was still in the "ramp up" period of the Ameritech Resale Agreements,
and, therefore, the Company's obligations with respect to the Minimum
Commitment had not yet arisen.
If the Company does not meet its Minimum Commitment by the end of the ten-
year term with the benefit of the carryforward provision, the Company has the
option to either pay a penalty based on the aggregate number of unutilized
lines or subscribe on a monthly basis to an equivalent number of lines during
the next three-year period. In the event the Company terminates any of the
Ameritech Resale Agreements prior to their expiration, the Company is subject
to a termination charge.
NYNEX Resale Agreement
On July 9, 1996, the Company executed a resale agreement with NYNEX to
provide for the resale of local exchange services for the state of New York,
with the opportunity to expand into the entire territory served by NYNEX, at
discounted rates based on a ten-year term. The NYNEX Resale Agreement contains
pricing protections designed to maintain the competitiveness of discounted
rates provided to the Company. Under the NYNEX Resale Agreement, the Company
receives the lowest rate and/or most favorable term provided to any reseller;
however, if a lower rate is provided to a reseller committing to both a longer
term and a greater volume commitment, the Company receives the lower rate but
must negotiate with NYNEX a reasonable transition to similar commitments. If
the Company cannot successfully negotiate such a transition with NYNEX, then
the Company may be unable to maintain the lowest rate. The level of discounts
of resold services varies based on the nature of the services. The NYNEX
Resale Agreement contains a Minimum Commitment of 100,000 business access
lines. When provisioning is available within the other regions of the NYNEX
territory, the NYNEX Resale Agreement will be amended to reflect the agreed
Minimum Commitment and discount for the new region. All other terms will
remain unchanged. In the event the Company does not satisfy the Minimum
Commitment after a beta period and ramp-up period, the Company is subject to
an underutilization charge. However, the NYNEX Resale Agreement also contains
a carryforward provision designed to minimize the potential of an
underutilization charge.
NYNEX Limited Service Offering
Since 1994, the Company has offered Centrex over a private local network,
which allows the Company to provide integrated local exchange service and long
distance service, on a resale basis to the majority of business lines of
Manhattan, New York. The Company has access to 23 NYNEX switches over a
private local network and dedicated lines at discounted rates based on volume
of traffic. The Company believes the LSO agreement will complement services
provided under the NYNEX Resale Agreement by allowing the Company to package
specifically tailored telecommunications services. The LSO Agreement contains
a Minimum Commitment of 100,000 local exchange access lines. The Company has
not met this Minimum Commitment due to NYNEX provisioning delays. The LSO
Agreement provides that provisioning delays allow the Company to postpone its
obligation to meet the Minimum Commitment.
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Long Distance Agreements
The Company uses a variety of long distance carriers to provide a wide range
of long distance telecommunications services. Services offered for resale
include a variety of inbound, outbound, calling card and international
services. In addition, the Company also resells teleconferencing, debit cards,
branded operator services and private line services. The agreements with long
distance vendors typically contain term and volume commitments in
consideration of the discounts offered to the Company.
The Company's primary long distance carrier agreement is with MCI and
contains a 33-month term. It requires the Company to achieve certain monthly
dollar targets in order to qualify for discounted rates on carrier services.
After a nine-month "ramp-up" period, the agreement provides for an annual
commitment which on a monthly basis exceeds the target required for discounts.
If the Company's usage is less than the monthly target, the Company's usage
for such month will be subject to non-discounted rates and an underutilization
charge equal to 15% of the difference between the monthly commitment and the
Company's usage for such month. As of the date of this Prospectus, the Company
was still in the "ramp up" period of its agreement with MCI, and, therefore,
the Company's obligation with respect to the annual commitment had not yet
arisen. If the Company does not meet its annual commitment during any annual
period of the term, the Company may carryforward up to 10% of the annual
commitment for a period of up to three months in the following annual period.
The Company also has an agreement with WorldCom for the provision of
international service.
Enhanced and Other Value-Added Telecommunications Services
The Company is in the process of negotiating agreements to offer on a resale
basis enhanced and other value-added services such as Internet access, paging,
cellular, 800 follow-me services, voicemail and cellular. In addition, the
Company has entered into a memorandum of understanding for the exclusive
rights to distribute a European Windows-based teleconferencing product which
allows the conference host to conduct a conference call using point and click
graphics directly from a personal computer without having to make
teleconference reservations.
COMPETITION
The Company operates in a highly competitive environment and has no
significant market share in any market in which it operates. The Company
expects that competition will intensify in the future due to regulatory
changes, including the enactment of the Telecommunications Act and the
increase in the size, resources and number of market participants. In each of
its markets, the Company faces competition for local service from larger,
better capitalized incumbent providers, many of whom have greater financial
resources than the Company. Additionally, the long distance market is already
significantly more competitive than the local exchange market, because the
RBOCs have historically had a monopoly position within the local exchange
market. The incumbent LECs have established relationships with their
subscribers and provide those subscribers with various transmission and
switching services that the Company, in many cases, has only recently begun to
offer.
In the local exchange market, the Company also faces competition or
prospective competition from one or more CAPs, which have significantly
greater financial resources than the Company, and from other competitive
providers, including non-facilities-based providers like the Company. For
example, AT&T, MCI and Sprint, among other carriers, have each indicated their
intention to begin offering local telecommunications services as early as the
first half of 1997 in major U.S. markets using their own facilities or by
resale of the LECs' or other providers' services. In addition to these long
distance service providers, entities potentially capable of offering switched
services include CAPs, cable television companies, electric utilities, other
long distance carriers, microwave carriers, wireless telephone system
operators and large subscribers who build private networks. Many facilities-
based CAPs and long distance carriers, for example, have committed substantial
resources to building their networks. By building a network, a facilities-
based provider can enter the local exchange market by using its own network,
or entering into interconnection agreements or resale agreements with
incumbent LECs, including RBOCs. Such additional alternatives may provide the
CAPs with greater flexibility and a lower cost structure than the Company.
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With respect to wireless telephone system operators, the FCC recently
authorized cellular, PCS, and other CMRS providers to offer wireless services
to fixed locations, rather than just to mobile subscribers, in whatever
capacity such CMRS providers choose. Previously, cellular providers could
provide service to fixed locations only on an ancillary or incidental basis.
This authority to provide fixed as well as mobile services will enable CMRS
providers to offer wireless local loop service and other services to fixed
locations (e.g., office and apartment buildings) in direct competition with
the Company and other providers of traditional fixed telephone service. In
addition, in August 1996 the FCC promulgated regulations that classify CMRS
providers as telecommunications carriers, thus giving them the same rights to
interconnection and reciprocal compensation under the Telecommunications Act
as other non-LEC telecommunications carriers, including the Company.
Under the Telecommunications Act and ensuing federal and state regulatory
initiatives, barriers to local exchange competition are being removed. The
availability of broad-based local resale and introduction of facilities-based
local competition are required before the RBOCs may provide in-region
interexchange long distance services. Also, the largest long distance carriers
(AT&T, MCI, Sprint and any other carrier with 5% or more of the pre-subscribed
access lines) are prevented under the Telecommunications Act from bundling
local services resold from an RBOC in a particular state with their long
distance services until the earlier of (i) February 8, 1999 or (ii) the date
on which the RBOC whose services are being resold obtains in-region long
distance authority in that state. The RBOCs are currently allowed to offer
certain in-region "incidental" long distance services (such as cellular, audio
and visual programming and certain interactive storage and retrieval
functions) and to offer virtually all out-of-region long distance services.
In January 1997, Ameritech, the RBOC in several states where the Company
operates, filed an application for in-region long distance authority in
Michigan. The Company anticipates that Ameritech will soon file applications
for most or all of its other states--including Illinois and Ohio. Other RBOCs,
including NYNEX in New York, are expected to file such applications as early
as the first half of 1997. The FCC will have 90 days from the date such an
application is filed to decide whether to grant or deny the application. Once
the RBOCs are allowed to offer widespread in-region long distance services,
both they and the largest interexchange carriers will be in a position to
offer single-source local and long distance services similar to those offered
or planned to be offered by the Company. While new business opportunities will
be made available to the Company through the Telecommunications Act and other
federal and state regulatory initiatives, regulators are likely to provide the
incumbent LECs with an increased degree of flexibility with regard to pricing
of their services as competition increases. Although the Ameritech Resale
Agreements and the NYNEX Resale Agreements contain certain pricing
protections, including adjustments in the wholesale rates to be consistent
with any changes in the Ameritech and NYNEX retail rates, if the incumbent
LECs elect to lower their rates and sustain lower rates over time, this may
adversely affect the revenues of the Company and place downward pressure on
the rates the Company can charge. While the Ameritech and NYNEX Resale
Agreements ensure that the Company will receive any lower rate provided to any
other reseller, under the NYNEX Resale Agreement if such lower rate is
provided to a reseller committing to both a longer term and a greater volume
commitment, the Company receives the lower rate, but must negotiate with NYNEX
a reasonable transition to similar commitments. If the Company cannot
successfully negotiate such a transition with NYNEX, then the Company may be
unable to maintain the lowest rate. The Company believes the effect of lower
rates may be offset by the increased revenues available by offering new
products and services to its target subscribers, but there can be no assurance
that this will occur. In addition, if future regulatory decisions afford the
LECs excessive pricing flexibility or other regulatory relief, such decisions
could have a material adverse effect on the Company.
Competition for the Company's products and services is based on price,
quality, network reliability, service features and responsiveness to
subscriber needs. While the Company believes that it currently has certain
advantages relating to the timing, ubiquity and cost savings resulting from
its resale agreements, there is no assurance that the Company will be able to
maintain these advantages. A continuing trend toward business combinations and
alliances in the telecommunications industry may create significant new
competitors to the Company. Many of the Company's existing and potential
competitors have financial, technical and other resources significantly
greater than those of the Company.
GOVERNMENT REGULATION
The Company is subject to varying degrees of federal, state, local and
international regulation. In the United States, the Company is most heavily
regulated by the states, especially for the provision of local exchange
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services. The Company must be separately certified in each state to offer
local exchange services. No state, however, subjects the Company to price cap
or rate-of-return regulation. FCC approval is required for the resale of
international facilities and services. The FCC has determined that nondominant
carriers, such as the Company, are required to file interstate tariffs on an
ongoing basis, setting forth the Company's rates and operating procedures.
Such tariffs can currently be modified on one day's notice. The FCC recently
issued regulations to eliminate this tariff filing requirement for all
nondominant carriers, such as the Company and all other nondominant
interexchange carriers (except possibly the RBOCs in certain circumstances),
effective in late 1996 or early 1997. The FCC has recently ruled, subject to
its consideration of the issue in another pending FCC proceeding, that RBOCs
providing out-of-region long distance service through separate subsidiaries
from their local telephone operations qualify for nondominant treatment. Out-
of-region RBOC services provided through unseparated entities, however, are
subject to full dominant carrier regulation, including the requirement to
submit cost support with tariffs and to file tariffs on at least 15 to 45
days' notice, depending on various factors. The FCC has not yet indicated
whether RBOC in-region service, when authorized, will be subject to dominant
or nondominant regulatory status. See "Risk Factors--Regulation and Risks of
the Telecommunications Act."
Legislation. On February 8, 1996, President Clinton signed into law the
Telecommunications Act, comprehensive federal telecommunications legislation
affecting all aspects of the telecommunications industry. The
Telecommunications Act establishes a national policy that promotes local
exchange competition. The Telecommunications Act requires that local and state
barriers to entry into the local exchange market be removed and establishes
broad uniform standards under which the FCC and the state commissions are to
implement local competition and co-carrier arrangements in the local exchange
market. Under certain conditions and subject to reasonable exceptions,
incumbent LECs will be required to make available for resale to new entrants
all services offered by the LEC on a retail basis. The Telecommunications Act
also imposes significant obligations on the RBOCs and other incumbent LECs,
including the obligation to interconnect their networks with the networks of
competitors. Each incumbent LEC would be required not only to open its network
but also to "unbundle" the network. The FCC issued regulations in August 1996
defining a minimum set of elements which must actually be unbundled, and each
state may augment this list if it wishes. The pricing of these unbundled
network elements and services will determine whether it is economically
attractive to use these elements.
In addition to the required network unbundling applicable to all incumbent
LECs, the RBOCs have an added incentive to open their local exchange networks
to facilities-based competition because the Telecommunications Act provides
for the removal of the current ban on RBOC provision of in-region inter-LATA
toll service and equipment manufacturing. This ban will be removed only after
the RBOC demonstrates to the FCC, which must consult with the Department of
Justice and the relevant state commissions, that the RBOC has (1) met the
requirements of the Telecommunications Act's 14-point competitive checklist
and (2) entered into an approved interconnection agreement with at least one
unaffiliated, facilities-based competitor in some portion of the state
pursuant to which such competitor provides both business and residential
service (or that by a date certain no such competitors have "requested"
interconnection as defined in the Telecommunications Act). RBOC in-region
services must be provided through a separate subsidiary for three years,
unless extended by the FCC. In January 1997, Ameritech, the RBOC in several
states where the Company operates, filed an application for in-region long
distance authority in Michigan. The Company anticipates that Ameritech will
soon file applications for most or all of its other states--including Illinois
and Ohio. Other RBOCs, including NYNEX in New York, are expected to file such
applications as early as the first half of 1997. If the FCC determines that
the RBOC's entry into in-region provision of long distance in that state is in
the public interest, it must authorize the RBOC to provide such services.
Under the 14-point competitive checklist, in order to obtain in-region long
distance authority an RBOC must first demonstrate to the FCC, among other
things, that, within a particular state, it offers competing LECs the
following: interconnection as required under the Telecommunications Act; non-
discriminatory access to unintegrated network elements at just and reasonable
rates; non-discriminatory access to its poles, ducts, conduits, and rights-of-
way; unintegrated local loop transmission, unintegrated local transport, and
unintegrated local switching; non-discriminatory access to 911 services;
directory assistance, operator call completion services, and white pages
directory listings for competing local carriers' subscribers; non-
discriminatory access to call routing databases; number portability (i.e., the
ability of a subscriber to keep the same telephone number
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when switching local telephone service providers); dialing parity (i.e., the
ability of subscribers of one telephone service provider to call subscribers
of other providers without dialing access codes); reciprocal compensation
arrangements for the termination of calls between competing local networks;
and permitting resale of its telecommunications services.
While state-by-state regulatory activity has to date brought resale co-
carrier arrangements or initiatives to various degrees of completion in
approximately 25 states, the Telecommunications Act is intended to accelerate
the process and create a competitive environment in all markets, eliminating
state and local statutory and regulatory barriers to entry. This preemption of
state laws barring local competition and the relaxation of regulatory
restraints should enhance the Company's ability to expand its service
offerings nationwide. In contrast, by removing barriers to entry into the
local exchange market and at the same time enabling multiple carriers to
compete with the Company in the provision of local and long distance services,
ultimately allowing the RBOCs and large interexchange carriers to offer their
own packages of single-source local/long distance services, the
Telecommunications Act will substantially increase the competition the Company
will face.
The Company, as a multi-market competitive provider already active in
emerging resale environments, is now given legislative support to complement
its expansion of services in markets across the country. In addition to
providing the Company with a national framework to achieve local exchange
resale carrier status in local exchange markets, the Telecommunications Act
permits the Company, as a telecommunications carrier with less than 5% of
nationwide presubscribed access lines, to continue to offer single-source
combined packages of local and long distance services. In contrast, AT&T, MCI
and Sprint may not bundle in an RBOC's territory their local services resold
from an RBOC and in-region long distance service until the earlier of (i)
February 8, 1999 or (ii) the date the RBOC is authorized to enter the inter-
LATA long distance market in that state.
The Telecommunications Act also creates a new Federal-State Joint Board for
the purpose of making recommendations to the FCC regarding the implementation
of a largely revised universal service program. All telecommunications
carriers, including the Company, that provide interstate services are required
to contribute, on an equitable and nondiscriminatory basis, to the
preservation and advancement of universal service pursuant to a specific and
predictable universal service mechanism to be established by the FCC. The
Federal-State Joint Board issued recommendations regarding the scope and
funding of universal service in December 1996, but those recommendations are
not binding. The FCC may exempt certain classes of carriers from having to
contribute to the universal service fund. The Company is unable to predict the
final formula for universal service contribution or its own level of
contribution.
Federal Regulation. The Telecommunications Act in some sections is self-
executing, but in most cases the FCC must issue regulations that identify
specific requirements before the Company and its competitors can proceed to
implement the changes the Telecommunications Act prescribes. The FCC already
has commenced several of these rulemaking proceedings. The outcome of these
various ongoing FCC rulemaking proceedings could materially affect the
Company's operations.
The Company actively monitors all pertinent FCC proceedings and has
participated in some of these proceedings. The Telecommunications Act provides
that individual state utility commissions can, consistent with FCC
regulations, prohibit resellers from reselling a particular service to
specific categories of subscribers to whom the incumbent LEC does not offer
that service at retail. In August 1996, the FCC issued detailed regulations
providing that many such limitations are presumptively unreasonable and that
states may enact such prohibitions on resale only in certain limited
circumstances. In particular, the FCC concluded that while it would be
permissible to prohibit the resale of certain residential or other subsidized
services to end users that would be ineligible to receive such services
directly from the LEC, all other "cross-class" selling restrictions, including
those on volume discount and flat-rated offerings to business customers, would
be presumed unreasonable. An incumbent LEC may rebut this presumption,
however, by demonstrating that the class restriction is reasonable and
nondiscriminatory. The FCC also rejected claims by several incumbent LECs to
provide for several exceptions to the general resale obligation. For instance,
it refused to create a general exception for all promotional or discounted
offerings, including contract and customer-specific offerings. The FCC did,
however, conclude that short-term promotional prices (i.e., those offered for
90 days or less) are not "retail rates" and thus are not subject to the
wholesale rate obligation. Incumbent LECs may not offer consecutive 90-day
promotions to avoid these resale obligations.
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The Telecommunications Act also provides that state commissions shall be
given an opportunity to determine the wholesale rates for local
telecommunications services (i.e., the rates charged by incumbent LECs to
resellers such as the Company) on the basis of retail rates less "avoided
costs," i.e., marketing, billing, collection and other administrative costs
avoided by the incumbent LEC when it sells at wholesale. In August 1996 the
FCC issued detailed regulations identifying such avoided costs, and also
included in such category "avoidable" costs. To determine the specific value
of avoided and avoidable costs applicable to each service of a particular
incumbent LEC, the FCC required the state public service commissions to
conduct detailed cost studies consistent with the FCC regulations governing
what constitutes avoided and avoidable costs. Until such time that these costs
studies are completed, the FCC established an interim default discount of
between 17% and 25%. Accordingly, until such time that a state determines the
actual level of avoided and avoidable costs pursuant to the FCC's regulations,
it may require incumbent LECs to discount their retail offerings by 17% to
25%, provided that actual cost studies are completed within a reasonable time.
The Telecommunications Act also provides that state commissions shall
determine the rates charged for unintegrated elements of the incumbent LEC's
network on the basis of cost plus a reasonable profit. In August 1996, the FCC
declined to issue detailed regulations governing the relationship between
these two pricing standards, leaving the interpretation and implementation of
the two standards to the states. The Company is unable to predict the final
form of such state regulation, or its potential impact on the Company or the
local exchange market in general.
In August 1996, the FCC also issued regulations that, among other things,
set minimum standards governing the terms and prices of interconnection and
access to unbundled incumbent LEC network elements. These regulations
indirectly affect the price at which the Company's new facilities-based
competitors may ultimately provide service. At the same time, the FCC imposed
minimum obligations regarding the duty of incumbent LECs to negotiate
interconnection or resale arrangements in good faith.
A number of RBOCs, state regulatory commissions and other parties have filed
requests for reconsideration by the FCC of various parts of the rules
announced by the FCC in August 1996, including those provisions (a) limiting
competitors' ability to purchase for resale certain types of service that the
RBOC is no longer marketing to new customers ("grandfathered services"), and
(b) establishing pricing methodologies and interim default rates for resold
services and unbundled network elements. The FCC is conducting a proceeding to
consider the various petitions for reconsideration, and a decision is expected
in the first half of 1997. In addition, many of the same parties and certain
other parties have filed court appeals challenging the same FCC rules. All the
court appeals have been consolidated before the Eighth Circuit Federal Court
of Appeals, which has stayed the effect of certain parts of the rules
(including the provisions establishing pricing methodologies and default rates
for resold services and unbundled network elements) pending its decision in
the appeals. The U.S. Supreme Court declined to dissolve the stay, and the
court of appeals' decision is not expected before the middle of 1997. The
Company cannot predict at this time the outcome of the appeals or
reconsideration processes. The outcome of either process could materially
affect the Company's business.
In July 1996, the FCC mandated that over the course of the next year
responsibility for administering and assigning local telephone numbers be
transferred from the RBOCs and a few other LECs to a neutral entity. In August
1996, the FCC issued regulations which address certain of these issues, but
leave others for decision by the states and the still-to-be selected neutral
numbering plan administrator. The new FCC numbering regulations (a) prohibit
states from creating new area codes that could unfairly hinder LEC competitors
(including the Company) by requiring their customers to use 10 digit dialing
while existing incumbent LEC customers use 7 digit dialing, and (b) prohibit
incumbent LECs (which are still administering central office numbers pending
selection of the neutral administrator) from charging "code opening" fees to
competitors (such as the Company) unless they charge the same fee to all
carriers including themselves. In addition, each carrier is required to
contribute to the cost of numbering administration through a formula based on
net telecommunications revenues. In July 1996, the FCC released rules to
permit both residential and business consumers to retain their telephone
numbers when switching from one local service provider to another (known as
"number portability"). LECs are required to implement number portability in
the top 100 markets by October 1, 1997 and to complete it by December 31,
1998. In smaller markets, LECs must implement within six months of a request
therefor commencing December 31, 1998. In addition, the FCC recently
authorized cellular and other CMRS to provide for other wireless services to
fixed locations (rather than to mobile subscribers), including offering
wireless local loop service, in whatever capacity such provider determines.
Previously, many CMRS providers could provide
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fixed services on only an ancillary or incidental basis. In addition, in
August 1996 the FCC promulgated regulations that classify CMRS providers as
telecommunications carriers, thus giving them the same rights to
interconnection and reciprocal compensation under the Telecommunications Act
as other non-LEC telecommunications carriers, including the Company.
State Regulation. Historically, certain of the Company's resold local and
long distance services were classified as intrastate and therefore subject to
state regulation. As its local service business and product lines expand, the
Company will be offering more intrastate service and will increasingly be
subject to state regulation. The Telecommunications Act maintains the
authority of individual state utility commissions to impose their own
regulation of local exchange services so long as such regulation is not
inconsistent with the requirements of the Telecommunications Act. In all
states where certification is required, the Company's operating subsidiaries
are certificated as common carriers. In all states, the Company believes that
it operates with the appropriate state regulatory authorization. The Company
currently is authorized to provide intrastate toll or a combination of local
and intrastate toll service in more than 35 states. These authorizations vary
in the scope of the intrastate services permitted.
The Telecommunications Act provides that the Company's resale agreements
must be submitted to the applicable state utility commission for approval, and
it places strict limitations on the bases on which a state commission can
reject such an agreement. If the state commission does not act within 90 days
after the agreement is submitted for approval, then the agreement is deemed
approved. In addition, if a state commission fails to act to enforce an
agreement, the FCC can (upon request of a party) take jurisdiction over the
matter. A state commission's decisions regarding implementation and
enforcement of an agreement are appealable to the federal district court in
that state.
PROPERTIES
The Company leases a number of facilities, principally sales facilities, in
the cities within its operating markets, including: Boston and Newton,
Massachusetts, Chicago, Illinois, Detroit, Michigan, Cleveland and Columbus,
Ohio and New York City. The Company maintains its corporate headquarters in
Chicago, Illinois. Although the Company's facilities are adequate at this
time, the Company believes that it may have to lease additional facilities,
particularly in new metropolitan areas where the Company enters RBOC resale
agreements.
On December 29, 1995, the Company entered into an agreement to sell its
switch-based facilities in Ohio for $9.5 million plus the assumption of
approximately $8.2 million of capital and operating leases. Pursuant to the
terms of this agreement, the Company remains contingently liable on the
assumed leases.
EMPLOYEES
As of October 31, 1996, the Company employed over 250 people. The Company's
employees are not unionized, and the Company believes its relations with its
employees are good. In connection with its marketing and sales efforts and the
conduct of its other business operations, the Company uses third party
contractors, some of whose employees may be represented by unions or
collective bargaining agreements. The Company believes that its success will
depend in part on its ability to attract and retain highly qualified
employees.
LEGAL MATTERS
From time to time the Company is party to routine litigation and proceedings
in the ordinary course of its business. The Company and its subsidiaries are
not aware of any current or pending litigation that the Company believes would
have a material adverse effect on the Company's results of operations or
financial condition. The Company and its subsidiaries continue to participate
in regulatory proceedings before the FCC and state regulatory agencies
concerning the authorization of services and the adoption of new regulations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides certain information regarding the executive
officers, directors and certain key personnel of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Richard J. Brekka....... 35 Chairman of the Board
J. Thomas Elliott....... 49 President, Chief Executive Officer and Director
Ronald W. Gavillet...... 37 Executive Vice President, Strategy & External Affairs
Gerald J. Sweas......... 49 Executive Vice President and Chief Financial Officer
Ryan Mullaney........... 40 Executive Vice President, Sales
Steven J. Parrish....... 40 Executive Vice President, Operations of USNCN
Thomas A. Monson........ 36 Vice President, General Counsel and Secretary
Thad J. Pellino......... 34 Vice President, Marketing
Neil A. Bethke.......... 36 Vice President, Information Systems
Eric G. Roden........... 40 Regional General Manager--Operations, NYNEX Region
Donald J. Hofmann, Jr... 38 Director
Paul S. Lattanzio....... 33 Director
William P. Glasgow...... 38 Director
William A. Johnston..... 45 Director
Eugene A. Sekulow....... 65 Director
</TABLE>
Each director serves until his successor is duly elected and qualified.
Officers serve at the discretion of the Board of Directors.
Richard J. Brekka, Chairman of the Board, has been a director of the Company
since April 1994. He is a Managing Director of CIBC Wood Gundy Capital, the
merchant banking division of Canadian Imperial Bank of Commerce, and is a
director and the President of CIBC Wood Gundy Ventures, Inc. ("CIBC"), an
indirect wholly owned subsidiary of Canadian Imperial Bank of Commerce. Mr.
Brekka joined CIBC in February 1992. Prior to joining CIBC, Mr. Brekka was an
officer of Chase Manhattan's merchant banking group from February 1988 until
February 1992. Currently, Mr. Brekka serves on the board of directors of Orion
Network Systems, Inc., MultiTechnology Corp., Telesystem International
Wireless N.V., and Epoch Networks, Inc. (formerly HLC-Internet, Inc.), and on
the Board of Advisors of Telecom Partners L.P. Mr. Brekka received a B.S. in
finance from the University of Southern California, and an M.B.A. from the
University of Chicago.
J. Thomas Elliott, President and Chief Executive Officer, has been the Chief
Executive Officer since April 1996. Mr. Elliott joined the Company in 1995 as
a result of the acquisition of certain assets and assumption of certain
liabilities of Quest, a company which he co-founded. From 1991 to 1993, Mr.
Elliott was Senior Vice-President of Sales and Marketing of Wiltel
Communications Systems. From 1990 to 1991, Mr. Elliott was President and Chief
Executive Officer of Call Net Inc. (Canada's first alternative long distance
company) and Lightel Inc., its affiliate fiber optic facility provider.
Subsequently, these companies were combined to form Sprint Canada. Prior to
1990, Mr. Elliott was Chairman and Chief Executive Officer of
TIE/Telecommunications Canada Ltd., a telephone equipment manufacturing
company. Mr. Elliott holds a bachelor's and master's degree in economics from
the University of Windsor.
Ronald W. Gavillet, Executive Vice President, Strategy & External Affairs,
has performed the Company's legal, regulatory and strategic functions since
1994. Prior to joining the Company, Mr. Gavillet spent more than four years,
from 1985 to 1987 and from 1992 to 1994, with MCI in a number of senior legal
and regulatory positions. While at MCI, Mr. Gavillet developed and implemented
the firm's regulatory policies in Illinois, Indiana, Michigan, Ohio and
Wisconsin and negotiated sales agreements with national accounts. From 1987 to
1992, Mr. Gavillet was an attorney with the law firms of Skadden, Arps, Slate,
Meagher & Flom and Hopkins & Sutter (where he was a partner). His practice
primarily focused on providing counsel to competitive
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telecommunications entrants. Mr. Gavillet holds a B.A. and B.S. from Southern
Illinois University, a J.D. from Catholic University of America's Columbus
School of Law and a Master of Management degree from Northwestern University's
Kellogg School of Management and serves on the Telecommunications Resellers
Association Local Services Council.
Gerald J. Sweas, Executive Vice President and Chief Financial Officer,
joined the Company in November 1996. From 1989 to 1996, Mr. Sweas was Vice
President Finance and Administration, Treasurer and Chief Financial Officer of
Norand Corporation, a wireless data communications networks company. From 1985
to 1988, Mr. Sweas was Vice President Finance, Treasurer and Chief Financial
Officer of Sargent-Welch Scientific Company and from 1978 to 1985 served as
Controller and Assistant Secretary of that company. Mr. Sweas holds a B.B.A.
from Loyola University in Chicago, Illinois and an M.B.A. from the University
of Wisconsin, Madison and is a Certified Public Accountant.
Ryan Mullaney, Executive Vice President, Sales, joined the Company in
October 1996. From 1995 to 1996, Mr. Mullaney served as Vice President, Sales,
USA West for Citizens Telecom, a medium-sized telecommunications company,
where he managed sales in 13 states. From 1993 to 1995, Mr. Mullaney was
Director of Member Development for McLeod Telemanagement Organization, where
his duties included management of the company's field sales and service
organization. From 1991 to 1993, Mr. Mullaney was National Sales Director of
Centex Telemanagement, responsible for developing sales in the national
market. Prior to 1991, Mr. Mullaney worked for various telecommunications
companies, including two companies which he owned and at which he served as
President. Mr. Mullaney has a B.A. from the University of Nevada, Las Vegas.
Steven J. Parrish, Executive Vice President, Operations of USNCN, joined the
Company in January 1996 initially as a consultant and assumed a full-time
position. Prior to joining the Company, Mr. Parrish spent more than 12 years
with Illinois Bell in various planning and operations positions. Mr. Parrish
moved to Ameritech in 1991 where he helped start the Information Industry
Services business unit as Vice President of Business Development and Vice
President of Marketing and Sales for Network Providers. Mr. Parrish holds a
bachelor's degree in electrical engineering from the University of Illinois
and an MBA from the Illinois Institute of Technology.
Thomas A. Monson, Vice President, General Counsel and Secretary, joined the
firm in January 1997. From 1989 to 1996, Mr. Monson was Associate General
Counsel of Envirodyne Industries, Inc., a $650 million public company, where
he performed various corporate law, securities regulation, litigation and
corporate operations support activities. Mr. Monson holds a B.S. from the
University of Illinois and a J.D. from Harvard Law School.
Thad J. Pellino, Vice President, Marketing, joined the Company in August
1995. From 1988 through 1995, Mr. Pellino was with MCI where he held a variety
of marketing and business development positions, which included responsibility
for the design of customized telecommunication packages for mid-size and long
distance carriers. Mr. Pellino received his bachelor's degree in
marketing/business administration from the University of Illinois.
Neil A. Bethke, Vice President, Information Systems, joined the Company
initially as a consultant in 1995 and assumed a full-time position in May
1996. From 1994 to 1996 Mr. Bethke served as principal for New Resources
Corporation, a medium-sized consulting company specializing in client/server
technology development for large service-oriented companies. From 1988 to
1994, Mr. Bethke served at Quantum Chemical Corporation and Sara Lee
Corporation as Director of MIS, responsible for the reengineering of business
processes through document routing and wide area network database management.
Mr. Bethke holds a B.S. from the University of Wisconsin.
Eric G. Roden, Regional General Manager--Operations, NYNEX Region, joined
the Company in August 1996. From 1995 until joining the Company, Mr. Roden was
Vice President, Operations/Engineering of MFS Telecom, Inc. From 1993 to 1995,
Mr. Roden was Vice President, Operations/Engineering of Northeast Networks,
Inc. and from 1989 to 1993, Mr. Roden was Director, Network
Services/Engineering of Eastern Telelogic Corp.
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Donald J. Hofmann, Jr., Director, has been a director of the Company since
April 1994. Mr. Hofmann has been a General Partner of Chase Capital Partners
(formerly known as Chemical Venture Partners) since 1992. Chase Capital
Partners is the sole general partner of Chase Venture Capital Associates, L.P.
Prior to joining Chase Capital Partners, he was head of MH Capital Partners,
Inc., the equity investment arm of Manufacturers Hanover.
Paul S. Lattanzio, Director, was appointed a director of the Company in
August 1995. Currently, Mr. Lattanzio is a Managing Director of BT Capital
Partners, Inc., an affiliate of Bankers Trust New York Corp. Mr. Lattanzio has
been employed by BT Capital Partners, Inc. or an affiliate since 1984. Mr.
Lattanzio received his B.S. in economics from the University of Pennsylvania's
Wharton School of Business.
William P. Glasgow, Director, was appointed a director of the Company in
August 1995. Currently, Mr. Glasgow is President of Prime Management Group.
Prior to joining Prime Management in 1983, Mr. Glasgow was Marketing
Consultant for Mid-Coast Cable Television. Mr. Glasgow is a graduate of
Vanderbilt University and the University of Texas Graduate School of Business.
William A. Johnston, Director, was elected a director of the Company in June
1994. Mr. Johnston is a general partner of the funds managed by Hancock
Venture Partners, Inc. Mr. Johnston joined Hancock Venture Partners, Inc. in
1983 after working in the John Hancock Corporate Finance Department.
Currently, Mr. Johnston serves on the advisory boards of The Centennial Funds,
Austin Ventures, and Highland Capital Partners, as well as on the board of
directors of Centennial Security, Inc., HLC-Internet, Inc., MultiTechnology
Corp., The Marks Group, Inc., and Masada Security Corporation.
Internationally, he serves on the board of directors of Telesystem
International Wireless Corporation and Esprit Telecom. Mr. Johnston received a
bachelor's degree from Colgate University and a master's degree from Syracuse
University School of Management.
Eugene A. Sekulow, Director, was elected a director of the Company in August
1995. Mr. Sekulow served as Executive Vice President of NYNEX International
Corporation from December 1991 to 1993. From 1986 to 1991, he served as
President of NYNEX International Company. Since his retirement from NYNEX in
1993, Mr. Sekulow has founded his own telecommunications consultancy where he
has been retained by European, U.S., Japanese, Southeast Asian and Canadian
companies. Mr. Sekulow attended the University of Stockholm and the University
of Oslo. He earned an M.A. in political science and economics and a Ph.D. from
Johns Hopkins University.
The Board of Directors of the Company consists of nine persons, including
one outside director, two appointed by Mr. Thomas Brandenburg, the former
Chief Executive Officer and Chairman of the Board of the Company, one
appointed by each of the Initial Investors, one appointed by BT and one
appointed by Enterprises. In connection with the consummation of the Offering,
the Company agreed to nominate, and to take all reasonable actions to cause to
be elected, within 120 days of the consummation of the Offering, an additional
director of the Company who has experience in the telecommunications industry.
DIRECTORS' COMPENSATION
The Company's policy is not to pay compensation to its directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Audit Committee and a Compensation and Stock
Option Committee. Each of these committees is responsible to the full Board of
Directors, and its activities are therefore subject to approval of the Board
of Directors. The functions performed by these committees are summarized
below.
The Audit Committee is responsible for reviewing the Company's internal
accounting controls, meeting and conferring with the Company's certified
public accountants, and reviewing the results of the accountants' auditing
engagement.
The Compensation and Stock Option Committee determines base compensation and
discretionary cash bonuses for the Company's senior executives. These
determinations are subject to the approval or ratification of the full Board
of Directors. The Compensation and Stock Option Committee also determines the
number and terms of stock options to be granted to employees, directors and
consultants of the Company under the Company's stock option plans. See "--
Benefit Plans."
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Stock Option Committee consists of Messrs. Brekka,
Hofmann and Johnston, none of whom is currently an employee or officer of the
Company. No executive officer of the Company served during fiscal year 1995 as
a member of a compensation committee or as a director of any entity of which
any of the Company's directors serves as an executive officer.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the cash and
non-cash compensation during fiscal year 1996 earned by or awarded to the
Chief Executive Officer and to the four other most highly compensated
executive officers of the Company whose combined salary and bonus exceeded
$100,000 during the fiscal year ended December 31, 1996 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
---------------- ALL OTHER
SALARY BONUS COMPENSATION
-------- ------- ------------
<S> <C> <C> <C>
Thomas C. Brandenburg
Former Chief Executive Officer.................. $190,000 -- --
J. Thomas Elliott
President and Chief Executive Officer .......... 182,480 -- --
Ronald W. Gavillet
Executive Vice President, Strategy & External
Affairs ........................................ 167,634 $50,000 --
Kevin J. Burke
Former Vice President, Network Engineering and
Technical Support............................... 100,980 -- --
Thad J. Pellino
Vice President, Marketing....................... 96,683 27,500 --
Robert J. Luth
Former Chief Financial Officer.................. 150,000 37,500 $26,000
</TABLE>
OPTION GRANTS
There were no grants of stock options to any of the Named Executive Officers
during the year ended December 31, 1995.
On June 28, 1996, Mr. Elliott was granted 11,000 shares of restricted Common
Stock (the "Restricted Stock"), of which one-third vests immediately, one-
third vests in January 1997 and one-third vests in January 1998. Also on such
date Mr. Elliott was granted 7,500 options, Mr. Gavillet was granted 6,150
options, Mr. Parrish was granted 3,850 options, Messrs. Pellino and Bethke
were each granted 2,000 options, and certain other employees were granted a
total of 3,250 options. In connection with the conversion of the Series A
Preferred Stock and Series A-2 Preferred Stock, Messrs. Elliott, Gavillet,
Parrish, Pellino and Bethke were granted 11,691, 9,863, 2,275, 1,182 and 1,182
options, respectively, and certain other employees were granted a total of
4,208 options. All options described in this paragraph give the holder the
right to purchase a corresponding number of shares of Class A Common Stock at
an exercise price of $1.50 per share and were granted pursuant to the 1994
Plan (as defined herein). See "Certain Relationships and Related
Transactions--Recapitalization."
59
<PAGE>
In connection with the employment of Mr. Sweas in November 1996, Mr. Sweas
was granted 5,000 options with an exercise price of $1.50 per share, 2,000
options with an exercise price not to exceed approximately $67.00 per share
and 4,000 options with an exercise price not to exceed approximately $134.00
per share. In connection with the employment of Mr. Mullaney in October 1996,
Mr. Mullaney was granted 4,000 options with an exercise price of $1.50 per
share and 3,500 options with an exercise price not to exceed approximately
$134.00 per share. In connection with the employment of Mr. Monson in January
1997, Mr. Monson was granted 5,000 options with an exercise price not to
exceed approximately $134.00 per share. All of the 23,500 options described in
this paragraph give the holder the right to purchase a corresponding number of
shares of Class A Common Stock.
In connection with the issuance of the 9% Preferred Stock (as defined
herein) and the consummation of the Offering, Messrs. Elliott, Gavillet,
Parrish, Pellino and Bethke were granted 18,234, 11,996, 600, 312 and 312
additional options, respectively, and certain other employees were granted a
total of 1,111 additional options, to purchase a corresponding number of
shares of Class A Common Stock at an exercise price of $1.50 per share. Such
options are exercisable only upon conversion from time to time of the 9%
Preferred Stock, in the case of all such employees, or, as the case may be
with respect to Messrs. Elliott and Gavillet, of the Convertible Notes, into
shares of Class A Common Stock.
As of October 31, 1996, options to purchase 8,613 shares of Class A Common
Stock at an exercise price of $1.10 per share, issued pursuant to the 1994
Stock Option Plan, were exercisable.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth the information with respect to the Named
Executive Officers concerning the exercise of options during fiscal year 1995
and unexercised options held as of December 31, 1995.
<TABLE>
<CAPTION>
OPTION EXERCISES DURING 1995
-------------------------------------------------
NUMBER OF EXERCISABLE
OPTIONS AT FISCAL YEAR-
SHARES END
ACQUIRED ON VALUE -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald W. Gavillet......... 0 0 1,925 1,925
Robert J. Luth (1)......... 0 0 1,925 1,925
</TABLE>
- --------
(1) On March 31, 1996, Robert J. Luth exercised options for 2,000 shares at an
exercise price of $1.10 per share.
BENEFIT PLANS
1994 Stock Option Plan
In September 1994, the Board of Directors adopted the 1994 Stock Option Plan
(the "1994 Plan"), which was subsequently approved by the stockholders in
September 1994. A total of 54,551 shares of Class A Common Stock have been
reserved for issuance under the 1994 Plan. The purposes of the 1994 Plan are
to attract and retain qualified personnel, to provide additional incentives to
employees, officers and directors of the Company and its affiliates and to
promote the success of the Company's business. Under the 1994 Plan, the
Company may grant incentive or non-qualified stock options to employees,
officers and directors. However, to the extent that the aggregate fair market
value of the Class A Common Stock issued to any person exceeds $100,000, such
options must be treated as nonqualified stock options. In connection with the
Recapitalization and the conversion of the Series A Preferred Stock and Series
A-2 Preferred Stock, as described above, an additional 24,436 shares of Class
A Common Stock were reserved for issuance under the 1994 Plan, bringing the
total number of reserved shares to 78,987.
Options granted under the 1994 Plan generally become exercisable six months
after the date of the grant at a rate of 25% of the shares subject to the
option and thereafter, at a rate of 25% at the end of each six month period
for a total of two years. The maximum term of a stock option under the 1994
Plan is ten years. If an
60
<PAGE>
optionee terminates his or her service for reasons other than death,
disability, retirement, resignation or discharge for cause, the optionee may
exercise only those option shares vested as of the date of termination. If,
however, an optionee retires without prior Board of Directors approval or is
terminated for cause, all options previously not exercised expire and are
forfeited. In addition, the Company has the option to repurchase all or any
part of the shares issued or issuable upon exercise, if an optionees
employment terminates for any reason whatsoever.
The 1994 Plan may be amended at any time by the Board of Directors, although
certain amendments require the consent of the participants of the 1994 Plan.
The 1994 Plan will terminate in September 2004, unless earlier terminated by
the Board of Directors.
401(k) Plan
In January 1995, the Company adopted the Employee 401(k) Profit Sharing Plan
(the "401(k) Plan") covering all of the Company's employees. Pursuant to the
401(k) Plan, employees may elect to reduce their current compensation by up to
the lesser of 15% of eligible compensation or the statutorily prescribed
annual limit ($9,500 in 1996) and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require,
additional contributions to the 401(k) Plan by the Company on behalf of all
participants. The Company has not made any contributions to date. The 401(k)
Plan is intended to qualify under Section 401 of the Code so that
contributions by employees or by the Company to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn,
and contributions by the Company, if any, will be deductible by the Company
when made.
EMPLOYMENT AGREEMENTS
In July 1996, Messrs. J. Thomas Elliott, President and Chief Executive
Officer and Ronald W. Gavillet, Executive Vice President, Strategy & External
Affairs, entered into employment agreements with the Company. In November
1996, Mr. Gerald Sweas entered into an agreement with the Company pursuant to
which he became the Company's Executive Vice President and Chief Financial
Officer. The terms of such agreements are for a period of three years subject
to automatic one-year renewals at each anniversary unless otherwise notified
by the Company. The agreements establish a base salary to be paid each year
which may be increased annually at the discretion of the Board of Directors.
The annual base salaries of Messrs. Elliott, Gavillet and Sweas are $195,000,
$185,000 and $150,000, respectively. In addition, subject to the attainment of
certain performance objectives, each is entitled to an annual bonus. With
respect to Messrs. Elliott and Gavillet, the agreements provide certain
preemptive rights such that, if the Company raises capital by selling shares
of any class of stock, each executive will have a right to purchase a certain
percentage (3.8% for Mr. Elliott and 2.5% for Mr. Gavillet) of such shares on
the same terms and conditions as the shares are being sold to others. Each of
Messrs. Elliott's and Gavillet's agreements also provides that if the current
shareholders sell any of their shares of Company stock to a third party under
certain circumstances, each executive has a right to sell the same percentage
of his shares of Company stock as the percentage of their shares that the
current shareholders are selling, on the same terms and for the same
consideration. With respect to each of Messrs. Elliott and Gavillet, if his
employment is terminated by the Company without "Cause" or by the executive
with "Good Reason" or during a "Window Period" (each as defined in the
respective agreement): (i) all amounts earned, accrued or owing to the
executive shall be paid as soon as practicable, (ii) the Company must pay a
lump sum equal to one year's base salary and, if the executive complies with
the noncompete and nonsolicitation provisions of the agreement for the two-
year period following termination, will pay the executive an additional one
year's base salary in equal installments over that two-year period, and (iii)
the Company must maintain in full force and effect all employee benefit plans
for the benefit of the executive for the longer of a two-year period or the
remaining term of the executive's agreement. With respect to Mr. Sweas, if his
employment is terminated by the Company without "Cause" or by him with "Good
Reason" (each as defined in his agreement): (i) all amounts earned, accrued or
owing to him shall be paid as soon as practicable; (ii) the Company must pay a
lump sum equal to the sum of (A) any annual bonus paid to Mr. Sweas for a
fiscal year completed prior to the date of termination, plus (B) a pro rata
portion of the annual bonus that would have been payable to Mr. Sweas in the
year of such termination, assuming the
61
<PAGE>
achievement of all performance goals, plus (C) if Mr. Sweas complies with the
noncompete and nonsolicitation provisions of his agreement for the 18-month
period following termination, the greater of the amount of Mr. Sweas' highest
annual base salary during the term of his agreement or the aggregate amount of
base salary payable to Mr. Sweas through the end of the term of such
agreement; and (iii) the Company must maintain in full force and effect all
employee benefit plans for the benefit of Mr. Sweas for the longer of a one-
year period or the remaining term of his agreement. If the executive's
employment is terminated under any other circumstances, the executive will not
receive any of the above-described severance pay and benefits. With respect to
Messrs. Elliott and Gavillet, upon a Change in Control the executive's options
will become exercisable and the restrictions on Mr. Elliott's Restricted
Shares will lapse. With respect to Mr. Sweas, upon a Change of Control the
Company shall pay, in exchange for the cancellation of any options and the
surrender of any shares held by him, an amount equal to the fair market value
of the shares held by Mr. Sweas or issuable upon exercise of any such options
(less the applicable exercise price). Upon a Change of Control, the Company
shall pay to each of Messrs. Elliott, Gavillet and Sweas, within the 10-day
period following such Change of Control, an amount equal to the pro rata
portion of the annual bonus that would have been payable to such executive
during such year, assuming the achievement of all performance goals. Under
each employment agreement, a "Change in Control" occurs if (i) a person or
entity becomes the beneficial owner of 35% or more of the combined voting
power of the Company's securities, (ii) the current directors, or individuals
who are approved by two-thirds of the current directors, cease to constitute a
majority of the board of the Company or (iii) certain mergers or liquidations
of the Company occur. Messrs. Elliott and Gavillet have agreed not to compete
with the Company in the network telecommunications services business or to
solicit customers or employees of the Company for their term of employment
with the Company and for an additional period of two years thereafter and Mr.
Sweas has agreed to similar restrictions for the term of his employment with
the Company and for an additional period of 18 months thereafter.
In January 1997, Mr. Ryan Mullaney entered into an employment agreement with
the Company. Mr. Mullaney's agreement provides for a base salary of $125,000
and an annual bonus (targeted at $75,000) based upon certain performance
standards established by the Board of Directors of the Company. The agreement
also provides that Mr. Mullaney will be entitled to receive certain payments
in the event that his employment is terminated other than for cause. Mr.
Mullaney has agreed not to compete with the Company during the term of his
employment and for a specified period thereafter.
Each of the other key employees (including Steven J. Parrish, Executive Vice
President, Operations, Thomas A. Monson, Vice President, General Counsel and
Secretary, Thad J. Pellino, Vice President of Marketing and Neil A. Bethke,
Vice President of Information Systems) have also entered into employment
agreements with the Company as of July 18, 1996 with respect to Messrs.
Parrish, Pellino and Bethke, and as of January 6, 1997 with respect to Mr.
Monson. The terms of the employment agreements are for a period of two years
subject to automatic one-year renewal upon each anniversary unless otherwise
notified by the Company. Each agreement specifies the base salary to be
received by the executive, and provides for annual adjustment of base salary
by the Board of Directors. The following annual base salaries were approved
effective July 31, 1996: Mr. Parrish - $140,000, Mr. Bethke - $125,000 and Mr.
Pellino - $110,000. The annual base salary for Mr. Monson, provided in his
employment agreement, is $143,000. Each executive is also entitled to annual
bonuses in the range of 15% to 30% of base salary, subject to the attainment
of certain performance objectives. If the Company terminates the employment of
any such officer without "Cause" or, if, the officer terminates his employment
with "Good Reason" (both as defined in the respective agreements), the officer
is entitled to receive benefits and payments similar to those discussed above
for Messrs. Elliott and Gavillet. No "Window Period" will apply to such
officers. Upon a Change in Control, the executive's options will become
exercisable. Each officer has agreed not to compete with the Company in the
network telecommunications services business or to solicit customers or
employees of the Company during the term of his employment and for a period of
one year following voluntary or involuntary termination.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION OF THE COMPANY
The Company was incorporated in April 1994. On April 20, 1994, Chase Capital
Partners ("Chase") and CIBC became principal investors in the Company pursuant
to a stock purchase agreement (as amended, the "Purchase Agreement") whereby
the Company sold each investor 2,475 shares of Series A Preferred Stock at a
price of $1,000 per share and 25,000 shares of Common Stock at a price of
$1.00 per share. On June 10, 1994, Hancock Venture Capital Associates
("Hancock," and together with Chase and CIBC the "Initial Investors") became
party to the Purchase Agreement as a purchaser of 2,475 shares of Series A
Preferred Stock at a price of $1,000 per share and 23,210 shares of Common
Stock at a price of $1.077 per share. See "Description of Capital Stock--
Common Stock" and "--Preferred Stock."
On November 2, 1994, an additional 7,425 shares of the Company's Series A
Preferred Stock and 69,630 shares of the Company's Common Stock were issued to
the Initial Investors for a total purchase price of $7,500,000, on the same
terms.
Pursuant to the Purchase Agreement, the Initial Investors are entitled to
certain contractual preemptive rights and registration rights. Except for the
issuances of Common Stock pursuant to (i) options granted to senior
management, (ii) an acquisition of another business or (iii) a public offering
of equity securities under the Securities Act, if the Company authorizes the
issuance of any equity securities or any securities containing options or
rights to acquire such securities (other than stock dividends), the Company is
required first to offer a portion of such securities to each Initial Investor.
The Company must offer such securities in an amount equal to the total number
of shares purchased by the Initial Investors pursuant to the Purchase
Agreement (including any shares derived therefrom) divided by the total number
of shares outstanding, at the most favorable price and term at which such
securities are offered to any party ("Preemptive Rights").
For so long as any Original Purchaser owns any Investor Preferred Stock or
Investor Common Stock (as such terms are defined in the Purchase Agreement),
the Company is precluded from, without obtaining the prior approval of Initial
Investors holding at least 66 2/3% of the outstanding Investor Common Stock,
among other things, (i) issuing notes, debt securities or equity securities of
the Company's subsidiaries other than Preferred Stock ranking junior to the
Series A Preferred Stock; (ii) merging, selling or effecting a
recapitalization of the Company; (iii) making or permitting any subsidiary to
make certain loans, advances or guarantees; (iv) directly or indirectly
declaring or paying any dividends or distributions except for dividends and
distributions on the Preferred Stock pursuant to the Certificate of
Designation or for dividends on the Common Stock which are payable in shares
of Common Stock; and (v) directly or indirectly redeeming, purchasing or
acquiring any Common Stock, warrants, options or other rights except for the
puts described in this paragraph. In addition, in the event of a change of
control (as defined in the Purchase Agreement) or at any time five years after
the initial investments, the Original Purchasers holding 30% of the Investor
Common Stock have a put right and a call right which requires the Company to
buy or sell, as the case may be, 25% or more of the Investor Preferred Stock
or Investor Common Stock; provided, that pursuant to the Recapitalization, no
such put or call right shall be exercisable so long as any of the Notes are
outstanding.
Pursuant to a Registration Agreement dated April 20, 1994, as amended and
restated on June 22, 1995 (the "Investors Registration Agreement"), Original
Purchasers holding at least 33 1/3% of the equity securities of the Company
subject to the Investors Registration Agreement may, subject to certain
limitations, require the Company to register all or part of their Common Stock
for public resale. These holders have the right to request (i) up to four
registrations on Form S-1 or any similar form (provided that each such
offering must equal at least $10 million) and (ii) an unlimited number of
"short-form" registrations on Form S-2 or S-3 or any similar form (provided
that each such offering must equal the lesser of $5 million or 20% of the
Registrable Securities (as defined in the Purchase Agreement) then
outstanding); and, in addition, these holders have the right to include their
shares, subject to certain limitations, in any registration of shares of
Common Stock by the Company under the Securities Act (collectively, the
"Registration Rights"). The Company is required to bear all registration
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<PAGE>
expenses, other than underwriters' discounts and commissions, for all Company-
initiated registrations and for demand registrations if certain minimum
offering requirements exist. The Investors Registration Agreement provides for
standard cutback and holdback provisions regarding the shares held by the
Original Purchasers.
In connection with the Offering, the Original Purchasers, by the requisite
vote, waived their Preemptive Rights and Registration Rights.
On April 20, 1994, the Company also entered into ancillary agreements with
the Initial Investors and USNCN. The stockholders agreement with the Initial
Investors as amended on June 10, 1994 (the "Stockholders Agreement") generally
restricts, among other things, the transfer of the Common Stock and Preferred
Stock owned by the parties with the exception of stock sold: (i) in an initial
public offering pursuant to an effective registration statement under the
Securities Act, or (ii) in the public market pursuant to Rule 144 under the
Securities Act. The Stockholders Agreement further provides the stockholders
with rights of first refusal in the case of sales of stock of the Company
initiated by stockholders of the Company that are parties to the Stockholders
Agreement ("Rights of First Refusal").
On June 13, 1995, the Company purchased certain assets and assumed certain
liabilities (the "Quest Purchase") of Quest with the consent of Edward H.
Lavin and J. Thomas Elliott, the majority stockholders of the managing general
partners of Quest.
On June 22, 1995, the Initial Investors, together with Northwood Capital
Partners LLC ("Northwood LLC"), Northwood Ventures (together with Northwood
LLC, the "Northwood Entities") and BT Capital Partners, Inc. ("BT") purchased
from the Company 23,760 shares of Series A-2 Preferred Stock at a price of
$1,000 per share and 123,078 shares of Class A Common Stock at a price of
$1.95 per share for an aggregate purchase price for both classes of
$24,000,003 (including, in the case of the Northwood Entities, the retirement
of certain debt of Quest assumed by the Company). On July 21, 1995,
Enterprises & Transcommunications, L.P. ("Enterprises") purchased 2,475 shares
of Series A-2 Preferred Stock at a price of $1,000 per share and 12,821 shares
of Class A Common Stock at a price of $1.95 per share for an aggregate
purchase price of $2,500,000.95 (the Initial Investors, the Northwood
Entities, BT and Enterprises are collectively referred to as the "Original
Purchasers"). Both equity purchases were made under similar terms as the
Purchase Agreement, including Preemptive Rights and Registration Rights.
Pursuant to the Stockholders Agreement, as amended (including, in such
amendment, the addition of all Original Purchasers as parties thereto), the
Board of Directors of the Company consists of nine persons, including one
outside director, two appointed by Mr. Thomas Brandenburg, one appointed by
each of the Initial Investors, one appointed by BT and one appointed by
Enterprises. The Stockholders Agreement between the Company and the Original
Purchasers terminates on April 20, 2004, unless certain minimum stock
ownership requirements are not satisfied or unless the agreement is otherwise
extended by the parties.
In March 1996, the Company caused a recapitalization pursuant to which the
Company (i) issued an aggregate of an additional 110,157 shares of Common
Stock to the Original Purchasers for no consideration in order to settle a
dispute relating to the price per share of the Common Stock paid by the
Original Purchasers stemming from, in part, the Company's operating
performance following the June 22, 1995 investment by the Initial Investors,
the Northwood Entities and BT as compared with the operating performance
projected by the Company at the time of such investment; (ii) caused the
Series A-2 Preferred Stock to be senior to the Series A Preferred Stock with
respect to redemption, dividends and liquidation in further settlement of the
dispute referred to in (i) above; and (iii) increased the number of directors
of the Company to nine in order to permit the addition of an outside member (a
director who is not an employee of the Company and who is not affiliated with
an Original Purchaser) to the board.
CIBC, Chase and BT, who are Original Purchasers, or their affiliates, were
Initial Purchasers in the Offering.
In January 1995, the Company executed a consulting agreement with Eugene A.
Sekulow, a director of the Company, for the period ending December 31, 1996.
Pursuant to the agreement, Mr. Sekulow is entitled to a
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<PAGE>
consulting fee of $48,000, payable in twelve monthly installments and $2,500
per day if Mr. Sekulow devotes more than two days per month to the Company.
The Company paid Mr. Sekulow $58,625 for the period ending December 31, 1995
and as of June 1996 has paid Mr. Sekulow $24,000.
In December 1995, Mr. J. Thomas Elliott, President and Chief Executive
Officer of the Company, executed a promissory note in favor of the Company in
the principal amount of $75,000. Such promissory note was originally payable
by January 2, 1997, but such date has been extended to a date as yet
undetermined.
On July 18, 1996 the Company agreed with Mr. Stephen C. Schwartz, the
founder and former director and officer of USNCN, to repurchase Mr. Schwartz's
interest in USNCN, among other things, for $1.7 million. Upon the closing of
such agreement, the Company acquired the 439,160 shares of common stock of
USNCN, $.01 par value ("USNCN Common Stock") formerly held by Mr. Schwartz.
In January 1996, the Company executed a consulting agreement with Edward H.
Lavin for the period ending January 1, 1997 pursuant to which Mr. Lavin
received 11,000 Restricted Shares of the Common Stock (now Class A Common
Stock) in exchange for consulting services with respect to all matters
relating to the business and marketing of the Company. The Company, which will
also provide certain cash compensation to Mr. Lavin for such services, may
renew the agreement for three month periods; however the maximum term of the
agreement is two years.
RECAPITALIZATION
In connection with the consummation of the Offering, the Certificate of
Incorporation of the Company was amended to provide for the authorization of
two classes of Common Stock, Class A Common Stock and Class B Common Stock
(collectively, the "Common Stock"). The rights of such classes are identical,
except that Class A Common Stock is entitled to one vote per share, while
Class B Common Stock is not entitled to any voting rights, except as required
by law. In addition, each outstanding share of Common Stock of the Company
existing on the date of the Offering was converted into one share of Class A
Common Stock. See "Description of Capital Stock--Common Stock."
As described above, by requisite vote, the Original Purchasers waived their
Preemptive Rights and Registration Rights with respect to the Offering. The
Original Purchasers also approved, and the Company took all necessary action
to effect prior to the consummation of the Offering, the amendment of the
terms of the Series A Preferred Stock and Series A-2 Preferred Stock to
provide for and effectuate the conversion of the shares of each such series of
Preferred Stock into newly issued shares of Class A Common Stock, which
conversion was consummated on September 30, 1996.
Also in connection with the Offering, the Original Purchasers purchased from
the Company shares of its newly created 9% Cumulative Convertible PIK
Preferred Stock, par value $1.00 per share (the "9% Preferred Stock"), for an
aggregate purchase price of $10 million. For a description of certain of the
terms of the 9% Preferred Stock, see "Description of Capital Stock--Preferred
Stock."
The events described under this heading "--Recapitalization" are
collectively referred to as the "Recapitalization."
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<PAGE>
STOCK OWNERSHIP
The following table sets forth as of October 31, 1996, the number of shares
of Class A Common Stock and the percentage of the outstanding shares of such
class that are beneficially owned by (i) each person that is the beneficial
owner of more than 5% of the outstanding shares of Class A Common Stock, (ii)
each of the directors and the Named Executive Officers of the Company and
(iii) all of the current directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK (2)
---------------------
NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES OWNED OF CLASS
- --------------------------------------- ------------ --------
<S> <C> <C>
BT Capital Partners, Inc. (3) ........................... 129,123 16.28%
130 Liberty Street
New York, New York 10017-2070
Chase Venture Capital Associates, L.P. (3)............... 174,308 21.97%
380 Madison Ave., 12th Floor
New York, New York 10017-2070
CIBC Wood Gundy Ventures, Inc. (3) ...................... 174,308 21.97%
425 Lexington Avenue
New York, New York 10017-3903
Hancock Venture Partners IV (3).......................... 172,084 21.69%
One Financial Center, 44th Floor
New York, New York 10017-3903
Enterprises & Transcommunications, L.P. (3) ............. 42,917 5.41%
600 Congress Suite 3000
One American Center
Austin, Texas 78701
Thomas C. Brandenburg (4)(5)(6).......................... 22,216 2.80%
Richard J. Brekka (4)(6)................................. 174,308 21.97%
J. Thomas Elliott (4).................................... 11,000 1.39%
Ronald W. Gavillet (4)(7)................................ 2,888 *
William P. Glasgow (4)(6)................................ 42,917 5.41%
Donald J. Hofmann, Jr. (8)(9)............................ 174,308 21.97%
William A. Johnston (4)(6)............................... 172,084 21.69%
Paul S. Lattanzio (4)(6)................................. 129,123 16.28%
Eugene A. Sekulow........................................ -- --
All directors and executive officers of the Company as a
group (9 persons)....................................... 728,844 91.87%
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment
power with respect to the shares.
(2) Excludes shares underlying the Initial Warrants issued in connection with
the Offering.
(3) BT Capital Partners, Inc., Chase Venture Capital Associates, L.P., CIBC
Wood Gundy Ventures, Inc., Hancock Venture Partners IV and Enterprises &
Transcommunications, L.P. are affiliates of Bankers Trust New York
Corporation, Chase Manhattan Corporation, Canadian Imperial Bank of
Commerce, Hancock Venture Partners, Inc. and Prime Cable Income Partners
LP, respectively.
(4) The address of the beneficial owners is the address of the Company listed
elsewhere in this Prospectus.
(5) Includes 10,000 shares subject to a voting trust for David Montville. Mr.
Brandenburg, as the voting trust agent, disclaims beneficial ownership
with respect to the shares held in trust.
(6) Each director disclaims beneficial ownership of any shares of Common Stock
or Preferred Stock which it does not directly own.
(7) These shares are subject to exercisable options held by Mr. Gavillet.
(8) The address of Mr. Hofmann is the address of Chase Venture Capital
Associates, L.P. listed above.
(9) These shares are owned of record by Chase Venture Capital Associates, L.P.
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DESCRIPTION OF THE NOTES
On September 30, 1996, the Company consummated a private placement of (i)
48,500 Units consisting of $48.5 million in aggregate principal amount at
maturity of Senior Notes and warrants to purchase 61,550 shares, subject to
adjustment under certain circumstances, of Class A Common Stock, and (ii)
$36.0 million in aggregate principal amount at maturity of Convertible Notes.
As described elsewhere in this Prospectus, in connection with the Offering the
Company undertook to consummate the Exchange Offer, pursuant to which the
Holders of Old Notes would be entitled to exchange such Old Notes for New
Notes. The following is a description of the Old Notes, the New Notes and the
Convertible Notes.
GENERAL
The Old Notes were and the New Notes will be issued under the Senior Note
Indenture. The Convertible Notes were issued pursuant to the Convertible Note
Indenture. For purposes of this Description of the Notes, the term "Company"
refers to United USN, Inc. and does not include its subsidiaries except for
purposes of financial data determined on a consolidated basis.
The terms of the Senior Notes include those stated in the Senior Note
Indenture and those made a part of the Senior Note Indenture by reference to
the Trust Indenture Act of 1939 as in effect on the date of the Indenture (the
"Trust Indenture Act"). Similarly, the terms of the Convertible Notes include
those stated in the Convertible Note Indenture and those made a part of the
Convertible Note Indenture by reference to the Trust Indenture Act. The
following summaries of certain provisions of the Indentures do not purport to
be complete and are subject to, and are qualified in their entirety by
reference to, the provisions of the Indentures. The Notes are subject to all
such terms, and holders of the Notes are referred to the applicable Indenture
and the Trust Indenture Act for a complete statement of such terms. Copies of
the Indentures are available from the Company on request. The statements and
definitions of terms under this caption relating to the Notes and the
Indentures are summaries and do not purport to be complete. Such summaries
make use of certain terms defined in the Indentures and are qualified in their
entirety by express reference to the Indentures. Certain terms used herein are
defined below under "--Certain Definitions."
The Old Notes were and the New Notes will be general unsecured obligations
of the Company limited in aggregate principal amount at Stated Maturity to
$137 million and will rank pari passu in right of payment with all existing
and future senior unsecured indebtedness of the Company, and will be senior in
right of payment to all existing and future subordinated indebtedness of the
Company. The Convertible Notes are general unsecured obligations of the
Company limited in aggregate principal amount at Stated Maturity to $46
million, are subordinated in right of payment to the Senior Notes, and rank
pari passu in right of payment with all other existing and future senior
unsecured indebtedness of the Company. The Notes are effectively subordinated,
however, to secured indebtedness of the Company to the extent of the assets
securing that indebtedness (including up to $30 million of indebtedness under
a future Credit Facility). The Company's Subsidiaries will have no direct
obligation to pay amounts due on the Notes and did not and will not guarantee
the Notes on their respective Issue Dates; however, if a Restricted Subsidiary
guarantees any Indebtedness of the Company, such Restricted Subsidiary will be
obligated to guarantee the Senior Notes on a senior basis and the Convertible
Notes on a senior subordinated basis. See "--Certain Covenants--Limitation on
Issuances of Guarantees by Restricted Subsidiaries." As a result, the Notes
effectively will be subordinated to all existing and future third-party
indebtedness and other liabilities of the Company's Subsidiaries (including
trade payables). As of September 30, 1996, the total outstanding indebtedness
and other liabilities (including trade payables and other non-debt
obligations) of the Company that would rank pari passu in right of payment
with the Notes was approximately $5.8 million. As of September 30, 1996, the
total outstanding indebtedness and other liabilities (including trade payables
and other non-debt obligations) of the Company's Subsidiaries on a combined
consolidated basis (after the elimination of loans and advances by the
Company) was approximately $5.3 million. Of that amount, approximately $0.6
million in indebtedness was secured by Liens on the assets of the borrowing
Subsidiaries.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon cash flow from those entities to meet
its obligations. Any rights (other than claims based upon
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valid pari passu loans and advances made by the Company) of the Company and
its creditors, including the holders of Notes, to participate in the
distribution of the assets of any of the Company's Subsidiaries upon any
liquidation or reorganization of any such Subsidiary will be subject to the
prior claims of that Subsidiary's creditors (including trade creditors).
Accordingly, the Company anticipates that the primary source of cash to pay
the Company's obligations under the Notes will be derived from the operations
of the Restricted Subsidiaries. The Indentures permit under limited
circumstances the creation of, or the designation of existing Restricted
Subsidiaries as, Unrestricted Subsidiaries. Such Unrestricted Subsidiaries
will not generally be subject to the covenants applicable to the Company and
the Restricted Subsidiaries. See "Risk Factors--Substantial Leverage" and "--
Holding Company Structure; Source of Repayment of Notes; Effective
Subordination of Notes to Indebtedness of Subsidiaries."
The Convertible Note Indenture does not contain any restrictions on the
payment of dividends or the making of distributions, investments or certain
other restricted payments or any financial covenants and contains no covenants
or other provisions against a dramatic decline in credit quality of the
Convertible Notes, except as described below in "--Right to Require Repurchase
of Convertible Notes Upon a Termination of Trading."
The Old Notes and the Convertible Notes have been designated for trading in
the PORTAL Market.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount at Stated
Maturity to $137 million and will mature on September 30, 2003. The Old Notes
were issued at a discount to their aggregate principal amount to generate
gross proceeds to the Company of approximately $30 million. In addition to the
Old Notes issued as of September 30, 1996, an additional $72 million aggregate
principal amount at Stated Maturity of Senior Notes may be issued pursuant to
the Senior Note Indenture. The Senior Notes will accrete interest at the rate
of 14% per annum, compounded semiannually, to an aggregate principal amount of
$48.5 million by March 30, 2000. Although for U.S. federal income tax purposes
a significant amount of original issue discount, taxable as ordinary income,
will be recognized by a holder as such discount accrues from the Issue Date of
the Senior Notes, no interest will be payable on the Senior Notes prior to
March 30, 2000. See "Certain Federal Income Tax Considerations--Taxation of
the Notes--Original Issue Discount." From and after March 30, 2000, interest
on the Senior Notes will accrue at the rate of 14% per annum and will be
payable in cash semiannually on March 30 and September 30, commencing
September 30, 2000, to the holders of record of Senior Notes at the close of
business on March 15 and September 15 immediately preceding such interest
payment date. Interest on the Senior Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
March 30, 2000. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Convertible Notes are limited in aggregate principal amount at Stated
Maturity to $46 million and will mature on September 30, 2004. The Convertible
Notes were issued at a discount to their aggregate principal amount to
generate gross proceeds to the Company of approximately $28 million. In
addition to the Convertible Notes issued as of September 30, 1996, an
additional $3.1 million aggregate principal amount at Stated Maturity of
Convertible Notes may be issued pursuant to the Convertible Note Indenture.
The Convertible Notes will accrete interest at the rate of 9% per annum,
compounded semiannually, to an aggregate principal amount of $36.0 million by
September 30, 1999. Although for U.S. federal income tax purposes a
significant amount of original issue discount, taxable as ordinary income,
will be recognized by a holder as such discount accretes from the Issue Date
of the Convertible Notes, no interest will be payable on the Convertible Notes
prior to September 30, 1999. See "Certain Federal Income Tax Considerations--
Taxation of the Notes--Original Issue Discount." From and after September 30,
1999, interest on the Convertible Notes will accrue at the rate of 9% per
annum and will be payable in cash semiannually on March 30 and September 30,
of each year commencing March 30, 2000, to the holders of record of
Convertible Notes at the close of business on March 15 and September 15
immediately preceding such interest payment date. Interest on the Convertible
Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from September 30, 1999. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
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If the Company does not comply with certain deadlines set forth in the
Registration Rights Agreement with respect to the conduct of the Exchange
Offer or the registration of either the Senior Notes or the Convertible Notes
for resale under a shelf registration statement, holders of the Senior Notes
and/or the Convertible Notes will be entitled to Special Interest. See
"Registration Rights."
Principal of, premium, if any, and interest and Special Interest, if any, on
the Old Notes and the Convertible Notes is, and on the New Notes will be,
payable, and the Notes may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose,
which office shall be maintained in the Borough of Manhattan, The City of New
York. At the option of the Company, interest and Special Interest may be paid
by check mailed to the registered holders at their registered addresses. The
Old Notes and the Convertible Notes were, and the New Notes will be, issued
without coupons and in fully registered form only, in denominations of $1,000
and integral multiples thereof.
CONVERSION RIGHTS OF CONVERTIBLE NOTES
The Convertible Notes are convertible into the Convertible Note Shares, at
the option of the holders of Convertible Notes, at any time after the 60th day
following the date of original issuance of the Convertible Notes and prior to
redemption or final maturity of the Convertible Notes, initially at a
conversion price of $134.08 per share, subject to adjustment (the "Conversion
Price") as described below and as described in "--Additional Invested Equity."
The right to convert Convertible Notes which have been called for redemption
will terminate at the close of business on the business day preceding the
redemption date. In the event that the Company consummates a sale or sales of
any class of Capital Stock for an amount, individually or in the aggregate, in
excess of $5,000,000 (each, a "Reset Event") and at the time of such sale or
sales, the equity valuation of the Company based upon such sale or sales (as
evidenced by a Board Resolution delivered to the Convertible Note Trustee) is
less than $122,500,000, then on the date of the consummation of any such Reset
Event (the "Reset Date"), the Conversion Price shall be adjusted (the
"Conversion Reset") to equal 115% of the price (the "Conversion Reset Price")
at which such sale or sales were consummated; provided, that if such sale or
sales are consummated more than nine months after a Qualified Public Offering
at a total equity valuation of the Company of at least $122,500,000, then no
Conversion Reset will be required. In the event that the Conversion Price
before such calculation shall be equal to or less than the Conversion Reset
Price, then no additional adjustment to the Conversion Price shall be made.
Subject to certain exceptions, the Conversion Price will be subject to
adjustment on the occurrence of certain events including: (i) the payment by
the Company of dividends (or the making of other distributions) with respect
to any class of Capital Stock payable in Common Stock or other shares of the
Company's Capital Stock, (ii) subdivisions, combinations and reclassifications
of Common Stock, (iii) the issuance to all holders of Common Stock of rights,
options or warrants entitling them to subscribe for Common Stock, or of
securities convertible into or exchangeable for shares of Common Stock, in
either case for consideration per share of Common Stock which is less than the
Current Market Price per share of Common Stock (determined as provided in the
Convertible Note Indenture), (iv) the issuance or sale of shares of Common
Stock, or securities convertible into or exchangeable for shares of Common
Stock, for consideration per share of Common Stock which is less than the
Current Market Price per share of Common Stock (determined as provided in the
Convertible Note Indenture), other than the Warrants, (v) the distribution to
all holders of Common Stock of any of the Company's assets, debt securities or
any rights or warrants to purchase securities (excluding those rights and
warrants referred to in clause (iii) above and excluding cash dividends or
other cash distributions from current or retained earnings) and (vi) certain
other events which could have the effect of depriving holders of the
Convertible Notes of all or any of the conversion rights in respect of any
Convertible Note.
No adjustment in the Conversion Price will be required unless such
adjustment would require an increase or decrease of at least 1.0% in the
Conversion Price; provided, that any adjustment which is not made will be
carried forward and taken into account in any subsequent adjustment.
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In addition to the foregoing adjustments, the Company will be permitted to
reduce the Conversion Price as it considers to be advisable in order that any
event treated for United States federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the Common Stock
or, if that is not possible, to diminish any income taxes that are otherwise
payable because of such event. In the case of any consolidation or merger of
the Company with any other Person (other than one in which no change is made
in the Common Stock), or any sale or transfer of all or substantially all of
the assets of the Company, the holder of any Convertible Note then outstanding
will have the right thereafter to convert such Convertible Note only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Convertible Note might have been converted
immediately prior to such consolidation, merger, sale or transfer; and
adjustments will be provided for events subsequent thereto that are as nearly
equivalent as practical to the Conversion Price adjustments described above.
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon the then
Closing Price (determined as provided in the Convertible Note Indenture) at
the close of business on the day of conversion. If any Convertible Notes are
surrendered for conversion during the period from the close of business on any
regular record date through and including the next succeeding interest payment
date (except any such Convertible Notes called for redemption), such
Convertible Notes when surrendered for conversion must be accompanied by
payment in next day funds of an amount equal to the interest thereon which the
registered Holder on such record date is to receive. Except as described in
the preceding sentence, no interest will be payable by the Company on
converted Convertible Notes with respect to any interest payment date
subsequent to the date of conversion. No other payment or adjustment for
interest or dividends is to be made upon conversion.
SUBORDINATION OF CONVERTIBLE NOTES
The payment of the principal of and premium, if any, and interest (including
Special Interest, if any) on the Convertible Notes will, to the extent set
forth in the Convertible Note Indenture, be subordinated in right of payment
to the prior payment in full of the Senior Notes and all other obligations of
the Company and the Guarantors, if any, under the Senior Notes, the Senior
Note Guarantees, if any, and the Senior Note Indenture (the "Senior
Indebtedness"). If there is a payment or distribution of assets to creditors
upon any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors, marshalling of assets or any bankruptcy, insolvency
or similar proceedings of the Company or a Guarantor, as applicable, the
holders of all Senior Indebtedness will be entitled to receive payment in full
of all amounts due or to become due thereon or provision for such payment in
money or money's worth must be made before the holders of the Convertible
Notes will be entitled to receive any payment in respect of the principal of
or premium, if any, or interest (including Special Interest, if any) on the
Convertible Notes. In the event of the acceleration of the Maturity of the
Convertible Notes, the holders of all Senior Indebtedness will first be
entitled to receive payment in full in cash of all amounts due thereon or
provision for such payment in money or money's worth before the holders of the
Convertible Notes will be entitled to receive any payment for the principal of
or premium, if any, or interest (including Special Interest, if any) on the
Convertible Notes. No payments on account of principal of or premium, if any,
or interest (including Special Interest, if any) on the Convertible Notes or
on account of the purchase or acquisition of Convertible Notes may be made if
there has occurred and is continuing a default in any payment with respect to
Senior Indebtedness, any acceleration of the maturity of any Senior
Indebtedness or if any judicial proceeding is pending with respect to any such
default.
ADDITIONAL INVESTED EQUITY
If the Company does not achieve consolidated total revenues (calculated in
accordance with GAAP) of at least $8.5 million for the period from June 1,
1997 through June 30, 1997 and if, by September 30, 1997, the Company has not
either (i) consummated a Qualified Public Offering or (ii) been sold pursuant
to a Qualified Sale of the Company, the Company shall by such date be required
to either (A) obtain $10.0 million of
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Additional Invested Equity or (B) (i) grant to the holders of the Convertible
Notes the right to purchase for $10.0 million additional convertible
securities of the Company convertible into 16 2/3% of the Common Stock on a
fully diluted basis (subject to certain exceptions) after giving effect to the
issuance of such additional convertible securities, (ii) grant to the holders
of the Convertible Notes the right to purchase warrants (the "Additional
Warrants") exercisable for Common Stock representing up to 5% of the Common
Stock of the Company at a purchase price of $.01 per share (subject to certain
adjustments, if required) on a fully diluted basis (subject to certain
exceptions) after giving effect to the issuance of such warrants, and (iii)
adjust the Conversion Price for the Convertible Notes shall be adjusted by
dividing the Conversion Price in effect immediately prior to the issuance of
such convertible securities and warrants by 1.15.
OPTIONAL REDEMPTION
The Old Notes are not and the New Notes will not be redeemable at the option
of the Company prior to September 30, 2001, subject to provisions of the
following paragraph. Thereafter, the Senior Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount at Stated Maturity thereof) set forth below,
plus accrued and unpaid interest (if any) and Special Interest (if any), if
redeemed during the twelve months beginning September 30 of each year
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... 109.0%
2002........................................................... 104.5%
</TABLE>
Notwithstanding the foregoing, in the event that on or prior to September
30, 1999, the Company consummates one or more Public Equity Offerings of its
Common Stock or issues or sells Qualified Stock of the Company to a Strategic
Investor, in each case in an aggregate amount equal to or exceeding $40
million, up to a maximum of 25% of the aggregate principal amount at Stated
Maturity of the Senior Notes will be redeemable at the option of the Company
out of the net proceeds of such sale or sales to the extent that such proceeds
consist of cash or cash equivalents. Such Senior Notes will be redeemable on
not less than 30 nor more than 60 days' prior notice at a redemption price
equal to 114% of the Accreted Value of the Senior Notes to be redeemed on the
redemption date plus accrued and unpaid interest, if any, and Special
Interest, if any, to the redemption date. Any such redemption shall occur
within 90 days after (but not before) such sale or last such sale in the case
of a series of related transactions; provided, that immediately after giving
effect to such redemption not less than 75% of the aggregate principal amount
at Stated Maturity of the Senior Notes originally issued remain outstanding.
The Convertible Notes are not redeemable prior to September 30, 2000. During
the period from September 30, 2000 to September 30, 2002 the Company may
redeem all but not less than all of the Convertible Notes, upon not less than
30 nor more than 60 days' notice, if the Closing Price (as defined in the
Convertible Note Indenture) of the Common Stock is at least 150% of the
Conversion Price for thirty consecutive days, at a redemption price equal to
100% of the principal amount at Stated Maturity thereof plus accrued and
unpaid interest, if any, and Special Interest, if any; provided, that if the
Common Stock is not traded on a U.S. national securities exchange or approved
for trading on an established automated over-the-counter trading market in the
United States and not quoted on a consolidated transaction reporting tape, the
Convertible Notes will not be redeemable during such period. On or after
September 30, 2002, the Convertible Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more 60
days' notice, at 100% of the principal amount thereof at Stated Maturity, plus
accrued and unpaid interest, if any, and Special Interest, if any.
MANDATORY REDEMPTION
Except as set forth under "--Repurchase at the Option of Holders upon a
Change of Control,"
"--Asset Sales," and "--Right to Require Repurchase of Convertible Notes Upon
a Termination of Trading," the Company is not required to make mandatory
redemption payments or sinking fund payments with respect to the Notes.
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REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes shall have
the right to require the Company to repurchase all or any part (equal to
$1,000 principal amount or an integral multiple thereof) of such holder's
Notes pursuant to an irrevocable and unconditional offer described below (the
"Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") equal to 101% of the Accreted Value of such Notes (or
portions thereof) on any Change of Control Payment Date (as defined herein)
occurring prior to March 30, 2000, plus accrued and unpaid interest, if any,
and Special Interest, if any, thereon to such Change of Control Payment Date,
or 101% of the principal amount at Stated Maturity of such Notes (or portions
thereof), on any Change of Control Payment Date occurring on or after March
30, 2000 plus accrued and unpaid interest, if any, and Special Interest, if
any, to such Change of Control Payment Date.
Within 30 days following any Change of Control, the Company or the
applicable Trustee (at the expense of the Company) shall mail a notice to each
holder stating, among other things: (1) that a Change of Control Offer is
being made pursuant to the covenant in the applicable Indenture entitled
"Repurchase at the Option of Holders upon a Change of Control" and that all
Notes properly tendered will be accepted for payment; (2) the Change of
Control Purchase Price and the purchase date (the "Change of Control Payment
Date"), which shall be no earlier than 30 days nor later than 60 days from the
date such notice is mailed; (3) that any Notes or portions thereof not
properly tendered will continue to accrete in value or accrue interest, as the
case may be, and accrue Special Interest, if applicable; (4) that, unless the
Company defaults in the payment of the Change of Control Purchase Price, all
Notes or portions thereof accepted for payment pursuant to the Change of
Control Offer shall cease to accrete in value or accrue interest, as the case
may be, and accrue Special Interest, if applicable, from and after the Change
of Control Payment Date; (5) that holders electing to have any Notes or
portions thereof purchased pursuant to a Change of Control Offer will be
required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to a paying agent (the
"Paying Agent") at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment
Date; (6) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
principal amount of Notes delivered for purchase, and a statement that such
holder is withdrawing his election to have such Notes or portions thereof
purchased; (7) that holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Note or Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount at Stated Maturity or an integral multiple thereof;
and (8) the instructions and any other information necessary to enable holders
to accept a Change of Control Offer or effect withdrawal of such acceptance.
The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of
Notes pursuant to a Change of Control Offer.
On the Change of Control Payment Date, the Company will (1) accept for
payment Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent in immediately available
funds an amount equal to the Change of Control Purchase Price in respect of
all Notes or portions thereof so tendered, including accrued and unpaid
interest, if any, and Special Interest, if any, thereon and (3) deliver, or
cause to be delivered, to the applicable Trustee the Notes so accepted
together with an Officers' Certificate listing the Notes or portions thereof
tendered to the Company and accepted for payment. The Paying Agent shall
promptly mail to each holder of Notes so accepted payment in an amount equal
to the Change of Control Purchase Price, including interest and Special
Interest, if applicable, for such Notes and the applicable Trustee shall
promptly authenticate and mail to each holder a new Note equal in principal
amount at Stated Maturity to any unpurchased portion of the Notes surrendered,
if any; provided, that each such new Note shall be in a principal amount at
Stated Maturity of $1,000 or any integral multiple thereof. The Company will
announce publicly the results of a Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
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The existence of the holders' right to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control may deter
a third party from acquiring the Company in a transaction that constitutes a
Change of Control. If a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds to pay the Change of
Control Purchase Price for all Notes tendered by holders seeking to accept the
Change of Control Offer. In addition, instruments governing other Indebtedness
of the Company may prohibit the Company from purchasing any Notes prior to
their Stated Maturity, including pursuant to a Change of Control Offer. In the
event that a Change of Control Offer occurs at a time when the Company does
not have sufficient available funds to pay the Change of Control Purchase
Price for all Notes tendered pursuant to such offer or at a time when the
Company is prohibited from purchasing the Notes (and the Company is unable
either to obtain the consent of the holders of the relevant Indebtedness or to
repay such Indebtedness), an Event of Default (as defined herein) would occur
under the Indentures. In addition, one of the events that constitutes a Change
of Control under the Indentures is a sale, conveyance, transfer or lease of
all or substantially all of the assets of the Company or of the Company and
its Restricted Subsidiaries taken as a whole. The Indentures will be governed
by New York law, and there is no established quantitative definition under New
York law of "substantially all" of the assets of a corporation. Accordingly,
if the Company and/or its Restricted Subsidiaries were to engage in a
transaction in which it or they disposed of less than all of the assets of the
Company or less than all of the assets of the Company and its Restricted
Subsidiaries taken as a whole, a question of interpretation could arise as to
whether such disposition was of "substantially all" of its or their assets, as
the case may be, and whether the Company was required to make a Change of
Control Offer.
Except as described herein with respect to a Change of Control and, except
with regard to the Convertible Notes, the covenant described below in "--Right
to Require Repurchase of Convertible Notes Upon a Termination of Trading,"
neither Indenture contains any other provisions that permit holders of Notes
to require that the Company repurchase or redeem Notes in the event of a
takeover, recapitalization or similar restructuring. The foregoing provisions
may not necessarily afford the holders of the Notes protection in the event of
a highly leveraged transaction, including a reorganization, restructuring,
merger or other similar transaction involving the Company, that may adversely
affect the holders because (i) such transactions may not involve a shift in
voting power or beneficial ownership or, even if they do, may not involve a
shift of the magnitude required under the definition of Change of Control to
require the Company to make a Change of Control Offer or (ii) such
transactions may include an actual shift in voting power or beneficial
ownership to a Strategic Investor or to a Permitted Holder which is excluded
under the definition of Change of Control from the amount of shares involved
in determining whether or not the transaction involves a shift of the
magnitude required to trigger the provisions.
ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale (as defined herein) unless (i) no Event of Default
under the Indentures shall have occurred and be continuing or shall occur as a
consequence thereof; (ii) the Company or such Restricted Subsidiary, as the
case may be, receives net consideration at the time of such Asset Sale at
least equal to the Fair Market Value (as evidenced by a Board Resolution of
the Company delivered to the applicable Trustee) of the Property or assets
sold or otherwise disposed of; (iii) at least 75% of the consideration
received by the Company or such Restricted Subsidiary for such Property or
assets consists of Cash Proceeds; and (iv) the Company or such Restricted
Subsidiary, as the case may be, uses the Net Cash Proceeds from such Asset
Sale in the manner set forth below.
Within 270 days after any Asset Sale, the Company or such Restricted
Subsidiary, as the case may be, may at its option reinvest an amount equal to
the Net Cash Proceeds (or any portion thereof) from such Asset Sale in
Telecommunications Assets and/or (ii) apply an amount equal to such Net Cash
Proceeds (or remaining Net Cash Proceeds) to the permanent reduction of
Indebtedness of the Company (other than Indebtedness to a Restricted
Subsidiary) that is pari passu in right of payment with the Notes or to the
permanent reduction of Indebtedness of any Restricted Subsidiary that is pari
passu in right of payment with such Restricted Subsidiary's Guarantee, if
applicable (other than Indebtedness to the Company or another Restricted
Subsidiary). Any Net Cash Proceeds
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from any Asset Sale that are not used to reinvest in Telecommunications Assets
and/or reduce pari passu Indebtedness of the Company or Indebtedness of its
Restricted Subsidiaries shall constitute Excess Proceeds.
If at any time the aggregate amount of Excess Proceeds calculated as of such
date exceeds $5 million, the Company shall, on a date (the "Asset Sale Payment
Date") which shall be no earlier than 30 days nor later than 40 days
subsequent to the date on which the Company sends notice to Holders of the
Asset Sale Offer, which shall be within 30 days of the date on which such
Excess Proceeds exceed $5 million, use such Excess Proceeds to make offers (A)
to purchase (each an "Asset Sale Offer") (i) first, on a pro rata basis from
all holders of Senior Notes in an aggregate principal amount equal to the
maximum principal amount that may be purchased out of the then-existing Excess
Proceeds, at a purchase price (the "Asset Sale Purchase Price") in cash equal
to 100% of the Accreted Value of such Senior Notes on any Asset Sale Payment
Date occurring prior to March 30, 2000, plus accrued and unpaid interest, if
any, and Special Interest, if any, to the Asset Sale Payment Date, or 100% of
the principal amount at Stated Maturity of such Senior Notes on any Asset Sale
Payment Date occurring on or after March 30, 2000, plus accrued and unpaid
interest, if any, and Special Interest, if any, to such Asset Sale Payment
Date, and (ii) thereafter, if any Excess Proceeds remain upon completion of
such purchases of the Senior Notes, on a pro rata basis from all holders of
Convertible Notes, in an aggregate principal amount equal to the maximum
principal amount that may be purchased out of Excess Proceeds, at an Asset
Sale Purchase Price in cash equal to 100% of the Accreted Value of such
Convertible Notes on any Asset Sale Payment Date occurring prior to September
30, 1999, plus accrued and unpaid interest, if any, and Special Interest, if
any, to the Asset Sale Payment Date, or 100% of the principal amount at Stated
Maturity of such Convertible Notes on any Asset Sale Payment Date occurring on
or after September 30, 1999, plus accrued and unpaid interest, if any, and
Special Interest, if any, to such Asset Sale Payment Date, in accordance with
the procedures set forth in the applicable Indenture and (B) to the
substantially concurrent repayment or redemption of Pari Passu Indebtedness
(if any) if required by the instruments relating to such Pari Passu
Indebtedness (which repayment or redemption, in the case of a revolving credit
arrangement or multiple advance arrangement, reduces the commitment
thereunder). The Excess Proceeds to be so applied may be applied such that the
portion to be applied to the repayment or redemption of Pari Passu
Indebtedness shall not exceed an amount equal to the product obtained by
multiplying such Excess Proceeds by a fraction, the numerator of which is the
outstanding principal amount of Pari Passu Indebtedness that, pursuant to the
instruments relating thereto, is required to be repaid or redeemed with
proceeds from such Asset Sale or Asset Sales and the denominator of which is
the sum of the (i) aggregate principal amount of the Senior Notes then
outstanding plus (ii) the aggregate principal amount of outstanding Pari Passu
Indebtedness that, pursuant to the instruments relating thereto, is required
to be repaid or redeemed with proceeds from such Asset Sale or Asset Sales.
Upon completion of any Asset Sale Offer (including payment of the Asset Sale
Purchase Price), any surplus Excess Proceeds that were the subject of such
offer shall cease to be Excess Proceeds, and the Company may then use such
amounts for general corporate purposes.
The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of
Notes pursuant to an Asset Sale Offer.
RIGHT TO REQUIRE REPURCHASE OF CONVERTIBLE NOTES UPON A TERMINATION OF TRADING
In the event of any Termination of Trading occurring after the Issue Date
and on or prior to Maturity, each holder of Convertible Notes will have the
right, at the holder's option, to require the Company to repurchase all or any
part of such holder's Convertible Notes on the date (the "Repurchase Date")
that is 30 days after the date the Company gives notice of the Termination of
Trading as described below at a price (the "Repurchase Price") equal to 100%
of the Accreted Value of such Convertible Notes on any Repurchase Date
occurring prior to September 30, 1999, together with accrued and unpaid
interest, if any, and Special Interest, if any, thereon to the Repurchase
Date, or 100% of the principal amount at Stated Maturity of such Convertible
Notes on any Repurchase Date occurring on or after September 30, 1999,
together with accrued and unpaid interest, if any, and Special Interest, if
any, thereon to the Repurchase Date. On or prior to the Repurchase Date, the
Company shall deposit with the Convertible Note Trustee or a Paying Agent an
amount of money sufficient to pay the Repurchase Price of the Convertible
Notes which are to be repaid on or promptly following the Repurchase Date.
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Failure by the Company to provide timely notice of a Termination of Trading,
as provided for below, or to repurchase the Convertible Notes when required
under the preceding paragraph will result in an Event of Default under the
Convertible Note Indenture whether or not such repurchase is permitted by the
subordination provisions of the Convertible Note Indenture.
On or before the 15th day after the occurrence of a Termination of Trading,
the Company is obligated to mail to all holders of Convertible Notes a notice
of the occurrence of such Termination of Trading, the Repurchase Date, the
date by which the repurchase right must be exercised, the Repurchase Price for
Convertible Notes and the procedures which the holder must follow to exercise
this right. To exercise the repurchase right, the holder of a Convertible Note
must deliver, on or before the close of business on the Repurchase Date,
irrevocable written notice to the Company (or an agent designated by the
Company for such purpose) and to the Convertible Note Trustee of the holder's
exercise of such right, together with the certificates evidencing the
Convertible Notes with respect to which the right is being exercised, duly
endorsed for transfer. Such written notice is irrevocable.
A "Termination of Trading," shall occur if the Common Stock (or other common
stock into which the Convertible Notes are then convertible) had been listed
for trading on a U.S. national securities exchange or approved for trading on
an established automated over-the-counter trading market in the United States
and are thereafter neither so listed nor so approved.
The right to require the Company to repurchase Convertible Notes as a result
of the occurrence of a Termination of Trading could create an Event of Default
under the Senior Note Indenture, as a result of which any repurchase could,
absent a waiver, be blocked by the subordination provisions of the Convertible
Notes. Failure by the Company to repurchase the Convertible Notes when
required will result in an Event of Default under the Convertible Note
Indenture whether or not such repurchase is permitted by the subordination
provisions. The Company's ability to pay cash to the holders of Convertible
Notes upon a repurchase may be limited by certain financial covenants
contained in the other then existing Indebtedness of the Company.
The Company will comply with the requirements of Section 14(e) under the
Exchange Act and any other securities laws and regulations, to the extent such
laws and regulations are applicable, in connection with the repurchase of
Convertible Notes pursuant to an offer to repurchase upon a Termination of
Trading.
The foregoing provisions would not necessarily afford holders of the
Convertible Notes protection in the event of highly leveraged or other
transactions involving the Company or the Restricted Subsidiaries that may
adversely affect such holders. In addition, the foregoing provisions may
discourage open market purchases of the Common Stock or a non-negotiated
tender or exchange offer for such Common Stock and, accordingly, may limit a
stockholder's ability to realize a premium over the market price of the Common
Stock in connection with any such transaction.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Senior Note Indenture
and, where expressly indicated, the Convertible Note Indenture. Certain terms
capitalized below but not defined shall have the meanings ascribed to them
under the caption "Certain Definitions."
Limitation on Indebtedness
Pursuant to the terms of the Senior Note Indenture, the Company will not,
and will not permit its Restricted Subsidiaries to, directly or indirectly,
incur any Indebtedness (including Acquired Indebtedness), and the Company will
not issue any Disqualified Stock or permit any of its Restricted Subsidiaries
to issue any Disqualified Stock; provided, that the Company may incur
Indebtedness or issue Disqualified Stock if, after giving effect to such
issuance or incurrence on a pro forma basis, the Indebtedness to Operating
Cash Flow Ratio of the Company does not exceed 5 to 1.0.
The foregoing limitation will not apply to: (a) Indebtedness existing under
the Credit Facility; provided, that the aggregate principal amount of all such
Indebtedness under the Credit Facility, when taken together with
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all Indebtedness of the Company then outstanding which was permitted to have
been incurred under clause (j) below, shall not exceed $45 million at any one
time outstanding, up to $30 million of which may be secured; (b) the Existing
Indebtedness; (c) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness owing to any of its respective
Wholly-Owned Restricted Subsidiaries; provided, that any such Indebtedness is
junior and subordinate to the Notes and Guarantees, if any, and such
Indebtedness is held at all times by the Company or a Wholly-Owned Restricted
Subsidiary of the Company; (d) Indebtedness of any Restricted Subsidiary to
the Company or a Wholly-Owned Restricted Subsidiary of the Company; (e) the
incurrence by the Company or any of its Restricted Subsidiaries of Interest
Hedging Obligations with respect to any floating rate Indebtedness that is
permitted by the covenant described in this paragraph; (f) the incurrence by
the Company or any of its Restricted Subsidiaries of Indebtedness evidenced by
the Senior Notes or Senior Note Guarantees, if any, issued pursuant to the
Senior Note Indenture and by the Convertible Notes or Convertible Note
Guarantees, if any, issued pursuant to the Convertible Note Indenture; (g)
Indebtedness in respect of performance, surety or appeal bonds provided by the
Company in the ordinary course of business; (h) Vendor Financing not to exceed
an aggregate principal amount of $5 million at any one time outstanding; (i)
the incurrence by the Company or any of its Restricted Subsidiaries of
Refinancing Indebtedness issued in exchange for, or the proceeds of which are
used to refinance, repurchase, replace, refund or defease ("Refinance" and
correlatively, "Refinanced" and "Refinancing") Indebtedness permitted pursuant
to clause (b) or (f) of this paragraph; provided, that (i) the amount of such
Refinancing Indebtedness shall not exceed the principal amount of, premium, if
any, and accrued interest (and Special Interest on the Notes) on the
Indebtedness so Refinanced (or if such Indebtedness was issued with original
issue discount, the original issue price plus amortization of the original
issue discount at the time of the repayment of such Indebtedness) plus the
fees, expenses and costs of such Refinancing and reasonable prepayment
premiums, if any, in connection therewith, (ii) such Refinancing Indebtedness
shall have a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced, (iii) such Refinancing Indebtedness shall have
an Average Life equal to or greater than the Average Life of the Indebtedness
being Refinanced, (iv) if the Indebtedness being Refinanced is subordinated in
right of payment to the Senior Notes, such Refinancing Indebtedness shall be
subordinate in right of payment to the Senior Notes on terms at least as
favorable to the Holders of Senior Notes as those contained in the
documentation governing the Indebtedness being so Refinanced, and (v) no
Restricted Subsidiary shall incur Refinancing Indebtedness to Refinance
Indebtedness of the Company or another Subsidiary; and (j) Indebtedness of the
Company not otherwise permitted to be incurred pursuant to the covenant
described in this paragraph in an amount which shall not exceed $5 million at
any one time outstanding and which amount shall reduce the amount permitted to
be incurred under clause (a) above.
In the event that the Company or any Restricted Subsidiary has incurred
Indebtedness pursuant to clause (c) of the second paragraph of this covenant
owing to a Restricted Subsidiary and that Restricted Subsidiary thereafter
does not remain a "Restricted Subsidiary" as defined in the Senior Note
Indenture, the aggregate principal amount of such Indebtedness of the Company
or a Restricted Subsidiary, as applicable, owing to such Person at the time of
such a change in Restricted Subsidiary status that was at any time incurred
pursuant to clause (c) of the second paragraph of this covenant, shall be
deemed to be Indebtedness incurred by the Company or a Restricted Subsidiary,
as the case may be, at the time of such change in Restricted Subsidiary
status.
Indebtedness incurred by any Person that is not a Restricted Subsidiary of
the Company, which Indebtedness is outstanding at the time such Person becomes
a Restricted Subsidiary of the Company, or is merged into or consolidated
with, the Company or a Restricted Subsidiary shall be deemed to have been
incurred, at the time such Person becomes a Restricted Subsidiary, or is
merged into or consolidated with the Company or a Restricted Subsidiary. A
guarantee permitted by this covenant to be incurred by the Company or a
Restricted Subsidiary of Indebtedness otherwise permitted to be incurred
pursuant to this covenant is not considered a separate incurrence for purposes
of this covenant.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Indentures provide that the Company may not permit any Restricted
Subsidiary, directly or indirectly, to guarantee any Indebtedness of the
Company ("Guaranteed Indebtedness") unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Senior
Note Indenture providing
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for a Guarantee of payment of the Senior Notes by such Restricted Subsidiary
(a "Senior Note Guarantee") and a supplemental indenture to the Convertible
Note Indenture providing for a Guarantee of payment of the Convertible Notes
by such Restricted Subsidiary (a "Convertible Note Guarantee") and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee, provided, that any Restricted Subsidiary may guarantee any Credit
Facility so long as such Restricted Subsidiary enters into a Guarantee ranking
pari passu with its guarantee under such Credit Facility. If the Guaranteed
Indebtedness is pari passu with the Notes, then the guarantee of such
Guaranteed Indebtedness shall be pari passu with or subordinated to the
Guarantee; and if the Guaranteed Indebtedness is subordinated to the Notes,
then the guarantee of such Guaranteed Indebtedness shall be subordinated to
the Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes. In addition, each Convertible Note Guarantee of a
Restricted Subsidiary will be subordinated to the Senior Note Guarantee of
such Restricted Subsidiary.
Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon the release or discharge of the guarantee which
resulted in the creation of such Restricted Subsidiary's Guarantee, except a
discharge or release by, or as a result of, payment under such guarantee.
Limitation on Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into, create, incur, assume or suffer to
exist any Liens of any kind, other than Permitted Liens, on or with respect to
any of its Property or assets now owned or hereafter acquired, or any interest
therein or any income or profits therefrom, without effectively providing that
the Notes shall be secured equally and ratably with or prior to (and provided
that the Senior Notes shall be secured prior to any secured obligation that is
subordinated in right of payment to the Senior Notes) the obligations so
secured for so long as such obligations are so secured.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into, assume, guarantee or otherwise become
liable with respect to any Sale and Leaseback Transaction, unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Sale and Leaseback Transaction at least
equal to the Fair Market Value (as evidenced by a Board Resolution delivered
to the Trustee) of the Property or assets subject to such transaction; (ii)
the Attributable Indebtedness of the Company or such Restricted Subsidiary
with respect thereto is included as Indebtedness and would be permitted to be
incurred by the covenant described under "--Limitation on Indebtedness" and
any Liens granted thereby would be permitted by the covenant described under
"--Limitation on Liens;" and (iii) the Net Cash Proceeds from such transaction
are applied in accordance with the provisions described under "--Asset Sales"
as if such proceeds resulted from an Asset Sale.
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment unless, at the time of
and after giving effect to such proposed Restricted Payment (i) no Default or
Event of Default under the Senior Note Indenture shall have occurred and be
continuing or shall occur as a consequence thereof; (ii) after giving effect,
on a pro forma basis, to such Restricted Payment and the incurrence of any
Indebtedness the net proceeds of which are used to finance such Restricted
Payment, the Company could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of "--Limitation on Indebtedness;" and (iii)
after giving effect to such Restricted Payment on a pro forma basis, the
aggregate amount expended or declared for all Restricted Payments after the
Issue Date does not exceed the sum of (A) 50% of the Consolidated Net Income
of the Company (or, if Consolidated Net Income shall be a deficit, minus 100%
of such deficit) for the period (taken as one accounting period) beginning on
the last day of the fiscal
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quarter immediately preceding the Issue Date and ending on the last day of the
fiscal quarter immediately preceding the date of such Restricted Payment, plus
(B) 100% of the aggregate Net Cash Proceeds received by the Company subsequent
to the Issue Date from the issuance or sale (other than to a Subsidiary) of
shares of its Qualified Stock, including Qualified Stock issued upon the
conversion of convertible debt (other than any conversion of the Convertible
Notes) or the exercise of options, warrants or rights to purchase Qualified
Stock, plus (C) 100% of the amount of any Indebtedness of the Company or any
of its Restricted Subsidiaries (as expressed on the face of a balance sheet in
accordance with GAAP), or the carrying value of any Disqualified Stock, which
has been converted into, exchanged for or satisfied by the issuance of shares
of Qualified Stock of the Company subsequent to the Issue Date, less the
amount of any cash or the value of any other Property distributed by the
Company or its Restricted Subsidiaries upon such conversion, exchange or
satisfaction, plus (D) 100% of the net reduction in Investments, subsequent to
the Issue Date, in any Person, resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other transfers
of Property (but only to the extent such interest, dividends, repayments or
other transfers of Property are not included in the calculation of
Consolidated Net Income), in each case to the Company or any Restricted
Subsidiary from any Person (including, without limitation, from Unrestricted
Subsidiaries) or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Person the amount of
Investments previously made by the Company or any Restricted Subsidiary in
such Person and in each such case which was treated as a Restricted Payment,
minus (E) 100% of the amount of Investments made pursuant to clauses (v),
(vi), (vii) and (viii) of the following paragraph subsequent to the Issue
Date.
The foregoing limitations shall not prevent the Company from (i) paying a
dividend on its Capital Stock at any time within 60 days after the declaration
thereof if, on the declaration date, the Company could have paid such dividend
in compliance with the Senior Note Indenture; (ii) retiring (A) any Capital
Stock of the Company or any Restricted Subsidiary of the Company or (B)
Indebtedness of the Company that is subordinated in right of payment to the
Notes or (C) Indebtedness of a Restricted Subsidiary of the Company, in
exchange for, or out of the proceeds of the substantially concurrent sale of
Qualified Stock of the Company; (iii) so long as no Default or Event of
Default under the Senior Note Indenture shall have occurred and be continuing
or shall occur as a consequence thereof, retiring any Indebtedness of the
Company subordinated in right of payment to the Notes in exchange for, or out
of the proceeds of, the substantially concurrent incurrence of Indebtedness of
the Company (other than Indebtedness to a Subsidiary of the Company);
provided, that such new Indebtedness (A) is subordinated in right of payment
to the Notes at least to the same extent as, (B) has an Average Life at least
as long as, and (C) has no scheduled principal payments due in any amount
earlier than, any equivalent amount of principal under the Indebtedness so
retired; (iv) so long as no Default or Event of Default under the Senior Note
Indenture shall have occurred and be continuing or shall occur as a
consequence thereof, retiring any Indebtedness of a Restricted Subsidiary of
the Company in exchange for, or out of the proceeds of, the substantially
concurrent incurrence of Indebtedness of the Company or any Restricted
Subsidiary that is permitted under the covenant described under "--Limitation
on Indebtedness" and that (A) is not secured by any assets of the Company or
any Restricted Subsidiary to a greater extent than the retired Indebtedness
was so secured, (B) has an Average Life at least as long as the retired,
purchased, redeemed or acquired Indebtedness and (C) is subordinated in right
of payment to the Notes or the Guarantees, as applicable, at least to the same
extent as the retired Indebtedness; (v) so long as no Default or Event of
Default under the Senior Note Indenture shall have occurred and be continuing
or shall result as a consequence thereof, purchasing, redeeming, retiring or
acquiring any Capital Stock of the Company or any Restricted Subsidiary of the
Company held by any member or former member of the Company's (or any of its
Subsidiaries') management pursuant to any management agreement or stock option
plan if in effect on the Issue Date or upon the death, disability, retirement
or termination of employment of such members; provided, that the aggregate
price paid for all such retired Common Stock shall not exceed, in the
aggregate, the sum of $1 million plus the aggregate Cash Proceeds received by
the Company from any reissuance of such Common Stock by the Company to members
of management of the Company and its Subsidiaries; (vi) so long as no Default
or Event of Default under the Senior Note Indenture shall have occurred and be
continuing or shall occur as a consequence thereof, making loans to
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members of management of the Company as required pursuant to employment
agreements with such members, in an aggregate principal amount not to exceed
$1 million; provided, that any repayment of such loans (but only to the extent
such payments are not included in the calculation of Consolidated Net Income
of the Company) shall reduce the amount of such Investments; (vii) so long as
no Default or Event of Default under the Senior Note Indenture shall have
occurred and be continuing or shall occur as a consequence thereof, making
Investments in Joint Ventures in an aggregate amount not to exceed $10
million; provided, that any repayment of loans or advances, return of capital
or other transfer of Property (but only to the extent such distributions are
not included in the calculation of Consolidated Net Income of the Company)
shall reduce the amount of such Investments; and (viii) so long as no Default
or Event of Default under the Senior Note Indenture shall have occurred and be
continuing, the Company may redeem Convertible Notes pursuant to the terms of
the Convertible Note Indenture or repurchase Convertible Notes pursuant to a
Change of Control Offer, an Asset Sale Offer or a repurchase offer upon a
Termination of Trading of the Common Stock pursuant to the terms of the
Convertible Note Indenture.
Not later than the date of making of any Restricted Payment or any
Investment made pursuant to clause (vii) of the previous paragraph, the
Company shall deliver to the Senior Note Trustee an Officers' Certificate
stating that such Restricted Payment or Investment is permitted and setting
forth the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available financial
statements.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, cause or suffer to exist or become effective or enter
into an encumbrance or restriction (other than pursuant to law or regulation)
on the ability of any Restricted Subsidiary (i) to pay dividends or make any
other distributions in respect of its Capital Stock or pay any Indebtedness or
other obligation owed to the Company or any Restricted Subsidiary of the
Company; (ii) to make loans or advances to the Company or any Restricted
Subsidiary of the Company; or (iii) to transfer any of its Property or assets
to the Company or any other Restricted Subsidiary of the Company, except: (a)
any encumbrance or restriction existing as of the Issue Date pursuant to the
Senior Note Indenture or the Convertible Note Indenture or the Existing
Indebtedness; (b) any encumbrance or restriction pursuant to an agreement
relating to an acquisition of assets or Property, so long as the encumbrances
or restrictions in any such agreement relate solely to the assets or Property
so acquired (and are not or were not created in anticipation of or in
connection with the acquisition thereof); (c) any encumbrance or restriction
relating to any Indebtedness of any Restricted Subsidiary existing on the date
on which such Restricted Subsidiary is acquired by the Company or any
Restricted Subsidiary (other than Indebtedness incurred by such Restricted
Subsidiary in connection with or in anticipation of its acquisition); (d)
customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Company or any Restricted Subsidiary or
customary provisions in any telecommunications resale agreements (including,
without limitation, the existing Ameritech Resale Agreements, the NYNEX Resale
Agreement and the long distance agreements of the Company), license agreements
or similar agreements that restrict the assignment of such agreement or any
rights thereunder; (e) any temporary encumbrance or restriction with respect
to a Restricted Subsidiary pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock
of, or Property and assets of, such Restricted Subsidiary; (f) any restriction
on the sale or other disposition of assets or Property securing Indebtedness
as a result of a Permitted Lien on such assets or Property permitted by the
covenant described under "--Limitation on Liens;" and (g) any encumbrance or
restriction that amends, extends, refinances, refunds, renews or replaces any
agreement described in clauses (a) through (c) whether or not among the same
parties, provided, that the terms and conditions of any such encumbrance or
restriction are no less favorable to the holders of the Senior Notes than
those under or pursuant to the agreement amended, extended, refinanced,
refunded, renewed or replaced.
Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Company (i) shall not permit any Restricted Subsidiary to issue any
Capital Stock other than to the Company or a Restricted Subsidiary and (ii)
shall not permit any Person other than the Company or a Restricted Subsidiary
to own any Capital Stock of any Restricted Subsidiary other than directors
qualifying shares, except
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for (a) a sale of 100% of the Capital Stock of a Restricted Subsidiary sold in
a transaction not prohibited by the covenant described under "--Asset Sales";
(b) Capital Stock of a Restricted Subsidiary issued and outstanding on the
Issue Date and held by Persons other than the Company or any Restricted
Subsidiary; (c) Capital Stock of a Restricted Subsidiary issued and
outstanding prior to the time that such Person becomes a Restricted Subsidiary
so long as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by the Company;
(d) not more than ten percent of the Common Stock of USN Solutions, Inc. on a
fully diluted basis issued pursuant to the exercise of the option (the "USN
Solutions Option") contemplated by that certain Memorandum of Understanding,
dated July 3, 1996, by and between USN Solutions, Inc. and Genesys SA; and (e)
any Disqualified Stock permitted to be issued under the covenant described
under "--Limitation on Indebtedness."
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, sell, lease, transfer, or otherwise dispose of,
any of its Property or assets to, or purchase any Property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms
that are no less favorable to the Company or such Restricted Subsidiary than
those that would have been obtained in a comparable arm's-length transaction
by the Company or such Restricted Subsidiary with a Person that is not an
Affiliate and (b) the Company delivers to the Senior Note Trustee (i) with
respect to any Affiliate Transaction involving aggregate payments in excess of
$1 million, a Board Resolution certifying that such Affiliate Transaction
complies with clause (a) above and that such Affiliate Transaction has been
approved by a majority of the disinterested directors who have determined that
such Affiliate Transaction is in the best interests of the Company or such
Restricted Subsidiary and (ii) with respect to any Affiliate Transaction
involving aggregate payments in excess of $5 million, an opinion as to the
fairness from a financial point of view to the Company or such Restricted
Subsidiary issued by an investment banking firm of national standing, or in
the case of a transaction involving a sale or transfer of assets subject to
valuation such as real estate, an appraisal issued by a nationally recognized
appraisal firm, together with an Officers' Certificate to the effect that such
opinion complies with this clause (ii); provided, that the following shall not
be deemed Affiliate Transactions: (i) any employment agreement or consulting
agreement (including stock options) entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
industry practice; (ii) any agreement or arrangement with respect to the
compensation of a director of the Company or any Restricted Subsidiary
approved by the Board of Directors and consistent with industry practice;
(iii) transactions between or among the Company, its Wholly-Owned Restricted
Subsidiaries or a majority-owned Restricted Subsidiary (so long as no minority
interest is owned by a Person which is otherwise an Affiliate); (iv)
transactions constituting Restricted Payments permitted by the covenant
described under "--Restricted Payments"; (v) transactions pursuant to
contracts existing on the Issue Date and disclosed in a schedule attached to
the Senior Note Indenture; (vi) making loans or advances to officers,
employees or consultants of the Company and its Subsidiaries (including travel
and moving expenses) in the ordinary course of business not to exceed $1
million; and (vii) the issuance of stock options for Common Stock of the
Company pursuant to any plan approved by the Board of Directors.
Restricted and Unrestricted Subsidiaries
The Indentures provide that the Company may designate a Subsidiary
(including a newly formed or newly acquired Subsidiary) of the Company or any
of its Restricted Subsidiaries as an Unrestricted Subsidiary; provided, that
so long as the Senior Notes remain outstanding and the Senior Note Indenture
has not been satisfied or discharged, (i) immediately after giving effect to
the transaction, the Company could incur $1.00 of additional Indebtedness
pursuant to the first paragraph of "--Limitation on Indebtedness" and (ii)
such designation is at the time permitted under "--Restricted Payments."
Notwithstanding any provisions of this covenant all Subsidiaries of an
Unrestricted Subsidiary will be Unrestricted Subsidiaries. As of the date
hereof, all of the Company's Subsidiaries are Restricted Subsidiaries and,
accordingly, are subject to all of the covenants described herein relating to
Restricted Subsidiaries.
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The Senior Note Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, take any action or enter into
any transaction or series of transactions that would result in a Person (other
than a newly formed Subsidiary having no outstanding Indebtedness (other than
Indebtedness to the Company or a Restricted Subsidiary) at the date of
determination) becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of an Unrestricted Subsidiary or otherwise)
unless, after giving effect to such action, transaction or series of
transactions on a pro forma basis, (i) the Company could incur at least $1.00
of additional Indebtedness pursuant to the first paragraph of "--Limitation on
Indebtedness" and (ii) no Default or Event of Default would occur or be
continuing.
Subject to the preceding paragraph, an Unrestricted Subsidiary may be
redesignated as a Restricted Subsidiary. The designation of a Subsidiary as an
Unrestricted Subsidiary or the designation of an Unrestricted Subsidiary as a
Restricted Subsidiary in compliance with the preceding paragraph shall be made
by the Board of Directors pursuant to a Board Resolution delivered to the
Trustees and shall be effective as of the date specified in such Board
Resolution, which shall not be prior to the date such Board Resolution is
delivered to the Trustees.
Limitations on Line of Business
The Senior Note Indenture provides that neither the Company nor any of its
Restricted Subsidiaries will directly or indirectly engage to any substantial
extent in any line or lines of business activity other than the
Telecommunications Business.
Issuance of Contingent Warrants
The Senior Note Indenture provides that the Company will be obligated to
issue to holders of the Senior Notes Senior Note Contingent Warrants,
exercisable for Class A Common Stock representing up to 3% of the Common Stock
on a fully diluted basis as of the date of such issuance (without including
(i) Common Stock issued for fair market value subsequent to the Closing Date
(as determined in the Warrant Agreement), (ii) Common Stock issuable pursuant
to any options, or shares of Common Stock granted to or purchased by
management of the Company, pursuant to agreements or stock plans existing on
the date of the Senior Note Indenture and either disclosed in a schedule
attached thereto or described herein, or (iii) certain additional shares of
Common Stock issuable pursuant to options, or shares of Common Stock issuable
pursuant to agreements or stock plans, as disclosed in a schedule attached to
the Senior Note Indenture) after giving effect to the issuance of such Senior
Note Contingent Warrants, in the event that, on or prior to March 30, 1998,
the Company does not effect a Qualified Public Offering or has not been sold
pursuant to a Qualified Sale of the Company. The Convertible Note Indenture
provides that, in the event that the Company has not, on or prior to September
30, 1999, (i) consummated a Qualified Public Offering or (ii) been sold
pursuant to a Qualified Sale of the Company, the Company will be obligated to
issue to the holders of the Convertible Notes Convertible Note Contingent
Warrants exercisable for Class A Common Stock representing up to 2.5% of the
Common Stock of the Company on a fully diluted basis (subject to the
exceptions set forth in clauses (i), (ii) and (iii) of the immediately
preceding sentence) after giving effect to the issuance of such Convertible
Note Contingent Warrants. All Contingent Warrants will be issued pursuant to
the Warrant Agreement with the same rights thereunder as the Initial Warrants,
and holders will have the benefit of the Registration Rights Agreement.
Waiver of Certain Covenants
The Company may omit in respect of any Senior Notes, in any particular
instance, to comply with the provisions of any covenant or condition described
under "Description of the Notes--Certain Covenants," if before or after the
time for such compliance the holders of at least a majority in principal
amount at Stated Maturity of the outstanding Senior Notes (75% in principal
amount at Stated Maturity for the covenant described under "--Issuance of
Contingent Warrants") either waive such compliance in such instance or
generally waive compliance with such covenant or condition, but no such waiver
shall extend to or affect such covenant or condition except to the extent so
expressly waived and, until such waiver shall become effective, the
obligations of the Company and the duties of the Senior Note Trustee in
respect of any such covenant or condition shall remain in full force and
effect.
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Reports
The Senior Note Indenture and the Convertible Note Indenture each provide
that, whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the Commission the annual reports, quarterly reports and other documents which
the Company would have been required to file with the Commission pursuant to
such Section 13(a) or 15(d) or any successor provision thereto if the Company
were subject thereto, such documents to be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required to file them. The Company shall also (whether
or not it is required to file reports with the Commission), within 30 days of
each Required Filing Date, (i) transmit by mail to all holders of Notes, as
their names and addresses appear in the applicable Security Register, without
cost to such holders or Persons, and (ii) file with the Trustees, copies of
the annual reports, quarterly reports and other documents (without exhibits)
which the Company has filed or would have filed with the Commission pursuant
to Section 13(a) or 15(d) of the Exchange Act, any successor provisions
thereto or this covenant. The Company shall not be required to file any report
with the Commission if the Commission does not permit such filing.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Senior Note Indenture and the Convertible Note Indenture each provide
that the Company will not, in any transaction or series of transactions,
consolidate with, or merge with or into, any other Person or permit any other
Person to merge with or into the Company (other than a merger of a Restricted
Subsidiary into the Company in which the Company is the continuing
corporation), or sell, convey, assign, transfer, lease or otherwise dispose of
all or substantially all of the Property and assets of the Company and the
Restricted Subsidiaries taken as a whole to any other Person, unless:
(i) either (a) the Company shall be the continuing corporation or (b) the
corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the Person which acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or
substantially all of the Property and assets of the Company and the
Restricted Subsidiaries taken as a whole (such corporation or Person, the
"Surviving Entity"), shall be a corporation organized and validly existing
under the laws of the United States of America, any political subdivision
thereof, any state thereof or the District of Columbia, and shall expressly
assume, by a supplemental indenture, the due and punctual payment of the
principal of (and premium, if any) and interest and Special Interest, if
any, on all the related Notes and the performance of the Company's
covenants and obligations under the applicable Indenture;
(ii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), no Default or
Event of Default under the Senior Note Indenture or the Convertible Note
Indenture, as applicable, shall have occurred and be continuing or would
result therefrom;
(iii) in the case of the Senior Note Indenture only, immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions) the Company (or the Surviving
Entity, if the Company is not continuing) would be permitted to incur $1.00
of additional Indebtedness pursuant to the first paragraph of "--Limitation
on Indebtedness"; and
(iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company (or the Surviving Entity, if
the Company is not continuing) shall have a Consolidated Net Worth equal to
or greater than the Consolidated Net Worth of the Company immediately prior
to such transaction.
The provision of clause (iii) shall not apply to any merger or consolidation
into or with, or any such transfer of all of the Property and assets of the
Company and the Restricted Subsidiaries into, the Company.
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In connection with any consolidation, merger, transfer of assets or other
transactions contemplated by this provision, the Company shall deliver, or
cause to be delivered, to the applicable Trustee, in form and substance
reasonably satisfactory to such Trustee, an Officers' Certificate and an
opinion of counsel, each stating that such consolidation, merger, sale,
assignment, conveyance or transfer and the supplemental indenture in respect
thereto comply with the provisions of the applicable Indenture and that all
conditions precedent in the applicable Indenture relating to such transactions
have been complied with.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraphs,
the Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the applicable Indenture
and the related Notes with the same effect as if such Surviving Entity had
been named as the Company in the applicable Indenture; and when a Surviving
Person duly assumes all of the obligations and covenants of the Company
pursuant to the applicable Indenture and the related Notes, except in the case
of a lease, the predecessor Person shall be relieved of all such obligations.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indentures (except
where otherwise expressly indicated):
(a) default in the payment of interest (or Special Interest, if any) on
any Note issued pursuant to such Indenture when the same becomes due and
payable, and the continuance of such default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on)
any Note issued pursuant to such Indenture at its maturity, upon optional
redemption, required repurchase (including pursuant to a Change of Control
Offer, an Asset Sale Offer, or, in the case of the Convertible Note
Indenture, a repurchase offer upon a Termination of Trading of the Common
Stock) or otherwise or the failure to make an offer to purchase any such
Note as required;
(c) in the case of the Senior Note Indenture, the Company fails to comply
with any of its covenants or agreements contained in "--Limitation on
Indebtedness," "--Limitation on Sale and Leaseback Transactions" or "--
Restricted Payments," in the case of both Indentures, fails to perform or
comply with the provisions described under "--Repurchase at the Option of
the Holders upon a Change of Control," "--Asset Sales," "--Issuances of
Contingent Warrants" or "--Consolidation, Merger, Conveyance, Lease or
Transfer" or in the case of the Convertible Note Indenture, fails to
perform or comply with the provisions described under "--Right to Require
Repurchase of Convertible Notes upon a Termination of Trading" or "--
Additional Invested Equity;"
(d) default in the performance, or breach, of any covenant or warranty of
the Company in such Indenture (other than a covenant or warranty addressed
in (a), (b) or (c) above) and continuance of such Default or breach for a
period of 45 days after written notice thereof has been given to the
Company by the applicable Trustee or to the Company and the applicable
Trustee by holders of at least 25% of the aggregate principal amount at
Stated Maturity of the outstanding applicable Notes;
(e) Indebtedness of the Company or any Restricted Subsidiary is not paid
when due within the applicable grace period, if any, or is accelerated by
the holders thereof and, in either case, the principal amount of such
unpaid or accelerated Indebtedness exceeds $10 million;
(f) the entry by a court of competent jurisdiction of one or more final
nonappealable judgments against the Company or any Restricted Subsidiary in
an uninsured or unindemnified aggregate amount in excess of $10 million
which is not discharged, waived, appealed, stayed, bonded or satisfied for
a period of 60 consecutive days;
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Restricted Subsidiary in an involuntary case or proceeding under U.S.
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state, or foreign bankruptcy, insolvency, or other similar law or
(ii) a decree or order adjudging the Company or any
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Significant Restricted Subsidiary a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company or any Significant
Restricted Subsidiary under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency, or similar law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or any Significant Restricted Subsidiary or of any substantial
part of the Property or assets of the Company or any Significant Restricted
Subsidiary, or ordering the winding up or liquidation of the affairs of the
Company or any Significant Restricted Subsidiary, and the continuance of
any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days;
(h) (i) the commencement by the Company or any Significant Restricted
Subsidiary of a voluntary case or proceeding under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state or
foreign bankruptcy, insolvency or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent; or (ii) the consent
by the Company or any Significant Restricted Subsidiary to the entry of a
decree or order for relief in respect of the Company or any Significant
Restricted Subsidiary in an involuntary case or proceeding under U.S.
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state, or foreign bankruptcy, insolvency or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding
against the Company or any Significant Restricted Subsidiary; or (iii) the
filing by the Company or any Significant Restricted Subsidiary of a
petition or answer or consent seeking reorganization or relief under U.S.
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state or foreign bankruptcy, insolvency or other similar law; or
(iv) the consent by the Company or any Significant Restricted Subsidiary to
the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or any Significant Restricted Subsidiary or
of any substantial part of the Property or assets of the Company or any
Significant Restricted Subsidiary, or the making by the Company or any
Significant Restricted Subsidiary of an assignment for the benefit of
creditors; or (v) the admission by the Company or any Significant
Restricted Subsidiary in writing of its inability to pay its debts
generally as they become due; or (vi) the taking of corporate action by the
Company or any Significant Restricted Subsidiary in furtherance of any such
action; or
(i) in the case of the Convertible Note Indenture, the occurrence and
continuation of an Event of Default under the Senior Note Indenture for a
period of 30 consecutive days after written notice of the occurrence of
such Event of Default has been given to the Company by the Convertible Note
Trustee or a holder or holders of Convertible Notes, which notice states
that such an event constitutes a Default under the Convertible Note
Indenture.
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) above) occurs and is continuing, then and in every such case the
applicable Trustee or the holders of not less than 25% of the outstanding
aggregate principal amount at Stated Maturity of the Senior Notes or the
Convertible Notes, as the case may be, may declare the Default Amount,
premium, if any, and any accrued and unpaid interest (and Special Interest, if
any) on all such Notes then outstanding to be immediately due and payable by a
notice in writing to the Company (and to the applicable Trustee if given by
holders of such Notes), and upon any such declaration all amounts payable in
respect of the Senior Notes and the Convertible Notes, as the case may be,
will become and be immediately due and payable. If any Event of Default
specified in clause (g) or (h) above occurs, the Default Amount, premium, if
any, and any accrued and unpaid interest (and Special Interest, if any) on the
Senior Notes or the Convertible Notes, as the case may be, then outstanding
shall become immediately due and payable without any declaration or other act
on the part of the applicable Trustee or any holder of such Notes. In the
event of a declaration of acceleration because an Event of Default set forth
in clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied, or cured or waived by the holders of the relevant Indebtedness
within 60 days after such event of default; provided, that no judgment or
decree for the payment of the money due on the Notes has been obtained by the
applicable Trustee as provided in the applicable Indenture. In the event of a
declaration of acceleration because an Event of Default set forth in
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clause (i) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled (A) if the Senior
Notes have been repaid, (B) if the Event of Default under the Senior Note
Indenture triggering such Event of Default pursuant to clause (i) above shall
be remedied or cured, or waived by the holders of the Senior Notes, or (C) if
the Senior Notes have been accelerated, then the acceleration of the Senior
Notes shall have been rescinded within 60 days of the occurrence of such Event
of Default under the Senior Note Indenture, and, in the case of clauses (A),
(B) or (C) above, the Senior Note Trustee so certifies to the Convertible Note
Trustee, provided that any such event described in clause (A), (B) or (C)
above must occur prior to the commencement of enforcement proceedings with
respect to the Convertible Note Indenture. Until September 30, 1999, the
"Default Amount" shall equal the Accreted Value of the Senior Notes and the
Accreted Value of the Convertible Notes, as applicable. From September 30,
1999 to March 30, 2000 the Default Amount shall equal the Accreted Value of
the Senior Notes and 100% of principal amount at Stated Maturity of the
Convertible Notes, as applicable. Thereafter, the Default Amount shall equal
100% of the principal amount at Stated Maturity of the Senior Notes and the
Convertible Notes, as applicable. Under certain circumstances, the holders of
a majority in principal amount at Stated Maturity of the outstanding Senior
Notes or the Convertible Notes, as applicable, by notice to the Company and
the applicable Trustee may rescind an acceleration and its consequences.
Subject to all provisions of the applicable Indenture and applicable law, the
holders of a majority in aggregate principal amount at Stated Maturity of the
Senior Notes or the Convertible Notes, as the case may be, at the time
outstanding have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the applicable Trustee, or
exercising any trust or power conferred on such Trustee.
The holders of a majority in aggregate principal amount at Stated Maturity
of the Senior Notes or the Convertible Notes, as the case may be, then
outstanding by notice to the applicable Trustee may on behalf of the holders
of all such Notes waive any existing Default or Event of Default and its
consequences under the applicable Indenture except a continuing Default or
Event of Default in the payment of interest (and Special Interest, if any) on,
premium, if any on or the principal of, such Notes. Subject to the provisions
of the applicable Indentures relating to the duties of the applicable Trustee,
the applicable Trustee is under no obligation to exercise any of its rights or
powers under the applicable Indenture at the request, order or direction of
any of the holders, unless such holders have offered to such Trustee
reasonable security or indemnity. Subject to the provisions of the Senior Note
Indenture or the Convertible Note Indenture, as the case may be, and
applicable law, the holders of a majority in aggregate principal amount at
Stated Maturity of the Senior Notes or the Convertible Notes, as applicable,
at the time outstanding have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Trustee,
or exercising any trust or power conferred upon such Trustee.
The Company is required to deliver to each Trustee annually a statement
regarding compliance with the applicable Indenture, and the Company is
required within five Business Days after becoming aware of any Default or
Event of Default, to deliver to the applicable Trustee a statement describing
such Default or Event of Default, its status and what action the Company is
taking or proposes to take with respect thereto.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Senior Note Trustee or the Convertible Note Trustee, as
applicable, may, at any time and from time to time, without notice to or
consent of any holder of Senior Notes or any holder of Convertible Notes, as
applicable, enter into one or more indentures supplemental to the Senior Note
Indenture or the Convertible Note Indenture, as the case may be, (i) to
evidence the succession of another Person to the Company and the assumption by
such successor of the covenants and obligations of the Company in such
Indenture and such Notes; (ii) to add to the covenants of the Company, for the
benefit of the holders, or to surrender any right or power conferred upon the
Company by such Indenture; (iii) to add any additional Events of Default; (iv)
to provide for uncertificated Notes in addition to or in place of certificated
Notes; (v) to evidence and provide for the acceptance of appointment under
such Indenture of a successor Trustee; (vi) to cure any ambiguity in such
Indenture, to correct or supplement any provision in such Indenture which may
be inconsistent with any other provision therein or to add any other
provisions with respect to matters or questions arising under such Indenture;
provided, that such actions shall not adversely affect the interests of the
holders in any material respect; (vii) to
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secure such Notes; (viii) to provide for Guarantees as required under the
applicable Indenture; (ix) to make provision with respect to the conversion
rights of the holders of Convertible Notes in the event of a consolidation,
merger or sale of assets involving the Company as required by the Convertible
Note Indenture; or (x) to comply with the requirements of the Commission in
order to effect or maintain the qualification of such Indenture under the
Trust Indenture Act.
With the consent of the holders of not less than a majority in aggregate
principal amount at Stated Maturity of the outstanding Senior Notes or
Convertible Notes, as the case may be, the Company and the Senior Note Trustee
or the Convertible Note Trustee, as applicable, may enter into one or more
indentures supplemental to the Senior Note Indenture or the Convertible Note
Indenture for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Indenture or modifying in
any manner the rights of the holders; provided, that no such supplemental
indenture shall, without the consent of the holder of each outstanding Senior
Note or Convertible Note: (i) change the Stated Maturity of the principal of,
or any installment of interest (including Special Interest, if any) on, any
Senior Note or Convertible Note, or reduce the Accreted Value or principal
amount thereof at Stated Maturity (or premium, if any), or the interest
thereon that would be due and payable upon Stated Maturity thereof, or reduce
the Default Amount that would be due and payable upon Stated Maturity thereof,
or change the place of payment where, or the coin or currency in which, any
Senior Note or Convertible Note, as the case may be, or any premium or
interest (including Special Interest, if any) thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof; (ii) reduce the percentage in principal
amount of the outstanding Senior Notes or Convertible Notes, as the case may
be, the consent of whose holders is necessary for any such supplemental
indenture or required for any waiver of compliance with certain provisions of
the Senior Note Indenture or any Senior Note Guarantees or the Convertible
Note Indenture or any Convertible Note Guarantees or certain Defaults
thereunder; (iii) subordinate in right of payment, or otherwise subordinate,
the Senior Notes or any Senior Note Guarantees to any other Indebtedness; (iv)
make any changes in the subordination provisions of the Convertible Notes or
any Convertible Note Guarantees that would adversely affect the holders of the
Convertible Notes; (v) modify the obligations of the Company to make offers to
purchase Notes upon a Change of Control or from the proceeds of Asset Sales
or, in the case of a Termination of Trading of the Common Stock, the
obligation of the Company pursuant to the Convertible Note Indenture to
repurchase the Convertible Notes; or (vi) modify any provision of this
paragraph (except to increase any percentage set forth herein).
The holders of not less than a majority in aggregate principal amount at
Stated Maturity of the outstanding Senior Notes or Convertible Notes, as the
case may be, may, on behalf of the holders of all such Notes, waive any past
Default under the applicable Indenture and its consequences, except Default in
the payment of the principal of (or premium, if any) or interest on any Note,
or in respect of a covenant or provision hereof which under the proviso to the
prior paragraph cannot be modified or amended without the consent of the
holder of each outstanding Senior Note or Convertible Note affected.
The holders of not less than 75% in aggregate principal amount at Stated
Maturity of the outstanding Senior Notes may, on behalf of the holders of all
such Senior Notes, waive any right to require the Company to issue to the
holders of the Senior Notes Senior Note Contingent Warrants. The holders of
not less than 75% in aggregate principal amount at Stated Maturity of the
outstanding Convertible Notes may, on behalf of the holders of all such
Convertible Notes, waive any right to require the Company to issue to the
holders of the Convertible Notes either Convertible Note Contingent Warrants
or Additional Warrants.
SATISFACTION AND DISCHARGE OF THE INDENTURE, DEFEASANCE
The Company may terminate its obligations under the Senior Notes and the
Senior Note Indenture when (i) either (A) all outstanding Senior Notes have
been delivered to the Senior Note Trustee for cancellation or (B) all such
Senior Notes not theretofore delivered to the Senior Note Trustee for
cancellation have become due and payable, will become due and payable within
one year or are to be called for redemption within one year under irrevocable
arrangements satisfactory to the Senior Note Trustee for the giving of notice
of redemption by the Senior Note Trustee in the name and at the expense of the
Company, and the Company has irrevocably deposited or caused to be deposited
with the Senior Note Trustee funds or U.S. Government Obligations in an amount
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sufficient to pay and discharge the entire indebtedness on the Senior Notes
not theretofore delivered to the Senior Note Trustee for cancellation, for
principal of (premium, if any, on) and interest (including Special Interest,
if any) to the date of deposit or maturity or date of redemption; (ii) the
Company has paid or caused to be paid all sums then due and payable by the
Company under the Senior Note Indenture; and (iii) the Company has delivered
an Officers' Certificate and an Opinion of Counsel relating to compliance with
the conditions set forth in the Senior Note Indenture. The Company may also
terminate its obligations under the Convertible Notes and the Convertible Note
Indenture when (i) either (A) all outstanding Convertible Notes have been
delivered to the Convertible Note Trustee for cancellation or (B) all such
Convertible Notes not theretofore delivered to the Convertible Note Trustee
for cancellation have become due and payable within one year or are to be
called for redemption within one year under irrevocable arrangements
satisfactory to the Convertible Note Trustee for the giving of notice of
redemption by the Convertible Note Trustee in the name and at the expense of
the Company, and the Company has irrevocably deposited or caused to be
deposited with the Convertible Note Trustee funds or U.S. Government
Obligations in an amount sufficient to pay and discharge the entire
indebtedness on the Convertible Notes not theretofore delivered to the
Convertible Note Trustee for cancellation, for principal of (premium, if any,
on) and interest (including Special Interest, if any) to the date of deposit
or maturity or date of redemption; (ii) the Company has paid or caused to be
paid all sums then due and payable by the Company under the Convertible Note
Indenture; and (iii) the Company has delivered an Officers' Certificate and an
Opinion of Counsel relating to compliance with the conditions set forth in the
Convertible Note Indenture; provided, that notwithstanding the provisions
above, the holders of Convertible Notes will retain their conversion rights
until the applicable redemption date.
The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the Senior Notes or the Convertible Notes, as the case
may be, and the respective Indentures shall cease to be of further effect as
to all outstanding Senior Notes or all outstanding Convertible Notes, as the
case may be (except as to (i) rights of registration of transfer, substitution
and exchange of Senior Notes or the Convertible Notes, as the case may be, and
the Company's right of optional redemption, (ii) rights of holders to receive
payments of principal of, premium, if any, and interest (including Special
Interest, if applicable) on the Senior Notes or the Convertible Notes, as the
case may be, (but not the Change of Control Purchase Price or the Asset Sale
Purchase Price) and any rights of the holders with respect to such amounts,
(iii) the rights, obligations and immunities of the applicable Trustee under
the applicable Indenture, (iv) conversion rights under the Convertible Note
Indenture, and (v) certain other specified provisions in the applicable
Indenture) or (b) cease to be under any obligation to comply with certain
restrictive covenants including those described under "--Certain Covenants,"
after the irrevocable deposit by the Company with the applicable Trustee, in
trust for the benefit of the holders, at any time prior to the Stated Maturity
of the Senior Notes or the Convertible Notes, as the case may be, of (A) money
in an amount, (B) U.S. Government Obligations which through the payment of
interest and principal will provide, not later than one day before the due
date of payment in respect of such Notes, money in an amount, or (C) a
combination thereof sufficient to pay and discharge the principal of, and
interest (including Special Interest, if applicable) on, such Notes then
outstanding on the dates on which any such payments are due in accordance with
the terms of the applicable Indenture and of such Notes. Such defeasance or
covenant defeasance shall be deemed to occur only if certain conditions are
satisfied, including, among other things, delivery by the Company to the
applicable Trustee of an opinion of outside counsel acceptable to such Trustee
to the effect that (i) such deposit, defeasance and discharge will not be
deemed, or result in, a taxable event for federal income tax purposes with
respect to the holders; and (ii) the Company's deposit will not result in such
trust or such Trustee being subject to regulation under the Investment Company
Act of 1940.
THE TRUSTEE
Harris Trust and Savings Bank is the Trustee under each Indenture and its
current address is 111 West Monroe, Chicago, Illinois 60603.
The holders of not less than a majority in aggregate principal amount at
Stated Maturity of the outstanding Senior Notes or Convertible Notes, as the
case may be, have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the applicable Trustee,
subject to certain
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<PAGE>
exceptions. Except during the continuance of an Event of Default under the
Indentures, the Trustees will perform only such duties as are specifically set
forth in the Indentures. Each Indenture provides that in case an Event of
Default shall occur (which shall not be cured or waived), the applicable
Trustee will be required, in the exercise of its rights and powers under such
Indenture, to use the degree of care of a prudent person in the conduct of
such person's own affairs. Subject to such provisions, each Trustee will be
under no obligation to exercise any of its rights or powers under the
applicable Indenture at the request of any of the holders of the Senior Notes
or Convertible Notes, as the case may be, unless such holders shall have
offered to the applicable Trustee indemnity satisfactory to it against any
loss, liability or expense.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indentures or for any claim based on, in respect of, or by reason
of, such obligations or their creation, solely by reason of its status as a
director, officer, employee, incorporator or stockholder of the Company.
Pursuant to the terms of the Indentures, by accepting a Note each holder
waives and releases all such liability (but only such liability). The
Indentures provide that the waiver and release are part of the consideration
for issuance of the Notes. Nonetheless, such waiver may not be effective to
waive liabilities under the federal securities laws and it has been the view
of the Commission that such a waiver is against public policy as expressed in
the Securities Act and is therefore unenforceable.
GOVERNING LAW
The Senior Note Indenture and the Convertible Note Indenture and the Senior
Notes and the Convertible Notes are governed by the laws of the State of New
York, without regard to principles of conflicts of law.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the applicable
Indenture. The Company, the Registrars and the Trustees may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a holder to pay any taxes and fees required by law
or permitted by the applicable Indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the Indentures for the full definition of all
such terms, as well as any capitalized terms used herein for which no
definition is provided.
"Accreted Value" means, (A) with respect to the Senior Notes, for any
Specified Date, the amount provided below for each $1,000 principal amount at
Stated Maturity of the Senior Notes:
(a) If the Specified Date occurs on one of the following dates (each a
"Senior Note Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Senior Note Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-
ANNUAL
ACCRUAL ACCRETED
DATE VALUE
------- --------
<S> <C>
March 30,
1997..... $ 666.34
September
30, 1997. 712.99
March 30,
1998..... 762.90
September
30, 1998. 816.30
March 30,
1999..... 873.44
September
30, 1999. 934.58
March 30,
2000..... 1,000.00
</TABLE>
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(b) if the Specified Date occurs before the first Senior Note Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (i) $622.75 and (ii)
an amount equal to the product of (y) the Accreted Value of the first
Senior Note Semi-Annual Accrual Date less the original issue price
multiplied by (z) a fraction, the numerator of which is the number of days
from the Issue Date to the Specified Date, using a 360-day year of twelve
30-day months, and the denominator of which is the number of days elapsed
from the Issue Date to the first Senior Note Semi-Annual Accrual Date,
using a 360-day year of twelve 30-day months;
(c) if the Specified Date occurs between two Senior Note Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (i) the Accreted
Value for the Senior Note Semi-Annual Accrual Date immediately preceding
such Specified Date and (ii) an amount equal to the product of (y) the
Accreted Value for the immediately following Senior Note Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding Senior
Note Semi-Annual Accrual Date multiplied by (z) a fraction, the numerator
of which is the number of days from the immediately preceding Senior Note
Semi-Annual Accrual Date to the Specified Date, using a 360-day year of
twelve 30-day months, and the denominator of which is 180; or
(d) if the Specified Date occurs after the last Senior Note Semi-Annual
Accrual Date, the Accreted Value will equal $1,000.
(B) with respect to the Convertible Notes, for any Specified Date, the
amount provided below for each $1,000 principal amount at Stated Maturity of
the Convertible Notes:
(a) If the Specified Date occurs on one of the following dates (each a
"Convertible Note Semi-Annual Accrual Date"), the Accreted Value will equal
the amount set forth below for such Convertible Note Semi-Annual Accrual
Date:
<TABLE>
<CAPTION>
SEMI-
ANNUAL
ACCRUAL ACCRETED
DATE VALUE
------- ---------
<S> <C>
March 30,
1997..... $ 802.45
September
30, 1997. 838.56
March 30,
1998..... 876.30
September
30, 1998. 915.73
March 30,
1999..... 956.94
September
30, 1999. 1,000.00
</TABLE>
(b) if the Specified Date occurs before the first Convertible Note Semi-
Annual Accrual Date, the Accreted Value will equal the sum of (i) $767.90
and (ii) an amount equal to the product of (y) the Accreted Value of the
first Convertible Note Semi-Annual Accrual Date less the original issue
price multiplied by (z) a fraction, the numerator of which is the number of
days from the Issue Date to the Specified Date, using a 360-day year of
twelve 30-day months, and the denominator of which is the number of days
elapsed from the Issue Date to the first Convertible Note Semi-Annual
Accrual Date, using a 360-day year of twelve 30-day months;
(c) if the Specified Date occurs between two Convertible Note Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (i) the Accreted
Value for the Convertible Note Semi-Annual Accrual Date immediately
preceding such Specified Date and (ii) an amount equal to the product of
(y) the Accreted Value for the immediately following Convertible Note Semi-
Annual Accrual Date less the Accreted Value for the immediately preceding
Convertible Note Semi-Annual Accrual Date multiplied by (z) a fraction, the
numerator of which is the number of days from the immediately preceding
Convertible Note Semi-Annual Accrual Date to the Specified Date, using a
360-day year of twelve 30-day months, and the denominator of which is 180;
or
(d) if the Specified Date occurs after the last Convertible Note Semi-
Annual Accrual Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person,
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including Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person, but excluding Indebtedness which is extinguished, retired or
repaid in connection with such other Person merging with or into or becoming a
Subsidiary of such specified Person.
"Additional Invested Equity" means the net cash proceeds from the sale to
Persons, other than holders of the Convertible Notes, of Capital Stock not
maturing and not redeemable prior to September 30, 2004; provided, that the
terms of any such Capital Stock do not provide for any redemption or
repurchase, whether pursuant to a sinking fund or otherwise, or permit any
cash dividend prior to the Stated Maturity of the Convertible Notes.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by,
such Person; provided that each Unrestricted Subsidiary shall be deemed to be
an Affiliate of the Company and of each other Subsidiary of the Company;
provided that any lender under a Credit Facility shall not be deemed to be an
Affiliate solely as the result of the Credit Facility; and provided, further,
that neither the Company nor any of its Wholly-Owned Restricted Subsidiaries
shall be deemed to be Affiliates of each other. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "under common control with" and "controlled by"), and as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of Voting Stock, by agreement or
otherwise; provided, that beneficial ownership of 10% or more of the Voting
Stock of a Person (on a fully diluted basis) shall be deemed to be control.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger) by such Person or any of its
Restricted Subsidiaries to any Person other than to such Person or a
Restricted Subsidiary of such Person, in one transaction or a series of
related transactions (each hereinafter referred to as a "Disposition"), of (a)
Capital Stock of or other equity interests in any Restricted Subsidiary (other
than director's qualifying shares) except as provided in clause (iv) of this
definition, (b) all or substantially all of the assets of any division or line
of business of such Person or of any of the Restricted Subsidiaries or (c)
Property or assets of such Person or any of its Restricted Subsidiaries, the
Fair Market Value of which exceeds $500,000, other than (i) a Disposition of
Property in the ordinary course of business and consistent with industry
practice, (ii) a Disposition of Eligible Cash Equivalents, (iii) a Disposition
of an Investment that constitutes a Restricted Payment under the Senior Note
Indenture permitted under the first paragraph of the covenant described in "--
Restricted Payments," (iv) a Disposition of no more than ten percent of the
Common Stock of USN Solutions, Inc. on a fully diluted basis pursuant to the
exercise of the USN Solutions Option, (v) a Disposition by the Company in
connection with a transaction permitted under "--Consolidation, Merger,
Conveyance, Lease or Transfer" and (vi) contribution of assets to any
Unrestricted Subsidiary constituting an Investment permitted by the Indenture.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present
value (discounted at a rate consistent with accounting guidelines, as
determined in good faith by such Person) of the payments during the remaining
term of the lease (including any period for which such lease has been extended
or may, at the option of the lessor, be extended) or until the earliest date
on which the lessee may terminate such lease without penalty or upon payment
of a penalty (in which case the rental payments shall include such penalty).
"Average Life" means, as of any date, with respect to any debt security or
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (x) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund
or mandatory redemption payment requirements) of such debt security or
Disqualified Stock multiplied in each case by (y) the amount of such principal
or redemption payment, by (ii) the sum of all such principal or redemption
payments.
"Board of Directors" means, with respect to any Person, the Board of
Directors (or similar governing body) of such Person or any committee of the
Board of Directors (or similar governing body) duly authorized to act on
behalf of such Board (or similar governing body).
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<PAGE>
"Board Resolution" means a duly adopted resolution of the Board of Directors
in full force and effect at the time of determination and certified as such.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability
on the face of a balance sheet of such Person in accordance with GAAP and the
stated maturity thereof shall be the date of the last payment of rent or any
amount due under such lease prior to the first date upon which such lease may
be terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than Indebtedness convertible
into an equity interest), warrants or options to acquire an equity interest in
such Person.
"Cash Proceeds" means, with respect to any Asset Sale or issuance or sale of
Capital Stock by any Person, the aggregate consideration received in respect
of such sale or issuance by such Person in the form of cash or Eligible Cash
Equivalents; provided that with regard to an Asset Sale, any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto) of the Company or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the Notes or
Guarantees, if any) which are assumed by the transferee of any such assets and
from which the Company and such Restricted Subsidiary are completely released
shall be deemed Cash Proceeds.
"Change of Control" shall be deemed to occur if (i) the sale, conveyance,
transfer, or lease (other than to the Company or any Wholly-Owned Restricted
Subsidiary of the Company), whether direct or indirect, of all or
substantially all of the assets of the Company or of the Company and its
Restricted Subsidiaries taken as a whole to any "person" or "group" (within
the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(i) under the Exchange Act) shall have occurred; (ii)
any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2)
of the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(i) under the Exchange Act),
other than any Permitted Holder or Permitted Holders, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 35% of
the total voting power of all classes of the Voting Stock of the Company
(including any warrants or options or rights to acquire such Voting Stock),
calculated on a fully diluted basis, and such voting power percentage is
greater than or equal to the total voting power percentage then beneficially
owned by the Permitted Holders in the aggregate; or (iii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election or appointment by such board 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 to constitute a majority of the
Board of Directors of the Company then in office.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to vote in the election of directors of such Person and any
rights (other than Indebtedness convertible into such Capital Stock), warrants
or options to acquire such Capital Stock of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash
and non-cash interest expense (including capitalized interest) of such Person
and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP in respect of Indebtedness
(including, without limitation, (v) any amortization of debt discount, (w) net
costs associated with Interest Hedging Obligations (including any amortization
of discounts), (x) the interest portion of any deferred payment obligation
calculated in accordance with the effective interest method, (y) all accrued
interest and (z) all commissions, discounts and other fees and charges owed
with respect to letters of
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<PAGE>
credit, bankers' acceptances or similar facilities) paid or accrued, or
scheduled to be paid or accrued, during such period; (ii) dividends or
distributions with respect to Preferred Stock or Disqualified Stock of such
Person (and of its Restricted Subsidiaries if paid to a Person other than such
Person or its Restricted Subsidiaries) declared and payable in cash; (iii) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Capital Lease Obligation allocable to interest expense in
accordance with GAAP; (iv) the portion of any rental obligation of such Person
or its Restricted Subsidiaries in respect of any Sale and Leaseback
Transaction allocable to interest expense (determined as if such were treated
as a Capital Lease Obligation); and (v) to the extent any Indebtedness of any
other Person is guaranteed by such Person or any of its Restricted
Subsidiaries, the aggregate amount of interest paid or accrued, or scheduled
to be paid or accrued, by such other Person during such period attributable to
any such Indebtedness, less (B) to the extent included in (A) above,
amortization or write-off of deferred financing costs of such Person and its
Restricted Subsidiaries during such period and any charge related to any
premium or penalty paid in connection with redeeming or retiring any
Indebtedness of such Person and its Restricted Subsidiaries prior to its
Stated Maturity; in the case of both (A) and (B) above, after elimination of
intercompany accounts among such Person and its Restricted Subsidiaries and as
determined in accordance with GAAP. For purposes of clause (ii) above,
dividend requirements attributable to any Preferred Stock or Disqualified
Stock shall be deemed to be an amount equal to the amount of dividend
requirements on such Preferred Stock or Disqualified Stock times a fraction,
the numerator of which is the amount of such dividend requirements, and the
denominator of which is one minus the applicable combined federal, state,
local and foreign income tax rate of the Company and its Restricted
Subsidiaries (expressed as a decimal), on a consolidated basis, for the fiscal
year immediately preceding the date of the transaction giving rise to the need
to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or net loss) of such Person and its Restricted Subsidiaries for
such period on a consolidated basis determined in accordance with GAAP;
provided that there shall be excluded therefrom, without duplication, (i) all
items classified as extraordinary, unusual or nonrecurring, (ii) the net
income of any Person that is not a Restricted Subsidiary or that is accounted
for by the equity method of accounting which shall be included only to the
extent of the amount of dividends or distributions paid to such Person or its
Restricted Subsidiaries, (iii) the net income of any Person acquired by such
Person or any of its Restricted Subsidiaries in a pooling-of-interests
transaction for any period prior to the date of the related acquisition, (iv)
any gain or loss, net of taxes, realized on the termination of any employee
pension benefit plan, (v) net gains (but not net losses) in respect of Asset
Sales by such Person or its Restricted Subsidiaries, (vi) the net income (but
not net loss) of any Restricted Subsidiary of such Person to the extent that
the payment of dividends or other distributions to such Person is restricted
by the terms of its charter or any agreement, instrument, contract, judgment,
order, decree, statute, rule, governmental regulation or otherwise, except for
any dividends or distributions actually paid by such Restricted Subsidiary to
such Person, and (vii) with regard to a non-Wholly-Owned Restricted
Subsidiary, any aggregate net income (or loss) in excess of such Person's or
such Restricted Subsidiary's pro rata share of such non-Wholly-Owned
Restricted Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its Restricted Subsidiaries, as determined on a
consolidated basis in accordance with GAAP, less amounts attributable to
Disqualified Stock of such Person.
"Credit Facility" means one or more credit agreements, loan agreements or
similar agreements providing for working capital advances, term loans, letter
of credit facilities or similar advances, loans or facilities to the Company,
which may, pursuant to the terms of the Senior Note Indenture, be guaranteed
by the Restricted Subsidiaries, with a bank or syndicate of banks or other
financial institutions, as such may be amended, renewed, extended,
supplemented, refinanced and replaced or refunded from time to time; provided,
that for purposes of the Senior Note Indenture, the aggregate principal amount
of Indebtedness under the Credit Facility shall not exceed $45 million at any
one time outstanding less the amount of any mandatory or permitted principal
payments or payments from the proceeds of Asset Sales made under the Credit
Facility that, in each case, permanently reduce the borrowing capacity of the
Company thereunder.
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<PAGE>
"Default" means any event, act or condition, the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof or is exchangeable for
Indebtedness at any time, in whole or in part, on or prior to the date on
which the Convertible Notes mature.
"EBITDA" means, with respect to any Person for any period, the sum for such
Person for such period of Consolidated Net Income plus, to the extent
reflected in the income statement of such Person for such period from which
Consolidated Net Income is determined, without duplication, (i) Consolidated
Interest Expense, (ii) income tax expense of such Person and its consolidated
Subsidiaries, (iii) depreciation expense, (iv) amortization expense, (v) any
non-cash expense related to the issuance to employees of such Person of
options to purchase Capital Stock of such Person and (vi) any charge related
to any premium or penalty paid in connection with redeeming or retiring any
Indebtedness prior to its Stated Maturity and minus, to the extent reflected
in such income statement, any noncash credits that had the effect of
increasing Consolidated Net Income of such Person for such period. This
definition of EBITDA is used only for the purpose of this Description of the
Notes and the Senior Note Indenture.
"Eligible Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits,
certificates of deposit or Eurodollar deposits of any commercial bank
organized in the United States having capital and surplus in excess of $500
million with a maturity date not more than one year from the date of
acquisition, (iii) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (ii)
above, (iv) direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing, or subject to tender at the option of the
holder thereof within ninety days after the date of acquisition thereof and,
at the time of acquisition, having a rating of A or better from Standard &
Poor's or A-2 or better from Moody's, (v) commercial paper issued by the
parent corporation of any commercial bank organized in the United States
having capital and surplus in excess of $500 million and commercial paper
issued by others having one of the two highest ratings obtainable from either
of Standard & Poor's or Moody's and in each case maturing within 270 days
after the date of acquisition, (vi) overnight bank deposits and bankers'
acceptances at any commercial bank organized in the United States having
capital and surplus in excess of $500 million, (vii) deposits available for
withdrawal on demand with a commercial bank organized in the United States
having capital and surplus in excess of $500 million and (viii) investments in
money market funds substantially all of whose assets comprise securities of
the types described in clauses (i) through (vi).
"Exchange Rate Obligation" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Existing Indebtedness" means Indebtedness outstanding on the date of the
Senior Note Indenture and disclosed in a schedule attached to the Senior Note
Indenture.
"Fair Market Value" means, with respect to any asset or Property, the sale
value that could be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy, as determined in good faith by the
Board of Directors of the Company or a Restricted Subsidiary, as applicable.
"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified
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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, that are applicable to the circumstances as of the date of
determination; provided that, except as otherwise specifically provided, all
calculations made for purposes of determining compliance with the terms of the
provisions of the Indentures shall utilize GAAP as in effect on the Issue
Date.
"guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner (and
"guaranteed," "guaranteeing" and "guarantor" shall have meanings correlative
to the foregoing).
"Guarantee" means a guarantee of the payment of the Senior Notes and/or the
Convertible Notes, as applicable, executed and delivered by a Restricted
Subsidiary as required by the covenant described under
"--Limitation on Issuances of Guarantees by Restricted Subsidiaries" and
"Guarantees" means, collectively, the Senior Note Guarantees and the
Convertible Note Guarantees, if any.
"Guarantor" means a Restricted Subsidiary that executes and delivers a
Guarantee.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or obligation on the balance sheet of such
Person (and "incurrence," "incurred," "incurrable" and "incurring" shall have
meanings correlative to the foregoing); provided that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Restricted
Subsidiary of the Company shall be deemed to have been incurred at the time at
which it becomes a Restricted Subsidiary.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business which are not more than 90 days overdue or which are being
contested in good faith and by appropriate proceedings, (iii) any
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) any obligation of such Person issued or assumed as the deferred
purchase price of Property, assets or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business,
which in either case are not more than 90 days overdue or which are being
contested in good faith and by appropriate proceedings, and for which adequate
reserves are being maintained on the books of the Company in accordance with
GAAP), (v) any Capital Lease Obligation of such Person, (vi) the maximum fixed
redemption or repurchase price of Disqualified Stock of such Person and, to
the extent held by other Persons, the maximum fixed redemption or repurchase
price of Disqualified Stock of such Person's Restricted Subsidiaries, at the
time of determination, (vii) the notional amount of any Interest Hedging
Obligations or Exchange Rate Obligations of such Person at the time of
determination, (viii) any Attributable Indebtedness with respect to any Sale
and Leaseback Transaction to which such Person is a party and (ix) any
obligation of the type referred to in clauses (i) through (viii) of this
definition of another Person and all dividends and distributions of another
Person the payment of which, in either case, such Person has guaranteed or is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise. For purposes of the preceding sentence, the maximum fixed
repurchase price of any Disqualified Stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date
on which Indebtedness shall be required to be determined pursuant to the
Senior Note Indenture; provided that if such Disqualified Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Disqualified Stock. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and the maximum liability of any guarantees at such date;
provided, that for purposes of calculating the amount of Notes
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outstanding at any date, the amount of such Notes shall be the Accreted Value
thereof as of such date, unless cash interest has commenced to accrue pursuant
to the applicable Indenture, in which case the amount of such Notes
outstanding will be the aggregate principal amount thereof at Stated Maturity;
and provided, further, that for purposes of calculating the amount of any non-
interest bearing or other discount security (other than the Notes), such
Indebtedness shall be deemed to be the principal amount thereof that would be
shown on the balance sheet of the issuer dated such date prepared in
accordance with GAAP but that such security shall be deemed to have been
incurred only on the date of the original issuance thereof.
"Indebtedness to Operating Cash Flow Ratio" means, as at any date of
determination, the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis as of the date
of determination to (ii) the aggregate amount of EBITDA of the Company and its
Restricted Subsidiaries for the four preceding fiscal quarters for which
financial information is available immediately prior to the date of
determination; provided that any Indebtedness incurred or retired by the
Company or any of its Restricted Subsidiaries during the fiscal quarter in
which the date of determination occurs shall be calculated as if such
Indebtedness was so incurred or retired on the first day of the fiscal quarter
in which the date of determination occurs; and provided, further, that (x) if
the transaction giving rise to the need to calculate the Indebtedness to
Operating Cash Flow Ratio would have the effect of increasing or decreasing
Indebtedness or EBITDA in the future, Indebtedness or EBITDA shall be
calculated on a pro forma basis as if such transaction had occurred on the
first day of such four fiscal quarter period preceding the date of
determination, and (y) if during such four fiscal quarter period, the Company
or any of its Restricted Subsidiaries shall have engaged in any Asset Sale,
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive), or increased by an amount equal to the EBITDA (if negative),
directly attributable to the assets which are the subject of such Asset Sale
and any related retirement of Indebtedness as if such Asset Sale and related
retirement of Indebtedness had occurred on the first day of such four fiscal
quarter period or (z) if during such four fiscal quarter period the Company or
any of its Restricted Subsidiaries shall have acquired any material assets
outside the ordinary course of business, EBITDA shall be calculated on a pro
forma basis as if such asset acquisition and related financing had occurred on
the first day of such four fiscal quarter period.
"Interest Hedging Obligation" means, with respect to any Person, an
obligation of such Person pursuant to any interest rate swap agreement,
interest rate cap, collar or floor agreement or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
Restricted Subsidiaries' exposure to fluctuations in interest rates.
"Investment" in any Person means any direct, indirect or contingent (i)
advance or loan to, guarantee of any Indebtedness of, extension of credit or
capital contribution to such Person, (ii) acquisition of any shares of Capital
Stock, bonds, notes, debentures or other securities of such Person, or (iii)
acquisition, by purchase or otherwise, of all or substantially all of the
business, assets or stock or other evidence of beneficial ownership of such
Person; provided that Investments shall exclude accounts receivable and other
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices. The amount of an Investment shall be the original cost
of such Investment, plus the cost of all additions thereto and minus the
amount of any portion of such Investment repaid to such Person in cash as a
repayment of principal or a return of capital, as the case may be, but without
any other adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any Property or assets other
than cash, such Property or assets shall be valued at its Fair Market Value at
the time of such transfer. The Company shall be deemed to make an "Investment"
in the amount of the Fair Market Value of the assets of a Subsidiary at the
time that such Subsidiary is designated as an Unrestricted Subsidiary.
"Issue Date" means the date on which the Old Notes or the Convertible Notes
were, or the New Notes are, first authenticated and delivered under the Senior
Note Indenture or Convertible Note Indenture.
"Joint Venture" means a Telecommunications Company of which less than 50
percent of the Voting Stock is held by the Company; provided that the
management and operations of such Person are controlled by a Strategic
Investor or by the Company pursuant to (i) the charter documents of such
Person, or (ii) an agreement
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among the holders of the Voting Stock of such Person, or (iii) a management
agreement between the Company and such Person.
"Lien" means, with respect to any Property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien (statutory or other), charge, easement, encumbrance,
preference, priority or other security or similar agreement or preferential
arrangement of any nature whatsoever on or with respect to such Property or
other asset (including, without limitation, any conditional sale or title
retention agreement having substantially the same economic effect as any of
the foregoing).
"Maturity" means, when used with respect to a Note, the date on which the
principal of such Note becomes due and payable as provided therein or in the
applicable Indenture, whether at Stated Maturity, on the Change of Control
Payment Date or purchase date established pursuant to the terms of the
applicable Indenture with regard to a Change of Control Offer, an Asset Sale
Offer or an offer to repurchase upon a Termination of Trading of the Common
Stock of the Company, as applicable, or by declaration of acceleration, call
for redemption or otherwise.
"Net Cash Proceeds" means, with respect to the sale of any Property or
assets by any Person or any of its Restricted Subsidiaries, Cash Proceeds
received net of (i) all reasonable out-of-pocket expenses of such Person or
such Restricted Subsidiary incurred in connection with such sale, including,
without limitation, all legal, title and recording tax expenses, commissions
and other fees and expenses incurred (but excluding any finder's fee or
broker's fee payable to any Affiliate of such Person) and all federal, state,
foreign and local taxes arising in connection with such sale that are paid or
required to be accrued as liability under GAAP by such Person or its
Restricted Subsidiaries, (ii) all payments made or required to be made by such
Person or its Restricted Subsidiaries on any Indebtedness which is secured by
such Properties or other assets in accordance with the terms of any Lien upon
or with respect to such Properties or other assets or which must, by the terms
of such Lien, or in order to obtain a necessary consent to such transaction or
by applicable law, be repaid in connection with such sale and (iii) all
contractually required distributions and other payments made to minority
interest holders (but excluding distributions and payments to Affiliates of
such Person) in Restricted Subsidiaries of such Person as a result of such
transaction; provided that, in the event that any consideration for a
transaction (which would otherwise constitute Net Cash Proceeds) is required
to be held in escrow pending determination of whether a purchase price
adjustment will be made, such consideration (or any portion thereof) shall
become Net Cash Proceeds only at such time as it is released to such Person or
its Restricted Subsidiaries from escrow; provided, further, that any non-cash
consideration received in connection with any transaction, which is
subsequently converted to cash, shall be deemed to be Net Cash Proceeds at
such time, and shall thereafter be applied in accordance with the Indentures.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive
Officer, the Chief Operating Officer or a Vice President, and by the Chief
Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company or a
Restricted Subsidiary and delivered to the Trustee, which shall comply with
the applicable Indenture.
"Pari Passu Indebtedness" means any Indebtedness (secured or unsecured) of
the Company or any Guarantor that ranks pari passu in right of payment with
the Senior Notes or the Senior Note Guarantees, as applicable.
"Permitted Holders" means Thomas C. Brandenburg, J. Thomas Elliott and
Ronald W. Gavillet and Chase, CIBC, Hancock, BT, the Northwood Entities,
Enterprise and Merrill Lynch Global Allocation Fund, Inc., and any of their
respective Subsidiaries (or a wholly-owned Subsidiary of the sole stockholder
of any of the foregoing Persons).
"Permitted Investments" means (i) Eligible Cash Equivalents; (ii)
Investments in Property used in the ordinary course of business; (iii)
Investments in the Company or in any Restricted Subsidiary or any Person as a
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result of which such Person becomes a Restricted Subsidiary in compliance with
the Senior Note Indenture; (iv) Investments pursuant to certain agreements or
obligations of the Company or a Restricted Subsidiary, in effect on the Issue
Date, to make such Investments, and disclosed in a schedule attached to the
Senior Note Indenture; (v) Investments in prepaid expenses, negotiable
instruments held for collection and lease, utility and workers' compensation,
performance and other similar deposits; (vi) Interest Hedging Obligations with
respect to any floating rate Indebtedness that is permitted by the terms of
the Senior Note Indenture to be outstanding; (vii) bonds, notes, debentures or
other debt securities received as a result of Asset Sales permitted under the
covenant described under "--Asset Sales;" (viii) Investments in existence on
the Issue Date; and (ix) Investments in securities of trade creditors,
wholesalers or customers received pursuant to any plan of reorganization or
similar arrangements.
"Permitted Liens" means (i) Liens created by the Senior Note Indenture or
that otherwise secure the payment of the Senior Notes or the Senior Note
Guarantees, if any, and Liens created by the Convertible Note Indenture or
which otherwise secure the payment of the Convertible Notes or the Convertible
Note Guarantees, if any; (ii) Liens on Property or assets of a Person existing
at the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company or becomes a Restricted Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such merger or consolidation and do not secure any Property or assets of
the Company or any of its Restricted Subsidiaries other than the Property or
assets subject to the Liens prior to such merger or consolidation; (iii) Liens
on Property or assets existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary, provided that such Liens were not given
in contemplation of such acquisition; (iv) Liens to secure the payment of all
or a part of the purchase price or construction cost of Property or assets
acquired or constructed in the ordinary course of business after the Issue
Date, provided that the Indebtedness secured by such Liens shall not exceed
the lesser of 100% of the cost or the Fair Market Value of the Property or
assets acquired or constructed and such Liens shall not extend to any other
Property or assets; (v) Liens incurred or deposits made to secure the
performance of tenders, bids, leases not constituting Capitalized Lease
Obligations, statutory or regulatory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business consistent with industry practice; (vi) Liens
existing as of the Issue Date and disclosed in a schedule attached to the
Senior Note Indenture; (vii) any Lien on Property of the Company in favor of
the United States of America or any state thereof, or any instrumentality of
either, to secure certain payments pursuant to any contract or statute; (viii)
any Lien for taxes or assessments or other governmental charges or levies not
then due and payable (or which, if due and payable, are being contested in
good faith and for which adequate reserves are being maintained, to the extent
required by GAAP); (ix) easements, rights-of-way, licenses and other similar
restrictions on the use of Properties or minor imperfections of title that, in
the aggregate, are not material in amount and do not in any case materially
detract from the Properties subject thereto or interfere with the ordinary
conduct of the business of the Company or its Restricted Subsidiaries; (x) any
Lien to secure obligations under workers' compensation laws or similar
legislation, including any Lien with respect to judgments which are not
currently dischargeable; (xi) any statutory warehousemen's, materialmen's or
other similar Liens for sums not then due and payable (or which, if due and
payable, are being contested in good faith and with respect to which adequate
reserves are being maintained, to the extent required by GAAP); (xii) Liens in
favor of the Company; (xiii) Liens on Property or assets of the Company
securing not more than $30 million aggregate principal amount at any one time
outstanding of Indebtedness incurred under clause (a) of the second paragraph
of the covenant described under "--Limitation on Indebtedness"; (xiv) Liens
securing any Vendor Financing, provided that such Liens do not extend to any
Property or assets other than the Property or assets the acquisition of which
was financed by such Indebtedness; (xv) Liens securing reimbursement
obligations with respect to letters of credit that encumber documents and
other Property relating to such letters of credit and the products and
proceeds thereof; and (xvi) Liens to secure any permitted extension, renewal,
refinancing or refunding (or successive extensions, renewals, refinancings or
refundings), in whole or in part, of any Indebtedness secured by Liens
referred to in the foregoing clauses (ii), (iii) and (xiv), provided that such
Liens do not extend to any other Property or assets and the principal amount
of the Indebtedness secured by such Liens is not increased.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof or other entity.
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"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an underwritten public offering of Capital
Stock (other than Disqualified Stock) of the Company pursuant to an effective
registration statement filed under the Securities Act.
"Qualified Public Offering" means a Public Equity Offering resulting in net
proceeds to the Company of at least $35 million.
"Qualified Sale of the Company" means a sale of the Capital Stock or a
merger or consolidation involving the Company, pursuant to which the holders
of Capital Stock of the Company receive cash proceeds and/or publicly traded
securities having a fair market value in each case of at least $122,500,000 in
the aggregate, or a sale of assets of the Company pursuant to which the
Company receives net cash proceeds and/or publicly traded securities having a
fair market value of at least $122,500,000 in the aggregate.
"Qualified Stock" of any Person means a class of Capital Stock other than
Disqualified Stock.
"Refinancing Indebtedness" means any Indebtedness incurred in connection
with the Refinancing of other Indebtedness.
"Restricted Payment" means (i) a dividend or other distribution declared or
paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared or paid to any Person other than to the
Company or any Restricted Subsidiary of the Company on the Capital Stock of
any Restricted Subsidiary of the Company, in each case, other than dividends,
distributions or payments made solely in Qualified Stock of the Company or
such Restricted Subsidiary (and other than pro rata dividends, distributions
or payments declared or paid on the Common Stock of USN Solutions, Inc. to any
Person not otherwise an Affiliate of the Company holding such Common Stock as
a result of the exercise of the USN Solutions Option; provided, that the
Company shall receive pro rata dividends, distributions or payments at the
same time and in the same form and composition of consideration as the
dividends, distributions or payments paid to such minority stockholders), (ii)
a payment made by the Company or any of its Restricted Subsidiaries (other
than to the Company or any Restricted Subsidiary of the Company) to purchase,
redeem, acquire or retire any Capital Stock of the Company or of a Restricted
Subsidiary of the Company, (iii) a payment made by the Company or any of its
Restricted Subsidiaries (other than a payment made solely in Qualified Stock
of the Company) to redeem, repurchase, defease (including an in-substance or
legal defeasance) or otherwise acquire or retire for value (including pursuant
to mandatory repurchase covenants), prior to any scheduled maturity, scheduled
sinking fund or mandatory redemption payment, Indebtedness of the Company or
such Restricted Subsidiary which is subordinate (whether pursuant to its terms
or by operation of law) in right of payment to the Notes, or any Guarantees,
as applicable, or (iv) an Investment in any Person, including an Unrestricted
Subsidiary or the designation of a Subsidiary as an Unrestricted Subsidiary,
other than a Permitted Investment.
"Restricted Subsidiary" means (i) with respect to any Person other than the
Company and its Subsidiaries, a Subsidiary of such Person and (ii) with
respect to the Company and its Subsidiaries, any Subsidiary of the Company
that has not been classified as an "Unrestricted Subsidiary."
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such Person
or one of its Restricted Subsidiaries.
"Significant Restricted Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act and the Exchange Act.
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"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Strategic Investor" means, with respect to any relevant transaction, a
Telecommunications Company which, both as of the Business Day immediately
before the day of the closing of such transaction and the Business Day
immediately after the day of closing of such transaction, has, or whose parent
has, an equity market capitalization, a net asset value or annual revenues of
at least $2 billion on a consolidated basis. For purposes of this definition,
the term "parent" means any Person of which the relevant Strategic Investor is
a Subsidiary.
"Subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50%
of the outstanding partnership or similar interests of which are owned,
directly or indirectly, by such Person, or by one or more other Subsidiaries
of such Person, or by such Person and one or more other Subsidiaries of such
Person and (iii) any limited partnership of which such Person or any
Subsidiary of such Person is a general partner.
"Telecommunications Assets" means, with respect to any Person, assets
(including, without limitation, rights of way, trademarks and licenses to use
copyrighted material) that are utilized by such Person, directly or
indirectly, for the design, development, construction, installation,
integration, operation, management or provision of telecommunications systems
and/or services, including without limitation, any businesses or services in
which the Company is currently engaged and including any computer systems used
in a Telecommunications Business. Telecommunications Assets shall also include
stock, joint venture or partnership interests in another Person, provided that
substantially all of the assets of such other Person consist of
Telecommunications Assets, and provided, further, that if such stock, joint
venture or partnership interests are held by the Company or a Restricted
Subsidiary, such other Person either is, or immediately following the relevant
transaction shall become, a Restricted Subsidiary of the Company pursuant to
the applicable Indenture unless such Person is a Joint Venture. The
determination of what constitutes Telecommunication Assets shall be made by
the Board of Directors and evidenced by a Board Resolution delivered to the
applicable Trustee.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) creating, developing or
marketing communications related network equipment, software and other devices
for use in (i) above or (iii) evaluating, participating or pursuing any other
activity or opportunity that is related to those specified in (i) or (ii)
above and includes, without limitation, any business in which the Company and
its Restricted Subsidiaries are currently engaged.
"Telecommunications Company" means any Person substantially all of the
assets of which consist of Telecommunications Assets.
"U.S. Government Obligations" means (x) securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which in either case, are not callable or redeemable at the
option of the issuer thereof, and (y) depository receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (x) above and held
by such bank for the account of the holder of such depository receipt, or with
respect to any specific payment of principal or interest on any U.S.
Government Obligation which is so specified and held, provided that (except as
required by
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law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by
the custodian in respect of the U.S. Government Obligation or the specific
payment of principal or interest of the U.S. Government Obligation evidenced
by such depository receipt.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to the terms of the
Indentures.
"Vendor Financing" means, with respect to any Person, an obligation owed by
such Person to a vendor of Telecommunications Assets solely in respect of the
purchase price of such assets, provided that the amount of such Indebtedness
does not exceed the Fair Market Value of such assets, and provided, further,
that such Indebtedness is incurred within 90 days of the acquisition of such
assets.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or at the times that such class of Capital Stock has voting power
by reason of the happening of any contingency) to vote in the election of
members of the Board of Directors or comparable body of such Person.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary, all of
the outstanding Capital Stock (other than directors' qualifying shares) of
which is owned, directly or indirectly, by the Company; provided, that for
purposes of the Senior Note Indenture, other than for purposes of the
definition of "Consolidated Net Income," USN Solutions, Inc. shall not cease
to be a Wholly-Owned Restricted Subsidiary merely as a result of the exercise
of the USN Solutions Option.
DESCRIPTION OF THE WARRANTS
In connection with a private placement of the Units on September 30, 1996,
the Company issued Initial Warrants to purchase 61,550 shares of Class A
Common Stock and undertook to issue, under certain circumstances, to holders
of the Old Notes and holders of the New Notes Senior Note Contingent Warrants
and to holders of the Convertible Notes Convertible Note Contingent Warrants
and Additional Warrants. The following is a description of all such Warrants.
GENERAL
On September 30, 1996, the Company issued Initial Warrants to purchase
61,550 shares of Class A Common Stock to the purchasers of the Units. The
Initial Warrants were and the Contingent Warrants will be issued pursuant to a
Warrant Agreement, dated as of September 30, 1996 (the "Warrant Agreement"),
between the Company and Harris Trust and Savings Bank, as Warrant Agent (the
"Warrant Agent"). The Initial Warrants are and the Contingent Warrants will be
subject to all terms in the Warrant Agreement and holders of Warrants are
referred to the Warrant Agreement, a copy of which is available from the
Company on request, for a complete statement of such terms. The statements and
definitions of terms under this caption relating to the Warrants are summaries
and do not purport to be complete. Such summaries make use of certain terms
defined in the Warrant Agreement and are qualified in their entirety by
express reference to the Warrant Agreement.
Each Initial Warrant is evidenced by a Warrant Certificate and entitles the
holder thereof to purchase 1.269311203 shares of Class A Common Stock (each a
"Warrant Share") from the Company at a price (the "Exercise Price") of $.01
per share, subject to adjustment as described below. Subject to certain
limitations, the Initial Warrants may be exercised at any time beginning 180
days from the date of original issuance thereof and on or prior to the close
of business on a date eight years following the Issue Date (the "Expiration
Date"). Initial Warrants that are not exercised by the Expiration Date will
expire. The Company will give notice of expiration not less than 90 nor more
than 120 days prior to the Expiration Date to registered holders of the then
outstanding Initial Warrants.
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The aggregate number of Warrant Shares issuable upon exercise of the Initial
Warrants is equal to approximately 12% of the outstanding shares of Common
Stock, on a fully diluted basis as of the date of the issuance of the Units.
In addition, the Company will be obligated pursuant to the Senior Note
Indenture to issue to holders of the Senior Notes Senior Note Contingent
Warrants, exercisable for Class A Common Stock representing up to 3% of the
Common Stock on a fully diluted basis as of the date of such issuance (subject
to certain exceptions) after giving effect to the issuance of such Contingent
Warrants, in the event that on, or prior to March 30, 1998, the Company does
not effect a Qualified Public Offering or has not been sold pursuant to a
Qualified Sale of the Company. In addition, in the event that the Company has
not, on or prior to September 30, 1999, (i) consummated a Qualified Public
Offering or (ii) been sold pursuant to a Qualified Sale of the Company, the
Company will be obligated pursuant to the Convertible Note Indenture to issue
to the holders of the Convertible Notes Convertible Note Contingent Warrants
exercisable for Class A Common Stock representing up to 2.5% of the Common
Stock of the Company on a fully diluted basis (subject to certain exceptions)
after giving effect to the issuance of such Contingent Warrants. All
Contingent Warrants will be issued pursuant to the Warrant Agreement with the
same rights thereunder as the Initial Warrants, and holders will have the
benefit of the Registration Rights Agreement. See "Description of the Notes--
Certain Covenants--Issuance of Contingent Warrants."
Under certain conditions, if the Company has not consummated a Qualified
Public Offering or a Qualified Sale of the Company has not occurred by
September 30, 1997, the Company will be required to offer to holders of
Convertible Notes the right to acquire additional convertible securities and
warrants. See "Description of the Notes--Additional Invested Equity."
CERTAIN TERMS
Exercise
In order to exercise all or any of the Warrants represented by a Warrant
Certificate, the holder thereof is required to surrender to the Warrant Agent
the Warrant Certificate, a duly executed copy of the subscription form set
forth in the Warrant Certificate and payment in full of the Exercise Price for
each Warrant Share or other security as to which a Warrant is being exercised.
Payment for securities upon exercise of a Warrant may be made in cash or by
certified check, official bank check or bank cashier's check payable to the
order of the Company. Upon the exercise of any Warrant in accordance with the
Warrant Agreement, the Warrant Agent shall instruct the Company to transfer
promptly to, or upon the written order of, the holder of such Warrant
appropriate evidence of ownership of any Warrant Share or other securities or
property to which such holder is entitled, registered or otherwise placed in
such name or names as such holder may direct in writing, and the Company shall
deliver such evidence of ownership to the person or persons entitled to
receive the same, including, without limitation, any cash payable to adjust
for fractional interests in Warrant Shares issuable upon such exercise. If
less than all of the Warrants evidenced by a Warrant Certificate are to be
exercised, a new Warrant Certificate will be issued for the remaining number
of Warrants. All Warrant Shares or other securities issuable by the Company
upon the exercise of the Warrants shall be validly issued, fully paid and
nonassessable.
No fractional Warrant Shares will be issued upon exercise of the Warrants.
If any fraction of a Warrant Share would, except for the foregoing provision,
be issuable upon the exercise of any Warrants (or specified portion thereof),
the Company will pay an amount in cash equal to the Current Market Price (as
defined in the Warrant Agreement) per share of Class A Common Stock, as
determined on the trading day immediately preceding the date the Warrant is
presented for exercise, multiplied by such fraction, computed to the nearest
whole cent.
Certificates for Warrants will be issued in global form or registered form
as definitive warrant certificates and no service charge will be made for
registration of transfer or exchange upon surrender of any Warrant Certificate
at the office of the Warrant Agent maintained for that purpose. The Company
may require payment
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of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration or transfer or exchange of Warrant
Certificates.
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares is then effective under,
or the exercise of such Warrants is exempt from the registration requirements
of, the Securities Act. See "Registration Rights."
Adjustments
Subject to certain exceptions, including the issuance of the Initial
Warrants, the Contingent Warrants and Additional Warrants and conversion of
the Convertible Notes, the Exercise Price and the number of Warrant Shares
issuable upon exercise of the Warrants will be subject to adjustment on the
occurrence of certain events including: (i) the payment by the Company of
dividends (or the making of other distributions) with respect to Common Stock
payable in Common Stock or other shares of the Company's capital stock, (ii)
subdivisions, combinations and reclassifications of Common Stock, (iii) the
issuance to all holders of Common Stock of rights, options or warrants
entitling them to subscribe for Common Stock, or of securities convertible
into or exchangeable for shares of Common Stock, in either case for
consideration per share of Common Stock which is less than the Current Market
Price per share of Common Stock, (iv) the issuance or sale of shares of Common
Stock for consideration per share of Common Stock which is less than the
Current Market Price per share of Common Stock and (v) the distribution to all
holders of Common Stock of any of the Company's assets, debt securities or any
rights or warrants to purchase securities (excluding those rights and warrants
referred to in clause (iii) above and excluding cash dividends or other cash
distributions from current or retained earnings).
No adjustment in the Exercise Price will be required unless such adjustment
would require an increase or decrease of at least 1.0% in the Exercise Price;
provided, that any adjustment which is not made will be carried forward and
taken into account in any subsequent adjustment.
Mergers, Consolidations and Certain Other Transactions
Except as otherwise provided herein, in the event the Company consolidates
with, merges with or into, or sells all or substantially all of its property
and assets to another Person, each Warrant thereafter shall entitle the holder
thereof to receive upon exercise thereof the number of shares of capital stock
or other securities or property which the holder of a share of Common Stock is
entitled to receive upon completion of such consolidation, merger or sale of
assets. If the Company merges or consolidates with, or sells all or
substantially all of its property and assets to, another Person and, in
connection therewith, consideration to the holders of Common Stock in exchange
for their shares is payable solely in cash, or in the event of the
dissolution, liquidation or winding-up of the Company, then the holders of the
Warrants will be entitled to receive distributions on an equal basis with the
holders of Common Stock or other securities issuable upon exercise of the
Warrants, as if the Warrants had been exercised immediately prior to such
event, less the Exercise Price. Upon receipt of such payment, if any, the
Warrants will expire and the rights of the holders thereof will cease.
In case of any such merger, consolidation or sale of assets, the surviving
or acquiring Person and, in the event of any dissolution, liquidation or
winding-up of the Company, the Company, shall deposit promptly with the
Warrant Agent the funds or other consideration, if any, necessary to pay the
holders of the Warrants. After such funds and the surrendered Warrant
Certificate are received, the Warrant Agent shall make payment by delivering a
check in such amount as is appropriate (or, in the case of consideration other
than cash, shall transfer such other consideration as is appropriate) to such
Person or Persons as it may be directed in writing by the holders surrendering
such Warrants.
No Rights as Stockholders
The holders of unexercised Warrants are not entitled, as such, to receive
dividends or other distributions with respect to the Common Stock, receive
notice of any meeting of the stockholders of the Company, consent
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to any action of the stockholders of the Company, receive notice of any other
stockholder meetings, or to any other rights as stockholders of the Company.
RESERVATION OF SHARES
The Company has authorized and reserved for issuance such number of shares
of Common Stock as shall be issuable upon the exercise of all outstanding
Warrants. Such shares of Class A Common Stock, when paid for and issued, will
be duly and validly issued, fully paid and non-assessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent of
the holders of the Warrants, may amend or supplement the Warrant Agreement for
certain purposes, including, without limitation, curing defects or
inconsistencies or making any change that does not materially adversely affect
the rights of any holder. Any amendment or supplement to the Warrant Agreement
that has a material adverse effect on the interests of the holders of the
Warrants shall require the written consent of the holders of a majority of the
then outstanding Warrants. The consent of each holder of the Warrants affected
shall be required for any amendment pursuant to which the Exercise Price would
be increased or the number of Warrant Shares purchasable upon exercise of
Warrants would be decreased (other than pursuant to adjustments provided in
the Warrant Agreement).
REGISTRATION RIGHTS
With respect to the Notes, the Warrants, the Warrant Shares and the
Convertible Note Shares, the Company has entered into a registration rights
agreement with the Initial Purchasers, dated as of September 30, 1996 (the
"Registration Rights Agreement"), for the benefit of the holders of the Notes
and the Warrants. The summary herein of certain provisions of the Registration
Rights Agreement relating to the Convertible Notes and the Warrants does not
purport to be complete and is subject to all the provisions of the
Registration Rights Agreement, which is available upon request from the
Company.
CONVERTIBLE NOTES
Registration of the Convertible Notes. The Company is required, under the
terms of the Registration Rights Agreement, to (i) file a shelf registration
statement with respect to resale of the Convertible Notes by the holders
thereof (the "Convertible Note Shelf Registration Statement") with the
Commission within 60 days after the date of original issuance of the
Convertible Notes; (ii) cause the Convertible Note Shelf Registration
Statement to be declared effective under the Securities Act within 120 days
after the date of original issuance of the Convertible Notes; and (iii)
maintain the effectiveness of the Convertible Note Shelf Registration
Statement until the earlier of (a) such time as all Convertible Notes have
been sold thereunder or otherwise or exercised and (b) three years after its
effective date. The Company will provide to each holder of Convertible Notes
covered by the Convertible Note Shelf Registration Statement copies of the
prospectus which is a part of the Convertible Note Shelf Registration
Statement, notify each such holder when the Convertible Note Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Convertible Notes. A holder
of Convertible Notes that sells such Convertible Notes pursuant to the
Convertible Note Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to the purchaser, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations).
If either (i) the Convertible Note Shelf Registration Statement has not been
declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement, or (ii)
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any Convertible Note Shelf Registration Statement required by the Registration
Rights Agreement is filed and declared effective but shall thereafter cease to
be effective or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such Convertible Note
Shelf Registration Statement that cures such failure and that is itself
declared effective for a period of more than 30 consecutive business days
(each such event referred to in clauses (i) and (ii), a "Convertible Note
Registration Default"), then commencing on the day following the date on which
such Convertible Note Registration Default occurs, the Company agrees to pay
to each holder of the Convertible Notes during the first 90-day period
immediately following the occurrence of such Convertible Note Registration
Default Special Interest. The amount of Special Interest payable to each
holder shall increase by an additional 0.5% per annum for each subsequent 90-
day period up to a maximum rate of 1.5% per annum. A Convertible Note
Registration Default shall cease, and Special Interest shall cease to be
payable with respect to such Convertible Note Registration Default, (1) upon
the effectiveness of the Convertible Note Shelf Registration Statement in the
case of clause (i) above, or (2) when the Convertible Note Shelf Registration
Statement becomes effective or usable in the case of clause (ii) above.
Notwithstanding the foregoing, (i) the amount of Special Interest payable
shall not increase because more than one Convertible Note Registration Default
has occurred and is pending and (ii) a holder of Convertible Notes who is not
entitled to the benefits of the Convertible Note Shelf Registration Statement
(i.e., such holder has not elected to include information) shall not be
entitled to Special Interest with respect to a Convertible Note Registration
Default that pertains to the Convertible Note Shelf Registration Statement.
All accrued Special Interest shall be paid to record holders in the same
manner in which payments of interest are made pursuant to the Convertible Note
Indenture. See "Description of the Notes--Principal, Maturity and Interest."
Payment of Special Interest is the sole remedy available to holders of
Convertible Notes in the event the Company does not comply with the deadlines
set forth in the Registration Rights Agreement with respect to the
registration of the Convertible Notes for resale under a shelf registration
statement.
Holders of Convertible Notes will be able to convert their Convertible Notes
only if a registration statement relating to the Convertible Note Shares is
then effective under, or the conversion of the Convertible Notes is exempt
from the registration requirements of, the Securities Act.
Registration of Convertible Note Shares. The Company is required, under the
terms of the Registration Rights Agreement, to (i) file a shelf registration
statement with respect to the Company's issuance of the Convertible Note
Shares to holders upon exercise of the Convertible Notes (the "Convertible
Note Shares Shelf Registration Statement") with the Commission within 60 days
after the date of original issuance of the Convertible Notes, (ii) cause the
Convertible Note Shares Shelf Registration Statement to be declared effective
under the Securities Act within 120 days after the date of original issuance
of the Convertible Notes and (iii) keep effective the Convertible Note Shares
Shelf Registration Statement (or a successor registration statement thereto)
until eight years after the Issue Date of the Convertible Notes or such
shorter period that will terminate when all the Convertible Note Shares
covered by such Convertible Note Shares Shelf Registration Statement have been
sold pursuant to such Convertible Note Shares Shelf Registration Statement or
otherwise.
The Company will provide to each holder of Convertible Note Shares copies of
the prospectus which is a part of the Convertible Note Shares Shelf
Registration Statement, notify each such holder when the Convertible Note
Shares Shelf Registration Statement has become effective and take certain
other actions, subject to compliance by such holder with certain conditions in
the Registration Rights Agreement, as are required to permit unrestricted
resales of the Convertible Note Shares.
Each holder of Convertible Note Shares that sells such Convertible Note
Shares pursuant to the Convertible Note Shares Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to the purchaser, will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such shares and will be bound by certain provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
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WARRANTS
Registration of the Warrants. The Company is required, under the terms of
the Registration Rights Agreement, to (i) file a shelf registration statement
with respect to resale of the Warrants by the holders thereof (the "Warrant
Shelf Registration Statement") with the Commission within 60 days after the
date of original issuance of the Initial Warrants; (ii) cause the Warrant
Shelf Registration Statement to be declared effective under the Securities Act
within 120 days after the date of original issuance of the Initial Warrants;
and (iii) keep effective the Warrant Shelf Registration Statement until the
earlier of (A) such time as all Initial Warrants have been sold thereunder or
otherwise or exercised and (B) three years after its effective date; provided,
however, that in the event the Company is required to issue Contingent
Warrants or Additional Warrants, the Company shall amend the Warrant Shelf
Registration Statement to include the Contingent Warrants and the time period
shall be three years after the issuance of the Contingent Warrants or
Additional Warrants, as the case may be.
The Company will provide to each holder of Warrants copies of the prospectus
which is a part of the Warrant Shelf Registration Statement, notify each such
holder when the Warrant Shelf Registration Statement has become effective and
take certain other actions as are required to permit unrestricted resales of
the Warrants.
Each holder of Warrants that sells such Warrants pursuant to the Warrant
Shelf Registration Statement generally will be required to be named as a
selling securityholder in the related prospectus and to deliver a prospectus
to the purchaser, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
certain provisions of the Registration Rights Agreement which are applicable
to such holder (including certain indemnification obligations).
Holders of Warrants will be able to exercise their Warrants only if a
registration statement relating to the Warrant Shares is then effective under,
or the exercise of such Warrants is exempt from the registration requirement
of, the Securities Act.
Registration of the Warrant Shares. The Company also is required, under the
terms of the Registration Agreement, to (i) file a shelf registration
statement with respect to the Company's issuance of the Warrant Shares to
holders upon exercise of the Warrants (the "Warrant Shares Shelf Registration
Statement") with the Commission within 270 days after the date of original
issuance of the Initial Warrants, (ii) cause the Warrant Shares Shelf
Registration Statement to be declared effective under the Securities Act
within 360 days after the date of original issuance of the Initial Warrants
and (iii) keep effective the Warrant Shares Shelf Registration Statement (or a
successor registration statement thereto) until eight years after the Issue
Date of the Convertible Notes or such shorter period that will terminate when
all the Warrant Shares covered by such Warrant Shares Shelf Registration
Statement have been sold pursuant to such Warrant Shares Shelf Registration
Statement or otherwise.
The Company will, upon the filing of the Warrant Shares Shelf Registration
Statement, provide to each holder of Warrant Shares copies of the prospectus
which is a part of the Warrant Shares Shelf Registration Statement, notify
each such holder when the Warrant Shares Shelf Registration Statement has
become effective and take certain other actions, subject to compliance by such
holder with certain conditions in the Registration Rights Agreement, as are
required to permit unrestricted resales of the Warrant Shares.
Each holder of Warrant Shares that sells such Warrant Shares pursuant to the
Warrant Shares Shelf Registration Statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to the purchaser, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such shares and will be
bound by certain provisions of the Registration Rights Agreement which are
applicable to such holder (including certain indemnification obligations). In
addition, each holder of Warrant Shares will be required to deliver
information to be used in connection with the Warrant Shares Shelf
Registration Statement in order to have its Warrant Shares included in the
Warrant Shares Shelf Registration Statement.
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 2,650,000 shares of
capital stock, consisting of 2,550,000 shares of Common Stock, par value $.01
per share, of which 2,500,000 shares are designated as Class A Common Stock
and 50,000 shares are designated as Class B Common Stock, and 100,000 shares
are designated as Preferred Stock, par value $1.00 per share.
COMMON STOCK
The holders of Common Stock are entitled to receive dividends when and as
dividends are declared by the Board of Directors of the Company out of funds
legally available therefor, provided that if any shares of Preferred Stock are
at the time outstanding, the payment of dividends on the Common Stock or other
distributions may be subject to the declaration and payment of full cumulative
dividends on outstanding shares of Preferred Stock. If stock dividends are
declared, holders of Class A Common Stock will receive shares of Class A
Common Stock and holders of Class B Common Stock will receive shares of Class
B Common Stock.
Except for matters where applicable law requires the approval of one or both
classes of Common Stock voting as separate classes, holders of Class A Common
Stock are entitled to one vote per share on all matters submitted to a vote of
the stockholders, including the election of directors. Unless required by law,
holders of Class B Common Stock are not entitled to voting rights.
Shares of Class A Common Stock are convertible into Class B Common Stock on
a one-to-one basis at any time at the option of the holders thereof.
Upon any liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, any assets remaining after the
satisfaction in full of the prior rights of creditors and the aggregate
liquidation preference of any Preferred Stock then outstanding will be
distributed to the holders of Class A Common Stock and Class B Common Stock,
ratably as a single class in proportion to the number of shares held by them.
In the event of a reorganization, consolidation or merger of the Company,
each holder of a share of Class A Common Stock shall be entitled to receive
the same kind and amount of property receivable by a holder of a share of
Class B Common Stock and each holder of a share of Class B Common Stock shall
be entitled to receive the same kind and amount of property receivable by a
holder of Class A Common Stock.
TRANSFER AGENT AND REGISTRAR OF CLASS A COMMON STOCK
The transfer agent and registrar for the Class A Common Stock is Harris
Trust and Savings Bank.
PREFERRED STOCK
The authorized but unissued Preferred Stock may be issued by the Board of
Directors of the Company from time to time in one or more series with such
preferences, terms and rights as the Board of Directors may determine without
further action by the stockholders of the Company. Accordingly, the Board of
Directors has the power to fix the dividend rate and to establish the
provisions, if any, relating to dividends, voting rights, redemption rates,
sinking funds, liquidation preferences and conversion rights for any series of
Preferred Stock issued in the future. Currently, the Company has 30,000 shares
of Preferred Stock authorized for issuance, all of which has been designated
as 9% Cumulative Convertible PIK Preferred Stock (the "9% Preferred Stock").
In connection with the Offering, the Company issued 10,000 shares of its 9%
Preferred Stock. The 9% Preferred Stock has a liquidation preference and
stated value of $1,000 per share. Dividends will accrue semiannually at a rate
of 9% per annum and be fully cumulative. Dividends are payable in additional
shares of 9% Preferred Stock. In the event of any liquidation, dissolution or
winding up of the Company, holders of the
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9% Preferred Stock will be entitled to receive their full liquidation
preference per share, together with accrued and unpaid dividends, prior to the
distribution of any assets of the Company to holders of Common Stock.
Shares of 9% Preferred Stock are not redeemable at the option of the
Company, but are subject to mandatory redemption in 2006 at the stated value,
together with all accrued and unpaid dividends to the redemption date.
The shares of 9% Preferred Stock are convertible into shares of Class A
Common Stock, at any time, in whole or from time to time in part, at the
option of the holders thereof.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of the Preferred Stock pursuant to the
Board of Directors' authority described above may adversely affect the rights
of the holders of Common Stock. For example, Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director of the Company
will not be personally liable for monetary damages to the Company or its
stockholders for breach of fiduciary duty as a director, except for liability,
(i) for any breach of the director's duty of loyalty to such corporation or
its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemption as
provided in Section 194 of the Delaware General Corporation Law (the "DGCL")
or (iv) for any transaction from which the director derived an improper
personal benefit.
This provision is intended to afford directors additional protection and
limit their potential liability from suits alleging a breach of the duty of
care by a director. As a result of the inclusion of such a provision,
stockholders may be unable to recover monetary damages against directors for
actions taken by them that constitute negligence or gross negligence or that
are otherwise in violation of their fiduciary duty of care, although it may be
possible to obtain injunctive or other equitable relief with respect to such
actions. If equitable remedies are found not to be available to stockholders
in any particular situation, stockholders may not have an effective remedy
against a director in connection with such conduct.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws provide that directors and officers of the Company shall be
indemnified against liabilities arising from their service as directors and
officers. Additionally, the Company has entered into indemnification
agreements with each of its executive officers and directors to reimburse them
for certain liabilities incurred in connection with the performance of their
fiduciary duties. Section 145 of the DGCL ("Section 145") empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding 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 action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
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Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of
the capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless, and only to the extent that, the Court of Chancery or the
court in which such action was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such liabilities
under Section 145.
There has not been in the past and there is not presently pending any
litigation or proceeding involving a director, officer, employee or agent of
the Company which could give rise to an indemnification obligation on the part
of the Company. In addition, except as described herein, the Board of
Directors is not aware of any threatened litigation or proceeding which may
result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences of an exchange of Old Notes for New Notes and the ownership
of New Notes, as well as certain potential federal income tax consequences to
the Company with respect to the Notes. Except where noted, it deals only with
Old Notes and New Notes held as capital assets by initial purchasers of Old
Notes that are United States holders and does not deal with special
situations, such as those of foreign persons, dealers in securities, financial
institutions, life insurance companies, holders whose "functional currency" is
not the U.S. dollar, or special rules with respect to integrated transactions
of which the ownership of common stock is a part (such as certain hedging
transactions), or certain "straddle" transactions. Furthermore, the discussion
below is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed,
revoked or modified so as to result in federal income tax consequences
different from those discussed below. HOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSIDERATIONS THAT MAY BE SPECIFIC
TO THEM OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP OF THE
NEW NOTES, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION.
EXCHANGE OF SENIOR NOTES
There should be no federal income tax consequences to holders exchanging Old
Notes for New Notes pursuant to the Exchange Offer since the Exchange Offer
will be by operation of the original terms of the Old Notes, pursuant to a
unilateral act by the Company and will not result in any material alteration
in the terms of the Old Notes. Each exchanging holder will have the same
adjusted tax basis and holding period in the New Notes as it had in the Old
Notes immediately before the exchange.
TAXATION OF THE SENIOR NOTES
Original Issue Discount. Because the Old Notes were issued with original
issue discount ("OID"), the New Notes will also bear OID that holders
generally will be required to include in income as it accrues on a yield-to-
maturity basis over the term of the New Notes in advance of cash payments
attributable to such income (regardless of whether the holder is a cash or
accrual basis taxpayer). The amount of OID with respect to a New Note will be
the excess of the stated redemption price at maturity of such New Note over
its issue price. The stated redemption price at maturity will include all
payments required to be made on the New Notes whether denominated as principal
or interest (other than payments subject to remote or incidental
contingencies). The Company intends to treat the payment of Special Interest
and the issuance of Contingent Warrants as subject to such contingencies,
which treatment is binding on holders unless a holder explicitly discloses on
its tax return for the taxable year that includes the acquisition date of Old
Notes that its treatment is different. The Company's treatment is not,
however, binding on the Internal Revenue Service (the "IRS").
The issue price of the New Notes is equal to the issue price of the Old
Notes. The issue price of the Old Notes, which is the same as the issue price
of the New Notes, was determined by allocating the issue price of the Units
between the Old Notes and the Warrants based on their relative fair market
values. For this purpose, the issue price of a Unit was the initial price at
which a substantial portion of the Units were sold (not including sales to
bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters or wholesalers). With respect to the $ million
in aggregate proceeds received from the offering of the Units, the Company
allocated approximately $ million to the Old Notes and $ million to the
Initial Warrants. This allocation reflected the Company's judgment as to the
relative values of those instruments at the time of issuance. The allocation
is binding on a holder unless such holder explicitly discloses on its tax
return for the taxable year that includes the acquisition date of the Unit
that its allocation is different from that of the Company. The allocation is
not, however, binding on the IRS.
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A holder of a debt instrument that bears OID is required to include in gross
income an amount equal to the sum of the daily portions of OID for each day
during the taxable year in which the debt instrument is held. The daily
portions of OID are determined by allocating to each day in an accrual period
the pro rata portion of the OID that is allocable to the accrual period. The
amount of OID that is allocable to an accrual period with respect to the New
Notes is generally equal to the product of the adjusted issue price of the New
Notes at the beginning of the accrual period (the issue price of the New Notes
determined as described above, generally increased by all prior accruals of
OID with respect to the Old Notes and the New Notes) and the New Notes' yield-
to-maturity (the discount rate, which, when applied to all payments under the
Old Notes and the New Notes, results in a present value equal to the issue
price of the New Notes). In the case of the final accrual period, the
allocable OID generally is the difference between the amount payable at
maturity and the adjusted issue price at the beginning of the accrual period.
The Company will furnish annually to the IRS and to holders (other than with
respect to certain exempt holders, including, in particular, corporations)
information with respect to the OID accruing while the Senior Notes were held
by the holders.
Premium. If a holder purchased an Old Note for an amount that is greater
than such Note's stated redemption price at maturity, such holder will be
considered to have purchased such Note with "amortizable bond premium" equal
in amount to such excess, and generally will not be required to include OID in
income. A holder may elect to amortize such premium, using a constant yield
method, over the remaining term of such Note with reference to either the
amount payable on maturity or, if it results in a smaller premium attributable
to the period through the earlier call date, with reference to the amount
payable on the earlier call date. An election to amortize bond premium applies
to all taxable debt obligations then owned and thereafter acquired by the
holder and may be revoked only with the consent of the IRS.
If a holder of a New Note (including an original purchaser of an Old Note)
purchased the Old Note exchanged therefor for an amount greater than the Old
Note's adjusted issue price but less than such Note's stated redemption price
at maturity, then the holder will be required to include annual accruals of
OID in gross income in accordance with the rules described above; however, the
amount of OID includable in income will be reduced to reflect such acquisition
premium. The includable OID (as otherwise determined) will be reduced by an
amount equal to the OID multiplied by a fraction, the numerator of which is
such excess and the denominator of which is the OID for the period from the
date of acquisition until the maturity date.
Convertible Note Contingent Warrants. In the event that the Company does not
effect a Qualified Public Offering within 18 months following the date of the
original issuance of the Old Notes, the Senior Note Indenture will require the
Company to issue Senior Note Contingent Warrants to the holders of the Senior
Notes. The issuance of the Contingent Warrants should not result in a deemed
taxable exchange of the Senior Notes for federal income tax purposes. The
Company intends to treat the issuance of Contingent Warrants, if any, as
interest for federal income tax purposes in an amount equal to their fair
market value on the date of issuance.
Disposition of New Notes. A holder will generally recognize gain or loss
upon the sale, exchange, retirement or other disposition of New Notes equal to
the difference between the amount realized on the disposition and the holder's
adjusted tax basis in the New Notes. A holder's adjusted tax basis in a New
Note will generally be the cost of the Old Note, increased by any OID
previously included in income by such holder and decreased by the amount of
any deductions for amortizable bond premium. Such gain or loss generally would
be capital gain or loss and would be long-term if the holding period for the
New Notes (which includes the holding period of the Old Notes) is more than
one year.
Backup Withholding. Under certain circumstances, a holder may be subject to
backup withholding at a 31% rate on payments received with respect to the New
Notes. This withholding generally applies only if the holder (i) fails to
furnish his or her social security or other taxpayer identification number
("TIN"), (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he
or she has failed to report payment of interest and dividends properly and the
IRS has notified the Company that he or she is subject to backup withholding
or (iv) fails, under
110
<PAGE>
certain circumstances, to provide a certified statement, signed under penalty
of perjury, that the TIN provided is his or her correct number and that he or
she is not subject to backup withholding. Any amount withheld from a payment
to a holder under the backup withholding rules is allowable as a credit
against such holder's federal income tax liability, provided that the required
information is furnished to the IRS. Certain holders (including, among others,
corporations and foreign individuals who comply with certain certification
requirements) are not subject to backup withholding. Holders should consult
their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
CERTAIN POTENTIAL FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND TO
CORPORATE HOLDERS.
The Senior Notes will constitute applicable high yield discount obligations
("AHYDOs") if their yield-to-maturity is greater than the sum of the relevant
applicable Federal rate (the "AFR") plus five percentage points and the Senior
Notes were issued with significant OID. In such event, the Company will not be
entitled to deduct OID that accrues with respect to such Notes until amounts
attributable to such OID are paid. In addition, if the Senior Notes are AHYDOs
and the yield-to-maturity of the Senior Notes exceeds the sum of the relevant
AFR plus six percentage points (the "Excess Yield"), the Company's deduction
for the "disqualified portion" of the OID accruing on the Senior Notes will be
disallowed. In general, the "disqualified portion" of the OID for any accrual
period will be equal to the product of (i) the Excess Yield divided by the
yield-to-maturity on the Senior Notes, and (ii) the OID for the accrual
period. Subject to otherwise applicable limitations, holders that are U.S.
corporations will be entitled to a dividends-received deduction (generally at
a current rate of 70%) with respect to any disqualified portion of the accrued
OID to the extent that the Company has sufficient current or accumulated
earnings and profits. If the disqualified portion exceeds the Company's
current and accumulated earnings and profits, the excess will continue to be
taxed as ordinary OID income in accordance with the rules described above in
"Original Issue Discount."
It is also possible that some or all of the Notes may constitute "corporate
acquisition indebtedness" if, among other things, the proceeds of the Notes
are used to pay for the purchase of stock or at least two-thirds of the
operating assets of another corporation. To the extent the Notes constitute
corporate acquisition indebtedness, under Section 279 of the Code the maximum
amount of interest or original issue discount the Company can deduct with
respect thereto in any taxable year is $5 million, reduced by any interest
incurred on indebtedness to acquire stock or operating assets but which does
not qualify as corporate acquisition indebtedness.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, including the Exxon Capital Letter,
the Morgan Stanley Letter and similar letters, the Company believes that the
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise transferred by any Holder thereof
(other than any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement with any person to
participate in the distribution of such New Notes. Accordingly, any Holder
using the Exchange Offer to participate in a distribution of the New Notes
will not be able to rely on such no-action letters. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a
period of 180 days from the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until March , 1997 (90 days from the date
of this Prospectus), all dealers effecting transactions in the New Notes may
be required to deliver a prospectus.
111
<PAGE>
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver, and by delivering, a prospectus as required, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days from the Expiration Date, the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company will pay all the expenses
incident to the Exchange Offer (which shall not include the expenses of any
Holder in connection with resales of the New Notes). The Company has agreed to
indemnify the Initial Purchasers and any broker-dealers participating in the
Exchange Offer against certain liabilities, including liabilities under the
Securities Act.
This Prospectus has been prepared for use by the Initial Purchasers in
connection with offers and sales of the Notes, the Warrants and the Class A
Common Stock underlying the Warrants and the Convertible Notes, in market-
making transactions at negotiated prices related to prevailing market prices
at the time of sale. The Initial Purchasers may act as principal or agent in
such transactions. The Initial Purchasers have advised the Company that they
currently intend to make a market in the Notes, the Warrants and the Class A
Common Stock but they are not obligated to do so and may discontinue any such
market-making at any time without notice. Accordingly, no assurance can be
given that an active trading market will develop for or as to the liquidity of
the Notes, the Warrants or the Class A Common Stock.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom (Illinois).
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1994 and for the fiscal years then ended included in this Prospectus and
the related financial statement schedules included elsewhere in this
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in this
Registration Statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
112
<PAGE>
GLOSSARY
ACCESS CHARGES--The fees paid by IXCs to LECs for originating and
terminating long distance calls on their local networks.
CAP (Competitive Access Provider)--A company that provides its subscribers
with an alternative to the local telephone company for local transport of
private line, special access and interstate transport of switched access
telecommunications services. CAPs are also referred to in the industry as
alternative local telecommunications service providers (ALTs) and metropolitan
area network providers (MANs) and were formerly referred to as alternative
access vendors (AAVs).
CENTRAL OFFICES--The switching centers or central switching facilities of
the LECs.
CENTREX--Centrex is a service that offers features similar to those of a
Private Branch Exchange (PBX), except the equipment is located at the
carrier's premises and not at the premises of the subscriber. These features
include direct dialing within a given phone system, direct dialing of incoming
calls, and automatic identification of outbound calls. This is a value added
service that carriers can provide to a wide range of subscribers who do not
have the size or the funds to support their own on-site PBX.
CHURN--The effect of a subscriber electing an alternative telecommunications
provider after having been provided with the telecommunications services of
the Company.
CO-CARRIER STATUS--A relationship between competitive local exchange
carriers ("CLECs") that affords the same access to and rights on each other's
networks, and that provides access and services on an equal basis.
COLLOCATION--The ability of a CLEC such as the Company to connect its
network to the LEC's central offices. Physical collocation occurs when a CLEC
places its network connection equipment inside the LEC's central offices.
Virtual collocation is an alternative to physical collocation pursuant to
which the LEC permits a CLEC to connect its network to the LEC's central
offices at competitive prices, even though the CLEC's network connection
equipment is not physically located inside the central offices.
DEDICATED LINES--Telecommunications lines dedicated or reserved for use
exclusively by particular subscribers along predetermined routes (in contrast
to telecommunications lines within the LEC's public switched network).
DEDICATED SERVICES--Special access, switched transport and private line
services generally offered by CLECs, including the Company.
DIVESTITURE--In 1982, the Department of Justice and AT&T entered into the
Modified Final Judgment (the "MFJ") which resulted in the break-up of AT&T's
monopoly over local and long distance services. This judgment established
seven separate regionally based local switched bell operating companies and
essentially laid the ground work for intense competition in the newly defined
long distance segment of the telecommunications market.
FCC--Federal Communications Commission.
FIBER OPTICS--Fiber optic cable is the medium of choice for the
telecommunications and cable industries. Fiber is immune to electrical
interference and environmental factors that affect copper wiring and satellite
transmission. Fiber optic technology involves sending laser light pulses
across glass strands in order to transmit digital information. A strand of
fiber optic cable is as thick as a human hair yet is said to have more
bandwidth capacity than copper cable the size of a telephone pole.
FRAME RELAY--Frame Relay is a high-speed data packet switching service used
to transmit data between computers. Frame Relay supports data units of
variable lengths at access speeds ranging from 56kbs to 1.5 mbs. This service
is ideal for connecting LANS, but is not appropriate for voice and video
applications due to the variable delays that can occur. Frame Relay was
designed to operate at higher speeds on modern fiber optic networks.
113
<PAGE>
INTERCONNECTION DECISIONS--Rulings by the FCC announced in September 1992
and August 1993, which require the RBOCs and most other LECs to provide
interconnection in LEC central offices to any CLEC, long distance carrier or
end user seeking such interconnection for the provision of interstate special
access and switched access transport services.
INTEREXCHANGE CARRIERS OR IXCS--See Long Distance Carrier.
LANS (Local Area Networks)--The interconnection of computers for the purpose
of sharing files, programs and various devices such as work stations, printers
and high-speed modems. LANs may include dedicated computers or file servers
that provide a centralized source of shared files and programs.
LATAS (Local Access and Transport Areas)--The geographically defined areas
in which LECs are authorized by the MFJ to provide local switched services.
LECS (Local Exchange Carriers)--Companies providing local telephone
services.
LOCAL EXCHANGE AREAS--A geographic area determined by the appropriate state
regulatory authority in which local calls generally are transmitted without
toll charges to the calling or called party.
LONG DISTANCE CARRIERS OR INTEREXCHANGE CARRIERS--Long distance carriers
provide services between local exchanges on an interstate or intrastate basis.
A long distance carrier may offer services over its own or another carrier's
facilities. Long distance carriers include, among others, AT&T, MCI, Sprint
and WorldCom, as well as resellers of long distance capacity.
POPS (Point of Presence)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PRIVATE LINE--A private, dedicated telecommunications line connecting
different locations (excluding long distance carrier POPs).
PROVISIONING--The process of initiating a carrier's service to a subscriber.
RBOCS (Regional Bell Operating Companies)--The seven local telephone compa-
nies established by the MFJ. These RBOCs are prohibited from providing inter-
LATA services and from manufacturing telecommunications equipment.
RESELLER--A company which does not own its own transmission facilities and
contracts with facilities-based carriers for the transmission of its
subscribers' long distance calls. In essence, a reseller buys excess capacity
(in minutes) from large facilities-based carriers at volume discounts and
sells services (minutes) to subscribers at reduced cost.
SPECIAL ACCESS SERVICES--The lease of private, dedicated telecommunications
lines or "circuits" along the network of a LEC or a CLEC (such as the
Company), which lines or circuits run to or from the long distance carrier
POPs. Examples of special access services are telecommunications lines running
between POPs of a single long distance carrier, from one long distance carrier
POP to the POP of another long distance carrier or from a subscriber to its
long distance carrier POP. Special access services do not require the use of
switches.
SWITCH--A sophisticated computer that accepts instructions from a caller in
the form of a telephone number. Like an address on an envelope, the numbers
tell the switch where to route the call. The switch opens or closes circuits
or selects the paths or circuits to be used for transmission of information.
Switching is a process of interconnecting circuits to form a transmission path
between users. Switches allow local telecommunications service providers to
connect calls directly to their destination, while providing advanced features
and recording connection information for future billing.
SWITCHED ACCESS SERVICES--The origination or termination of long distance
traffic between a customer premise and an IXC POP via shared local trunks
using a local switch.
SWITCHED TRANSPORT SERVICES--Transportation of switched traffic along
dedicated lines between the LEC central offices and interexchange POPs.
SWITCHED TRAFFIC--Telecommunications traffic along a switched network.
TELECOMMUNICATIONS ACT--The Telecommunications Act of 1996.
114
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED USN, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Consolidated Financial Statements for the periods ended December
31, 1994 and 1995:
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Redeemable Preferred Stock and Common
Stockholders' Equity.................................................. F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
Unaudited Condensed Consolidated Financial Statements for the nine months
ended
September 30, 1995 and 1996:
Condensed Consolidated Balance Sheets.................................. F-15
Condensed Consolidated Statements of Operations........................ F-16
Condensed Consolidated Statements of Cash Flows........................ F-17
Notes to Condensed Consolidated Financial Statements................... F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
United USN, Inc.
Chicago, Illinois
We have audited the accompanying consolidated financial statements of United
USN, Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1994,
and for the year ended December 31, 1995 and the period from April 20, 1994
(inception) to December 31, 1994, listed in the table of contents. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for the year ended December 31, 1995 and the period from
April 20, 1994 (inception) to December 31, 1994, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 15, 1996
F-2
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ------------ -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................... $ 13,705,025 $ 5,979,222
Accounts receivable (net of allowance for doubtful
accounts:
1995--$192,652; 1994--$81,330)..................... 1,184,453 862,208
Prepaid expenses.................................... 171,111 125,543
Note receivable..................................... 76,204
Interest receivable................................. 61,015
Net assets held for sale............................ 1,453,699
------------ -----------
Total current assets.............................. 16,575,303 7,043,177
Property and Equipment--net........................... 1,214,647 4,749,728
Other Assets.......................................... 2,681,255 954,368
------------ -----------
Total assets...................................... $ 20,471,205 $12,747,273
============ ===========
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY
--------------------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable.................................... $ 2,734,122 $ 1,155,365
Accrued expenses and other liabilities.............. 1,106,010 782,802
Current maturities on notes payable................. 409,348 63,670
Capital lease obligations--current.................. 75,192 93,958
------------ -----------
Total current liabilities......................... 4,324,672 2,095,795
Capital Lease Obligations--Noncurrent................. 81,391 3,026,430
Notes Payable......................................... 436,825 149,708
------------ -----------
Total liabilities................................. 4,842,888 5,271,933
Redeemable Preferred Stock:
Series A 10% Senior Cumulative preferred stock: par
value $1;
1995: 20,000 shares authorized; 16,200 shares
outstanding;
1994: 50,000 shares authorized; 16,200 shares
outstanding; liquidation value $1,000 per share.... 16,200 16,200
Series A-2 10% Senior Cumulative preferred stock:
par value $1; 1995:
30,000 shares authorized; 26,235 shares
outstanding; liquidation value $1,000 per share.... 26,235
Accumulated unpaid dividends........................ 3,810,000 707,000
Additional paid-in capital.......................... 40,543,605 14,582,350
------------ -----------
Total redeemable preferred stock.................. 44,396,040 15,305,550
Common Stockholders' Equity:
Common stock: par value $.01:
1995--500,000 shares authorized; 313,739 shares
outstanding;
1994--200,000 shares authorized; 177,840 shares
outstanding........................................ 3,137 1,778
Additional paid-in capital.......................... 282,955 21,801
Accumulated deficit................................. (29,053,815) (7,853,789)
------------ -----------
Total common stockholders' equity................. (28,767,723) (7,830,210)
------------ -----------
Total Liabilities, Redeemable Preferred Stock and
Common Stockholders' Equity...................... $ 20,471,205 $12,747,273
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 AND PERIOD FROM
APRIL 20, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Net service revenue................................. $ 7,883,890 $ 1,737,461
Cost of services.................................... 9,075,749 1,454,882
------------ -----------
Gross margin.................................... (1,191,859) 282,579
------------ -----------
Expenses:
Sales and marketing............................... 5,867,200 2,869,463
General and administrative........................ 10,131,390 4,685,894
Amortization of intangibles....................... 969,271
------------ -----------
Operating loss...................................... (18,159,720) (7,272,778)
------------ -----------
Other income (Expense):
Interest income................................... 586,946 152,099
Interest expense.................................. (733,566) (26,110)
Other income...................................... 59,314
------------ -----------
Other income--net............................... (87,306) 125,989
------------ -----------
Net loss before minority interest................... (18,247,026) (7,146,789)
Minority interest share in loss of USNCN............ 150,000
------------ -----------
Net loss............................................ $(18,097,026) $(7,146,789)
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995 AND PERIOD FROM
APRIL 20, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK COMMON STOCKHOLDERS' EQUITY
------------------------------------------- ----------------------------------
SERIES
SERIES A A-2 ACCUMULATED ADDITIONAL ADDITIONAL
PREFERRED PREFERRED UNPAID PAID-IN- PAID-IN ACCUMULATED
STOCK STOCK DIVIDENDS CAPITAL PAR VALUE CAPITAL DEFICIT
--------- --------- ----------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 20, 1994.
Issuance of 16,200
shares of Series A
10% Senior Cumulative
preferred stock...... $16,200 $15,212,824
Issuance of 177,840
shares of common
stock................ $1,778 $ 236,661
Costs incurred related
to issuance of stock. (630,474) (214,860)
Accumulated unpaid
preferred dividends.. $ 707,000 $ (707,000)
Net loss.............. (7,146,789)
------- ---------- ----------- ------ --------- ------------
Balance, December 31,
1994................... 16,200 707,000 14,582,350 1,778 21,801 (7,853,789)
Issuance of 26,235
shares of Series A-2
10% Senior Cumulative
preferred stock...... $26,235 26,208,765
Issuance of 135,899
shares of common
stock................ 1,359 263,644
Costs incurred related
to issuance of stock. (247,510) (2,490)
Accumulated unpaid
preferred dividends.. 3,103,000 (3,103,000)
Net loss.............. (18,097,026)
------- ------- ---------- ----------- ------ --------- ------------
Balance, December 31,
1995................... $16,200 $26,235 $3,810,000 $40,543,605 $3,137 $ 282,955 $(29,053,815)
======= ======= ========== =========== ====== ========= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 AND PERIOD FROM
APRIL 20, 1994 (INCEPTION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(18,097,026) $(7,146,789)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization................... 1,288,991 159,685
Amortization of organization costs and
intangibles.................................... 969,271 26,376
Allowance for doubtful accounts................. 111,322 81,330
Loss on disposal of assets...................... (16,274)
Changes in:
Accounts receivable........................... (433,567) (943,538)
Prepaid expenses.............................. 13,082 (37,624)
Interest receivable........................... (61,015)
Account payable............................... 1,578,757 953,465
Accrued expenses and other liabilities........ 338,412 766,532
------------ -----------
Net cash flows from operating activities.... (14,308,047) (6,140,563)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment................ (1,739,542) (1,728,327)
Purchase of subsidiary............................ (892,287)
Organization costs................................ (161,702)
Cash acquired from purchase of subsidiaries....... 331,975
Issuance of noncurrent notes receivable........... (150,000)
Proceeds from note receivable..................... 76,204
------------ -----------
Net cash flows from investing activities.... (2,555,625) (1,708,054)
------------ -----------
Cash flows from financing activities:
Issuance of preferred stock....................... 26,235,000 14,850,000
Issuance of common stock.......................... 265,003 150,000
Costs incurred related to issuance of stock....... (250,000) (845,334)
Deposits.......................................... (20,855) (555,270)
Proceeds from borrowings.......................... 180,000
Payments on assumed Quest indebtedness............ (1,459,458)
Proceeds from notes payable....................... 46,645 73,504
Repayment of notes payable........................ (71,588) (8,330)
Repayment of capital lease obligation............. (155,272) (16,731)
------------ -----------
Net cash flows from financing activities.... 24,589,475 13,827,839
------------ -----------
Net increase in cash................................ 7,725,803 5,979,222
Cash and cash equivalents--Beginning of period...... 5,979,222
------------ -----------
Cash and cash equivalents--End of period............ $ 13,705,025 $ 5,979,222
============ ===========
Supplemental cash flow information--See Note 3
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND PERIOD FROM
APRIL 20, 1994 (INCEPTION) TO DECEMBER 31, 1994
1. ORGANIZATION AND ACQUISITIONS
United USN, Inc. ("United") was incorporated under the laws of the State of
Delaware on April 20, 1994 and was initially funded in 1994 through capital
contributions totaling $15 million in cash, before financing costs. In June
1995, United received additional capital contributions of approximately $26
million. United holds controlling investments in two companies: US Network
Corporation and United Telemanagement Services, Inc.
On April 20, 1994, United purchased US Network Corporation ("US Network")
and its 100% subsidiary, FoneNet/Ohio, Inc. ("FoneNet"), in exchange for 1,350
shares of United's preferred stock and 31,500 shares of its common stock. This
transaction was accounted for as a purchase and was valued at US Network's net
book value of approximately $467,000 as acquired assets consisted primarily of
cash and certain organization costs, net of current liabilities. US Network
provides a broad range of telecommunication services in the central business
districts of major cities in Ohio. The 1994 consolidated statement of income
includes the results of operations of US Network since April 20, 1994.
In July 1994, United purchased a 50.1% ownership interest in USN
Communications Northeast, Inc. ("USNCN") for approximately $2 million. Based
in New York City, USNCN provides a broad range of telecommunications services
to business customers primarily in Manhattan. United has had substantive
control of USNCN since its inception. Therefore, the consolidated financial
statements include the results of operations for USNCN since its commencement
of operations in 1994 and no goodwill has been recorded. In December 1995,
United's ownership in USNCN increased to 83.9% as a result of the conversion
of demand notes and other indebtedness totaling $9.4 million, of which $1.5
million was outstanding at December 31, 1994, into Company common and
preferred stock.
In June 1995, USNCN (through a newly formed subsidiary, Quest United, Inc.)
purchased specific assets and assumed certain liabilities of an independent
telephone services company Quest America Management L.P. ("Quest"), for cash
of $950,000 and notes payable to investors of Quest of $842,985 (the
"Acquisition"). The Acquisition has been accounted for as a purchase, and such
assets and liabilities were recorded at their then fair values (which
approximated their historical cost bases) as of the Acquisition date. The
excess of the cost of the Acquisition over the net assets acquired has been
ascribed to various intangible assets (principally customer lists, employment
contracts and work force in place). Although, the consummation of the
Acquisition was subject to regulatory approval, USNCN had assumed substantive
control of Quest's operations as of the date of the Acquisition through the
infusion of equity and debt financing to Quest. Accordingly, the consolidated
statement of operations for the year ended December 31, 1995 include Quest's
revenues and expenses from the Acquisition date forward.
2. SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows:
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of United USN, Inc. and its subsidiaries (the
"Company"). Significant intercompany balances and transactions have been
eliminated in consolidation.
Revenue Recognition--The Company recognizes revenues in the period in which
telephone services are provided. Revenues for Quest are recorded at the net
commissions earned. If Quest's revenues had been recorded
F-7
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assuming a resale business, where revenues are recorded at the resale value
and gross margins are equal to the net commissions earned, the following would
have been recorded in 1995:
<TABLE>
<CAPTION>
CONSOLIDATED PROFORMA
AS STATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Net service revenue................ $ 7,883,890 $3,374,075 $11,257,965
Cost of services................... 9,075,749 3,374,075 12,449,824
----------- ---------- -----------
Gross margin................... $(1,191,859) $ -- $(1,191,859)
=========== ========== ===========
</TABLE>
Recourse Provisions--USNCN utilizes a third-party billing and collection
agency (the "Agency") to process and factor its accounts receivable, yet
retains the risk of loss on amounts that are deemed to be uncollectible in the
normal course of business. The Agency charges USNCN an allowance for estimated
bad debts on factored accounts receivable, subject to the recourse provisions,
using prior collection experience and industry statistics. Adjustments are
made between actual loss experience and estimated bad debt expenses on a
periodic basis by the Agency. At December 31, 1995, factored receivables of
approximately $828,000 are subject to such adjustment.
Cash and Cash Equivalents--Cash and cash equivalents are defined as cash in
banks, time deposits and highly liquid short-term investments with initial
maturities of three months or less.
Property and Equipment--Purchases of property and equipment are carried at
cost. Depreciation is provided on the straight-line basis. Furniture and
fixtures are depreciated over five years. Leasehold improvements and assets
leased under capital leases are amortized over the shorter of the related
lease term or the estimated useful life of the asset.
Intangible Assets--Costs incurred in the formation of the Company are being
amortized over five years. The intangible assets associated with the
acquisition of Quest are being amortized on a straight-line basis over two
years.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Capital lease obligations incurred (Notes 9 and
17).............................................. $3,398,105 $3,137,119
========== ==========
Fair value of US Network's noncash assets
acquired......................................... $ 623,659
Common and preferred stock issued in connection
with acquisition (Note 1)........................ 467,463
----------
Liabilities assumed........................... $ 156,196
==========
Fair value of Quest America Management L.P.
noncash assets acquired in 1995.................. $ 414,726
Consideration incurred in connection with the
Acquisition (including $950,000 in cash advances)
(Note 3)......................................... 3,104,588
----------
Liabilities assumed........................... $2,689,862
==========
Note payable to USNCN minority shareholder (Note
4)............................................... $ 149,708
Proceeds received upon issuance of note payable... (73,504)
----------
Note receivable from USNCN minority
shareholder (Note 4)......................... $ 76,204
==========
Note payable incurred to finance insurance
policies (Note 8)............................ $ 58,650 $ 72,000
========== ==========
</TABLE>
F-8
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash paid for interest in 1995 was approximately $613,000. No cash was paid
in 1994 for interest and in 1995 and 1994 for income taxes.
4. RELATED PARTY TRANSACTIONS
Note receivable of $76,204 at December 31, 1994 represents amounts due to
United from a minority stockholder of USNCN, at an interest rate of 9%, which
was paid during the first quarter of 1995.
Note payable of $149,708 at December 31, 1994 represents amounts due from a
minority stockholder of USNCN at an interest rate of 10%, which was exchanged
for an increased equity interest in USNCN in December 1995.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Furniture and equipment......................... $1,364,479 $ 629,865
Leasehold improvements.......................... 117,902 1,296,148
Switching equipment............................. 2,984,045
---------- ----------
1,482,381 4,910,058
Less accumulated depreciation................... (267,734) (160,330)
---------- ----------
Total....................................... $1,214,647 $4,749,728
========== ==========
</TABLE>
6. OTHER ASSETS
Other assets consist of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Intangibles (net of accumulated amortization
of $923,850)................................. $2,001,985 $ --
Deposits...................................... 426,902 605,270
Organization costs (net of accumulated
amortization:
1995--$73,432; 1994--$28,011)................ 153,677 199,098
Notes receivable.............................. 150,000
Other......................................... 98,691
---------- --------
Total..................................... $2,681,255 $954,368
========== ========
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Payroll and benefits............................ $ 548,775 $427,312
Professional services........................... 163,540 244,636
Excise taxes.................................... 117,812 57,462
Interest payable................................ 21,764
Rent............................................ 4,380 29,819
Other........................................... 249,739 23,573
---------- --------
Total....................................... $1,106,010 $782,802
========== ========
</TABLE>
F-9
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. NOTES PAYABLE
The Company issued notes payable of $58,650 and $72,000, in 1995 and 1994,
respectively, to finance insurance policies. The notes are payable in nine
monthly installments through August 1996 and 1995, respectively. Interest is
payable at 8.15% and 6.45%, respectively. The outstanding principal balance at
December 31, 1995 and 1994 was $52,308 and $63,670, respectively.
In 1995, the Company issued a note payable of $46,353 to finance
improvements to an office space. The note requires monthly principal payments
of $831 through July 2001. Interest is payable at 8%. At December 31, 1995,
the outstanding principal balance was $44,777.
In connection with the acquisition of Quest, USNCN assumed notes payable to
investors of Quest. The notes bear interest at 8% and the balances outstanding
at December 31, 1995 total $749,088. The notes require quarterly principal and
interest payments in 1996 and 1997 and in the first quarter of 1998.
Maturities on long-term debt are as follows:
<TABLE>
<S> <C>
1996............................ $409,348
1997............................ 386,474
1998............................ 27,152
1999............................ 8,418
2000............................ 9,117
Thereafter...................... 5,664
--------
Total....................... $846,173
========
</TABLE>
9. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital leases, at December 31,
1995 and 1994, as follows:
<TABLE>
<CAPTION>
1995 1994
-------- ----------
<S> <C> <C>
Switching equipment................................. $ -- $2,984,045
Computer equipment.................................. 221,855 153,074
-------- ----------
221,855 3,137,119
Less accumulated amortization....................... (73,003) (68,635)
-------- ----------
Total........................................... $148,852 $3,068,484
======== ==========
</TABLE>
Future minimum lease payments at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................ $ 91,445
1997............................ 64,916
1998............................ 21,151
1999............................ 3,339
--------
Total minimum lease
payments................... 180,851
Less imputed interest........... 24,268
--------
Present value of minimum
lease payments............. $156,583
========
</TABLE>
F-10
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. OPERATING LEASES
The Company leases certain office space and equipment under operating
leases. Future minimum lease commitments under noncancelable operating leases
as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.......................... $1,014,766
1997.......................... 1,080,878
1998.......................... 810,608
1999.......................... 424,991
2000.......................... 329,180
Thereafter.................... 193,599
----------
Total..................... $3,854,022
==========
</TABLE>
Rent expense for the year ended December 31, 1995 and the period from April
20, 1994 to December 31, 1994 was approximately $867,000 and $214,000,
respectively.
11. COMMITMENTS
USNCN has executed an exclusive agreement with an independent
telecommunications company ("TelCo One"), whereby TelCo One will allow USNCN
to establish a local private network on its infrastructure in which to provide
service to customers. All of USNCN's local service customers are provided
access to this network and, accordingly, a substantial portion of USNCN's
revenue is earned through the use of these access rights. Under this
agreement, TelCo One provides network maintenance, access to telephone
switches, and billing and collection services. The initial term of the
agreement expires in 2004. USNCN is entitled to renew such agreement for up to
ten years following its initial expiration.
On October 31, 1995, US Network entered into an agreement with an
independent telecommunications company ("TelCo Two") to allow US Network to
resell TelCo Two's local telephone service. The agreement is for a term of ten
years and contains a minimum purchase commitment of 150,000 business access
lines, which is measured by the number of lines in place on the last day of
each 12-month period. The agreement allows for an 18-month period before any
commitment levels are required to be met. At the end of the 18-month period,
US Network must pay, on an annual basis, for any cumulative shortfall of the
commitment amount (net of any cumulative excess over the commitment amount)
which exceeds 300,000 lines ("Shortfall Amount"). The amount to be paid is
calculated as the Shortfall Amount multiplied by $168. Even if no lines were
sold by US Network, the earliest required payment for the shortfall amount is
in 1999. So long as US Network maintains a cumulative net shortfall lower than
300,000 lines, no payments will be due to TelCo Two other than for normal
usage. At the end of the term, US Network will be required to pay for any
remaining cumulative net shortfall at an annual rate of $168 per line. If
there is no cumulative net shortfall at the end of the term, no additional
amount will be required to be paid by US Network. US Network can extend the
term for up to an additional three years to reduce the cumulative net
shortfall to zero before a payment would be required.
12. INCOME TAXES
The Company incurred net losses of $18,097,026 and $7,146,789 in 1995 and
1994, respectively. Accordingly, no provision for current Federal or state
income taxes has been made to the financial statements.
At December 31, 1995 and 1994, the Company had net operating loss carry-
forwards for income tax purposes of approximately $24,129,000 and $6,875,000,
respectively. The expiration periods for utilizing these operating losses
begin in 2009 for Federal tax purposes. Of the net operating loss carry-
forwards remaining at December 31, 1995, $12,286,000 can be applied only
against future taxable income of USNCN.
F-11
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's deferred tax asset components at December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net operating loss carry-forwards.............. $(9,121,000) $(2,555,000)
Accrued liabilities and asset valuation
reserves...................................... (195,000) (106,000)
Amortization of intangibles.................... (309,000)
----------- -----------
Subtotal................................... (9,625,000) (2,661,000)
Valuation allowance............................ 9,625,000 2,661,000
----------- -----------
Total...................................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1995 and 1994, the Company had not recognized deferred
income tax assets related to deductible temporary differences and cumulative
net operating losses. The ability of the Company to fully realize deferred tax
assets in future years is contingent upon its success in generating sufficient
levels of taxable income before the statutory expiration periods for utilizing
such net operating losses lapses. After an assessment of all available
evidence, including historical and projected operating trends, the Company was
unable to conclude that realization of such deferred tax assets in the near
future was more likely than not. Accordingly, a valuation allowance was
recorded to offset the full amount of such assets.
13. MINORITY INTEREST IN USNCN
At December 31, 1995 and 1994, no minority interest in USNCN has been
recorded on the balance sheet, as cumulative losses applicable to the minority
interest in USNCN exceed the minority interest in the equity capital of USNCN,
and there is no obligation of the minority interest to make good such losses.
As future earnings materialize, the minority interest will recognize the
benefit of those earnings only to the extent they exceed USNCN's accumulated
losses.
14. CAPITAL STOCK
Redeemable Preferred Stock
In 1995, the Board of Directors approved the designation of 20,000 shares of
the authorized preferred stock as Series A 10% senior cumulative preferred
stock ("Series A") and the remaining 30,000 shares as Series A-2 10% senior
cumulative preferred stock ("Series A-2"). The Company's stockholders of
Series A-2 and Series A are entitled to the following rights and privileges:
Dividends--All preferred stockholders are entitled to cumulative
dividends of 10% per annum on the sum of $1,000 per share plus all
accumulated and unpaid dividends. No dividends have been declared or paid
on the preferred stock. Dividends in arrears on preferred stock were
approximately $2,462,000 for Series A and $1,348,000 for Series A-2 at
December 31, 1995. No cash dividends may be paid on Series A so long as any
Series A-2 shares are still outstanding, other than as provided under the
liquidation and redemption preferences. No cash dividends may be paid on
common stock so long as any preferred stock remains outstanding.
Liquidation--Upon any liquidation of the Company, the holders of Series
A-2 shall be entitled to be paid up to $26.2 million, to redeem the
outstanding shares of Series A-2 before any distribution is made to any
other stockholders. After the full $26.2 million has been paid to Series A-
2 holders, the Series A-2 and Series A holders shall be entitled to be
paid, before any distribution is made to the common stockholders, $1,000
per share plus all accumulated and unpaid dividends.
F-12
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Redemption--Redemption rights can be exercised at $1,000 per share plus
all accrued and unpaid dividends for the holders of 33% or more of Series
A-2 and Series A stock outstanding after five years have elapsed from the
date of issuance of those shares. Special redemption rights are also
available to holders in the event of a change in ownership of the Company,
as defined in the Certificate of Designation. The Company cannot redeem any
shares of Series A so long as the Company has not redeemed any shares of
Series A-2 which the holder has requested to be redeemed. The Company
cannot redeem, purchase or acquire common stock so long as any preferred
stock remains outstanding, other than stock issued upon the exercise of
stock options.
In the event the Company fails to comply with the covenants in the agreement
with the preferred stockholders, the Company is required to increase the
dividend rate by 5%, with an additional increase of 2.5% for each succeeding
90-day period in which the Company remains in noncompliance. Additionally, the
preferred stockholders may demand immediate redemption of all or any portion
of their preferred stock at the aforementioned liquidation values. At December
31, 1995, the Company was in compliance with all covenants.
Common Stock
In October 1995, the Board of Directors approved the repricing of the common
stock issued in 1995 whereby the number of shares issued in 1995 would
increase from 135,899 to 246,056 and the purchase price would decrease from
$1.95 per share to $1.077. The result of this transaction will not change the
amount of total stockholders' equity at December 31, 1995. This transaction is
not reflected in the current financial statements as it had not been finalized
as of December 31, 1995.
15. STOCK OPTION PLAN
The Company has granted options to acquire shares of common stock to certain
officers and other employees. These options become exercisable at a rate of
25% every six months over a period of two years. The options are exercisable
at $1.10 per share, which was no less than the fair market value at the date
of grant, and expire in 2004. The Company has reserved 54,551 shares of common
stock for issuance upon exercise of stock options.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Outstanding at January 1................................... 21,300 --
Granted.................................................... 21,300
Cancelled.................................................. (2,250) --
------ ------
Outstanding at December 31................................. 19,050 21,300
------ ------
Options exercisable at December 31......................... 10,024 --
====== ======
</TABLE>
16. EMPLOYEE BENEFIT PLAN
On January 1, 1995, the Company adopted a qualified 401(k) plan covering all
eligible employees in which the Company contributions are discretionary.
Employees are permitted to make annual contributions through salary deductions
up to 15% of their annual salary. The plan can be amended or terminated at any
time by the Board of Directors. The Company made no contributions to the plan
in 1995.
F-13
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. NET ASSETS HELD FOR SALE
On December 29, 1995, the Company entered into an agreement to sell its
switch-based facilities in Ohio for $9.5 million in cash plus the assumption
of capital and operating leases. The net assets held at December 31, 1995 in
conjunction with this sale are as follows:
<TABLE>
<S> <C>
Switching equipment........................................... $6,233,557
Leasehold improvements........................................ 1,781,260
Outside plant and equipment................................... 423,424
Furniture and equipment....................................... 318,355
----------
8,756,596
Less accumulated depreciation................................. (1,181,587)
----------
Net property and equipment................................ 7,575,009
Deposits...................................................... 100,532
----------
Total assets.............................................. 7,675,541
----------
Less liabilities assumed:
Accrued liabilities......................................... 15,204
Capital lease obligations................................... 6,206,638
----------
Net assets held for sale.................................. $1,453,699
==========
</TABLE>
Additionally, approximately $2.0 million in operating leases will be assumed
by the buyer. The Company will remain contingently liable on capital and
operating leases assumed by the buyer.
The transaction closed on February 29, 1996 and a gain of approximately $8
million was realized. The transaction and the related gain will be recorded in
the 1996 results of the Company. The Company will continue to serve its
customer base as a reseller of telecommunication services.
18. CONTINGENCIES
Loss Contingencies--In 1994, USNCN was named as a defendant in a legal
matter which alleged that USNCN breached an implied contract in the use of a
concept, developed by the plaintiff, in establishing its business and
resulting operations. During 1995, this matter was dismissed in USNCN's favor.
USNCN is contractually required, through its customers, to provide a minimum
level of service volume to an independent carrier. As of December 31, 1995,
USNCN has not complied with prescribed volume requirements but believes that
assertion of a claim by the carrier is unlikely, given contractual
interpretations, past practices, ongoing business relationships, and the
mutual dependency of the parties. Based on an assessment of all such factors,
no amount has been recorded in USNCN's financial statements for settlement of
this exposure as management is unable to reasonably estimate the claim, if
any. However, it is possible that the ultimate resolution of this matter may
have an adverse effect on its financial position, results of operations and
cash flow in future periods.
Gain Contingency--USNCN has submitted a claim of approximately $1.4 million
with TelCo One requesting that certain revenues, purportedly not billed by
TelCo One to its customers, be paid to USNCN. TelCo One is in the process of
reviewing USNCN's claim and has not formally concluded on the amount or terms
of a settlement. While USNCN believes its claim has merit, it is unable to
predict, at this time, whether they will be successful in fully resolving this
matter favorably.
* * * * *
F-14
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................ $71,390,481 $19,238,964
Accounts receivable (net of allowance for doubtful
accounts:
1996--$220,549; 1995--$89,500)....................... 2,653,580 1,902,172
Prepaid expenses..................................... 61,677 91,512
Interest receivable.................................. 86,859 67,621
Other receivables.................................... 229,940 --
----------- -----------
Total current assets............................... 74,422,537 21,300,269
Property and equipment--net............................ 1,782,850 9,714,373
Other assets........................................... 11,877,699 4,025,485
----------- -----------
Total assets....................................... $88,083,086 $35,040,127
=========== ===========
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY
--------------------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable..................................... $ 4,174,694 $ 4,461,273
Accrued expenses and other liabilities............... 1,064,605 1,232,874
Capital lease obligations--current................... 260,444 1,111,007
Current maturities on notes payable.................. 355,860 1,446,511
----------- -----------
Total current liabilities.......................... 5,855,603 8,251,665
Capital lease obligations--noncurrent.................. 349,843 6,249,793
Notes payable.......................................... 154,871 510,731
14% Senior Discount Notes.............................. 48,500,000 --
Original Issue Discount--Senior Notes.................. (18,296,625) --
9% Convertible Subordinated Discount Notes............. 36,000,000 --
Original Issue Discount--Convertible Notes............. (8,355,600) --
----------- -----------
Total liabilities.................................. 64,208,092 15,012,189
Redeemable Preferred Stock:
Series A 10% Senior Cumulative preferred stock; par
value $1;
1995: 20,000 shares authorized; 16,200 shares
outstanding;
liquidation value $1,000 per share.................. -- 16,200
Series A-2 10% Senior Cumulative preferred stock; par
value $1;
1995: 30,000 shares authorized; 25,344 shares
outstanding;
liquidation value $1,000 per share.................. -- 25,344
Accumulated unpaid dividends......................... -- 2,679,467
9% Cumulative Convertible Pay-In-Kind Preferred
Stock; par value $1;
1996: 30,000 shares authorized; 10,000 shares
outstanding......................................... 10,000 --
Additional paid-in capital........................... 9,842,601 39,405,986
----------- -----------
Total Redeemable Preferred Stock................... 9,852,601 42,126,997
Common Stockholders' Equity:
Common stock: par value $.01;
1996: 2,500,000 shares authorized; 716,525 shares
outstanding;
1995: 500,000 shares authorized; 309,123 shares
outstanding......................................... 7,165 3,091
Additional paid-in capital........................... 54,177,244 271,508
Accumulated deficit.................................. (40,160,939) (22,373,658)
Common stock held in Treasury: 1996--1,000 shares.... (1,077) --
----------- -----------
Total common stockholders' equity.................. 14,022,393 (22,099,059)
----------- -----------
Total liabilities, redeemable preferred stock and
common stockholders' equity....................... $88,083,086 $35,040,127
=========== ===========
</TABLE>
See notes to the unaudited condensed consolidated financial statements
F-15
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net service revenue................................. $ 7,598,705 $ 5,825,785
Cost of services.................................... 6,587,126 6,686,199
----------- ------------
Gross margin.................................... 1,011,579 (860,414)
Expenses:
Sales and marketing............................... 5,837,437 4,243,768
General and administrative........................ 10,919,589 7,366,464
----------- ------------
Operating loss...................................... (15,745,447) (12,470,646)
Other income (expense):
Interest income................................... 472,667 422,901
Interest expense.................................. (45,957) (499,657)
Other income...................................... 8,099,593 --
----------- ------------
Other income--net............................... 8,526,303 (76,756)
----------- ------------
Net income (loss)................................... $(7,219,144) $(12,547,402)
=========== ============
</TABLE>
See notes to the unaudited condensed consolidated financial statements
F-16
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(7,219,144) $(12,547,402)
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Depreciation and amortization................... 254,049 995,223
Amortization of organization costs and
intangibles.................................... 1,105,748 257,317
Gain on disposal of assets...................... (8,078,901)
Changes in:
Accounts receivable........................... (1,469,127) (1,039,964)
Prepaid expenses.............................. 109,434 34,031
Other receivables............................. (229,940) 58,688
Interest receivable........................... (25,844) (67,621)
Other assets.................................. (18,205) --
Accounts payable.............................. 1,440,563 3,305,908
Accrued expenses and other liabilities........ (19,641) 450,072
----------- ------------
Net cash flows from operating activities.... (14,151,008) (8,553,748)
Cash flows from investing activities:
Purchase of property and equipment................ (232,291) (1,606,399)
Proceeds from sale of assets...................... 9,532,600 --
Purchase of Subsidiary............................ -- (892,287)
Purchase of Minority Interest..................... (1,601,207) --
----------- ------------
Net cash flows from investing activities.... 7,699,102 (2,498,686)
Cash flows from financing activities:
Issuance of common stock.......................... 36,300 256,000
Issuance of preferred stock....................... 10,000,000 25,344,000
Financing costs................................... (147,389) (500,000)
Repurchase of common stock........................ (1,077) --
Proceeds from Senior Notes........................ 30,203,375 --
Proceeds from Convertible Notes................... 27,644,400 --
Debt Acquisition Costs............................ (2,732,664) --
Deposits.......................................... (393,884) (112,154)
Payments on assumed Quest indebtedness............ -- (519,746)
Repayment of notes payable........................ (335,442) (42,099)
Repayment of capital lease obligations............ (136,257) (113,825)
----------- ------------
Net cash flows from financing activities.... 64,137,362 24,312,176
----------- ------------
Net (decrease) increase in cash..................... 57,685,456 13,259,742
Cash and cash equivalents--Beginning of period...... 13,705,025 5,979,222
----------- ------------
Cash and cash equivalents--End of period............ $71,390,481 $ 19,238,964
=========== ============
Supplemental cash flow information:
Capital lease obligations incurred................ $ 589,961 $ 4,004,664
=========== ============
Cash paid for interest............................ $ 68,000 $ 475,000
=========== ============
</TABLE>
See notes to the unaudited condensed consolidated financial statements.
F-17
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of September 30, 1996 and
September 30, 1995 and the related condensed consolidated statements of
operations and condensed consolidated statements of cash flows for the nine
months then ended are unaudited. The interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the United USN, Inc. 1995 Annual Report to the Board
of Directors and Stockholders. The results of operations for the interim
periods should not be considered indicative of results to be expected for the
full year.
2. RESALE AGREEMENTS
In October 1995, the Company entered into an agreement with a local
telecommunications company ("TelCo One") to allow US Network to resell TelCo
One's local telephone service in the Chicago area. The agreement term is ten
years and contains certain minimum purchase commitments.
In 1996, the Company signed similar agreements with TelCo One and with
another local telecommunications company ("TelCo Two") to resell their local
telephone service in Michigan and Ohio and New York, respectively, to both
business and residential customers. These agreements are also for ten years
and contain certain minimum purchase commitments.
3. SALE OF ASSETS
On December 29, 1995, the Company entered into an agreement to sell its
switch-based facilities in Ohio for $9.5 million in cash plus the assumption
of capital and operating leases. The net assets sold under this agreement are
summarized as follows:
<TABLE>
<S> <C>
Net property and equipment.................................... $7,575,009
Deposits...................................................... 100,532
----------
Total assets.............................................. 7,675,541
Less liabilities assumed:
Accrued liabilities......................................... 15,204
Capital lease obligations................................... 6,206,638
----------
Net assets................................................ $1,453,699
==========
</TABLE>
Additionally, approximately $2.0 million in operating leases was assumed by
the buyer. The Company will remain contingently liable on capital and
operating leases assumed by the buyer. The transaction closed on February 29,
1996 and a gain of approximately $8.1 million was realized. The Company will
continue to serve its customer base as a reseller.
F-18
<PAGE>
UNITED USN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1996
4. PRIVATE PLACEMENT OFFERING
On September 30, 1996, the Company received approximately $55 million in
cash, net of commissions paid, in exchange for 48,500 Units consisting of
$48.5 million aggregate principal amount at maturity of 14% Senior Discount
Notes due 2003 ("Senior Notes") and warrants (the "Initial Warrants") to
purchase 61,550 shares of Class A Common Stock, and 36,000 units of 9%
Convertible Subordinated Discount Notes due 2004 ("Convertible Notes").
The Senior Notes were sold at a unit price, before commissions, of $622.75.
These notes will accrete interest at an annual rate of 14% from September 30,
1996 to March 31, 2000. Thereafter, the notes will bear interest at an annual
rate of 14%, and will be paid semiannually in arrears, on the aggregate
principal amount at maturity of $48.5 million. The value ascribed to the
warrants issued with the Senior Notes will be amortized over the life of the
debt.
The Convertible Notes were sold at a unit price, before commissions, of
$767.90. These notes will accrete interest at an annual rate of 9% from
September 30, 1996 to September 30, 1999. Thereafter, the notes will bear
interest at an annual rate of 9%, and will be paid semiannually in arrears, on
the aggregate principal amount at maturity of $36 million.
5. CHANGES IN EQUITY
In September 1996, the Board of Directors and the existing shareholders
approved the conversion of all outstanding Series A and Series A-2 Preferred
Stock to newly issued shares of Class A Common Stock. The conversion was
consummated on September 30, 1996, and 267,630 shares of Common Stock were
issued in exchange for the outstanding Preferred Stock, including dividends
accrued through the conversion date. There was no dollar impact to the
financial statements.
In September 1996, the Board of Directors also authorized the issuance of up
to 30,000 shares of Preferred Stock designated as 9% Cumulative Convertible
PIK Preferred Stock ("9% Preferred Stock"). The 9% Preferred Stock has a
liquidation preference and stated value of $1,000 per share. Dividends,
payable in additional shares of 9% Preferred Stock, accrue semiannually at an
annual rate of 9% and are fully cumulative. In connection with the Offering,
the Company issued 10,000 shares of its 9% Preferred Stock to its existing
shareholders, for an aggregate purchase price of $10 million.
6. CONTINGENCIES
Loss Contingency--In April 1996, a derivative action was filed by Mr.
Stephen C. Schwartz, the founder and a former director and officer of USNCN
against the Company and specific officers and directors. On July 16, 1996 the
Company agreed with Mr. Schwartz to repurchase Mr. Schwartz's interest, among
other things, for $1.7 million. The financial impact of this transaction was
recorded in the third quarter of fiscal 1996, $328,000 of which represented
compensation expense due to Mr. Schwartz.
Gain Contingency--USNCN has submitted a claim of approximately $1.4 million
with TelCo Two requesting that certain revenues, purportedly not billed by
TelCo Two to its customers, be paid to USNCN. TelCo Two is in the process of
reviewing USNCN's claim and has not formally concluded the amount or terms of
a settlement. While USNCN believes its claim has merit, it is unable to
predict, at this time, whether they will be successful in fully resolving this
matter favorably.
* * * * *
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED HEREIN OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER
OR SOLICITATION IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
TO SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Prospectus Summary......................................................... 5
Risk Factors............................................................... 17
Use of Proceeds............................................................ 34
Dividend Policy............................................................ 34
Capitalization............................................................. 35
Selected Historical Consolidated Financial and Operating Data.............. 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................................................. 37
Industry Overview: The Local Telecommunications Service Industry........... 41
Business................................................................... 43
Management................................................................. 56
Certain Relationships and Related Transactions............................. 63
Stock Ownership............................................................ 66
Description of the Notes................................................... 67
Description of the Warrants................................................ 100
Registration Rights........................................................ 103
Description of Capital Stock............................................... 106
Certain Federal Income Tax Considerations.................................. 109
Plan of Distribution....................................................... 111
Legal Matters.............................................................. 112
Experts.................................................................... 112
Glossary................................................................... 113
Index to Consolidated Financial Statements................................. F-1
</TABLE>
------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE NEW NOTES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
----------------
PROSPECTUS
----------------
LOGO
UNITED USN, INC.
$48,500,000
14% SERIES B
SENIOR DISCOUNT NOTES
DUE 2003
JANUARY , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
corporation, subject to certain limitations, to indemnify its directors and
officers against expenses (including attorneys' fees, judgments, fines and
certain settlements) actually and reasonably incurred by them in connection
with any suit or proceeding to which they are a party so long as they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to a criminal action or
proceeding, so long as they had no reasonable cause to believe their conduct
to have been unlawful. The Registrant's Certificate of Incorporation and By-
laws provide that the Registrant shall indemnify its directors and such
officers, employees and agents as the Board of Directors may determine from
time to time, to the fullest extent permitted by Section 145 of the DGCL. The
Registrant has entered into indemnification agreements with its directors and
certain of its officers, employees and agents, which provide that the
Registrant shall indemnify such parties pursuant to Section 145 of the DGCL.
Section 102 of the DGCL permits a Delaware corporation to include in its
certificate of incorporation a provision eliminating or limiting a director's
liability to a corporation or its stockholders for monetary damages for
breaches of fiduciary duty. The enabling statute provides, however, that
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct, or knowing violation of the law,
and the unlawful purchase or redemption of stock or payment of unlawful
dividends or the receipt of improper personal benefits cannot be eliminated or
limited in this manner. The Registrant's Certificate of Incorporation and By-
laws include a provision which eliminates, to the fullest extent permitted,
director liability for monetary damages for breaches of fiduciary duty.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Certificate of Designations, Powers, Rights and Preferences of 9%
Cumulative Convertible Pay-In-Kind Preferred Stock (the "9% Preferred
Stock") of the Registrant.
3.3* Bylaws of the Registrant.
4.1+ Indenture, dated as of September 30, 1996, by and between the
Registrant and Harris Trust and Savings Bank, as Trustee, for the
Registrant's 14% Senior Discount Notes due 2003 (the "Senior Note
Indenture").
4.2+ Form of the Registrant's 14% Series B Senior Discount Notes due 2003.
4.3+ Registration Rights Agreement dated as of September 30, 1996, by and
among the Registrant and the Initial Purchasers named therein.
4.4+ Warrant Agreement, dated as of September 30, 1996, by and between the
Registrant and Harris Trust and Savings Bank, as Warrant Agent.
5.1+ Legal Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois).
10.1+ Indenture, dated as of September 30, 1996, by and between the
Registrant and Harris Trust and Savings Bank, as Trustee, for the
Registrant's 9% Convertible Subordinated Discount Notes due 2004.
10.2* Employment Agreement, dated as of July 18, 1996, by and between the
Registrant and J. Thomas Elliott.
10.3* Employment Agreement, dated as of July 18, 1996, by and between the
Registrant and Ronald W. Gavillet.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.4* Form of Employment Agreement between the Registrant and
certain officers of the Registrant.
10.5* 1994 Stock Option Plan of the Registrant.
10.6* Form of Indemnification Agreement between the Registrant and
certain directors and officers of the Registrant.
10.7* Consulting Agreement, dated January 24, 1995, by and between
the Registrant and Eugene A. Sekulow.
10.8* Promissory Note, dated December 15, 1995, between the
Registrant and J. Thomas Elliott.
10.9* Purchase Agreement, dated as of September 25, 1996, by and
among the Registrant and the purchasers named therein,
relating to the 9% Preferred Stock.
10.10+ Purchase Agreement, dated as of April 20, 1994, by and among
the Registrant, CIBC Wood Gundy Ventures, Inc. ("CIBC") and
Chemical Venture Capital Associates ("Chemical").
10.11+ Stockholders Agreement, dated as of April 20, 1994, by and
among the Registrant, CIBC, Chemical and the stockholders of
the Registrant listed on a schedule attached thereto (the
"Stockholders").
10.12+ Registration Rights Agreement, dated as of April 20, 1994, by
and among the Registrant, CIBC and Chemical.
10.13+ First Amendment to Purchase Agreement, dated as of June 10,
1994, by and among the Registrant, CIBC, Chemical and Hancock
Venture Partners IV--Direct Fund, L.P. ("Hancock," and
together with CIBC and Chemical, the "Initial Investors").
10.14+ First Amendment to Stockholders Agreement, dated as of June
10, 1994, by and among the Registrant, the Initial Investors
and the Stockholders.
10.15+ First Amendment to Registration Rights Agreement, dated as of
June 10, 1994, by and among the Registrant and the Initial
Investors.
10.16+ Third Amendment to Purchase Agreement, dated as of November 1,
1994, by and among the Registrant and the Initial Investors.
10.17+ Asset Purchase Agreement, dated as of June 13, 1995, by and
among United Telemanagement Services, Inc. ("UTS"), Quest
United, Inc. ("Quest United"), Quest America Management, Inc.
("QAM"), Edward H. Lavin, Jr. ("Lavin"), J. Thomas Elliott
("Elliott") and Quest America, LP ("Quest").
10.18+ Fourth Amendment to Purchase Agreement, dated as of June 22,
1995, by and among the Registrant and the Initial Investors.
10.19+ Purchase Agreement, dated as of June 22, 1995, by and among
the Registrant, CIBC, Chemical, Hancock, BT Capital Partners,
Inc., Northwood Capital Partners LLC and Northwood Ventures
(collectively, the "Investors").
10.20+ Amended and Restated Stockholders Agreement, dated as of June
22, 1995, by and among the Registrant and the Investors.
10.21+ Amended and Restated Registration Agreement, dated as of June
22, 1995, by and among the Registrant and the Investors.
10.22+ First Amendment to Purchase Agreement, dated as of July 21,
1995, by and among the Registrant, the Investors and
Enterprises & Transcommunications, L.P. (collectively, the
"Original Purchasers").
10.23+ Amended and Restated Stockholders Agreement, dated as of July
21, 1995, by and among the Registrant, the Original Purchasers
and the Stockholders.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.24+ Amendment No. 1 to Asset Purchase Agreement, dated as of
October 27, 1995, by and among UTS, Quest United, QAM, Lavin,
Elliott, and Quest.
10.25+ Second Amendment to Purchase Agreement, dated as of March 5,
1996, by and among the Registrant and the Original Purchasers.
10.26+ Resale Local Exchange Service Agreement, dated July 8, 1996,
by and between New York Telephone Company and UTS.
10.27+ Resale Local Exchange Service Confirmation of Service Order,
dated October 31, 1995, by and between the Registrant and
Ameritech Information Industry Services ("Ameritech") on
behalf of Illinois Bell Telephone Company.
10.28+ Agreement for Resale Services, dated as of April 26, 1996, by
and between the Registrant and Ameritech on behalf of
Ameritech Michigan.
10.29+ Local Exchange Telecommunications Services Resale Agreement,
dated May 21, 1996, by and between the Registrant and
Ameritech on behalf of The Ohio Bell Telephone Company.
12.1* Computation of Earnings to Fixed Charges.
21.1+ Subsidiaries of the Registrant.
23.1+ Consent of Deloitte & Touche LLP.
23.2+ Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(included in its opinion filed as Exhibit 5.1 hereto).
24.1+ Powers of Attorney.
25.1* Statement of Eligibility and Qualification on form T-1 under
the Trust Indenture Act of 1939 of Harris Trust and Savings
Bank, as Trustee under the Senior Note Indenture.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.4* Form of Letter to Clients.
99.5* Guidelines for Certification of Taxpayer Identification Number
on Form W-9.
</TABLE>
- --------
+Filed herewith.
*Previously filed as an Exhibit to this Registration Statement on Form S-4
(File No. 333-16265).
(b) Financial Data Schedules
[None.]
[All schedules are omitted because the required information is not present
in amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements or notes
thereto.]
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS ON JANUARY 13, 1997.
UNITED USN, INC.
/s/ J. Thomas Elliott
By: _________________________________
J. Thomas Elliott
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON THE DATES
AND IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Thomas Elliott President, Chief Executive January 13, 1997
____________________________________ Officer and Director
J. Thomas Elliott (Principal Executive
Officer)
Richard J. Brekka* Chairman of the Board January 13, 1997
____________________________________
Richard J. Brekka
Donald J. Hofmann, Jr.* Director January 13, 1997
____________________________________
Donald J. Hofmann, Jr.
Paul S. Lattanzio* Director January 13, 1997
____________________________________
Paul S. Lattanzio
William P. Glasgow* Director January 13, 1997
____________________________________
William P. Glasgow
William A. Johnston* Director January 13, 1997
____________________________________
William A. Johnston
Eugene A. Sekulow* Director January 13, 1997
____________________________________
Eugene A. Sekulow
/s/ Gerald J. Sweas Executive Vice President and January 13, 1997
____________________________________ Chief Financial Officer
Gerald J. Sweas (Principal Financial
Officer and Principal
Accounting Officer)
</TABLE>
/s/ J. Thomas Elliott
*By_______________________
Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
------- ----------
<C> <S> <C>
Amended and Restated Certificate of Incorporation of
3.1* the Registrant.
3.2* Certificate of Designations, Powers, Rights and
Preferences of 9% Cumulative Convertible Pay-In-Kind
Preferred Stock (the "9% Preferred Stock") of the
Registrant.
3.3* Bylaws of the Registrant.
4.1+ Indenture, dated as of September 30, 1996, by and
between the Registrant and Harris Trust and Savings
Bank, as Trustee, for the Registrant's 14% Senior
Discount Notes due 2003 (the "Senior Note Indenture").
4.2+ Form of the Registrant's 14% Series B Senior Discount
Notes due 2003.
4.3+ Registration Rights Agreement, dated as of September
30, 1996, by and among the Registrant and the Initial
Purchasers named therein.
4.4+ Warrant Agreement, dated as of September 30, 1996, by
and between the Registrant and Harris Trust and
Savings Bank, as Warrant Agent.
5.1+ Legal opinion of Skadden, Arps, Slate, Meagher & Flom
(Illinois).
10.1+ Indenture, dated as of September 30, 1996, by and
between the Registrant and Harris Trust and Savings
Bank, as Trustee, for the Registrant's 9% Convertible
Subordinated Discount Notes due 2004.
10.2* Employment Agreement, dated as of July 18, 1996, by and
between the Registrant and
J. Thomas Elliott.
10.3* Employment Agreement, dated as of July 18, 1996, by and
between the Registrant and Ronald W. Gavillet.
10.4* Form of Employment Agreement between the Registrant and
certain officers of the Registrant.
10.5* 1994 Stock Option Plan of the Registrant.
10.6* Form of Indemnification Agreement between the
Registrant and certain directors and officers of the
Registrant.
10.7* Consulting Agreement, dated January 24, 1995, by and
between the Registrant and Eugene A. Sekulow.
10.8* Promissory Note, dated December 15, 1995, between the
Registrant and J. Thomas Elliott.
10.9* Purchase Agreement, dated as of September 25, 1996, by
and among the Registrant and the purchasers named
therein, relating to the 9% Preferred Stock.
10.10+ Purchase Agreement, dated as of April 20, 1994, by and
among the Registrant, CIBC Wood Gundy Ventures, Inc.
("CIBC") and Chemical Venture Capital Associates
("Chemical").
10.11+ Stockholders Agreement, dated as of April 20, 1994, by
and among the Registrant, CIBC, Chemical and the
stockholders of the Registrant listed on a schedule
attached thereto (the "Stockholders").
10.12+ Registration Rights Agreement, dated as of April 20,
1994, by and among the Registrant, CIBC and Chemical.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
------- ----------
<C> <S> <C>
10.13+ First Amendment to Purchase Agreement, dated as of June
10, 1994, by and among the Registrant, CIBC, Chemical
and Hancock Venture Partners IV--Direct Fund, L.P.
("Hancock," and together with CIBC and Chemical, the
"Initial Investors").
10.14+ First Amendment to Stockholders Agreement, dated as of
June 10, 1994, by and among the Registrant, the
Initial Investors and the Stockholders.
10.15+ First Amendment to Registration Rights Agreement, dated
as of June 10, 1994, by and among the Registrant and
the Initial Investors.
10.16+ Third Amendment to Purchase Agreement, dated as of
November 1, 1994, by and among the Registrant and the
Initial Investors.
10.17+ Asset Purchase Agreement, dated as of June 13, 1995, by
and among United Telemanagement Services, Inc.
("UTS"), Quest United, Inc. ("Quest United"), Quest
America Management, Inc. ("QAM"), Edward H. Lavin, Jr.
("Lavin"), J. Thomas Elliott ("Elliott") and Quest
America, LP ("Quest").
10.18+ Fourth Amendment to Purchase Agreement, dated as of
June 22, 1995, by and among the Registrant and the
Initial Investors.
10.19+ Purchase Agreement, dated as of June 22, 1995, by and
among the Registrant, CIBC, Chemical, Hancock, BT
Capital Partners, Inc., Northwood Capital Partners LLC
and Northwood Ventures (collectively, the
"Investors").
10.20+ Amended and Restated Stockholders Agreement, dated as
of June 22, 1995, by and among the Registrant and the
Investors.
10.21+ Amended and Restated Registration Agreement, dated as
of June 22, 1995, by and among the Registrant and the
Investors.
10.22+ First Amendment to Purchase Agreement, dated as of July
21, 1995, by and among the Registrant, the Investors
and Enterprises & Transcommunications, L.P.
(collectively, the "Original Purchasers").
10.23+ Amended and Restated Stockholders Agreement, dated as
of July 21, 1995, by and among the Registrant, the
Original Purchasers and the Stockholders.
10.24+ Amendment No. 1 to Asset Purchase Agreement, dated as
of October 27, 1995, by and among UTS, Quest United,
QAM, Lavin, Elliott, and Quest.
10.25+ Second Amendment to Purchase Agreement, dated as of
March 5, 1996, by and among the Registrant and the
Original Purchasers.
10.26+ Resale Local Exchange Service Agreement, dated July 8,
1996, by and between New York Telephone Company and
UTS.
10.27+ Resale Local Exchange Service Confirmation of Service
Order, dated October 31, 1995, by and between the
Registrant and Ameritech Information Industry Services
("Ameritech") on behalf of Illinois Bell Telephone
Company.
10.28+ Agreement for Resale Services, dated as of April 26,
1996, by and between the Registrant and Ameritech on
behalf of Ameritech Michigan.
10.29+ Local Exchange Telecommunications Services Resale
Agreement, dated May 21, 1996, by and between the
Registrant and Ameritech on behalf of The Ohio Bell
Telephone Company.
12.1* Computation of Earnings to Fixed Charges.
21.1+ Subsidiaries of the Registrant.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER NUMBER
------- ----------
<C> <S> <C>
23.1+ Consent of Deloitte & Touche LLP.
23.2+ Consent of Skadden, Arps, Slate, Meagher & Flom
(Illinois) (included in its opinion filed as Exhibit
5.1 hereto).
24.1+ Powers of Attorney.
25.1* Statement of Eligibility and Qualification on Form T-1
under the Trust Indenture Act of 1939 of Harris Trust
and Savings Bank, as Trustee under the Senior Note
Indenture.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
99.4* Form of Letter to Clients.
99.5* Guidelines for Certification of Taxpayer Identification
Number on Form W-9.
</TABLE>
- --------
+Filed herewith.
*Previously filed as an Exhibit to this Registration Statement on Form S-4
(File No. 333-16265).
3
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
UNITED USN, INC.
$137,000,000
14% SENIOR DISCOUNT NOTES DUE 2003
-----------------------------------
INDENTURE
DATED AS OF SEPTEMBER 30, 1996
------------------------------------
HARRIS TRUST AND SAVINGS BANK,
TRUSTEE
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act of 1939, as amended,
and the Indenture, dated as of September 30, 1996
<TABLE>
<CAPTION>
Trust
Indenture
Act Indenture
Section Section
- ------- ---------
<S> <C>
(S)310(a)(1)....................................................... 7.10
(a)(2)....................................................... 7.10
(a)(3)....................................................... N.A.
(a)(4)....................................................... N.A.
(a)(5)....................................................... 7.10
(b) ....................................................... 7.08; 7.10
(c) ....................................................... N.A.
(S)311(a) ....................................................... 7.11
(b) ....................................................... 7.11
(c) ....................................................... N.A.
(S)312(a) ....................................................... 7.06(a);
....................................................... 7.06(b)
(b) ....................................................... 7.06(c)
(c) ....................................................... 7.06(d)
(S)313(a) ....................................................... 7.06(e)
(b) ....................................................... N.A.
(c) ....................................................... 7.06(e);
....................................................... 7.06(f)
(d) ....................................................... 7.06
(S)314(a) ....................................................... 4.18; 4.19
(b) ....................................................... N.A.
(c)(1)....................................................... 1.04; 12.03;
....................................................... 12.03
(c)(2)....................................................... 1.04; 2.02;
....................................................... 12.03
(c)(3)....................................................... N.A.
(d) ....................................................... N.A.
(e) ....................................................... 12.04
(f) ....................................................... N.A.
(S)315(a) ....................................................... 7.01(b)
(b) ....................................................... 7.05(a)
(c) ....................................................... 7.01(a)
(d) ....................................................... 7.01(c)
(e) ....................................................... 6.10
(S)316(a) (last sentence).......................................... 2.08
(a)(1)(A).................................................... 6.05
(a)(1)(B).................................................... 6.04
(a)(2)....................................................... N.A.
(b) ....................................................... 6.07
(c) ....................................................... 9.05
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)317(a)(1)....................................................... 6.03
(a)(2)....................................................... 6.08
(b) ....................................................... 2.04
(S)318(a) ....................................................... 12.01
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION......................... 1
SECTION 1.01. Definitions................................................ 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.......... 28
SECTION 1.03. Rules of Construction...................................... 29
SECTION 1.04. Form of Documents Delivered to Trustee..................... 29
SECTION 1.05. Acts of Holders............................................ 30
ARTICLE II
THE SENIOR NOTES................................................................ 33
SECTION 2.01. Form and Dating............................................ 33
SECTION 2.02. Execution and Authentication............................... 36
SECTION 2.03. Registrar and Paying Agent................................. 37
SECTION 2.04. Paying Agent to Hold Money in Trust........................ 38
SECTION 2.05. Global Senior Notes........................................ 38
SECTION 2.06. Transfer and Exchange...................................... 39
SECTION 2.07. Replacement Senior Notes................................... 44
SECTION 2.08. Outstanding Senior Notes................................... 44
SECTION 2.09. Temporary Senior Notes..................................... 45
SECTION 2.10. Cancellation............................................... 46
SECTION 2.11. Payment of Interest; Interest Rights Preserved............. 46
SECTION 2.12. Authorized Denominations................................... 47
SECTION 2.13. Computation of Interest, etc............................... 47
SECTION 2.14. Persons Deemed Owners...................................... 48
SECTION 2.15. CUSIP Numbers.............................................. 48
ARTICLE III
REDEMPTION...................................................................... 48
SECTION 3.01. Notice to Trustee.......................................... 48
SECTION 3.02. Selection of Senior Notes to be Redeemed................... 48
SECTION 3.03. Notice of Redemption....................................... 49
SECTION 3.04. Effect of Notice of Redemption............................. 50
SECTION 3.05. Deposit of Redemption Price................................ 51
SECTION 3.06. Senior Notes Redeemed in Part.............................. 51
SECTION 3.07. Optional Redemption........................................ 51
ARTICLE IV
COVENANTS....................................................................... 52
SECTION 4.01. Payment of Senior Notes.................................... 52
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be part
of this Indenture.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 4.02. Maintenance of Office or Agency............................ 53
SECTION 4.03. Money for the Senior Note Payments to be Held in Trust..... 53
SECTION 4.04. Corporate Existence........................................ 54
SECTION 4.05. Maintenance of Property.................................... 54
SECTION 4.06. Payment of Taxes and Other Claims.......................... 54
SECTION 4.07. Repurchase at the Option of Holders upon a Change of
Control............................................................... 55
SECTION 4.08. Limitation on Asset Sales.................................. 57
SECTION 4.09. Limitation on Indebtedness................................. 62
SECTION 4.10. Limitation on Issuance of Guarantees by Restricted
Subsidiaries.......................................................... 64
SECTION 4.11. Limitation on Liens........................................ 65
SECTION 4.12. Limitation on Sale and Leaseback Transactions.............. 65
SECTION 4.13. Restricted Payments........................................ 65
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries................................................ 69
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries............................................... 70
SECTION 4.16. Transactions with Affiliates............................... 71
SECTION 4.17. Restricted and Unrestricted Subsidiaries................... 72
SECTION 4.18. Reports.................................................... 72
SECTION 4.19. Compliance Certificate; Notice of Default or Event of
Default............................................................... 73
SECTION 4.20. Issuance of Senior Note Contingent Warrants................ 74
SECTION 4.21. Limitations on Line of Business............................ 74
SECTION 4.22. Outside Director........................................... 74
SECTION 4.23. Waiver of Certain Covenants................................ 74
ARTICLE V
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER............................ 75
SECTION 5.01. Merger, Consolidation or Sale of Assets.................... 75
SECTION 5.02. Successor Corporation Substituted.......................... 76
ARTICLE VI
DEFAULTS AND REMEDIES........................................................... 77
SECTION 6.01. Events of Default.......................................... 77
SECTION 6.02. Acceleration............................................... 79
SECTION 6.03. Other Remedies............................................. 81
SECTION 6.04. Waiver of Existing Defaults................................ 81
SECTION 6.05. Control by Majority........................................ 82
SECTION 6.06. Limitation on Suits........................................ 82
SECTION 6.07. Rights of Holders to Receive Payment....................... 83
SECTION 6.08. Trustee May File Proofs of Claim........................... 83
SECTION 6.09. Priorities................................................. 84
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 6.10. Undertaking for Costs...................................... 85
SECTION 6.11. Waiver of Usury, Stay or Extension Laws.................... 85
SECTION 6.12. Trustee May Enforce Claims Without Possession of
the Senior Notes...................................................... 85
SECTION 6.13. Restoration of Rights and Remedies......................... 86
SECTION 6.14. Rights and Remedies Cumulative............................. 86
SECTION 6.15. Delay or Omission Not Waiver............................... 86
ARTICLE VII
TRUSTEE......................................................................... 86
SECTION 7.01. Duties of Trustee.......................................... 86
SECTION 7.02. Rights of Trustee.......................................... 87
SECTION 7.03. Individual Rights of Trustee............................... 89
SECTION 7.04. Trustee's Disclaimer....................................... 89
SECTION 7.05. Notice of Defaults......................................... 89
SECTION 7.06. Preservation of Information; Reports by Trustee to
Holders............................................................... 89
SECTION 7.07 Compensation and Indemnity................................. 91
SECTION 7.08. Replacement of Trustee..................................... 92
SECTION 7.09. Successor Trustee by Merger................................ 94
SECTION 7.10. Eligibility; Disqualification.............................. 94
SECTION 7.11. Preferential Collection of Claims Against Company.......... 95
ARTICLE VIII
DEFEASANCE...................................................................... 96
SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant
Defeasance............................................................ 96
SECTION 8.02. Legal Defeasance and Discharge............................. 96
SECTION 8.03. Covenant Defeasance........................................ 97
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance............ 97
SECTION 8.05. Deposited Money and U.S. Government Obligations to be
Held in Trust; Miscellaneous Provisions............................... 99
SECTION 8.06. Reinstatement.............................................. 99
ARTICLE IX
AMENDMENTS...................................................................... 100
SECTION 9.01. Without Consent of Holders................................. 100
SECTION 9.02. With Consent of Holders.................................... 101
SECTION 9.03. Effect of Supplemental Indentures.......................... 102
SECTION 9.04. Compliance with Trust Indenture Act........................ 102
SECTION 9.05. Revocation and Effect of Consents and Waivers.............. 102
SECTION 9.06. Notation on or Exchange of Senior Notes.................... 102
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 9.07. Trustee to Execute Supplemental Indentures................. 103
SECTION 9.08 Solicitation of Consents................................... 104
ARTICLE X
SENIOR NOTE GUARANTEES.......................................................... 104
SECTION 10.01 Senior Note Guarantees..................................... 104
SECTION 10.02 Limitation of Guarantor's Liability........................ 107
SECTION 10.03 Execution and Delivery of Senior Note Guarantees........... 108
SECTION 10.04 When a Guarantor May Merge, etc............................ 108
SECTION 10.05 Release of a Guarantor..................................... 108
ARTICLE XI
SATISFACTION AND DISCHARGE...................................................... 109
SECTION 11.01 Satisfaction and Discharge................................. 109
SECTION 11.02 Application of Trust Money................................. 110
SECTION 11.03 Repayment to the Company................................... 111
SECTION 11.04 Reinstatement.............................................. 111
ARTICLE XII
MISCELLANEOUS................................................................... 111
SECTION 12.01. Trust Indenture Act Controls............................... 112
SECTION 12.02. Notices.................................................... 112
SECTION 12.03. Certificate and Opinion as to Conditions Precedent......... 112
SECTION 12.04. Statements Required in Certificate or Opinion.............. 113
SECTION 12.05. Communications by Holders with Other Holders............... 113
SECTION 12.06. Rules by Trustee, Paying Agent and Registrar............... 113
SECTION 12.07. Payments on Business Days.................................. 113
SECTION 12.08. Governing Law.............................................. 113
SECTION 12.09. No Recourse Against Others................................. 113
SECTION 12.10. Successors................................................. 114
SECTION 12.11. Counterparts............................................... 114
SECTION 12.12. Table of Contents; Headings................................ 114
SECTION 12.13. Severability............................................... 114
SECTION 12.14. Further Instruments and Acts............................... 114
SECTION 12.15. Independent Covenants...................................... 114
</TABLE>
<PAGE>
EXHIBIT A FORM OF INITIAL GLOBAL SENIOR NOTE
EXHIBIT B FORM OF INITIAL CERTIFICATED SENIOR NOTE
EXHIBIT C FORM OF EXCHANGE GLOBAL SENIOR NOTE
EXHIBIT D FORM OF EXCHANGE CERTIFICATED SENIOR NOTE
EXHIBIT E REGISTRATION RIGHTS AGREEMENT
EXHIBIT F WARRANT AGREEMENT
SCHEDULE A EXISTING INDEBTEDNESS
SCHEDULE B [INTENTIONALLY OMITTED]
SCHEDULE C REQUIRED INVESTMENTS
SCHEDULE D EXISTING LIENS
SCHEDULE E EXISTING CONTRACTS WITH AFFILIATES
SCHEDULE F EXISTING AGREEMENTS OR STOCK OPTIONS INVOLVING COMMON STOCK
<PAGE>
INDENTURE, dated as of September 30, 1996, between UNITED USN, INC., a
Delaware corporation (the "Company"), having its principal office at 10 South
Riverside Plaza, Suite 410, Chicago, Illinois 60606-3709, and HARRIS TRUST AND
SAVINGS BANK, as trustee hereunder (the "Trustee"), having its Corporate Trust
Office at 311 West Monroe, Chicago, Illinois 60606.
RECITALS OF THE COMPANY
The Company has duly authorized the creation and issue of its 14% Senior
Discount Notes due 2003 (the "Initial Senior Notes") of substantially the tenor
and amount hereinafter set forth, and to provide therefor and for, if and when
issued in exchange for the Initial Senior Notes pursuant to this Indenture and
the Registration Rights Agreement, the Company's 14% Senior Discount Notes due
2003 (the "Exchange Senior Notes," and together with the Initial Senior Notes,
the "Senior Notes"), the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Senior Notes, when executed by the Company
and authenticated and delivered by the Trustee hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
instrument of the Company, in accordance with their respective terms, have been
done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration
of the premises and the purchase of the Initial Senior Notes by the Holders
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Senior Notes, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions. For all purposes of this Indenture, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
"Accreted Value" means, for any Specified Date, the amount provided below
--------------
for each $1,000 principal amount at Stated Maturity of the Senior Notes:
(a) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
1
<PAGE>
<TABLE>
<CAPTION>
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
<S> <C>
March 30, 1997.............................. $ 666.34
September 30, 1997.......................... 712.99
March 30, 1998.............................. 762.90
September 30, 1998.......................... 816.30
March 30, 1999.............................. 873.44
September 30, 1999.......................... 934.58
March 30, 2000.............................. 1,000.00
</TABLE>
(b) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (i) $622.75 and (ii) an
amount equal to the product of (A) the Accreted Value for the first Semi-
Annual Accrual Date less the original issue price multiplied by (B) a
fraction, the numerator of which is the number of days from the Issue Date
to the Specified Date, using a 360-day year of twelve 30-day months, and
the denominator of which is the number of days elapsed from the Issue Date
to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-
day months;
(c) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (i) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(ii) an amount equal to the product of (A) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (B) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(d) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means, with respect to any specified Person,
---------------------
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such Person merging with or into or becoming a Subsidiary of
such specified Person.
"Act" when used with respect to any Holder, has the meaning set forth in
---
Section 1.05 hereof.
2
<PAGE>
"Adjusted Net Assets" of a Guarantor at any date means the amount by which
-------------------
the fair value of the assets and Property of such Guarantor exceeds the total
amount of liabilities, including without limitation, contingent liabilities
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date), but excluding liabilities under the Guarantee of such
Guarantor at such date.
"Affiliate" means, as to any Person, any other Person which directly or
---------
indirectly controls, or is under common control with, or is controlled by, such
Person; provided that each Unrestricted Subsidiary shall be deemed to be an
Affiliate of the Company and of each other Subsidiary of the Company; provided
--------
that any lender under a Credit Facility shall not be deemed to be an Affiliate
solely as the result of the Credit Facility; and provided, further, that neither
-------- -------
the Company nor any of its Wholly-Owned Restricted Subsidiaries shall be deemed
to be Affiliates of each other. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "under common
control with" and "controlled by"), and as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of Voting Stock, by agreement or otherwise; provided that
--------
beneficial ownership of 10% or more of the Voting Stock of a Person (on a fully
diluted basis) shall be deemed to be control.
"Affiliate Transaction" has the meaning set forth in Section 4.16 hereof.
---------------------
"Agent Member" has the meaning set forth in Section 2.05(a) hereof.
------------
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
----------
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger) by such Person or any of its Restricted
Subsidiaries to any Person other than to such Person or a Restricted Subsidiary
of such Person, in one transaction or a series of related transactions (each
hereinafter referred to as a "Disposition"), of (a) Capital Stock of or other
equity interests in any Restricted Subsidiary (other than director's qualifying
shares) except as provided in clause (iv) of this definition, (b) all or
substantially all of the assets of any division or line of business of such
Person or of any of the Restricted Subsidiaries or (c) Property or assets of
such Person or any of its Restricted Subsidiaries, the Fair Market Value of
which exceeds $500,000, other than (i) a Disposition of Property in the ordinary
course of business and consistent with industry practice, (ii) a Disposition of
Eligible Cash Equivalents, (iii) a Disposition of an Investment that constitutes
a Restricted Payment permitted under Section 4.13(a) hereof, (iv) a Disposition
of no more than
3
<PAGE>
10 percent of the Capital Stock of USN Solutions on a fully diluted basis
pursuant to the exercise of the USN Solutions Option, (v) a Disposition by the
Company in connection with a transaction permitted under Article V hereof and
(vi) contribution of assets to any Unrestricted Subsidiary constituting an
Investment otherwise permitted hereunder.
"Asset Sale Offer" has the meaning set forth in Section 4.08(c) hereof.
----------------
"Asset Sale Payment Date" has the meaning set forth in Section 4.08(d)(ii)
-----------------------
hereof.
"Asset Sale Purchase Price" has the meaning set forth in Section 4.08(c)
-------------------------
hereof.
"Attributable Indebtedness" means, with respect to any Sale and Leaseback
-------------------------
Transaction of any Person, as at the time of determination, the greater of (i)
the capitalized amount in respect of such transaction that would appear on the
balance sheet of such Person in accordance with GAAP and (ii) the present value
(discounted at a rate consistent with accounting guidelines, as determined in
good faith by such Person) of the payments during the remaining term of the
lease (including any period for which such lease has been extended or may, at
the option of the lessor, be extended) or until the earliest date on which the
lessee may terminate such lease without penalty or upon payment of a penalty (in
which case the rental payments shall include such penalty).
"Average Life" means, as of any date, with respect to any debt security or
------------
Disqualified Stock, the quotient obtained by dividing (i) the sum of the
products of (x) the number of years from such date to the dates of each
scheduled principal payment or redemption payment (including any sinking fund or
mandatory redemption payment requirements) of such debt or Disqualified Stock
multiplied in each case by (y) the amount of such principal or redemption
payment, by (ii) the sum of all such principal or redemption payments.
"Board of Directors" means, with respect to any Person, the Board of
------------------
Directors (or similar governing body) of such Person or any committee of the
Board of Directors (or similar governing body) duly authorized to act on behalf
of such Board of Directors (or similar governing body).
"Board Resolution" means a duly adopted resolution of the Board of
----------------
Directors of a Person in full force and effect at the time of determination and
certified as such by the Secretary or an Assistant Secretary of such Person.
"BT" means BT Capital Partners, Inc.
--
4
<PAGE>
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
------------
that is not a day on which banking institutions in The City of New York or the
City of Chicago are authorized or obligated by law, executive order or
regulation to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
------------------------
or other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person prepared in accordance with GAAP and
the Stated Maturity thereof shall be the date of the last payment of rent or any
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares, interests,
-------------
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
"Cash Proceeds" means, with respect to any Asset Sale or issuance or sale
-------------
of Capital Stock by any Person, the aggregate consideration received in respect
of such sale or issuance by such Person in the form of cash and Eligible Cash
Equivalents; provided that with regard to an Asset Sale, any liabilities (as
--------
shown on the Company's or such Restricted Subsidiary's most recent balance sheet
or in the notes thereto) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Senior Notes or Senior
Note Guarantees, if any) which are assumed by the transferee of any such assets
and from which the Company and such Restricted Subsidiary are completely
released shall be deemed Cash Proceeds.
"Certificated Senior Notes" means Initial Certificated Senior Notes and
-------------------------
Exchange Certificated Senior Notes.
"Change of Control" shall be deemed to occur if (i) the sale, conveyance,
-----------------
transfer or lease (other than to the Company or any Wholly-Owned Restricted
Subsidiary of the Company), whether direct or indirect, of all or substantially
all of the assets of the Company or of the Company and its Restricted
Subsidiaries taken as a whole to any "person" or "group" (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to
either of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(i) under the Exchange Act) shall have occurred; or (ii) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the
5
<PAGE>
foregoing, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(i) under the
Exchange Act), other than any Permitted Holder or Permitted Holders, becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more
than 35 percent of the total voting power of all classes of the Voting Stock of
the Company (including any warrants, options or rights to acquire such Voting
Stock), calculated on a fully diluted basis, and such voting power percentage is
greater than or equal to the total voting power percentage then beneficially
owned by the Permitted Holders in the aggregate; or (iii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election or appointment by such board 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 to constitute a majority of the Board of
Directors of the Company then in office.
"Change of Control Offer" has the meaning set forth in Section 4.07(a)
-----------------------
hereof.
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.07(b)(ii) hereof.
"Change of Control Purchase Price" has the meaning set forth in Section
--------------------------------
4.07(a) hereof.
"Chase" means Chase Capital Partners.
-----
"CIBC" means CIBC Wood Gundy Ventures, Inc.
----
"clearing agency" has the meaning set forth in Section 3(a)(23) of the
---------------
Exchange Act.
"Commission" means the United States Securities and Exchange Commission, as
----------
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, the body
performing such duties at such time.
"Common Stock" means, with respect to any Person, all Capital Stock of such
------------
Person that is generally entitled to vote in the election of directors of such
Person and any rights (other than Indebtedness convertible into such Capital
Stock), warrants or options to acquire such Capital Stock of such Person.
6
<PAGE>
"Company" means the party named as such in the preamble to this Indenture
-------
until a successor replaces it pursuant to the applicable provisions hereof and,
thereafter, means such successor.
"Company Order" means a written order signed in the name of the Company by
-------------
(i) its Chairman of the Board, its President, its Chief Executive Officer, its
Chief Operating Officer, a Vice Chairman or a Vice President, and (ii) its Chief
Financial Officer, its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Consolidated Interest Expense" means, with respect to any Person for any
-----------------------------
period, without duplication (A) the sum of (i) the aggregate amount of cash and
non-cash interest expense (including capitalized interest) of such Person and
its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP in respect of Indebtedness (including, without
limitation, (v) any amortization of debt discount, (w) net costs associated with
Interest Hedging Obligations (including any amortization of discounts), (x) the
interest portion of any deferred payment obligation calculated in accordance
with the effective interest method, (y) all accrued interest and (z) all
commissions, discounts and other fees and charges owed with respect to letters
of credit, bankers' acceptances or similar facilities) paid or accrued, or
scheduled to be paid or accrued, during such period; (ii) dividends or
distributions with respect to Preferred Stock or Disqualified Stock of such
Person (and of its Restricted Subsidiaries if paid to a Person other than such
Person or its Restricted Subsidiaries) declared and payable in cash; (iii) the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Capital Lease Obligation allocable to interest expense in
accordance with GAAP; (iv) the portion of any rental obligation of such Person
or its Restricted Subsidiaries in respect of any Sale and Leaseback Transaction
allocable to interest expense (determined as if such Sale and Leaseback
Transaction were treated as a Capital Lease Obligation); and (v) to the extent
any Indebtedness of any other Person is guaranteed by such Person or any of its
Restricted Subsidiaries, the aggregate amount of interest paid or accrued, or
scheduled to be paid or accrued, by such other Person during such period
attributable to any such Indebtedness, less (B) to the extent included in (A)
above, amortization or write-off of deferred financing costs of such Person and
its Restricted Subsidiaries during such period and any charge related to any
premium or penalty paid in connection with redeeming or retiring any
Indebtedness of such Person and its Restricted Subsidiaries prior to its Stated
Maturity; in the case of both (A) and (B) above, after elimination of
intercompany accounts among such Person and its Restricted Subsidiaries and as
determined in accordance with GAAP. For purposes of clause (ii) above,
7
<PAGE>
dividend requirements attributable to any Preferred Stock or Disqualified
Stock shall be deemed to be an amount equal to the amount of dividend
requirements on such Preferred Stock or Disqualified Stock times a fraction, the
numerator of which is the amount of such dividend requirements, and the
denominator of which is one minus the applicable combined federal, state, local
and foreign income tax rate of the Company and its Restricted Subsidiaries
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
-----------------------
aggregate net income (or net loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP; provided that there shall be excluded therefrom, without duplication,
--------
(i) all items classified as extraordinary, unusual or nonrecurring, (ii) the net
income of any Person that is not a Restricted Subsidiary or that is accounted
for by the equity method of accounting, which shall be included only to the
extent of the amount of dividends or distributions paid to such Person or its
Restricted Subsidiaries, (iii) the net income of any Person acquired by such
Person or any of its Restricted Subsidiaries in a pooling-of-interests
transaction for any period prior to the date of the related acquisition, (iv)
any gain or loss, net of taxes, realized on the termination of any employee
pension benefit plan, (v) net gains (but not net losses) in respect of Asset
Sales by such Person or its Restricted Subsidiaries, (vi) the net income (but
not net loss) of any Restricted Subsidiary of such Person to the extent that the
payment of dividends or other distributions to such Person is restricted by the
terms of its charter or any agreement, instrument, contract, judgment, order,
decree, statute, rule, governmental regulation or otherwise, except for any
dividends or distributions actually paid by such Restricted Subsidiary to such
Person and (vii) with regard to a non-Wholly-Owned Restricted Subsidiary, any
aggregate net income (or loss) in excess of such Person's or such Restricted
Subsidiary's pro rata share of such non-Wholly Owned Restricted Subsidiary's net
--- ----
income (or loss).
"Consolidated Net Worth" of any Person means the consolidated
----------------------
stockholders' equity of such Person and its Restricted Subsidiaries, as
determined on a consolidated basis in accordance with GAAP, less amounts
attributable to Disqualified Stock of such Person.
"Convertible Note Asset Sale Offer" means an "Asset Sale Offer" as defined
---------------------------------
in and made pursuant to the provisions of the Convertible Note Indenture.
8
<PAGE>
"Convertible Note Indenture" means the Indenture, dated the date hereof,
--------------------------
between the Company and Harris Trust and Savings Bank, as trustee thereunder,
relating to the Convertible Notes, as amended and supplemented from time to
time.
"Convertible Note Trustee" means Harris Trust and Savings Bank, as trustee
------------------------
under the Convertible Note Indenture and any successor appointed in accordance
with the terms thereof.
"Convertible Notes" means the 9% Convertible Subordinated Notes due 2004 of
-----------------
the Company to be issued pursuant to the Convertible Note Indenture.
"Corporate Trust Office" means the principal office of the Trustee at
----------------------
which at any particular time its corporate trust business shall be principally
administered, which office is, at the date of execution of this Indenture,
located at 311 West Monroe, Chicago, Illinois 60606.
"Covenant Defeasance" has the meaning set forth in Section 8.03 hereof.
-------------------
"Credit Facility" means one or more credit agreements, loan agreements or
---------------
similar agreements providing for working capital advances, term loans, letter of
credit facilities or similar advances, loans or facilities to the Company, which
may, pursuant to the terms of this Indenture, be guaranteed by the Restricted
Subsidiaries, with a bank or syndicate of banks or other financial
institutions, as such may be amended, renewed, extended, supplemented,
refinanced and replaced or refunded from time to time; provided that the
--------
aggregate principal amount of Indebtedness under the Credit Facility shall not
exceed $45,000,000 at any one time outstanding less the amount of any mandatory
or permitted principal payments or payments from the proceeds of Asset Sales
made under the Credit Facility that, in each case, permanently reduce the
borrowing capacity of the Company thereunder.
"Default" means any event, act or condition, the occurrence of which is, or
-------
after notice or the passage of time or both would be, an Event of Default.
"Default Amount" has the meaning set forth in Section 6.02 hereof.
--------------
"Defaulted Interest" has the meaning set forth in Section 2.11 hereof.
------------------
"Defeasance" has the meaning set forth in Section 8.02 hereof.
----------
9
<PAGE>
"Depositary" means The Depository Trust Company, its nominees, and their
----------
respective successors.
"Disposition" has the meaning set forth in the definition of "Asset Sale"
-----------
in this Section 1.01.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
------------------
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness at any time, in whole or in part, on or prior to the date on which
the Convertible Notes mature (September 30, 2004).
"EBITDA" means, with respect to any Person for any period, the sum for such
------
Person for such period of Consolidated Net Income plus, to the extent reflected
----
in the income statement of such Person for such period from which Consolidated
Net Income is determined, without duplication, (i) Consolidated Interest
Expense, (ii) income tax expense of such Person and its consolidated
Subsidiaries, (iii) depreciation expense, (iv) amortization expense, (v) any
non-cash expense related to the issuance to employees of such Person of options
to purchase Capital Stock of such Person and (vi) any charge related to any
premium or penalty paid in connection with redeeming or retiring any
Indebtedness prior to its Stated Maturity and minus, to the extent reflected in
-----
such income statement, any noncash credits that had the effect of increasing
Consolidated Net Income of such Person for such period.
"Eligible Cash Equivalents" means (i) securities issued or directly and
-------------------------
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof, provided that the full faith and credit of the United
--------
States of America is pledged in support thereof; (ii) time deposits,
certificates of deposit or Eurodollar deposits of any commercial bank organized
in the United States having capital and surplus in excess of $500,000,000, with
a maturity date not more than one year from the date of acquisition; (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (ii) above; (iv) direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing, or
subject to tender at the option of the holder thereof, within 90 calendar days
after the date of acquisition thereof and, at the time of acquisition, having a
rating of A or better from Standard & Poor's or A-2 or better from Moody's; (v)
commercial paper issued by the parent corporation of any commercial bank
organized in the United States
10
<PAGE>
having capital and surplus in excess of $500,000,000 and commercial paper
issued by others having one of the two highest ratings obtainable from either of
Standard & Poor's or Moody's and in each case maturing within 270 days after the
date of acquisition; (vi) overnight bank deposits and bankers' acceptances at
any commercial bank organized in the United States having capital and surplus in
excess of $500,000,000; (vii) deposits available for withdrawal on demand with a
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000, and (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (vi).
"Enterprises" means Enterprises & Transcommunications, L.P.
-----------
"Event of Default" has the meaning set forth in Section 6.01 hereof.
----------------
"Excess Proceeds" has the meaning set forth in Section 4.08 hereof.
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder.
"Exchange Certificated Senior Notes" means Senior Notes issued in
----------------------------------
definitive, fully registered form to beneficial owners of interests in the
Exchange Global Senior Note pursuant to Section 2.06(c) hereof.
"Exchange Global Senior Note" has the meaning set forth in Section 2.01(d)
---------------------------
hereof.
"Exchange Rate Obligation" means, with respect to any Person, any currency
------------------------
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance or other
agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Exchange Senior Notes" has the meaning set forth in the Recitals of the
---------------------
Company and more particularly means any of the Senior Notes, substantially in
the forms of Exhibits C and D hereto, authenticated and delivered under this
Indenture pursuant to the Registered Exchange Offer.
"Existing Indebtedness" means the Indebtedness of the Company and its
---------------------
Restricted Subsidiaries outstanding on the date of this Indenture and specified
in Schedule A attached hereto.
"Fair Market Value" means, with respect to any asset or Property, the sale
-----------------
value that could be obtained in an arms-length transaction between an informed
and willing seller under no
11
<PAGE>
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors of the Company or a
Restricted Subsidiary, as applicable.
"Final Memorandum" means the final Offering Memorandum, dated September 23,
----------------
1996, used in connection with the Initial Placement, as supplemented on
September 23, 1996, September 24, 1996, September 26, 1996, September 30, 1996
and September 30, 1996.
"GAAP" means United States generally accepted accounting principles,
----
consistently applied, as 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, that are applicable to the circumstance as of the date of determination;
provided that, except as otherwise specifically provided herein, all
- --------
calculations made for purposes of determining compliance with this Indenture
shall utilize GAAP as in effect on the Issue Date.
"Global Senior Notes" means any Initial Global Senior Note and the Exchange
-------------------
Global Senior Note.
"guarantee" means any direct or indirect obligation, contingent or
---------
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner. The terms
"guaranteed," "guaranteeing" and "guarantor" shall have correlative meanings.
"Guaranteed Indebtedness" has the meaning set forth in Section 4.10(a)
-----------------------
hereof.
"Guarantor" means a Restricted Subsidiary that hereafter becomes a
---------
Guarantor pursuant to Section 4.10 hereof and executes and delivers a
supplemental indenture to this Indenture relating to its Senior Note Guarantee.
"Hancock" means Hancock Venture Capital Associates.
-------
"Holder" means (i) in the case of any Certificated Senior Note, the Person
------
in whose name such Certificated Note is registered in the Security Register and
(ii) in the case of any Global Senior Note, the Depositary.
"incur" means, with respect to any Indebtedness or other obligation of any
-----
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the
12
<PAGE>
recording, as required pursuant to GAAP or otherwise, of any such Indebtedness
or obligation on the balance sheet of such Person; provided that a change in
--------
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Restricted
Subsidiary of the Company shall be deemed to have been incurred at the time at
which such Person becomes a Restricted Subsidiary of the Company. The terms
"incurrence," "incurred", "incurring" and "incurrable" shall have correlative
meanings.
"Indebtedness" means at any time (without duplication), with respect to any
------------
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with the acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business which are not more than 90 days overdue or which are being
contested in good faith and by appropriate proceedings, (iii) any reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
any obligation of such Person issued or assumed as the deferred purchase price
of Property, assets or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business, which in either case are
not more than 90 days overdue or which are being contested in good faith and by
appropriate proceedings, and for which adequate reserves are being maintained on
the books of the Company in accordance with GAAP), (v) any Capital Lease
Obligation of such Person, (vi) the maximum fixed redemption or repurchase price
of Disqualified Stock of such Person and, to the extent held by other Persons,
the maximum fixed redemption or repurchase price of Disqualified Stock of such
Person's Restricted Subsidiaries, at the time of determination, (vii) the
notional amount of any Interest Hedging Obligations or Exchange Rate Obligations
of such Person at the time of determination, (viii) any Attributable
Indebtedness with respect to any Sale and Leaseback Transaction to which such
Person is a party and (ix) any obligation of the type referred to in clauses (i)
through (viii) of this definition of another Person and all dividends and
distributions of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise. For purposes of the preceding sentence, the
maximum fixed repurchase price of any Disqualified Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to this
Indenture; provided that if such
--------
13
<PAGE>
Disqualified Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Disqualified Stock. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
guarantees at such date; provided that for purposes of calculating the amount of
--------
the Senior Notes or the Convertible Notes, as the case may be, outstanding at
any date, the amount of such Senior Notes or the Convertible Notes, as the case
may be, shall be the Accreted Value thereof as of such date, unless cash
interest has commenced to accrue pursuant to the terms of the Senior Notes and
the Senior Note Indenture or the Convertible Notes and the Convertible Note
Indenture, as the case may be, in which case the amount of the Senior Notes or
the Convertible Notes, as the case may be, outstanding will be the aggregate
principal amount thereof at Stated Maturity; provided, further, that for
--------
purposes of calculating the amount of any non-interest bearing or other
discount security (other than the Senior Notes or the Convertible Notes), such
Indebtedness shall be deemed to be the principal amount thereof that would be
shown on the balance sheet of the issuer dated such date prepared in accordance
with GAAP but that such security shall be deemed to have been incurred only on
the date of the original issuance thereof.
"Indebtedness to Operating Cash Flow Ratio" means, as at any date of
-----------------------------------------
determination, the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis as of the date
of determination to (ii) the aggregate amount of EBITDA of the Company and its
Restricted Subsidiaries for the four preceding fiscal quarters for which
financial information is available immediately prior to the date of
determination; provided that any Indebtedness incurred or retired by the Company
--------
or any of its Restricted Subsidiaries during the fiscal quarter in which the
date of determination occurs shall be calculated as if such Indebtedness was so
incurred or retired on the first day of the fiscal quarter in which the date of
determination occurs; and provided, further, that (x) if the transaction giving
-------- -------
rise to the need to calculate the Indebtedness to Operating Cash Flow Ratio
would have the effect of increasing or decreasing Indebtedness or EBITDA in the
future, Indebtedness or EBITDA shall be calculated on a pro forma basis as if
--- -----
such transaction had occurred on the first day of such four fiscal quarter
period preceding the date of determination, and (y) if during such four fiscal
quarter period, the Company or any of its Restricted Subsidiaries shall have
engaged in any Asset Sale, EBITDA for such period shall be reduced by an amount
equal to the EBITDA (if positive), or increased by an amount equal to the EBITDA
(if negative), directly attributable to the assets which are the subject of such
Asset Sale and any related retirement of Indebtedness as if such Asset Sale and
related retirement of Indebtedness had occurred on
14
<PAGE>
the first day of such four fiscal quarter period or (z) if during such four
fiscal quarter period the Company or any of its Restricted Subsidiaries shall
have acquired any material assets outside the ordinary course of business,
EBITDA shall be calculated on a pro forma basis as if such asset acquisition and
--- -----
related financing had occurred on the first day of such four fiscal quarter
period.
"Indenture" means this instrument as originally executed or as it may from
---------
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument, and any such supplemental indenture, respectively.
"Initial Certificated Senior Notes" means Senior Notes issued in
---------------------------------
definitive, fully registered form to beneficial owners of interests in the
Initial Global Senior Notes pursuant to Section 2.06(c) hereof.
"Initial Global Senior Note" has the meaning set forth in Section 2.01(c)
--------------------------
hereof.
"Initial Senior Notes" has the meaning set forth in the Recitals of the
--------------------
Company and, more particularly, means any of the Senior Notes, substantially in
the forms of Exhibits A and B hereto, authenticated and delivered under this
Indenture other than pursuant to the Registered Exchange Offer.
"Initial Placement" means the initial sales of the Units by the Initial
-----------------
Purchasers.
"Initial Purchasers" means the Initial Purchasers, as such term is defined
------------------
in the Purchase Agreement.
"Initial Warrants" means Warrants of the Company originally issued as part
----------------
of the Units.
"Interest Hedging Obligation" means, with respect to any Person, an
---------------------------
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its Restricted
Subsidiaries' exposure to fluctuations in interest rates.
"Interest Payment Date" means the Stated Maturity of an installment of
---------------------
interest on the Senior Notes.
15
<PAGE>
"Investment" in any Person means any direct, indirect or contingent (i)
----------
advance or loan to, guarantee of any Indebtedness of, extension of credit or
capital contribution to, such Person, (ii) acquisition of any shares of Capital
Stock, bonds, notes, debentures or other securities of such Person, or (iii)
acquisition, by purchase or otherwise, of all or substantially all of the
business, assets or stock or other evidence of beneficial ownership of such
Person; provided that Investments shall exclude accounts receivable and other
--------
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices. The amount of an Investment shall be the original cost
of such Investment, plus the cost of all additions thereto and minus the amount
---- -----
of any portion of such Investment repaid to such Person in cash as a repayment
of principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
Investment involving a transfer of any Property or other assets other than cash,
such Property or other assets shall be valued at its Fair Market Value at the
time of such transfer. The Company shall be deemed to make an "Investment" in
the amount of the Fair Market Value of the net assets of a Subsidiary at the
time that such Subsidiary is designated as an Unrestricted Subsidiary.
"Issue Date" means the date on which the Senior Notes are first
----------
authenticated and delivered under this Indenture.
"Joint Venture" means a Telecommunications Company of which less than 50
-------------
percent of the Voting Stock is held by the Company; provided that the management
--------
and operations of such Person are controlled by a Strategic Investor or by the
Company pursuant to (i) the charter documents of such Person, or (ii) an
agreement among the holders of the Voting Stock of such Person, or (iii) a
management agreement between the Company and such Person.
"Lien" means, with respect to any Property or other asset, any mortgage or
----
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, easement, encumbrance, preference,
priority or other security or similar agreement or preferential arrangement of
any nature whatsoever on or with respect to such Property or other asset
(including, without limitation, any conditional sale or title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means, when used with respect to a Senior Note, the date on
--------
which the principal of such Senior Note becomes due and payable as provided
therein or in this Indenture, whether on the date specified in such Senior Note
as the fixed date on which the principal of such Senior Note is due and payable,
on the Change of Control Payment Date or Asset Sale Payment Date, as
16
<PAGE>
applicable, or by declaration of acceleration, call for redemption or
otherwise.
"Moody's" means Moody's Investors Service, Inc., or, if Moody's Investors
-------
Service, Inc. shall cease rating the specified debt securities and such ratings
business with respect thereto shall have been transferred to a successor Person,
such successor Person; provided that if Moody's Investors Service, Inc. ceases
--------
rating the specified debt securities and its rating business with respect
thereto shall not have been transferred to any successor Person or such
successor Person is Standard & Poor's, then "Moody's" shall mean any other
nationally recognized rating agency (other than Standard & Poor's) that rates
the specified debt securities selected by the Trustee.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Net Cash Proceeds" means, with respect to the sale of any Property or
-----------------
assets by any Person or any of its Restricted Subsidiaries, Cash Proceeds
received net of (i) all reasonable out-of-pocket expenses of such Person or such
Restricted Subsidiary incurred in connection with such a sale, including,
without limitation, all legal, title and recording tax expenses, commissions
and other fees and expenses incurred (but excluding any finder's fee or broker's
fee payable to any Affiliate of such Person) and all federal, state, foreign and
local taxes arising in connection with such sale that are paid or required to be
accrued as a liability under GAAP by such Person or its Restricted
Subsidiaries, (ii) all payments made or required to be made by such Person or
its Restricted Subsidiaries on any Indebtedness which is secured by such
Properties or assets in accordance with the terms of any Lien upon or with
respect to such Properties or assets or which must, by the terms of such Lien,
or in order to obtain a necessary consent to such transaction or by applicable
law, be repaid in connection with such sale and (iii) all contractually
required distributions and other payments made to minority interest holders (but
excluding distributions and payments to Affiliates of such Person) in Restricted
Subsidiaries of such Person as a result of such transaction; provided that, in
--------
the event that any consideration for a transaction (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Cash Proceeds only at
such time as it is released to such Person or its Restricted Subsidiaries from
escrow; provided, further, that any non-cash consideration received in
-------- -------
connection with any transaction, which is subsequently converted to cash, shall
be deemed to be Net Cash Proceeds at such time, and shall thereafter be applied
in accordance with the applicable provisions of this Indenture.
17
<PAGE>
"Northwood Entities" means Northwood Capital Partners LLC and Northwood
------------------
Ventures.
"Officer" means the Chairman of the Board of Directors, a Vice Chairman of
-------
the Board of Directors, the President, the Chief Executive Officer, the Chief
Operating Officer, a Vice President, the Chief Financial Officer, the Chief
Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary.
"Officers' Certificate" means a certificate signed by (i) the Chairman of
---------------------
the Board of Directors, a Vice Chairman of the Board of Directors, the
President, the Chief Executive Officer, the Chief Operating Officer or a Vice
President, and (ii) the Chief Financial Officer, the Chief Accounting Officer,
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
of the Company or a Restricted Subsidiary and delivered to the Trustee, which
certificate shall comply with the provisions of Sections 1.04, 12.03 and 12.04
hereof.
"Opinion of Counsel" means a written opinion from legal counsel (who may be
------------------
counsel to the Company or the Trustee) who is acceptable to the Trustee, which
opinion shall comply with the provisions of Sections 1.04, 12.03 and 12.04
hereof; provided that any Opinion of Counsel delivered pursuant to Section 8.04
--------
hereof shall not be rendered by an employee of the Company or any of its
Subsidiaries.
"Pari Passu Indebtedness" means any Indebtedness (secured or unsecured) of
-----------------------
the Company or any Guarantor that ranks pari passu in right of payment with the
----------
Senior Notes or the Senior Note Guarantees, as applicable.
"Paying Agent" means any Person authorized by the Company to make payments
------------
of principal, premium or interest (including Special Interest, if any) with
respect to the Senior Notes on behalf of the Company.
"Permitted Holders" means Thomas C. Brandenburg, J. Thomas Elliott and
-----------------
Ronald W. Gavillet and Chase, CIBC, Hancock, BT, the Northwood Entities,
Enterprises, and Merrill Lynch Global Allocation Fund, Inc. and any of their
respective Subsidiaries (or a wholly-owned Subsidiary of the sole stockholder of
any of the foregoing Persons).
"Permitted Investments" means
---------------------
(i) Eligible Cash Equivalents;
(ii) Investments in Property used in the ordinary course of
business;
18
<PAGE>
(iii) Investments in the Company or in any Restricted Subsidiary or
any Person as a result of which such Person becomes a Restricted Subsidiary
of the Company in compliance with the terms of this Indenture;
(iv) Investments pursuant to certain agreements or obligations of
the Company or a Restricted Subsidiary of the Company, in effect on the
Issue Date, to make such Investments, which agreements and obligations are
specified in Schedule C attached hereto;
(v) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance
and other similar deposits;
(vi) Interest Hedging Obligations with respect to any floating rate
Indebtedness that is permitted under Section 4.09 hereof to be outstanding;
(vii) bonds, notes, debentures or other debt securities received as
a result of Asset Sales permitted under Section 4.08 hereof;
(viii) Investments in existence at the Issue Date; and
(ix) Investments in securities of trade creditors, wholesalers or
customers received pursuant to any plan of reorganization or similar
arrangements.
"Permitted Liens" means
---------------
(i) Liens created hereby or that otherwise secure the payment of the
Senior Notes or the Senior Note Guarantees, if any, and Liens created by
the Convertible Note Indenture or which otherwise secure the payment of the
Convertible Notes or the guarantees contained therein, if any;
(ii) Liens on Property or assets of a Person existing at the time
such Person is merged with or into or consolidated with the Company or any
Restricted Subsidiary of the Company or becomes a Restricted Subsidiary of
the Company, provided that such Liens were in existence prior to the
--------
contemplation of such merger or consolidation and do not secure any
Property or assets of the Company or any of its Restricted Subsidiaries
other than the Property or assets subject to the Liens prior to such merger
or consolidation;
(iii) Liens on Property or assets existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary, provided
--------
that such Liens were not given in contemplation of such acquisition;
19
<PAGE>
(iv) Liens to secure the payment of all or a part of the purchase
price or construction cost of Property or assets acquired or constructed in
the ordinary course of business after the Issue Date, provided that the
--------
Indebtedness secured by such Liens shall not exceed the lesser of 100% of
the cost or the Fair Market Value of the Property or assets acquired or
constructed and such Liens shall not extend to any other Property or
assets;
(v) Liens incurred or deposits made to secure the performance of
tenders, bids, leases not constituting Capitalized Lease Obligations,
statutory or regulatory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course
of business consistent with industry practice;
(vi) Liens existing as of the Issue Date and disclosed in Schedule D
attached hereto;
(vii) any Lien on Property of the Company in favor of the United
States of America or any state thereof, or any instrumentality of either,
to secure certain payments pursuant to any contract or statute;
(viii) any Lien for taxes or assessments or other governmental
charges or levies not then due and payable (or which, if due and payable,
are being contested in good faith and for which adequate reserves are being
maintained, to the extent required by GAAP);
(ix) easements, rights-of-way, licenses and other similar
restrictions on the use of Properties or minor imperfections of title that,
in the aggregate, are not material in amount and do not in any case
materially detract from the Properties subject thereto or interfere with
the ordinary conduct of the business of the Company or its Restricted
Subsidiaries;
(x) any Lien to secure obligations under workers' compensation laws
or similar legislation, including any Lien with respect to judgments which
are not currently dischargeable;
(xi) any statutory warehousemen's, materialmen's or other similar
Liens for sums not then due and payable (or which, if due and payable, are
being contested in good faith and with respect to which adequate reserves
are being maintained, to the extent required by GAAP);
(xii) Liens in favor of the Company;
20
<PAGE>
(xiii) Liens on Property or assets of the Company securing not
more than $30,000,000 aggregate principal amount at any one time
outstanding of Indebtedness permitted to be incurred under Section
4.09(b)(i) hereof;
(xiv) Liens securing any Vendor Financing, provided that such Liens do not
--------
extend to any Property or assets other than the Property or assets the
acquisition of which was financed by such Indebtedness;
(xv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other Property relating to
such letters of credit and the products and proceeds thereof; and
(xvi) Liens to secure any permitted extension, renewal, refinancing
or refunding (or successive extensions, renewals, refinancings or
refundings), in whole or in part, of any Indebtedness secured by Liens
referred to in the foregoing clauses (ii), (iii) and (xiv), provided that
--------
such Liens do not extend to any Property or assets other than the Property
and assets which were secured by the Liens' referred to in the foregoing
clauses (ii), (iii) and (xiv) and the principal amount of the Indebtedness
secured by such Liens is not increased.
"Permitted Merger" has the meaning set forth in Section 5.01 hereof.
----------------
"Person" means any individual, corporation, partnership, joint venture,
------
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof or any other entity or similar
person.
"Preferred Stock" means any Capital Stock of a Person, however designated,
---------------
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Private Placement Legend" means the legend in the form set forth in
------------------------
Section 2.01(e)(i) hereof.
"Property" means, with respect to any Person, any interest of such Person
--------
in any kind of property or asset, whether real, personal or mixed, tangible or
intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an underwritten public offering of Capital
----------------------
Stock (other than Disqualified Stock) of the Company pursuant to an effective
registration statement filed under the Securities Act.
21
<PAGE>
"Purchase Agreement" means the Purchase Agreement relating to the Units and
------------------
the Convertible Notes, dated September 23, 1996, among the Company and the
Initial Purchasers.
"Qualified Public Offering" means a Public Equity Offering resulting in net
-------------------------
proceeds to the Company of at least $35,000,000.
"Qualified Sale of the Company" means a sale of the Capital Stock or a
-----------------------------
merger or consolidation involving the Company, pursuant to which the holders of
the Capital Stock of the Company receive cash proceeds and/or publicly traded
securities having a fair market value of at least $122,500,000 in the aggregate,
or a sale of assets of the Company pursuant to which the Company receives net
cash proceeds and/or publicly traded securities having a fair market value of at
least $122,500,000 in the aggregate.
"Qualified Stock" of any Person means a class of Capital Stock other than
---------------
Disqualified Stock.
"Record Date" means, for the interest payable on any Interest Payment
-----------
Date, the date specified in Section 2.11 hereof.
"Record Expiration Date" has the meaning set forth in Section 1.05 hereof.
----------------------
"Redemption Date" means, when used with respect to any Senior Note or part
---------------
thereof to be redeemed hereunder, the date fixed for redemption of such Senior
Notes pursuant to the terms of the Senior Notes and this Indenture.
"Redemption Price" means, when used with respect to any Senior Note or part
----------------
thereof to be redeemed hereunder, the price fixed for redemption of such Senior
Note pursuant to the terms of the Senior Notes and this Indenture, plus accrued
and unpaid interest thereon, if any, (including Special Interest, if any) to the
Redemption Date.
"Refinance" has the meaning set forth in Section 4.09(b)(ix) hereof. The
---------
terms "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means any Indebtedness incurred in connection
------------------------
with the Refinancing of other Indebtedness.
"Registered Exchange Offer" has the meaning set forth in the Registration
-------------------------
Rights Agreement.
"Registrar" has the meaning set forth in Section 2.03 hereof.
---------
22
<PAGE>
"Registration Rights Agreement" means the Registration Rights Agreement
-----------------------------
dated September 30, 1996, among the Company and the Initial Purchasers, and
attached hereto as Exhibit E, and any other Registration Rights Agreement
related to the Senior Notes.
"Required Filing Date" has the meaning set forth in Section 4.18 hereof.
--------------------
"Restricted Payment" means (i) a dividend or other distribution declared
------------------
or paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared or paid to any Person other than to the
Company or any Restricted Subsidiary of the Company on the Capital Stock of any
Restricted Subsidiary of the Company, in each case, other than dividends,
distributions or payments made solely in Qualified Stock of the Company or such
Restricted Subsidiary (and other than pro rata dividends, distributions or
--- ----
payments declared or paid on the Common Stock of USN Solutions to any Person not
otherwise an Affiliate of the Company holding such Common Stock as a result of
the exercise of the USN Solutions Option; provided that the Company shall
--------
receive pro rata dividends, distributions or payments at the same time and in
--- ----
the same form and composition of consideration as the dividends, distributions
or payments paid to such minority stockholders), (ii) a payment made by the
Company or any of its Restricted Subsidiaries (other than to the Company or any
Restricted Subsidiary of the Company) to purchase, redeem, acquire or retire any
Capital Stock of the Company or of a Restricted Subsidiary of the Company, (iii)
a payment made by the Company or any of its Restricted Subsidiaries (other than
a payment made solely in Qualified Stock of the Company) to redeem, repurchase,
defease (including an in-substance or legal defeasance) or otherwise acquire or
retire for value (including pursuant to mandatory repurchase covenants), prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment, Indebtedness of the Company or such Restricted Subsidiary which is
subordinate (whether pursuant to its terms or by operation of law) in right of
payment to the Senior Notes, or any Senior Note Guarantees, as applicable, or
the Convertible Notes or any guarantees contained in the Convertible Note
Indenture, as applicable, or (iv) an Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Restricted Subsidiary" means (i) with respect to any Person other than the
---------------------
Company and its Subsidiaries, a Subsidiary of such Person, and (ii) with respect
to the Company, any Subsidiary of the Company that has not been classified as an
Unrestricted Subsidiary pursuant to Section 4.17 hereof.
23
<PAGE>
"Rule 144" means Rule 144 under the Securities Act (including any
--------
successor regulation thereto), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (including any
---------
successor regulation thereto), as it may be amended from time to time.
"Sale and Leaseback Transaction" means, with respect to any Person, any
------------------------------
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Security Register" has the meaning set forth in Section 2.03 hereof.
-----------------
"Senior Note Contingent Warrants" means the Senior Note Warrants to be
-------------------------------
issued by the Company to Holders of Senior Notes pursuant to the Warrant
Agreement in the event that, on or prior to March 30, 1998, the Company has not
(i) consummated a Qualified Public Offering or (ii) been sold pursuant to a
Qualified Sale of the Company.
"Senior Note Guarantee" means a guarantee of the payment of the Senior
---------------------
Notes in the form of a supplemental indenture to this Indenture to be executed
and delivered by a Restricted Subsidiary, if and as required by and pursuant to
Section 4.10 hereof.
"Senior Notes" has the meaning set forth in the Recitals of the Company and
------------
more particularly means any of the Senior Notes authenticated and delivered
under this Indenture.
"Shelf Registration Statement" has the meaning set forth in the
----------------------------
Registration Rights Agreement.
"Significant Restricted Subsidiary" means a Restricted Subsidiary that is a
---------------------------------
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"Special Interest" shall have the meaning ascribed to such term in
----------------
paragraph 3 of each Initial Note and in the Registration Rights Agreement.
"Special Record Date" means a date fixed by the Trustee pursuant to Section
-------------------
2.11 for the payment of Defaulted Interest.
24
<PAGE>
"Standard & Poor's" means Standard & Poor's Ratings Group, a division of
-----------------
McGraw-Hill, Inc., or, if Standard & Poor's Ratings Group shall cease rating the
specified debt securities and such ratings business with respect thereto shall
have been transferred to a successor Person, such successor Person; provided
--------
that if Standard & Poor's Ratings Group ceases rating the specified debt
securities and its ratings business with respect thereto shall not have been
transferred to any successor Person or such successor Person is Moody's, then
"Standard & Poor's" shall mean any other nationally recognized rating agency
(other than Moody's) that rates the specified debt securities selected by the
Trustee.
"Stated Maturity" means, with respect to any security, the date specified
---------------
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred), and, when used with respect
to any installment of interest on such security, the fixed date on which such
installment of interest is due and payable.
"Strategic Investor" means, with respect to any relevant transaction, a
------------------
Telecommunications Company which, both as of the Business Day immediately before
the day of the closing of such transaction and the Business Day immediately
after the day of the closing of such transaction, has, or whose parent has, an
equity market capitalization, a net asset value or annual revenues of at least
$2,000,000,000 on a consolidated basis. For purposes of this definition, the
term "parent" means any Person of which the relevant Strategic Investor is a
Subsidiary.
"Subsidiary" means, with respect to any Person, (i) any corporation more
----------
than 50 percent of the outstanding shares of Voting Stock of which is owned,
directly or indirectly, by such Person, or by one of more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such
Person, (ii) any general partnership, joint venture or similar entity, more than
50 percent of the outstanding partnership or similar interests of which are
owned, directly or indirectly, by such Person, or by one or more other
Subsidiaries of such Person, or by such Person and one or more other
Subsidiaries of such Person and (iii) any limited partnership of which such
Person or any Subsidiary of such Person is a general partner.
"Surviving Entity" has the meaning set forth in Section 5.01(a) hereof.
----------------
"Telecommunications Assets" means, with respect to any Person, assets
-------------------------
(including, without limitation, rights of way,
25
<PAGE>
trademarks and licenses to use copyrighted material) that are utilized by such
Person, directly or indirectly, for the design, development, construction,
installation, integration, operation, management or provision of
telecommunications systems and/or services, including without limitation, any
businesses or services in which the Company is currently engaged and including
any computer systems used in a Telecommunications Business. Telecommunications
Assets shall also include stock, joint venture or partnership interests in
another Person, provided that substantially all of the assets of such other
--------
Person consist of Telecommunications Assets, and provided, further, that if
-------- -------
such stock, joint venture or partnership interests are held by the Company or a
Restricted Subsidiary, such other Person either is, or immediately following
the relevant transaction shall become, a Restricted Subsidiary of the Company
unless such Person is a Joint Venture. The determination of what constitutes
Telecommunication Assets shall be made by the Board of Directors and evidenced
by a Board Resolution delivered to the Trustee.
"Telecommunications Business" means the business of (i) transmitting, or
---------------------------
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
(i) above or (iii) evaluating, participating or pursuing any other activity or
opportunity that is related to those specified in (i) or (ii) above and
includes, without limitation, any business in which the Company and its
Restricted Subsidiaries are currently engaged on the Issue Date.
"Telecommunications Company" means any Person substantially all of the
--------------------------
assets of which consist of Telecommunications Assets.
"Temporary Senior Notes" has the meaning set forth in Section 2.09 hereof.
----------------------
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
-------------------
(S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture except as
required by Section 9.04 hereof, provided that in the event the Trust Indenture
--------
Act of 1939 is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939, as so
amended.
"Trust Officer" means any officer or assistant officer of the Trustee
-------------
assigned by the Trustee to administer this Indenture.
"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 such successor.
26
<PAGE>
"U.S. Government Obligations" means (i) securities that are (a) direct
---------------------------
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and (ii) depository receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depository receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
--------
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depository receipt.
"Unit" means a Unit consisting of one Senior Note, in principal amount at
----
Stated Maturity of $1,000, and one Warrant to purchase approximately 1.27 shares
of the Company's Class A Common Stock, as described in the Purchase Agreement,
provided that additional Units may be sold subsequent to the Issue Date.
- --------
"Unit Legend" means the legend in the form set forth in Section
-----------
2.01(e)(iii) hereof.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
-----------------------
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to Section 4.17 hereof.
"USN Solutions" means USN Solutions, Inc., a Delaware corporation and a
-------------
Restricted Subsidiary of the Company.
"USN Solutions Option" means that certain option relating to the Common
--------------------
Stock of USN Solutions contemplated by that certain Memorandum of Understanding
dated July 3, 1996 by and between USN Solutions and Genesys SA.
"USNCN" means USN Communications Northeast, Inc. (formerly United
-----
Telemanagement Services, Inc.), a Delaware corporation and a Restricted
Subsidiary which is 100% owned by the Company on the Issue Date.
"Vendor Financing" means, with respect to any Person, an obligation owed by
----------------
such Person to a vendor of Telecommunications
27
<PAGE>
Assets solely in respect of the purchase price of such assets, provided that the
--------
amount of such Indebtedness does not exceed the Fair Market Value of such
assets, and provided, further, that such Indebtedness is incurred within 90 days
-------- -------
of the acquisition of such assets.
"Voting Stock" means, with respect to any Person, securities of any class
------------
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the Board of Directors or comparable body of such Person.
"Warrant" means a Warrant issued by the Company pursuant to the Warrant
-------
Agreement.
"Warrant Agent" means the Warrant Agent, as such term is defined in the
-------------
Warrant Agreement.
"Warrant Agreement" means the Warrant Agreement, dated as of September 30,
-----------------
1996, between the Company and Harris Trust and Savings Bank, as Warrant Agent
thereunder, and attached hereto as Exhibit F).
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary, all
----------------------------------
of the outstanding Capital Stock (other than directors' qualifying shares) of
which is owned, directly or indirectly, by the Company; provided that for
--------
purposes of this Indenture, other than for purposes of the definition of
"Consolidated Net Income" contained in this Section 1.01, USN Solutions shall
not cease to be a Wholly-Owned Restricted Subsidiary merely as a result of the
exercise of the USN Solutions Option.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms incorporated by reference in this
Indenture have the following meanings:
"indenture securities" means the Senior Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
28
<PAGE>
"obligor" on the indenture securities means the Company or other
obligor on the Senior Notes, if any.
All other Trust Indenture Act terms used or incorporated by reference in
this Indenture that are defined by the Trust Indenture Act, defined by Trust
Indenture Act reference to another statute or defined by Commission rule have
the meanings assigned to them therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
---------------------
requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) the words "herein," "hereof" and "hereunder," and other words of
similar import, refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(d) "or" is not exclusive;
(e) "including" means including without limitation;
(f) words in the singular include the plural, and words in the plural
include the singular;
(g) when used with respect to the Senior Notes or the Convertible
Notes, the term "principal amount" shall mean the principal amount thereof at
the Stated Maturity of such principal amount; and
(h) unless otherwise expressly provided herein, the principal amount
of any Preferred Stock shall be the greater of (i) the maximum liquidation value
of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory
repurchase price with respect to such Preferred Stock.
SECTION 1.04. Form of Documents Delivered to Trustee. In any case where
--------------------------------------
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
29
<PAGE>
Any certificate or opinion of an officer of the Company or a Guarantor may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters, upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or a
Guarantor stating that the information with respect to such factual matters is
in the possession of the Company or such Guarantor, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.05. Acts of Holders. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments, of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are received by the Trustee and, where it is hereby expressly required, to the
Company and the Guarantors, if any. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 7.01)
conclusive in favor of the Trustee and the Company and the Guarantors, if any,
if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by an acknowledgment of notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than such signer's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of the signer's authority. The fact and date of the execution
of any such instrument or writing, or the authority of the person executing the
same, may also be proved in any other manner which the Trustee deems sufficient.
30
<PAGE>
The ownership of Senior Notes shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder shall bind every future Holder of the same Senior Note
and the Holder of every Senior Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company or the Guarantors,
if any, in reliance thereon, whether or not notation of such action is made upon
such Senior Note.
The Company may set any day as a record date for the purpose of determining
the Holders of outstanding Senior Notes entitled to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
provided or permitted by this Indenture to be given or taken by Holders of
Senior Notes, provided that the Company may not set a record date for, and the
--------
provisions of this paragraph shall not apply with respect to, the giving or
making of any notice, declaration, request or direction referred to in the next
paragraph. If any record date is set pursuant to this paragraph, the Holders of
outstanding Senior Notes on such record date, and no other Holders, shall be
entitled to take the relevant actions whether or not such Holders remain
Holders after such record date; provided that no such action shall be effective
--------
hereunder unless taken on or prior to the applicable Record Expiration Date by
Holders of the requisite principal amount of outstanding Senior Notes on such
record date; and provided, further, that for the purpose of determining whether
-------- -------
Holders of the requisite principal amount of such Senior Notes have taken such
action, no Senior Note shall be deemed to have been outstanding on such record
date unless it is also outstanding on the date such action is to become
effective. Nothing in this paragraph shall prevent the Company from setting a
new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
nor shall anything in this paragraph be construed to render ineffective any
action taken by Holders of the requisite principal amount of outstanding Senior
Notes on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Company at its own expense, shall cause notice
of such record date, the proposed action by Holders and the applicable Record
Expiration Date to be given to the Trustee in writing and to each Holder of
Senior Notes in the manner set forth in Section 12.02 hereof.
The Trustee may set any day as a record date for the purpose of determining
the Holders of outstanding Senior Notes entitled to join in the giving or making
of (i) any notice of Default under Section 6.01(d) hereof, (ii) any declaration
of acceleration referred to in Section 6.02 hereof, (iii) any
31
<PAGE>
request to institute proceedings referred to in Section 6.06 hereof or (iv) any
direction referred to in Section 6.05 hereof. If any record date is set pursuant
to this paragraph, the Holders of outstanding Senior Notes on such record date,
and no other Holders, shall be entitled to join in such notice, declaration,
request or direction, whether or not such Holders remain Holders after such
record date; provided that no such action shall be effective hereunder unless
--------
taken on or prior to the applicable Record Expiration Date by Holders of the
requisite principal amount of outstanding Senior Notes on such record date; and
provided, further, that for the purpose of determining whether Holders of the
- -------- -------
requisite principal amount of such Senior Notes have taken such action, no
Senior Note shall be deemed to have been outstanding on such record date unless
it is also outstanding on the date such action is to become effective. Nothing
in this paragraph shall be construed to prevent the Trustee from setting a new
record date for any action (whereupon the record date previously set shall
automatically and without any action by any Person be cancelled and of no
effect), nor shall anything in this paragraph be construed to render ineffective
any action taken by Holders of the requisite principal amount of outstanding
Senior Notes on the date such action is taken. Promptly after any record date is
set pursuant to this paragraph, the Trustee, at the Company's expense, shall
cause notice of such record date, the matter(s) to be submitted for potential
action by Holders and the applicable Record Expiration Date to be given to the
Company in writing and to each Holder of Senior Notes in the manner set forth in
Section 12.02 hereof.
With respect to any record date set pursuant to this Section 1.05, the
party hereto that sets such record date may designate any day as the "Record
Expiration Date" and from time to time may change the Record Expiration Date to
any earlier or later day, provided that no such change shall be effective unless
--------
notice of the proposed new Record Expiration Date is given to the other party
hereto in writing, and to each Holder of Senior Notes in the manner set forth in
Section 12.02 hereof, on or before the existing Record Expiration Date. If a
Record Expiration Date is not designated with respect to any record date set
pursuant to this Section 1.05, the party hereto that set such record date shall
be deemed to have initially designated the 180th day after such record date as
the Record Expiration Date with respect thereto, subject to its right to change
the Record Expiration Date as provided in this paragraph. Notwithstanding the
foregoing, no Record Expiration Date shall be later than the 180th day after
the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Senior Note may do so with regard
to all or any part of the principal amount of such Senior Note or by one or more
duly appointed
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agents each of which may do so pursuant to such appointment with regard to all
or any part of such principal amount.
ARTICLE II
THE SENIOR NOTES
SECTION 2.01. Form and Dating. (a) The Initial Senior Notes and the
----------------
certificate of authentication of the Trustee thereon shall be substantially in
the form of Exhibit A or Exhibit B hereto, as applicable, which are hereby
incorporated in and expressly made a part of this Indenture. The Exchange
Senior Notes and the certificate of authentication of the Trustee thereon shall
be substantially in the form of Exhibit C or Exhibit D hereto, as applicable,
which are hereby incorporated in and expressly made a part of this Indenture.
(b) The Senior Notes may have such letters, numbers or other marks of
identification and such legends and endorsements, stamped, printed, lithographed
or engraved thereto, (i) as the Company may deem appropriate and as are not
inconsistent with the provisions of this Indenture, (ii) such as may be required
to comply with this Indenture, any law or any rule of any securities exchange on
which the Senior Notes may be listed and (iii) such as may be necessary to
conform to customary usage. Each Senior Note shall be dated the date of its
authentication by the Trustee.
(c) Initial Senior Notes shall be issued initially in the form of one
or more permanent, global notes in definitive, fully registered form, without
coupons, substantially in the form of Exhibit A hereto (each an "Initial Global
Senior Note"). Upon issuance, each such Initial Global Senior Note shall be
duly executed by the Company and authenticated by the Trustee as hereinafter
provided and deposited with the Trustee as custodian for the Depositary. Any
Initial Certificated Senior Note that may be issued pursuant to Section 2.06(c)
hereof shall be issued in the form of a note in definitive, fully registered
form, without coupons, substantially in the form set forth in Exhibit B hereto.
Upon issuance, any such Initial Certificated Senior Note shall be duly executed
by the Company and authenticated by the Trustee as hereinafter provided.
(d) In the event Exchange Senior Notes are issued pursuant to a
Registered Exchange Offer in exchange for Initial Senior Notes held in the form
of Initial Global Senior Notes, such Exchange Senior Notes shall be issued
initially in the form of a permanent global note in definitive, fully registered
form, without coupons, substantially in the form set forth in Exhibit C hereto
(the "Exchange Global Senior Note"). Upon issuance, such Exchange Global Senior
Note shall be duly executed by the Company
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<PAGE>
and authenticated by the Trustee as hereinafter provided and deposited with the
Trustee as custodian for the Depositary. Any Exchange Certificated Senior Note
that may be issued pursuant to Section 2.06(c) hereof or in exchange for Initial
Certificated Senior Notes pursuant to a Registered Exchange Offer shall be
issued in the form of a note in definitive fully registered form, without
coupons, substantially in the form set forth in Exhibit D hereto. Upon issuance,
any such Exchange Certificated Senior Note shall be duly executed by the Company
and authenticated by the Trustee as hereinafter provided.
(e) The following legends shall appear on each Global Senior Note and
each Certificated Senior Note as indicated below:
(i) Except as provided in Section 2.06(a)(iii) hereof, each Initial
Global Senior Note and Initial Certificated Senior Note shall bear the
following legend on the face thereof:
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), (3) TO A LIMITED NUMBER OF
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO THEIR
PURCHASE OF ANY SECURITIES OFFERED HEREBY, DELIVER TO THE INITIAL
PURCHASERS A LETTER CONCERNING CERTAIN REPRESENTATIONS AND AGREEMENTS
AND (B) IN ACCORDANCE WITH ALL APPLICABLE LAWS OF THE STATES OF THE
UNITED STATES.
(ii) Each Global Senior Note shall bear the following legend on the
face thereof:
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY TO UNITED USN, INC. OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY SENIOR NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY OR SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS
34
<PAGE>
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SENIOR NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SENIOR NOTE SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.06 OF
THE INDENTURE, DATED AS OF SEPTEMBER 30, 1996, BETWEEN UNITED USN,
INC. AND THE TRUSTEE NAMED THEREIN, PURSUANT TO WHICH THIS NOTE WAS
ISSUED.
(iii) Except as provided in Section 2.06(k) hereof, each Initial
Global Senior Note and Initial Certificated Senior Note shall bear the
following legend on the face thereof:
THE SENIOR NOTES EVIDENCED HEREBY WERE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT
14% SENIOR DISCOUNT NOTE DUE 2003 OF UNITED USN, INC. (COLLECTIVELY
THE "SENIOR NOTES") AND ONE WARRANT (COLLECTIVELY THE "INITIAL
WARRANTS") ENTITLING THE HOLDER THEREOF TO PURCHASE APPROXIMATELY 1.27
SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE, OF UNITED
USN, INC. PRIOR TO THE EARLIEST TO OCCUR OF (A) A DATE 180 DAYS AFTER
THE DATE OF ORIGINAL ISSUANCE OF THE UNITS, (B) SUCH DATE AS SMITH
BARNEY INC. MAY DETERMINE, (C) THE COMMENCEMENT OF A REGISTERED
EXCHANGE OFFER FOR THE SENIOR NOTES AND (D) IN THE EVENT OF A CHANGE
OF CONTROL (AS DEFINED IN THE INDENTURE RELATING TO THE SENIOR NOTES),
THE DATE UNITED USN INC. MAILS NOTICE THEREOF TO THE HOLDERS OF THE
SENIOR NOTES, THE SENIOR NOTES EVIDENCED HEREBY MAY NOT BE TRANSFERRED
OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY
TOGETHER WITH, THE INITIAL WARRANTS.
(f) Definitive Senior Notes shall be typed, printed, lithographed or
engraved or produced by any combination of such methods or produced in any other
manner permitted by the rules of any securities exchange on which such Senior
Notes may be listed, all as determined by the Officers of the Company executing
such Senior Notes, as evidenced by their execution of such Senior Notes.
35
<PAGE>
SECTION 2.02. Execution and Authentication. The Senior Notes may be
----------------------------
issued in two series, a series of Initial Senior Notes and a series of Exchange
Senior Notes. The aggregate principal amount at Stated Maturity of Senior Notes
outstanding at any time shall not exceed $137,000,000 except as provided in
Section 2.07 hereof. The Senior Notes shall be executed on behalf of the
Company by its Chief Executive Officer, its Chief Operating Officer, its
President or any Vice President, under its corporate seal reproduced or
imprinted on the Senior Notes by facsimile or otherwise, and shall be attested
by the Company's Secretary or one of its Assistant Secretaries, in each case by
manual or facsimile signature.
In case any Officer of the Company whose signature shall have been placed
upon any of the Senior Notes shall cease to be such Officer of the Company
before authentication of such Senior Notes by the Trustee and the issuance and
delivery thereof, such Senior Notes may, nevertheless, be authenticated by the
Trustee and issued and delivered with the same force and effect as though such
Person had not ceased to be such Officer of the Company.
Notwithstanding any other provision hereof, the Trustee shall authenticate
and deliver Senior Notes only upon receipt by the Trustee of an Officers'
Certificate and Opinion of Counsel complying with Section 12.04 hereof with
respect to satisfaction of all conditions precedent contained in this Indenture
to authentication and delivery of such Senior Notes.
Upon compliance by the Company with the provisions of the previous
paragraph, the Trustee shall, upon receipt of a Company Order requesting such
action, authenticate (a) Initial Senior Notes for original issuance in an
aggregate principal amount at Stated Maturity not to exceed $137,000,000 in the
form of one or more Initial Global Notes or (b) Exchange Senior Notes for
issuance pursuant to a Registered Exchange Offer for Initial Senior Notes in a
principal amount at Stated Maturity equal to the principal amount at Stated
Maturity of Initial Senior Notes exchanged in such Registered Exchange Offer.
Such Company Order shall specify the amount of Senior Notes to be authenticated
and the date on which, in the case of clause (a) above, the Initial Senior Notes
or, in the case of clause (b) above, the Exchange Senior Notes, are to be
authenticated and shall further provide instructions concerning registration,
amounts for each Holder and delivery.
Upon the occurrence of any event specified in Section 2.06(c) hereof and
compliance by the Company with the provisions of the paragraph preceding the
immediately preceding paragraph, the Company shall execute and the Trustee shall
authenticate and deliver to each beneficial owner identified by the Depositary,
in exchange for such beneficial owner's interest in an Initial Global Senior
Note or Exchange Global Senior Note, as the case
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<PAGE>
may be, Initial Certificated Senior Notes or Exchange Certificated Senior Notes,
as the case may be, representing Senior Notes theretofore represented by the
Initial Global Senior Note or Exchange Global Senior Note, as the case may be.
A Senior Note shall not be valid or entitled to any benefit under this
Indenture or obligatory for any purpose unless executed by the Company and
authenticated by the manual signature of the Trustee as provided herein. The
signature of an authorized officer of the Trustee shall be conclusive evidence,
and the only evidence, that such Senior Note has been authenticated and
delivered under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate the Senior Notes. Unless limited by the status of
such appointment, an authenticating agent may authenticate Senior Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. Any
authenticating agent of the Trustee shall have the same rights hereunder as any
Registrar or Paying Agent.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain,
--------------------------
pursuant to Section 4.02 hereof, an office or agency where the Senior Notes may
be presented for registration of transfer or for exchange. The Company shall
cause to be kept at such office a register (the register maintained in such
office being herein sometimes referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Senior Notes and of transfers of Senior Notes
entitled to be registered or transferred as provided herein. The Trustee, at
its Corporate Trust Office, is initially appointed "Registrar" for the purpose
of registering Senior Notes and transfers of Senior Notes as herein provided and
as "Paying Agent" for the payment of principal of (and premium, if any), and
interest (including Special Interest, if any) on, the Senior Notes. The Company
may, upon written notice to the Trustee, change the designation of the Trustee
as Registrar or Paying Agent and appoint another Person to act as Registrar or
Paying Agent for purposes of this Indenture, except that for the purposes of
Article III, Article XI and Sections 4.07 and 4.08, none of the Company, any
Guarantor, any Restricted Subsidiary and any Affiliate shall act as Paying
Agent. If any Person other than the Trustee acts as Registrar, the Trustee
shall have the right at any time, upon reasonable notice, to inspect or examine
the Security Register and to make such inquiries of the Registrar as the Trustee
shall in its discretion deem necessary or desirable in performing its duties
hereunder.
The Company shall enter into an appropriate agency agreement with any
Person designated by the Company as Registrar or Paying
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<PAGE>
Agent that is not a party to this Indenture, which agreement shall incorporate
the provisions of the Trust Indenture Act and shall implement the provisions of
this Indenture that relate to such Registrar or Paying Agent. Prior to the
designation of any such Person, the Company shall, by written notice (which
notice shall include the name and address of such Person), inform the Trustee of
such designation. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
Upon surrender for registration of transfer of any Senior Note at an office
or agency of the Company designated for such purpose, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Initial Senior Notes or Exchange
Senior Notes, as the case may be, of any authorized denomination or
denominations, of like tenor and aggregate principal amount at Stated Maturity,
all as requested by the transferor.
Every Senior Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company, the Trustee or the Registrar)
be duly endorsed, or be accompanied by a duly executed instrument of transfer in
form satisfactory to the Company, the Trustee and the Registrar, by the Holder
thereof or such Holder's attorney duly authorized in writing.
SECTION 2.04. Paying Agent to Hold Money in Trust. On or prior to each
-----------------------------------
due date of the principal, premium, or any payment of interest with respect to
any Senior Note, the Company shall deposit with the Paying Agent a sum
sufficient to pay such principal, premium or interest (including Special
Interest, if any) when so becoming due.
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that such Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by such Paying Agent for the payment of
principal, premium, and interest (including Special Interest, if any) with
respect to the Senior Notes, shall notify the Trustee of any default by the
Company in making any such payment and at any time during the continuance of any
such default, upon the written request of the Trustee, shall forthwith pay to
the Trustee sums held in trust by such Paying Agent.
The Company at any time may require a Paying Agent to pay all money held by
it to the Trustee and to account for any funds disbursed by such Paying Agent.
Upon complying with this Section 2.04, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
SECTION 2.05. Global Senior Notes. (a) So long as a Global Senior Note
-------------------
is registered in the name of the Depositary or
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<PAGE>
its nominee, members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to the Global Senior Note
held on their behalf by the Depositary or the Trustee as its custodian, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Senior Note for all
purposes. Notwithstanding the foregoing, nothing herein shall (i) prevent the
Company, the Trustee or any agent of the Company or the Trustee, from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or (ii) impair, as between the Depositary and its Agent Members,
the operation of customary practices governing the exercise of the rights of a
Holder of Senior Notes.
(b) The Holder of a Global Senior Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in such Global Senior Note through Agent Members, to take any action
which a Holder of Senior Notes is entitled to take under this Indenture or the
Senior Notes.
(c) Whenever, as a result of an optional redemption of Senior Notes by
the Company, a Change of Control Offer, an Asset Sale Offer, a Registered
Exchange Offer or an exchange pursuant to the second sentence of Section 2.06(c)
hereof, a Global Senior Note is redeemed, repurchased or exchanged in part, such
Global Senior Note shall be surrendered by the Holder thereof to the Trustee who
shall cause an adjustment to be made to Schedule A thereof so that the principal
amount of such Global Senior Note will be equal to the portion of such Global
Senior Note not redeemed, repurchased or exchanged and shall thereafter return
such Global Senior Note to such Holder, provided that each such Global Senior
--------
Note shall be in a principal amount at Stated Maturity of $1,000 or an integral
multiple thereof.
SECTION 2.06. Transfer and Exchange. (a) The following provisions of
---------------------
this paragraph (a) are applicable only to Initial Senior Notes:
(i) By its acceptance of any Initial Senior Note represented by a
certificate bearing the Private Placement Legend, each Holder of, and
beneficial owner of an interest in, such Initial Senior Note acknowledges
the restrictions on transfer of such Initial Senior Note set forth in the
Private Placement Legend and under the heading "Transfer Restrictions" in
the Final Memorandum and agrees that it will transfer such Initial Senior
Note only in accordance with the Private Placement Legend and the
restrictions set forth under the heading "Transfer Restrictions" in the
Final Memorandum.
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(ii) In connection with any transfer of an Initial Senior Note
bearing the Private Placement Legend, each Holder agrees to deliver to the
Company, such satisfactory evidence, which may include an opinion of
independent counsel licensed to practice law in the State of New York, as
reasonably may be requested by the Company to confirm that such transfer is
being made in accordance with the limitations set forth in the Private
Placement Legend. In the event the Company determines that any such
transfer is not in accordance with the Private Placement Legend, the
Company shall so inform the Registrar who shall not register such transfer;
provided that the Registrar shall not be required to determine (but may
--------
rely on a determination made by the Company with respect to) the
sufficiency of any such evidence.
(iii) Upon the registration of transfer, exchange or replacement of an
Initial Senior Note not bearing the Private Placement Legend, the Trustee
shall deliver an Initial Senior Note or Initial Senior Notes that do not
bear the Private Placement Legend. Upon the transfer, exchange or
replacement of an Initial Senior Note bearing the Private Placement Legend,
the Trustee shall deliver an Initial Senior Note or Initial Senior Notes
bearing the Private Placement Legend, unless such legend may be removed
from such Senior Note as provided in the next sentence. The Private
Placement Legend may be removed from an Initial Senior Note if there is
delivered to the Company such satisfactory evidence, which may include an
opinion of independent counsel licensed to practice law in the State of
New York, as reasonably may be requested by the Company to confirm that
neither such legend nor the restrictions on transfer set forth therein are
required to ensure that transfers of such Initial Senior Note will not
violate the registration and prospectus delivery requirements of the
Securities Act; provided that the Trustee shall not be required to
--------
determine (but may rely on a determination made by the Company with respect
to) the sufficiency of any such evidence. Upon provision of such evidence,
the Trustee shall authenticate and deliver in exchange for such Initial
Note, an Initial Senior Note or Initial Senior Notes (representing the
same aggregate principal amount at Stated Maturity of the Initial Senior
Note being exchanged) without such legend. If the Private Placement Legend
has been removed from an Initial Senior Note, as provided above, no other
Initial Senior Note issued in exchange for all or any part of such Initial
Senior Note shall bear such legend unless the Company has reasonable cause
to believe that such other Initial Senior Note represents a "restricted
security" within the meaning of Rule 144 and instructs the Trustee in
writing to cause a legend to appear thereon.
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(iv) The Company shall deliver to the Trustee, and the Trustee shall
retain for two years, copies of all documents received pursuant to this
Section 2.06(a). The Company shall have the right to inspect and make
copies of all such documents at any reasonable time upon the giving of
reasonable written notice to the Trustee.
(b) Any Initial Senior Notes which are presented to the Registrar for
exchange pursuant to a Registered Exchange Offer shall be exchanged for Exchange
Senior Notes of equal principal amount at Stated Maturity upon surrender to the
Registrar of the Initial Senior Notes to be exchanged in accordance with the
terms of the Registered Exchange Offer; provided that the Initial Senior Notes
--------
so surrendered for exchange are duly endorsed and accompanied by a letter of
transmittal or written instrument of transfer in form satisfactory to the
Company, the Trustee and the Registrar and duly executed by the Holder thereof
or such Holder's attorney who shall be duly authorized in writing to execute
such document on the behalf of such Holder. Whenever any Initial Senior Notes
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver to the surrendering Holder thereof, Exchange
Senior Notes in the same aggregate principal amount at Stated Maturity as the
Initial Senior Notes so surrendered.
(c) Any Initial Global Senior Note or the Exchange Global Senior
Note, as the case may be, shall be exchanged by the Company for one or more
Initial Certificated Senior Notes or Exchange Certificated Senior Notes, as the
case may be, if (a) the Depositary (i) has notified the Company that it is
unwilling or unable to continue as, or ceases to be, a clearing agency
registered under Section 17A of the Exchange Act and (ii) a successor to the
Depositary registered as a clearing agency under Section 17A of the Exchange Act
is not able to be appointed by the Company within 90 days or (b) the Depositary
is at any time unwilling or unable to continue as Depositary and a successor to
the Depositary is not able to be appointed by the Company within 90 days. If an
Event of Default occurs and is continuing, the Company shall, at the request of
the Holder thereof, exchange all or part of an Initial Global Senior Note or the
Exchange Global Senior Note, as the case may be, for one or more Initial
Certificated Senior Notes or Exchange Certificated Senior Notes, as the case may
be; provided that the principal amount at Stated Maturity of each such Global
--------
Senior Note, after such exchange, shall be $1,000 or an integral multiple
thereof. Whenever a Global Senior Note is exchanged as a whole for one or more
Initial Certificated Senior Notes or Exchange Certificated Senior Notes, as the
case may be, it shall be surrendered by the Holder thereof to the Trustee for
cancellation. Whenever a Global Senior Note is exchanged in part for one or more
Initial Certificated Senior Notes or Exchange Certificated Senior Notes,
41
<PAGE>
as the case may be, it shall be surrendered by the Holder thereof to the Trustee
and the Trustee shall make the appropriate notations thereon pursuant to Section
2.05(c) hereof. All Initial Certificated Senior Notes or Exchange Certificated
Senior Notes, as the case may be, issued in exchange for a Global Senior Note or
any portion thereof shall be registered in such names, and delivered, as the
Depositary shall instruct the Trustee. Any Initial Certificated Senior Notes
issued pursuant to this Section 2.06(c) shall include (i) the Private Placement
Legend, except as set forth in Section 2.06(a)(iii) hereof, and (ii) the Unit
Legend, except as set forth in Section 2.06(k) hereof. Interests in a Global
Senior Note may not be exchanged for Certificated Senior Notes other than as
provided in this Section 2.06(c).
(d) A Holder may transfer a Senior Note only upon the surrender of
such Senior Note for registration of transfer. No such transfer shall be
effected until, and the transferee shall succeed to the rights of a Holder only
upon, final acceptance and registration of the transfer in the Security Register
by the Registrar. When Senior Notes are presented to the Registrar with a
request to register the transfer of, or to exchange, such Senior Notes, the
Registrar shall register the transfer or make such exchange as requested if its
requirements for such transactions and any applicable requirements hereunder
are satisfied. To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Certificated Senior Notes at
the Registrar's request.
(e) The Company shall not be required to make and the Registrar need
not register transfers or exchanges of Certificated Senior Notes selected for
redemption (except, in the case of Certificated Senior Notes to be redeemed in
part, the portion thereof not to be redeemed) for a period of 15 days before a
selection of Certificated Senior Notes to be redeemed.
(f) No service charge shall be made for any registration of transfer
or exchange of Senior Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer of Senior Notes (other than in
respect of a Registered Exchange Offer, except as provided in the Registration
Rights Agreement, and in respect of exchanges and transfers pursuant to
Sections 2.09, 3.06, 4.07, 4.08 and 9.06 hereof).
(g) All Senior Notes issued upon any registration of transfer or
exchange pursuant to the terms of this Indenture will evidence the same debt and
will be entitled to the same benefits under this Indenture as the Senior Notes
surrendered for such registration of transfer or exchange.
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(h) Prior to the effectiveness under the Securities Act of a Shelf
Registration Statement, or at any time during the suspension or following the
termination thereof, Holders of Initial Senior Notes (or holders of interests
therein) and prospective purchasers designated by such Holders of Initial Senior
Notes (or such holders of interests therein) shall have the right to obtain from
the Company upon request by such Holders (or such holders of interests) or
prospective purchasers, during any period in which the Company is not subject to
Section 13 or Section 15(d) of the Exchange Act, or is exempt from reporting
pursuant to 12g3-2(b) under the Exchange Act, the information required by
paragraph (d)(4)(i) of Rule 144A in connection with any transfer or proposed
transfer of such Senior Notes or interests.
(i) Any Holder of a Global Senior Note shall, by acceptance of such
Global Senior Note, agree that transfers of beneficial interests in such Global
Senior Note may be effected only through a book entry system maintained by the
Holder of such Global Senior Note (or its agent), and that ownership of a
beneficial interest in the Senior Notes represented thereby shall be required to
be reflected in book entry form. Transfers of a Global Senior Note shall be
limited to transfers in whole and not in part, to the Depositary, its
successors, and their respective nominees. Interests of beneficial owners in
Global Senior Note may be transferred in accordance with the rules and
procedures of the Depositary (or its successors).
(j) By its acceptance of any Initial Senior Note represented by a
certificate bearing the Unit Legend, each Holder of, and each beneficial owner
of an interest in, such Initial Senior Note acknowledges that the Senior Notes
shall initially be issued as part of the issuance of the Units and agrees to the
restrictions on transfer of Units set forth in the Final Memorandum and the
Unit Legend and agrees that it will not transfer such Initial Senior Notes
separately, but only with the Initial Warrants as part of a transfer of a Unit
or Units, until the Separation Date. The Registrar shall not register the
transfer of any Senior Note prior to the Separation Date unless the Company
receives evidence reasonably satisfactory to it that such transfer is part of a
transfer of a Unit or Units, provided that the Registrar shall not be required
--------
to determine (but may rely on the determination made by the Company with respect
to) the sufficiency of any such evidence. Notice from the Warrant Agent of a
proposed transfer of Initial Warrants (in a number that together with the
principal amount of the Senior Notes proposed to be transferred will constitute
a Unit or Units) by the same Holder requesting transfer of such Senior Notes to
the same proposed transferee to which such Senior Notes are to be transferred,
shall constitute satisfactory evidence for the purposes of the second sentence
of this subsection (j).
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(k) The Company shall notify the Trustee and the Depositary in writing
of the occurrence of the Separation Date on such Separation Date. Any Senior
Notes issued after the Separation Date shall not include the Unit Legend.
SECTION 2.07. Replacement Senior Notes. If any mutilated Senior Note is
------------------------
surrendered to the Trustee, the Company shall execute and upon its written
request the Trustee shall authenticate and deliver, in exchange for any such
mutilated Senior Note, a new Senior Note containing identical provisions and of
like principal amount, bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Senior Note and (ii)
such security or indemnity as may be required by them to save either of them and
any agent of each of them harmless, then, in the absence of notice to the
Company or the Trustee that such Senior Note has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Senior
Note, a new Senior Note containing identical provisions and of like principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Senior Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Senior Note, pay such Senior Note.
Upon the issuance of any new Senior Note under this Section 2.07, the
Company may require the payment by the Holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Senior Note issued pursuant to this Section 2.07 in lieu of any
destroyed, lost or stolen Senior Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Senior Note shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Senior Notes duly issued hereunder.
The provisions of this Section 2.07 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 Senior Notes.
SECTION 2.08. Outstanding Senior Notes. Senior Notes outstanding at any
------------------------
time are all Senior Notes authenticated by the Trustee except for those canceled
by it, those delivered to it
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for cancellation and those described in this Section 2.08 as not outstanding. A
Senior Note does not cease to be outstanding because the Company or an Affiliate
of the Company holds such Senior Note.
If a Senior Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee and the Company receive proof satisfactory to
them that such replaced Senior Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company, a Guarantor or an Affiliate of
the Company or a Guarantor) segregates and holds in trust, in accordance with
this Indenture, on a Redemption Date or Maturity date money sufficient to pay
all principal, premium, if any, and interest (including Special Interest, if
any) payable on that date with respect to the Senior Notes (or portions thereof)
to be redeemed or maturing, as the case may be, then on and after that date such
Senior Notes (or such portions thereof) shall cease to be outstanding and
interest on them shall cease to cease to accrete in value or accrue interest, as
the case may be.
In determining whether the Holders of the required principal amount of
Senior Notes have concurred in any direction, waiver or consent or any
amendment, modification or other change to this Indenture, Senior Notes held or
beneficially owned by the Company or a Restricted Subsidiary of the Company or
by an Affiliate of the Company or a Restricted Subsidiary of the Company or by
agents of any of the foregoing shall be disregarded, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent or any amendment, modification or other change
to this Indenture, only Senior Notes which a Trust Officer has actual knowledge
to be so owned shall be so disregarded. Senior Notes so owned which have been
pledged in good faith shall not be disregarded if the pledgee establishes to the
satisfaction of the Trustee such pledgee's right so to act with respect to the
Senior Notes and that the pledgee is not the Company or an Affiliate of the
Company or any of their agents.
SECTION 2.09. Temporary Senior Notes. Pending the preparation of
----------------------
definitive Senior Notes, the Company may execute, and the Trustee shall
authenticate, temporary notes ("Temporary Senior Notes") which are printed,
lithographed, or otherwise produced, substantially of the tenor of the
definitive Senior Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations.
If Temporary Senior Notes are issued, the Company shall cause definitive
Senior Notes to be prepared without unreasonable delay. After the preparation
of definitive Senior Notes, the Temporary Senior Notes shall be exchangeable for
definitive Senior Notes upon surrender of the Temporary Senior Notes to the
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Trustee, without charge to the Holder. Until so exchanged, Temporary Senior
Notes will evidence the same debt and will be entitled to the same benefits
under this Indenture as the definitive Senior Notes in lieu of which they have
been issued.
SECTION 2.10. Cancellation. The Company at any time may deliver Senior
------------
Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Senior Notes surrendered to them for registration of
transfer, exchange, purchase or payment. The Trustee shall cancel all Senior
Notes surrendered for registration of transfer, exchange, purchase, payment or
cancellation and shall destroy such canceled Senior Notes unless the Company
shall by Company Order otherwise direct. The Company may not issue new Senior
Notes to replace Senior Notes it has redeemed or paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.11. Payment of Interest; Interest Rights Preserved. Interest
-----------------------------------------------
(including Special Interest, if any) on any Senior Note which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date, which shall
be March 30 or September 30, commencing September 30, 2000 for interest other
than Special Interest, if any, shall be paid to the Person in whose name such
Senior Note is registered at the close of business on the Record Date for such
interest payment, which shall be the March 15 or September 15 (whether or not a
Business Day) immediately preceding such Interest Payment Date.
Any interest on any Senior Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
Holder on the relevant Record Date, and, except as hereafter provided, such
Defaulted Interest, and any interest payable on such Defaulted Interest, may be
paid by the Company, at its election, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest,
and any interest payable on such Defaulted Interest, to the Persons in whose
names the Senior Notes are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on the Senior Notes and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as provided in this Clause.
Thereupon the Trustee shall
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fix a Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be sent, first class mail, postage
prepaid, to each Holder at such Holder's address as it appears in the Security
Register, not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid to the
Persons in whose names the Senior Notes are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest, and any
interest payable on such Defaulted Interest, on the Senior Notes in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Senior Notes may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.11, each Senior
Note delivered under this Indenture upon registration of transfer of, or in
exchange for, or in lieu of, any other Senior Note, shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Senior Note.
SECTION 2.12. Authorized Denominations. The Senior Notes shall be
------------------------
issuable in denominations of $1,000 and any integral multiple thereof.
SECTION 2.13. Computation of Interest, etc. The Senior Notes that will be
----------------------------
issued on the Issue Date will be issued at a discounted aggregate principal
amount of $30,203,375. The Senior Notes will accrete in value from the date of
original issuance thereof, whether on the Issue Date or otherwise, at a rate of
14% per annum, compounded semi-annually in the manner specified in the
definition of "Accreted Value" contained in Section 1.01 hereof, up to an
aggregate principal amount of $137,000,000 by March 30, 2000 (assuming all of
the Initial Senior Notes issuable under Section 2.02 of this Indenture are so
issued). Thereafter, interest on the Senior Notes will accrue at a rate of 14%
per annum. Interest on the Senior Notes shall be computed on the basis of a
360-day year of twelve 30-day months. Notwithstanding any other term of this
Indenture, the Company shall not be
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obliged to pay any interest or other amounts under or in connection with this
Indenture in excess of the amount or rate permitted under or consistent with
applicable law.
SECTION 2.14. Persons Deemed Owners. Prior to the due presentation for
---------------------
registration of transfer of any Senior Note, the Company, the Trustee, the
Paying Agent, the Registrar or any co-Registrar may deem and treat the person in
whose name a Senior Note is registered as the absolute owner of such Senior Note
for the purpose of receiving payment of principal of, premium, if any, and
interest (including Special Interest, if any) on such Senior Note and for all
other purposes whatsoever, whether or not such Senior Note is overdue, and none
of the Company, the Trustee, the Paying Agent, the Registrar or any co-
Registrar shall be affected by notice to the contrary.
SECTION 2.15. CUSIP Numbers. The Company, in issuing the Senior Notes,
-------------
may use a "CUSIP" number for each series of Senior Notes and, if so, the Trustee
shall use the relevant CUSIP number in any notices to Holders as a convenience
to such Holders; provided that any such notice may state that no representation
--------
is made as to the correctness or accuracy of the CUSIP number printed in the
notice or on the Senior Notes and that reliance may be placed only on the other
identification numbers printed on the Senior Notes. The Company shall promptly
notify the Trustee of any change in any CUSIP number used.
ARTICLE III
REDEMPTION
SECTION 3.01. Notice to Trustee. If the Company elects to redeem Senior
-----------------
Notes pursuant to the optional redemption provisions of Section 3.07 and the
Senior Notes, it shall furnish an Officers' Certificate to the Trustee setting
forth the Redemption Date, the principal amount of Senior Notes to be redeemed
and the Redemption Price. The Company shall give each such notice to the
Trustee at least 60 days prior to the Redemption Date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with any conditions to such redemption set forth herein
and in the Senior Notes.
SECTION 3.02. Selection of Senior Notes to be Redeemed. If less than all
----------------------------------------
the Senior Notes are to be redeemed at any time, the Trustee shall select the
Senior Notes to be redeemed on a pro rata basis, or by any other method which
--- ----
the Trustee deems to be fair and appropriate and which complies with any
securities exchange or other applicable requirements, provided that the Trustee
--------
may select for redemption in part only Senior Notes in
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denominations larger than $1,000. In selecting Senior Notes to be redeemed
pursuant to this Section 3.02, the Trustee shall make such adjustments,
reallocations and eliminations as it shall deem proper so that the principal
amount of each Senior Note to be redeemed shall be $1,000 or an integral
multiple thereof, by increasing, decreasing or eliminating any amount less than
$1,000 which would be allocable to any Holder. If the Senior Notes to be
redeemed are Certificated Senior Notes, the Certificated Senior Notes to be
redeemed shall be selected by the Trustee by prorating, as nearly as may be, or
by any other method which the Trustee deems to be fair and appropriate and which
complies with any securities exchange or other applicable requirements the
principal amount of Certificated Senior Notes to be redeemed among the Holders
of Certificated Senior Notes registered in their respective names. The Trustee
in its discretion may determine the particular Senior Notes (if there are more
than one) registered in the name of any Holder which are to be redeemed, in
whole or in part. Provisions of this Indenture that apply to Senior Notes called
for redemption also apply to portions of Senior Notes called for redemption. The
Trustee shall notify the Company promptly of the Senior Notes or portions of
Senior Notes to be redeemed. Each redemption of Senior Notes shall be pro rata
--- ----
as between Initial Senior Notes and Exchange Senior Notes.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60
--------------------
days before a Redemption Date, the Company shall send a notice of redemption,
first class mail, postage prepaid, to Holders of Senior Notes to be redeemed at
the addresses of such Holders as they appear in the Security Register.
The notice shall identify the Senior Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price (and shall specify the portion of such
Redemption Price that constitutes the amount of accrued and unpaid interest to
be paid, if any);
(c) the name and address of the Paying Agent;
(d) that the Senior Notes called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(e) if any Global Senior Note is being redeemed in part, the portion
of the principal amount of such Senior Note to be redeemed and that, after the
Redemption Date, the Global Note, with a notation on Schedule A thereof
adjusting the principal amount thereof to be equal to the unredeemed portion,
will be returned to the Holder thereof;
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(f) if any Certificated Senior Note is being redeemed in part, the
portion of the principal amount of such Senior Note to be redeemed and that,
after the Redemption Date, a new Certificated Senior Note or Certificated
Senior Notes in principal amount at Stated Maturity equal to the unredeemed
portion will be issued;
(g) if fewer than all the outstanding Senior Notes are to be
redeemed, the identification and principal amounts of the particular Senior
Notes to be redeemed;
(h) that, unless the Company defaults in making the redemption
payment, payment of interest (including Special Interest, if any) on, or the
accretion of the value of, the Senior Notes (or portions thereof) called for
redemption shall cease and such Senior Notes (or portions thereof) shall cease
to accrete in value or cease to accrue interest, as the case may be, on and
after the Redemption Date;
(i) the paragraph of the Senior Notes and the Section of this
Indenture pursuant to which the Senior Notes are being called for redemption;
and
(j) any other information necessary to enable Holders to comply with
the notice of redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section 3.03 in a timely manner; provided that the Company shall give the
--------
Trustee not less than 60 days' notice unless the Trustee consents to a shorter
period.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption
------------------------------
is mailed, Senior Notes called for redemption shall become due and payable on
the Redemption Date and at the Redemption Price stated in such notice, plus
interest and Special Interest, if any, accrued and unpaid on the Redemption
Date; provided that if the Redemption Date is after a regular Record Date and on
--------
or prior to the Interest Payment Date, the accrued interest (including Special
Interest, if any) shall be payable to the Holder of the redeemed Note on the
relevant Record Date; and provided, further, that if a Redemption Date is not a
-------- -------
Business Day, payment shall be made on that next succeeding Business Day and no
interest shall accrue for the period from such Redemption Date to such
succeeding Business Day. Upon surrender to the Paying Agent, such Senior Notes
shall be paid at the Redemption Price stated in such notice. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
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SECTION 3.05. Deposit of Redemption Price. On or prior to 10:00 a.m., New
---------------------------
York City time, on each Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company, one of its Subsidiaries or any of their
Affiliates is the Paying Agent, the Paying Agent shall segregate and hold in
trust for the benefit of the Holders) money, in federal or other immediately
available funds, sufficient to pay the Redemption Price on all Senior Notes to
be redeemed on that date other than Senior Notes or portions of Senior Notes
called for redemption on such date which have been delivered by the Company to
the Trustee for cancellation.
So long as the Company complies with the preceding paragraph and the other
provisions of this Article III, interest (and Special Interest, if any) on the
Senior Notes to be redeemed on the applicable Redemption Date shall cease to
accrue, or such Senior Notes shall cease to accrete in value, as the case may
be, from and after such date and such Senior Notes or portions thereof shall be
deemed not to be entitled to any benefit under this Indenture except to receive
payment on the Redemption Date of the Redemption Price plus interest and Special
Interest, if any, accrued and unpaid on the Redemption Date. If any Senior Note
called for redemption shall not be so paid upon surrender for redemption, then,
from the Redemption Date until such principal is paid, interest shall be paid
on the unpaid principal and, to the extent permitted by law, on any accrued but
unpaid interest thereon, in each case at the rate prescribed therefor by such
Senior Notes.
SECTION 3.06. Senior Notes Redeemed in Part. Upon surrender and
-----------------------------
cancellation of a Certificated Senior Note that is redeemed in part, the Company
shall issue and the Trustee shall authenticate and deliver to the surrendering
Holder (at the Company's expense) a new Certificated Senior Note equal in
principal amount to the unredeemed portion of the Certificated Senior Note
surrendered and canceled, provided that each such Certificated Senior Note shall
be in a principal amount of $1,000 or an integral multiple thereof.
Upon surrender of a Global Senior Note that is redeemed in part, the Paying
Agent shall forward such Global Senior Note to the Trustee who shall make a
notation on Schedule A thereof to reduce the principal amount of such Global
Senior Note to an amount equal to the unredeemed portion of such Global Senior
Note, as provided in Section 2.05(c) hereof.
SECTION 3.07. Optional Redemption. The Senior Notes will not be
-------------------
redeemable at the option of the Company prior to September 30, 2001, subject to
provisions of the following paragraph. Thereafter, the Senior Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the
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Redemption Prices (expressed as percentages of principal amount at Stated
Maturity thereof) set forth below, plus accrued and unpaid interest (if any) and
Special Interest (if any), if redeemed during the twelve months beginning
September 30 of each year indicated below:
Year Percentage
---- ----------
2001.................................................. 109.0%
2002.................................................. 104.5%
Notwithstanding the foregoing, in the event that on or prior to September
30, 1999, the Company consummates one or more Public Equity Offerings of its
Common Stock or issues or sells Qualified Stock of the Company to a Strategic
Investor, in each case in an aggregate amount equal to or exceeding $40,000,000,
up to a maximum of 25 percent of the aggregate principal amount at Stated
Maturity of the Senior Notes will be redeemable at the option of the Company
out of the net proceeds of such sale or sales to the extent that such proceeds
consist of cash or cash equivalents. Such Senior Notes will be redeemable on not
less than 30 nor more than 60 days' prior notice at a Redemption Price equal to
114 percent of the Accreted Value of the Senior Notes to be redeemed on the
Redemption Date plus accrued and unpaid interest, if any, and Special Interest,
if any, to the Redemption Date. Any such redemption shall occur within 90 days
after (but not before) such sale or last such sale in the case of a series of
related transactions; provided that immediately after giving effect to such
--------
redemption not less than 75 percent of the aggregate principal amount at Stated
Maturity of the Senior Notes originally issued remain outstanding.
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Senior Notes. The Company shall promptly pay the
-----------------------
principal of, premium, if any, and interest (including Special Interest, if
any), on, the Senior Notes on the dates and in the manner provided in the Senior
Notes and in this Indenture. Principal, premium and interest shall be considered
paid on the date due if, on such date, the Trustee or the Paying Agent holds in
accordance with this Indenture money sufficient to pay all principal, premium
and interest (including Special Interest, if any) then due.
To the extent lawful, the Company shall pay interest on (i) any overdue
principal of (and premium, if any, on) the Senior Notes, at the interest rate
borne on the Senior Notes, plus 1% per annum, and (ii) Defaulted Interest
--- -----
(without regard to any applicable grace period), at the same rate. The Company's
52
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obligation pursuant to the previous sentence shall apply whether such overdue
amount is due at its Stated Maturity, as a result of the Company's obligations
pursuant to Section 3.05, Section 4.07 or Section 4.08 hereof, or otherwise.
SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain
-------------------------------
in the Borough of Manhattan, The City of New York, an office or agency where
Senior Notes may be presented or surrendered for payment, where Senior Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Senior Notes and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. As of
the date hereof, the address of such agency is: Harris Trust and Savings Bank,
c/o Harris Trust Company of New York, 77 Water Street, 4th Floor, New York, New
York 10005. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee its agent to receive all presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Senior Notes may
be presented or surrendered for any or all of such purposes, and may from time
to time rescind such designations; provided that no such designation or
--------
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation and any
change in the location of any such other office or agency.
SECTION 4.03. Money for the Senior Note Payments to be Held in Trust. If
------------------------------------------------------
the Company, any Restricted Subsidiary of the Company or any of their respective
Affiliates shall at any time act as Paying Agent with respect to the Senior
Notes, such Paying Agent shall, on or before each due date of the principal of
(and premium, if any) or interest on any of the Senior Notes, segregate and
hold in trust for the benefit of the Persons entitled thereto money sufficient
to pay the principal (and premium, if any) and interest (including Special
Interest, if any), so becoming due until such money shall be paid to such
Persons or otherwise disposed of as herein provided, and shall promptly notify
the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents with respect to
the Senior Notes, it shall, prior to or on each due date of the principal of
(and premium, if any) or interest (including Special Interest, if any) on any
of the Senior Notes,
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deposit with a Paying Agent a sum sufficient to pay the principal (and premium,
if any) and interest (including Special Interest, if any), so becoming due, such
sum to be held in trust for the benefit of the Persons entitled to such
principal, premium and interest (including Special Interest, if any), and
(unless such Paying Agent is the Trustee) the Paying Agent shall promptly notify
the Trustee of the Company's action or failure so to act.
SECTION 4.04. Corporate Existence. Subject to the provisions of Article
-------------------
V hereof, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect the corporate existence, rights
(charter and statutory) and franchises of the Company and each of its Restricted
Subsidiaries; provided that the Company and any such Restricted Subsidiary
--------
shall not be required to preserve the corporate existence of any such Restricted
Subsidiary or any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not disadvantageous in
any material respect to the Holders of Senior Notes.
SECTION 4.05. Maintenance of Property. The Company shall cause all
-----------------------
Property used or useful in the conduct of its business or the business of any of
its Restricted Subsidiaries to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as, in the judgment of the Company, may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided that nothing in this Section
--------
4.05 shall prevent the Company from discontinuing the operation or maintenance
of any of such Property if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business or the business of any of its
Restricted Subsidiaries and not disadvantageous in any material respect to the
Holders of Senior Notes.
SECTION 4.06. Payment of Taxes and Other Claims. The Company shall pay or
---------------------------------
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon the Company or any of its Restricted Subsidiaries or upon the
income, profits or Property of the Company or any of its Restricted Subsidiaries
and (b) all lawful claims for labor, material and supplies which, if unpaid,
might by law become a Lien upon the Property of the Company or any of its
Restricted Subsidiaries; provided that the Company shall not be required to pay
--------
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate
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proceedings upon stay of execution or the enforcement thereof and for which
adequate reserves in accordance with GAAP or other appropriate provision has
been made.
SECTION 4.07. Repurchase at the Option of Holders upon a Change of
----------------------------------------------------
Control. (a) Upon the occurrence of a Change of Control, each Holder of Senior
Notes shall have the right to require the Company to purchase such Holder's
Senior Notes, in whole or in part in a principal amount that is an integral
multiple of $1,000, pursuant to the offer described in Section 4.07(b) hereof
(the "Change of Control Offer"), at a purchase price (the "Change of Control
Purchase Price") in cash equal to 101 percent of the Accreted Value of such
Senior Notes (or portions thereof) on any Change of Control Payment Date
occurring prior to March 30, 2000, plus accrued and unpaid interest, if any, and
Special Interest, if any, thereon to such Change of Control Payment Date, or 101
percent of the principal amount at Stated Maturity of such Senior Notes (or
portions thereof) on any Change of Control Payment Date occurring on or after
March 30, 2000, plus accrued and unpaid interest, if any, and Special Interest,
if any, to such Change of Control Payment Date.
(b) Within 30 days of the date of any Change of Control, the Company,
or the Trustee at the request and expense of the Company, shall send to each
Holder by first class mail, postage prepaid, a notice prepared by the Company
stating:
(i) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to this Section 4.07, and that all Senior
Notes that are properly tendered will be accepted for payment;
(ii) the Change of Control Purchase Price, and the date Senior Notes
are to be purchased pursuant to the Change of Control Offer (the "Change of
Control Payment Date"), which date shall be a date occurring no earlier
than 30 days nor later than 60 days subsequent to the date such notice is
mailed;
(iii) that any Senior Notes or portions thereof not properly tendered
will continue to accrete in value or accrue interest, as the case may be,
and accrue Special Interest, if applicable;
(iv) that, unless the Company defaults in the payment of the Change of
Control Purchase Price with respect there to, all Senior Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer shall
cease to accrete in value or accrue interest, as the case may be, and
accrue Special Interest, if applicable, from and after the Change of
Control Payment Date;
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(v) that Holders electing to have any Senior Notes or portions thereof
purchased pursuant to a Change of Control Offer will be required to
surrender such Senior Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of such Senior Notes completed, to the
Paying Agent at the address specified in the notice, prior to the close of
business on the third Business Day preceding the Change of Control Payment
Date;
(vi) that Holders shall be entitled to withdraw such election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Senior Notes delivered for purchase, and a
statement that such Holder is withdrawing such Holder's election to have
such Senior Notes or portions thereof purchased pursuant to the Change of
Control Offer;
(vii) that Holders electing to have Senior Notes purchased pursuant
to the Change of Control Offer must specify the principal amount that is
being tendered for purchase, which principal amount must be $1,000 or an
integral multiple thereof;
(viii) if Certificated Senior Notes have been issued pursuant to
Section 2.06(c), that any Holder of Certificated Senior Notes whose
Certificated Senior Notes are being purchased only in part will be issued
new Certificated Senior Notes equal in principal amount to the unpurchased
portion of the Certificated Senior Note or Senior Notes surrendered, which
unpurchased portion will be equal in principal amount to $1,000 or an
integral multiple thereof;
(ix) that the Trustee will return to the Holder of a Global Senior
Note that is being purchased in part, such Global Senior Note with a
notation on Schedule A thereof adjusting the principal amount thereof to be
equal to the unpurchased portion of such Global Senior Note; and
(x) the instructions and any other information necessary to enable
any Holder to accept a Change of Control Offer or effect withdrawal of such
acceptance.
(c) On the Change of Control Payment Date, the Company shall (i)
accept for payment any Senior Notes or portions thereof properly tendered
pursuant to the Change of Control Offer; (ii) irrevocably deposit with the
Paying Agent, by 10:00 a.m., New York City time, on such date, in immediately
available funds, an amount equal to the Change of Control Purchase Price in
respect of all Senior Notes or portions thereof so tendered, including accrued
and unpaid interest and Special Interest, if applicable,
56
<PAGE>
to such Change of Control Payment Date; and (iii) deliver, or cause to be
delivered, to the Trustee the Senior Notes so tendered together with an
Officers' Certificate listing the Senior Notes or portions thereof tendered to
the Company and accepted for payment. The Paying Agent shall promptly send by
first class mail, postage prepaid, to each Holder of Senior Notes or portions
thereof so accepted for payment, payment in an amount equal to the Change of
Control Purchase Price for such Senior Notes or portions thereof, including
accrued and unpaid interest and Special Interest, if applicable, to such Change
of Control Payment Date. The Company shall publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date. For purposes of this Section 4.07, the Trustee shall act as the
Paying Agent.
(d) Upon surrender and cancellation of a Certificated Senior Note that
is purchased in part pursuant to the Change of Control Offer, the Company shall
promptly issue and the Trustee shall authenticate and deliver to the
surrendering Holder of such Certificated Senior Note, a new Certificated Senior
Note equal in principal amount to the unpurchased portion of such surrendered
Certificated Senior Note; provided that each such new Certificated Senior Note
--------
shall be in a principal amount of $1,000 or an integral multiple thereof.
Upon surrender of a Global Senior Note that is purchased in part pursuant
to a Change of Control Offer, the Paying Agent shall forward such Global Senior
Note to the Trustee who shall make a notation on Schedule A thereof to reduce
the principal amount of such Global Senior Note to an amount equal to the
unpurchased portion of such Global Senior Note, as provided in Section 2.05(c)
hereof.
(e) The Company shall comply with the requirements of Section 14(e)
under the Exchange Act and any other securities laws or regulations, to the
extent such laws and regulations are applicable, in connection with the
repurchase of Senior Notes pursuant to a Change of Control Offer.
SECTION 4.08. Limitation on Asset Sales. (a) The Company shall not, and
-------------------------
shall not permit any of its Restricted Subsidiaries, directly or indirectly,
to, consummate an Asset Sale, unless:
(i) no Event of Default shall have occurred and be continuing or shall
occur as a consequence thereof;
(ii) the Company or such Restricted Subsidiary, as the case may be,
receives net consideration at the time of such Asset Sale at least equal to
the Fair Market Value (as evidenced by a Board Resolution of the Company
delivered to
57
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the Trustee) of the Property or assets sold or otherwise disposed of;
(iii) at least 75 percent of the consideration received in respect of
such Asset Sale by the Company or such Restricted Subsidiary, as the case
may be, for such Property or assets consists of Cash Proceeds; provided,
--------
however, that in connection with an Asset Sale of receivables, 100 percent
-------
of the consideration received in respect of such Asset Sale by the Company
or such Restricted Subsidiary, as the case may be, for such receivables
shall consist of Cash Proceeds; and
(iv) the Company or such Restricted Subsidiary, as the case may be,
uses the Net Cash Proceeds from such Asset Sale in the manner set forth in
Section 4.08(b) hereof.
(b) Within 270 days after the closing of any Asset Sale, the Company
or such Restricted Subsidiary, as the case may be, may, at its option:
(i) reinvest an amount equal to the Net Cash Proceeds, or any portion
thereof, from such Asset Sale in Telecommunications Assets; and/or
(ii) apply an amount equal to such Net Cash Proceeds, or remaining Net
Cash Proceeds to the permanent reduction of Indebtedness of the Company
(other than Indebtedness to a Restricted Subsidiary of the Company) that is
pari passu in right of payment with the Senior Notes and the Convertible
---- -----
Notes and which was secured by such assets transferred and which is
required to be paid in whole or in part (which repayment, in the case of a
revolving credit arrangement or multiple advance arrangement, reduces the
commitment thereunder).
Net Cash Proceeds from any Asset Sale that are not applied pursuant to
clause (i) or (ii) above shall constitute "Excess Proceeds."
(c) If at any time the aggregate amount of Excess Proceeds calculated
as of such date exceeds $5,000,000, the Company shall, within 30 days of the
date on which such Excess Proceeds exceed $5,000,000, use such Excess Proceeds
to make an offer, as described in Section 4.08(d) hereof (an "Asset Sale
Offer"), (A) to purchase on a pro rata basis from all Holders of the Senior
--- ----
Notes in an aggregate principal amount equal to the maximum principal amount
that may be purchased out of the then-existing Excess Proceeds, at a purchase
price (the "Asset Sale Purchase Price") in cash equal to 100 percent of the
Accreted Value of such Senior Notes on any Asset Sale Payment Date occurring
prior to March 30, 2000, plus accrued and unpaid
58
<PAGE>
interest, if any, and Special Interest, if any, to the Asset Sale Payment Date,
or 100 percent of the principal amount at Stated Maturity of such Senior Notes
on any Asset Sale Payment Date occurring on or after March 30, 2000, plus
accrued and unpaid interest, if any, and Special Interest, if any, to such Asset
Sale Payment Date and (B) to the substantially concurrent repayment or
redemption of Pari Passu Indebtedness (if any) if required by the instruments
relating to such Pari Passu Indebtedness (which repayment or redemption, in the
case of a revolving credit arrangement or multiple advance arrangement, reduces
the commitment thereunder). The Excess Proceeds to be so applied may be applied
such that the portion to be applied to the repayment or redemption of Pari Passu
Indebtedness shall not exceed an amount equal to the product obtained by
multiplying such Excess Proceeds by a fraction, the numerator of which is the
outstanding principal amount of Pari Passu Indebtedness that, pursuant to the
instruments relating thereto, is required to be repaid or redeemed with
proceeds from such Asset Sale or Asset Sales and the denominator of which is the
sum of the (i) aggregate principal amount of the Senior Notes then outstanding
plus (ii) the aggregate principal amount of outstanding Pari Passu Indebtedness
that, pursuant to the instruments relating thereto, is required to be repaid or
redeemed with proceeds from such Asset Sale or Asset Sales.
(d) Within 30 days of the date the amount of Excess Proceeds exceeds
$5,000,000, the Company, or the Trustee at the request and expense of the
Company, shall send to each Holder by first class mail, postage prepaid, a
notice prepared by the Company stating:
(i) that an Asset Sale Offer is being made pursuant to this Section
4.08, and that all Senior Notes that are properly tendered will be
accepted for payment, subject to proration in the event the amount of
Excess Proceeds is less than the aggregate Asset Sale Purchase Price of all
Senior Notes promptly tendered pursuant to the Asset Sale Offer (or in the
case of a repurchase concurrently with the repayment or redemption of Pari
Passu Indebtedness, such amount as is determined pursuant to Section
4.08(c) hereof);
(ii) the Asset Sale Purchase Price, the amount of Excess Proceeds that
are available to be applied to purchase tendered Senior Notes, the amount
of Excess Proceeds to be utilized for a repayment or redemption of Pari
Passu Indebtedness, and the date Senior Notes are to be purchased
pursuant to the Asset Sale Offer (the "Asset Sale Payment Date"), which
date shall be a date no earlier than 30 days nor later than 40 days
subsequent to the date such notice is mailed;
59
<PAGE>
(iii) that any Senior Notes or portions thereof not properly tendered
will continue to accrete in value or accrue interest, as the case may be,
and accrue Special Interest, if applicable;
(iv) that, unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Senior Notes or portions
thereof accepted for payment pursuant to the Asset Sale Offer shall cease
to accrete in value or accrue interest, as the case may be, and accrue
Special Interest, if applicable, from and after the Asset Sale Payment
Date;
(v) that any Holder electing to have any Senior Notes or portions
thereof purchased pursuant to the Asset Sale Offer will be required to
surrender such Senior Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of such Senior Notes completed, to the
Paying Agent at the address specified in the notice, prior to the close of
business on the third Business Day preceding the Asset Sale Payment Date;
(vi) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Asset Sale Payment Date, a telegram,
telex, facsimile transmission or letter, setting forth the name of the
Holder, the principal amount of Senior Notes delivered for purchase, and a
statement that such Holder is withdrawing such Holder's election to have
such Senior Notes or portions thereof purchased pursuant to the Asset Sale
Offer;
(vii) that any Holder electing to have Senior Notes purchased pursuant
to the Asset Sale Offer must specify the principal amount that is being
tendered for purchase, which principal amount must be $1,000 or an integral
multiple thereof;
(viii) if Certificated Senior Notes have been issued pursuant to
Section 2.06(c), that any Holder of Certificated Senior Notes whose
Certificated Senior Notes are being purchased only in part will be issued
new Certificated Senior Notes equal in principal amount to the unpurchased
portion of the Certificated Senior Note or Senior Notes surrendered, which
unpurchased portion will be equal in principal amount to $1,000 or an
integral multiple thereof;
(ix) that the Trustee will return to the Holder of a Global Senior
Note that is being purchased in part, such Global Senior Note with a
notation on Schedule A thereof adjusting the principal amount thereof to be
equal to the unpurchased portion of such Global Senior Note; and
60
<PAGE>
(x) the instructions and any other information necessary to enable
any Holder to accept an Asset Sale Offer, to tender Senior Notes and to
have such Senior Notes purchased, or to effect withdrawal of such
acceptance, pursuant to this Section 4.08.
(e) If the aggregate Asset Sale Purchase Price of the Senior Notes
surrendered by Holders exceeds the amount of applicable Excess Proceeds
(determined as provided by Section 4.08(c) hereof), as indicated in the notice
required by Section 4.08(d) hereof, the Trustee shall select the Senior Notes to
be purchased on a pro rata basis based on the Accreted Value, as of the Asset
--- ----
Sale Payment Date if such Asset Sale Payment Date is prior to March 30, 2000 or
the principal amount at Stated Maturity, if such Asset Payment Date is on or
after March 30, 2000, of the Senior Notes tendered, with such adjustments as may
be deemed appropriate by the Trustee and may be needed to comply with any
securities exchange and other applicable requirements, so that only Senior Notes
in denominations of $1,000 or integral multiples thereof shall be purchased.
(f) On or before the Asset Sale Payment Date, the Company shall (i)
accept for payment any Senior Notes or portions thereof properly tendered and
selected for purchase pursuant to the Asset Sale Offer and Section 4.08(e)
hereof; (ii) irrevocably deposit with the Paying Agent, by 10:00 a.m., New York
City time, on such date, in immediately available funds, an amount equal to the
Asset Sale Purchase Price in respect of all Senior Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee the Senior
Notes so accepted together with an Officers' Certificate listing the Senior
Notes or portions thereof tendered to the Company and accepted for payment. The
Paying Agent shall promptly send by first class mail, postage prepaid, to each
Holder of Senior Notes or portions thereof so accepted for payment, payment in
an amount equal to the Asset Sale Purchase Price for such Senior Notes or
portions thereof. The Company shall publicly announce the results of the Asset
Sale Offer on or as soon as practicable after the Asset Sale Payment Date. For
purposes of this Section 4.08, the Trustee shall act as the Paying Agent.
(g) Upon surrender and cancellation of a Certificated Senior Note that
is purchased in part, the Company shall promptly issue and the Trustee shall
authenticate and deliver to the surrendering Holder of such Certificated Senior
Note a new Certificated Senior Note equal in principal amount to the unpurchased
portion of such surrendered Certificated Senior Note; provided that each such
--------
new Certificated Senior Note shall be in a principal amount of $1,000 or an
integral multiple thereof.
Upon surrender of a Global Senior Note that is purchased in part pursuant
to an Asset Sale Offer, the Paying Agent shall
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<PAGE>
forward such Global Senior Note to the Trustee who shall make a notation on
Schedule A thereof to reduce the principal amount of such Global Senior Note to
an amount equal to the unpurchased portion of such Global Senior Note, as
provided in Section 2.05(c) hereof.
(h) Upon completion of an Asset Sale Offer (including payment of the
Asset Sale Purchase Price for accepted Senior Notes), any surplus Excess
Proceeds that were the subject of such offer shall cease to be Excess Proceeds,
and the Company may then use such amounts for general corporate purposes,
including making a Convertible Note Asset Sale Offer.
(i) The Company shall comply with the requirements of Section 14(e)
under the Exchange Act and any other securities laws or regulations, to the
extent such laws and regulations are applicable, in connection with the
repurchase of Senior Notes pursuant to an Asset Sale Offer.
SECTION 4.09. Limitation on Indebtedness. (a) The Company shall not, and
--------------------------
shall not permit its Restricted Subsidiaries to, directly or indirectly, incur
any Indebtedness (including Acquired Indebtedness), and the Company shall not
issue any Disqualified Stock or permit any of its Restricted Subsidiaries to
issue any Disqualified Stock; provided that the Company may incur Indebtedness
--------
or issue Disqualified Stock if, after giving effect to such issuance or
incurrence on a pro forma basis, the Indebtedness to Operating Cash Flow Ratio
--- -----
of the Company does not exceed 5 to 1.0.
(b) The provisions of Section 4.09(a) hereof shall not apply to:
(i) Indebtedness existing under the Credit Facility; provided that the
--------
aggregate principal amount of all such Indebtedness under the Credit
Facility, when taken together with all Indebtedness of the Company then
outstanding which was permitted to have been incurred under clause (x)
below, shall not exceed $45,000,000 at any one time outstanding, up to
$30,000,000 of aggregate principal amount of which may be secured;
(ii) the Existing Indebtedness;
(iii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness owing to any of its respective
Wholly-Owned Restricted Subsidiaries; provided that any such Indebtedness
--------
is junior and subordinate to the Senior Notes and Senior Note Guarantees,
if any, and such Indebtedness is held at all times by the Company or a
Wholly-Owned Restricted Subsidiary of the Company;
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<PAGE>
(iv) Indebtedness of any Restricted Subsidiary to the Company or a
Wholly-Owned Restricted Subsidiary of the Company;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Interest Hedging Obligations with respect to any floating
rate Indebtedness that is permitted by this Section 4.09(b);
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness evidenced by the Senior Notes or Senior Note
Guarantees, if any, pursuant to this Indenture and by the Convertible Notes
or the guarantees of the Convertible Notes, if any, issued pursuant to the
Convertible Note Indenture;
(vii) Indebtedness in respect of performance, surety or appeal bonds
provided by the Company in the ordinary course of business;
(viii) Vendor Financing not to exceed an aggregate principal amount of
$5,000,000 at any one time outstanding;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Refinancing Indebtedness issued in exchange for, or the
proceeds of which are used to refinance, repurchase, replace, refund or
defease ("Refinance" and correlatively, "Refinanced" and "Refinancing")
Indebtedness permitted pursuant to clauses (ii) or (vi) of this Section
4.09(b); provided that (1) the amount of such Refinancing Indebtedness
--------
shall not exceed the principal amount of, premium, if any, and accrued
interest (and Special Interest on the Senior Notes) on the Indebtedness so
Refinanced (or if such Indebtedness was issued with original issue
discount, the original issue price plus amortization of the original issue
discount at the time of the repayment of such Indebtedness) plus the fees,
expenses and costs of such Refinancing and reasonable prepayment premiums,
if any, in connection therewith; (2) such Refinancing Indebtedness shall
have a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced; (3) such Refinancing Indebtedness shall have
an Average Life equal to or greater than the Average Life of the
Indebtedness being Refinanced; (4) if the Indebtedness being Refinanced is
subordinated in right of payment to the Senior Notes, such Refinancing
Indebtedness shall be subordinate in right of payment to the Senior Notes
on terms at least as favorable to the Holders of Senior Notes as those
contained in the documentation governing the Indebtedness being so
Refinanced; and (5) no Restricted Subsidiary shall incur Refinancing
Indebtedness to Refinance Indebtedness of the Company or another
Subsidiary; and
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(x) Indebtedness of the Company not otherwise permitted to be incurred
pursuant to this Section 4.09(b) in an aggregate amount not to exceed
$5,000,000 at any one time outstanding and which amount shall reduce the
amount permitted to be incurred under Section 4.09(b)(i) above.
(c) In the event that the Company or any Restricted Subsidiary has
incurred Indebtedness pursuant to Section 4.09(b)(iii) above owing to a
Restricted Subsidiary and that Restricted Subsidiary thereafter does not remain
a Restricted Subsidiary of the Company, the aggregate principal amount of such
Indebtedness of the Company or a Restricted Subsidiary, as applicable, owing to
such Person at the time of such a change in Restricted Subsidiary status that
was at any time incurred pursuant to Section 4.09(b)(iii), shall be deemed to be
Indebtedness incurred by the Company or a Restricted Subsidiary, as the case may
be, at the time of such change in Restricted Subsidiary status.
(d) Indebtedness incurred by any Person that is not a Restricted Subsidiary
of the Company, which Indebtedness is outstanding at the time such Person
becomes a Restricted Subsidiary of the Company, or is merged into or
consolidated with, the Company or a Restricted Subsidiary shall be deemed to
have been incurred, at the time such Person becomes a Restricted Subsidiary, or
is merged into or consolidated with the Company or a Restricted Subsidiary. A
guarantee permitted by this Section 4.09 to be incurred by the Company or a
Restricted Subsidiary of Indebtedness otherwise permitted to be incurred
pursuant to this Section 4.09 is not considered a separate incurrence for
purposes of this Section 4.09.
SECTION 4.10. Limitation on Issuance of Guarantees by Restricted
--------------------------------------------------
Subsidiaries. (a) The Company shall not permit any of its Restricted
- ------------
Subsidiaries, directly or indirectly, to guarantee any Indebtedness of the
Company ("Guaranteed Indebtedness") other than the Senior Notes, unless (i)
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to this Indenture providing for a Senior Note Guarantee (a "Senior
Note Guarantee") of payment of the Senior Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary of the Company as a result of any payment by such
Restricted Subsidiary under its Senior Note Guarantee, provided that any
--------
Restricted Subsidiary may guarantee any Credit Facility so long as such
Restricted Subsidiary enters into a Senior Note Guarantee ranking pari passu
---- -----
with its guarantee under such Credit Facility. If the Senior Note Guaranteed
Indebtedness is pari passu with the Senior Notes, then the guarantee of such
---- -----
Senior Note Guaranteed
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Indebtedness shall be pari passu with or subordinated to the Senior Note
---- -----
Guarantee; and if the Senior Note Guaranteed Indebtedness is subordinated to the
Senior Notes, then the guarantee of such Senior Note Guaranteed Indebtedness
shall be subordinated to the Senior Note Guarantee at least to the extent that
the Senior Note Guaranteed Indebtedness is subordinated to the Senior Notes.
(b) Notwithstanding the provisions of Section 4.10(a) hereof, any
Senior Note Guarantee by a Restricted Subsidiary shall provide by its terms that
it shall be automatically and unconditionally released and discharged upon the
release or discharge of the guarantee which resulted in the creation of such
Restricted Subsidiary's Senior Note Guarantee, except a discharge or release by,
or as a result of, payment under such guarantee.
SECTION 4.11. Limitation on Liens. The Company shall not, and shall not
-------------------
permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into, create, incur, assume or suffer to exist any Liens of any kind, other than
Permitted Liens, on or with respect to any of its Property or assets now owned
or hereafter acquired, or any interest therein or any income or profits
therefrom, without effectively providing that the Senior Notes shall be secured
equally and ratably with or prior to (and provided that the Senior Notes shall
--------
be secured prior to any secured obligation that is subordinated in right of
payment to the Senior Notes) the obligations so secured for so long as such
obligations are so secured.
SECTION 4.12. Limitation on Sale and Leaseback Transactions. The Company
----------------------------------------------
shall not, and shall not permit any of its Restricted Subsidiaries to, directly
or indirectly, enter into, assume, guarantee or otherwise become liable with
respect to, any Sale and Leaseback Transaction, unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Sale and Leaseback Transaction at least equal to the Fair Market Value (as
evidenced by a Board Resolution delivered to the Trustee) of the Property or
assets subject to such transaction; (ii) the Attributable Indebtedness of the
Company or such Restricted Subsidiary with respect thereto is included as
Indebtedness and would be permitted to be incurred under Section 4.09 hereof and
any Liens granted thereby would be permitted under Section 4.11 hereof; and
(iii) the Net Cash Proceeds from such transaction are applied in accordance with
Section 4.08 hereof as if such proceeds resulted from an Asset Sale.
SECTION 4.13. Restricted Payments. The Company shall not, and shall not
-------------------
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment unless, at the time of and after giving effect to such
proposed Restricted Payment:
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(i) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect, on a pro forma basis, to such Restricted
--- -----
Payment and the incurrence of any Indebtedness the net proceeds of which
are used to finance such Restricted Payment, the Company could incur at
least $1.00 of additional Indebtedness pursuant to Section 4.09(a) hereof;
and
(iii) after giving effect to such Restricted Payment on a pro forma
--- -----
basis, the aggregate amount expended or declared for all Restricted
Payments after the Issue Date does not exceed the sum of (A) 50 percent of
the Consolidated Net Income of the Company (or, if Consolidated Net Income
shall be a deficit, minus 100 percent of such deficit) for the period
(taken as one accounting period) beginning on the last day of the fiscal
quarter immediately preceding the Issue Date and ending on the last day of
the fiscal quarter immediately preceding the date of such Restricted
Payment, plus (B) 100 percent of the aggregate Net Cash Proceeds received
----
by the Company subsequent to the Issue Date from the issuance or sale
(other than to a Subsidiary) of shares of its Qualified Stock, including
Qualified Stock issued upon the conversion of convertible debt (other than
any conversions of the Convertible Notes) or the exercise of options,
warrants or rights to purchase Qualified Stock, plus (C) 100 percent of the
----
amount of any Indebtedness of the Company or any of its Restricted
Subsidiaries (as expressed on the face of a balance sheet in accordance
with GAAP), or the carrying value of any Disqualified Stock, which has been
converted into, exchanged for or satisfied by the issuance of shares of
Qualified Stock of the Company subsequent to the Issue Date, less the
amount of any cash or the value of any other Property distributed by the
Company or its Restricted Subsidiaries upon such conversion, exchange or
satisfaction, plus (D) 100 percent of the net reduction in Investments,
----
subsequent to the Issue Date, in any Person, resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or
other transfers of Property (but only to the extent such interest,
dividends, repayments or other transfers of Property are not included in
the calculation of Consolidated Net Income), in each case of the Company or
any Restricted Subsidiary of the Company from any Person (including,
without limitation, from Unrestricted Subsidiaries) or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries of the Company
(valued in each case as provided in the definition of "Investments"), not
to exceed in the case of any Person the amount of Investments previously
made by the Company or any Restricted Subsidiary in such Person and in each
such case which was treated as a Restricted
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Payment, minus (E) 100% of the amount of Investments made pursuant to
-----
Sections 4.13(b)(v) through 4.13(b)(viii) hereof subsequent to the Issue
Date.
(b) The provisions of Section 4.13(a) hereof shall not prevent the
Company from:
(i) paying a dividend on its Capital Stock at any time within 60 days
after the declaration thereof if, on the date of declaration thereof, the
Company could have paid such dividend in compliance with this Section 4.13
and the other provisions of this Indenture;
(ii) retiring (A) any Capital Stock of the Company or any Restricted
Subsidiary of the Company, or (B) Indebtedness of the Company that is
subordinated in right of payment to the Senior Notes or (C) Indebtedness of
a Restricted Subsidiary of the Company, in exchange for, or out of the
proceeds of the substantially concurrent sale of Qualified Stock of the
Company;
(iii) so long as no Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof, retiring any
Indebtedness of the Company subordinated in right of payment to the Senior
Notes and the Convertible Notes, if any, in exchange for, or out of the
proceeds of, the substantially concurrent incurrence of Indebtedness of the
Company (other than Indebtedness to a Subsidiary of the Company), provided
--------
that such new Indebtedness (A) is subordinated in right of payment to the
Senior Notes and the Convertible Notes, if any, at least to the same extent
as, (B) has an Average Life at least as long as, and (C) has no scheduled
principal payments due in any amount earlier than, any equivalent amount of
principal under the Indebtedness so retired;
(iv) so long as no Default or Event of Default shall have occurred and
be continuing or shall occur as a consequence thereof, retiring any
Indebtedness of a Restricted Subsidiary of the Company in exchange for, or
out of the proceeds of, the substantially concurrent incurrence of
Indebtedness of the Company or any Restricted Subsidiary of the Company
that is permitted under Section 4.09 hereof and that (A) is not secured by
any assets of the Company or any Restricted Subsidiary of the Company to a
greater extent than the retired Indebtedness was so secured, (B) has an
Average Life at least as long as the retired, purchased, redeemed or
acquired Indebtedness and (C) is subordinated in right of payment to the
Senior Notes and the Convertible Notes or the Senior Note Guarantees and
the guarantees contained in the Convertible Note Indenture, as applicable,
at least to the same extent as the retired Indebtedness;
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(v) so long as no Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof, purchasing,
redeeming, retiring or acquiring any Capital Stock of the Company or any
Restricted Subsidiary of the Company held by any member or former member of
the Company's (or any of its Subsidiaries') management pursuant to any
management agreement or stock option plan if in effect on the Issue Date or
upon the death, disability, retirement or termination of employment of such
members, provided that the aggregate price paid for all such retired Common
--------
Stock shall not exceed, in the aggregate, the sum of $1,000,000 plus the
aggregate Cash Proceeds received by the Company from any reissuance of such
Common Stock by the Company to members of management of the Company and its
Subsidiaries;
(vi) so long as no Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof, making loans to
members of management of the Company as required pursuant to employment
agreements with such members, in an aggregate principal amount not to
exceed $1,000,000, provided that any repayment of such loans (but only to
--------
the extent such payments are not included in the calculation of
Consolidated Net Income of the Company) shall reduce the amount of such
Investments;
(vii) so long as no Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof, making
Investments in Joint Ventures in an aggregate amount not to exceed
$10,000,000, provided that any repayment of loans or advances, return of
--------
capital or other transfer of Property (but only to the extent such
distributions are not included in the calculation of Consolidated Net
Income of the Company) shall reduce the amount of such Investments;
(viii) repurchasing Capital Stock of USNCN outstanding on the Issue
Date owned by a stockholder of USNCN as described in the Final Offering
Memorandum for an aggregate amount not to exceed $1,700,000; and
(ix) so long as no Default or Event of Default shall have occurred
and be continuing, the Company may redeem Convertible Notes pursuant to the
terms of the Convertible Note Indenture or repurchase Convertible Notes
pursuant to a "Change of Control Offer" under the Convertible Note
Indenture, a Convertible Note Asset Sale Offer or a repurchase offer upon
a "Termination of Trading" of the Common Stock of the Company pursuant to
the terms of the Convertible Note Indenture.
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(c) Not later than the date of making of any Restricted Payment or
any Investment made pursuant to Section 4.13(b)(vii) above, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment or Investment is permitted and setting forth the basis upon which the
required calculations were computed, which calculations may be based upon the
Company's latest available financial statements.
SECTION 4.14. Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Subsidiaries. The Company shall not, and shall not permit any of its
- ----------------------
Restricted Subsidiaries to, directly or indirectly cause or suffer to exist or
become effective or enter into an encumbrance or restriction (other than
pursuant to law or regulation) on the ability of any Restricted Subsidiary (i)
to pay dividends or make any other distributions in respect of its Capital Stock
or pay any Indebtedness or other obligation owed to the Company or any
Restricted Subsidiary of the Company; (ii) to make loans or advances to the
Company or any Restricted Subsidiary of the Company; or (iii) to transfer any of
its Property or assets to the Company or any Restricted Subsidiary of the
Company, except:
(a) any encumbrance or restriction existing as of the Issue Date
pursuant to this Indenture or the Convertible Note Indenture or the Existing
Indebtedness;
(b) any encumbrance or restriction pursuant to an agreement relating
to an acquisition of assets or Property, so long as the encumbrances or
restrictions in any such agreement relate solely to the assets or Property so
acquired (and are not or were not created in anticipation of or in connection
with the acquisition thereof);
(c) any encumbrance or restriction relating to any Indebtedness of
any Restricted Subsidiary of the Company existing on the date on which such
Restricted Subsidiary is acquired by the Company or any Restricted Subsidiary of
the Company (other than Indebtedness incurred by such Restricted Subsidiary in
connection with or in anticipation of its acquisition);
(d) customary provisions restricting subletting or assignment of any
lease governing a leasehold interest of the Company or any Restricted Subsidiary
of the Company or customary provisions in any telecommunications resale
agreements (including, without limitation, the existing Ameritech Resale Agree-
ments, and the NYNEX Resale Agreement (as such terms are defined in the Final
Memorandum) and the long distance agreements of the Company), license agreements
or other similar agreements that restrict the assignment of any such agreement
or any rights thereunder;
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(e) any temporary encumbrance or restriction with respect to a
Restricted Subsidiary of the Company pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or Property and assets of, such Restricted Subsidiary;
(f) any restriction on the sale or other disposition of Property or
assets securing Indebtedness as a result of a Permitted Lien on such Property
or assets permitted pursuant to Section 4.11 hereof; and
(g) any encumbrance or restriction that amends, extends, refinances,
refunds, renews or replaces any agreement described in clauses (a) through (c)
of this Section 4.14 whether or not among the same parties, provided that the
--------
terms and conditions of any such encumbrance or restriction are no less
favorable to the Holders of the Senior Notes than those under or pursuant to the
agreement amended, extended, refinanced, refunded, renewed or replaced.
SECTION 4.15. Limitation on Issuance and Sale of Capital Stock of
---------------------------------------------------
Restricted Subsidiaries. The Company (i) shall not permit any of its Restricted
- -----------------------
Subsidiaries to issue any Capital Stock other than to the Company or a
Restricted Subsidiary of the Company and (ii) shall not permit any Person other
than the Company or a Restricted Subsidiary of the Company to own any Capital
Stock of any of its Restricted Subsidiaries (other than directors' qualifying
shares), except for:
(a) a sale of 100 percent of the Capital Stock of a Restricted
Subsidiary sold in a transaction not prohibited by Section 4.08 hereof;
(b) Capital Stock of a Restricted Subsidiary issued and outstanding
prior to the time that such Person becomes a Restricted Subsidiary so long
as such Capital Stock was not issued in contemplation of such Person's
becoming a Restricted Subsidiary or otherwise being acquired by the
Company;
(c) Capital Stock of a Restricted Subsidiary issued and outstanding
on the Issue Date and held by Persons other than the Company or any
Restricted Subsidiary;
(d) not more than 10 percent of the Common Stock of USN Solutions on
a fully diluted basis issued pursuant to the exercise of the USN Solutions
Option; and
(e) any Disqualified Stock permitted to be issued under Section 4.09
hereof.
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SECTION 4.16. Transactions with Affiliates. The Company shall not, and
----------------------------
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
sell, lease, transfer, or otherwise dispose of, any of its Property or assets
to, or purchase any Property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with or for the benefit of,
any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a)
such Affiliate Transaction is on terms that are no less favorable to the Company
or such Restricted Subsidiary than those that would have been obtained in a
comparable arm's-length transaction by the Company or such Restricted Subsidiary
with a Person that is not an Affiliate and (b) the Company delivers to the
Trustee (i) with respect to any Affiliate Transaction involving aggregate
payments in excess of $1,000,000, a Board Resolution certifying that such
Affiliate Transaction complies with clause (a) above and that such Affiliate
Transaction has been approved by a majority of the disinterested directors who
have determined that such Affiliate Transaction is in the best interests of the
Company or such Restricted Subsidiary and (ii) with respect to any Affiliate
Transaction involving aggregate payments in excess of $5,000,000, an opinion as
to the fairness from a financial point of view to the Company or such Restricted
Subsidiary issued by an investment banking firm of national standing, or in the
case of a transaction involving a sale or transfer of assets subject to
valuation such as real estate, an appraisal issued by a nationally recognized
appraisal firm, together with an Officers' Certificate to the effect that such
opinion complies with this clause (ii); provided that the following shall not be
--------
deemed Affiliate Transactions:
(i) any employment agreement or consulting agreement (including
stock options) entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with
industry practice;
(ii) any agreement or arrangement with respect to the compensation
of a director of the Company or any Restricted Subsidiary approved by the
Board of Directors and consistent with industry practice;
(iii) transactions between or among the Company, its Wholly-Owned
Restricted Subsidiaries or a majority-owned Restricted Subsidiary (so long
as no minority interest is owned by a Person which is otherwise an
Affiliate);
(iv) transactions constituting Restricted Payments and permitted by
Section 4.13(a) hereof;
(v) transactions pursuant to contracts existing on the Issue Date
and disclosed in Schedule E attached hereto;
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(vi) making loans or advances to officers, employees or consultants
of the Company and its Subsidiaries (including travel and moving expenses)
in the ordinary course of business not to exceed $l,000,000; and
(vii) the issuance of stock options for Common Stock of the Company
pursuant to any plan approved by the Board of Directors.
SECTION 4.17. Restricted and Unrestricted Subsidiaries. (a) The Company
----------------------------------------
may designate a Subsidiary (including a newly formed or newly acquired
Subsidiary) of the Company or any of its Restricted Subsidiaries as an
Unrestricted Subsidiary, provided that (i) such designation is at the time
--------
permitted under Section 4.13(a) hereof and (ii) immediately after giving effect
to the transaction, the Company could incur $1.00 of additional Indebtedness
pursuant to Section 4.09(a) hereof. Notwithstanding any provision of this
Section 4.17(a), all Subsidiaries of an Unrestricted Subsidiary will be
Unrestricted Subsidiaries.
(b) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person (other than a newly formed Subsidiary
having no outstanding Indebtedness (other than Indebtedness to the Company or a
Restricted Subsidiary) at the date of determination) becoming a Restricted
Subsidiary of the Company (whether through an acquisition, the redesignation of
an Unrestricted Subsidiary or otherwise) unless, after giving effect to such
action, transaction or series of transactions, on a pro forma basis, (i) the
---------
Company could incur at least $1.00 of additional Indebtedness pursuant to
Section 4.09(a) hereof and (ii) no Default or Event of Default would occur or be
continuing. Subject to this Section 4.17(b), an Unrestricted Subsidiary may be
redesignated as a Restricted Subsidiary.
(c) The designation of a Subsidiary of the Company as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary of the Company as a
Restricted Subsidiary shall be made by the Board of Directors as evidenced by a
Board Resolution delivered to the Trustee and shall be effective as of the date
specified in such Board Resolution, which shall not be prior to the date such
Board Resolution is delivered to the Trustee.
SECTION 4.18. Reports. Whether or not the Company is subject to Section
-------
13(a) or Section 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the Commission the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act or any
successor provision thereto if the Company were subject thereto, such documents
to be filed with the
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Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company would have been required to file them. The Company shall also
(whether or not it is required to file reports with the Commission), within 30
days of each Required Filing Date, (i) transmit by mail to all Holders of
Senior Notes, as their names and addresses appear in the Security Register
without cost to such Holders or Persons, and (ii) file with the Trustee, copies
of the annual reports, quarterly reports and other documents (without exhibits)
which the Company has filed or would have filed with the Commission pursuant to
Section 13(a) or Section 15(d) of the Exchange Act, any successor provisions
thereto or this Section 4.18. The Company shall not be required to file any
report with the Commission if the Commission does not permit such filing.
SECTION 4.19. Compliance Certificate; Notice of Default or Event of
-----------------------------------------------------
Default. (a) The Company shall deliver to the Trustee within 120 calendar days
- -------
after the end of each fiscal year of the Company ending after the date hereof,
an Officers' Certificate (which shall be signed by Officers satisfying the
requirements of Section 314 of the Trust Indenture Act), stating whether or not,
to the best knowledge of such Officers the Company has complied with all
conditions and covenants under this Indenture, and, if the Company shall be in
Default, specifying all such Defaults and the nature thereof of which such
Officer may have knowledge.
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.18 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention which would lead them to believe that the
Company has violated any provision of Article IV or Article V of this Indenture
(or if any violation has occurred, specifying the nature and existence thereof),
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of such violation.
(c) The Company shall deliver written notice to the Trustee within 5
Business Days after becoming aware of any Default or Event of Default or any
event of default or any default under any other mortgage, indenture or
instrument referred to in Section 6.01(e) hereof, describing such Default, Event
of Default or other event of default or default, its status and what action the
Company is taking or proposes to take with respect thereto.
(d) For the purposes of this Section 4.19, compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
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SECTION 4.20. Issuance of Senior Note Contingent Warrants. The Company
-------------------------------------------
will issue to Holders of the Senior Notes Senior Note Contingent Warrants (the
"Senior Note Contingent Warrants") exercisable for Class A Common Stock of the
Company representing up to 3 percent of the Common Stock of the Company on a
fully diluted basis as of the date of such issuance items (as used herein, the
term "fully diluted" does not include any securities, including Common Stock,
issued in any transaction described in clauses (i) through (xi) of Section
15(d)(ii) of the Warrant Agreement) after giving effect to the issuance of such
Senior Note Contingent Warrants, in the event that, on or prior to March 30,
1998, the Company does not effect a Qualified Public Offering or has not been
sold pursuant to a Qualified Sale of the Company. Such Senior Note Contingent
Warrants will be issued pursuant to the Warrant Agreement with the same rights
thereunder as the Initial Warrants, and Holders will have the benefits of the
Registration Rights Agreement.
Any Senior Note Contingent Warrants issued shall be issued to the Holders
of the outstanding Senior Notes as of March 30, 1998 pro rata, based upon the
--- ----
aggregate principal amount of the Senior Notes held by such Holder as of March
30, 1998.
SECTION 4.21. Limitations on Line of Business. The Company shall not, and
-------------------------------
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
engage to any substantial extent in any line or lines of business activity other
than the Telecommunications Business.
SECTION 4.22. Outside Director. The Company shall, within 120 days
----------------
following the Closing Date, nominate and take all reasonable actions to cause to
be elected a disinterested outside Director to the Board of Directors of the
Company who is not a Director on the Issue Date and who has experience in the
telecommunications industry (an "Additional Outside Director"). At all times
during the period commencing 120 days following the Closing Date and ending on
Maturity. In the event that an Outside Director (or any successor Additional
Outside Director) is no longer serving as a Director, the Company shall, as
promptly as practicable, nominate and take all reasonable actions to cause to
be elected, a successor Additional Outside Director.
SECTION 4.23. Waiver of Certain Covenants. The Company may omit in
---------------------------
respect of any Senior Notes, in any particular instance, to comply with the
provisions of any covenant or condition described in this Article IV hereof
other than Sections 4.07, 4.08 and 4.20 hereof, if before or after the time for
such compliance the Holders of at least a majority in principal amount of the
outstanding Senior Notes either waive such compliance in such instance or
generally waive compliance with such covenant or condition in compliance with
the provisions of this Indenture, but no such waiver shall extend to or affect
such covenant or
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condition except to the extent so expressly waived and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
ARTICLE V
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
SECTION 5.01. Merger, Consolidation or Sale of Assets. The Company shall
---------------------------------------
not in any transaction or series of related transactions, consolidate with, or
merge with or into, any other Person or permit any other Person to merge with or
into the Company (other than a merger of a Restricted Subsidiary of the Company
into the Company in which the Company is the continuing corporation), or sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially
all of the Property and assets of the Company and its Restricted Subsidiaries
taken as a whole to any other Person, unless:
(a) either (i) the Company shall be the continuing corporation or
(ii) the corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the Person which acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or substantially all
of the Property and assets of the Company and its Restricted Subsidiaries taken
as a whole (any such corporation or Person being the "Surviving Entity") shall
be a corporation organized and validly existing under the laws of the United
States of America, any political subdivision thereof, any state thereof or the
District of Columbia, and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form reasonably satisfactory
to the Trustee, the due and punctual payment of the principal of (and premium,
if any) and interest and Special Interest, if any, of all the Senior Notes and
the performance of every covenant and obligation in this Indenture on the part
of the Company to be performed or observed;
(b) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation, any
--- -----
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of related transactions), no Default or
Event of Default shall have occurred and be continuing or would result
therefrom; and
(c) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation, any
--- -----
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of
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such transaction or series of transactions), the Company (or the Surviving
Entity, if the Company is not continuing) would (A) be permitted to incur $1.00
of additional Indebtedness under Section 4.09(a) hereof; provided that this
--------
Section 5.01(c) shall not apply to any merger or consolidation into or with, or
any such transfer of all of the Property and assets of the Company and the
Restricted Subsidiaries into, the Company; and
(d) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company (or the Surviving Entity, if the
--- -----
Company is not continuing) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to such
transaction.
In connection with any consolidation, merger, sale, assignment,
conveyance, lease, transfer of assets or other transactions contemplated by this
Section 5.01, the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, conveyance, lease, transfer or other
transaction and any supplemental indenture in respect thereto comply with this
Article V and that all conditions precedent herein provided for relating to
such transactions have been complied with (all of the foregoing, a "Permitted
Merger").
SECTION 5.02. Successor Corporation Substituted. Upon any Permitted
---------------------------------
Merger, the Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of, the Company hereunder and the Senior Notes
with the same effect as if such Surviving Entity had been named as the Company
herein; and when a Surviving Person duly assumes all of the obligations and
covenants of the Company pursuant hereto and the Senior Notes, except in the
case of a lease, the predecessor Person shall be relieved of all such
obligations.
If such Surviving Entity shall have succeeded to and been substituted for
the Company, such surviving Entity may cause to be signed, and may issue either
in its own name or in the name of the Company prior to such succession any or
all of the Senior Notes issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee; and upon the order of such
Surviving Entity, instead of the Company, and subject to all of the terms,
conditions and limitations in this Indenture, the Trustee shall act thereafter
and shall deliver any Senior Notes which previously shall have been signed and
delivered by two Officers of the Company to the Trustee for authentication.
All of the Senior Notes so issued, and any Senior Notes which such Surviving
Entity thereafter shall cause to be signed and delivered to the Trustee, shall
have the same
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legal rights and benefits under this Indenture as the Senior Notes theretofore
or thereafter issued in accordance with the terms of this Indenture and the
Senior Note Guarantees, if any, as though all of such Senior Notes had been
issued on the date of execution hereof.
In the case of any such substitution, merger, sale, transfer, conveyance
or other disposal, such changes in phraseology and form (and in substance) may
be made in the Senior Notes to be issued as may be appropriate.
For all purposes of this Indenture and the Senior Notes, Subsidiaries of
any Surviving Entity will, upon such transaction or series of transactions,
become Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant
to this Indenture, and all Indebtedness and all Liens on Property or assets of
the Surviving Entity and its Restricted Subsidiaries immediately prior to such
transaction or series of transactions shall be deemed to have been incurred upon
such transaction or series of transactions.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. "Event of Default," wherever used herein
-----------------
with respect to the Senior Notes, means any one of the following events
(whatever the reason for such event, and whether it shall be voluntary or
involuntary, or be effected by operation of law, pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of interest (or Special Interest, if any)
on any Senior Note when the same becomes due and payable, and the continuance of
such Default for a period of 30 days; or
(b) default in the payment of the principal of (or premium, if any,
on) any Senior Note when the same becomes due and payable whether upon Maturity,
optional redemption, required repurchase (including pursuant to a Change of
Control Offer or any Asset Sale Offer) or otherwise, or the failure to make an
offer to purchase any Senior Note as herein required; or
(c) default in the performance, or breach, of any covenant or
agreement continued in Section 4.07, Section 4.08, Section 4.09, Section 4.12,
Section 4.13, Section 4.20, Section 4.22 or Article V hereof; or
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(d) default in the performance, or breach, of any covenant or
warranty of the Company contained in this Indenture or the Senior Notes (other
than a covenant or warranty addressed in Section 6.01(a), Section 6.01(b) or
Section 6.01(c) hereof), and the continuance of such Default or breach for a
period of 45 days after written notice thereof has been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25
percent of the aggregate principal amount at Stated Maturity of the outstanding
Senior Notes; or
(e) Indebtedness of the Company or any Restricted Subsidiary is not
paid when due and payable within the applicable grace period, if any, or is
accelerated by the holders thereof and, in either case, the principal amount of
such accelerated or unpaid Indebtedness exceeds $5,000,000; or
(f) the entry by a court of competent jurisdiction of one or more
final non-appealable judgments uninsured or unindemnified for the payment of
money against the Company or any Restricted Subsidiary of the Company in an
aggregate uninsured or unindemnified amount in excess of $5,000,000, which is
not discharged, waived, stayed, bonded or satisfied for a period of 60
consecutive days; or
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Restricted Subsidiary of the Company in an involuntary case or proceeding under
United States bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency, or other similar
law or (ii) a decree or order adjudging the Company or any Significant
Restricted Subsidiary of the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of, or in respect of, the Company or any Significant Restricted
Subsidiary of the Company under United States bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency, or similar law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Significant Restricted Subsidiary of the Company or of any
substantial part of the Property or assets of the Company or any Significant
Restricted Subsidiary of the Company, or ordering the winding-up or liquidation
of the affairs of the Company or any Significant Restricted Subsidiary of the
Company, and the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60 consecutive
days; or
(h)(i) the commencement by the Company or any Significant Restricted
Subsidiary of the Company of a voluntary case or proceeding under United States
bankruptcy laws, as now or
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hereafter constituted, or any other applicable Federal, state, or foreign
bankruptcy, insolvency or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent; or (ii) the consent by the Company
or any Significant Restricted Subsidiary of the Company to the entry of a decree
or order for relief in respect of the Company or any Significant Restricted
Subsidiary of the Company in an involuntary case or proceeding under United
States bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency, or other similar
law or to the commencement of any bankruptcy or insolvency case or proceeding
against the Company or any Significant Restricted Subsidiary of the Company; or
(iii) the filing by the Company or any Significant Restricted Subsidiary of the
Company of a petition or answer or consent seeking reorganization or relief
under United States bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state or foreign bankruptcy, insolvency or other
similar law; or (iv) the consent by the Company or any Significant Restricted
Subsidiary of the Company to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Significant Restricted
Subsidiary of the Company or of any substantial part of the Property or assets
of the Company or any Significant Restricted Subsidiary of the Company, or the
making by the Company or any Significant Restricted Subsidiary of the Company of
an assignment for the benefit of creditors; or (v) the admission by the Company
or any Significant Restricted Subsidiary of the Company in writing of its
inability to pay its debts generally as they become due; or (vi) the taking of
corporate action by the Company or any Significant Restricted Subsidiary of the
Company in furtherance of any such action.
SECTION 6.02. Acceleration. If any Event of Default (other than an Event
------------
of Default specified in Section 6.01(g) or Section 6.01(h) hereof) occurs and is
continuing, then and in every such case, the Trustee by a notice in writing to
the Company, or the Holders of not less than 25 percent of the outstanding
aggregate principal amount at Stated Maturity of Senior Notes by a notice in
writing to the Company and the Trustee, may declare the Default Amount, premium,
if any, and any accrued and unpaid interest (and Special Interest, if any) on
all Senior Notes then outstanding to be immediately due and payable. Upon any
such declaration, such Default Amount, premium, if any, and any accrued and
unpaid interest (and Special Interest, if any) on all Senior Notes then
outstanding will become and be immediately due and payable. If an Event of
Default specified in Section 6.01(g) or Section 6.01(h) hereof occurs, the
Default Amount, premium, if any, and any accrued and unpaid interest (and
Special Interest, if any) on all Senior Notes then outstanding shall ipso facto
---- -----
become and be immediately due and payable without any declaration
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or other act on the part of the Trustee or any Holder of Senior Notes.
In the event of a declaration of acceleration because an Event of Default
set forth in Section 6.01(e) hereof has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to Section 6.01(e)
hereof shall be remedied, or cured or waived by the holders of the relevant
Indebtedness within 60 days after such event of default; provided that no
--------
judgment or decree for the payment of the money due on the Senior Notes has been
obtained by the Trustee as hereinafter in this Article VI provided.
Until March 30, 2000, the Default Amount shall equal the Accreted Value of
the Senior Notes as of the date of any determination. On or after March 30,
2000, the Default Amount of each Senior Note shall equal 100 percent of the
principal amount at Stated Maturity thereof.
At any time after a declaration of acceleration with respect to Senior
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article VI provided, the
Holders of a majority in aggregate principal amount at Stated Maturity of the
outstanding Senior Notes, by written notice to the Company and the Trustee, may
rescind and annul such declaration and its consequences if,
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue installments of interest and Special Interest, if
any, on all Senior Notes,
(ii) the principal of (and premium, if any, on) any Senior Notes
which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate or rates prescribed therefor in the Senior
Notes and this Indenture,
(iii) to the extent that payment of such interest or Special
Interest, if any, is lawful, interest on the Defaulted Interest at the
rate prescribed therefor in the Senior Notes and this Indenture, and
(iv) all moneys paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel and all other amounts due to the Trustee
pursuant to Section 7.07 hereof; and
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(b) all Events of Default with respect to the Senior Notes, other
than the non-payment of the principal of Senior Notes which have become due
solely by such declaration of acceleration, have been cured or waived by the
Holders as provided herein.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 6.03. Other Remedies. The Company covenants that if an Event of
--------------
Default specified in Section 6.01(a) or Section 6.01(b) occurs the Company
shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the
Holders, the whole amount then due and payable on the Senior Notes for principal
(and premium, if any), accrued and unpaid interest and Special Interest, if
any, and, to the extent that payment of such interest shall be legally
enforceable, interest upon the overdue principal (and premium, if any) and upon
Defaulted Interest, at the rate or rates prescribed therefor in such Senior
Notes; and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel and all other amounts due to the Trustee pursuant to Section 7.07
hereof.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of, or pursue any available remedy under
this Indenture or otherwise to collect, the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Senior Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the Property and assets of the Company or any other obligor upon such Senior
Notes, wherever situated.
If an Event of Default with respect to the Senior Notes occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 6.04. Waiver of Existing Defaults. The Holders of a majority in
---------------------------
aggregate principal amount at Stated Maturity of the Senior Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all the
Senior Notes waive any existing Default or Event of Default and its consequences
under this Indenture except (a) a continuing Default or Event of Default in
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the payment of interest (and Special Interest, if any) on, premium, if any, on
or the principal of, the Senior Notes, or (b) in respect of a covenant or
provision hereof which under Section 9.02 hereof cannot be modified or amended
without the consent of the Holder of each outstanding Senior Note affected or
(c) in respect of the right to require the Company to issue Senior Note
Contingent Warrants pursuant to Section 4.20 hereof, which right under Section
9.02 hereof cannot be waived without the consent of Holders of not less than 75
percent in aggregate principal amount at Stated Maturity of the outstanding
Senior Notes. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. Control by Majority. The Holders of not less than a
-------------------
majority in aggregate principal amount at Stated Maturity of the outstanding
Senior Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided that
--------
(a) such direction shall not be in conflict with any rule of law or
with this Indenture or unduly prejudicial to the rights of other Holders and
would not subject the Trustee to personal liability, it being understood that
(subject to Section 7.01 hereof) the Trustee shall have no duty to ascertain
whether or not such directions are unduly prejudicial to such Holders, and
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits. No Holder of Senior Notes shall have
-------------------
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Senior Notes;
(b) the Holders of not less than 25 percent in aggregate principal
amount at Stated Maturity of the outstanding Senior Notes shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee security or
indemnity satisfactory to the Trustee in its
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reasonable discretion against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a majority in
aggregate principal amount at Stated Maturity of the outstanding Senior Notes;
in any event, it being understood and intended that no one or more Holders of
Senior Notes shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or prejudice the
rights of any other Holders of Senior Notes, or to obtain or to seek to obtain
priority or preference over any other of such Holders or to enforce any right
under this Indenture or the, except in the manner herein provided and for the
equal and ratable benefit of all Holders of Senior Notes.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
------------------------------------
other provision of this Indenture, the right of any Holder to receive payment of
principal of (premium, if any) and interest (and Special Interest, if any) on
the Senior Notes held by such Holder, on or after the respective due dates
expressed in the Senior Notes or the Redemption Dates or purchase dates provided
for herein or therein, or to bring suit for the enforcement of any such payment
on or after such respective dates, shall be absolute and unconditional and shall
not be impaired or affected without the consent of such Holder.
SECTION 6.08. Trustee May File Proofs of Claim. In case of the pendency
--------------------------------
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceedings, or any
voluntary or involuntary case under United States bankruptcy laws, as now or
hereafter constituted, relative to the Company or any other obligor upon the
Senior Notes or the Property and assets of the Company or of such other obligor
or their creditors, the Trustee (irrespective of whether the principal of such
Senior Notes shall then be due and payable as therein expressed or by
declaration or otherwise or irrespective of whether the Trustee or any Holder
shall have made any demand on the Company for the payment of overdue principal
or interest or performed any other act pursuant to the provisions of this
Article) shall be entitled and empowered, by intervention in such proceeding or
otherwise, (i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (and Special Interest, if any) owing and unpaid in
respect of the Senior Notes, to file such other papers or documents and to take
such other actions, including participating
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as a member or otherwise in any official committee of creditors appointed in the
matter, 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 all other
amounts due to the Trustee pursuant to Section 7.07 hereof) and of the Holders
allowed in such judicial proceeding, (ii) unless prohibited by applicable law
and regulations to vote on behalf of the Holders of the Senior Notes in any
election of a trustee or standby trustee in an arrangement, reorganization,
liquidation or other bankruptcy or insolvency proceedings or Person performing
similar actions in comparable proceedings, and (iii) to collect and receive any
moneys or other Property payable or deliverable on any such claims and to
distribute the same; and any receiver, assignee, trustee, custodian, liquidator,
sequestrator (or other similar official) in any such proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due 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 7.07 hereof.
Nothing contained herein shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Senior
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
In any proceedings brought by the Trustee (and any proceedings involving
the interpretation of this Indenture to which the Trustee shall be a party), the
Trustee shall be held to represent all the Holders of the Senior Notes, and it
shall not be necessary to make any Holders of the Senior Notes parties to any
such proceedings.
SECTION 6.09. Priorities. Any money collected by the Trustee pursuant to
----------
this Article VI shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (premium, if any), interest or Special Interest, if any, upon
presentation of the Senior Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
7.07 hereof;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) or interest and Special Interest, if any, on
the Senior Notes, ratably, without preference or priority of any kind, according
to the amounts due
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and payable on such Senior Notes for principal (and premium, if any) and
interest or Special Interest, if any, respectively; and
THIRD: To the Company, the Guarantors, if any, or as a court of
competent jurisdiction shall decide.
The Trustee may fix a record date and payment date from any payment to
Holders pursuant to this Section 6.09. At least 15 days before such record date,
the Company shall mail to each Holder and the Trustee a notice that states such
record date, the payment date and amount to be paid. The Trustee may mail such
notice in the name and at the expense of the Company.
SECTION 6.10. Undertaking for Costs. All parties to this Indenture agree,
---------------------
and each Holder of any Senior Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture and the Senior
Note Guarantees, if any, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigation in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10 percent in principal amount at Stated Maturity of the
outstanding Senior Notes, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
or Special Interest, if any, on any Senior Note on or after its Stated Maturity.
SECTION 6.11. Waiver of Usury, Stay or Extension Laws. The Company and
---------------------------------------
each Guarantor, if any, (to the extent it may lawfully do so) shall 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 or the Senior Note Guarantees, if any; and the
Company and each Guarantor, if any, (to the extent that it may lawfully do so)
hereby expressly waive all benefit or advantage of any such law, and shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 6.12. Trustee May Enforce Claims Without Possession of the Senior
-----------------------------------------------------------
Notes. All rights of action and claims under this Indenture, the Senior Note
- -----
Guarantees, if any, or the Senior
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Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Senior Notes or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name, as trustee of an express trust, and any recovery of judgement
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Senior Notes.
SECTION 6.13. Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder of Senior Notes has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case the Company, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 6.14. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided in Section 2.07 hereof, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 6.15. Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder of any Senior Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article VI, by the Senior Note Guarantees,
if any, or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred
-----------------
and is continuing, the Trustee shall exercise the rights and powers vested in
it by this Indenture and shall use the same degree of care and skill in their
exercise as
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a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default: (i) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and (ii) in the absence
of bad faith on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; provided that in the case of any such
--------
certificates or opinions that by any provision of this Indenture are
specifically required to be furnished to the Trustee, the Trustee shall examine
such certificates and opinions 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, provided that: (i) this paragraph (c) shall not limit the effect of
--------
paragraph (b) of this Section 7.01; (ii) 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 (iii) 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
6.05 hereof.
(d) 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.
(e) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk of liability is
not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VII and to the provisions of the Trust
Indenture Act.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
-----------------
document believed by it to be genuine and to have been signed or presented by
the proper Person. Except as provided in
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Section 7.01(b) hereof, 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. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on any
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any such agent; provided that such agent was
--------
appointed with due care by the Trustee.
(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; provided that the Trustee's conduct does not constitute willful
--------
misconduct or negligence.
(e) The Trustee shall not be charged with knowledge of any Default or
Event of Default under Sections 6.01(c), 6.01(d), 6.01(e) or 6.01(f), 6.01(g) or
6.01(h) hereof (provided that the Trustee shall comply with the "automatic stay"
provisions of United States bankruptcy laws), of the identity of any Restricted
Subsidiary or of the existence of any Change of Control or Asset Sale unless
either (i) a Trust Officer shall have actual knowledge thereof, or (ii) the
Trustee shall have received notice thereof in accordance with Sections 4.19 and
12.02 hereof from the Company or in accordance with Section 12.02 hereof from
any Holder of Senior Notes.
(f) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney.
(h) The Trustee shall be under no obligation to exercise any of the
rights or powers vested by this Indenture at the request or direction of any of
the Holders pursuant to this
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Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
(i) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
As used throughout this Indenture, the term "actual knowledge" means the
actual fact or statement of knowing, without any duty to make any investigation
with regard thereto.
SECTION 7.03. Individual Rights of Trustee. The Trustee, any Paying Agent
----------------------------
or Registrar, in its individual or any other capacity, may become the owner or
pledgee of Senior Notes and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, Paying
Agent or Registrar hereunder, as the case may be; provided that the Trustee must
--------
in any event comply with Section 7.10 and Section 7.11 hereof.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible
--------------------
for and makes no representation as to the validity or adequacy of this
Indenture, the Senior Note Guarantees, if any, or the Senior Notes, it shall not
be accountable for the Company's use of the proceeds from the Senior Notes, and
it shall not be responsible (a) for any statement of the Company in this
Indenture, including the recitals contained herein, or in any document issued in
connection with the sale of the Senior Notes or in the Senior Notes other than
the Trustee's certificate of authentication or (b) for compliance by the Company
with the Registration Rights Agreement.
SECTION 7.05. Notice of Defaults. Within 90 days after the occurrence of
------------------
any Default hereunder with respect to the Senior Notes, the Trustee shall
transmit by mail to all Holders, as their names and addresses appear in the
Security Register, notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided that, except in the case
--------
of a Default in the payment of the principal of (or premium, if any) or interest
or Special Interest, if any, on any Senior Note, the Trustee shall be protected
in withholding such notice if and so long as the board of directors, the
executive committee or a trust committee of directors and/or Trust Officers of
the Trustee in good faith determine that the withholding of such notice is in
the interest of Holders.
SECTION 7.06. Preservation of Information; Reports by Trustee to Holders.
----------------------------------------------------------
(a) The Company shall furnish or cause to be furnished to the Trustee:
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(i) semiannually, not less than 10 days prior to each Interest Payment
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of the Record Date immediately
preceding such Interest Payment Date, and
(ii) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
provided that if and so long as the Trustee shall be the Registrar for the
- --------
Senior Notes, no such list need be furnished with respect to the Senior Notes.
(b) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.06(a) hereof and the
names and addresses of Holders received by the Trustee in its capacity as
Registrar, if so acting. The Trustee may destroy any list furnished to it as
provided in Section 7.06(a) hereof upon receipt of a new list so furnished.
(c) Holders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Holders with respect to their rights under this
Indenture, the Senior Note Guarantees, if any, or the Senior Notes.
(d) Each Holder of Senior Notes, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Holders in accordance with this Section 7.06,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under this Section 7.06.
(e) Within 60 days after May 15 of each year commencing with the year
1997, the Trustee shall transmit by mail to all Holders of Senior Notes, a brief
report dated as of such May 15 if and to the extent required under Section
313(a) of the Trust Indenture Act.
(f) The Trustee shall comply with Sections 313(b) and 313(c) of the
Trust Indenture Act.
(g) A copy of each report described in Section 7.06(e) hereof shall,
at the time of its transmission to Holders, be filed by the Trustee with each
securities exchange, if any, upon
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which the Senior Notes are then listed, with the Commission and also with the
Company. The Company shall promptly notify the Trustee of any securities
exchange upon which the Senior Notes are listed.
SECTION 7.07 Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee from time to time reasonable compensation for its services. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents
and counsel. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust.
The Company shall indemnify the Trustee for, and hold it harmless against,
any and all loss, liability or expense (including reasonable attorneys' fees)
arising out of or incurred by it in connection with the acceptance or
administration of the trust created by this Indenture and the performance of its
duties hereunder, except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend any such claim and the
Trustee shall cooperate in the defense of such claim. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss,
liability or expense incurred by the Trustee through the Trustee's own willful
misconduct or negligence.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Senior Notes on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of, premium, if any, and interest (including Special Interest, if
any) on, particular Senior Notes.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the resignation or removal of the Trustee and discharge of this
Indenture and any Senior Note Guarantees. Subject to any other rights available
to the Trustee under applicable bankruptcy law, when the Trustee incurs expenses
after the occurrence of a Default specified in Section 6.01(g) or Section
6.01(h) hereof, the expenses are intended to constitute expenses of
administration under bankruptcy law.
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SECTION 7.08. Replacement of Trustee. (a) No resignation or removal of
----------------------
the Trustee and no appointment of a successor Trustee pursuant to this Article
VII shall become effective until the acceptance of appointment by the successor
Trustee under this Section 7.08.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 calendar days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in aggregate principal amount at Stated Maturity of the outstanding
Senior Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(i) The Trustee shall fail to comply with Section 310(b) of the Trust
Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Senior Note for at least six
months, unless the Trustee's duty to resign is stayed in accordance with
the provisions of Section 310(b) of the Trust Indenture Act; or
(ii) The Trustee shall cease to be eligible under Section 7.10 hereof
and shall fail to resign after written request therefor by the Company or
by any such Holder; or
(iii) The Trustee shall become incapable of acting or a decree or
order for relief by a court having jurisdiction in the premises shall have
been entered in respect of the Trustee in an involuntary case under the
United States bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal or state bankruptcy, insolvency or similar law; or
a decree or order by a court having jurisdiction in the premises shall have
been entered for the appointment of a receiver, custodian, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Trustee
or of its Property and assets or affairs, or any public officer shall take
charge or control of the Trustee or of its Property and assets or affairs
for the purpose of rehabilitation, conservation, winding up or liquidation;
or
(iv) The Trustee shall commence a voluntary case under the United
States bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or similar law or shall
consent to
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the appointment of or taking possession by a receiver, custodian,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Trustee or its Property and assets or affairs, or shall make an
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due, or shall take
corporate action in furtherance of any such action,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to the Senior Notes, or (ii) subject to Section 6.10
hereof, any Holder who has been a bona fide Holder of a Senior Note for at least
six months may, on behalf of such Holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee for the Senior Notes.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by the Holders of a majority in aggregate principal amount at Stated
Maturity of the outstanding Senior Notes delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with this Section 7.08, become the
successor Trustee and to that extent replace any successor Trustee appointed by
the Company. If no successor Trustee shall have been so appointed by the Company
or the Holders and shall have accepted appointment in the manner hereinafter
provided, any Holder that has been a bona fide Holder of a Senior Note for at
least six months may, subject to Section 6.10 hereof, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such resignation, removal and appointment by first class mail,
postage prepaid, to the Holders as their names and addresses appear in the
Security Register. Each notice shall include the name of the successor Trustee
with respect to the Senior Notes and the address of its Corporate Trust Office.
(g) In the event of an appointment hereunder of a successor Trustee,
each such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring trustee an instrument accepting such
appointment, and
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thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts, and duties
of the retiring Trustee but, on request of the Company or the successor Trustee,
such retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee, and shall duly assign, transfer and deliver to
such successor Trustee all Property and money held by such former Trustee
hereunder, subject to its Lien, if any, provided for in Section 7.07 hereof.
(h) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in Section 7.08(g) hereof.
(i) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article VII and under the Trust Indenture Act.
SECTION 7.09. Successor Trustee by Merger. Any corporation into which the
---------------------------
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder; provided that such corporation shall be otherwise
--------
qualified and eligible under this Article VII and under the Trust Indenture Act,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Senior Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Senior Notes so authenticated with the same
effect as if such successor Trustee had itself authenticated such Senior Notes.
In the event that any Senior Notes shall not have been authenticated by such
predecessor Trustee, any such successor Trustee may authenticate and deliver
such Senior Notes, in either its own name or that of its predecessor Trustee,
with the full force and effect which this Indenture provides for the certificate
of authentication of the Trustee.
SECTION 7.10. Eligibility; Disqualification. There shall at all times be
-----------------------------
a Trustee hereunder which shall be
(i) a corporation organized and doing business under the laws of the
United States of America, any State or Territory thereof or the District of
Columbia, authorized
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under such laws to exercise corporate trust powers, and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
(ii) a corporation or other Person organized and doing business under
the laws of a foreign government that is permitted to act as Trustee
pursuant to a rule, regulation or order of the Commission, authorized under
such laws to exercise corporate trust powers, and subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or examination
applicable to United States institutional trustees,
in either case having a combined capital and surplus of at least $100,000,000.
If such Person publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.10, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible to serve as Trustee hereunder
pursuant to the provisions of this Section 7.10, it shall resign immediately in
the manner and with the effect specified in this Article VII.
The Indenture shall always have a Trustee which satisfies the requirements
of Section 310(a)(1), (2), and (5) of the Trust Indenture Act. If the Trustee
has or shall acquire any "conflicting interest" within the meaning of Section
310(b) of the Trust Indenture Act, the Trustee and the Company shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act. Nothing herein shall prevent the Trustee from filing with the Commission
the application referred to in the penultimate paragraph of Section 310(b) of
the Trust Indenture Act.
Neither the Company, any Guarantor, any Subsidiary nor any Affiliate of the
Company shall serve as Trustee hereunder.
SECTION 7.11. Preferential Collection of Claims Against Company. The
-------------------------------------------------
Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding
any creditor relationship listed in Section 311(b) of the Trust Indenture Act.
A Trustee who has resigned or been removed shall be subject to Section 311(a) of
the Trust Indenture Act to the extent indicated therein.
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ARTICLE VIII
DEFEASANCE
SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant
-------------------------------------------------------
Defeasance. The Company may elect, at its option, at any time, to have Section
- ----------
8.02 or Section 8.03 hereof applied to the outstanding Senior Notes (in whole
and not in part) upon compliance with the conditions set forth below in this
Article VIII, such election shall be evidenced by a Board Resolution delivered
to the Trustee.
SECTION 8.02. Legal Defeasance and Discharge. Upon the Company's exercise
------------------------------
of its option to have this Section 8.02 applied to the outstanding Senior Notes
(in whole and not in part), the Company shall be deemed to have been discharged
from its obligations with respect to such Senior Notes as provided in this
Section 8.02 on and after the date the conditions set forth in Section 8.04
hereof are satisfied (hereinafter called "Defeasance"). For this purpose, such
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by such Senior Notes and the Company and the
Guarantors, if any, shall be deemed to have satisfied all their other
obligations under such Senior Notes, the Senior Note Guarantees, if any, this
Indenture (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), subject to the following which shall
survive until otherwise terminated or discharged hereunder:
(a) the rights of Holders of such Senior Notes to receive, solely
from the trust fund described in Section 8.04 hereof and as more fully set forth
in such Section 8.04 payments in respect of the principal of and any premium and
interest (and Special Interest, if any) on such Senior Notes when payments are
due,
(b) the Company's obligations with respect to such Senior Notes under
Sections 2.06, 2.07, 2.09, 4.02, 4.03, 4.04 and 11.03 hereof,
(c) the rights, powers, trusts, duties and immunities of the Trustee
under this Indenture,
(d) Article III hereof, and
(e) this Article VIII.
Subject to compliance with this Article VIII, the Company may exercise its
option to have this Section 8.02 applied to the outstanding Senior Notes (in
whole and not in part) notwithstanding the prior exercise of its option to have
Section 8.03 hereof applied to such Senior Notes.
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SECTION 8.03. Covenant Defeasance. Upon the Company's exercise of its
-------------------
option to have this Section 8.03 applied to the outstanding Senior Notes (in
whole and not in part), (i) the Company shall be released from its obligations
under Section 5.01(c), Sections 4.05 through 4.18, inclusive, Sections 4.20 and
4.21 hereof, and any covenant added to this Indenture subsequent to the Issue
Date pursuant to Section 9.01 hereof, (ii) the occurrence of any event specified
in Section 6.01(c) or Section 6.01(d) hereof, with respect to any of Section
5.01(c), Sections 4.05 through 4.18, inclusive, Sections 4.20 and 4.21 hereof
and any covenant added to this Indenture subsequent to the Issue Date pursuant
to Section 9.01 hereof, shall be deemed not to be or result in an Event of
Default, in each case with respect to such Senior Notes as provided in this
Section 8.03 on and after the date the conditions set forth in Section 8.04
hereof are satisfied (hereinafter called "Covenant Defeasance"). For this
purpose, such Covenant Defeasance means that, with respect to such Senior Notes,
the Company and the Guarantors, if any, may omit to comply with and shall have
no liability in respect of any term, condition or limitation set forth in any
such specified Section (to extent so specified in the case of Sections 6.01(c)
and 6.01(d) hereof), whether directly or indirectly by reason of any reference
elsewhere herein to any such Section or by reason of any reference in any such
Section to any other provision herein or in any other document; but the
remainder of this Indenture, the Senior Note Guarantees, if any, and such Senior
Notes shall be unaffected thereby.
SECTION 8.04. Conditions to Defeasance or Covenant Defeasance. The
-----------------------------------------------
following shall be the conditions to the application of Section 8.02 or Section
8.03 hereof to the outstanding Senior Notes:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to the benefits of the Holders of such Senior Notes, (i) money in an amount, or
(ii) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, money in an
amount, or (iii) a combination thereof, in each case sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or any such other qualifying trustee)
to pay and discharge, the principal of and any installment of interest
(including Special Interest, if any) on such Senior Notes at the Stated
Maturity thereof, in accordance with the terms of this Indenture and such Senior
Notes.
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(b) In the event of an election to have Section 8.02 hereof apply to
the outstanding Senior Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (i) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (ii) since the date
of this Indenture, there has been a change in the applicable Federal income tax
law, in either case (i) or (ii) to the effect that, and based thereon such
opinion shall confirm that, the Holders of such Senior Notes will not recognize
gain or loss for Federal income tax purposes as a result of the deposit,
Defeasance and discharge to be effected with respect to such Senior Notes and
will be subject to Federal income tax on the same amount, in the same manner and
at the same times as would be the case if such deposit, Defeasance and discharge
were not to occur.
(c) In the event of an election to have Section 8.03 hereof apply to
the outstanding Senior Notes, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of such Senior Notes will not
recognize gain or loss for Federal income tax purposes as a result of the
deposit and Covenant Defeasance to be effected with respect to such Senior Notes
and will be subject to Federal income tax on the same amount, in the same manner
and at the same times as would be the case if such deposit and Covenant
Defeasance were not to occur.
(d) No Default or Event of Default with respect to the outstanding
Senior Notes shall have occurred and be continuing at the time of such deposit
after giving effect thereto and no Default or Event of Default under Section
6.01(g) or 6.01(h) shall have occurred and be continuing on or prior to the 91st
day after the date of such deposit (it being understood that this condition
shall not be deemed satisfied until after such 91st day).
(e) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust Indenture
Act (assuming for the purpose of this clause (e) that all Senior Notes are in
default within the meaning of such Act).
(f) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company or any Guarantor, if any, is a party or by which
it is bound.
(g) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder.
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(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 8.05. Deposited Money and U.S. Government Obligations to be Held
----------------------------------------------------------
in Trust; Miscellaneous Provisions. All money and U.S. Government Obligations
- ----------------------------------
(including the proceeds thereof) deposited with the Trustee pursuant to Section
8.04 hereof in respect of the outstanding Senior Notes shall be held in trust
and applied by the Trustee, in accordance with the provisions of such Senior
Notes and this Indenture, to the payment, either directly or through any such
Paying Agent as the Trustee may determine, to the Holders of such Senior Notes,
of all sums due and to become due thereon in respect of principal and any
premium and interest, but money so held in trust need not be segregated from
other funds except to the extent required by law. The Company shall pay and
indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the U.S. Government Obligations deposited pursuant to Section
8.04 hereof or the principal and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of the Holders
of outstanding Senior Notes.
Anything in this Article VIII to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Order any
money or U.S. Government Obligations held by it as provided in Section 8.04
hereof which, in the opinion of a nationally recognized firm of independent
public accounts expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof that would be required to be
deposited to effect the Defeasance or Covenant Defeasance, as the case may be,
with respect to the outstanding Senior Notes.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money in accordance with this Article VIII with respect to any Senior
Notes by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application then the
obligations under this Indenture, the Senior Note Guarantees, if any, and such
Senior Notes from which the Company and any Guarantor has been discharged or
released pursuant to Section 8.02 or 8.03 hereof shall be revived and reinstated
as though no deposit has occurred pursuant to this Article VIII with respect to
such Senior Notes, until such time as the Trustee or Paying Agent is permitted
to apply all money held in trust pursuant to Section 8.05 hereof with respect to
such Senior Notes in accordance with this Article VIII; provided that if the
--------
Company or any Guarantor makes any payment of principal of or any premium,
interest or Special Interest, if any, on any such Senior Note following such
reinstatement of its obligations, the Company
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or such Guarantor, as the case may be, shall be subrogated to the rights (if
any) of the Holders of such Senior Notes to receive such payment from the money
so held in trust.
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Holders. The Company, the Guarantors, if
--------------------------
any, and the Trustee may, at any time, and from time to time, without notice to
or consent of any Holders of Senior Notes, enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Company or a
Guarantor, as applicable, and the assumption by such successor of the covenants
and obligations of the Company in this Indenture, the Senior Notes or such
Guarantor contained in its Senior Note Guarantee and this Indenture; or
(b) to add to the covenants of the Company, for the benefit of the
Holders of all of the Senior Notes, or to surrender any right or power herein
conferred upon the Company or the Guarantors, if any, by this Indenture; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Senior Notes in addition to or in
place of Certificated Senior Notes; or
(e) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee; or
(f) to cure any ambiguity herein, or to correct or supplement any
provision hereof which may be inconsistent with any other provision hereof or to
add any other provisions with respect to matters or questions arising under this
Indenture; provided that such actions shall not adversely affect the interests
--------
of the Holders of Senior Notes in any material respect; or
(g) to provide for Restricted Subsidiaries to become Guarantors
pursuant to Section 4.10 hereof and Article X hereof; or
(h) to secure the Senior Notes; or
(i) to comply with the requirements of the Commission in order to
effect or maintain qualification of this Indenture under the Trust Indenture
Act.
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SECTION 9.02. With Consent of Holders. With the consent of the Holders of
-----------------------
not less than a majority in aggregate principal amount of the outstanding Senior
Notes, by Act of said Holders delivered to the Company, the Guarantors, if any,
and the Trustee, the Company, the Guarantors, if any, and the Trustee may enter
into one or more indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders;
provided that no such supplemental indenture shall, without the consent of the
- --------
Holder of each outstanding Senior Note:
(a) change the Stated Maturity of the principal of, or any
installment of interest or Special Interest, if any, on, any Senior Note, or
reduce the Accreted Value or principal amount at Stated Maturity thereof (or any
premium, if any), or the interest (including Special Interest, if any) thereon,
that would be due and payable upon Stated Maturity thereof, or reduce the
Default Amount that would be due and payable upon Stated Maturity there of, or
change the place of payment where, or the coin or currency in which, any Senior
Note or any premium or interest (including Special Interest, if any) thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof; or
(b) reduce the percentage in principal amount, of the outstanding
Senior Notes, the consent of whose Holders is necessary for any such
supplemental indenture or required for any waiver of compliance with certain
provisions of this Indenture or the Senior Note Guarantees, if any, or Defaults
hereunder; or
(c) modify any of the provisions of Section 6.04 hereof, except to
increase any percentage set forth therein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Senior Note affected thereby; or
(d) subordinate in right of payment, or otherwise subordinate, the
Senior Notes or any Senior Note Guarantees to any other Indebtedness; or
(e) modify any of the provisions of this Section 9.02, except to
increase any percentage set forth herein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holder of each outstanding Note affected thereby; or
(f) modify the obligations of the Company to make offers to purchase
Senior Notes upon a Change of Control or from the proceeds of Asset Sales;
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provided that the Holders of not less than 75 percent in aggregate principal
- --------
amount at Stated Maturity of the outstanding Senior Notes may, on behalf of the
Holders of all such Senior Notes, waive any right to require the Company to
issue to the Holders of the Senior Notes Senior Note Contingent Warrants.
It shall not be necessary for any Act of Holders under this Section 9.02 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approval the substance thereof.
SECTION 9.03. Effect of Supplemental Indentures. Upon the execution of
---------------------------------
any supplemental indenture under this Article IX, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Senior Notes
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.04. Compliance with Trust Indenture Act. Every amendment or
-----------------------------------
supplement to this Indenture or the Senior Notes shall comply with the Trust
Indenture Act as then in effect.
SECTION 9.05. Revocation and Effect of Consents and Waivers. A consent
----------------------------------------------
to an amendment, supplement or a waiver by a Holder of a Senior Note shall bind
the Holder and every subsequent Holder of such Senior Note or portion of such
Senior Note that evidences the same debt as the consenting Holder's Senior Note,
even if notation of the consent or waiver is not made on such Senior Note;
provided that any such Holder or subsequent Holder may revoke the consent or
- --------
waiver as to such Holder's Note or portion of such Senior Note if the Trustee
receives the notice of revocation before the date the amendment, supplement or
waiver become effective. After an amendment, supplement or waiver becomes
effective pursuant to this Article IX, it shall bind every Holder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to give their consent or take any
other action described above or required or permitted to be taken pursuant to
this Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 days after
such record date.
SECTION 9.06. Notation on or Exchange of Senior Notes. If a supplemental
---------------------------------------
indenture changes the terms of a Senior Note, the
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Trustee may require the Holder thereof to deliver such Senior Note to the
Trustee. The Trustee may place an appropriate notation on such Senior Note
regarding the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for such Senior
Note shall issue and the Trustee shall authenticate a new Senior Note that
reflects the changed terms. Failure to make the appropriate notation or to issue
a new Senior Note shall not affect the validity of such amendment or supplement.
SECTION 9.07. Trustee to Execute Supplemental Indentures. The Trustee
------------------------------------------
shall execute any supplemental indenture authorized pursuant to this Article IX
if such supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but
shall not be required to, execute such supplemental indenture. In executing
any supplemental indenture, the Trustee shall be entitled to received indemnity
reasonably satisfactory to it and to receive, and (subject to Section 7.01
hereof) shall be fully protected in relying upon, an Officers' Certificate
(which need only cover the matters set forth in clause (a) below) and an Opinion
of Counsel provided by the Company stating that:
(a) such supplemental indenture is authorized or permitted by this
Indenture and that all conditions precedent to the execution, delivery and
performance of such supplemental indenture have been satisfied;
(b) the Company and the Guarantors, if any, have all necessary
corporate power and authority to execute and deliver the supplemental indenture
and that the execution, delivery and performance of such supplemental indenture
has been duly authorized by all necessary corporate action of the Company and
the Guarantors, if any;
(c) the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of or constitute a
default under any of the terms, conditions or provisions of (i) this Indenture,
(ii) the charter documents and by-laws of the Company or any Guarantor, or (iii)
any material agreement or instrument to which the Company or any Guarantor is
subject;
(d) to the best knowledge and belief of legal counsel writing such
Opinion of Counsel, the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of any of the terms,
conditions or provisions of (i) any law or regulation applicable to the Company
or any Guarantor, or (ii) any material order, writ, injunction or decree of any
court or governmental instrumentality applicable to the Company or any
Guarantor;
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(e) such supplemental indenture has been duly and validly executed and
delivered by the Company and the Guarantors, if any, and this Indenture together
with such supplemental indenture constitutes a legal, valid and binding
obligation of the Company and the Guarantors, if any, enforceable against the
Company and the Guarantors, as applicable, in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles; and
(f) this Indenture together with such amendment or supplement complies
with the Trust Indenture Act.
SECTION 9.08 Solicitation of Consents. Neither the Company nor any of
------------------------
its Subsidiaries nor any of their Affiliates shall, directly or indirectly, pay
or cause to be paid any consideration, whether by way of interest, fees or
otherwise, to any Holders of any Senior Notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this
Indenture, the Senior Note Guarantees, if any, or the Senior Notes unless such
consideration is offered to be paid or agreed to be paid to all Holders of the
Senior Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
ARTICLE X
SENIOR NOTE GUARANTEES
SECTION 10.01 Senior Note Guarantees. (a) Subject to the provisions of
----------------------
this Article X, each Restricted Subsidiary of the Company, if any, which in
accordance with Section 4.10 hereof is required in the future to become a
Guarantor and to guarantee the obligations of the Company and the Guarantors
under the Senior Notes and the Senior Note Guarantees, upon execution of a
supplemental indenture, hereby jointly and severally, irrevocably and
unconditionally guarantees to the Trustee and to each Holder of a Senior Note
authenticated and delivered by the Trustee irrespective of the validity or
enforceability of this Indenture, the Senior Notes or the obligations of the
Company and any other Guarantors, under this Indenture that: (i) the principal
of, premium, if any, and any interest, and Special Interest, if any, on the
Senior Notes (including, without limitation, any interest that accrues after the
filing of a proceeding of the type described in Sections 6.1(g) and (h)) and
any fees, expenses and other amounts owing under this Indenture will be duly and
punctually paid in full when due, whether at Stated Maturity, by acceleration,
call for redemption, upon a Change of Control Offer, Asset Sale Offer, purchase
or otherwise, and interest on the overdue principal and (to the extent permitted
by law)
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interest, if any, and Special Interest, if any, on the Senior Notes and any
other amounts due in respect of the Senior Notes, if lawful, and all other
obligations of the Company and the Guarantors, if any, to the Holders of the
Senior Notes under this Indenture and the Senior Notes, whether now or hereafter
existing, will be promptly paid in full or performed, all strictly in
accordance with the terms hereof, of the Senior Notes and the Senior Note
Guarantees, if any; and (ii) in case of any extension of time of payment or
renewal of any Senior Notes or any of such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration, call for
redemption, upon a Change of Control Offer, Asset Sale Offer, purchase or
otherwise. If payment is not made when due of any amount so guaranteed for
whatever reason, each Guarantor shall be jointly and severally obligated to pay
the same individually whether or not such failure to pay has become an Event of
Default which could cause acceleration pursuant to Section 6.02. Each Guarantor
agrees that this is a guarantee of payment and not a guarantee of collection. An
Event of Default under this Indenture or the Senior Notes shall constitute an
Event of Default under this Senior Note Guarantee, and shall entitle the Holders
to accelerate the obligations of each Guarantor hereunder in the same manner and
to the same extent as the obligations of the Company. This Senior Note Guarantee
is intended to be superior to or pari passu in right of payment with all
---- -----
Indebtedness of the Guarantors and each Guarantor's obligations are independent
of any obligation of the Company or any other Guarantor.
(b) Each Guarantor hereby agrees that its obligations hereunder shall be
joint and several, absolute, irrevocable and unconditional, irrespective of the
validity, regularity or enforceability of the Senior Notes, this Indenture or
any other document relating thereto, the absence of any action to enforce the
same, any waiver or consent by any Holder with respect to any provisions hereof
or thereof, any release of any other Guarantor, the recovery of any judgment
against the Company or any other Person, any action to enforce the same or any
other circumstance (including, without limitation, any statute of limitations)
which might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each Guarantor hereby waives promptness, diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company or any other Person, any right to require a proceeding
first against the Company or any other Person, protest, notice and all demands
whatsoever and covenants that its Senior Note Guarantee will not be discharged
except by complete performance of the obligations contained in the Senior Notes,
this Indenture and this Senior Note Guarantee. If any Holder or the Trustee is
required by any court or otherwise to return to the Company or to any Guarantor,
or any receiver, trustee, assignee, liquidator or
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similar official under any applicable bankruptcy or insolvency or other similar
law any amount paid by the Company or such Guarantor to the Trustee or such
Holder, this Senior Note Guarantee, to the extent theretofore discharged, shall
be reinstated in full force and effect.
(c) Until such time as the Senior Notes and the other obligations of the
Company guaranteed hereby have been satisfied in full, each Guarantor hereby
irrevocably waives any claim or other rights that it may now or hereafter
acquire against the Company or any other Guarantor that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under this Senior Note Guarantee, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and any
right to participate in any claim or remedy of the Holders or the Trustee
against the Company or any other Guarantor, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from the Company or any other
Guarantor, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim, remedy or right.
If any amount shall be paid to such Guarantor in violation of the preceding
sentence at any time prior to the later of the payments in full of the Senior
Notes and all other amounts payable under this Indenture and this Senior Note
Guarantee, and the Stated Maturity of the Senior Notes, such amount shall be
held in trust for the benefit of the Holders and the Trustee and shall forthwith
be paid to the Trustee to be credited and applied to the Senior Notes and all
other amounts payable under this Senior Note Guarantee, whether matured or
unmatured, in accordance with the terms of this Indenture, or to be held as
collateral for any obligations or other amounts payable under this Senior Note
Guarantee thereafter arising. Each Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated by
this Indenture and that the waiver set forth in this Section 10.01(c) is
knowingly made in contemplation of such benefits. Each Guarantor further agrees
that, as between it, on the one hand, and the Holders and the Trustee, on the
other hand, (x) subject to this Article X, the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article VI for the purposes
of this Senior Note Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
guaranteed hereby as provided in Article VI, such obligations (whether or not
due and payable) shall further then become due and payable by the Guarantors for
the purposes of this Senior Note Guarantee.
(d) A Guarantor that makes a distribution or payment under a Senior Note
Guarantee shall be entitled to contribution from
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each other Guarantor in a pro rata amount based on the Adjusted Net Assets of
each such other Guarantor for all payments, damages and expenses incurred by
that Guarantor in discharging the Company's obligations with respect to the
Senior Notes and this Indenture, or any other Guarantor with respect to its
Senior Note Guarantee, so long as the exercise of such right does not impair the
rights of the Holders of the Senior Notes under the Senior Note Guarantees.
(e) The Company shall cause each Restricted Subsidiary which, after the
date of this Indenture, is required pursuant to Section 4.10(a) hereof to become
a Guarantor to (a) execute and deliver to the Trustee a supplemental indenture
in form and substance reasonably satisfactory to the Trustee which subjects such
Restricted Subsidiary to the provisions of this Indenture as a Guarantor, and
(b) deliver to the Trustee an Opinion of Counsel to the effect that such
supplemental indenture has been duly authorized and executed by such Person and
constitutes the legal, valid, binding and enforceable obligation of such Person
(subject to such customary exceptions concerning debtor's rights and equitable
principles as may be acceptable to the Trustee in its reasonable discretion) and
containing such other matters as the Trustee may reasonably request.
SECTION 10.02 Limitation of Guarantor's Liability. Each Guarantor and, by
-----------------------------------
its acceptance hereof, each beneficiary hereof, hereby confirms that it is its
intention that the Senior Note Guarantee by such Guarantor not constitute a
fraudulent transfer or conveyance for purposes of the United States Bankruptcy
Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act, or any other bankruptcy, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law to the
extent applicable to any Senior Note Guarantees. To effectuate the foregoing
intention, each such Guarantor hereby irrevocably agrees that the obligation of
such Guarantor under its Senior Note Guarantee under this Article X shall be
limited to the lesser of (a) an amount equal to such Guarantor's Adjusted Net
Assets as of the date such Guarantee is executed and delivered or (b) the
maximum amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant under such
laws and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under this Article X result
in the obligations of such Guarantor in respect of such maximum amount not
constituting a fraudulent conveyance or fraudulent transfer or not otherwise
being void, voidable or unenforceable under any bankruptcy, reorganization,
receivership, insolvency, liquidation or other similar legislation or legal
principles under any applicable foreign law.
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SECTION 10.03 Execution and Delivery of Senior Note Guarantees. To
-------------------------------------------------
further evidence its Senior Note Guarantee set forth in Section 10.01 hereof,
each Guarantor hereby agrees that a notation of such Senior Note Guarantee may
be, but is not required to be, endorsed on each Senior Note authenticated and
delivered by the Trustee and executed by either manual or facsimile signature of
an authorized officer of such Guarantor. Each Guarantor hereby agrees that its
Senior Note Guarantee set forth in Section 10.01 hereof shall remain in full
force and effect notwithstanding any failure to endorse on each Senior Note a
notation of such Senior Note Guarantee. If an Officer of a Guarantor whose
signature is on this Indenture or a Senior Note no longer holds that office at
the time the Trustee authenticates such Senior Note or at any time thereafter,
such Guarantor's Senior Note Guarantee of such Senior Note shall be valid
nevertheless. The delivery of any Senior Note by the Trustee, after the
authentication thereof hereunder, whether or not endorsed with a notation of
the Senior Note Guarantee, shall constitute due delivery of any Senior Note
Guarantee set forth in this Indenture on behalf of such Guarantor.
SECTION 10.04 When a Guarantor May Merge, etc. No Guarantor shall
-------------------------------
consolidate with or merge with or into (whether or not such Guarantor is the
surviving person) another corporation, Person or entity whether or not
affiliated with such Guarantor (but excluding any consolidation, amalgamation or
merger if the surviving corporation is no longer a Subsidiary) unless (i)
subject to the provisions of Section 10.05 hereof, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee under the Senior Notes
and this Indenture and (ii) immediately after giving effect to such transaction,
no Default or Event of Default exists. In connection with any such
consolidation or merger, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel stating that such consolidation,
amalgamation or merger is permitted by this Section 10.04.
SECTION 10.05 Release of a Guarantor. (a) Upon the sale or other
----------------------
transfer of all of the Capital Stock of a Guarantor to any Person that is not an
Affiliate of the Company in compliance with the terms of this Indenture
(including, without limitation, Section 4.08 hereof), such Guarantor shall be
deemed automatically and unconditionally released and discharged from all
obligations under this Indenture without any further action required on the
part of the Trustee or any Holder; provided that the Net Cash Proceeds of such
--------
sale or other disposition are applied in accordance with Section 4.08 of this
Indenture as if such sale or disposition were an Asset Sale and in accordance
with the applicable provisions of this Indenture. The Trustee shall deliver an
appropriate instrument or instruments evidencing
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such release upon receipt of a request of the Company accompanied by an
Officers' Certificate and Opinion of Counsel certifying as to the compliance
with this Section 10.05(a) and the other applicable provisions of this
Indenture.
(b) Notwithstanding the foregoing, any Senior Note Guarantee by a
Restricted Subsidiary shall be automatically and unconditionally released and
discharged upon the release or discharge of the guarantee of Guaranteed
Indebtedness which resulted in the creation of such Senior Note Guarantee
pursuant to Section 4.10 hereof, except a discharge or release by, or as a
result of, payment under such guarantee. The Trustee shall deliver an
appropriate instrument or instruments evidencing such release upon receipt of a
request of the Company accompanied by an Officers' Certificate and Opinion of
Counsel certifying as to compliance with this Section 10.05(b) and the other
applicable provisions of this Indenture.
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01 Satisfaction and Discharge. This Indenture shall upon the
--------------------------
request of the Company cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of Senior Notes herein expressly
provided for, the Company's obligations under Sections 7.07 and 11.04 hereof,
and the Company's, the Trustee's and the Paying Agent's obligations under
Section 11.03 hereof) and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture when
(a) either
(i) all Senior Notes theretofore authenticated and delivered (other
than (A) Senior Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07 and (B) Senior Notes for whose
payment money has been deposited in trust with the Trustee or any Paying Agent
and thereafter paid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation; or
(ii) all such Senior Notes not theretofore delivered to the Trustee
for cancellation
(A) have become due and payable, or
(B) will become due and payable at their Stated Maturity within
one year, or
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(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of clause (A), (B) or (C) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
such purpose money or U.S. Government Obligations in an amount sufficient (as
certified by an independent public accountant designated by the Company) to pay
and discharge the entire indebtedness on such Senior Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium, if any)
and interest and Special Interest, if any, to the date of such deposit (in the
case of Senior Notes which have become due and payable) or the Stated Maturity
or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums then due and
payable hereunder by the Company;
(c) no Default or Event of Default with respect to the Senior Notes shall
have occurred and be continuing on the date of such deposit and after giving
effect to such deposit; and
(d) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
Company's obligations in Sections 2.03, 2.04, 2.06, 2.07, 2.11, 7.07, 7.08,
11.02, 11.03 and 11.04 and the Trustee's and Paying Agent's obligations in
Section 11.03 shall survive until the Senior Notes are no longer outstanding.
Thereafter, only the Company's obligations in Sections 7.07, 11.03 and 11.04 and
the Trustee's and Paying Agent's obligations in Section 11.03 shall survive.
In order to have money available on a payment date to pay principal or
interest on the Senior Notes, the U.S. Government Obligations shall be payable
as to principal or interest at least one Business Day before such payment date
in such amounts as will provide the necessary money. U.S. Government
Obligations shall not be callable at the issuer's option.
SECTION 11.02 Application of Trust Money. All money deposited with the
--------------------------
Trustee pursuant to Section 11.01 shall be held in trust and, at the written
direction of the Company, be invested prior to maturity in U.S. Government
Obligations, and applied by the Trustee in accordance with the provisions of the
Senior Notes and this Indenture, to the payment, either directly
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or through any Paying Agent as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium if any) and interest (including
Special Interest, if any) for the payment of which money has been deposited with
the Trustee; but such money need not be segregated from other funds except to
the extent required by law.
SECTION 11.03 Repayment to the Company. The Trustee and the Paying Agent
------------------------
shall promptly pay to the Company upon written request any excess money or
securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided that the Company shall have either caused notice of
--------
such payment to be mailed to each Holder of the Senior Notes entitled thereto no
less than 30 days prior to such repayment or within such period shall have
published such notice in a financial newspaper of widespread circulation
published in The City of New York, including, without limitation, The Wall
Street Journal. After payment to the Company, Holders entitled to the money
must look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
SECTION 11.04 Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money or U.S. Government Obligations in accordance with Section 11.01
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's and Guarantors' obligations under this
Indenture, the Senior Notes and the Senior Note Guarantees, if any, shall be
revived and reinstated as though no deposit has occurred pursuant to Section
11.01 until such time as the Trustee or Paying Agent is permitted to apply all
such money or U.S. Government Obligations in accordance with Section 11.02;
provided that if the Company or the Guarantors have made any payment of interest
- --------
on or principal of any Senior Notes because of the reinstatement of their
obligations, the Company or such Guarantors shall be subrogated to the rights
of the Holders of such Senior Notes to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE XII
MISCELLANEOUS
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SECTION 12.01. Trust Indenture Act Controls. If and to the extent that any
----------------------------
provision of this Indenture limits, qualifies or conflicts with the duties
imposed by, or with another provision (an "incorporated provision") included in
this Indenture by operation of, Sections 310 to 318, inclusive, of the Trust
Indenture Act, such imposed duties or incorporated provision shall control. If
any provisions of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or excluded, as the case may
be.
SECTION 12.02. Notices. Any notice or communication shall be in writing
-------
and delivered in person or mailed by first class mail, postage prepaid,
addressed as follows: if to the Company: United USN, Inc., 10 South Riverside
Plaza, Suite 410, Chicago, Illinois 60606-3709, Attention: Ronald W. Gavillet,
with a copy to Skadden, Arps, Slate, Meagher & Flom, 333 West Wacker Drive,
Chicago, Illinois 60606, Attention: Gary P. Cullen; if to the Trustee: Harris
Trust and Savings Bank, 311 West Monroe, Chicago, Illinois 60606, Attention:
Indenture Trustee Administration.
The Company or the Trustee, by notice to the other, many designate
additional or different addresses for subsequent notices or communications. Any
notice or communication mailed to a Holder shall be sent to the Holder by first
class mail, postage prepaid, at the Holder's address as it appears in the
Security Register and shall be duly given if so sent within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed to the Company, the Trustee or a Holder in the manner
provided above, it is duly given, whether or not the addressee receives it, but
shall not be effective in the case of the Trustee unless it is actually
received. In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give notice by mail to
Holders, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose hereunder.
SECTION 12.03. Certificate and Opinion as to Conditions Precedent. Upon
--------------------------------------------------
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee: (a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and (b) an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
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SECTION 12.04. Statements Required in Certificate or Opinion. Each
----------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture (other than pursuant to Section 4.19 hereof)
shall include: (a) a statement that the individual making such certificate or
opinion has read such covenant or condition; (b) 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; (c) a statement
that, in the opinion of such individual, such person has made such examination
or investigation as is necessary to enable such person to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and (d) a statement as to whether or not, in the opinion of such individual,
such covenant or condition has been complied with.
SECTION 12.05. Communications by Holders with Other Holders. Holders may
--------------------------------------------
communicate pursuant to Section 312(b) of the Trust Indenture Act with other
Holders with respect to their rights under this Indenture or the Senior Notes.
The Company, the Guarantors, the Trustee, the Registrar and anyone else shall
have the protection of Section 312(c) of the Trust Indenture Act.
SECTION 12.06. Rules by Trustee, Paying Agent and Registrar. The Trustee
--------------------------------------------
may make reasonable rules for action by or a meeting of Holders, and any
Registrar and Paying Agent may make reasonable rules for their functions;
provided that no such rule shall conflict with terms of this Indenture or the
- --------
Trust Indenture Act.
SECTION 12.07. Payments on Business Days. If a payment hereunder is
-------------------------
scheduled to be made on a date that is not a Business Day, payment shall be
made on the next succeeding date that is a Business Day, and no interest shall
accrue with respect to that payment during the intervening period. If a regular
record date is a date that is not a Business Day, such record date shall not be
affected.
SECTION 12.08. Governing Law. THIS INDENTURE AND THE SENIOR NOTES SHALL
-------------
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, EXCEPT WITH REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
SECTION 12.09. No Recourse Against Others. No director, officer,
--------------------------
employer, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Senior Notes or this
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of its status as a director,
officer, employee, incorporator or stockholder of the Company. By accepting a
Senior Note, each Holder waives and releases all such
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liability (but only such liability) as part of the consideration for issuance of
such Senior Note to such Holder.
SECTION 12.10. Successors. All agreements of the Company in this
----------
Indenture and the Senior Notes shall bind its successors and assigns whether so
expressed or not. All agreements of the Trustee in this Indenture shall bind its
successors and assigns whether so expressed or not.
SECTION 12.11. Counterparts. This Indenture may be executed in any number
------------
of counterparts and by the parties thereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 12.12. Table of Contents; Headings. The table of contents, cross-
---------------------------
reference table and headings of the Articles and Sections of this Indenture have
been inserted for convenience of reference only, are not intended to be
considered a part hereof and shall not modify or restrict any of the terms or
provisions hereof.
SECTION 12.13. Severability. In case any provision in this Indenture
------------
or in Senior Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 12.14. 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 12.15. Independent Covenants. Each covenant contained in this
---------------------
Indenture is intended by the parties to be a separate and independent covenant,
the compliance or noncompliance with such to be determined independently and
without regard to whether the Company or a Restricted Subsidiary is in
compliance with another covenant contained in this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
UNITED USN, INC.
By____________________________________
Name: J. Thomas Elliott
Title: President,
Chief Executive Officer
and Chief Operating Officer
[Corporate Seal]
Attest
__________________________
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By____________________________________
Name:
Title:
[Corporate Seal]
Attest
__________________________
115
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of September, 1996, before me personally came J. Thomas
Elliott, to me known, who being by me duly sworn, did depose and say that he is
President, Chief Executive Officer and Chief Operating Officer of United USN,
Inc., one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
__________________________________________
Notary Public
State of New York
My commission expires
[Seal]
116
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of September, 1996, before me personally came Joseph
McFadden, to me known, who being by me duly sworn, did depose and say that he is
Vice President of Harris Trust and Savings Bank, the Trustee described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
_____________________________________________
Notary Public
State of New York
My commission expires
[Seal]
117
<PAGE>
EXHIBIT 4.2
FORM OF FACE OF EXCHANGE GLOBAL SENIOR NOTE
-------------------------------------------
UNITED USN, INC.
No._________ CUSIP No. _________
14% SENIOR DISCOUNT NOTE DUE 2003
THIS SENIOR NOTE IS A GLOBAL SENIOR NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO UNITED USN, INC. OR THE REGISTRAR FOR REGISTRATION
OF TRANSFER OR EXCHANGE AND ANY SENIOR NOTE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFER OF THIS GLOBAL SENIOR NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND
NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS GLOBAL
SENIOR NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE, DATED AS OF SEPTEMBER
30, 1996, BETWEEN UNITED USN, INC. AND THE TRUSTEE NAMED THEREIN, PURSUANT TO
WHICH THIS SENIOR NOTE WAS ISSUED.
GLOBAL SENIOR NOTE
REPRESENTING 14% SENIOR DISCOUNT NOTES DUE 2003
UNITED USN, INC., a Delaware corporation, for value received, hereby
promises to pay to CEDE & CO., or its registered assigns, the principal sum
indicated on Schedule A hereof, on September 30, 2003.
Reference is hereby made to the further provisions of this Global Senior
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
<PAGE>
Unless the certificate of authentication hereon has been duly executed by
the Trustee referred to on the reverse hereof by manual signature, this Global
Senior Note shall not be entitled to any benefit under the Indenture relating to
the Senior Notes or be valid or obligatory for any purposes.
IN WITNESS WHEREOF, the Company has caused this Global Senior Note to be
duly executed under its corporate seal.
Dated:
UNITED USN, INC.
By:___________________________________
Name:
Title:
[Corporate Seal]
Attest:
- ----------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
HARRIS TRUST AND SAVINGS BANK,
as Trustee, certifies that this is one
of the Senior Notes referred to in the Indenture.
By:____________________________________
Authorized Officer
2
<PAGE>
FORM OF REVERSE SIDE OF EXCHANGE GLOBAL SENIOR NOTE
---------------------------------------------------
UNITED USN, INC.
GLOBAL SENIOR NOTE
REPRESENTING 14% SENIOR DISCOUNT NOTES DUE 2003
1. Indenture.
---------
This Senior Note is one of one or more duly authorized issues of debt
securities of the Company (as defined below) designated as its "14% Senior
Discount Notes due 2003" (herein called the "Senior Notes") limited in aggregate
principal amount at Stated Maturity to $137,000,000 issued under an indenture
dated as of September 30, 1996 (as amended or supplemented from time to time,
the "Indenture") between the Company and HARRIS TRUST AND SAVINGS BANK, as
trustee (the "Trustee," which term includes any successor Trustee under the
Indenture), to which Indenture reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and each Holder of Senior Notes and of the terms upon
which the Senior Notes are, and are to be, authenticated and delivered. The
summary of the terms of this Global Senior Note contained herein does not
purport to be complete and is qualified by reference to the Indenture. All terms
used in this Global Senior Note which are not defined herein shall have the
meanings assigned to them in the Indenture.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries to, among other things, make certain
Investments and other Restricted Payments, pay dividends and other
distributions, incur Indebtedness, enter into or permit consensual restrictions
upon the payment of certain dividends and distributions by such Restricted
Subsidiaries, enter into or permit certain transactions with Affiliates, create
Liens, enter into or permit certain Sale and Leaseback Transactions, make Asset
Sales and engage in businesses other than the Telecommunications Business. The
Indenture also imposes limitations on the ability of the Company to consolidate
or merge with or into any other Person or permit any other Person to merge with
or into the Company, or sell, convey, assign, transfer, lease or otherwise
dispose of all or substantially all of the Property of the Company to any other
Person and on the ability of the Company's Restricted Subsidiaries to issue
Capital Stock.
3
<PAGE>
2. Principal and Interest.
----------------------
UNITED USN, INC., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay the principal amount set forth on
Schedule A of this Senior Note to the Holder hereof on September 30, 2003.
This Senior Note is issued at a discounted principal value of
$30,203,375. This Senior Note will accrete in value in the manner specified
below in this paragraph at a rate of 14% per annum, compounded semiannually,
--- -----
to an aggregate principal amount of $48,500,000 by March 30, 2000. Thereafter,
interest will accrue on this Senior Note at a rate of 14% per annum, from
--- -----
March 30, 2000 and will be payable in cash semiannually on March 30, and
September 30 of each year (an "Interest Payment Date"), commencing on September
30, 2000, to the Holder hereof until the principal amount hereof is paid or made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, subject to certain exceptions
provided in the Indenture, be paid to the Person in whose name this Global
Senior Note (or the Senior Note in exchange or substitution for which this
Global Senior Note was issued) is registered at the close of business on the
Record Date for the interest payable on such Interest Payment Date. The Record
Date for any interest payment is the close of business on March 15 or September
15, as the case may be, whether or not a Business Day, immediately preceding the
Interest Payment Date on which such interest is payable. Any such interest not
so punctually paid or duly provided for ("Defaulted Interest") shall forthwith
cease to be payable to the Holder on such Record Date and shall be paid as
provided in Section 2.11 of the Indenture. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
Each payment of interest in respect of an Interest Payment Date will
include interest (including Special Interest, if any) accrued through the day
before such Interest Payment Date. If an Interest Payment Date falls on a day
that is not a Business Day, the interest payment to be made on such Interest
Payment Date will be made on the next succeeding Business Day with the same
force and effect as if made on such Interest Payment Date, and no additional
interest will accrue as a result of such delayed payment.
If this Global Senior Note was issued in exchange for an Initial
Senior Note pursuant to a Registered Exchange Offer on
4
<PAGE>
or prior to the Record Date for the first Interest Payment Date following such
exchange, accrued and unpaid interest, if any, on the equivalent principal
amount of the Initial Senior Note or Initial Senior Notes in exchange for which
this Global Senior Note was issued, up to but not including the date of issuance
of this Global Senior Note, shall be paid on the first Interest Payment Date for
this Global Senior Note to the Holder of this Senior Note on the first Record
Date with respect to this Global Senior Note. If this Global Senior Note was
issued pursuant to a Registered Exchange Offer subsequent to the Record Date for
the first Interest Payment Date following such exchange but on or prior to such
Interest Payment Date, then any accrued and unpaid interest with respect to the
equivalent principal amount of the Initial Senior Note or Initial Senior Notes
in exchange for which this Global Senior Note was issued and any accrued and
unpaid interest on this Senior Note through the day before such Interest Payment
Date shall be paid on such Interest Payment Date to the Holder of such Initial
Senior Note on such Record Date. Any accretion of value with respect to the
equivalent principal amount of the Initial Senior Note or Initial Senior Notes
in exchange for which this Global Senior Note was issued, up to but not
including the date of issuance of this Global Senior Note, shall be included as
Accreted Value with respect to this Global Senior Note.
To the extent lawful, the Company shall pay interest on (i) if prior
to March 30, 2000, any overdue Accreted Value of (and premium, if any, on) this
Global Senior Note or if on or after March 30, 2000, any overdue principal of
(and premium, if any, on) this Global Senior Note, at the interest rate borne on
this Global Senior Note plus 1% per annum, and (ii) Defaulted Interest (without
--- -----
regard to any applicable grace period), at the same rate. The Company's
obligation pursuant to the previous sentence shall apply whether such overdue
amount is due at its Stated Maturity, as a result of the Company's obligations
pursuant to Section 3.05, Section 4.07 or Section 4.08 of the Indenture, or
otherwise.
"Accreted Value" is defined in the Indenture to mean, for any
Specified Date, the amount provided below for each $1,000 principal amount at
Stated Maturity of the Senior Notes:
(a) if the Specified Date occurs on one of the following dates (each
a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
5
<PAGE>
<TABLE>
<CAPTION>
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
<S> <C>
March 30, 1997........................... $ 666.34
September 30, 1997....................... 712.99
March 30, 1998........................... 762.90
September 30, 1998....................... 816.30
March 30, 1999........................... 873.44
September 30, 1999....................... 934.58
March 30, 2000........................... 1000.00
</TABLE>
(b) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (i) $622.75 and (ii) an
amount equal to the product of (A) the Accreted Value for the first Semi-
Annual Accrual Date less the original issue price multiplied by (B) a
fraction, the numerator of which is the number of days from the Issue Date
to the Specified Date, using a 360-day year of twelve 30-day months, and
the denominator of which is the number of days elapsed from the Issue Date
to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-
day months;
(c) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (i) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(ii) an amount equal to the product of (A) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (B) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(d) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
3. Method of Payment.
-----------------
The Company, through the Paying Agent, shall pay interest on this
Global Senior Note to the registered Holder of this Global Senior Note, as
provided above. The Holder must surrender this Global Senior Note to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States of America that at the time of
6
<PAGE>
payment is legal tender for payment of all debts public and private. Principal
and interest will be payable at the office of the Paying Agent but, at the
option of the Company, interest may be paid by check mailed to the registered
Holders at their registered addresses.
4. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as Paying Agent and Registrar under
the Indenture. The Company may, upon written notice to the Trustee, appoint and
change any Paying Agent or Registrar. The Company or any of its subsidiaries may
act as Paying Agent or Registrar.
5. Optional Redemption.
-------------------
The Senior Notes will not be redeemable at the option of the Company
prior to September 30, 2001, subject to provisions of the following paragraph.
Thereafter, the Senior Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the Redemption Prices (expressed as percentages of principal amount
at Stated Maturity thereof) set forth below, plus accrued and unpaid interest
(if any) and Special Interest (if any), if redeemed during the twelve months
beginning September 30 of each year indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 109.0%
2002 104.5%
</TABLE>
Notwithstanding the foregoing, in the event that on or prior to September
30, 1999, the Company consummates one or more Public Equity Offerings of its
Common Stock or issues or sells Qualified Stock of the Company to a Strategic
Investor, in each case in an aggregate amount equal to or exceeding $40,000,000,
up to a maximum of 25 percent of the aggregate principal amount at Stated
Maturity of the Senior Notes will be redeemable at the option of the Company out
of the net proceeds of such sale or sales to the extent that such proceeds
consist of cash or cash equivalents. Such Senior Notes will be redeemable on not
less than 30 nor more than 60 days' prior notice at a Redemption Price equal to
114 percent of the Accreted Value amount of the Senior Notes to be redeemed on
the Redemption Date plus accrued and unpaid interest, if any, and Special
Interest, if any, to the Redemption Date. Any such redemption shall occur within
90 days after (but not before)
7
<PAGE>
such sale or last such sale in the case of a series of related transactions;
provided that immediately after giving effect to such redemption not less than
- --------
75% of the aggregate principal amount at Stated Maturity of the Senior Notes
originally issued remain outstanding.
6. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall send a notice of redemption, first-class mail, postage
prepaid, to Holders of Senior Notes to be redeemed at the addresses of such
Holders as they appear in the Security Register.
If less than all of the Senior Notes are to be redeemed at any time,
the Senior Notes to be redeemed will be chosen by the Trustee in accordance with
the Indenture. If any Senior Note is redeemed subsequent to a Record Date with
respect to any Interest Payment Date specified above and on or prior to such
Interest Payment Date, then any accrued interest (including Special Interest, if
any) will be paid on such Interest Payment Date to the Holder of the Senior Note
at the close of business on such Record Date. If money in amount sufficient to
pay the Redemption Price plus accrued and unpaid interest and Special Interest,
if any, to such Redemption Date of all Senior Notes (or portions thereof) to be
redeemed on the Redemption Date is deposited with the Paying Agent on or before
the applicable Redemption Date and certain other conditions are satisfied,
interest (including Special Interest, if any) on the Senior Notes to be redeemed
on the applicable Redemption Date will cease to accrue or such Senior Notes will
cease to accrete in value, as the case may be.
The Senior Notes are not subject to any sinking fund.
7. Repurchase at the Option of Holders upon Change of Control.
----------------------------------------------------------
Upon the occurrence of a Change of Control, each Holder of Senior
Notes shall have the right to require the Company to purchase such Holder's
Senior Notes, in whole or in part in a principal amount that is an integral
multiple of $1,000, pursuant to a Change of Control Offer, at a purchase price
in cash equal to 101% of the Accreted Value of such Senior Notes (or portions
thereof) on any Change of Control Payment Date occurring prior to March 30,
2000, plus accrued and unpaid interest, if any, and Special Interest, if any, to
such Change of Control Payment Date,
8
<PAGE>
or 101% of the principal amount at Stated Maturity of such Senior Notes (or
portions thereof) on any Change of Control Payment Date occurring on or after
March 30, 2000, plus accrued and unpaid interest, if any, and Special Interest,
if any, to such Change of Control Payment Date.
Within 30 days following any Change of Control, the Company shall
send, or cause to be sent, by first-class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder of Senior Notes. The Holder
of this Global Senior Note may elect to have this Global Senior Note or a
portion hereof in an authorized denomination purchased by completing the form
entitled "Option of Holder to Require Purchase" appearing below and tendering
this Global Senior Note pursuant to the Change of Control Offer. Unless the
Company defaults in the payment of the Change of Control Purchase Price with
respect thereto, all Senior Notes or portions thereof accepted for payment
pursuant to the Change of Control Offer will cease to accrete in value or accrue
interest, as the case may be, and accrue Special Interest, if any, from and
after the Change of Control Payment Date.
8. Repurchase at the Option of Holders upon Asset Sale.
---------------------------------------------------
If at any time the Company or any Restricted Subsidiary engages in any
Asset Sale, as a result of which the aggregate amount of Excess Proceeds exceeds
$5,000,000, the Company shall, within 30 days of the date the amount of Excess
Proceeds exceeds $5,000,000, use the then-existing Excess Proceeds to make an
offer to purchase from all Holders, on a pro rata basis, Senior Notes in an
--- ----
aggregate principal amount equal to the maximum principal amount that may be
purchased out of the then-existing Excess Proceeds, at a purchase price in cash
equal to 100% of the Accreted Value of such Senior Notes on any Asset Sale
Payment Date occurring prior to March 30, 2000, plus accrued and unpaid
interest, if any, and Special Interest, if any, to such Asset Sale Payment Date,
or 100% of the principal amount at Stated Maturity of such Senior Notes on any
Asset Sale Payment Date occurring on or after March 30, 2000, plus accrued and
unpaid interest, if any, and Special Interest, if any, thereon to such Asset
Sale Payment Date. Upon completion of an Asset Sale Offer (including payment of
the Asset Sale Purchase Price for accepted Senior Notes), any surplus Excess
Proceeds that were the subject of such offer shall cease to be Excess Proceeds,
and the Company may then use such amounts for general corporate purposes,
including the making of an "Asset Sale Offer" pursuant to the Convertible Note
Indenture.
9
<PAGE>
Within 30 days of the date on which the amount of Excess Proceeds
exceeds $5,000,000, the Company shall send, or cause to be sent, by first-class
mail, postage prepaid, a notice regarding the Asset Sale Offer to each Holder of
Senior Notes. The Holder of this Global Senior Note may elect to have this
Senior Note or a portion hereof in an authorized denomination purchased by
completing the form entitled "Option of Holder to Require Purchase" appearing
below and tendering this Senior Note pursuant to the Asset Sale Offer. Unless
the Company defaults in the payment of the Asset Sale Purchase Price with
respect thereto, all Senior Notes or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrete in value or accrue
interest, as the case may be, and accrue Special Interest, if any, from and
after the Asset Sale Payment Date.
9. The Global Senior Note.
----------------------
So long as this Global Senior Note is registered in the name of the
Depositary or its nominee, members of, or participants in the Depositary
("Agent Members") shall have no rights under the Indenture with respect to this
Global Senior Note held on their behalf by the Depositary or the Trustee as its
custodian, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of this Global
Senior Note for all purposes. Notwithstanding the foregoing, nothing herein
shall (i) prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or (ii) impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of Senior Notes.
The Holder of this Global Senior Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Senior Note through Agent Members, to take any action
which a Holder of Senior Notes is entitled to take under the Indenture or the
Senior Notes.
Whenever, as a result of optional redemption by the Company, a Change
of Control Offer, an Asset Sale Offer or an exchange for Certificated Senior
Notes, this Global Senior Note is redeemed, repurchased or exchanged in part,
this Global Senior Note shall be surrendered by the Holder thereof to the
Trustee who shall cause an adjustment to be made to Schedule A hereof so that
the principal amount of this Global Senior Note will be
10
<PAGE>
equal to the portion not redeemed, repurchased or exchanged and shall thereafter
return this Global Senior Note to such Holder; provided that this Global Senior
--------
Note shall be in a principal amount of $1,000 or an integral multiple of $1,000.
10. Transfer and Exchange.
---------------------
The Holder of this Global Senior Note shall, by acceptance of this
Global Senior Note, agree that transfers of beneficial interests in this Global
Senior Note may be effected only through a book entry system maintained by such
Holder (or its agent), and that ownership of a beneficial interest in the Senior
Notes represented thereby shall be required to be reflected in book entry form.
Transfers of this Global Senior Note shall be limited to transfers in
whole, and not in part, to the Depositary, its successors and their respective
nominees. Interests of beneficial owners in this Global Senior Note may be
transferred in accordance with the rules and procedures of the Depositary (or
its successors).
This Global Senior Note will be exchanged by the Company for one or
more Certificated Senior Notes if (a) the Depositary (i) has notified the
Company that it is unwilling or unable to continue as, or ceases to be, a
clearing agency registered under Section 17A of the Exchange Act and (ii) a
successor to the Depositary registered as a clearing agency under Section 17A of
the Exchange Act is not able to be appointed by the Company within 90 days or
(b) the Depositary is at any time unwilling or unable to continue as Depositary
and a successor to the Depositary is not able to be appointed by the Company
within 90 days. If an Event of Default occurs and is continuing, the Company
shall, at the request of the Holder hereof, exchange all or part of this Global
Senior Note for one or more Certificated Senior Notes; provided that the
--------
principal amount of each of such Certificated Senior Notes and this Global
Senior Note after such exchange, shall be $1,000 or an integral multiple
thereof. Whenever this Global Senior Note, is exchanged as a whole for one or
more Certificated Senior Notes, it shall be surrendered by the Holder to the
Trustee for cancellation. Whenever this Global Senior Note is exchanged in part
for one or more Certificated Senior Notes, it shall be surrendered by the Holder
to the Trustee and the Trustee shall make the appropriate notations thereon
pursuant to Section 2.05(c) of the Indenture. All Certificated Senior Notes
issued in exchange for this Global Senior Note or any portion hereof shall be
registered in such
11
<PAGE>
names as the Depositary shall instruct the Trustee. Any Certificated Senior
Notes issued in exchange for this Global Senior Note shall include the Unit
Legend except as set forth in Section 2.06(k) of the Indenture. Interests in
this Global Senior Note may not be exchanged for Certificated Senior Notes other
than as provided in this paragraph.
11. Senior Note Contingent Warrants.
-------------------------------
The Company will issue to the Holders of the Senior Notes Senior Note
Contingent Warrants exercisable for Class A Common Stock of the Company
representing 3.0% of the Common Stock of the Company on a fully diluted basis
(subject to certain exceptions) as of the date of issuance of such Senior Note
Contingent Warrants after giving effect to the issuance thereof in the event
that on or prior to March 30, 1998 the Company has not (i) consummated a
Qualified Public Offering or (ii) been sold pursuant to a Qualified Sale of the
Company. Such Senior Note Contingent Warrants will be issued pursuant to the
Warrant Agreement with the same rights thereunder as the Initial Warrants and
Holders thereof will have the benefits of the Registration Rights Agreement.
Any Senior Note Contingent Warrants issued shall be issued to the
Holders of the outstanding Senior Notes as of March 30, 1998, pro rata, based
upon the aggregate principal amount of the Senior Notes held by such Holder as
of March 30, 1998.
12. Senior Note Guarantees.
----------------------
The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to guarantee any Indebtedness of the Company
("Guaranteed Indebtedness") other than the Senior Notes, unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Senior Note Guarantee (a "Senior Note
Guarantee") of payment of this Senior Note by such Restricted Subsidiary and
(ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary of the Company as a result of any payment by such
Restricted Subsidiary under its Senior Note Guarantee, provided that any
--------
Restricted Subsidiary may guarantee any Credit Facility so long as such
Restricted Subsidiary enters into a Senior Note Guarantee ranking pari passu
---- -----
with its guarantee under such Credit Facility. If the Guaranteed Indebtedness
is pari passu with the
---- -----
12
<PAGE>
Senior Notes, then the guarantee of such Guaranteed Indebtedness shall be pari
----
passu with or subordinated to the Senior Note Guarantee; and if the Guaranteed
- -----
Indebtedness is subordinated to the Senior Notes, then the guarantee of such
Guaranteed Indebtedness shall be subordinated to the Senior Note Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to this
Senior Note. Notwithstanding the provisions of Section 4.10(a) of the
Indenture, any Senior Note Guarantee by a Restricted Subsidiary shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon the release or discharge of the guarantee which resulted in the
creation of such Restricted Subsidiary's Senior Note Guarantee, except a
discharge or release by, or as a result of, payment under such guarantee.
13. Denominations.
-------------
The Senior Notes are issuable only in registered form without coupons
in denominations of $1,000 and integral multiples thereof of principal amount.
14. Unclaimed Money.
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment unless such abandoned property
law designates another Person.
15. Discharge and Defeasance.
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Senior Notes and the Indenture if the
Company irrevocably deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest (including Special
Interest, if any) on the Senior Notes to redemption or maturity, as the case may
be.
16. Amendment, Waiver.
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Senior Notes may be amended with the written consent of the
Holders of at least a majority in aggregate principal amount of the outstanding
Senior Notes and (ii) any past Default and its consequences may be waived with
the
13
<PAGE>
written consent of the Holders of at least a majority in aggregate principal
amount of the outstanding Senior Notes. The Holders of not less than 75% in
aggregate principal amount at Stated Maturity of the outstanding Senior Notes
may, on behalf of the Holders of all such Senior Notes, waive any right to
require the Company to issue to the Holders of the Senior Notes Senior Note
Contingent Warrants. Subject to certain exceptions set forth in the Indenture,
without the consent of any Holder of Senior Notes, the Company and the Trustee
may amend the Indenture or the Senior Notes (i) to evidence the succession of
another Person to the Company or a Guarantor and the assumption by such
successor of the covenants of the Company or a Guarantor under the Indenture and
contained in the Senior Notes; (ii) to add additional covenants or to surrender
rights and powers conferred on the Company or the Guarantors, if any; (iii) to
add any additional Events of Default; (iv) to provide for uncertificated Senior
Notes in addition to or in place of Certificated Senior Notes; (v) to evidence
and provide for the acceptance of appointment under the Indenture of a
successor Trustee; (vi) to cure any ambiguity in the Indenture, to correct or
supplement any provision in the Indenture which may be inconsistent with any
other provision therein or to add any other provisions with respect to matters
or questions arising under the Indenture, provided that such actions shall not
--------
adversely affect the interests of the Holders in any material respect; (vii) to
provide for Restricted Subsidiaries to become Guarantors pursuant to the terms
of the Indenture; (viii) to secure the Senior Notes; or (ix) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount at Stated Maturity of the
Senior Notes, subject to certain limitations, may declare all the Senior Notes
to be immediately due and payable. Certain events of bankruptcy or insolvency
are Events of Default and shall result in the Senior Notes being immediately due
and payable upon the occurrence of such Events of Default without any further
act of the Trustee or any Holder.
Holders of Senior Notes may not enforce the Indenture, the Senior Note
Guarantees or the Senior Notes except as provided in the Indenture. The Trustee
may refuse to enforce the Indenture, the Senior Note Guarantees or the Senior
Notes unless it receives reasonable indemnity or security. Subject to certain
14
<PAGE>
limitations, Holders of a majority in aggregate principal amount at Stated
Maturity of the Senior Notes may direct the Trustee in its exercise of any trust
or power under the Indenture. The Holders of a majority in aggregate principal
amount at Stated Maturity of the outstanding Senior Notes, by written notice to
the Company and the Trustee, may rescind any declaration of acceleration and its
consequences if the rescission would not conflict with any judgment or decree,
and if all Events of Default have been cured or waived except nonpayment of
principal and interest that has become due solely because of the acceleration.
15
<PAGE>
18. Individual Rights of Trustee.
----------------------------
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee or any Paying Agent or Registrar, in its individual or any other
capacity, may become the owner or pledgee of Senior Notes and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee, Paying Agent or Registrar, as the case may be, under the Indenture.
19. No Recourse Against Certain Others.
----------------------------------
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Senior Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation, solely by reason of its
status as a director, officer, employee, incorporator or stockholder of the
Company. By accepting a Senior Note, each Holder waives and releases all such
liability (but only such liability) as part of the consideration for issuance of
such Senior Note to such Holder.
20. Governing Law.
-------------
THE INDENTURE AND THIS GLOBAL SENIOR NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT WITH
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder of Senior Notes upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Global Senior Note. Requests may be made to:
UNITED USN, INC.
10 South Riverside Plaza
Suite 410
Chicago, Illinois 60606-3709
Attention: _________
16
<PAGE>
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
----------------------------
The initial principal amount at Stated Maturity of this Global Senior Note shall
be $__________. The following decreases/increases in the principal amount at
maturity of this Global Senior Note have been made:
<TABLE>
<CAPTION>
Total Principal
Amount at
Decrease in Increase in Maturity Notation
Date of Principal Principal Following Made by or
Decrease/ Amount at Amount at such Decrease/ on Behalf
Increase Maturity Maturity Increase of Trustee
- -------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
___________ __________ __________ _________ _________
</TABLE>
17
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Global Senior Note)
FOR VALUE RECEIVED _____________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
[ ] _______________________________________________________
_______________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Global Senior Note, together with all right, title and interest herein, and
does hereby irrevocably constitute and appoint ___________________ Attorney to
transfer this Global Senior Note on the Security Register, with full power of
substitution.
Dated:_______________
- -------------------------- -------------------------------------
Signature of Holder Signature Guaranteed:
Commercial Bank or Trust Company
or Member Firm of the New York
Stock Exchange, Inc.
NOTICE: The signature to the foregoing Assignment must correspond to the Name
as written upon the face of this Global Senior Note in every particular, without
alteration or any change whatsoever.
18
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
[ ] In connection with the Change of Control Offer made pursuant to Section
4.07 of the Indenture, the undersigned hereby elects to have
[ ] the entire principal amount at Stated Maturity
[ ] $_______________($1,000 in principal amount at Stated Maturity or an
integral multiple thereof) of this Global Senior Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or _________________ an amount in cash equal to 101%
of the Accreted Value with respect to the principal amount at Stated
Maturity indicated in the preceding sentence or the principal amount at
Stated Maturity indicated in the preceding sentence, as the case may be,
plus accrued and unpaid interest and Special Interest thereon, if any, to
the Change of Control Payment Date.
[ ] In connection with the Asset Sale Offer made pursuant to Section 4.08 of
the Indenture, the undersigned hereby elects to have
[ ] the entire principal amount at Stated Maturity
[ ] $_______________($1,000 in principal amount at Stated Maturity or an
integral multiple thereof) of this Global Senior Note
repurchased by the Company. The undersigned hereby directs the Trustee or
Paying Agent to pay it or _________________ an amount in cash equal to 101%
of the Accreted Value with respect to the principal amount at Stated
Maturity indicated in the preceding sentence or the principal amount at
Stated Maturity indicated in the preceding sentence, as the case
19
<PAGE>
may be, plus accrued and unpaid interest and Special Interest thereon, if
any, to the Asset Sale Payment Date.
Date: ___________
______________________________ __________________________________
Signature of Holder Signature Guaranteed:
Commercial Bank or Trust Company
or Member Firm of the New York
Stock Exchange, Inc.
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Global Senior Note in every particular, without alteration
or any change whatsoever.
20
<PAGE>
EXHIBIT 4.3
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of September 30, 1996
between
UNITED USN, INC.
and
SMITH BARNEY INC.
BT SECURITIES CORPORATION
CHASE SECURITIES INC.
CIBC WOOD GUNDY SECURITIES CORP.
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of September 30, 1996 by and between United USN, Inc., a
Delaware corporation (the "Company"), and Smith Barney Inc., BT Securities
-------
Corporation, Chase Securities Inc. and CIBC Wood Gundy Securities Corp.
(collectively, the "Initial Purchasers"), which have collectively agreed to
------------------
purchase pursuant to the Purchase Agreement (as defined herein) (i) 48,500 Units
(the "Units"), each Unit consisting of a 14% Senior Discount Note due 2003
-----
(each, a "Senior Note" and collectively, the "Senior Notes") and a warrant (each
----------- ------------
an "Initial Warrant" and collectively, the "Initial Warrants") to purchase an
--------------- ----------------
aggregate of 61,562 shares of Class A Common Stock of the Company, $.01 par
value per share (the "Class A Common Stock"), and (ii) $36,000,000 aggregate
--------------------
principal amount at maturity of 9% Convertible Subordinated Notes due 2004 (the
"Convertible Notes") which are convertible into shares of Class A Common Stock
-----------------
(the "Convertible Note Shares").
-----------------------
If the Company, on or prior to March 30, 1998, (i) does not consummate
a Qualified Public Offering (as defined in the Senior Note Indenture (as defined
herein)) or (ii) is not sold pursuant to a Qualified Sale of the Company (as
defined in the Senior Note Indenture), the Company will be obligated pursuant to
the Senior Note Indenture to issue to the Holders of Senior Notes warrants (the
"Senior Note Contingent Warrants") exercisable for Class A Common Stock. In
-------------------------------
addition, if the Company, on or prior to September 30, 1999, (i) does not
consummate a Qualified Public Offering (as defined in the Convertible Note
Indenture (as defined herein)) or (ii) is not sold pursuant to a Qualified Sale
of the Company (as defined in the Convertible Note Indenture), the Company will
be obligated pursuant to the Convertible Note Indenture to issue to the Holders
of the Convertible Notes warrants (the "Convertible Note Contingent Warrants")
------------------------------------
exercisable for Class A Common Stock. Under certain conditions, if the Company
has not consummated a Qualified Public Offering or a Qualified Sale of the
Company has not occurred by September 30, 1997, the Company will be required to
offer the Holders of Convertible Notes the right to acquire additional
convertible securities and warrants (the "Additional Warrants").
-------------------
This Agreement is made pursuant to the Purchase Agreement, dated
September 23, 1996 (the "Purchase Agreement"), by and between the Company and
------------------
the Initial Purchasers. In order to induce the Initial Purchasers to purchase
the Units and the Convertible Notes (together, the "Securities"), the Company
----------
has agreed to provide the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the obligations of
the Initial Purchasers set forth in Section 7 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
---
Business Day: Any day except a Saturday, Sunday or other day in The
------------
City of New York, or in the city of the corporate trust office of the applicable
Trustee, on which banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange
-------------
Act.
Broker-Dealer Transfer Restricted Senior Notes: Exchange Notes that
----------------------------------------------
are acquired by a Broker-Dealer in the Exchange Offer in substitution for Senior
Notes that such Broker-Dealer acquired
<PAGE>
for its own account as a result of market making activities or other trading
activities (other than Senior Notes acquired directly from the Company or any of
its affiliates).
Class A Common Stock: The Class A Common Stock, $.01 par value per
--------------------
share, of the Company.
Class B Common Stock: The Class B Common Stock, $.01 par value per
--------------------
share, of the Company.
Closing Date: September 30, 1996.
------------
Commission: The Securities and Exchange Commission.
----------
Common Stock: Together, the Class A Common Stock and the Class B
------------
Common Stock.
Consummate: An Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the
minimum period required pursuant to Section 3(b) hereof and (c) the delivery by
the Company to the Registrar under the Senior Note Indenture of Exchange Notes
in the same aggregate principal amount upon maturity as the aggregate principal
amount upon maturity, if any, of Senior Notes properly tendered by Holders
thereof pursuant to the Exchange Offer.
Contingent Warrants: Together, the Senior Note Contingent Warrants
-------------------
and the Convertible Note Contingent Warrants.
Convertible Note Indenture: The Indenture, dated as of the Closing
--------------------------
Date, between the Company and the Convertible Note Trustee, pursuant to which
the Convertible Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Convertible Note Registration Default: As defined in Section 5(b)
-------------------------------------
hereof.
Convertible Note Shares: The Class A Common Stock of the Company
-----------------------
issuable upon the conversion of the Convertible Notes.
Convertible Notes: As defined in the first paragraph of this
-----------------
Agreement.
Convertible Note Shares Shelf Registration Statement: As defined in
----------------------------------------------------
Section 4(e) hereof.
Convertible Note Shelf Registration Statement: As defined in Section
---------------------------------------------
4(d) hereof.
Convertible Note Trustee: Harris Trust and Savings Bank.
------------------------
Effectiveness Target Date: As defined in Section 5 and specified in
-------------------------
Sections 3 and 4.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission promulgated thereunder.
2
<PAGE>
Exchange Notes: The Company's 14% Senior Discount Notes due 2003 to
--------------
be issued pursuant to the Senior Note Indenture in the Exchange Offer.
Exchange Offer: The registration by the Company under the Act of the
--------------
Exchange Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Senior Notes the opportunity to exchange all such outstanding Transfer
Restricted Senior Notes, being the original evidence of indebtedness, for
Exchange Notes, as evidence of the same indebtedness in an aggregate principal
amount equal to the aggregate principal amount of the Transfer Restricted Senior
Notes properly tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer and the registration of Exchange Notes for sale
from time to time by the Market Makers pursuant to Section 4(h) hereof,
including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
--------------
propose to sell the Securities (i) to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act, (ii) to a limited number of
other institutional "accredited investors" (as defined in Rule 501(a)(1), (2),
(3) and (7) under Regulation D of the Act) ("Accredited Investors") in private
--------------------
sales exempt from registration under the Act and (iii) pursuant to an exemption
from registration under the Act provided by Rule 144 thereunder.
Holders: As defined in Section 2 hereof.
-------
Indemnified Holder: As defined in Section 8(a) hereof.
------------------
Indentures: Together, the Senior Note Indenture and the Convertible
----------
Note Indenture.
Interest Payment Date: As defined in the Indentures and the Notes.
---------------------
Market Makers: BT Securities Corporation, Chase Securities Inc. and
-------------
CIBC Wood Gundy Securities Corp.
NASD: National Association of Securities Dealers, Inc.
----
Notes: Together, the Senior Notes and the Convertible Notes.
-----
Offering Memorandum: The Offering Memorandum, dated September 23,
-------------------
1996, and all amendments and supplements thereto, relating to the Securities and
prepared by the Company pursuant to the Purchase Agreement.
Person: An individual, partnership, corporation, limited liability
------
company, trust, unincorporated organization or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement at
----------
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement, term sheet, abbreviated term sheet,
supplement with pricing related information and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
3
<PAGE>
Public Equity Offering: means an underwritten public offering of
----------------------
Capital Stock (other than Disqualified Stock) of the Company pursuant to an
effective registration statement filed under the Act.
Record Holder: With respect to any Special Interest Payment Date for
-------------
the Senior Notes, each Person who is a Holder of Senior Notes on the record date
with respect to the Interest Payment Date on which such Special Interest Payment
Date shall occur, and with respect to any Special Interest Payment Date for the
Convertible Notes, each Person who is a Holder of Convertible Notes on the
Record Date with respect to the Interest Payment Date on which such Special
Interest Payment Date shall occur.
Registration Statement: Any registration statement of the Company
----------------------
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
the sale of Exchange Notes from time to time by the Market Makers or (b) the
registration of Transfer Restricted Securities or Securities pursuant to a Shelf
Registration Statement, in any case, (i) which is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and materials incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer that holds Broker-Dealer
------------------------
Restricted Senior Notes.
Securities: As defined in the third paragraph of this Agreement.
----------
Senior Note Indenture: The Indenture, dated as of the Closing Date,
---------------------
between the Company and the Senior Note Trustee, pursuant to which the Senior
Notes and the Exchange Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Senior Note Registration Default: As defined in Section 5(a) hereof.
--------------------------------
Senior Note Shelf Registration Statement: As defined in Section 4(a)
----------------------------------------
hereof.
Senior Note Trustee: Harris Trust and Savings Bank.
-------------------
Shelf Registration Statement: The Convertible Note Shares Shelf
----------------------------
Registration Statement, the Convertible Note Shelf Registration Statement, the
Senior Note Shelf Registration Statement, the Warrant Shelf Registration
Statement and the Warrant Shares Shelf Registration Statement, as applicable.
Special Interest Payment Date: With respect to the Senior Notes or
-----------------------------
the Convertible Notes, each Interest Payment Date for such Senior Note or such
Convertible Note, respectively, if applicable.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
---
as in effect on the Closing Date.
Transfer Restricted Convertible Notes: Each Convertible Note, until
-------------------------------------
the earlier to occur of (a) the date on which such Convertible Note has been
effectively registered under the Act and disposed of in accordance with a
Convertible Note Shelf Registration Statement, (b) the date on which such
Convertible Note is distributed to the public pursuant to Rule 144 under the Act
and (c) the date on which such Convertible Note is converted into Class A Common
Stock or is otherwise not outstanding.
4
<PAGE>
Transfer Restricted Convertible Note Share: Each Convertible Note
------------------------------------------
Share, until the earlier to occur of (a) the date on which such Convertible Note
Share has been effectively registered under the Act and disposed of in
accordance with a Convertible Note Shares Shelf Registration Statement and (b)
the date on which such Convertible Note Share is distributed to the public
pursuant to Rule 144 under the Act.
Transfer Restricted Senior Notes: Each Senior Note, until the
--------------------------------
earliest to occur of (a) the date on which such Senior Note is replaced in the
Exchange Offer, (b) the date on which such Senior Note has been effectively
registered under the Act and disposed of in accordance with the Senior Note
Shelf Registration Statement and (c) the date on which such Senior Note is
distributed to the public pursuant to Rule 144 under the Act.
Transfer Restricted Securities: Together, Transfer Restricted Senior
------------------------------
Notes, Transfer Restricted Convertible Notes, Transfer Restricted Convertible
Note Shares, Transfer Restricted Warrants and Transfer Restricted Warrant
Shares.
Transfer Restricted Warrant Share: Each outstanding Warrant Share,
---------------------------------
until the earlier to occur of (a) the date on which such Warrant Share has been
effectively registered under the Act and disposed of in accordance with a
Warrant Shares Shelf Registration Statement and (b) the date on which such
Warrant Share is distributed to the public pursuant to Rule 144 under the Act.
Transfer Restricted Warrants: Each outstanding Warrant, until the
----------------------------
earlier to occur of (a) the date on which such Warrant has been effectively
registered under the Act and disposed of in accordance with a Warrant Shelf
Registration Statement and (b) the date on which such Warrant is distributed to
the public pursuant to Rule 144 under the Act.
Trustees: Together, the Senior Note Trustee and the Convertible Note
--------
Trustee.
Underwriter: Any underwriter, placement agent, selling broker, dealer
-----------
manager, qualified independent underwriter or similar securities industry
professional.
Underwritten Offering: An offering in which securities of the Company
---------------------
are sold by the applicable Holders to an underwriter for reoffering to the
public.
Units: As defined in the first paragraph of this Agreement.
-----
Warrant Agent: Harris Trust and Savings Bank.
-------------
Warrant Agreement: Warrant Agreement, dated the date hereof, by and
-----------------
between the Company and the Warrant Agent pursuant to which the Warrants are or
may be issued from time to time as such Warrant Agreement is amended or
supplemented from time to time in accordance with the terms thereof.
Warrants: Together, the Initial Warrants, the Contingent Warrants and
--------
the Additional Warrants.
Warrant Shares: The shares of Class A Common Stock of the Company
--------------
issuable upon the exercise of the Warrants.
Warrant Shelf Registration Statement: As defined in Section 4(b)
------------------------------------
hereof.
5
<PAGE>
Warrant Shares Shelf Registration Statement: As defined in Section
-------------------------------------------
4(c) hereof.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns of record Transfer Restricted
------
Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause to be filed with the Commission
within 60 days after the date of original issuance of the Senior Notes, the
Exchange Offer Registration Statement, (ii) use its best efforts to cause such
Exchange Offer Registration Statement to become effective under the Act within
120 days after the date of original issuance of the Senior Notes, (iii) in
connection with the foregoing, cause all necessary filings, if any, in
connection with the registration and qualification of the Exchange Notes to be
made under the Act and the Blue Sky laws of such jurisdictions as are necessary
to permit Consummation of the Exchange Offer (provided, however, that the
-------- -------
Company shall not be obligated to file in any jurisdiction in which they are not
so qualified or take any action which would subject them to general service of
process or taxation in any jurisdiction where it is not so subject), and (iv)
upon the effectiveness of such Exchange Offer Registration Statement, commence
and Consummate the Exchange Offer within 180 days (or longer if required by
applicable law) after the date of original issuance of the Senior Notes. Any
Senior Notes not tendered will remain outstanding and continue to accrete
interest or accrue interest, as the case may be, but will not retain any rights
under this Agreement. The Exchange Offer shall be on the appropriate form
permitting registration of the Exchange Notes to be offered in substitution for
the Senior Notes that are Transfer Restricted Senior Notes and to permit sales
of Broker-Dealer Transfer Restricted Senior Notes by Restricted Broker-Dealers
as contemplated by Section 3(c) below and the sale of Exchange Notes from time
to time by the Market Makers as contemplated by Section 12 hereof.
(b) The Company shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Transfer Restricted Senior Notes shall be included in the Exchange Offer
Registration Statement; provided that the Company may include in the Exchange
Offer Registration Statement additional notes issued pursuant to the Senior Note
Indenture. The Company shall use its best efforts to cause the Exchange Offer
to be Consummated within 180 days after the Closing Date.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any affiliate of the Company who holds Senior Notes or Restricted
Broker-Dealer who holds Senior Notes that are Transfer Restricted Senior Notes,
and that were acquired for the account of such Broker-Dealer as a result of
market-making activities or other trading activities, may acquire Exchange Notes
in substitution for such Senior Notes (other than Transfer Restricted Senior
Notes acquired directly from the Company) pursuant to the Exchange Offer;
provided, however, such Broker-Dealer may be deemed to be an "underwriter"
- -------- -------
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of each Exchange
Note received by such Broker-Dealer in the Exchange Offer, which prospectus
delivery requirement may be satisfied by the delivery by such Broker-Dealer of
the Prospectus contained in the Exchange Offer Registration Statement. Such
"Plan of Distribution" section shall also contain all other information with
respect to such sales of Broker-Dealer
6
<PAGE>
Transfer Restricted Senior Notes by Restricted Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Senior Notes held by any such Broker-Dealer except to the extent
required by the Commission.
Each Holder of Senior Notes (other than certain specified holders) who
wishes to acquire Exchange Notes, as substitute evidence of the indebtedness
originally evidenced by the Senior Notes, pursuant to the Exchange Offer, will
be required to represent that (i) it is not an affiliate of the Company, (ii)
any Exchange Notes to be received by it were acquired in the ordinary course of
its business and (iii) at the time of commencement of the Exchange Offer, it has
no arrangement with any person to participate in the distribution (within the
meaning of the Act) of the Exchange Notes.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(b) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Senior Notes by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least 20 business days (or longer if required by
applicable law) from the date on which the Exchange Offer is Consummated.
The Company shall promptly provide a reasonable number of copies of
the latest version of the Prospectus included in the Exchange Offer Registration
Statement to such Restricted Broker-Dealers upon request, and in no event later
than two days after such request, at any time during such 60-day period in order
to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Senior Note Shelf Registration. In the event that either (a) any
------------------------------
changes in law or applicable interpretations of the staff of the Commission do
not permit the Company to effect the Exchange Offer or, (b) the Exchange Offer
Registration Statement is not declared effective within 120 days following the
date of original issuance of the Senior Notes, then the Company shall cause to
be filed as promptly as practicable a shelf registration statement under the Act
(which may be an amendment to the Exchange Offer Registration Statement (the
"Senior Note Shelf Registration Statement")), relating to all Transfer
- ------------------------------------------
Restricted Senior Notes, the Holders of which shall have provided the
information required pursuant to Section 4(f) hereof, and shall use its best
efforts to cause such Senior Note Shelf Registration Statement to become
effective by the 180th day after the original issuance of the Senior Notes. The
Company shall use its best efforts to keep the Senior Note Shelf Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Senior Notes by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
three years after its effective date or such shorter period that will terminate
when all the Transfer Restricted Notes covered by such Shelf Registration
Statement have been sold pursuant to such Shelf Registration Statement or
otherwise.
(b) Warrant Shelf Registration: The Company shall cause to be filed
--------------------------
within 60 days after the date of original issuance of the Initial Warrants a
shelf registration statement under the Act (the "Warrant Shelf Registration
--------------------------
Statement"), relating to all Transfer Restricted Warrants, the Holders of which
- ---------
shall have provided the information required pursuant to Section 4(f) hereof,
and shall use its best
7
<PAGE>
efforts to cause such Warrant Shelf Registration Statement to become effective
under the Act within 120 days after the date of original issuance of the Initial
Warrants. The Company shall use its best efforts to keep the Warrant Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for sales of Transfer Restricted
Warrants by the Holders thereof entitled to the benefit of this Section 4(b),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, until the earlier of (i) such time as all Transfer Restricted Warrants
have been sold thereunder or otherwise or exercised and (ii) three years after
its effective date; provided, however, that (x) in the event the Company is
-------- -------
required to issue Contingent Warrants and/or Additional Warrants, as the case
may be, the Company shall amend the Warrant Shelf Registration Statement to
include such Contingent Warrants and/or Additional Warrants, (y) the Company may
include in the Warrant Shelf Registration Statement additional warrants issued
pursuant to the Warrant Agreement, and in the case of either (x) or (y), the
time period specified in this Section 4(b)(ii) shall be three years after the
issuance of such additional warrants pursuant to the Warrant Agreement,
Contingent Warrants and/or Additional Warrants.
(c) Warrant Shares Shelf Registration. The Company shall cause to be
---------------------------------
filed within 270 days after the date of original issuance of the Initial
Warrants a shelf registration statement under the Act (the "Warrant Shares Shelf
--------------------
Registration Statement"), relating to all Transfer Restricted Warrant Shares,
- ----------------------
the Holders of which shall have provided the information required pursuant to
Section 4(f) hereof, and shall use its best efforts to cause such Warrant Shares
Shelf Registration Statement to become effective under the Act within 360 days
after the date of original issuance of the Initial Warrants; provided, however,
-------- -------
that if prior to such 270th day, the Company shall file a Registration Statement
with respect to any Public Equity Offering, then the Company shall cause the
Warrant Shares Shelf Registration Statement to be filed on or prior to such date
and; provided, further that at the time such Registration Statement relating to
-------- -------
any such Public Equity Offering has been declared effective (the "IPO Effective
Date") the Company shall use its best efforts to cause such Warrant Shares Shelf
Registration Statement to become effective on the earlier of such 360th day and
the IPO Effective Date. The Company shall use its best efforts to keep the
Warrant Shares Shelf Registration Statement continuously effective, supplemented
and amended as required by the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Warrant Shares by the Holders thereof entitled to the benefit of this Section
4(c), and to ensure that it conforms with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, until the earlier of (i) such time as all Warrants have been
exercised or have expired either pursuant to the term thereof or as a result of
such Warrants becoming no longer issuable and (ii) eight years after the date on
which the Convertible Notes are issued or such shorter period that is the date
when all the Transfer Restricted Warrant Shares covered by such Warrant Shares
Shelf Registration Statement have been sold pursuant to such Warrant Shares
Shelf Registration Statement or otherwise.
(d) Convertible Note Shelf Registration. The Company shall cause to
-----------------------------------
be filed within 60 days after the date of original issuance of the Convertible
Notes a shelf registration statement under the Act (the "Convertible Note Shelf
----------------------
Registration Statement"), relating to all Transfer Restricted Convertible Notes,
- ----------------------
the Holders of which shall have provided the information required pursuant to
Section 4(f) hereof, and shall use its best efforts to cause such Convertible
Note Shelf Registration Statement to become effective under the Act within 120
days after the date of original issuance of the Convertible Notes. The Company
shall use its best efforts to keep the Convertible Note Shelf Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Convertible Notes by the
Holders thereof entitled to the benefit of this Section 4(d), and to ensure that
it conforms
8
<PAGE>
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, until the earlier
of (i) such time as all Convertible Notes have been sold thereunder or otherwise
or converted and (ii) three years after its effective date; provided, however,
-------- -------
that in the event the Company is required to issue additional Convertible Notes,
the Company shall amend the Convertible Note Shelf Registration Statement to
include such additional Convertible Notes and the time specified in this Section
4(d)(ii) shall be three years after the issuance of such additional Convertible
Notes.
(e) Convertible Note Shares Shelf Registration. The Company shall
------------------------------------------
cause to be filed within 60 days after the date of issuance of the Convertible
Notes a shelf registration statement under the Act (the "Convertible Note Shares
-----------------------
Shelf Registration Statement"), relating to all Transfer Restricted Convertible
- ----------------------------
Note Shares, the Holders of which shall have provided the information required
pursuant to Section 4(f) hereof, and shall use its best efforts to cause such
Convertible Note Shares Shelf Registration Statement to become effective under
the Act within 120 days after the date of original issuance of the Convertible
Notes. The Company shall use its best efforts to keep the Convertible Note
Shares Shelf Registration Statement continuously effective, supplemented and
amended as required by the provisions of Sections 6(b) and (c) hereof to the
extent necessary to ensure that it is available for sales of Transfer Restricted
Convertible Note Shares by the Holders thereof entitled to the benefit of this
Section 4(e), and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, until the earlier of (i) eight years following the
date on which the Convertible Notes are issued or (ii) such shorter period that
is the date when all the Transfer Restricted Convertible Note Shares covered by
such Convertible Note Shares Shelf Registration Statement have been sold
pursuant to such Convertible Note Shares Shelf Registration Statement or
otherwise.
(f) Provision by Holders of Certain Information in Connection with a
----------------------------------------------------------------
Shelf Registration Statement. A Holder of Transfer Restricted Securities may
- ----------------------------
not include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within ten (10) Business Days after receipt of a written
request therefor, such information specified in Item 507 of Regulation S-K under
the Act, and any other similar information reasonably requested by the Company,
for use in connection with any Shelf Registration Statement, Prospectus or
preliminary Prospectus included therein. Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading. A Holder of Notes shall not be entitled to receive Special Interest
pursuant to Section 5 to the extent that such Holder fails to comply with any
obligation under this subsection and the failure by such Holder to comply with
any obligation under this subsection and the failure by such Holder to comply
with such obligation is the sole reason for the accrual of Special Interest
pursuant to Section 5 hereof.
(g) Each Holder whose Transfer Restricted Securities are covered by a
Shelf Registration Statement filed pursuant to Section 4 agrees, upon the
request of the Underwriter(s) in any Underwritten Offering permitted pursuant to
this Agreement, not to effect any public sale or distribution of securities of
the Company of the same class as the Transfer Restricted Securities included in
such Shelf Registration Statement (except as part of such registration)
including a sale pursuant to Rule 144 under the Securities Act, during the 10-
day period prior to, and during the 120-day period (subject to Section 6(d)
hereof) beginning on, the closing date of any such Underwritten Offering made
pursuant to such Shelf Registration Statement, to the extent timely notified in
writing by the Company or such Underwriter(s).
9
<PAGE>
(h) Shelf Registration for Market Making. The Company shall (i)
------------------------------------
include in the Exchange Offer Registration Statement, the Convertible Note Shelf
Registration Statement, the Convertible Note Shares Shelf Registration
Statement, the Senior Note Shelf Registration Statement (if applicable), the
Warrant Shelf Registration Statement and the Warrant Shares Shelf Registration
Statement such disclosures as may be necessary to permit the Prospectus
contained in each such Registration Statement to be used in connection with
offers and sales by the Market Makers of the Exchange Notes and the Transfer
Restricted Securities and (ii) following the effectiveness of each such
Registration Statement, use its best efforts to keep each such Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Sections 6(b) and (c) hereof for the time periods specified in
Section 3 or 4 of this Agreement, as applicable, to the extent necessary to
ensure that it is available for sales of Exchange Notes and Transfer Restricted
Securities in connection with market making activities by the Market Makers
entitled to the benefit of this Section 4(h), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for so long as any
Shelf Registration Statement is required to be effective pursuant to this
Agreement and such Market Makers or any of their affiliates (as defined in the
rules and regulations of the Commission under the Act) own any equity securities
of the Company and propose to make a market in the Securities as part of their
business in the ordinary course.
SECTION 5. SPECIAL INTEREST
(a) Senior Notes:
------------
If (i) any Exchange Offer Registration Statement or Senior Note Shelf
Registration Statement required to be filed pursuant to this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Exchange Offer Registration Statement or Senior
Note Shelf Registration Statement has not been declared effective by the
Commission on or prior to the date specified for such effectiveness in this
Agreement (the "Effectiveness Target Date"), (iii) the Exchange Offer has not
-------------------------
been Consummated on or prior to the date specified in this Agreement, or (iv)
any Exchange Offer Registration Statement or Senior Note Shelf Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter within the time periods specified in Section 3 or 4 of this
Agreement, as applicable, cease to be effective or fail to be usable for its
intended purpose without being succeeded immediately by a post-effective
amendment to such Exchange Offer Registration Statement or Senior Note Shelf
Registration Statement that cures such failure and that is itself declared
effective for a period of more than 30 consecutive days (each such event
referred to in clauses (i) through (iv), a "Senior Note Registration Default"),
--------------------------------
then commencing on the day following the date on which such Senior Note
Registration Default occurs, the Company agrees to pay to each Holder of
Transfer Restricted Senior Notes during the first 90-day period immediately
following the occurrence of such Senior Note Registration Default additional
interest at the rate of 0.5% per annum ("Special Interest"). The amount of
Special Interest payable to each Holder shall increase by an additional 0.5% per
annum for each subsequent 90-day period up to a maximum rate of 1.5% per annum.
A Senior Note Registration Default shall cease, and Special Interest shall cease
to be payable with respect to such Senior Note Registration Default (1) upon the
filing of the applicable Exchange Offer Registration Statement or Senior Note
Shelf Registration Statement, in the case of clause (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement or Senior Note Shelf
Registration Statement, in the case of clause (ii) above, (3) upon the
Consummation of the Exchange Offer, in the case of (iii) above, and (4) when the
Exchange Offer Registration Statement or Senior Note Shelf Registration
Statement becomes effective or usable in the case of clause (iv) above.
Notwithstanding the foregoing to the contrary, (I) the amount of Special
Interest payable shall not increase because more than one Senior Note
Registration Default has occurred and is pending, (II) a Holder of Transfer
Restricted Senior Notes who is not entitled to the benefits of a Senior Note
Shelf Registration (i.e., such Holder has not elected
10
<PAGE>
to include Transfer Restricted Senior Notes in such Senior Notes Shelf
Registration or has failed to provide all the information required pursuant to
Section 4(f) hereof) shall not be entitled to Special Interest with respect to a
Senior Note Registration Default that pertains to a Senior Note Shelf
Registration Statement and (III) a Holder of Senior Notes constituting an unsold
allotment from the original sale of the Senior Notes shall not be entitled to
Special Interest by reason of a Senior Note Registration Default that pertains
to an Exchange Offer.
All accrued Special Interest shall be paid to Record Holders on each
Special Interest Payment Date in the same manner in which payments of interest
are made pursuant to the Senior Indenture. All obligations of the Company set
forth in the preceding paragraph that are outstanding with respect to any
Transfer Restricted Senior Note at the time such security ceases to be a
Transfer Restricted Senior Note shall survive until such time as all such
obligations with respect to such security shall have been satisfied in full.
(b) Convertible Notes:
-----------------
If (i) any Convertible Note Shelf Registration Statement required to
be filed pursuant to this Agreement is not filed with the Commission on or prior
to the date specified for such filing in this Agreement, (ii) any such
Convertible Note Shelf Registration Statement has not been declared effective by
the Commission on or prior to the Effectiveness Target Date, or (iii) the
Convertible Note Shelf Registration Statement required by this Agreement is
filed and declared effective but shall thereafter within the time periods
specified in Section 3 or 4 of this Agreement, as applicable, cease to be
effective or fail to be usable for its intended purpose without being succeeded
immediately by a post-effective amendment to such Convertible Note Shelf
Registration Statement that cures such failure and that is itself declared
effective for a period of more than 30 consecutive days (each such event
referred to in clauses (i) through (iii), a "Convertible Note Registration
-----------------------------
Default"), then commencing on the day following the date on which such
- -------
Convertible Note Registration Default occurs, the Company agrees to pay to each
Holder of Transfer Restricted Convertible Notes during the first 90-day period
immediately following the occurrence of such Convertible Registration Default,
Special Interest at a rate of 0.5% per annum. The amount of Special Interest
payable to each Holder shall increase by an additional 0.5% per annum for each
subsequent 90-day period up to a maximum rate of 1.5% per annum. A Convertible
Note Registration Default shall cease, and Special Interest shall cease to be
payable with respect to such Convertible Note Registration Default (1) upon the
filing of the Convertible Note Shelf Registration Statement, in the case of
clause (i) above, (2) upon the effectiveness of the Convertible Note Shelf
Registration Statement, in the case of clause (ii) above, and (3) when the
Convertible Note Shelf Registration Statement becomes effective or usable in the
case of clause (iii) above. Notwithstanding the foregoing to the contrary, (I)
the amount of Special Interest payable shall not increase because more than one
Convertible Note Registration Default has occurred and is pending, (II) a Holder
of Transfer Restricted Convertible Notes who is not entitled to the benefits of
a Convertible Note Shelf Registration (i.e., such Holder has not elected to
include Transfer Restricted Convertible Notes in such Convertible Note Shelf
Registration or has failed to provide all the information required pursuant to
Section 4(f) hereof) shall not be entitled to Special Interest with respect to a
Convertible Note Registration Default that pertains to a Convertible Note Shelf
Registration Statement.
All accrued Special Interest shall be paid to Record Holders on each
Special Interest Payment Date in the same manner in which payments of interest
are made pursuant to the Convertible Note Indenture. All obligations of the
Company set forth in the preceding paragraph that are outstanding with respect
to any Transfer Restricted Convertible Note at the time such security ceases to
be a Transfer Restricted Convertible Note shall survive until such time as all
such obligations with respect to such security shall have been satisfied in
full.
11
<PAGE>
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement.
-------------------------------------
(i) If there is a substantial question as to whether the
Exchange Offer is permitted by applicable federal law, the Company hereby
agrees to seek oral interpretive advice, a no-action letter or other
interpretive advice from the Commission staff allowing the Company to
Consummate an Exchange Offer for such Senior Notes and in connection with
the foregoing (A) to participate in telephonic conferences with the
Commission staff, (B) to deliver to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal basis, if any,
upon which such counsel has concluded that such an Exchange Offer should be
permitted and (C) to pursue diligently a resolution by the Commission staff
of such submission (which need not be favorable); provided, however, that
-------- -------
the Company may alternatively determine to file a Senior Note Shelf
Registration Statement and provided, further that the Company agrees to
-------- -------
pursue the issuance of a decision to the Commission staff level, but shall
not be required to take commercially unreasonable action in connection
therewith.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Senior Notes shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company
(which may be contained in the letter of transmittal furnished in
connection with the Exchange Offer) to the effect that such Holder (A) is
not an affiliate of the Company (or that if it is such an affiliate, it
will comply with the registration and prospectus delivery requirements of
the Act to the extent applicable), (B) is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the Exchange Notes to be issued
in the Exchange Offer and (C) is acquiring the Exchange Notes in its
ordinary course of business. The Initial Purchasers shall ensure that each
Holder and Broker-Dealer acknowledges and agrees that any such Broker-
Dealer and any such Holder using the Exchange Offer to participate in a
distribution of the securities to be acquired in the Exchange Offer (1)
could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in Morgan
------
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
--------------------- ----------------------
Corporation (available May 13, 1988), as interpreted in the Commission's
-----------
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
-------------------
letters (including, if applicable, any no-action letter obtained pursuant
to clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Exchange Notes obtained by such Holder
in substitution for Senior Notes acquired by such Holder directly from the
Company.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
-------------
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
-------------------- ----------------------------
(available June 5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) representing that the Company has not
entered into any arrangement or understanding with any Person to distribute
the Exchange Notes to be received in the Exchange Offer and that, to the
best of the Company's information and belief (if in fact the following
statement is to the Company's
12
<PAGE>
knowledge true and correct), each Holder participating in the Exchange
Offer is acquiring the Exchange Notes in its ordinary course of business
and has no arrangement or understanding with any Person to participate in
the distribution of the Exchange Notes received in the Exchange Offer and
(C) including any other undertaking or representation reasonably required
by the Commission as set forth in any no-action letter obtained pursuant to
clause (i) above.
(b) General Provisions. In connection with any Registration Statement
------------------
and any related Prospectus provided for by this Agreement, the Company shall:
(i) use its reasonable best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the periods specified in Section 3 or 4 of this Agreement,
as applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities, during the period required by
this Agreement, the Company shall, in the case of clause (A), take
appropriate action to correct any such misstatement or omission and, in the
case of clause (A) or (B), cause such Registration Statement and the
related Prospectus to become effective and usable for their intended
purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep the Registration Statement effective for the periods set forth in
Section 3 or 4 hereof as applicable and otherwise to comply with the
applicable provisions of the Act and the rules and regulations promulgated
thereunder in respect of such amendments; and comply with the provisions of
the Act directly applicable to and required to be complied with by the
Company with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth
in such Registration Statement or supplement to the Prospectus;
(iii) in the case of a Shelf Registration Statement, advise the
managing Underwriter(s) with respect to such Registration Statement (the
"Managing Underwriter(s)"), if any, and selling holders named in any
------------------------
Registration Statement (the "Selling Holders") promptly and confirm such
---------------
advice in writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any Shelf
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to a Shelf Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of a Shelf Registration Statement under the Act or of the
suspension by any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for any of the preceding purposes, (D) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement in order to make
the statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or (E) of the Company's reasonable determination that a post-
effective amendment to the Registration Statement would be appropriate. If
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
13
<PAGE>
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company
shall use its reasonable best efforts to obtain the withdrawal or lifting
of such order at the earliest possible time;
(iv) to the extent reasonably practicable, furnish to the
Initial Purchasers, each Selling Holder and each of the Managing
Underwriter(s) in connection with such sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such Registration Statement
or Prospectus which documents will be subject to the review and comment of
such Holders and Managing Underwriter(s) in connection with such sale, if
any, for a period of three Business Days, and the Company will not file any
such Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus to which the Selling Holders
or the Managing Underwriter(s), if any, shall object on reasonable legal
grounds within three business days after the receipt thereof. A Selling
Holder or underwriter, if any, shall be deemed to have reasonably objected
to such filing if such document as proposed to be filed contains a material
misstatement or omission;
(v) to the extent reasonably practicable, prior to the filing
of any document that is to be incorporated by reference into a Registration
Statement or Prospectus, provide copies of such document to the Selling
Holders and to the Managing Underwriter(s) in connection with such sale, if
any, for a period of three Business Days, make the Company's
representatives available for discussion of such document and other
customary due diligence matters during such period, and include such
information in such document prior to the filing thereof as such Selling
Holders or Managing Underwriter(s), if any, reasonably may request within
three Business Days; provided, however, that any document incorporated by
-------- -------
reference in any such Registration Statement or Prospectus shall be
provided to the Initial Purchasers, such Selling Holders and such Managing
Underwriter(s) no later than the time that such amendment or supplement is
filed with the Commission;
(vi) in the case of a Shelf Registration Statement, make
available at reasonable times for inspection by the Selling Holders, any
Managing Underwriter(s) and any attorney or accountant retained by such
Selling Holders or any of such Managing Underwriter(s), all relevant
information as is customary for similar due diligence examinations, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Selling Holder, underwriter,
attorney or accountant in connection with such Shelf Registration Statement
or any post-effective amendment thereto subsequent to the filing thereof
and prior to its effectiveness; provided, however, that such Selling
-------- -------
Holders, Managing Underwriter(s), attorneys or accountants agree to keep
confidential any records, information or documents that are designated by
the Company in writing as confidential and to use such information obtained
pursuant to this provision only in connection with the transaction for
which such information was obtained, and not for any other purpose, unless
(i) such records, information or documents (x) are available to the public,
(y) were already in such Selling Holders', Managing Underwriter(s)',
attorneys' or accountants' possession prior to its receipt from the Company
and they do not otherwise have any obligation to keep such records,
information or documents confidential or (z) are obtained by such Selling
Holders, Managing Underwriter(s), attorneys or accountants from a third
person who, insofar as is known to such Selling Holders, Managing
Underwriter(s), attorneys or accountants, after due inquiry, is not
prohibited from transmitting the information to such Selling Holders,
Managing Underwriter(s), attorneys or accountants by a contractual, legal
or fiduciary obligation to the Company or a third party, or (ii) disclosure
of such records,
14
<PAGE>
information or documents is required by court or administrative order after
the exhaustion of appeals therefrom;
(vii) if requested by any Selling Holders or the Managing
Underwriter(s) in order to accurately reflect information regarding such
Selling Holder's or Underwriter's plan of distribution as required in the
Registration Statement promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such Selling Holders and Managing
Underwriter(s), if any, may reasonably request to have included therein and
make all required filings of such Prospectus supplement or post-effective
amendment as soon as legally required after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(viii) in the case of a Shelf Registration Statement, furnish to
each Selling Holder and each of the Managing Underwriter(s) in connection
with such sale, if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of each
amendment thereto, including upon the requests of such Person all documents
incorporated therein by reference (in each case, without exhibits thereto,
unless requested);
(ix) in the case of a Shelf Registration Statement, deliver to
each Selling Holder and each of the Managing Underwriter(s), if any,
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company hereby consents to the use of
the Prospectus and any amendment or supplement thereto by each of the
Selling Holders and each of the Managing Underwriter(s), if any, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement thereto
in compliance with applicable law;
(x) in the case of a Shelf Registration Statement, use its
best efforts to enter into such underwriting agreements and other selling
agreements as are customary in underwritten offerings and take all such
other reasonable actions in connection therewith (including those
reasonably requested by the Managing Underwriter(s) or the Selling Holders
who hold a majority of the Transfer Restricted Securities included in such
registration) in order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to the Shelf Registration
Statement; provided, however, that the Company shall have no liability for
-------- -------
any compensation or reimbursement of expenses due to any Underwriter or
other party assisting in the disposition of such Transfer Restricted
Securities or other expenses incurred by the Holder thereof in connection
with such disposition other than agreed upon expenses, and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Offering, the Company
shall: (i) to the extent possible, make such representations and warranties
to the Selling Holders and the Managing Underwriter(s), if any, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when reasonably
requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Managing Underwriter(s), if any, and the
Selling Holders of a majority in principal amount of the Transfer
Restricted Securities included in such Shelf Registration Statement),
addressed to each Selling Holder and each of the Managing Underwriter(s),
if any, covering the matters customarily covered in opinions requested in
underwritten offerings; (iii) to the extent permitted by the professional
standards governing the accounting profession at the time, obtain "cold
comfort" letters and updates thereof (which letters and updates (in form,
scope and substance) shall be reasonably satisfactory to the Managing
Underwriter(s), if any) from the
15
<PAGE>
independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are requested to be, included in the
Registration Statement), addressed to each of the Managing Underwriter(s),
if any, and each Selling Holder, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with underwritten offerings; and (iv) deliver such other
documents and certificates as may be reasonably requested by the Selling
Holders of a majority in principal amount of the Transfer Restricted
Securities included in such Registration Statement or the Managing
Underwriter(s), if any, to evidence compliance with clause (i) above and
with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company contemplated in
Section 6(x)(i) above cease to be true and correct, the Company shall so
advise the Managing Underwriter(s), if any, and Selling Holders promptly
and if requested by such Persons, shall confirm such advice in writing;
(xi) cooperate with the Selling Holders, the Managing
Underwriter(s), if any, and their respective counsel in connection with the
registration and qualification of the Transfer Restricted Securities under
the Blue Sky law of such jurisdictions as the Selling Holders or Managing
Underwriter(s) may reasonably request and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that the Company
-------- -------
shall not be required to register or qualify as a foreign corporation where
it is not now so qualified or to take any action that would subject it to
the service of process in suits or to taxation in any jurisdiction where it
is not now so subject;
(xii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Selling Holders and the Managing
Underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the Holders
or the Managing Underwriter(s), if any, may request at least two Business
Days prior to such sale of Transfer Restricted Securities;
(xiii) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other regulatory agencies or authorities as are necessary
to enable the seller or sellers thereof or the Managing Underwriter(s), if
any, to consummate the disposition of such Transfer Restricted Securities
subject to the proviso contained in clause (xi) above;
(xiv) in the case of a Shelf Registration Statement, if any fact
or event contemplated by Section 6(b)(iii)(D) or (E) above shall exist or
have occurred, use its reasonable best efforts to prepare a supplement or
post-effective amendment to a Shelf Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of Transfer Restricted Securities, such Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
16
<PAGE>
(xv) provide CUSIP number(s) for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide each of the
Trustees under the Senior Note Indenture and Convertible Note Indenture
with printed certificates for the Transfer Restricted Securities which are
in a form eligible for deposit with The Depository Trust Company;
(xvi) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that is
---------------------------------
required to be retained in accordance with the rules and regulations of the
NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such regulatory agencies or authorities as
are necessary to enable the Holders selling Transfer Restricted Securities
to consummate the disposition of such Transfer Restricted Securities;
(xvii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xviii) cause each of the Senior Note Indenture and the
Convertible Note Indenture to be qualified under the TIA not later than the
effective date of the first Registration Statement required by this
Agreement in connection with the Transfer Restricted Senior Notes or
Exchange Notes, and, in connection therewith, cooperate with the Trustees
and the Holders of Notes to effect such changes to each of the Senior Note
Indenture and Convertible Note Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustees to execute all
documents that may be required to effect such changes and all other forms
and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner.
(c) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security that, upon receipt of any notice from the Company
of the existence of any fact of the kind described in Section 6(b)(iii)(C), (D)
or (E) hereof, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(b)(xiv) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus currently being used may
------
be resumed, and has received copies of any additional or supplemental filings
that are incorporated by reference in the Prospectus. If so directed by the
Company, each Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Holder's possession, of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of such notice. In the event the Company shall give any
such notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(b)(iii)(C), (D) or (E) hereof to and
including the date when each Selling Holder covered by such Registration
Statement shall have received (x) the copies of the supplemented or amended
Prospectus contemplated by Section 6(b)(xiv) hereof or (y) the Advice.
Subject to Section 6(d) hereof, each Holder further agrees that, upon
receipt of notice from the Company that the Company intends to make an offering
to the public of its securities, whether
17
<PAGE>
or not through an Underwriter, such Holder will forthwith discontinue
disposition of Transfer Restricted Securities for such period (not to exceed 120
days) as is required to complete such offering and for a further period of 120
days after the completion of such offering.
(d) In the event that the Company agrees with any other Person that
such Person shall be restricted from effecting any public sale or disposition of
securities of the Company for a shorter period than the periods stated in
Sections 4(g) or Section 6(c) of this Agreement, then the respective periods
stated in Sections 4(g) and 6(c) hereof shall be adjusted, from time to time, so
that the Holders shall have the benefit of the shortest period to which the
Company has agreed.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made with the NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel, as may be required by the
rules and regulations of the NASD); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
printing expenses of printing (including printing certificates for the Exchange
Notes and printing of Prospectuses, if necessary); (iv) all fees and
disbursements directly related to the Exchange Offer of counsel for the Company
and, in accordance with Section 7(b) below, the Holders of Transfer Restricted
Senior Notes; and (v) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special audit and
comfort letters required by or incident to such performance). Notwithstanding
anything in this Section 7 to the contrary, the Company shall not be required to
pay (a) the fees and expenses of any underwriter or of legal counsel for any
underwriter, other than a "qualified independent underwriter" (acting solely in
such capacity) as provided in clause (i) of the preceding sentence or (b) any
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Transfer Restricted Securities.
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Exchange Offer and the Shelf Registration
Statements, the Company will reimburse the Holders of Transfer Restricted Senior
Notes for the reasonable fees and disbursements of not more than one counsel
chosen by the Holders of a majority of the principal amount of such Transfer
Restricted Senior Notes; provided, however, that such counsel must be reasonably
-------- -------
satisfactory to the Company and that such fees shall not exceed $10,000 with
respect to the Exchange Offer and $10,000 with respect to the Shelf Registration
Statements in the aggregate.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each Holder,
each Market Maker and each Person, if any, who controls such Holder or Market
Maker within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act (any person referred to above being sometimes hereinafter referred
to as an "Indemnified Holder"), against any and all losses, liabilities, claims,
------------------
damages and expenses (including but not limited to reasonable attorneys' fees
and any and all expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced
18
<PAGE>
or threatened, or any claim and any and all amounts paid in settlement of any
claim or litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact necessary to make the
statements therein in light of the circumstances under which they were made not
misleading; provided, however, that the Company will not be liable in any such
-------- -------
case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Indemnified Holder expressly for use therein;
provided, further, however, that the indemnification provided for in this
- -------- ------- -------
subsection shall not inure to the benefit of any indemnified party with respect
to any sale or disposition of Transfer Restricted Securities by such Holder in
violation of the provisions of Section 6(c) hereof. This indemnity agreement
will be in addition to any liability which the Company may otherwise have,
including, under this Agreement.
(b) Each Holder and each Market Maker agrees to indemnify and hold
harmless the Company and each Person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and
each of the Company's and any such controlling Person's agents, employees,
officers and directors, against any losses, liabilities, claims, damages and
expenses (including but not limited to attorneys' fees and any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation), to which they or any of
them may become subject under the Act, the Exchange Act or otherwise, insofar as
such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prospectus (as amended or supplemented, if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, in each case to the extent, but only to the extent,
that any such loss, liability, claim, damage or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by such Holder or Market Maker (or its
related Indemnified Holder) expressly for use therein. This indemnity will be
in addition to any liability which such Holder or Market Maker may otherwise
have, including, under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8, except to the extent that it
has been prejudiced in any material respect by such failure, or from any
liability
19
<PAGE>
which it may otherwise have). In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to take charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded, based upon written
advice of counsel, that representation by the same counsel of both the
indemnifying party and the indemnified parties could result in a conflict of
interest (in which case the indemnifying parties shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of counsel shall be
borne by the indemnifying parties. The indemnifying party under subsection (a)
or (b) above shall only be liable for the legal expenses of one separate firm of
attorneys for all indemnified parties in each jurisdiction in which any claim or
action is brought; provided, however, that the indemnifying party shall be
-------- -------
liable for separate counsel for any indemnified party in a jurisdiction if
counsel to the indemnified parties shall have concluded in writing that
representation by one counsel of both such indemnified party and the other
indemnified parties could result in a conflict of interest. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
-------- -------
(d) In order to provide for contribution in circumstances in which
the indemnification provided for in this Section 8 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified thereunder,
the Company and each Holder and/or each Market Maker shall contribute to the
aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting in the case of losses, claims, damages, liabilities and
expenses suffered by the indemnifying party, any contribution received by the
indemnifying party from persons, other than any Indemnified Holders, who may
also be liable for contribution, including persons who control the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) to which the Company and any Holder or Market Maker may be subject, in such
proportion as is appropriate to reflect the relative benefits received by (i)
the Company from the offering of the Securities and (ii) any such Holder or
Market Maker (and its related Indemnified Holder) from its sale of Securities
or, if such allocation is not permitted by applicable law or indemnification is
not available as a result of the indemnifying party not having received notice
as provided in this Section 8, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and such Holder or Market Maker in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and any Holder or Market Maker shall be deemed
to be in the same proportion as (x) the total proceeds from the offering of
Securities (net of discounts but before deducting expenses) received by the
Company and (y) the total proceeds received by such Holder or Market Maker upon
its sale of Securities which otherwise would give rise to the indemnification
obligation, respectively. The relative fault of the Company and of any Holder
or Market Maker shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or such Holder or Market Maker or its related Indemnified Holder
20
<PAGE>
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each Holder and each Market Maker agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above. Notwithstanding the provisions
of this Section 8, (i) no Holder or its related Indemnified Holders shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the total received by such Holder or Market Maker with respect to the sale
of its Securities exceeds the sum of (A) the amount paid by such Holder or
Market Maker for such Securities plus (B) the amount of any damages which such
Holder or Market Maker has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission; provided,
--------
however, that if such Holder is also an Initial Purchaser then the amount paid
- -------
by such Holder shall not exceed the amount of any discounts or commissions
received by such Holder in connection with offering of the Securities and (ii)
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 8,
each person, if any, who controls any Holder or Market Maker within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Holder or Market Maker, and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
the Company, subject in each case to clauses (i) and (ii) of this Section 8(d).
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 8, notify such party or parties from whom contribution
may be sought, but the omission to so notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have under this Section 8, except to the extent that
it has been prejudiced in any material respect by such failure, or otherwise.
No party shall be liable for contribution with respect to any action or claim
settled without its written consent; provided, however, that such written
-------- -------
consent was not unreasonably withheld.
(e) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
SECTION 9. RULE 144 AND 144A
The Company covenants that, so long as any Transfer Restricted
Securities remain outstanding, it will file the reports required to be filed by
it (if so required) under the Exchange Act and the rules and regulations
thereunder in a timely manner and, if at any time the Company is not required to
file such reports, it will, so long as any Transfer Restricted Securities remain
outstanding, upon the request of any Holder of Transfer Restricted Securities,
use its best efforts to make available to such Holder and any prospective
purchaser the information required to permit sales pursuant to Rule 144 and Rule
144A. The Company further covenants that it will take such further action as
any Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time, to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act pursuant to
the exemptions provided by Rule 144 and Rule 144A. Upon the request of any
Holder of Transfer Restricted Securities, the Company will deliver to such
Holder a written statement as to whether the Company has complied with such
information and requirements.
21
<PAGE>
SECTION 10. UNDERWRITTEN OFFERINGS
The Holders of Transfer Restricted Securities may elect to sell their
Transfer Restricted Securities pursuant to up to three Underwritten Offerings;
provided, however, that in no event shall any Holder commence any such
- -------- -------
Underwritten Offering if (A) a period of less than 180 days has elapsed (i)
since the consummation of the most recent Underwritten Offering hereunder or
(ii) since the consummation of any offering of securities by the Company to the
public, whether or not through an Underwriter, or (B) the Company notifies such
Holder that it intends to make such an offering within the next 120 days. No
Holder may participate in any Underwritten Offering hereunder unless such Holder
(a) agrees to sell such Holder's Transfer Restricted Securities on the basis
provided in customary underwriting arrangements entered into in connection
therewith and (b) completes and executes all reasonable questionnaires, powers
of attorney, lock-up letters and other documents required under the terms of
such underwriting arrangements. Nothing in this Agreement shall give any Holder
any right to join in any offering by the Company of its securities to the
public.
SECTION 11. SELECTION OF UNDERWRITERS
In any Underwritten Offering, the Underwriters for the offering will
be selected by the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities included in such offering; provided, that such
--------
investment bankers and managers must be reasonably satisfactory to the Company.
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise
--------
all rights provided herein, in the Indentures, the Purchase Agreement or granted
by law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
--------------------------
date of this Agreement enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof, provided, however, that nothing
-------- -------
herein shall be deemed to prevent the Company from entering into arrangements
for the sale of its securities pursuant to normal and customary arrangements
therefor.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Senior Notes subject to such Exchange Offer.
22
<PAGE>
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Senior Note Indenture or the Convertible Note
Indenture, as the case may be, with a copy to the Registrar under such
Indenture;
(ii) if to the Company:
United USN, Inc.
10 S. Riverside Plaza
Suite 410
Chicago, Illinois 60606
Facsimile No.: (312) 906-3636
Attention: Ronald W. Gavillet, Esq., Executive Vice
President, Strategic and External Affairs and
General Counsel
Telephone No.: (312) 906-3600
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Suite 2100
Chicago, Illinois 60606
Facsimile No.: (312) 407-0411
Attention: Gary P. Cullen
Telephone No. (312) 407-0680
(iii) if to the Initial Purchasers:
Smith Barney Inc.
BT Securities Corporation
Chase Securities Inc.
CIBC Wood Gundy Ventures, Inc.
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Facsimile No.: (212) 816-7456
Attention: High Yield Capital Markets Group,
George Alex, Managing Director
Telephone No.: (212) 816-6000
23
<PAGE>
With copies to: Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
1333 New Hampshire Avenue, N.W., Suite 400
Washington, D.C. 20036
Facsimile No.: (202) 887-4288
Attention: Bruce S. Mendelsohn, P.C.
Telephone No.: (202) 887-4446
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the applicable Trustee
at the address specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, Holders and subsequent Holders of Transfer Restricted Securities;
provided, however, that this Agreement shall not inure to the benefit of or be
- -------- -------
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign acquired Transfer Restricted Securities directly from such
Holder.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(i) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Transfer Restricted Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED USN, INC.
By: _______________________________
Name:
Title:
SMITH BARNEY INC.
BT SECURITIES CORPORATION
CHASE SECURITIES INC.
CIBC WOOD GUNDY SECURITIES CORP.
By: SMITH BARNEY INC. on behalf of
the Initial Purchasers
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT 4.4
======================================
===============================
Dated as of September 30, 1996
by and between
UNITED USN, INC.
and
HARRIS TRUST AND SAVINGS BANK
as Warrant Agent
======================================
===============================
<PAGE>
WARRANT AGREEMENT
TABLE OF CONTENTS/*/
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Appointment of Warrant Agent................................. 3
SECTION 2. Issuance of Warrants......................................... 3
SECTION 3. Warrant Certificates......................................... 3
SECTION 4. Execution of Warrant Certificates............................ 3
SECTION 5. Transfers of Warrants........................................ 4
(a) Prior to the Separation of Initial Warrants and Senior Notes;
Separation of Initial Warrants and Senior Notes.............. 4
(b) Private Placement Legend..................................... 5
(c) Global Warrant Legend........................................ 6
SECTION 6. Registration and Countersignature............................ 6
SECTION 7. (a) Registration of Transfers and Exchanges................. 7
(b) Book-Entry Provisions for the Global Warrants................ 7
(c) Special Transfer Provisions.................................. 8
SECTION 8. Terms of Warrants; Exercise of Warrants...................... 10
SECTION 9. Reports...................................................... 11
SECTION 10. Payment of Taxes............................................. 12
SECTION 11. Mutilated or Missing Warrant Certificates.................... 12
SECTION 12. Reservation of Warrant Shares................................ 12
SECTION 13. Obtaining Stock Exchange Listings............................ 13
SECTION 14. Consolidations, Mergers and Sales of Assets.................. 13
SECTION 15. Adjustment of Number of Warrant Shares....................... 13
SECTION 16. [Intentionally Omitted.]..................................... 21
SECTION 17. Fractional Interests......................................... 21
</TABLE>
- ----------------------
/*/ This Table of Contents does not constitute a part of this Agreement or have
any bearing upon the interpretation of any of its terms or provisions.
2
<PAGE>
<TABLE>
<S> <C>
SECTION 18. Notices of Adjustments........................................ 21
SECTION 19. Warrant Agent................................................. 23
SECTION 20. Merger, Consolidation or Change of Name of Warrant
Agent......................................................... 24
SECTION 21. Change of Warrant Agent....................................... 25
SECTION 22. Notices to the Company and Warrant Agent...................... 25
SECTION 23. Supplements and Amendments.................................... 26
SECTION 24. Successors.................................................... 26
SECTION 25. Termination................................................... 26
SECTION 26. Governing Law; Jurisdiction................................... 26
SECTION 27. Benefits of This Agreement.................................... 27
SECTION 28. Counterparts.................................................. 27
SECTION 29. Further Assurances............................................ 27
EXHIBIT A.................................................................. 29
EXHIBIT B.................................................................. 36
</TABLE>
3
<PAGE>
WARRANT AGREEMENT (this "Agreement") dated as of September 30, 1996
between United USN, Inc., (the "Company"), and Harris Trust and Savings Bank, as
Warrant Agent (the "Warrant Agent").
WHEREAS, the Senior Note Indenture (as defined below) and the
Convertible Note Indenture (as defined below), respectively, permit the Company
to sell up to $137,000,000 aggregate principal amount of 14% Senior Discount
Notes due 2003 (the "Senior Notes") and up to $46,000,000 aggregate principal
amount of 9% Convertible Subordinated Notes due 2004 (the "Convertible Notes,"
and together with the Senior Notes, the "Notes");
WHEREAS, the Company has entered into a purchase agreement, dated
September 23, 1996, with Smith Barney Inc., BT Securities Corporation, Chase
Securities Inc. and CIBC Wood Gundy Securities Corp. (the "Initial Purchasers")
pursuant to which the Company has agreed to sell to the Initial Purchasers
48,500 Units (the "Units") consisting of $48,500,000 aggregate principal amount
of Senior Notes and warrants (the "Original Initial Warrants") to purchase up to
an aggregate of 61,562 shares of the Company's Class A Common Stock, par value
$.01 per share (the "Class A Common Stock," and together with the Company's
Class B Common Stock, $.01 par value per share, the "Common Stock") and
$36,000,000 aggregate principal amount of Convertible Notes. Each Warrant
entitles the holder thereof, upon exercise, to purchase fully paid and
nonassessable shares of Class A Common Stock ("Number of Shares") at an exercise
price of $.01 per share (the "Exercise Price"). Each Initial Warrant entitles
the holder thereof, upon exercise, to purchase 1.269311203 fully paid and
nonassessable shares of Class A Common Stock at the Exercise Price. The Number
of Shares is subject to adjustment under certain circumstances as provided in
Section 15 hereof. The shares of Class A Common Stock issuable upon exercise of
Warrants are referred to herein as "Warrant Shares." The Senior Notes will be
issued under an indenture to be dated as of September 30, 1996 (the "Senior Note
Indenture") between the Company and Harris Trust and Savings Bank, as trustee
(the "Senior Note Trustee"). The Convertible Notes will be issued under an
indenture to be dated as of September 30, 1996 (the "Convertible Note
Indenture," and together with the Senior Note Indenture, the "Indentures")
between the Company and Harris Trust and Savings Bank, as trustee (the
"Convertible Note Trustee," and together with the Senior Note Trustee, the
"Trustees"); and
WHEREAS, the Initial Warrants (as defined herein) shall bear the
legend (the "Warrant Legend") set forth on the form of Warrant Certificate set
forth in Exhibit A attached hereto and the Notes shall bear the legends set
forth in the applicable Indenture, in each case subject to the terms of this
Agreement and the applicable Indenture, as the case may be. Unless registered
under the Securities Act of 1933, as amended (the "Securities Act"), and any
applicable state securities laws, the Warrant Shares shall initially bear the
legend set forth in Exhibit B (the "Warrant Shares Legend"); and
WHEREAS, the Initial Warrants and the Senior Notes shall not be
separately transferable until the close of business upon the earliest to occur
of (i) a
<PAGE>
date 180 days after the issuance of the Initial Warrants, (ii) such date as
Smith Barney Inc. may determine and specify to the Warrant Agent, (iii) the
commencement of the offer by the Company to the holders of Senior Notes of the
opportunity to acquire Exchange Notes in substitution for the Senior Notes (the
"Exchange Offer") and (iv) in the event of a Change of Control, as defined in
the Senior Note Indenture, the date the Company mails notice thereof to the
holders of the Senior Notes (as applicable, the "Separation Date"); and
WHEREAS, pursuant to Section 4.20 of the Senior Note Indenture, in
certain circumstances the Company will be obligated to issue additional warrants
(the "Senior Note Contingent Warrants") on March 30, 1998 (the "Senior Note
Contingent Warrant Issuance Date") exercisable for Class A Common Stock of the
Company under the same terms and with the same legend (except as set forth
herein) as the Initial Warrants as described above; and
WHEREAS, pursuant to Sections 4.13 and 4.15 of the Convertible Note
Indenture, in certain circumstances, the Company will be obligated to issue (i)
additional warrants (the "Convertible Note Contingent Warrants") on September
30, 1999 (the "Convertible Note Contingent Warrant Issuance Date") and (ii)
certain other warrants (the "Additional Warrants," and together with the Senior
Note Contingent Warrants, the Convertible Note Contingent Warrants and the
Initial Warrants, the "Warrants") on September 30, 1997 (the "Additional Warrant
Issuance Date"), in each case, exercisable for Class A Common Stock of the
Company under the same terms and with the same legend (except as set forth
herein) as the Initial Warrants as described above; and
WHEREAS, this Agreement may be amended and supplemented from time to
time such that upon the issuance by the Company of additional warrants to
purchase up to an aggregate of 91,373 shares of Class A Common Stock (the
"Supplemental Initial Warrants," and together with the Original Initial
Warrants, the "Initial Warrants"), such Supplemental Initial Warrants will be
entitled to the benefits of this Agreement.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates and other matters as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
----------------------------
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Issuance of Warrants. Initial Warrants shall be
--------------------
originally issued in connection with the issuance of the Senior Notes and shall
not be separately transferable from the Senior Notes until on or after the
Separation Date
2
<PAGE>
as provided in Section 5 hereof. Senior Note Contingent Warrants shall be
issued, if required, in accordance with Section 4.20 of the Senior Note
Indenture and Convertible Note Contingent Warrants shall be issued, if required,
in accordance with Section 4.13 of the Convertible Note Indenture. Additional
Warrants shall be issued, if required, in accordance with Section 4.15 of the
Convertible Note Indenture.
SECTION 3. Warrant Certificates. The certificates evidencing the
--------------------
Warrants ("Warrant Certificates") shall be substantially in the form annexed
hereto as Exhibit A with such changes as are as necessary to reflect the number
of shares of Class A Common Stock for which the Warrants are then exercisable.
The Warrants will be offered and sold in reliance on Rule 144A and
shall be evidenced initially in the form of one or more permanent global
Warrants (each, a "Global Warrant") evidenced by a Warrant Certificate in
definitive, fully registered form, substantially in the form set forth in
Exhibit A (each, a "Global Warrant Certificate"), deposited with the Warrant
Agent, as custodian for the Depository Trust Company, as depositary, or any
successors or assigns thereof (the "Depositary") and registered in the name of a
nominee of the Depositary, duly executed by the Company and countersigned by the
Warrant Agent as hereinafter provided. The aggregate amount of a Global Warrant
may from time to time be increased or decreased by adjustments made on the
records of the Warrant Agent, as custodian for the Depositary or its nominee, as
hereinafter provided.
SECTION 4. Execution of Warrant Certificates. Warrant Certificates
---------------------------------
shall be signed on behalf of the Company by any two of the following officers:
its Chairman of the Board, Chief Executive Officer, Chief Financial Officer,
President, any Vice President, Secretary or Assistant Secretary, under its
corporate seal. Each such signature upon the Warrant Certificates may be in the
form of a facsimile signature of the present or any future Chairman of the
Board, Chief Executive Officer, Chief Financial Officer, President or any Vice
President and Secretary or Assistant Secretary and may be imprinted or otherwise
reproduced on the Warrant Certificates and for that purpose the Company may
adopt and use the facsimile signature of any person who shall have been Chairman
of the Board, Chief Executive Officer, Chief Financial Officer, President, any
Vice President, Secretary or Assistant Secretary, notwithstanding the fact that
at the time the Warrant Certificates shall be countersigned and delivered or
disposed of he or she shall have ceased to hold such office. The seal of the
Company may be in the form of a facsimile thereof and may be impressed, affixed,
imprinted or otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate,
3
<PAGE>
shall be a proper officer of the Company to sign such Warrant Certificate,
although at the date of the execution of this Agreement any such person was not
such officer.
Warrant Certificates shall be dated the date of countersignature by
the Warrant Agent.
SECTION 5. Transfers of Warrants.
---------------------
(a) Prior to the Separation of Initial Warrants and Senior Notes;
-------------------------------------------------------------
Separation of Initial Warrants and Senior Notes. Notwithstanding the provisions
- -----------------------------------------------
of Section 7 hereof, on or after the Separation Date, the registered holder of a
Warrant Certificate containing a Warrant Legend may surrender such Warrant
Certificate accompanied by a written instrument or instruments of transfer in
form satisfactory to the Warrant Agent, duly executed by the registered holder
or holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney to the Warrant Agent, at its address specified in
Section 22 hereof (the "Warrant Agent Office") for the exchange of such Warrant
Certificate containing a Warrant Legend, in whole or in part, for a new Warrant
Certificate or certificates not containing the first paragraph of the Warrant
Legend (such surrender and exchange being referred to herein as a "Separation"
and the related Warrants being referred to as "Separated").
Until the Separation Date, no Initial Warrant may be sold, assigned or
otherwise transferred to any person unless simultaneously with such transfer,
the Warrant Agent receives confirmation from the Senior Note Trustee that the
holder thereof has requested a transfer to such transferee of $1,000 principal
amount of Senior Notes for each Initial Warrant to purchase 1.269311203 shares
of Class A Common Stock of the Company (subject to adjustment under Section 15
hereof) so transferred. In connection with the foregoing, upon original
issuance of the Initial Warrants until Separation each Initial Warrant
Certificate will bear the following legend:
UNTIL THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (I) A DATE
180 DAYS AFTER THE ISSUE OF THE WARRANTS, (II) SUCH DATE AS SMITH
BARNEY INC. MAY DETERMINE, (III) THE COMMENCEMENT OF AN EXCHANGE OFFER
RELATING TO THE 14% SENIOR DISCOUNT NOTES DUE 2003 (THE "NOTES") OF
UNITED USN, INC. (THE "COMPANY"), (IV) IN THE EVENT OF CHANGE OF
CONTROL (AS DEFINED IN THE INDENTURE RELATING TO THE NOTES), THE DATE
THE COMPANY MAILS NOTICE THEREOF TO HOLDERS OF THE NOTES, THE WARRANTS
EVIDENCED HEREBY MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED
TO ANY PERSON UNLESS, SIMULTANEOUSLY
4
<PAGE>
WITH SUCH TRANSFER, THE HOLDER HEREOF TRANSFERS TO SUCH TRANSFEREE
$1,000 PRINCIPAL AMOUNT OF NOTES AND A WARRANT TO PURCHASE 1.269311203
SHARES OF CLASS A COMMON STOCK OF THE COMPANY (SUBJECT TO ADJUSTMENT
UNDER SECTION 15 OF THE WARRANT AGREEMENT, DATED AS OF SEPTEMBER 30,
1996, BETWEEN THE COMPANY AND HARRIS TRUST AND SAVINGS BANK, AS WARRANT
AGENT) SO TRANSFERRED.
(b) Private Placement Legend. Except as otherwise provided in Section
------------------------
7(c) (iii) hereof, each Warrant Certificate shall bear the following legend (the
"Private Placement Legend"):
THE WARRANTS REPRESENTED HEREBY AND, AS OF THE DATE THIS WARRANT
CERTIFICATE WAS ORIGINALLY ISSUED, THE SHARES OF CLASS A COMMON STOCK,
$.01 PAR VALUE PER SHARE (THE "CLASS A COMMON STOCK") PURCHASABLE UPON
THEIR EXERCISE (THE "WARRANT SHARES"), HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, NEITHER
THIS WARRANT NOR THE WARRANT SHARES MAY BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
144 THEREUNDER (IF AVAILABLE) AND ANY APPLICABLE STATE SECURITIES LAWS
AND THE HOLDER OF THIS CERTIFICATE, IF SO REQUESTED BY THE COMPANY, HAS
DELIVERED TO THE COMPANY AN OPINION OF COUNSEL TO SUCH EFFECT, OR (3)
TO A LIMITED NUMBER OF INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED
IN RULE 501(a) (1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT,
PRIOR TO THEIR PURCHASE OF ANY SECURITIES OFFERED HEREBY, DELIVER TO
THE INITIAL PURCHAS-
5
<PAGE>
ERS A LETTER CONCERNING CERTAIN REPRESENTATIONS AND AGREEMENTS OR (B)
A REGISTRATION STATEMENT UNDER THE ACT HAS BEEN FILED WITH, AND
DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC.
(c) Global Warrant Legend. The Global Warrant Certificate shall also
---------------------
bear the following legend:
UNLESS THIS WARRANT IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY WARRANT ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION 7 OF THE WARRANT AGREEMENT.
6
<PAGE>
SECTION 6. Registration and Countersignature. The Warrant Agent, on
---------------------------------
behalf of the Company, shall number and register the Warrant Certificates in a
register as they are issued by the Company.
Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. The
Warrant Agent shall, upon written instructions of the Chairman of the Board,
Chief Executive Officer, Chief Financial Officer, President, a Senior Vice
President or Secretary of the Company, initially countersign and deliver Warrant
Certificates entitling the holders thereof to purchase not more than the number
of Warrant Shares referred to above in the first recital hereof and shall
countersign and deliver Warrant Certificates as otherwise provided in this
Agreement. Such written instructions shall specify the amount of the Warrants
to be countersigned and the date of countersignature.
The Company and the Warrant Agent may deem and treat the registered
holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary. The Company agrees to arrange for
the Senior Note Trustee (or any other Registrar thereunder) to act as registrar
hereunder with respect to Warrants that are not Separated.
SECTION 7. (a) Registration of Transfers and Exchanges. In
---------------------------------------
accordance with this Section 7, and subject to the provisions of Section 5
hereof, the Warrant Agent shall from time to time register the transfer of any
outstanding Warrant Certificates upon the records to be maintained by it for
that purpose, upon surrender thereof accompanied by a written instrument or
instruments of transfer in form satisfactory to the Warrant Agent, duly executed
by the registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee(s) and the surrendered Warrant Certificate shall be canceled by the
Warrant Agent. Canceled Warrant Certificates shall thereafter be disposed of by
the Warrant Agent in a manner consistent with the Warrant Agent's customary
procedure and in accordance with applicable law.
Warrant Certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Warrant Agent at its office for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled by the Warrant Agent. Such canceled Warrant
Certificates shall then be disposed of by the Warrant Agent in a manner
consistent with the Warrant Agent's customary procedure and in accordance with
applicable law.
No service charge shall be made for any transfer or exchange of
Warrant Certificates or any issuance of Warrant Certificates in connection with
a Separation, but the Company may require payment of a sum sufficient to cover
any
7
<PAGE>
stamp or other governmental charge or tax that may be imposed in connection with
any such transfer or exchange.
The Warrant Agent is hereby authorized to countersign, in accordance
with the provisions of this Section 7 and Section 5, the new Warrant
Certificates required pursuant to the provisions of this Section 7.
(b) Book-Entry Provisions for the Global Warrants.
---------------------------------------------
(i) The Global Warrant Certificate initially shall (x) be
registered in the name of the Depositary or the nominee of such Depositary, (y)
be delivered to the Warrant Agent as custodian for the Depositary and (z) bear
legends as set forth in Section 5(b) and (c).
(ii) Transfers of the Global Warrant Certificate shall be limited
to transfers of such Global Warrant Certificate in whole, but not in part, to
the Depositary, its successors or their respective nominees. Beneficial
interests in the Global Warrant may be transferred in accordance with the
applicable rules and procedures of the Depositary. In addition, physical
warrants in substantially the form set forth in Exhibit A ("Physical Warrant
Certificates"), evidencing physical warrants (the "Physical Warrants"), shall be
transferred to all beneficial owners in exchange for their beneficial interests
in the Global Warrant if (x) the Depositary notifies the Company that it is
unwilling or unable to continue as, or ceases to be, a "Clearing Agency"
registered under Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and a successor depositary registered as a "Clearing
Agency" under Section 17 of the Exchange Act is not appointed by the Company
within 90 days of such notice or (y) an Event of Default has occurred and is
continuing and the Warrant Agent has received a request from the Depositary.
(iii) [Intentionally Omitted.]
(iv) In connection with any transfer of a beneficial interest in
any Global Warrant to a transferee receiving Physical Warrants pursuant to
paragraph (b) (ii) of this Section 7, the Warrant Agent shall reflect on its
books and records the date and a decrease in the aggregate amount of such Global
Warrant in an amount equal to the aggregate amount of the beneficial interest in
such Global Warrant to be transferred, and the Company shall execute, and the
Warrant Agent shall countersign and deliver, one or more Physical Warrants of
like tenor and amount.
(v) In connection with the transfer of an entire Global Warrant to
beneficial owners pursuant to paragraph (b) (ii) of this Section 7, such Global
Warrant shall be deemed to be surrendered to the Warrant Agent for cancellation,
and the Company shall execute, and the Warrant Agent shall countersign and
deliver, to each beneficial owner identified by the Depositary in exchange for
its beneficial interest in such Global Warrant, an equal aggregate amount of
Physical Warrants of authorized denominations.
8
<PAGE>
(vi) Any Physical Warrant delivered in exchange for an interest
in the Global Warrant pursuant to paragraphs (b) (ii), (b) (iv) or (b) (v) of
this Section 7 shall, except as otherwise provided by paragraph (c) (iii) of
this Section 7, bear the legends regarding transfer restrictions applicable to
the Physical Warrant set forth in Sections 5(a) and 5(b).
(vii) The registered holder of a Global Warrant may grant proxies
and otherwise authorize any person, including Agent Members (as defined in
certain Depository Trust Company regulations) and persons that may hold
interests through Agent Members, to take any action which a Warrant holder is
entitled to take under this Warrant Agreement or the Warrants.
(c) Special Transfer Provisions.
---------------------------
(i) Transfers to Non-QIB (as defined within the meaning of Rule
144A under the Securities Act) Institutional Accredited Investors. The following
provisions shall apply with respect to the registration of any proposed transfer
of a Warrant to any Institutional Accredited Investor that is not a QIB:
(x) The Warrant Agent shall register the transfer of any
Warrant, whether or not such Warrant bears the Private
Placement Legend, if (A) the requested transfer is at least
three years after the later of the Issue Date and the last
date on which such Warrant was held by an Affiliate of the
Company or (B) the proposed transferee has delivered to the
Warrant Agent (1) a certificate substantially in the form of
Exhibit C hereto and (2) an opinion of counsel, if so
requested by the Company, acceptable to the Company and the
Warrant Agent that such transfer is in compliance with the
Securities Act.
(y) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Warrant, upon receipt by
the Warrant Agent of (A) the documents, if any, required by
paragraph (c) (i) (x) of this Section 7 and (B) instructions
given in accordance with the Depository's and the Warrant
Agent's procedures, the Warrant Agent shall reflect on its
books and records the date and a decrease in the aggregate
amount of the beneficial interest in the Global Warrant to
be transferred, and the Company shall execute, and the
Warrant Agent shall countersign and deliver, one or more
Physical Certificates of like tenor and amount.
(ii) Transfers to QIBs. If the Warrant to be transferred consists
-----------------
of Physical Warrants, the Warrant Agent shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box provided
9
<PAGE>
for on the form of Warrant stating, or has otherwise advised the Company and the
Warrant Agent in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Warrant stating, or has otherwise advised the
Company and the Warrant Agent in writing, that it is purchasing the Warrant for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning of Rule
144A, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.
(iii) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Warrant Certificates not bearing the Private Placement Legend,
the Warrant Agent shall deliver Warrant Certificates that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of Warrant
Certificates bearing the Private Placement Legend, the Warrant Agent shall
deliver only Warrant Certificates that bear the Private Placement Legend unless
there is delivered to the Warrant Agent an opinion of counsel reasonably
satisfactory to the Company and the Warrant Agent to the effect that neither
such legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(iv) General. The provisions hereof shall be qualified in their
-------
entirety by any applicable securities laws of the United States and any other
applicable jurisdiction and by the procedures of any applicable clearing agency,
in each case as in effect from time to time, and all such laws and clearing
procedures shall be deemed to be incorporated herein by reference. By its
acceptance of any Warrant Certificate bearing the Private Placement Legend, each
holder of such a Warrant Certificate shall be deemed to acknowledge the
restrictions on transfer of such Warrant Certificate set forth in this Warrant
Agreement and in the Private Placement Legend and agrees that it will transfer
such Warrant Certificate only as provided in this Warrant Agreement. The Warrant
Agent shall not register a transfer of any Warrant Certificate unless such
transfer complies with the restrictions on transfer of such Warrant Certificate
set forth in this Warrant Agreement. In connection with any transfer of Warrant
Certificates, each Warrant holder agrees by its acceptance of the Warrant
Certificates to furnish the Warrant Agent or the Company such certifications,
legal opinions or other information as either of them may reasonably require to
confirm that such transfer is being made pursuant to an exemption from, or a
transaction not subject to, the registration requirements of the Securities Act;
provided that the Warrant Agent shall not be required to determine (but may rely
on a determination made by the Company with respect to) the sufficiency of any
such certifications, legal opinions or other information.
SECTION 8. Terms of Warrants; Exercise of Warrants. Subject to the
---------------------------------------
terms of this Agreement, each Warrant holder shall have the right, which may be
exercised at any time beginning 180 days from the date of original issuance
10
<PAGE>
thereof and on or prior to the close of business on September 30, 2003 (the
"Expiration Date") to exercise Warrants and receive from the Company the number
of fully paid and nonassessable Warrant Shares which the holder may at the time
be entitled to receive on exercise of such Warrants and payment of the Exercise
Price for such Warrant Shares; provided that upon any such exercise no holder
shall be entitled to sell or transfer such holder's Warrants Shares at any time
unless, at the time of such sale or transfer, (i) a registration statement under
the Securities Act covering the offer and sale of the Warrant Shares has been
filed with, and declared effective by, the Securities and Exchange Commission
(the "SEC"), and no stop order suspending the effectiveness of such registration
statement has been issued by the SEC or (ii) the offer and sale of the Warrant
Shares to the Warrant holder are exempt from registration under the Securities
Act and the holder of the Warrants, if so requested by the Company, has
delivered to the Company an opinion of counsel to such effect. Each Initial
Warrant, when exercised, will entitle the holder thereof to purchase 1.269311203
fully paid and nonassessable shares of Class A Common Stock at the Exercise
Price. The Number of Shares is subject to adjustment under certain
circumstances as provided herein by Section 15. Each Warrant not exercised
prior to the Expiration Date shall become void and all rights thereunder and all
rights in respect thereof under this Agreement shall cease as of such time.
A Warrant may be exercised at any time on or after 180 days from the
date of original issuance thereof at the election of the holder thereof, either
in full or from time to time in part (in whole shares) upon surrender to the
Company at the principal office of the Warrant Agent of the Warrant Certificate
or Certificates to be exercised with the form of election to purchase on the
reverse thereof duly filled in and signed, which signature shall be guaranteed
by an "eligible guarantor" as defined in the regulations promulgated under the
Exchange Act and upon payment to the Warrant Agent for the account of the
Company of the Exercise Price, as adjusted as herein provided, for each Warrant
then exercised. Payment of the aggregate Exercise Price shall be made in the
form of cash or a certified or official bank or bank cashier's check payable to
the order of the Company.
Subject to the provisions of Section 10 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Warrant holder and in such name or names as the Warrant holder may designate, a
certificate or certificates for the number of whole Warrant Shares issuable upon
the exercise of such Warrants together with any cash which may be payable as
provided in Section 17 hereof. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Warrant Shares as of the date
of the surrender of such Warrants and payment of the aggregate Exercise Price.
No fractional shares shall be issued upon exercise of any Warrants in accordance
with Section 17 hereof.
In the event that a Warrant Certificate is exercised in respect of
fewer than all of the Warrant Shares issuable on such exercise at any time prior
to the Expiration Date, a new Warrant Certificate evidencing the remaining
Warrant or Warrants will be issued, and the Warrant Agent is hereby irrevocably
authorized to
11
<PAGE>
countersign and to deliver the required new Warrant Certificate or Certificates
pursuant to the provisions of this Section and of Section 4 hereof, and the
Company, whenever required by the Warrant Agent, will supply the Warrant Agent
with Warrant Certificates duly executed on behalf of the Company for such
purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled by the Warrant Agent. Such canceled Warrant Certificates shall then
be disposed of by the Company in accordance with applicable law. The Warrant
Agent shall account promptly to the Company with respect to Warrants exercised
and concurrently pay to the Company all monies received by the Warrant Agent for
the purchase of the Warrant Shares through the exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement and any notices
given or received hereunder available for inspection by the Warrant holders
during normal business hours at its office. The Company shall supply the
Warrant Agent from time to time with such numbers of copies of this Agreement as
the Warrant Agent may request.
SECTION 9. Reports. So long as any of the Warrants remain
-------
outstanding, the Company shall cause copies of all quarterly and annual
financial reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) that the Company is required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act ("SEC Reports") to be filed with the Warrant
Agent and mailed to the holders of Warrants, in each case, within 15 days after
filing with the SEC. So long as any of the Warrants remain outstanding, if the
Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall nevertheless continue to cause reports,
comparable to those that it would be required to file pursuant to Section 13 or
15(d) of the Exchange Act if it were then subject to the requirements of either
such Section, to be so filed with the SEC for public availability (unless the
SEC will not accept such a filing) and with the Warrant Agent and mailed to the
holders of Warrants, in each case, within the same time periods as would have
applied (including under the preceding sentence) had the Company then been
subject to the requirements of Section 13 or 15(d) of the Exchange Act. The
Company shall make available to investors and prospective investors of the
Warrants information that satisfies the requirements of Rule 144A(d) (4) under
the Securities Act.
SECTION 10. Payment of Taxes. No service charge shall be made to any
----------------
holder of a Warrant for any exercise, exchange or registration of transfer of
Warrant Certificates, and the Company will pay all documentary stamp taxes
attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants or to any Separation; provided that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for Warrant Shares
in a name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall
12
<PAGE>
have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 11. Mutilated or Missing Warrant Certificates. If any of the
-----------------------------------------
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue and the Warrant Agent may countersign, in exchange
and substitution for and upon cancellation of, the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity and security therefor, if requested, also
satisfactory to them. Applicants for such substitute Warrant Certificates shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe.
SECTION 12. Reservation of Warrant Shares. The Company will at all
-----------------------------
times reserve and keep available, free of preemptive rights and free from all
taxes, liens, charges and security interests with respect to the issuance
thereof, out of the aggregate of its authorized but unissued Class A Common
Stock, for the purpose of enabling it to satisfy any obligation to issue Warrant
Shares upon the exercise of Warrants, the maximum number of Class A Common Stock
which may then be deliverable upon the exercise of all outstanding Warrants.
The Company or the transfer agent for the Class A Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and directed at all times to
reserve such number of authorized shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition
from time to time from such Transfer Agent the stock certificates required to
honor outstanding Warrants upon exercise thereof in accordance with the terms of
this Agreement. The Company will supply such Transfer Agent with duly executed
certificates for such purposes and will provide or otherwise make available to
the Warrant Agent any cash which may be payable as provided in Section 17
hereof. The Company will furnish such Transfer Agent a copy of all notices of
adjustments and certificates related thereto transmitted to each holder pursuant
to Section 18 hereof.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will be, upon payment of the Exercise Price and issuance
thereof, duly and validly issued, fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof.
13
<PAGE>
SECTION 13. Obtaining Stock Exchange Listings. The Company shall
---------------------------------
from time to time take all action necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of Warrants, will be listed on
the principal securities exchanges, interdealer quotation systems and markets,
if any, on which any shares of Common Stock are then listed or quoted.
SECTION 14. Consolidations, Mergers and Sales of Assets. In the
-------------------------------------------
event the Company consolidates with, merges with or into, or sells all or
substantially all of its property and assets to another Person, and in
connection therewith, consideration to the holders of shares of Common Stock in
exchange for their shares is (a) not payable solely in cash, each Warrant
thereafter shall entitle the holder thereof to receive upon exercise thereof the
number of shares of capital stock or other securities or property which the
holder of any shares of Common Stock is entitled to receive upon completion of
such consolidation, merger or sale of assets ("Merger Consideration") or (b)
payable solely in cash ("Cash Payment"), or in the event of the dissolution,
liquidation or winding-up of the Company, then the holders of the Warrants will
receive distributions on an equal basis with the holders of shares of Common
Stock or other securities issuable upon exercise of the warrants, as if the
Warrants had been exercised immediately prior to such event, less the Exercise
Price; provided, however, that in the event of that such consolidation, merger
-------- -------
or sale of assets constitutes a "Qualified Sale of the Company" (as defined in
each of the Indentures), only the holders of Warrants issued and outstanding on
the date of such consolidation, merger or sale shall be entitled to the Merger
Consideration or Cash Payment, as the case may be; provided, further that if
--------
such consolidation, merger or sale does not constitute a Qualified Sale of the
Company, the holders of Senior Notes and Convertible Notes who are entitled,
under certain circumstances, to receive Senior Note Contingent Warrants or
Convertible Note Contingent Warrants, respectively, shall not receive the Merger
Consideration or Cash Payment, as the case may be, on the date other Initial
Warrant holders are entitled to receive the Merger Consideration or Cash
Payment, as the case may be, until (i) March 30, 1998 with respect to the Senior
Note Contingent Warrants, but only if the holders of Senior Notes would have
been entitled to receive the Senior Note Contingent Warrants on such date or
(ii) September 30, 1999 with respect to the Convertible Note Contingent
Warrants, but only if the holders of Convertible Notes would have been entitled
to receive the Convertible Note Contingent Warrants on such date. Upon receipt
of such Cash Payment, if any, the Warrants will expire and the rights of the
holders thereof will cease.
In the event the Company is required pursuant to the provisions of
this Section 14 to make a Cash Payment as a result of any such merger,
consolidation or sale of assets, the surviving or acquiring Person, and in the
event of any dissolution, liquidation or winding-up of the Company, the Company,
shall deposit promptly with the Warrant Agent the funds, if any, necessary to
pay the holders of the Warrants. After such funds and the surrendered Warrant
Certificate are received, the Warrant Agent shall make payment by delivering a
check in such amount as is appropriate to such Person or Persons as it may be
directed in writing by the holders surrendering such Warrants.
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SECTION 15. Adjustment of Number of Warrant Shares.
--------------------------------------
(a) In case the Company shall (i) make a dividend or other
distribution on the Common Stock exclusively in Common Stock, (ii) make a
dividend or other distribution on the Common Stock in shares of its capital
stock other than Common Stock, (iii) subdivide its outstanding shares of Common
Stock or (iv) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, the number and kind of shares of Common Stock
or capital stock of the Company issuable upon the exercise of a Warrant (as in
effect immediately prior to such dividend or distribution) shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company that such holder would have owned immediately following such dividend or
distribution if such Warrant had been exercised immediately prior thereto.
(b) Subject to the last sentence of paragraph (g) of this Section, in
case the Company shall make a dividend or other distribution on the Common Stock
consisting exclusively of, or shall otherwise issue to all holders of the Common
Stock, rights, options or warrants entitling the holders thereof to subscribe
for or purchase Common Stock or securities convertible into or exchangeable for
Common Stock at a price per share (determined on an as-converted or as-exercised
basis if the rights, options or warrants pertain to securities convertible into
or exchangeable for shares of Common Stock) less than the Current Market Price
(determined as provided in paragraph (h) of this Section) on the date fixed for
the determination of shareholders entitled to receive such rights, options or
warrants, the Number of Shares shall be determined by multiplying the Number of
Shares purchasable immediately prior to the date so fixed by a fraction, of
which the numerator shall be the number of shares of Common Stock outstanding on
the date fixed for determining stockholders entitled to receive such rights,
options or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the denominator shall be the number
of shares of Common Stock outstanding on the date fixed for determining
stockholders entitled to receive such rights, options or warrants plus the
number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the Current Market Price;
provided, however, that no further adjustment to the Number of Shares shall be
- -------- -------
made upon the subsequent issue or sale of Common Stock pursuant to such options
or warrants. For the purposes of this paragraph (b), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of Common Stock. The Company shall not
issue any rights, options or warrants in respect of Common Stock held in the
treasury of the Company.
(c) [Intentionally Omitted.]
(d) (i) Subject to the last sentence of this paragraph (d) (i) and
the last sentence of paragraph (g) of this Section, in case the Company shall,
by dividend or otherwise, distribute to all holders of Common Stock evidences of
its
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indebtedness, cash or other assets (including securities, but excluding any
rights, options or warrants referred to in paragraph (b) of this Section,
excluding any dividend or distribution paid exclusively in cash out of
consolidated current or retained earnings as shown on the books of the Company
prepared in accordance with GAAP (other than any Extraordinary Cash Dividend (as
hereinafter defined)) and excluding any dividend or distribution referred to in
paragraph (a) of this Section, the Number of Shares shall be increased by
multiplying the Number of Shares issuable immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
such distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in paragraph (h) of this Section) on such
date and the denominator shall be the Current Market Price on such date less the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of Directors) on
such date of the portion of the evidences of indebtedness, shares of capital
stock, cash and other assets to be distributed applicable to one share of Common
Stock, such increase to become effective immediately prior to the opening of
business on the day following such date; provided, that, in the event that the
--------
amount of such dividend as so determined is equal to or greater than 100% of
such Current Market Price, in lieu of the foregoing adjustment, adequate
provision shall be made so that the holder of a Warrant shall receive a pro rata
share of such dividend based upon the maximum number of shares of Common Stock,
at the time issuable to such holder (determined without regard to whether the
Warrant is exercisable at such time). If the Board of Directors determines the
fair market value of any distribution for purposes of this paragraph (d) (i) by
reference to the actual or when-issued trading market for any securities
comprising part or all of such distribution, it must in doing so consider the
prices in such market over the same period used in computing the Current Market
Price pursuant to paragraph (h) of this Section, to the extent possible. For
purposes of this paragraph (d) (i), an "Extraordinary Cash Dividend" shall be
that portion, if any, of the aggregate amount of all cash dividends paid in any
fiscal year which exceed $25,000,000. For purposes of this paragraph (d), any
dividend or distribution that includes Common Stock, rights, options or warrants
to subscribe for or purchase Common Stock or securities convertible into or
exchangeable for Common Stock shall be deemed to be (x) a dividend or
distribution of the evidences of indebtedness, cash, assets or shares of capital
stock other than such Common Stock, such rights, options or warrants or such
convertible or exchangeable securities (making any increase in the Number of
Shares required by this paragraph (d) (i) immediately followed by (y) in the
case of such Common Stock or such rights, options or warrants, a dividend or
distribution thereof (making any further adjustment to the Number of Shares
required by paragraph (a) and (b) of this Section, except any shares of Common
Stock included in such dividend or distribution shall not be deemed "outstanding
at the close of business on the date fixed for such determination" within the
meaning of paragraph (a) of this Section), or (z) in the case of such
convertible or exchangeable securities, a dividend or distribution of the number
of shares of Common Stock as would then be issuable upon the exercise or
exchange thereof, whether or not the exercise or exchange of such securities is
subject to any conditions (making any further reduction in Number of Shares
required by paragraph (a) of this Section, except the shares deemed to
constitute such dividend or distribution shall not be
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deemed "outstanding at the close of business on the date fixed for such
determina tion" within the meaning of paragraph (a) of this Section).
(ii) In case the Company shall issue Common Stock for a
consideration per share less than the Current Market Price (determined as
provided in paragraph (h) of this Section), the Number of Shares shall be
increased by multiplying the Number of Shares issuable immediately prior to the
close of business on the date on which the Company fixes the offering price of
such additional shares by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding immediately after giving effect to such
issuance and the denominator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus a fraction equal to the aggregate consideration received by
the Company from the issuance of such additional shares of Common Stock over the
Current Market Price on the date on which the Company fixes the offering price
of such additional shares (determined as provided in paragraph (h) of this
Section), and the increase in the Number of Shares provided for in the preceding
sentence shall not apply upon (i) the issuance of securities in transactions
described in paragraphs (a), (b), (d) (i), and d (iii), or (f) of this Section
or pursuant to the exercise, exchange or conversion of any such securities (to
the extent applicable, including the 9% Preferred Stock (as defined below));
(ii) the issuance of Common Stock upon the exercise or exchange of securities
(including options) convertible or exchangeable for shares of Common Stock
outstanding on the date of this Warrant Agreement, or issuable pursuant to
binding agreements in effect on the date of this Warrant Agreement as set forth
on a schedule to the Senior Note Indenture; (iii) the issuance of Common Stock
upon the exercise of options issued to the Company's directors, officers and
employees under bona fide employee benefit plans adopted by the Board of
Directors and approved by the holders of Common Stock when required by law or
otherwise where such issuances have been approved by the Board of Directors (but
only to the extent that the aggregate number of shares excluded pursuant to this
subclause (iii) and issued after the date of this Warrant Agreement shall not
exceed 3% of the Common Stock outstanding at the time of issuance; provided,
--------
that options granted pursuant to this subclause (iii) exercisable for no more
than 2% of such outstanding Common Stock may have exercise prices less than 50%
of the price per share based on a valuation of the Company of $122,500,000);
(iv) the issuance of Common Stock to shareholders of any person that immediately
or subsequently merges with or into the Company or any subsidiary thereof in
proportion to their stock holdings of such person immediately prior to such
merger, upon such merger; (v) the issuance of Common Stock in a bona fide
underwritten public offering; (vi) the issuance of Common Stock in a bona fide
private placement through a placement agent that is a member firm of the
National Association of Securities Dealers, Inc. (except to the extent that any
discount from the Current Market Price (determined as provided in paragraph (h)
of this Section) attributable to restrictions on transferability of the Common
Stock, as determined in good faith by the Board of Directors and described in a
resolution thereof which shall be filed with the Warrant Agent, shall exceed
20%), or issuable pursuant to a binding agreement in effect on the date of this
Warrant Agreement; (vii) the issuance of Common Stock as a dividend on any
securities outstanding on the date of this Warrant Agreement required to be made
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pursuant to the certificate of designation pertaining to such securities in
effect at the time such securities were issued; (viii) the issuance of Common
Stock upon the exercise of Initial Warrants; (ix) the issuance of Common Stock
upon the exercise of Contingent Warrants; (x) the issuance of Common Stock upon
the exercise of Additional Warrants or the conversion of convertible securities
that may be issued pursuant to Section 4.15 of the Convertible Note Indenture;
or (xi) the issuance of Common Stock upon the conversion of the Convertible
Notes.
(iii) In case the Company shall issue any securities convertible
into or exchangeable for Common Stock for a consideration per share of Common
Stock (including the minimum consideration per share payable upon exercise or
exchange of any securities convertible into or exchangeable for Common Stock)
initially deliverable upon exercise or exchange of such securities less than the
Current Market Price (determined as provided in paragraph (h) of this Section),
the Number of Shares shall be increased by multiplying the Number of Shares
issuable immediately prior to the close of business on the date on which the
Company fixes the offering price of such additional shares by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such securities plus the maximum number of
shares of Common Stock deliverable upon exercise of or in exchange for such
securities at the initial exercise or exchange rate and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities plus a fraction equal to the aggregate
consideration received for the issuance of such securities (including the
minimum consideration per share payable upon exercise or exchange of any
securities convertible into or exchangeable for Common Stock) over the Current
Market Price on the date on which the Company fixes the offering price of such
additional shares (determined as provided in paragraph (h) of this Section).
The increase in Number of Shares provided for in the preceding sentence shall
not apply to (i) securities issued in transactions described in paragraphs (a),
(b), (d) (i) and (d) (ii) of this Section or any shares of 9% Cumulative
Convertible PIK Preferred Stock, par value $1.00 per share (the "9% Preferred
Stock"), received as a dividend on the 9% Preferred Stock; (ii) convertible
securities issued to shareholders of any person that merges into the Company, or
with a Subsidiary of the Company, in proportion to their stock holdings of such
person immediately prior to such merger, upon such merger; (iii) convertible
securities issued in a bona fide underwritten public offering; (iv) convertible
securities issued in a bona fide private placement through a placement agent
that is a member firm of the National Association of Securities Dealers, Inc.
(except to the extent that any discount from the Current Market Price
(determined as provided in paragraph (h) of this Section) attributable to
restrictions on transferability of Common Stock issuable upon exercise, as
determined in good faith by the Board of Directors and described in a resolution
thereof which shall be filed with the Warrant Agent, shall exceed 20% of the
then Current Market Price, or issuable pursuant to a binding agreement in effect
on the date of this Warrant Agreement; (v) stock options issued to the Company's
directors, officers or employees; (vi) the grant of any Supplemental Initial
Warrants; (vii) the grant of Contingent Warrants; (viii) the grant of Additional
Warrants or the issuance of convertible securities that may be
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<PAGE>
issued pursuant to Section 4.15 of the Convertible Note Indenture; or (ix) the
issuance of additional Convertible Notes pursuant to the Convertible Note
Indenture.
(e) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of Common Stock cash (excluding any cash that is
distributed as part of a distribution referred to in paragraph (d) (i) of this
Section or in connection with a transaction to which Section 14 applies) in an
aggregate amount that, together with (i) the aggregate amount of any other
distributions to all holders of Common Stock made exclusively in cash within the
12 months preceding the date fixed for the determination of shareholders
entitled to such distribution and in respect of which no adjustment in the
Number of Shares pursuant to paragraph (d) (i) or this paragraph (e) has been
made previously and (ii) the aggregate of any cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) as of such
date of determination of consideration payable in respect of any tender offer by
the Company or a Subsidiary for all or any portion of the Common Stock, and any
purchase by the Company of Common Stock in the open market, consummated within
the 12 months preceding such date of determination and in respect of which no
adjustment in the Number of Shares pursuant to paragraph (f) of this Section has
been made previously, exceeds 12.5% of the product of the Current Market Price
(determined as provided in paragraph (h) of this Section) on such date of
determination times the number of shares of Common Stock outstanding on such
date, the Number of Shares shall be increased by multiplying the Number of
Shares issuable immediately prior to the close of business on such date of
determination by a fraction of which the numerator shall be such Current Market
Price and the denominator shall be the Current Market Price (determined as
provided in paragraph (h) of this Section) on such date less the amount of cash
to be distributed at such time applicable to one share of Common Stock, such
increase to become effective immediately prior to the opening of business on the
day after such date.
(f) In case a tender or exchange offer made by the Company or any
subsidiary for all or any portion of the Common Stock shall be consummated, or
in case the Company shall purchase Common Stock in the open market, the Number
of Shares shall be increased by multiplying the Number of Shares issuable
immediately prior to the Expiration Time by a fraction of which the numerator
shall be the sum of (A) the fair market value (determined as aforesaid) of the
aggregate consideration payable to shareholders upon consummation of such tender
or exchange offer, or upon such purchase, and (B) the product of such Current
Market Price times such number of outstanding shares at the Expiration Time
minus the number of shares accepted for payment in such tender or exchange
offer, or so purchased (the "Purchased Shares") and the denominator shall be the
product of the Current Market Price (determined as provided in paragraph (h) of
this Section) times the number of shares of Common Stock outstanding (including
any Shares of Common Stock tendered or submitted for exchange) at the Expiration
Time. For the purpose of this paragraph, "Expiration Time" means either the
last time that tenders may be made pursuant to a tender offer or exchanges may
be made pursuant to an exchange offer, or the time of an agreement to purchase
shares in the open market, as the case may be. Any increase in the Number of
Shares pursuant to this
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<PAGE>
paragraph shall be made immediately following the close of business on the last
trading day used to compute Current Market Price; provided, however, that, such
increase shall be deemed to have become effective immediately prior to the
opening of business on the day following the Expiration Time. To the extent
that a holder exercises Warrants prior to the conclusion of the period for which
Current Market Price is to be calculated, any adjustment in the number of shares
of Common Stock issuable upon exercise of such Warrant shall inure to the
benefit of the holder of record of such Warrant at the close of business on the
first Trading Day following the Expiration Time. In no event shall the Number
of Shares be reduced as a result of the consummation of any of the transactions
contemplated by this paragraph (f).
(g) The reclassification of any class of Common Stock into securities
which include securities other than such class of Common Stock (other than any
reclassification upon a consolidation or merger to which Section 14 applies)
shall be deemed to involve (i) a distribution of such securities other than such
class of Common Stock to all holders of such class of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of shareholders entitled to such distribution" within the
meaning of paragraph (d) (i) of this Section), and (ii) a subdivision or
combination, as the case may be, of the number of shares of such class of Common
Stock outstanding prior to such reclassification into the number of such class
of Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be the day upon which such subdivision
becomes effective or the day upon which such combination becomes effective, as
the case may be, and the day upon which such subdivision or combination becomes
effective within the meaning of paragraph (a) of this Section). Rights, options
or warrants issued by the Company to all holders thereof to subscribe for or
purchase Common Stock entitling the holders thereof to subscribe for or purchase
Common Stock (either initially or under certain circumstances), which rights,
options or warrants (i) are deemed to be transferred with such Common Stock,
(ii) are not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, in each case in clauses (i) through (iii) until or
upon the occurrence of a specified event or events ("Trigger Event"), shall for
purposes of this Section 15 not be deemed issued until the occurrence of the
earliest Trigger Event.
(h) For the purpose of any computation under this paragraph and
paragraphs (b), (d) and (e) of this Section, the current market price per share
of Common Stock (the "Current Market Price" per share of Common Stock of the
Company or any other security) 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 the date in question. For the purpose of any computation
under paragraph (f) of this Section, the Current Market Price on any date shall
be deemed to be the average of the daily closing prices for the five consecutive
trading days commencing on the first trading day immediately following the
expiration time. Notwithstanding anything to the contrary contained in this
paragraph, (i) the "ex" date for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
conversion price pursuant to paragraph (a), (b), (d) or (e) above occurs on or
after the 15th trading day prior to the date in
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<PAGE>
question and prior to the "ex" date for the issuance or distribution requiring
such computation, the closing price for each trading day prior to the "ex" date
for such other event shall be adjusted by multiplying such closing price by the
same fraction by which the conversion price is so required to be adjusted as a
result of such other event, (ii) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the conversion price pursuant to paragraph (a), (b), (d), (e) or (f) above
occurs on or after the "ex" date for the issuance or distribution requiring such
computation and on or prior to the date in question, the closing price for each
trading day on and after the "ex" date for such other event shall be adjusted by
multiplying such closing price by the reciprocal of the fraction by which the
conversion price is so required to be adjusted as a result of such other event,
and (iii) if the "ex" date for the issuance or distribution requiring such
computation is on or prior to the date in question, after taking into account
any adjustment required pursuant to clause (ii) of this proviso, the closing
price for each trading day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value on the date in
question (as determined by the Board of Directors in a manner consistent with
any determination of such value for the purposes of paragraph (d) or (e) of this
Section, whose determination shall be conclusive and described in a resolution
of the Board of Directors) of the evidences of indebtedness, shares of Capital
Stock or assets being distributed applicable to one share of Common Stock of the
Company as of the close of business on the day before such "ex" date. If on any
date there has not been a Public Equity Offering or if there is no closing price
available for the Common Stock of the Company on any date, the Current Market
Price shall be determined (a) in good faith by the Board of Directors of the
Company and certified in a board resolution, based on the most recently
completed arms-length transaction between the Company and a person other than an
Affiliate (as defined in Rule 405 of the Securities Act of 1933, as amended) of
the Company and the closing of which occurs on such date or within such six-
month period of (b) if no transaction shall have occurred with the six-month
period preceding such date or if such transaction is in excess of $1 million, by
an Independent Financial Expert appointed in the manner provided for in
paragraph (i) of this Section 14.
(i) (i) If any event shall occur as to which the other provisions of
this Section 15 are not strictly applicable but the failure to make any
adjustment would have the effect of depriving holders of the benefit of all or a
portion of the exercise rights in respect of any Warrant in accordance with the
essential intent and principles of this Section 15, then, in each such case, the
Company shall appoint an Independent Financial Expert, which shall give its
opinion upon the adjustment, if any, on a basis consistent with the essential
intent and principles established in this Section 15 necessary to preserve,
without dilution, such exercise rights. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the holders and shall make the
adjustments described therein. As used herein, an "Independent Financial
Expert" is a firm (a) which does not, and whose directors, officers and
employees or affiliates do not have a direct or indirect financial interest in
the Company and (b) which, in the judgment of the Board of Directors, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
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(ii) The Company will not, by amendment of its articles of
incorporation or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrants, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders thereof against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (i) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Class A Common Stock on the exercise of the Warrants
from time to time outstanding and (ii) will not take any action which results in
any adjustment of the Number of Shares if the total number of shares of Class A
Common Stock issuable after the action upon the exercise of all of the Warrants
would exceed the total number of shares of Class A Common Stock then authorized
by the Company's certificate of incorporation and available for the purposes of
issue upon such exercise.
(j) The Company may, but shall not be obligated to, make such
increases in the Number of Shares, in addition to those required by paragraphs
(a), (b), (d), (e), (f) and (g) of this Section, as it considers to be advisable
in order that any event treated for United States federal income tax purposes as
a dividend of stock or stock rights shall not be taxable to the recipients or if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
(k) No adjustment in the Number of Shares shall be required unless
such adjustment (plus any other adjustments not previously made by reason of
this paragraph (k)) would require an increase or decrease of at least 1% in the
Number of Shares; provided, however, that any adjustments which by reason of
this paragraph (k) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(l) In any case in which this Section 15 shall require that an
adjustment in the Number of Shares be made effective as of or immediately after
a record date for a specified event, the Company may elect to defer until the
occurrence of such event (i) issuing to the holder of any Warrant exercised
after such record date the shares of Common Stock and other capital stock of the
Company, if any, issuable upon such exercise over and above the shares of Common
Stock and other capital stock of the Company, if any, issuable upon such
exercise on the basis of the Number of Shares prior to such adjustment and (ii)
paying to such holder any amount in cash in lieu of a fractional share pursuant
to Section 17 hereof; provided, however, that the Company shall deliver to such
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holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares of Common Stock, other capital stock and cash
upon the occurrence of the event requiring such adjustment.
(m) (i) No adjustment need be made for a transaction referred to in
subsections (a), (b), (e) or (f) of this Section 15 if holders are to
participate in the transaction on a basis and with notice that the Board of
Directors determines to
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<PAGE>
be fair and appropriate in light of the basis and notice on which holders of
shares of Common Stock of the Company participate in the transaction.
(ii) No adjustment need be made for (x) a transaction referred to
in subsections (b), (d) (ii) or (d) (iii) of this Section 15 if the below market
portion of such issuances, taken together with the below market portion of all
other below market issuances and with the above market portion of all above
market tender or exchange offers described in clause (y) of this paragraph made
on and after the date of this Warrant Agreement, is less than 2.0% of the
product of the Current Market Price and the number of outstanding shares ("Total
Capitalization") of the Company (determined by reference to the sum of the
percentages of Total Capitalization of the Company attributable to each such
transaction on the date thereof) and (y) a transaction referred to in subsection
(f) of this Section 15 if the above market portion of such tender or exchange
offers, taken together with the above market portion of all other above market
tender or exchange offers and with the below market portion of all below market
issuances described in clause (x) of this paragraph made on or after the date of
this Warrant Agreement, is less than 2.0% of the Total Capitalization of the
Company (determined by reference to the sum of the percentages of Total
Capitalization of the Company attributable to each such transaction on the date
thereof).
(iii) No adjustment need be made for a change in the par value, or
from par value to no par value, or from no par value to par value, of the Common
Stock.
SECTION 16. [Intentionally Omitted.]
SECTION 17. Fractional Interests. The Company shall not be required
--------------------
to issue fractional Warrant Shares on the exercise of Warrants. If more than
one Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 17,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall notify the Warrant Agent in writing of the amount to be paid in
lieu of the fraction of a Warrant Share and concurrently pay or provide to the
Warrant Agent for payment to the Warrant holder an amount in cash equal to the
product of (i) such fraction of a Warrant Share multiplied by (ii) the
difference of the Current Market Price of Class A Common Stock on the trading
day immediately preceding the date the Warrant is presented for exercise over
the Exercise Price, computed to the nearest whole cent.
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SECTION 18. Notices of Adjustments.
----------------------
(a) Whenever the Number of Shares is adjusted as herein provided:
(i) The Company shall compute the adjusted Number of Shares in
accordance with Section 15 and shall prepare a certificate signed by the
Treasurer or Chief Financial Officer of the Company setting forth the adjusted
Number of Shares and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall within 15 days thereafter be
filed (with a copy to each Trustee) at each office or agency maintained for the
purpose of exercise of Warrants pursuant to this Agreement; and
(ii) a notice stating that the Number of Shares has been adjusted
and setting forth the adjusted Number of Shares shall be prepared within 15 days
thereafter, and as soon as practicable after it is prepared, such notice shall
be furnished by the Company to each Trustee and mailed by the Company at its
expense to all registered holders at their last addresses as they shall appear
in the Warrant register.
(b) In case:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than exclusively in cash
or (ii) exclusively in cash in an amount that would require an adjustment in the
Number of Shares pursuant to paragraph (e) of Section 15; or
(ii) the Company shall authorize the granting to the holders of
its shares of Common Stock of rights, options or warrants to subscribe for or
purchase any shares of Capital Shares of any class or of any other rights
(excluding shares of Capital Shares or options for Capital Shares issued
pursuant to a benefit plan for employees, officers or directors of the Company);
or
(iii) of any reclassification of the shares of any class of
Common Stock of the Company (other than a subdivision or combination of the
outstanding shares of such class of Common Stock), or of any consolidation,
merger or share exchange to which the Company is a party and for which approval
of any shareholders of the Company is required, or of the sale or transfer of
all or substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(v) the Company or any subsidiary shall commence a tender or
exchange offer for all or a portion of the outstanding shares of Common Stock
(or shall amend any such tender or exchange offer to change the maximum number
of shares being sought or the amount or type of consideration being offered
(including by exchange) therefor); then the Company shall cause to be filed at
each
24
<PAGE>
office or agency maintained pursuant to this Agreement, and shall cause to be
mailed to all registered holders at their last addresses as they shall appear in
the Warrant register, at least 21 days (or 11 days in any case specified in
clause (a), (b) or (e) above) prior to the applicable record, effective or
expiration date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or granting
of rights, options or warrants, or, if a record is not to be taken, the date as
of which the holders of its shares of Common Stock of record who will be
entitled to such dividend, distribution, rights, options or warrants are to be
determined, (y) the date on which such reclassification, consolidation, merger,
share exchange, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of its shares of Common Stock of record shall be entitled to exchange
their shares of Common Stock, for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer, dissolution, liquidation or winding up, or (z) the date on which such
tender or exchange offer (other than an exchange offer contemplated by clause
(y) above) commenced, the date on which such tender or exchange offer is
scheduled to expire unless extended, the consideration offered and the other
material terms thereof (or the material terms of any amendment thereto).
Neither the failure to give any such notice nor any defect therein shall affect
the legality or validity of any action described in clauses (a) through (e) of
this Section 18.
SECTION 19. Warrant Agent. The Warrant Agent undertakes the duties
-------------
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound.
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company. The Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken, suffered or omitted by
it here under in good faith and in accordance with the opinion or the advice of
such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken in
reliance on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to
25
<PAGE>
be genuine and to have been signed, sent or presented by the proper party or
parties. The Warrant Agent shall not be bound by any notice or demand, or any
waiver, modification, termination or revision of this Agreement or any of the
terms hereof, unless evidenced by a writing between the Company and the Warrant
Agent.
(e) The Company agrees to pay to the Warrant Agent such reasonable
compensation from time to time as agreed between the Company and the Warrant
Agent for all services rendered by the Warrant Agent hereunder and in connection
with the execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes (including withholding taxes and the reasonable fees and
expenses of its counsel and agents) and governmental charges and other charges
of any kind and nature incurred by the Warrant Agent in the execution, delivery
and performance of its responsibilities under this Agreement and to indemnify
the Warrant Agent and save harmless against any and all losses, liabilities, or
expenses, including judgments, costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution, delivery and performance of its
responsibilities under this Agreement except as a result of its negligence,
willful misconduct or bad faith. The provisions of this Section 19(e) shall
survive termination of this Agreement and the resignation or removal of the
Warrant Agent.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as it may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent and any recovery of judgment shall
be for the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
(g) Except as required by law, the Warrant Agent, and any stockholder,
director, officer or employee of the Warrant Agent, may buy, sell or deal in any
of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not be liable for anything which it may do or refrain from
doing in connection with this Agreement except for its own negligence or bad
faith.
26
<PAGE>
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the Number of Shares or other securities or property
deliverable as provided in this Agreement, or to determine whether any facts
exist which may require any of such adjustments, or with respect to the nature
or extent of any such adjustments, when made, or with respect to the method
employed in making the same. The Warrant Agent shall not be accountable with
respect to the validity or value or the kind or amount of any Warrant Shares or
of any securities or property which may at any time be issued or delivered upon
the exercise of any Warrant or with respect to whether any such Warrant Shares
or other securities will when issued be validly issued and fully paid and
nonassessable, and makes no representation with respect thereto.
SECTION 20. Merger, Consolidation or Change of Name of Warrant Agent.
--------------------------------------------------------
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided that such corporation would be
eligible for appointment as a successor warrant agent under the provisions of
Section 21 hereof. To the extent practicable, the Warrant Agent shall provide
prior written notice to the Company of any such merger, consolidation,
succession or similar change with respect to the Warrant Agent; provided,
however, that the failure to deliver such notice will not affect the rights of
any of the parties hereto. In case at the time such successor to the Warrant
Agent shall succeed to the agency created by this Agreement, and in case at that
time any of the Warrant Certificates shall have been countersigned but not
delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent; and in case at that time any of
the Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificates either in the name of
the predecessor Warrant Agent or in the name of the successor to the Warrant
Agent; and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
SECTION 21. Change of Warrant Agent. If the Warrant Agent shall
-----------------------
become incapable of acting as Warrant Agent or shall resign as provided below,
the Company shall appoint a successor to such Warrant Agent. If the Company
shall fail to make such appointment within a period of 30 days after it has been
notified
27
<PAGE>
in writing of such incapacity by the Warrant Agent or by the registered holders
of a majority of Warrant Certificates, then the registered holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the appointment
of a successor to the Warrant Agent. Pending appointment of a successor to such
Warrant Agent, either by the Company or by such a court, the duties of the
Warrant Agent shall be carried out by the Company. The holders of a majority of
the unexercised Warrants shall be entitled at any time to remove the Warrant
Agent and appoint a successor to such Warrant Agent. Such successor to the
Warrant Agent need not be approved by the Company or the former Warrant Agent.
After appoint ment the successor to the Warrant Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed; but the former Warrant Agent
shall deliver and transfer to the successor to the Warrant Agent any property at
the time held by it here under and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in Section 21, however, or any defect therein, shall not affect the
legality or validity of the appointment of a successor to the Warrant Agent.
The Warrant Agent may resign at any time and be discharged from the
obligations hereby created by so notifying the Company in writing at least 30
days in advance of the proposed effective date of its resignation. If no
successor Warrant Agent accepts the engagement hereunder by such time, the
Company shall act as Warrant Agent.
SECTION 22. Notices to the Company and Warrant Agent. Any notice or
----------------------------------------
demand authorized by this Agreement to be given or made by the Warrant Agent or
by the registered holder of any Warrant Certificate to or on the Company shall
be sufficiently given or made when and if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
United USN, Inc.
10 Riverside Plaza, Suite 401
Chicago, IL 60606-3709
Attention: Ronald W. Gavillet
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive, Suite 2300
Chicago, IL 60606
Attention: Gary P. Cullen
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder(s) of any Warrant Certificate to the Warrant Agent shall
be sufficiently given when and if deposited in the mail, first-class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company) to the Warrant Agent as follows:
28
<PAGE>
Harris Trust and Savings Bank
311 West Monroe
Chicago, Illinois 60603
Attention: Indenture Trust Division
Notice may also be given by facsimile transmission (effective when
receipt is acknowledged) (effective at the time of delivery) or by overnight
delivery service (effective the next business day).
SECTION 23. Supplements and Amendments. The Company and the Warrant
--------------------------
Agent may from time to time supplement or amend this Agreement without the
consent of any holders of Warrant Certificates in order to cure any ambiguity or
to correct or supplement any provision contained herein which may be defective
or inconsistent with any other provision herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not in any way
materially adversely affect the interests of the holders of Warrant
Certificates. Any amendment or supplement to this Agreement that has a material
adverse effect on the interests of holders shall require the written consent of
registered holders of a majority of the then outstanding Warrants. The consent
of each holder of a Warrant affected shall be required for any amendment
pursuant to which the Exercise Price would be increased or the Number of Shares
purchasable upon exercise of Warrants would be decreased (other than in
accordance with Sections 15 or 17 hereof). In executing any amendment or
supplement, the Warrant Agent shall be entitled to receive an opinion of counsel
to the effect that such amendment or supplement is authorized and permitted by
this Agreement.
SECTION 24. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 25. Termination. This Agreement shall terminate at 5:00
-----------
p.m., New York, New York time on September 30, 2003. Notwithstanding the
foregoing, this Agreement will terminate on such earlier date on which all
outstanding Warrants have been exercised. The provisions of Sections 19 and 27
hereof shall survive such termination.
SECTION 26. Governing Law; Jurisdiction. This Agreement and each
---------------------------
Warrant Certificate shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
in the State of New York. The Company irrevocably consents to the jurisdiction
of any United States or State Court located in the State of New York in any suit
or proceeding based on or arising under this Agreement or the Warrant
Certificates and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in any such court. The Company irrevocably waives
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company hereby agrees to designate and appoint Corporation
Service Company, 500 Central Avenue, Albany, New York 12210 as an agent upon
whom process may be served
29
<PAGE>
in any suit or proceeding based on or arising under this Agreement. The Company
further agrees that service of process upon the Company, or upon an agent
appointed pursuant to the preceding sentence accompanied with written notice of
said service to the Company, as the case may be, mailed by first class mail
shall be deemed in every respect effective service of process upon the Company
in any such suit or proceeding. Nothing herein shall affect the Warrant Agent's
or any Warrant holder's right to serve process in any other manner permitted by
law. The Company agrees that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
SECTION 27. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person or corporation other than the Company,
the Warrant Agent and the registered holders of the Warrant Certificates any
legal or equitable right, remedy or claim under this Agreement; but this
Agreement shall be for the sole and exclusive benefit of the Company, the
Warrant Agent and the registered holders of the Warrant Certificates.
SECTION 28. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 29. Further Assurances. From time to time on and after the
------------------
date hereof, the Company shall deliver or cause to be delivered to the Warrant
Agent such further documents and instruments and shall do and cause to be done
such further acts as the Warrant Agent shall reasonably request (it being
understood that the Warrant Agent shall have no obligation to make such request)
to carry out more effectively the provisions and purposes of this Agreement, to
evidence compliance herewith or to assure itself that it is protected hereunder.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
UNITED USN, INC.
By: ________________________________
Name:
Title:
HARRIS TRUST AND SAVINGS
BANK, as Warrant Agent
By: ________________________________
Name:
Title:
31
<PAGE>
EXHIBIT A
EXERCISABLE ON OR AFTER ______________, 1996
AND ON OR BEFORE SEPTEMBER 30, 2003
Form of Warrant Certificate
Face
No. _____
CUSIP [91311C___] [Accredited]
[91311C___] [144A]
Warrant Certificate
UNITED USN, INC.
This Warrant Certificate certifies that ___________, or its registered
assigns, is the registered holder of __________ warrants expiring September 30,
2003 (the "Warrants") to purchase _____________ shares of Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), of United USN, Inc. ("the
Company"). Each Warrant entitles the holder upon exercise to receive from the
Company, at any time on or after 9:00 a.m., New York, New York time on
_______________, 1997 and on or prior to the close of business on a date seven
years following the date of the Warrant Agreement ____________ fully paid and
nonassessable shares ("Number of Shares") of Class A Common Stock (each a
"Warrant Share") at the initial exercise price (the "Exercise Price") of $.01
per share payable in the form of cash or certified check, official bank check or
bank cashier's check payable to the order of the Company, upon surrender of this
Warrant Certificate and payment of the aggregate Exercise Price at the office or
agency of the Warrant Agent, but only subject to the conditions set forth herein
and in the Warrant Agreement referred to herein. The Exercise Price and number
of Warrant Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events set forth in the Warrant
Agreement. All capitalized terms not defined herein shall have the meaning
assigned to such terms in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York, New York time
on September 30, 2003 and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent, as such term is used in the Warrant Agreement.
32
<PAGE>
This Warrant Certificate shall be governed and construed in accordance
with the internal laws of the State of New York.
IN WITNESS WHEREOF, United USN, Inc. has caused this Warrant
Certificate to be signed by its Chief Executive Officer and by its Secretary,
each by a facsimile of his signature, and has caused a facsimile of its
corporate seal to be affixed hereunto or imprinted hereon.
Dated:
UNITED USN, INC.
By: ______________________________
Chief Executive Officer
By: ______________________________
Secretary
(seal)
Countersigned:
HARRIS TRUST AND SAVINGS BANK,
as Warrant Agent
By: _____________________
Authorized Signatory
33
<PAGE>
Form of Warrant Certificate
Reverse
UNLESS THIS WARRANT IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY WARRANT ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY OR SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RE-
STRICTIONS SET FORTH IN SECTION 7 OF THE WARRANT AGREEMENT.
UNTIL THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (I) A DATE 180
DAYS AFTER THE ISSUE OF THE WARRANTS, (II) SUCH DATE AS SMITH BARNEY INC.
MAY DETERMINE, (III) THE COMMENCEMENT OF AN EXCHANGE OFFER RELATING TO THE
14% SENIOR DISCOUNT NOTES DUE 2003 (THE "NOTES") OF UNITED USN, INC. (THE
"COMPANY"), (IV) IN THE EVENT OF CHANGE OF CONTROL (AS DEFINED IN THE
INDENTURE RELATING TO THE NOTES), THE DATE THE COMPANY MAILS NOTICE THERE-
OF TO HOLDERS OF THE NOTES, THE WARRANTS EVIDENCED HEREBY MAY NOT BE SOLD,
ASSIGNED OR OTHERWISE TRANSFERRED TO ANY PERSON UNLESS, SIMULTANEOUSLY WITH
SUCH TRANSFER, THE HOLDER HEREOF TRANSFERS TO SUCH TRANSFEREE $1,000
PRINCIPAL AMOUNT OF NOTES AND A WARRANT TO PURCHASE ____________ SHARES OF
CLASS A COMMON STOCK OF THE COMPANY (SUBJECT TO ADJUSTMENT UNDER SECTION 15
34
<PAGE>
OF THE WARRANT AGREEMENT, DATED AS OF SEPTEMBER 30, 1996, BETWEEN THE
COMPANY AND HARRIS TRUST AND SAVINGS BANK, AS WARRANT AGENT) SO TRANS-
FERRED.
THE WARRANTS REPRESENTED HEREBY AND, AS OF THE DATE THIS WARRANT
CERTIFICATE WAS ORIGINALLY ISSUED, THE SHARES OF CLASS A COMMON STOCK, $.01
PAR VALUE PER SHARE (THE "CLASS A COMMON STOCK") PURCHASABLE UPON THEIR
EXERCISE (THE "WARRANT SHARES"), HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, NEITHER THIS WARRANT NOR
THE WARRANT SHARES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
EXCEPT (A) (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) AND ANY
APPLICABLE STATE SECURITIES LAWS AND THE HOLDER OF THIS CERTIFICATE, IF SO
REQUESTED BY THE COMPANY, HAS DELIVERED TO THE COMPANY AN OPINION OF
COUNSEL TO SUCH EFFECT, OR (3) TO A LIMITED NUMBER OF INSTITUTIONAL
"ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a) (1), (2), (3) OR (7)
UNDER THE SECURITIES ACT) THAT, PRIOR TO THEIR PURCHASE OF ANY SECURITIES
OFFERED HEREBY, DELIVER TO THE INITIAL PURCHASERS A LETTER CONCERNING
CERTAIN REPRESENTATIONS AND AGREEMENTS OR (B) A REGISTRATION STATEMENT
UNDER THE ACT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), AND NO STOP ORDER
SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED
BY THE SEC.
By accepting a Warrant Certificate bearing the legend above, each holder shall
be bound by all of the terms and provisions of the Warrant Agreement (a copy of
which is available on request to the Company or the Warrant Agent) as fully and
effectively as if such holder had signed the same.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring September 30, 2003, entitling the holder
upon exercise to receive ____________ shares of Class A Common Stock of the
Company (the "Class A Common Stock"), and are issued or to be issued pursuant to
a Warrant
35
<PAGE>
Agreement, dated as of September 30, 1996 (the "Warrant Agreement"), duly
executed and delivered by the Company to Harris Trust and Savings Bank, as
Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
Warrants may be exercised at any time on or after 9:00 a.m., New York,
New York time on _________________, 1997 and on or prior to the close of
business on September 30, 2003. The holder of Warrants evidenced by this
Warrant Certificate may exercise them by surrendering this Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the Exercise Price in the form of cash or
certified or official bank check or official bank cashier's check payable to the
order of the Company, at the office of the Warrant Agent. In the event that
upon any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there shall be
issued to the holder hereof or his assignee a new Warrant Certificate evidencing
the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of certain
events the Number of Shares set forth on the face hereof may, subject to certain
conditions, be adjusted. No fractional shares of Class A Common Stock will be
issued upon the exercise of any Warrant, but the Company will pay the cash value
thereof determined as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered holder thereof in person or by a legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this
36
<PAGE>
Warrant Certificate entitles any holder hereof to any rights of a stockholder of
the Company.
37
<PAGE>
Form of Election to Purchase
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive _______ shares of Class A
Common Stock and herewith tenders payment for such shares to the order of United
USN, Inc. in the amount of $____ in accordance with the terms hereof.
The undersigned requests that a certificate for such shares be
registered in the name of _______________________, whose address is
________________________ and that such shares be delivered to ________________,
whose address is _______________.
If said number of shares is less than all of the shares of Common
Stock purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the remaining balance of such shares be registered in
the name of __________________, whose address is _______________ and that such
Warrant Certificate be delivered to _________________, whose address is
__________________.
Date: _____________
Your Signature:___________________
(Sign exactly as your name appears on the face of this Warrant)
Signature Guarantee:
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
___________________________
___________________________
Please print or typewrite name and address including zip code of assignee
__________________________________________________________
the within Warrant Certificate and all rights thereunder, hereby irrevocably
constituting and appointing
___________________________
attorney to transfer the Warrants evidenced by said Warrant Certificate (the
"Warrants") on the books of the Company with full power of substitution in the
premises.
In connection with any transfer of the Warrants occurring prior to the
date which is the earlier of (i) the date of an effective Registration or (ii)
three years
38
<PAGE>
after the later of the original issuance of the Warrants or the last date on
which the Warrants were held by an affiliate of the Company, the undersigned
confirms, that without utilizing any general solicitation or general
advertising:
Check One
[_] (a) the Warrants are being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[_] (b) the Warrants are being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Warrant Certificate and the
Warrant Agreement.
If none of the foregoing boxes is checked, the Warrant Agent shall not be
obligated to register the Warrants in the name of any Person other than the
holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 7 (c) of the Warrant Agreement
shall have been satisfied.
Date: NOTICE: The signature to
this assignment must
correspond with the name as
written upon the face of the
within-mentioned instrument
in every particular, without
alteration or any change
whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Warrant for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an executive officer
39
<PAGE>
EXHIBIT B
FORM OF WARRANT SHARES LEGEND
"THE SHARES OF CLASS A COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED EXCEPT
(A) (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
("RULE 144A") IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE) AND ANY APPLICABLE STATE SECURITIES LAWS AND
THE HOLDER OF THIS CERTIFICATE, IF SO REQUESTED BY THE COMPANY, HAS DELIVERED TO
THE COMPANY AN OPINION OF COUNSEL TO SUCH EFFECT, OR (3) TO A LIMITED NUMBER OF
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a) (1), (2), (3)
OR (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO THEIR PURCHASE OF ANY SECURITIES
OFFERED HEREBY, DELIVER TO THE INITIAL PURCHASERS A LETTER CONCERNING CERTAIN
REPRESENTATIONS AND AGREEMENTS OR (B) A REGISTRATION STATEMENT UNDER THE ACT
HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC.
<PAGE>
[Letterhead of Skadden, Arps, Slate, Meagher & Flom (Illinois)]
January 13, 1997
United USN, Inc.
10 S. Riverside Plaza, Suite 401
Chicago, Illinois 60606
Re: United USN, Inc. Registration Statement on Form S-4 (No.
333-16265)
Ladies and Gentlemen:
We have acted as special counsel to United USN, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-4 (No. 333-16265), as filed by the Company with
the Securities and Exchange Commission (the "Commission") on November 15, 1996,
Amendment No. 1 thereto, as filed by the Company with the Commission on November
18, 1996, and Amendment No. 2 thereto, as filed by the Company with the
Commission on January 13, 1997 (such Registration Statement, as so amended,
being hereinafter referred to as the "Registration Statement"). The Registration
Statement relates to the registration under the Securities Act of 1933, as
amended (the "Act"), of $48,500,000 aggregate principal amount of the Company's
14% Series B Senior Discount Notes due 2003 (the "New Notes"), which are to be
offered in exchange for an equivalent principal amount of the Company's
currently outstanding 14% Senior Discount Notes due 2003 (the "Old Notes"), as
more fully described in the Registration Statement. The New Notes will be issued
pursuant to an Indenture, dated as of September 30, 1996 (the "Indenture"),
between the Company and Harris Trust and Savings Bank, as Trustee (the
"Trustee").
<PAGE>
United USN, Inc.
January 13, 1997
Page 2
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement (ii) the Indenture, included as Exhibit 4.1 to the Registration
Statement; (iii) the Amended and Restated Certificate of Incorporation and the
By-Laws of the Company, as presently in effect; and (iv) certain resolutions
adopted by the Board of Directors of the Company relating to the issuance and
exchange of the New Notes for the Old Notes and related matters. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
For purposes of our opinion, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. We have also assumed that the execution and delivery by
the Company of the Indenture and the performance of its obligations thereunder
do not and will not violate or constitute a default under (i) any agreement or
instrument to which the Company or its property is subject, (ii) any law, rule
or regulation to which the Company is subject, (iii) any judicial or
administrative order or decree of any governmental authority or (iv) any
consent, approval, license, authorization or validation of, or filing,
recording or registration with, any governmental authority. As to any facts
material to the opinions expressed herein which we have not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company and others.
<PAGE>
United USN, Inc.
January 13, 1997
Page 3
Members of our firm are admitted to the practice of law in the State
of Illinois, and we do not express any opinion as to the laws of any other
jurisdiction other than the State of New York and, with respect to the Delaware
General Corporation Law only, the State of Delaware. We have relied as to
matters of New York law on the opinion of Skadden, Arps, Slate, Meagher & Flom
LLP.
Based upon and subject to the foregoing and to the other
qualifications and limitations set forth herein, we are of the opinion that (i)
when the Registration Statement becomes effective and the Indenture has been
qualified under the Trust Indenture Act of 1939, as amended; (ii) assuming the
issuance and exchange of the New Notes for the Old Notes have been approved by
the Board of Directors of the Company; and (iii) when the New Notes have been
duly executed and authenticated in accordance with the terms of the Indenture
and delivered in exchange for the Old Notes, the issuance of the New Notes will
have been duly authorized, and the New Notes will be valid and binding
obligations of the Company entitled to the benefits of the Indenture and
enforceable against the Company in accordance with their terms, except (a) to
the extent that enforcement thereof may be limited by (I) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and (II)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity) and (b) we express no opinion as to the
enforceability of the waiver provisions contained in the Indenture.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher & Flom (Illinois)
<PAGE>
Exhibit 10.1
________________________________________________________________________________
UNITED USN, INC.
$46,000,000
9% CONVERTIBLE SUBORDINATED NOTES DUE 2004
___________________________________
INDENTURE
DATED AS OF SEPTEMBER 30, 1996
____________________________________
HARRIS TRUST AND SAVINGS BANK,
TRUSTEE
________________________________________________________________________________
<PAGE>
CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act of 1939, as amended,
and the Indenture, dated as of September 30, 1996
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- ----------- --------
<S> <C>
(S)310(a)(1).................................................. 7.10
(a)(2) ................................................. 7.10
(a)(3) ................................................. N.A.
(a)(4) ................................................. N.A.
(a)(5) ................................................. 7.10
(b) .................................................. 7.08; 7.10
(c) .................................................. N.A.
(S)311(a) .................................................. 7.11
(b) .................................................. 7.11
(c) .................................................. N.A.
(S)312(a) .................................................. 7.06(a);
.................................................. 7.06(b)
(b) .................................................. 7.06(c)
(c) .................................................. 7.06(d)
(S)313(a) .................................................. 7.06(e)
(b) .................................................. N.A.
(c) .................................................. 7.06(e);
.................................................. 7.06(f)
(d) .................................................. 7.06
(S)314(a) .................................................. 4.11; 4.12
(b) .................................................. N.A
(c)(1) ................................................ 1.04; 12.03
(c)(2) ................................................ 1.04; 2.02;
................................................. 12.03
(c)(3) ................................................ N.A.
(d) ................................................. 4.22
(e) ................................................. 12.04
(f) ................................................. 4.12
(S)315(a) ................................................. 7.01(b)
(b) ................................................. 7.05(a)
(c) ................................................. 7.01(a)
(d) ................................................. 7.01(c)
(e) ................................................. 6.10
(S)316(a) ................................................. 2.08
(a)(1)(A) .............................................. 6.05
(a)(1)(B) .............................................. 6.04
(a)(2) ................................................ N.A.
(b) ................................................. 6.07
(c) ................................................. 9.05
(S)317(a)(1) ................................................. 6.03
(a)(2) ................................................ 6.08
(b) ................................................. 2.04
(S)318(a) ................................................. 12.01
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.................... 1
SECTION 1.01. Definitions.............................................. 1
SECTION 1.02. Incorporation by Reference of Trust
Indenture Act.................................................... 22
SECTION 1.03. Rules of Construction.................................... 23
SECTION 1.04. Form of Documents Delivered to Trustee................... 23
SECTION 1.05. Acts of Holders.......................................... 24
ARTICLE II
THE CONVERTIBLE NOTES...................................................... 27
SECTION 2.01. Form and Dating.......................................... 27
SECTION 2.02. Execution and Authentication............................. 29
SECTION 2.03. Registrar and Paying Agent............................... 30
SECTION 2.04. Paying Agent to Hold Money in Trust...................... 31
SECTION 2.05. Global Convertible Notes................................. 32
SECTION 2.06. Transfer and Exchange.................................... 32
SECTION 2.07. Replacement Convertible Notes............................ 35
SECTION 2.08. Outstanding Convertible Notes............................ 36
SECTION 2.09. Temporary Convertible Notes.............................. 37
SECTION 2.10. Cancellation............................................. 38
SECTION 2.11. Payment of Interest; Interest Rights
Preserved........................................................ 38
SECTION 2.12. Authorized Denominations................................. 39
SECTION 2.13. Computation of Interest, etc............................. 39
SECTION 2.14. Persons Deemed Owners.................................... 40
SECTION 2.15. CUSIP Numbers............................................ 40
ARTICLE III
REDEMPTION................................................................. 40
SECTION 3.01. Notice to Trustee........................................ 40
SECTION 3.02. Selection of Convertible Notes to be
Redeemed......................................................... 40
SECTION 3.03. Notice of Redemption..................................... 41
SECTION 3.04. Effect of Notice of Redemption........................... 42
SECTION 3.05. Deposit of Redemption Price.............................. 43
SECTION 3.06. Convertible Notes Redeemed in Part....................... 43
SECTION 3.07. Optional Redemption...................................... 44
ARTICLE IV
COVENANTS.................................................................. 44
SECTION 4.01. Payment of Convertible Notes............................. 44
SECTION 4.02. Maintenance of Office or Agency.......................... 44
SECTION 4.03. Money for the Convertible Note Payments to
be Held in Trust................................................. 45
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4.04. Corporate Existence...................................... 46
SECTION 4.05. Maintenance of Property.................................. 46
SECTION 4.06. Payment of Taxes and Other Claims........................ 46
SECTION 4.07. Repurchase at the Option of Holders upon a
Change of Control................................................ 46
SECTION 4.08. Limitation on Asset Sales................................ 49
SECTION 4.09. Limitation on Issuance of Guarantees by
Restricted Subsidiaries.......................................... 54
SECTION 4.10. Restricted and Unrestricted Subsidiaries................. 55
SECTION 4.11. Reports.................................................. 55
SECTION 4.12. Compliance Certificate; Notice of Default or
Event of Default................................................. 55
SECTION 4.13. Issuance of Convertible Note Contingent
Warrants......................................................... 56
SECTION 4.14. Repurchase at the Option of Holders upon a
Termination of Trading........................................... 57
SECTION 4.15. Additional Invested Equity............................... 59
ARTICLE V
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER....................... 59
SECTION 5.01. Merger, Consolidation or Sale of Assets.................. 59
SECTION 5.02. Successor Corporation Substituted........................ 60
ARTICLE VI
DEFAULTS AND REMEDIES...................................................... 61
SECTION 6.01. Events of Default........................................ 61
SECTION 6.02. Acceleration............................................. 63
SECTION 6.03. Other Remedies........................................... 65
SECTION 6.04. Waiver of Existing Defaults.............................. 66
SECTION 6.05. Control by Majority...................................... 66
SECTION 6.06. Limitation on Suits...................................... 67
SECTION 6.07. Rights of Holders to Receive Payment..................... 67
SECTION 6.08. Trustee May File Proofs of Claim......................... 68
SECTION 6.09. Priorities............................................... 69
SECTION 6.10. Undertaking for Costs.................................... 69
SECTION 6.11. Waiver of Usury, Stay or Extension Laws.................. 70
SECTION 6.12. Trustee May Enforce Claims Without
Possession of the Convertible Notes.............................. 70
SECTION 6.13. Restoration of Rights and Remedies....................... 70
SECTION 6.14. Rights and Remedies Cumulative........................... 70
SECTION 6.15. Delay or Omission Not Waiver............................. 71
ARTICLE VII
TRUSTEE.................................................................... 71
SECTION 7.01. Duties of Trustee........................................ 71
SECTION 7.02. Rights of Trustee........................................ 72
SECTION 7.03. Individual Rights of Trustee............................. 73
SECTION 7.04. Trustee's Disclaimer..................................... 73
SECTION 7.05. Notice of Defaults....................................... 74
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 7.06. Preservation of Information; Reports by
Trustee to Holders............................................... 74
SECTION 7.07. Compensation and Indemnity............................... 75
SECTION 7.08. Replacement of Trustee................................... 76
SECTION 7.09. Successor Trustee by Merger.............................. 78
SECTION 7.10. Eligibility; Disqualification............................ 79
SECTION 7.11. Preferential Collection of Claims Against
Company.......................................................... 80
ARTICLE VIII
DEFEASANCE................................................................. 80
SECTION 8.01. Company's Option to Effect Legal Defeasance
or Covenant Defeasance........................................... 80
SECTION 8.02. Legal Defeasance and Discharge........................... 80
SECTION 8.03. Covenant Defeasance...................................... 81
SECTION 8.04. Conditions to Defeasance or Covenant
Defeasance....................................................... 81
SECTION 8.05. Deposited Money and U.S. Government
Obligations to be Held in Trust; Miscellaneous
Provisions....................................................... 83
SECTION 8.06. Reinstatement............................................ 83
ARTICLE IX
AMENDMENTS................................................................. 84
SECTION 9.01. Without Consent of Holders............................... 84
SECTION 9.02. With Consent of Holders.................................. 85
SECTION 9.03. Effect of Supplemental Indentures........................ 86
SECTION 9.04. Compliance with Trust Indenture Act...................... 86
SECTION 9.05. Revocation and Effect of Consents and
Waivers.......................................................... 86
SECTION 9.06. Notation on or Exchange of Convertible Notes............. 87
SECTION 9.07. Trustee to Execute Supplemental Indentures............... 87
SECTION 9.08. Solicitation of Consents................................. 88
ARTICLE X
CONVERTIBLE NOTE GUARANTEES................................................ 89
SECTION 10.01. Convertible Note Guarantees.............................. 89
SECTION 10.02. Limitation of Guarantor's Liability...................... 92
SECTION 10.03. Execution and Delivery of Convertible Note
Guarantees....................................................... 92
SECTION 10.04. When a Guarantor May Merge, etc.......................... 93
SECTION 10.05. Release of a Guarantor................................... 93
ARTICLE XI
SUBORDINATION OF CONVERTIBLE NOTES AND CONVERTIBLE NOTE
GUARANTEES................................................................. 94
SECTION 11.01. Convertible Notes and Convertible Note
Guarantees Subordinated to Senior Indebtedness................... 94
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 11.02. Payment Over of Proceeds Upon Dissolution,
etc.............................................................. 94
SECTION 11.03. Prior Payment to Senior Indebtedness upon
Acceleration of Convertible Notes. ....................... 96
SECTION 11.04. No Payment When Senior Indebtedness in
Default.......................................................... 96
SECTION 11.05. Payment Permitted If No Default.......................... 97
SECTION 11.06. Subrogation to Rights of Holders of Senior
Indebtedness..................................................... 98
SECTION 11.07. Provisions Solely to Define Relative Rights.............. 98
SECTION 11.08. Trustee to Effectuate Subordination...................... 98
SECTION 11.09. No Waiver of Subordination Provisions.................... 98
SECTION 11.10. Notice to Trustee........................................ 99
SECTION 11.11. Reliance on Judicial Order or Certificate of
Liquidating Agent................................................ 100
SECTION 11.12. Trustee Not Fiduciary for Holders of Senior
Indebtedness..................................................... 101
SECTION 11.13. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights................... 101
SECTION 11.14. Article Applicable to Paying Agents...................... 101
SECTION 11.15. Certain Conversions Deemed Payment....................... 101
ARTICLE XII
CONVERSION OF CONVERTIBLE NOTES............................................ 102
SECTION 12.01. Conversion Privilege and Conversion Price................ 102
SECTION 12.02. Exercise of Conversion Privileges........................ 103
SECTION 12.03. Fractions of Shares...................................... 104
SECTION 12.04. Adjustment of Conversion Price........................... 105
SECTION 12.05. Notice of Adjustments of Conversion Price................ 114
SECTION 12.06. Notice of Certain Corporate Action....................... 115
SECTION 12.07. Company to Reserve Common Stock.......................... 116
SECTION 12.08. Taxes on Conversions..................................... 116
SECTION 12.09. Covenant as to Common Stock.............................. 116
SECTION 12.10. Cancellation of Converted Convertible Notes.............. 116
SECTION 12.11. Provisions as to Consolidation, Merger or
Sale of Assets................................................... 117
ARTICLE XIII
SATISFACTION AND DISCHARGE................................................. 118
SECTION 13.01. Satisfaction and Discharge............................... 118
SECTION 13.02. Application of Trust Money............................... 119
SECTION 13.03. Repayment to the Company................................. 119
SECTION 13.04. Reinstatement............................................ 120
ARTICLE XIV
MISCELLANEOUS.............................................................. 120
SECTION 14.01. Trust Indenture Act Controls............................ 120
SECTION 14.02. Notices................................................. 120
SECTION 14.03. Certificate and Opinion as to Conditions
Precedent........................................................ 121
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
SECTION 14.04. Statements Required in Certificate or
Opinion.......................................................... 121
SECTION 14.05. Communications by Holders with Other Holders............ 121
SECTION 14.06. Rules by Trustee, Paying Agent and Registrar............ 122
SECTION 14.07. Payments on Business Days............................... 122
SECTION 14.08. Governing Law........................................... 122
SECTION 14.09. No Recourse Against Others.............................. 122
SECTION 14.10. Successors.............................................. 122
SECTION 14.11. Counterparts............................................ 122
SECTION 14.12. Table of Contents; Headings............................. 122
SECTION 14.13. Severability............................................ 123
SECTION 14.14. Further Instruments and Acts............................ 123
SECTION 14.15. Independent Covenants................................... 123
</TABLE>
v
<PAGE>
EXHIBIT A FORM OF GLOBAL CONVERTIBLE NOTE
EXHIBIT B FORM OF CERTIFICATED CONVERTIBLE NOTE
EXHIBIT C REGISTRATION RIGHTS AGREEMENT
EXHIBIT D WARRANT AGREEMENT
SCHEDULE A
EXISTING AGREEMENTS OR STOCK OPTIONS
INVOLVING COMMON STOCK
vi
<PAGE>
INDENTURE, dated as of September 30, 1996, between UNITED USN, INC., a
Delaware corporation (the "Company"), having its principal office at 10 South
Riverside Plaza, Suite 410, Chicago, Illinois 60606-3709, and HARRIS TRUST AND
SAVINGS BANK, as trustee hereunder (the "Trustee"), having its Corporate Trust
Office at 311 West Monroe, Chicago, Illinois 60606.
RECITALS OF THE COMPANY
The Company has duly authorized the creation and issue of its 9%
Convertible Subordinated Notes due 2004 (the "Convertible Notes") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor), the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Convertible Notes, when executed by the
Company and authenticated and delivered by the Trustee hereunder and duly issued
by the Company, the valid obligations of the Company and to make this Indenture
a valid instrument of the Company, in accordance with their respective terms,
have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration
of the premises and the purchase of the Initial Convertible Notes by the Holders
thereof, it is mutually covenanted and agreed, for the equal and proportionate
benefit of all Holders of the Convertible Notes, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions. For all purposes of this Indenture, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
"Accreted Value" means, with respect to the Convertible Notes, for any
--------------
Specified Date, the amount provided below for each $1,000 principal amount at
Stated Maturity of the Convertible Notes:
(a) If the Specified Date occurs on one of the following dates (each
a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
1
<PAGE>
<TABLE>
<CAPTION>
Semi-Annual Accrual Date Accreted Value
------------------------ --------------
<S> <C>
March 30, 1997.................. $ 802.45
September 30, 1997.............. 838.56
March 30, 1998.................. 876.30
September 30, 1998.............. 915.73
March 30, 1999.................. 956.94
September 30, 1999.............. 1,000.00
</TABLE>
(b) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value will equal the sum of (i) $767.90 and (ii) an
amount equal to the product of (y) the Accreted Value of the first Semi-
Annual Accrual Date less the original issue price multiplied by (z) a
fraction, the numerator of which is the number of days from the Issue Date
to the Specified Date, using a 360-day year of twelve 30-day months, and
the denominator of which is the number of days elapsed from the Issue Date
to the first Semi-Annual Accrual Date, using a 360-day year of twelve 30-
day months;
(c) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (i) the Accreted Value for
the Semi-Annual Accrual Date immediately preceding such Specified Date and
(ii) an amount equal to the product of (y) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the Accreted Value for
the immediately preceding Semi-Annual Accrual Date multiplied by (z) a
fraction, the numerator of which is the number of days from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of twelve 30-day months, and the denominator of which is 180; or
(d) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means, with respect to any specified Person,
---------------------
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such Person merging with or into or becoming a Subsidiary of
such specified Person.
"Act" when used with respect to any Holder, has the meaning set forth in
---
Section 1.05 hereof.
"Additional Invested Equity" means the net cash proceeds from the sale to
--------------------------
Persons, other than the Holders of the Convertible Notes, of Capital
Stock not maturing and not
2
<PAGE>
redeemable prior to September 30, 2004; provided that the terms of any such
--------
Capital Stock do not provide for any redemption or repurchase, whether pursuant
to a sinking fund or otherwise, or permit any cash dividend prior to the Stated
Maturity of the Convertible Notes.
"Additional Warrants" means the Additional Warrants which may be issued
-------------------
pursuant to Section 4.15 hereof and the Warrant Agreement if the Company does
not achieve consolidated total revenues (calculated in accordance with GAAP) of
at least $8,500,000 for the period from June 1, 1997 through June 30, 1997 and
if, among other things, by September 30, 1997, the Company has not either
consummated a Qualified Public Offering or been sold pursuant to a Qualified
Sale of the Company.
"Adjusted Net Assets" of a Guarantor at any date means the amount by which
-------------------
the fair value of the assets and Property of such Guarantor exceeds the total
amount of liabilities, including without limitation, contingent liabilities
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date), but excluding liabilities under the Guarantee of such
Guarantor at such date.
"Affiliate" means, as to any Person, any other Person which directly or
---------
indirectly controls, or is under common control with, or is controlled by, such
Person; provided that each Unrestricted Subsidiary shall be deemed to be an
Affiliate of the Company and of each other Subsidiary of the Company; provided
--------
that any lender under a Credit Facility shall not be deemed to be an Affiliate
solely as the result of the Credit Facility; and provided, further, that neither
-------- -------
the Company nor any of its Wholly-Owned Restricted Subsidiaries shall be deemed
to be Affiliates of each other. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "under common
control with" and "controlled by"), and as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of Voting Stock, by agreement or otherwise; provided that
--------
beneficial ownership of 10% or more of the Voting Stock of a Person (on a fully
diluted basis) shall be deemed to be control.
"Agent Member" has the meaning set forth in Section 2.05(a) hereof.
------------
"Asset Sale" means, with respect to any Person, any transfer,
----------
conveyance, sale, lease or other disposition (including, without limitation,
dispositions pursuant to any consolidation or merger) by such Person or any of
its Restricted Subsidiaries to any Person other than to such Person or a
Restricted Subsidiary of such Person, in one transaction or a series of related
transaction actions (each hereinafter referred to as a "Disposition"), of (a)
Capital Stock of or other equity interests
3
<PAGE>
in any Restricted Subsidiary (other than director's qualifying shares) except as
provided in clause (iv) of this definition, (b) all or substantially all of the
assets of any division or line of business of such Person or of any of the
Restricted Subsidiaries or (c) Property or assets of such Person or any of its
Restricted Subsidiaries, the Fair Market Value of which exceeds $500,000, other
than (i) a Disposition of Property in the ordinary course of business and
consistent with industry practice, (ii) a Disposition of Eligible Cash
Equivalents, (iii) a Disposition that constitutes a Restricted Payment permitted
under Section 4.13 of the Senior Note Indenture as in effect on the Issue Date,
(iv) a Disposition of no more than 10 percent of the Capital Stock of USN
Solutions on a fully diluted basis pursuant to the exercise of the USN Solutions
Option, (v) a Disposition by the Company in connection with a transaction
permitted under Article V hereof and (vi) contribution of assets to any
Unrestricted Subsidiary constituting an Investment otherwise permitted under the
Senior Note Indenture as in effect on the Issue Date.
"Asset Sale Offer" has the meaning set forth in Section 4.08(c) hereof.
----------------
"Asset Sale Payment Date" has the meaning set forth in Section 4.08(d)(ii)
-----------------------
hereof.
"Asset Sale Purchase Price" has the meaning set forth in Section 4.08(c)
-------------------------
hereof.
"Board of Directors" means, with respect to any Person, the Board of
------------------
Directors (or similar governing body) of such Person or any committee of the
Board of Directors (or similar governing body) duly authorized to act on behalf
of such Board of Directors (or similar governing body).
"Board Resolution" means a duly adopted resolution of the Board of
----------------
Directors of a Person in full force and effect at the time of determination and
certified as such by the Secretary or an Assistant Secretary of such Person.
"BT" means BT Capital Partners, Inc.
--
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
------------
that is not a day on which banking institutions in The City of New York or the
City of Chicago are authorities authorized or obligated by law, executive order
or regulation to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
------------------------
or other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
4
<PAGE>
the face of a balance sheet of such Person prepared in accordance with GAAP and
the Stated Maturity thereof shall be the date of the last payment of rent or any
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Capital Stock" in any Person means any and all shares, interests,
-------------
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Indebtedness convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
"Cash Proceeds" means, with respect to any Asset Sale or issuance or sale
-------------
of Capital Stock by any Person, the aggregate consideration received in respect
of such sale or issuance by such Person in the form of cash and Eligible Cash
Equivalents; provided that with regard to an Asset Sale, any liabilities (as
--------
shown on the Company's or such Restricted Subsidiary's most recent balance sheet
or in the notes thereto) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Convertible Notes or
Convertible Note Guarantees, if any) which are assumed by the transferee of any
such assets and from which the Company and such Restricted Subsidiary are
completely released shall be deemed Cash Proceeds.
"Certificated Convertible Notes" means the Certificated Convertible Notes
------------------------------
issued in definitive, fully registered form to beneficial owners of interests in
the Global Convertible Note pursuant to Section 2.06(b) hereof.
"Change of Control" shall be deemed to occur if (i) the sale, conveyance,
-----------------
transfer or lease (other than to the Company or any Wholly-Owned Restricted
Subsidiary of the Company), whether direct or indirect, of all or substantially
all of the assets of the Company or of the Company and its Restricted
Subsidiaries taken as a whole to any "person" or "group" (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to
either of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(i) under the Exchange Act) shall have occurred; or (ii) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act or any successor provision to either of the foregoing, including any group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-5(b)(i) under the Exchange Act), other than any Permit
ted Holder or Permitted Holders, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of more than 35 percent of the total voting
power of all classes of the Voting Stock of the Company (including any warrants,
options or rights to acquire such Voting Stock), calculated on a fully diluted
basis, and such voting power percentage is greater than or equal to the total
voting power percentage then beneficially
5
<PAGE>
owned by the Permitted Holders in the aggregate; or (iii) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election or appointment by such board 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 to constitute a majority of the Board of
Directors of the Company then in office.
"Change of Control Offer" has the meaning set forth in Section 4.07(a)
-----------------------
hereof.
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.07(b)(ii) hereof.
"Change of Control Purchase Price" has the meaning set forth in Section
--------------------------------
4.07(a) hereof.
"Chase" means Chase Capital Partners.
-----
"CIBC" means CIBC Wood Gundy Ventures, Inc.
----
"Class A Common Stock" means the Class A Common Stock, par value $0.01 per
--------------------
share, of the Company.
"clearing agency" has the meaning set forth in Section 3(a)(23) of the
---------------
Exchange Act.
"Closing Price" on any Trading Day with respect to the per share price of
-------------
any shares of Capital Stock means the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if such shares of Capital Stock are not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which such shares are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on The Nasdaq
National Market or, if such shares are not listed or admitted to trading on any
national securities exchange or quoted on such automated quotation system but
the issuer is a Foreign Issuer (as defined in Rule 3b-4(b) under the Exchange
Act) and the principal securities exchange on which such shares are listed or
admitted to trading is a Designated Offshore Securities Market (as defined in
Rule 902(a) under the Securities Act), the average of the reported closing bid
and asked prices regular way on such principal exchange, or, if such shares are
not listed or admitted to trading on any national securities exchange or quoted
on such automated quotation system and the issuer and principal securities
exchange do not meet such requirements, the average of
6
<PAGE>
the closing bid and asked prices in the over-the-counter market as furnished by
any New York Stock Exchange member firm that is selected from time to time by
the Company for that purpose and is reasonably acceptable to the Trustee.
"Commission" means the United States Securities and Exchange Commission, as
----------
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, the body
performing such duties at such time.
"Common Stock" means any stock of any class of any Person which has no
------------
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of such Person
and which is not subject to redemption by such Person, including, without
limitation, the Company's Class A Common Stock, $.01 par value. However, subject
to the provisions of Section 12.11, shares issuable on conversion of the
Convertible Notes shall include only shares of the class designated as Class A
Common Stock of the Company at the date of this Indenture or shares of any class
or classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company and which are not subject to redemption by the Company; provided
--------
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the propor-
tion which the total number of shares of such class resulting from all such
reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"Company" means the party named as such in the preamble to this Indenture
-------
until a successor replaces it pursuant to the applicable provisions hereof and,
thereafter, means such successor.
"Company Order" means a written order signed in the name of the Company by
-------------
(i) its Chairman of the Board, its President, its Chief Executive Officer, its
Chief Operating Officer, a Vice Chairman or a Vice President, and (ii) its Chief
Financial Officer, its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Consolidated Net Worth" of any Person means the consolidated ed
----------------------
stockholders' equity of such Person and its Restricted Subsidiaries, as
determined on a consolidated basis in accordance with GAAP, less amounts
attributable to Disqualified Stock of such Person.
7
<PAGE>
"Constituent Person" has the meaning set forth in Section 12.11 hereof.
------------------
"Conversion Price" has the meaning set forth in Section 12.01 hereof.
----------------
"Conversion Reset" has the meaning set forth in Section 12.01 hereof.
----------------
"Conversion Reset Price" has the meaning set forth in Section 12.01 hereof.
----------------------
"Convertible Note Contingent Warrants" means the Convertible Note
------------------------------------
Contingent Warrants to be issued by the Company to Holders of Convertible Notes
pursuant to the Warrant Agreement in the event that the Company has not, on or
prior to September 30, 1999, (i) consummated a Qualified Public Offering or (ii)
been sold pursuant to a Qualified Sale of the Company.
"Convertible Note Guarantee" means a guarantee of the payment of the
--------------------------
Convertible Notes in the form of a supplemental indenture to this Indenture to
be executed and delivered by a Restricted Subsidiary, if and as required by and
pursuant to Section 4.10 hereof.
"Convertible Note Shares Shelf Registration Agreement" means the
----------------------------------------------------
Convertible Note Shares Shelf Registration Statement of the Company pursuant to
the provisions of the Registration Rights Agreement that covers the issuance, or
to the extent not permitted by applicable law, the resale of all shares of
Common Stock issuable upon the conversion of the Convertible Notes to the extent
and in the manner provided therein on an appropriate form under Rule 415 under
the Securities Act, or any similar rule that may be adopted by the Commission,
and all amendments and supplements to such registration statement, including
post-effective amendments, and in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Convertible Note Shelf Registration Statement" means the Convertible Note
---------------------------------------------
Shelf Registration Statement of the Company pursuant to the provisions of the
Registration Rights Agreement relating to all Convertible Notes which are
subject to restrictions on transfer.
"Convertible Notes" has the meaning set forth in the Recitals of the
-----------------
Company and more particularly means any of the Convertible Notes authenticated
and delivered under this Indenture.
"Corporate Trust Office" means the principal office of the Trustee at
----------------------
which at any particular time its corporate trust business shall be principally
administered, which office is, at
8
<PAGE>
the date of execution of this Indenture, located at 311 West Monroe, Chicago,
Illinois 60606.
"Covenant Defeasance" has the meaning set forth in Section 8.03 hereof.
-------------------
"Credit Facility" means one or more credit agreements, loan agreements or
---------------
similar agreements providing for working capital advances, term loans, letter of
credit facilities or similar advances, loans or facilities to the Company, with
a bank or syndicate of banks or other financial institutions, as such may be
amended, renewed, extended, supplemented, refinanced and replaced or refunded
from time to time.
"Current Market Price" has the meaning set forth in Section 12.04(h)
--------------------
hereof.
"Default" means any event, act or condition, the occurrence of which is, or
-------
after notice or the passage of time or both would be, an Event of Default.
"Default Amount" has the meaning set forth in Section 6.02 hereof.
--------------
"Defaulted Interest" has the meaning set forth in Section 2.11 hereof.
------------------
"Defeasance" has the meaning set forth in Section 8.02 hereof.
----------
"Depositary" means The Depository Trust Company, its nominees, and
----------
their respective successors.
"Disposition" has the meaning set forth in the definition of "Asset Sale"
-----------
in this Section 1.01.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
------------------
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event or otherwise, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, or is exchangeable for
Indebtedness at any time, in whole or in part, on or prior to the Stated
Maturity of the Convertible Notes.
"Eligible Cash Equivalents" means (i) securities issued or directly and
-------------------------
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof, provided that the full faith and credit of the United
--------
States of America is pledged in support thereof; (ii) time deposits,
certificates of deposit or Eurodollar deposits of any commercial bank organized
in the United States having capital and surplus in excess of $500,000,000, with
a maturity date not more than one year from
9
<PAGE>
the date of acquisition; (iii) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(ii) above; (iv) direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing, or subject to tender at the option of the
holder thereof, within 90 calendar days after the date of acquisition thereof
and, at the time of acquisition, having a rating of A or better from Standard &
Poor's or A-2 or better from Moody's; (v) commercial paper issued by the parent
corporation of any commercial bank organized in the United States having capital
and surplus in excess of $500,000,000 and commercial paper issued by others
having one of the two highest ratings obtainable from either of Standard &
Poor's or Moody's and in each case maturing within 270 days after the date of
acquisition; (vi) overnight bank deposits and bankers' acceptances at any
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000; (vii) deposits available for withdrawal on demand with a
commercial bank organized in the United States having capital and surplus in
excess of $500,000,000, and (viii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (vi).
"Enterprises" means Enterprises & Transcommunications, L.P.
-----------
"Event of Default" has the meaning set forth in Section 6.01 hereof.
----------------
"'ex' date," (i) when used with respect to any issuance or distribution,
---------
means the first date on which the Common Stock trades regular way on the
relevant exchange or in the relevant market from which the Closing Prices were
obtained without the right to receive such issuance or distribution, (ii) when
used with respect to any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such subdivision or
construction becomes effective, and (iii) when used with respect to any tender
or exchange offer, means the first date on which the Common Stock trades regular
way on such exchange or in such market with the last time that tenders or
exchanges may be made pursuant to such tender or exchange offer (as it shall
have been amended).
"Excess Proceeds" has the meaning set forth in Section 4.08 hereof.
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder.
"Exchange Rate Obligation" means, with respect to any Person, any currency
------------------------
swap agreements, forward exchange rate
10
<PAGE>
agreements, foreign currency futures or options, exchange rate collar
agreements, exchange rate insurance or other agreements or arrangements, or
combination thereof, designed to provide protection against fluctuations in
currency exchange rates.
"Fair Market Value" means, with respect to any asset or Property, the sale
-----------------
value that could be obtained in an arms-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy, as determined in good faith by the Board of
Directors of the Company or a Restricted Subsidiary, as applicableble.
"Final Memorandum" means the final Offering Memorandum, dated September 23,
----------------
1996, used in connection with the Initial Placement, as supplemented on
September 23, 1996, September 24, 1996, September 26, 1996, September 30, 1996
and September 30, 1996.
"GAAP" means United States generally accepted accounting principles,
----
consistently applied, as 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, that are applicable to the circumstances as of the date of
determination; provided that, except as otherwise specifically provided herein,
--------
all calculations made for purposes of determining compliance with this Indenture
shall utilize GAAP as in effect on the Issue Date.
"Global Convertible Note" has the meaning set forth in Section 2.01(c)
-----------------------
hereof.
"guarantee" means any direct or indirect obligation, contingent or
---------
otherwise, of a Person guaranteeing or having the economics effect of
guaranteeing any Indebtedness of any other Person in any manner. The terms
"guaranteed," "guaranteeing" and "guarantor" shall have correlative meanings.
"Guaranteed Indebtedness" has the meaning set forth in Section 4.10(a)
-----------------------
hereof.
"Guarantor" means a Restricted Subsidiary that hereafter becomes a
---------
Guarantor pursuant to Section 4.10 hereof and executes and delivers a
supplemental indenture to this Indenture relating to its Convertible Note
Guarantee.
"Hancock" means Hancock Venture Capital Associates.
-------
"Holder" means (i) in the case of any Certificated Convertible Note, the
------
Person in whose name such Certificated Note
11
<PAGE>
is registered in the Security Register and (ii) in the case of any Global
Convertible Note, the Depositary.
"Indebtedness" means at any time (without duplication), with respect to any
------------
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with the acquisition of Property,
assets or businesses, excluding trade accounts payable made in the ordinary
course of business which are not more than 90 days overdue or which are being
contested in good faith and by appropriate proceedings, (iii) any reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
any obligation of such Person issued or assumed as the deferred purchase price
of Property, assets or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business, which in either case are
not more than 90 days overdue or which are being contested in good faith and by
appropriate proceedings, and for which adequate reserves are being maintained on
the books of the Company in accordance with GAAP), (v) any Capital Lease
Obligation of such Person, (vi) the maximum fixed redemption or repurchase price
of Disqualified Stock of such Person and, to the extent held by other Persons,
the maximum fixed redemption or repurchase price of Disqualified Stock of such
Person's Restricted Subsidiaries, at the time of determination, (vii) the
notional amount of any Interest Hedging Obligations or Exchange Rate Obligations
of such Person at the time of determination and (viii) any obligation of the
type referred to in clauses (i) through (vii) of this definition of another
Person and all dividends and distributions of another Person the payment of
which, in either case, such Person has guaranteed or is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise.
"Indenture" means this instrument as originally executed or as it may from
---------
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument, and any such supplemental indenture, respectively.
"Independent Financial Expert" has the meaning set forth in Section
----------------------------
12.04(g) hereof.
"Initial Placement" means the initial sales of the Convertible Notes by
-----------------
the Initial Purchasers.
12
<PAGE>
"Initial Purchasers" means the Initial Purchasers, as such term is defined
------------------
in the Purchase Agreement.
"Initial Warrants" means the Initial Warrants originally issued by the
----------------
Company pursuant to the Warrant Agreement as part of the Units.
"Interest Hedging Obligation" means, with respect to any Person, an
---------------------------
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its Restricted
Subsidiaries' exposure to fluctuations in interest rates.
"Interest Payment Date" means the Stated Maturity of an installment of
---------------------
interest on the Convertible Notes.
"Investment" in any Person means any direct, indirect or contingent (i)
----------
advance or loan to, guarantee of any Indebtedness of, extension of credit or
capital contribution to, such Person, (ii) acquisition of any shares of Capital
Stock, bonds, notes, debentures or other securities of such Person, or (iii)
acquisition, by purchase or otherwise, of all or substantially all of the
business, assets or stock or other evidence of beneficial ownership of such
Person; provided that Investments shall exclude accounts receivable and other
--------
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices. The amount of an Investment shall be the original cost
of such Investment, plus the cost of all additions thereto and minus the amount
---- -----
of any portion of such Investment repaid to such Person in cash as a repayment
of principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment. In determining the amount of any
Investment involving a transfer of any Property or other assets other than cash,
such Property or other assets shall be valued at its Fair Market Value at the
time of such transfer.
"Issue Date" means the date on which the Convertible Notes are first
----------
authenticated and delivered under this Indenture.
"Joint Venture" means a Telecommunications Company of which less than 50
-------------
percent of the Voting Stock is held by the Company; provided that the management
--------
and operations of such Person are controlled by a Strategic Investor or by the
Company pursuant to (i) the charter documents of such Person, or (ii) an
agreement among the holders of the Voting Stock of such Person, or (iii) a
management agreement between the Company and such Person.
"junior securities" has the meaning set forth in Section 11.15 hereof.
-----------------
13
<PAGE>
"Lien" means, with respect to any Property or other asset, any mortgage or
----
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, easement, encumbrance, preference,
priority or other security or similar agreement or preferential arrangement of
any nature whatsoever on or with respect to such Property or other asset
(including, without limitation, any conditional sale or title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means, when used with respect to a Convertible Note, the date on
--------
which the principal of such Convertible Note becomes due and payable as provided
therein or in this Indenture, whether on the date specified in such Convertible
Note as the fixed date on which the principal of such Convertible Note is due
and payable, on the Change of Control Payment Date or Asset Sale Payment Date or
upon an offer to repurchase upon a Termination of Trading of the Common Stock of
the Company, as applicable, or by declaration of acceleration, call for
redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc., or, if Moody's Investors
-------
Service, Inc. shall cease rating the specified debt securities and such ratings
business with respect thereto shall have been transferred to a successor Person,
such successor Person; provided that if Moody's Investors Service, Inc. ceases
--------
rating the specified debt securities and its rating business with respect
thereto shall not have been transferred to any successor Person or such
successor Person is Standard & Poor's, then "Moody's" shall mean any other
nationally recognized rating agency (other than Standard & Poor's) that rates
the specified debt securities selected by the Trustee.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Net Cash Proceeds" means, with respect to the sale of any Property or
-----------------
assets by any Person or any of its Restricted Subsidiaries, Cash Proceeds
received net of (i) all reasonable out-of-pocket expenses of such Person or such
Restricted Subsidiary incurred in connection with such a sale, including,
without limitation, all legal, title and recording tax expenses, commissions
and other fees and expenses incurred (but excluding any finder's fee or broker's
fee payable to any Affiliate of such Person) and all federal, state, foreign and
local taxes arising in connection with such sale that are paid or required to be
accrued as a liability under GAAP by such Person or its Restricted
Subsidiaries, (ii) all payments made or required to be made by such Person or
its Restricted Subsidiaries on any Indebtedness which is secured by such
Properties or assets in accordance with the terms of any Lien upon or with
respect to such Properties or assets or which must, by the terms of such Lien,
or in order to obtain a necessary consent to such transaction or by applicable
law, be repaid in connection with
14
<PAGE>
such sale and (iii) all contractually required distributions and other payments
made to minority interest holders (but excluding distributions and payments to
Affiliates of such Person) in Restricted Subsidiaries of such Person as a result
of such transaction; provided that, in the event that any consideration for a
--------
transaction (which would otherwise constitute Net Cash Proceeds) is required to
be held in escrow pending determination of whether a purchase price adjustment
will be made, such consideration (or any portion thereof) shall become Net Cash
Proceeds only at such time as it is released to such Person or its Restricted
Subsidiaries from escrow; provided, further, that any non-cash consideration
-------- -------
received in connection with any transaction, which is subsequently converted to
cash, shall be deemed to be Net Cash Proceeds at such time, and shall thereafter
be applied in accordance with the applicable provisions of this Indenture.
"nonelecting share" has the meaning set forth in Section 12.11 hereof.
-----------------
"Northwood Entities" means Northwood Capital Partners LLC and Northwood
------------------
Ventures.
"Obligors" means the Company and the Guarantors, if any; "Obligor" means
--------
any of the Obligors, singly.
"Officer" means the Chairman of the Board of Directors, a Vice Chairman of
-------
the Board of Directors, the President, the Chief Executive Officer, the Chief
Operating Officer, a Vice President, the Chief Financial Officer, the Chief
Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary.
"Officers' Certificate" means a certificate signed by (i) the Chairman of
---------------------
the Board of Directors, a Vice Chairman of the Board of Directors, the
President, the Chief Executive Officer, the Chief Operating Officer or a Vice
President, and (ii) the Chief Financial Officer, the Chief Accounting Officer,
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary
of the Company or a Restricted Subsidiary and delivered to the Trustee, which
certificate shall comply with the provisions of Sections 1.04, 14.03 and 14.04
hereof.
"Opinion of Counsel" means a written opinion from legal counsel (who may be
------------------
counsel to the Company or the Trustee) who is acceptable to the Trustee, which
opinion shall comply with the provisions of Sections 1.04, 14.03 and 14.04
hereof; provided that any Opinion of Counsel delivered pursuant to Section 8.04
--------
hereof shall not be rendered by an employee of the Company or any of its
Subsidiaries.
"Paying Agent" means any Person authorized by the Company to make payments
------------
of principal, premium or interest (including
15
<PAGE>
Special Interest, if any) with respect to the Convertible Notes on behalf of the
Company.
"Pari Passu Indebtedness" means any Indebtedness (secured or unsecured) of
-----------------------
the Company or any Guarantor that ranks pari passu in the right of payment with
----------
the Senior Notes or the Senior Note Guarantees, as applicable.
"Permitted Holders" means Thomas C. Brandenburg, J. Thomas Elliott and
-----------------
Ronald W. Gavillet and Chase, CIBC, Hancock, BT, the Northwood Entities,
Enterprises, and Merrill Lynch Global Allocation Fund, Inc. and any of their
respective Subsidiaries (or a wholly-owned Subsidiary of the sole stockholder of
any of the foregoing Persons).
"Permitted Merger" has the meaning set forth in Section 5.01 hereof.
----------------
"Person" means any individual, corporation, partnership, joint venture,
------
limited liability company, trust, unincorporated organization or government or
any agency or political subdivision thereof or any other entity or similar
person.
"Preferred Stock" means any Capital Stock of a Person, however designated,
---------------
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Private Placement Legend" means the legend in the form set forth in
------------------------
Section 2.01(d)(i) hereof.
"Property" means, with respect to any Person, any interest of such Person
--------
in any kind of property or asset, whether real, personal or mixed, tangible or
intangible, excluding Capital Stock in any other Person.
"Public Equity Offering" means an underwritten public offering of Capital
----------------------
Stock (other than Disqualified Stock) of the Company pursuant to an effective
registration statement filed under the Securities Act.
"Purchase Agreement" means the Purchase Agreement relating to the Units and
------------------
the Convertible Notes, dated September 23, 1996, among the Company and the
Initial Purchasers.
"Qualified Public Offering" means a Public Equity Offering resulting in net
-------------------------
proceeds to the Company of at least $35,000,000.
"Qualified Sale of the Company" means a sale of the Capital Stock or assets
-----------------------------
of the Company or a merger or consolidation involving the Company, pursuant to
which holders of Capital Stock of the Company receive cash proceeds and/or
publicly traded
16
<PAGE>
securities having a fair market value of at least $122,500,000 in the aggregate,
or a sale of assets of the Company pursuant to which the Company receive net
cash proceeds and/or publicly traded securities having a fair market value of at
least $122,500,000 in the aggregate.
"Qualified Stock" of any Person means a class of Capital Stock other than
---------------
Disqualified Stock.
"Record Date" means, for the interest payable on any Interest Payment
-----------
Date, the date specified in Section 2.11 hereof.
"Record Expiration Date" has the meaning set forth in Section 1.05 hereof.
----------------------
"Redemption Date" means, when used with respect to any Convertible Note or
---------------
part thereof to be redeemed hereunder, the date fixed for redemption of such
Convertible Notes pursuant to the terms of the Convertible Notes and this
Indenture.
"Redemption Price" means, when used with respect to any Convertible Note or
----------------
part thereof to be redeemed hereunder, the price fixed for redemption of such
Convertible Note pursuant to the terms of the Convertible Notes and this
Indenture, plus accrued and unpaid interest thereon, if any, (including Special
Interest, if any) to the Redemption Date.
"Registrable Securities" shall mean the Convertible Notes and the Common
----------------------
Stock issuable upon the conversion thereof; provided that the Convertible Notes
--------
and such Common Stock shall cease to be Registrable Securities when (i) in the
case of the Convertible Notes, a Convertible Note Shelf Registration Statement
with respect to the Convertible Notes shall have been declared effective under
the Securities Act and the Convertible Notes shall have been disposed of
pursuant to such Convertible Note Shelf Registration Statement, (ii) (A) in the
case of the Common Stock, except as otherwise provided in clause (ii)(B), a
Convertible Note Shares Shelf Registration Statement with respect to such Common
Stock shall have been declared effective under the Securities Act and such
Common Stock shall have been disposed of pursuant to such Convertible Note
Shares Shelf Registration Statement, or (B) in the case of any Common Stock
actually issued upon conversion of Convertible Notes, a Convertible Note Shares
Shelf Registration Statement with respect to the issuance of such Common Stock
shall have been declared effective under the Securities Act and, following the
issuance thereof, such Common Stock is not subject to restrictions on transfer
pursuant to the Securities Act, (iii) the Convertible Notes or such Common Stock
may be distributed to the public pursuant to Rule 144(k) (or any similar
provision then in force, but not Rule 144A under the Securities Act) under the
Securities Act or (iv) the Convertible Notes or such Common Stock shall have
ceased to be outstanding.
17
<PAGE>
"Registrar" has the meaning set forth in Section 2.03 hereof.
---------
"Registration Rights Agreement" means the Registration Rights Agreement,
-----------------------------
dated September 30, 1996, among the Company and the Initial Purchasers, and
attached hereto as Exhibit C and any other Registration Rights Agreement that
relates to the Convertible Notes.
"Repurchase Date" has the meaning set forth in Section 4.14(a) hereof.
---------------
"Repurchase Price" has the meaning set forth in Section 4.14(a) hereof.
----------------
"Required Filing Date" has the meaning set forth in Section 4.11 hereof.
--------------------
"Reset Date" has the meaning set forth in Section 12.01 hereof.
----------
"Reset Event" has the meaning set forth in Section 12.01 hereof.
-----------
"Restricted Subsidiary" means (i) with respect to any Person other than the
---------------------
Company and its Subsidiaries, a Subsidiary of such Person, and (ii) with respect
to the Company, any Subsidiary of the Company that has not been classified as an
Unrestricted Subsidiary.
"Rule 144" means Rule 144 under the Securities Act (including any
--------
successor regulation thereto), as it may be amended from time to time.
"Rule 144A" means Rule 144A under the Securities Act (including any
---------
successor regulation thereto), as it may be amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Security Register" has the meaning set forth in Section 2.03 hereof.
-----------------
"Senior Indebtedness" means all obligations of the Company under the Senior
-------------------
Notes, the Senior Note Indenture and the Senior Note Guarantees contained in the
Senior Note Indenture, if any.
"Senior Note Asset Sale Offer" means an "Asset Sale Offer" as defined in
----------------------------
and made pursuant to the provisions of the Senior Note Indenture.
18
<PAGE>
"Senior Note Contingent Warrants" means the Warrants to be issued to the
-------------------------------
holders of Senior Notes pursuant to the Warrant Agreement and Section 4.20 of
the Senior Note Indenture.
"Senior Note Guarantees" means a guarantee of payment of the Senior Notes
----------------------
in the form of a supplemental indenture to the Senior Note Indenture to be
executed and delivered pursuant to Section 4.10 thereof.
"Senior Note Indenture" means the Indenture, dated the date hereof, between
---------------------
the Company and Harris Trust and Savings Bank, as trustee thereunder, relating
to the Senior Notes, as amended and supplemented from time to time.
"Senior Note Trustee" means Harris Trust and Savings Bank, as trustee under
-------------------
the Senior Note Indenture and any successor appointed in accordance with the
terms thereof.
"Senior Notes" means the 14% Senior Discount Notes due 2003 of the Company
------------
to be issued pursuant to the Senior Note Indenture.
"Shelf Registration Statement" has the meaning set forth in the
----------------------------
Registration Rights Agreement.
"Significant Restricted Subsidiary" means a Restricted Subsidiary that is a
---------------------------------
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act.
"Special Interest" shall have the meaning ascribed to such term in the
----------------
Registration Rights Agreement.
"Special Record Date" means a date fixed by the Trustee pursuant to Section
-------------------
2.11 for the payment of Defaulted Interest.
"Standard & Poor's" means Standard & Poor's Ratings Group, a division of
-----------------
McGraw-Hill, Inc., or, if Standard & Poor's Ratings Group shall cease rating the
specified debt securities and such ratings business with respect thereto shall
have been transferred to a successor Person, such successor Person; provided
--------
that if Standard & Poor's Ratings Group ceases rating the specified debt
securities and its ratings business with respect thereto shall not have been
transferred to any successor Person or such successor Person is Moody's, then
"Standard & Poor's" shall mean any other nationally recognized rating agency
(other than Moody's) that rates the specified debt securities selected by the
Trustee.
"Stated Maturity" means, with respect to any security, the date specified
---------------
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but
19
<PAGE>
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred), and, when used with respect to any installment of
interest on such security, the fixed date on which such installment of interest
is due and payable.
"Strategic Investor" means, with respect to any relevant transaction, a
------------------
Telecommunications Company which, both as of the Business Day immediately before
the day of the closing of such transaction and the Business Day immediately
after the day of the closing of such transaction, has, or whose parent has, an
equity market capitalization, a net asset value or annual revenues of at least
$2,000,000,000 on a consolidated basis. For purposes of this definition, the
term "parent" means any Person of which the relevant Strategic Investor is a
Subsidiary.
"Subsidiary" means, with respect to any Person, (i) any corporation more
----------
than 50 percent of the outstanding shares of Voting Stock of which is owned,
directly or indirectly, by such Person, or by one of more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries of such
Person, (ii) any general partnership, joint venture or similar entity, more than
50 percent of the outstanding partnership or similar interests of which are
owned, directly or indirectly, by such Person, or by one or more other
Subsidiaries of such Person, or by such Person and one or more other
Subsidiaries of such Person and (iii) any limited partnership of which such
Person or any Subsidiary of such Person is a general partner.
"Surviving Entity" has the meaning set forth in Section 5.01(a) hereof.
----------------
"Telecommunications Assets" means, with respect to any Person, assets
-------------------------
(including, without limitation, rights of way, trademarks and licenses to use
copyrighted material) that are utilized by such Person, directly or indirectly,
for the design, development, construction, installation, integration, operation,
management or provision of telecommunications systems and/or services, including
without limitation, any businesses or services in which the Company is
currently engaged and including any computer systems used in a
Telecommunications Business. Telecommunications Assets shall also include stock,
joint venture or partnership interests in another Person, provided that
substantially all of the assets of such other Person consist of
Telecommunications Assets, and provided, further, that if such stock, joint
venture or partnership interests are held by the Company or a Restricted
Subsidiary, such other Person either is, or immediately following the relevant
transaction shall become, a Restricted Subsidiary of the Company unless such
Person is a Joint Venture. The determination of what constitutes
Telecommunication Assets shall be made by the Board of Directors and evidenced
by a Board Resolution delivered to the Trustee.
20
<PAGE>
"Telecommunications Business" means the business of (i) transmitting, or
---------------------------
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
(i) above or (iii) evaluating, participating or pursuing any other activity or
opportunity that is related to those specified in (i) or (ii) above and
includes, without limitation, any business in which the Company and its
Restricted Subsidiaries are currently engaged on the Issue Date.
"Telecommunications Company" means any Person substantially all of the
--------------------------
assets of which consist of Telecommunications Assets.
"Temporary Convertible Notes" has the meaning set forth in Section 2.09
---------------------------
hereof.
"Termination of Trading" means that the Class A Common Stock (or other
----------------------
Common Stock into which the Convertible Notes are then convertible) had been
listed for trading on a U.S. national securities exchange or approved for
trading on an established over-the-counter trading market in the United States
and such Capital Stock thereafter becomes neither so listed nor so approved.
"Trading Day" means, with respect to a securities exchange or automated
-----------
quotation system, a day on which such exchange or system is open for a full day
of trading.
"Trigger Event" shall have the meaning set forth in Section 12.04(e)
-------------
hereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
-------------------
(S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture except as
required by Section 9.04 hereof, provided that in the event the Trust Indenture
--------
Act of 1939 is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendment, the Trust Indenture Act of 1939, as so
amended.
"Trust Officer" means any officer or assistant officer of the Trustee
-------------
assigned by the Trustee to administer this Indenture.
"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 such successor.
"U.S. Government Obligations" means (i) securities that are (a) direct
---------------------------
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
21
<PAGE>
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and (ii) depository receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depository receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required by
--------
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depository receipt.
"Unit" means a Unit consisting of one Senior Note, in the principal amount
----
of $1,000, and one Warrant to purchase approximately 1.27 shares of the
Company's Class A Common Stock, as described in the Purchase Agreement.
"Unrestricted Subsidiary" means any Subsidiary of the Company that the
-----------------------
Company has classified as an "Unrestricted Subsidiary" and that has not been
reclassified as a Restricted Subsidiary, pursuant to Section 4.10 hereof.
"Voting Stock" means, with respect to any Person, securities of any class
------------
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the Board of Directors or comparable body of such Person.
"Warrant" means a Warrant issued by the Company pursuant to the Warrant
-------
Agreement.
"Warrant Agent" means the Warrant Agent, as such term is defined in the
-------------
Warrant Agreement.
"Warrant Agreement" means the Warrant Agreement, dated as of September 30,
-----------------
1996, between the Company and Harris Trust and Savings Bank, as Warrant Agent
thereunder, and attached hereto as Exhibit D.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture Act,
the provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms incorporated by reference in this
Indenture have the following meanings:
22
<PAGE>
"indenture securities" means the Convertible Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or other
obligor on the Convertible Notes, if any.
All other Trust Indenture Act terms used or incorporated by reference in
this Indenture that are defined by the Trust Indenture Act, defined by Trust
Indenture Act reference to another statute or defined by Commission rule have
the meanings assigned to them therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
---------------------
requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) the words "herein," "hereof" and hereunder," and other words of
similar import, refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(d) "or" is not exclusive;
(e) "including" means including without limitation;
(f) words in the singular include the plural, and words in the plural
include the singular;
(g) when used with respect to the Senior Notes or the Convertible
Notes, the term "principal amount" shall mean the principal amount thereof at
the Stated Maturity of such principal amount; and
(h) unless otherwise expressly provided herein, the principal amount
of any Preferred Stock shall be the greater of (i) the maximum liquidation value
of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory
repurchase price with respect to such Preferred Stock.
SECTION 1.04. Form of Documents Delivered to Trustee. In any case where
--------------------------------------
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not
23
<PAGE>
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company or a Guarantor may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters, upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or a
Guarantor stating that the information with respect to such factual matters is
in the possession of the Company or such Guarantor, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.05. Acts of Holders. Any request, demand, authorization,
----------------
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments, of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are received by the Trustee and, where it is hereby expressly required, to the
Company and the Guarantors, if any. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 7.01)
conclusive in favor of the Trustee and the Company and the Guarantors, if any,
if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by an
acknowledgment of notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing
24
<PAGE>
acknowledged to him the execution thereof. Where such execution is by a signer
acting in a capacity other than such signer's individual capacity, such
certificate or affidavit shall also constitute sufficient proof of the signer's
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of Convertible Notes shall be proved by the Security
Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder shall bind every future Holder of the same Convertible
Note and the Holder of every Convertible Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company or
the Guarantors, if any, in reliance thereon, whether or not notation of such
action is made upon such Convertible Note.
The Company may set any day as a record date for the purpose of determining
the Holders of outstanding Convertible Notes entitled to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Indenture to be given or taken by Holders
of Convertible Notes, provided that the Company may not set a record date for,
--------
and the provisions of this paragraph shall not apply with respect to, the giving
or making of any notice, declaration, request or direction referred to in the
next paragraph. If any record date is set pursuant to this paragraph, the
Holders of outstanding Convertible Notes on such record date, and no other
Holders, shall be entitled to take the relevant actions whether or not such
Holders remain Holders after such record date; provided that no such action
--------
shall be effective hereunder unless taken on or prior to the applicable Record
Expiration Date by Holders of the requisite principal amount of outstanding
Convertible Notes on such record date; and provided, further, that for the
-------- -------
purpose of determining whether Holders of the requisite principal amount of such
Convertible Notes have taken such action, no Convertible Note shall be deemed to
have been outstanding on such record date unless it is also outstanding on the
date such action is to become effective. Nothing in this paragraph shall
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), nor shall anything in this paragraph be
construed to render ineffective any action taken by Holders of the requisite
principal amount of outstanding Convertible Notes on the date such action is
taken. Promptly after any record date is set pursuant to this paragraph, the
Company at its own expense, shall cause notice of such record
25
<PAGE>
date, the proposed action by Holders and the applicable Record Expiration Date
to be given to the Trustee in writing and to each Holder of Convertible Notes in
the manner set forth in Section 14.02 hereof.
The Trustee may set any day as a record date for the purpose of determining
the Holders of outstanding Convertible Notes entitled to join in the giving or
making of (i) any notice of Default under Section 6.01(d) hereof, (ii) any
declaration of acceleration referred to in Section 6.02 hereof, (iii) any
request to institute proceedings referred to in Section 6.06 hereof or (iv) any
direction referred to in Section 6.05 hereof. If any record date is set pursuant
to this paragraph, the Holders of outstanding Convertible Notes on such record
date, and no other Holders, shall be entitled to join in such notice,
declaration, request or direction, whether or not such Holders remain Holders
after such record date; provided that no such action shall be effective
--------
hereunder unless taken on or prior to the applicable Record Expiration Date by
Holders of the requisite principal amount of outstanding Convertible Notes on
such record date; and provided, further, that for the purpose of determining
-------- -------
whether Holders of the requisite principal amount of such Convertible Notes have
taken such action, no Convertible Note shall be deemed to have been outstanding
on such record date unless it is also outstanding on the date such action is to
become effective. Nothing in this paragraph shall be construed to prevent the
Trustee from setting a new record date for any action (where upon the record
date previously set shall automatically and with out any action by any Person be
cancelled and of no effect), nor shall anything in this paragraph be construed
to render ineffective any action taken by Holders of the requisite principal
amount of outstanding Convertible Notes on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the Trustee,
at the Company's expense, shall cause notice of such record date, the matter(s)
to be submitted for potential action by Holders and the applicable Record
Expiration Date to be given to the Company in writing and to each Holder of
Convertible Notes in the manner set forth in Section 14.02 hereof.
With respect to any record date set pursuant to this Section 1.05, the
party hereto that sets such record date may designate any day as the "Record
Expiration Date" and from time to time may change the Record Expiration Date to
any earlier or later day, provided that no such change shall be effective unless
--------
notice of the proposed new Record Expiration Date is given to the other party
hereto in writing, and to each Holder of Convertible Notes in the manner set
forth in Section 14.02 hereof, on or before the existing Record Expiration Date.
If a Record Expiration Date is not designated with respect to any record date
set pursuant to this Section 1.05, the party hereto that set such record date
shall be deemed to have initially designated the 180th day after such record
date as the Record Expiration Date with respect
26
<PAGE>
thereto, subject to its right to change the Record Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Record Expiration Date
shall be later than the 180th day after the applicable record date.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Convertible Note may do so with
regard to all or any part of the principal amount of such Convertible Note or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such principal amount.
ARTICLE II
THE CONVERTIBLE NOTES
SECTION 2.01. Form and Dating. (a) The Convertible Notes and the
----------------
certificate of authentication of the Trustee thereon shall be substantially in
the form of Exhibit A or Exhibit B hereto, as applicable, which are hereby
incorporated in and expressly made a part of this Indenture.
(b) The Convertible Notes may have such letters, numbers or other
marks of identification and such legends and endorsements, stamped, printed,
lithographed or engraved thereto, (i) as the Company may deem appropriate and as
are not inconsistent with the provisions of this Indenture, (ii) such as may be
required to comply with this Indenture, any law or any rule of any securities
exchange on which the Convertible Notes may be listed and (iii) such as may be
necessary to conform to customary usage. Each Note shall be dated the date of
its authentication by the Convertible Trustee.
(c) The Convertible Notes shall be issued initially in the form of one
or more permanent, global notes in definitive, fully registered form, without
coupons, substantially in the form of Exhibit A hereto (each a "Global
Convertible Note"). Upon issuance, each such Global Convertible Note shall be
duly executed by the Company and authenticated by the Trustee as hereinafter
provided and deposited with the Trustee as custodian for the Depositary. Any
Certificated Convertible Note that may be issued pursuant to Section 2.06(b)
hereof shall be issued in the form of a note in definitive, fully registered
form, without coupons, substantially in the form set forth in Exhibit B hereto.
Upon issuance, any such Certificated Convertible Note shall be duly executed by
the Company and authenticated by the Trustee as hereinafter provided.
(d) The following legends shall appear on each Global Convertible Note
and each Certificated Convertible Note as indicated below:
27
<PAGE>
(i) Except as provided in Section 2.06(a)(iii) hereof, each Global
Convertible Note and Certificated Convertible Note shall bear the following
legend on the face thereof:
THIS CONVERTIBLE NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), (3) TO A LIMITED NUMBER OF
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO THEIR
PURCHASE OF ANY SECURITIES OFFERED HEREBY, DELIVER TO THE INITIAL
PURCHASERS A LETTER CONCERNING CERTAIN REPRESENTATIONS AND AGREEMENTS
AND (B) IN ACCORDANCE WITH ALL APPLICABLE LAWS OF THE STATES OF THE
UNITED STATES.
(ii) Each Global Convertible Note shall bear the following legend on
the face thereof:
UNLESS THIS CONVERTIBLE NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO UNITED USN, INC. OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT AND ANY
CONVERTIBLE NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE
DEPOSITORY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL CONVERTIBLE NOTE SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITORY
TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS CONVERTIBLE GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 2.06 OF THE INDENTURE, DATED AS OF SEPTEMBER 30,
1996, BETWEEN
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UNITED USN, INC. AND THE TRUSTEE NAMED THEREIN, PURSUANT TO WHICH THIS
CONVERTIBLE NOTE WAS ISSUED.
(e) Definitive Convertible Notes shall be typed, printed, lithographed
or engraved or produced by any combination of such methods or produced in any
other manner permitted by the rules of any securities exchange on which such
Convertible Notes may be listed, all as determined by the Officers of the
Company executing such Convertible Notes, as evidenced by their execution of
such Convertible Notes.
SECTION 2.02. Execution and Authentication. The aggregate principal
----------------------------
amount at Stated Maturity of Convertible Notes outstanding at any time shall not
exceed $46,000,000 except as provided in Section 2.07 hereof. The Convertible
Notes shall be executed on behalf of the Company by its Chief Executive Officer,
its Chief Operating Officer, its President or any Vice President, under its
corporate seal reproduced or imprinted on the Convertible Notes by facsimile or
otherwise, and shall be attested by the Company's Secretary or one of its
Assistant Secretaries, in each case by manual or facsimile signature.
In case any Officer of the Company whose signature shall have been placed
upon any of the Convertible Notes shall cease to be such Officer of the Company
before authentication of such Convertible Notes by the Trustee and the issuance
and delivery thereof, such Convertible Notes may, nevertheless, be
authenticated by the Trustee and issued and delivered with the same force and
effect as though such Person had not ceased to be such Officer of the Company.
Notwithstanding any other provision hereof, the Trustee shall authenticate
and deliver Convertible Notes only upon receipt by the Trustee of an Officers'
Certificate and Opinion of Counsel complying with Section 14.04 hereof with
respect to satisfaction of all conditions precedent contained in this Indenture
to authentication and delivery of such Convertible Notes.
Upon compliance by the Company with the provisions of the previous
paragraph, the Trustee shall, upon receipt of a Company Order requesting such
action, authenticate Initial Convertible Notes for original issuance in an
aggregate principal amount at Stated Maturity not to exceed $46,000,000 in the
form of one or more Global Convertible Notes. Such Company Order shall specify
the amount of Convertible Notes to be authenticated and the date on which the
Convertible Notes are to be authenticated and shall further provide instructions
concerning registration, amounts for each Holder and delivery.
Upon the occurrence of any event specified in Section 2.06(b) hereof and
compliance by the Company with the provisions of the paragraph preceding the
immediately preceding paragraph,
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the Company shall execute and the Trustee shall authenticate and deliver to each
beneficial owner identified by the Depositary, in exchange for such beneficial
owner's interest in a Global Convertible Note, Certificated Convertible Notes
representing Convertible Notes theretofore represented by the Global Convertible
Note.
A Convertible Note shall not be valid or entitled to any benefit under this
Indenture or obligatory for any purpose unless executed by the Company and
authenticated by the manual signature of the Trustee as provided herein. The
signature of an authorized officer of the Trustee shall be conclusive evidence,
and the only evidence, that such Convertible Note has been authenticated and
delivered under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate the Convertible Notes. Unless limited by the status
of such appointment, an authenticating agent may authenticate Convertible Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. Any
authenticating agent of the Trustee shall have the same rights hereunder as any
Registrar or Paying Agent.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain,
--------------------------
pursuant to Section 4.02 hereof, an office or agency where the Convertible Notes
may be presented for registration of transfer or for exchange. The Company shall
cause to be kept at such office a register (the register maintained in such
office being herein sometimes referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Convertible Notes and of transfers of
Convertible Notes entitled to be registered or transferred as provided herein.
The Trustee, at its Corporate Trust Office, is initially appointed "Registrar"
for the purpose of registering Convertible Notes and transfers of Convertible
Notes as herein provided and as "Paying Agent" for the payment of principal of
(and premium, if any), and interest (including Special Interest, if any) on, the
Convertible Notes. The Company may, upon written notice to the Trustee, change
the designation of the Trustee as Registrar or Paying Agent and appoint another
Person to act as Registrar or Paying Agent for purposes of this Indenture,
except that for the purposes of Article III, Article XIII and Sections 4.07,
4.08 and 4.14, none of the Company, any Guarantor, any Restricted Subsidiary and
any Affiliate shall act as Paying Agent. If any Person other than the Trustee
acts as Registrar, the Trustee shall have the right at any time, upon reasonable
notice, to inspect or examine the Security Register and to make such inquiries
of the Registrar as the Trustee shall in its discretion deem necessary or
desirable in performing its duties hereunder.
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The Company shall enter into an appropriate agency agreement with any
Person designated by the Company as Registrar or Paying Agent that is not a
party to this Indenture, which agreement shall incorporate the provisions of the
Trust Indenture Act and shall implement the provisions of this Indenture that
relate to such Registrar or Paying Agent. Prior to the designation of any such
Person, the Company shall, by written notice (which notice shall include the
name and address of such Person), inform the Trustee of such designation. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
Upon surrender for registration of transfer of any Convertible Note at an
office or agency of the Company designated for such purpose, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Convertible Notes of any
authorized denomination or denominations, of like tenor and aggregate principal
amount at Stated Maturity, all as requested by the transferor.
Every Convertible Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Trustee or
the Registrar) be duly endorsed, or be accompanied by a duly executed instrument
of transfer in form satisfactory to the Company, the Trustee and the Registrar,
by the Holder thereof or such Holder's attorney duly authorized in writing.
SECTION 2.04. Paying Agent to Hold Money in Trust. On or prior to each due
-----------------------------------
date of the principal, premium, or any payment of interest with respect to any
Convertible Note, the Company shall deposit with the Paying Agent a sum
sufficient to pay such principal, premium or interest (including Special
Interest, if any) when so becoming due.
The Company shall require each Paying Agent (other than the Trustee) to
agree in writing that such Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by such Paying Agent for the payment of
principal, premium, and interest (including Special Interest, if any) with
respect to the Convertible Notes, shall notify the Trustee of any default by the
Company in making any such payment and at any time during the continuance of any
such default, upon the written request of the Trustee, shall forthwith pay to
the Trustee sums held in trust by such Paying Agent.
The Company at any time may require a Paying Agent to pay all money held by
it to the Trustee and to account for any funds disbursed by such Paying Agent.
Upon complying with this Section 2.04, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
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SECTION 2.05. Global Convertible Notes. (a) So long as a Global Convertible
------------------------
Note is registered in the name of the Depostary or its nominee, members of, or
participants in, the Depositary ("Agent Members") shall have no rights under
this Indenture with respect to the Global Convertible Note held on their behalf
by the Depositary or the Trustee as its custodian, and the Depositary may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Convertible Note for all purposes.
Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the
Trustee or any agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or (ii) impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of
Convertible Notes.
(b) The Holder of a Global Convertible Note may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests in such Global Convertible Note through Agent Members, to take
any action which a Holder of Convertible Notes is entitled to take under this
Indenture or the Convertible Notes.
(c) Whenever, as a result of an optional redemption of Convertible
Notes by the Company, a Change of Control Offer, an Asset Sale Offer, a
repurchase upon a Termination of Trading pursuant to Section 4.14 hereof, or an
exchange pursuant to the second sentence of Section 2.06(b) hereof, a Global
Convertible Note is redeemed, repurchased or exchanged in part, such Global
Convertible Note shall be surrendered by the Holder thereof to the Trustee who
shall cause an adjustment to be made to Schedule A thereof so that the principal
amount of such Global Convertible Note will be equal to the portion of such
Global Convertible Note not redeemed, repurchased or exchanged and shall
thereafter return such Global Convertible Note to such Holder, provided that
--------
each such Global Convertible Note shall be in a principal amount at Stated
Maturity of $1,000 or an integral multiple thereof.
SECTION 2.06. Transfer and Exchange. (a) With respect to the Convertible
---------------------
Notes:
(i) By its acceptance of any Convertible Note represented by a
certificate bearing the Private Placement Legend, each Holder of, and
beneficial owner of an interest in, such Convertible Note acknowledges the
restrictions on transfer of such Convertible Note set forth in the Private
Placement Legend and under the heading "Transfer Restrictions" in the Final
Memorandum and agrees that it will transfer such Convertible Note only in
accordance with the Private Placement Legend and the restrictions set forth
under the heading "Transfer Restrictions" in the Final Memorandum.
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<PAGE>
(ii) In connection with any transfer of a Convertible Note bearing
the Private Placement Legend, each Holder agrees to deliver to the Company,
such satisfactory evidence, which may include an opinion of independent
counsel licensed to practice law in the State of New York, as reasonably
may be requested by the Company to confirm that such transfer is being made
in accordance with the limitations set forth in the Private Placement
Legend. In the event the Company determines that any such transfer is not
in accordance with the Private Placement Legend, the Company shall so
inform the Registrar who shall not register such transfer; provided that
--------
the Registrar shall not be required to determine (but may rely on a
determination made by the Company with respect to) the sufficiency of any
such evidence.
(iii) Upon the registration of transfer, exchange or replacement of a
Convertible Note not bearing the Private Placement Legend, the Trustee
shall deliver a Convertible Note or Convertible Notes that do not bear the
Private Placement Legend. Upon the transfer, exchange or replacement of a
Convertible Note bearing the Private Placement Legend, the Trustee shall
deliver a Convertible Note or Convertible Notes bearing the Private
Placement Legend, unless such legend may be removed from such Convertible
Note as provided in the next sentence. The Private Placement Legend may be
removed from a Convertible Note if there is delivered to the Company such
satisfactory evidence, which may include an opinion of independent counsel
licensed to practice law in the State of New York, as reasonably may be
requested by the Company to confirm that neither such legend nor the
restrictions on transfer set forth therein are required to ensure that
transfers of such Convertible Note will not violate the registration and
prospectus delivery requirements of the Securities Act; provided that the
--------
Trustee shall not be required to determine (but may rely on a determination
made by the Company with respect to) the sufficiency of any such evidence.
Upon provision of such evidence, the Trustee shall authenticate and deliver
in exchange for such Convertible Note, a Convertible Note or Convertible
Notes (representing the same aggregate principal amount at Stated Maturity
of the Convertible Note being exchanged) without such legend. If the
Private Placement Legend has been removed from Convertible Note, as
provided above, no other Convertible Note issued in exchange for all or any
part of such Convertible Note shall bear such legend unless the Company has
reasonable cause to believe that such other Convertible Note represents a
"restricted security" within the meaning of Rule 144 and instructs the
Trustee in writing to cause a legend to appear thereon.
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<PAGE>
(iv) The Company shall deliver to the Trustee, and the Trustee shall
retain for two years, copies of all documents received pursuant to this
Section 2.06(a). The Company shall have the right to inspect and make
copies of all such documents at any reasonable time upon the giving of
reasonable written notice to the Trustee.
(b) Any Global Convertible Note shall be exchanged by the Company for
one or more Certificated Convertible Notes if (a) the Depositary (i) has
notified the Company that it is unwilling or unable to continue as, or ceases to
be, a clearing agency registered under Section 17A of the Exchange Act and (ii)
a successor to the Depositary registered as a clearing agency under Section 17A
of the Exchange Act is not able to be appointed by the Company within 90 days or
(b) the Depositary is at any time unwilling or unable to continue as Depositary
and a successor to the Depositary is not able to be appointed by the Company
within 90 days. If an Event of Default occurs and is continuing, the Company
shall, at the request of the Holder thereof, exchange all or part of a Global
Convertible Note for one or more Certificated Convertible Notes; provided that
--------
such Global Convertible Note, after such exchange, shall be $1,000 or an
integral multiple thereof. Whenever a Global Convertible Note is exchanged as a
whole for one or more Certificated Convertible Notes, it shall be surrendered by
the Holder thereof to the Trustee for cancellation. Whenever a Global
Convertible Note is exchanged in part for one or more Certificated Convertible
Notes, it shall be surrendered by the Holder thereof to the Trustee and the
Trustee shall make the appropriate notations thereon pursuant to Section 2.05(c)
hereof. All Certificated Convertible Notes issued in exchange for a Global
Convertible Note or any portion thereof shall be registered in such names, and
delivered, as the Depositary shall instruct the Trustee. Any Certificated
Convertible Notes issued pursuant to this Section 2.06(b) shall include the
Private Placement Legend, except as set forth in Section 2.06(a)(iii) hereof.
Interests in a Global Convertible Note may not be exchanged for Certificated
Convertible Notes other than as provided in this Section 2.06(b).
(c) A Holder may transfer a Convertible Note only upon the surrender
of such Convertible Note for registration of transfer. No such transfer shall be
effected until, and the transferee shall succeed to the rights of a Holder only
upon, final acceptance and registration of the transfer in the Security Register
by the Registrar. When Convertible Notes are presented to the Registrar with a
request to register the transfer of, or to exchange, such Convertible Notes, the
Registrar shall register the transfer or make such exchange as requested if its
requirements for such transactions and any applicable requirements hereunder
are satisfied. To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Certificated Convertible Notes
at the Registrar's request.
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<PAGE>
(d) The Company shall not be required to make and the Registrar need
not register transfers or exchanges of Certificated Convertible Notes selected
for redemption (except, in the case of Certificated Convertible Notes to be
redeemed in part, the portion thereof not to be redeemed) for a period of 15
days before a selection of Certificated Convertible Notes to be redeemed.
(e) No service charge shall be made for any registration of transfer
or exchange of Convertible Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer of Convertible Notes (other than in
respect of exchanges and transfers pursuant to Sections 2.09, 3.06, 4.07, 4.08,
4.14 and 9.06 hereof).
(f) All Convertible Notes issued upon any registration of transfer or
exchange pursuant to the terms of this Indenture will evidence the same debt and
will be entitled to the same benefits under this Indenture as the Convertible
Notes surrendered for such registration of transfer or exchange.
(g) Prior to the effectiveness under the Securities Act of a
Convertible Note Shelf Registration Statement, or at any time during the
suspension or following the termination thereof, Holders of Convertible Notes
(or holders of interests therein) and prospective purchasers designated by such
Holders of Convertible Notes (or such holders of interests therein) shall have
the right to obtain from the Company upon request by such Holders (or such
holders of interests) or prospective purchasers, during any period in which the
Company is not subject to Section 13 or Section 15(d) of the Exchange Act, or is
exempt from reporting pursuant to 12g3-2(b) under the Exchange Act, the
information required by paragraph (d)(4)(i) of Rule 144A in connection with any
transfer or proposed transfer of such Convertible Notes or interests.
(h) Any Holder of a Global Convertible Note shall, by acceptance of
such Global Convertible Note, agree that transfers of beneficial interests in
such Global Convertible Note may be effected only through a book entry system
maintained by the Holder of such Global Convertible Note (or its agent), and
that ownership of a beneficial interest in the Convertible Notes represented
thereby shall be required to be reflected in book entry form. Transfers of a
Global Convertible Note shall be limited to transfers in whole and not in part,
to the Depositary, its successors, and their respective nominees. Interests of
beneficial owners in Global Convertible Note may be transferred in accordance
with the rules and procedures of the Depositary (or its successors).
SECTION 2.07. Replacement Convertible Notes. If any mutilated Convertible
-----------------------------
Note is surrendered to the Trustee, the
35
<PAGE>
Company shall execute and upon its written request the Trustee shall
authenticate and deliver, in exchange for any such mutilated Convertible Note, a
new Convertible Note containing identical provisions and of like principal
amount, bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Convertible Note and
(ii) such security or indemnity as may be required by them to save either of
them and any agent of each of them harmless, then, in the absence of notice to
the Company or the Trustee that such Convertible Note has been acquired by a
bona fide purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Convertible Note, a new Convertible Note containing identical provisions and of
like principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Convertible Note has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Convertible Note, pay such Convertible Note.
Upon the issuance of any new Convertible Note under this Section 2.07, the
Company may require the payment by the Holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Convertible Note issued pursuant to this Section 2.07 in lieu of
any destroyed, lost or stolen Convertible Note shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Convertible Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Convertible Notes duly issued hereunder.
The provisions of this Section 2.07 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 Convertible Notes.
SECTION 2.08. Outstanding Convertible Notes. Convertible Notes outstanding
-----------------------------
at any time are all Convertible Notes authenticated by the Trustee except for
those canceled by it, those delivered to it for cancellation and those described
in this Section 2.08 as not outstanding. A Convertible Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds such
Convertible Note.
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If a Convertible Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee and the Company receive proof
satisfactory to them that such replaced Convertible Note is held by a bona fide
purchaser.
If the Paying Agent (other than the Company, a Guarantor or an Affiliate of
the Company or Guarantor) accrues interest or segregates and holds in trust, in
accordance with this Indenture, on a Redemption Date or Maturity date money
sufficient to pay all principal, premium, if any, and interest (including
Special Interest, if any) payable on that date with respect to the Convertible
Notes (or portions thereof) to be redeemed or maturing, as the case may be, then
on and after that date such Convertible Notes (or such portions thereof) shall
cease to be outstanding and interest on them shall cease to accrete in value or
accrue interest, as the case may be.
In determining whether the Holders of the required principal amount of
Convertible Notes have concurred in any direction, waiver or consent or any
amendment, modification or other change to this Indenture, Convertible Notes
held or beneficially owned by the Company or a Restricted Subsidiary of the
Company or by an Affiliate of the Company or a Restricted Subsidiary of the
Company or by agents of any of the foregoing shall be disregarded, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent or any amendment, modification
or other change to this Indenture, only Convertible Notes which a Trust Officer
has actual knowledge to be so owned shall be so disregarded. Convertible Notes
so owned which have been pledged in good faith shall not be disregarded if the
pledgee establishes to the satisfaction of the Trustee such pledgee's right so
to act with respect to the Convertible Notes and that the pledgee is not the
Company or an Affiliate of the Company or any of their agents.
SECTION 2.09. Temporary Convertible Notes. Pending the preparation of
---------------------------
definitive Convertible Notes, the Company may execute, and the Trustee shall
authenticate, temporary notes ("Temporary Convertible Notes") which are printed,
lithographed, or otherwise produced, substantially of the tenor of the
definitive Convertible Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations.
If Temporary Convertible Notes are issued, the Company shall cause
definitive Convertible Notes to be prepared without unreasonable delay. After
the preparation of definitive Convertible Notes, the Temporary Convertible Notes
shall be exchangeable for definitive Convertible Notes upon surrender of the
Temporary Convertible Notes to the Trustee, without charge to the Holder. Until
so exchanged, Temporary Convertible Notes will evidence the same debt and will
be entitled to the same benefits
37
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under this Indenture as the definitive Convertible Notes in lieu of which they
have been issued.
SECTION 2.10. Cancellation. The Company at any time may deliver
------------
Convertible Notes to the Trustee for cancellation. The Registrar and the Paying
Agent shall forward to the Trustee any Convertible Notes surrendered to them for
registration of transfer, exchange, purchase, payment or conversion. The
Trustee shall cancel all Convertible Notes surrendered for registration of
transfer, exchange, purchase, payment, cancellation or conversion and shall
destroy such canceled Convertible Notes unless the Company shall by Company
Order otherwise direct. The Company may not issue new Convertible Notes to
replace Convertible Notes it has redeemed or paid or that have been delivered to
the Trustee for cancellation.
SECTION 2.11. Payment of Interest; Interest Rights Preserved. Interest
-----------------------------------------------
(including Special Interest, if any) on any Convertible Note which is payable,
and is punctually paid or duly provided for, on any Interest Payment Date, which
shall be March 30 or September 30, commencing March 30, 2000 for interest other
than Special Interest, if any, shall be paid to the Person in whose name such
Convertible Note is registered at the close of business on the Record Date for
such interest payment, which shall be the March 15 or September 15 (whether or
not a Business Day) immediately preceding such Interest Payment Date.
Any interest on any Convertible Note which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Record Date, and, except as hereafter
provided, such Defaulted Interest, and any interest payable on such Defaulted
Interest, may be paid by the Company, at its election, as provided in clause (a)
or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest,
and any interest payable on such Defaulted Interest, to the Persons in whose
names the Convertible Notes are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on the Convertible Notes and
the date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as provided in this Clause.
Thereupon the Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not
38
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less than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
sent, first class mail, postage prepaid, to each Holder at such Holder's address
as it appears in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Convertible
Notes are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest, and any
interest payable on such Defaulted Interest, on the Convertible Notes in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Convertible Notes may be listed, and upon such notice as
may be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this clause, such manner of payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.11, each Convertible
Note delivered under this Indenture upon registration of transfer of, or in
exchange for, or in lieu of, any other Convertible Note, shall carry the rights
to interest accrued and unpaid, and to accrue, which were carried by such other
Convertible Note.
SECTION 2.12. Authorized Denominations. The Convertible Notes shall be
------------------------
issuable in denominations of $1,000 and any integral multiple thereof.
SECTION 2.13. Computation of Interest, etc. The Convertible Notes that
----------------------------
will be issued on the Issue Date will be issued at a discounted aggregate
principal amount of $27,644,400. If all of the Convertible Notes issuable under
Section 2.02 hereof are so issued, such Convertible Notes will accrete in value
from the date of original issuance thereof, whether on the Issue Date or
otherwise, at a rate of 9% per annum, compounded semi-annually in the manner
specified in the definition of "Accreted Value" contained in Section 1.01
hereof, to an aggregate principal amount of $46,000,000 by September 30, 1999.
Thereafter, interest will accrue at a rate of 9% per annum. Interest on the
Convertible Notes shall be computed on the basis of a 360-day year of twelve 30-
day months. Notwithstanding any other term of this Indenture, the Company shall
not be obliged to pay any interest or other amounts under or in connection with
this
39
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Indenture in excess of the amount or rate permitted under or consistent with
applicable law.
SECTION 2.14. Persons Deemed Owners. Prior to the due presentation for
---------------------
registration of transfer of any Convertible Note, the Company, the Trustee, the
Paying Agent, the Registrar or any co-Registrar may deem and treat the person in
whose name a Convertible Note is registered as the absolute owner of such
Convertible Note for the purpose of receiving payment of principal of, premium,
if any, and interest (including Special Interest, if any) on such Convertible
Note and for all other purposes whatsoever, whether or not such Convertible Note
is overdue, and none of the Company, the Trustee, the Paying Agent, the
Registrar or any co-Registrar shall be affected by notice to the contrary.
SECTION 2.15. CUSIP Numbers. The Company, in issuing the Convertible
-------------
Notes, may use a "CUSIP" number for each series of Convertible Notes and, if so,
the Trustee shall use the relevant CUSIP number in any notices to Holders as a
convenience to such Holders; provided that any such notice may state that no
--------
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Convertible Notes and that reliance may be
placed only on the other identification numbers printed on the Convertible
Notes. The Company shall promptly notify the Trustee of any change in any CUSIP
number used.
ARTICLE III
REDEMPTION
SECTION 3.01. Notice to Trustee. If the Company elects to redeem
-----------------
Convertible Notes pursuant to the optional redemption provisions of Section 3.07
and the Convertible Notes, it shall furnish an Officers' Certificate to the
Trustee setting forth the Redemption Date, the principal amount of Convertible
Notes to be redeemed and the Redemption Price. The Company shall give each such
notice to the Trustee at least 60 days prior to the Redemption Date unless the
Trustee consents to a shorter period. Such notice shall be accompanied by an
Officers' Certificate and an Opinion of Counsel from the Company to the effect
that such redemption will comply with any conditions to such redemption set
forth herein and in the Convertible Notes.
SECTION 3.02. Selection of Convertible Notes to be Redeemed. If less than
---------------------------------------------
all the Convertible Notes are to be redeemed at any time, the Trustee shall
select the Convertible Notes to be redeemed on a pro rata basis, or by any other
--- ----
method which the Trustee deems to be fair and appropriate and which complies
with any securities exchange or other applicable requirements, provided that
---------
the Trustee may select for redemption in part only
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Convertible Notes in denominations larger than $1,000. In selecting Convertible
Notes to be redeemed pursuant to this Section 3.02, the Trustee shall make such
adjustments, reallocations and eliminations as it shall deem proper so that the
principal amount of each Convertible Note to be redeemed shall be $1,000 or an
integral multiple thereof, by increasing, decreasing or eliminating any amount
less than $1,000 which would be allocable to any Holder. If the Convertible
Notes to be redeemed are Certificated Convertible Notes, the Certificated
Convertible Notes to be redeemed shall be selected by the Trustee by prorating,
as nearly as may be, or by any other method which the Trustee deems to be fair
and appropriate and which complies with any securities exchange or other
applicable requirements the principal amount of Certificated Convertible Notes
to be redeemed among the Holders of Certificated Convertible Notes registered in
their respective names. The Trustee in its discretion may determine the
particular Convertible Notes (if there are more than one) registered in the name
of any Holder which are to be redeemed, in whole or in part. Provisions of this
Indenture that apply to Convertible Notes called for redemption also apply to
portions of Convertible Notes called for redemption. The Trustee shall notify
the Company promptly of the Convertible Notes or portions of Convertible Notes
to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60
--------------------
days before a Redemption Date, the Company shall send a notice of redemption,
first class mail, postage prepaid, to Holders of Convertible Notes to be
redeemed at the addresses of such Holders as they appear in the Security
Register.
The notice shall identify the Convertible Notes to be redeemed and shall
state:
(a) the Redemption Date;
(b) the Redemption Price (and shall specify the portion of such
Redemption Price that constitutes the amount of accrued and unpaid interest to
be paid, if any);
(c) the name and address of the Paying Agent;
(d) that the Convertible Notes called for redemption must be
surrendered to the Paying Agent to collect the Redemption Price;
(e) if any Global Convertible Note is being redeemed in part, the
portion of the principal amount of such Convertible Note to be redeemed and
that, after the Redemption Date, the Global Convertible Note, with a notation on
Schedule A thereof adjusting the principal amount thereof to be equal to the
unredeemed portion, will be returned to the Holder thereof;
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(f) if any Certificated Convertible Note is being redeemed in part,
the portion of the principal amount of such Convertible Note to be redeemed and
that, after the Redemption Date, a new Certificated Convertible Note or
Certificated Convertible Notes in principal amount at Stated Maturity equal to
the unredeemed portion will be issued;
(g) if fewer than all the outstanding Convertible Notes are to be
redeemed, the identification and principal amounts of the particular Convertible
Notes to be redeemed;
(h) the conversion price, the date on which the right to convert the
Convertible Notes will terminate and the place or places where such Convertible
Notes may be surrendered for conversion;
(i) that, unless the Company defaults in making the redemption
payment, payment of interest (including Special Interest, if any) on, or the
accretion of the value of, the Convertible Notes (or portions thereof) called
for redemption shall cease and such Convertible Notes (or portions thereof)
shall cease to accrete in value or cease to accrue interest, as the case may be,
on and after the Redemption Date;
(j) the paragraph of the Convertible Notes and the Section of this
Indenture pursuant to which the Convertible Notes are being called for
redemption; and
(k) any other information necessary to enable Holders to comply with
the notice of redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section 3.03 in a timely manner; provided that the Company shall give the
--------
Trustee not less than 60 days' notice unless the Trustee consents to a shorter
period.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is
------------------------------
mailed, Convertible Notes called for redemption shall become due and payable on
the Redemption Date and at the Redemption Price stated in such notice, plus
interest and Special Interest, if any, accrued and unpaid on the Redemption
Date; provided that if the Redemption Date is after a regular Record Date and on
--------
or prior to the Interest Payment Date, the accrued interest (including Special
Interest, if any) shall be payable to the Holder of the redeemed Note on the
relevant Record Date; and provided, further, that if a Redemption Date is not a
-------- -------
Business Day, payment shall be made on that next succeeding Business Day and no
interest shall accrue for the period from such Redemption Date to such
succeeding Business Day. Upon surrender to the Paying Agent, such Convertible
Notes shall be paid at the
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Redemption Price stated in such notice. Failure to give notice or any defect in
the notice to any Holder shall not affect the validity of the notice to any
other Holder.
SECTION 3.05. Deposit of Redemption Price. On or prior to 10:00 a.m., New
---------------------------
York City time, on each Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company, one of its Subsidiaries or any of their
Affiliates is the Paying Agent, the Paying Agent shall segregate and hold in
trust for the benefit of the Holders) money, in federal or other immediately
available funds, sufficient to pay the Redemption Price on all Convertible Notes
to be redeemed on that date other than Convertible Notes or portions of
Convertible Notes called for redemption on such date which have been delivered
by the Company to the Trustee for cancellation and other than any Convertible
Notes or portions of Convertible Notes called for redemption on such date which
have been converted prior to such date.
So long as the Company complies with the preceding paragraph and the other
provisions of this Article III, interest (and Special Interest, if any) on the
Convertible Notes to be redeemed on the applicable Redemption Date shall cease
to accrue, or such Convertible Notes shall cease to accrete in value, as the
case may be, from and after such date and such Convertible Notes or portions
thereof shall be deemed not to be entitled to any benefit under this Indenture
except to receive payment on the Redemption Date of the Redemption Price plus
interest and Special Interest, if any, accrued and unpaid on the Redemption
Date. If any Convertible Note called for redemption shall not be so paid upon
surrender for redemption, then, from the Redemption Date until such principal is
paid, interest shall be paid on the unpaid principal and, to the extent
permitted by law, on any accrued but unpaid interest thereon, in each case at
the rate prescribed therefor by such Convertible Notes.
SECTION 3.06. Convertible Notes Redeemed in Part. Upon surrender and
----------------------------------
cancellation of a Certificated Convertible Note that is redeemed in part, the
Company shall issue and the Trustee shall authenticate and deliver to the
surrendering Holder (at the Company's expense) a new Certificated Convertible
Note equal in principal amount to the unredeemed portion of the Certificated
Convertible Note surrendered and canceled, provided that each such Certificated
--------
Note shall be in a principal amount of $1,000 or an integral multiple thereof.
Upon surrender of a Global Convertible Note that is redeemed in part, the
Paying Agent shall forward such Global Convertible Note to the Trustee who shall
make a notation on Schedule A thereof to reduce the principal amount of such
Global Convertible Note to an amount equal to the unredeemed portion of such
Global Convertible Note, as provided in Section 2.05(c) hereof.
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<PAGE>
SECTION 3.07. Optional Redemption. The Convertible Notes will not be
-------------------
redeemable at the option of the Company prior to September 30, 2000. During the
period from September 30, 2000 to September 30, 2002, the Convertible Notes will
be subject to redemption at the option of the Company, in whole but not in part,
upon not less than 30 nor more than 60 days' notice, if the Closing Price of the
Common Stock is at least 150 percent of the Conversion Price for thirty
consecutive days, at a Redemption Price equal to 100 percent of the principal
amount at Stated Maturity thereof plus accrued and unpaid interest (if any) and
Special Interest (if any) to the date of redemption; provided, that if the
--------
Common Stock is not traded on a U.S. national securities exchange or approved
for trading on an established automated over-the-counter trading market in the
United States and not quoted on a consolidated transaction reporting tape, the
Convertible Notes will not be redeemable during such period. On or after
September 30, 2002, the Convertible Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice at a Redemption Price equal to 100 percent of the principal
amount at Stated Maturity thereof, plus accrued and unpaid interest, if any, and
Special Interest, if any, to the Redemption Date.
ARTICLE IV
COVENANTS
SECTION 4.01. Payment of Convertible Notes. The Company shall promptly pay
----------------------------
the principal of, premium, if any, and interest (including Special Interest, if
any), on, the Convertible Notes on the dates and in the manner provided in the
Convertible Notes and in this Indenture. Principal, premium and interest shall
be considered paid on the date due if, on such date, the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal, premium and interest (including Special Interest, if any) then due.
To the extent lawful, the Company shall pay interest on (i) any overdue
principal of (and premium, if any, on) the Convertible Notes, at the interest
rate borne on the Convertible Notes, plus 1% per annum, and (ii) Defaulted
--- -----
Interest (without regard to any applicable grace period), and (iii) any Reset
Penalty that has not been paid when due, at the same rate. The Company's
obligation pursuant to the previous sentence shall apply whether such overdue
amount is due at its Stated Maturity, as a result of the Company's obligations
pursuant to Section 3.05, Section 4.07, Section 4.08 or Section 4.14 hereof, or
otherwise.
SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain
-------------------------------
in the Borough of Manhattan, The City of New York, an office or agency where
Convertible Notes may be presented or surrendered for payment or conversion,
where Convertible Notes
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<PAGE>
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Convertible Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. As of the date hereof, the address of such agency is: Harris Trust and
Savings Bank, c/o Harris Trust Company of New York, 77 Water Street, 4th Floor,
New York, New York 10005. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee its agent to receive all presentations, surrenders, notices
and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Convertible Notes
may be presented or surrendered for any or all of such purposes, and may from
time to time rescind such designations; provided that no such designation or
--------
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation and any
change in the location of any such other office or agency.
SECTION 4.03. Money for the Convertible Note Payments to be Held in Trust.
-----------------------------------------------------------
If the Company, any Restricted Subsidiary of the Company or any of their
respective Affiliates shall at any time act as Paying Agent with respect to the
Convertible Notes, such Paying Agent shall, on or before each due date of the
principal of (and premium, if any) or interest on any of the Convertible Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto
money sufficient to pay the principal (and premium, if any) and interest
(including Special Interest, if any), so becoming due until such money shall be
paid to such Persons or otherwise disposed of as herein provided, and shall
promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents with respect to
the Convertible Notes, it shall, prior to or on each due date of the principal
of (and premium, if any) or interest (including Special Interest, if any) on any
of the Convertible Notes, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) and interest (including Special Interest, if
any), so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium and interest (including Special
Interest, if any), and (unless such Paying Agent is the Trustee) the Paying
Agent shall promptly notify the Trustee of the Company's action or failure so to
act.
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SECTION 4.04. Corporate Existence. Subject to the provisions of Article V
-------------------
hereof, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect the corporate existence, rights
(charter and statutory) and franchises of the Company and each of its Restricted
Subsidiaries; provided that the Company and any such Restricted Subsidiary
--------
shall not be required to preserve the corporate existence of any such Restricted
Subsidiary or any such right or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not disadvantageous in
any material respect to the Holders of Convertible Notes.
SECTION 4.05. Maintenance of Property. The Company shall cause all
-----------------------
Property used or useful in the conduct of its business or the business of any of
its Restricted Subsidiaries to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as, in the judgment of the Company, may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided that nothing in this Section
--------
4.05 shall prevent the Company from discontinuing the operation or maintenance
of any of such Property if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business or the business of any of its
Restricted Subsidiaries and not disadvantageous in any material respect to the
Holders of Convertible Notes.
SECTION 4.06. Payment of Taxes and Other Claims. The Company shall pay or
---------------------------------
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon the Company or any of its Restricted Subsidiaries or upon the
income, profits or Property of the Company or any of its Restricted Subsidiaries
and (b) all lawful claims for labor, material and supplies which, if unpaid,
might by law become a Lien upon the Property of the Company or any of its
Restricted Subsidiaries; provided that the Company shall not be required to pay
--------
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings upon stay of execution or the enforcement
thereof and for which adequate reserves in accordance with GAAP or other
appropriate provision has been made.
SECTION 4.07. Repurchase at the Option of Holders upon a Change of Control.
------------------------------------------------------------
(a) Upon the occurrence of a Change of Control, each Holder of Convertible Notes
shall have the right to require the Company to purchase such Holder's
Convertible Notes, in whole or in part in a principal amount that is an integral
46
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multiple of $1,000, pursuant to an irrevocable and unconditional offer described
in Section 4.07(b) hereof (the "Change of Control Offer"), at a purchase price
(the "Change of Control Purchase Price") in cash equal to 101 percent of the
Accreted Value of such Convertible Notes (or portions thereof) on any Change of
Control Payment Date occurring prior to September 30, 1999, plus accrued and
unpaid interest, if any, and Special Interest, if any, thereon to such Change of
Control Payment Date, or 101 percent of the principal amount at Stated Maturity
of such Convertible Notes (or portions thereof) on any Change of Control Payment
Date occurring on or after September 30, 1999, plus accrued and unpaid interest,
if any, and Special Interest, if any, to such Change of Control Payment Date.
(b) Within 30 days of the date of any Change of Control, the Company,
or the Trustee at the request and expense of the Company, shall send to each
Holder by first class mail, postage prepaid, a notice prepared by the Company
stating:
(i) that a Change of Control has occurred and a Change of Control
Offer is being made pursuant to this Section 4.07, and that all Convertible
Notes that are properly tendered will be accepted for payment;
(ii) the Change of Control Purchase Price, and the date Convertible
Notes are to be purchased pursuant to the Change of Control Offer (the
"Change of Control Payment Date"), which date shall be a date occurring no
earlier than 30 days nor later than 60 days subsequent to the date such
notice is mailed;
(iii) that any Convertible Notes or portions thereof not properly
tendered will continue to accrete in value or accrue interest, as
applicable, and accrue Special Interest, if applicable and will continue to
have conversion rights;
(iv) that, unless the Company defaults in the payment of the Change of
Control Purchase Price with respect there to, all Convertible Notes or
portions thereof accepted for payment pursuant to the Change of Control
Offer shall cease to accrete in value or accrue interest, as the case may
be, and accrue Special Interest, if applicable, from and after the Change
of Control Payment Date and will cease to have conversion rights;
(v) that Holders electing to have any Convertible Notes or portions
thereof purchased pursuant to a Change of Control Offer will be required to
surrender such Convertible Notes, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of such Convertible Notes completed, to
the Paying Agent at the address specified in the notice, prior to the close
of business on the third Business Day preceding the Change of Control
Payment Date;
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(vi) that Holders shall be entitled to withdraw such election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Convertible Notes delivered for purchase,
and a statement that such Holder is withdrawing such Holder's election to
have such Convertible Notes or portions thereof purchased pursuant to the
Change of Control Offer;
(vii) that Holders electing to have Convertible Notes purchased
pursuant to the Change of Control Offer must specify the principal amount
that is being tendered for purchase, which principal amount must be $1,000
or an integral multiple thereof;
(viii) if Certificated Convertible Notes have been issued pursuant to
Section 2.06(b), that any Holder of Certificated Convertible Notes whose
Certificated Convertible Notes are being purchased only in part will be
issued new Certificated Convertible Notes equal in principal amount to the
unpurchased portion of the Certificated Convertible Note or Convertible
Notes surrendered, which unpurchased portion will be equal in principal
amount to $1,000 or an integral multiple thereof;
(ix) that the Trustee will return to the Holder of a Global
Convertible Note that is being purchased in part, such Global Convertible
Note with a notation on Schedule A thereof adjusting the principal amount
thereof to be equal to the unpurchased portion of such Global Convertible
Note; and
(x) the instructions and any other information necessary to enable
any Holder to accept a Change of Control Offer or effect withdrawal of such
acceptance.
(c) On the Change of Control Payment Date, the Company shall (i)
accept for payment any Convertible Notes or portions thereof properly tendered
pursuant to the Change of Control Offer; (ii) irrevocably deposit with the
Paying Agent, by 10:00 a.m., New York City time, on such date, in immediately
available funds, an amount equal to the Change of Control Purchase Price in
respect of all Convertible Notes or portions thereof so tendered, including
accrued and unpaid interest and Special Interest, if applicable, to such Change
of Control Payment Date; and (iii) deliver, or cause to be delivered, to the
Trustee the Convertible Notes so tendered together with an Officers' Certificate
listing the Convertible Notes or portions thereof tendered to the Company and
accepted for payment. The Paying Agent shall promptly send by first class mail,
postage prepaid, to each Holder of Convertible Notes or portions thereof so
accepted for payment, payment in an
48
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amount equal to the Change of Control Purchase Price for such Convertible Notes
or portions thereof, including accrued and unpaid interest and Special Interest,
if applicable, to such Change of Control Payment Date. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
Section 4.07, the Trustee shall act as the Paying Agent.
(d) Upon surrender and cancellation of a Certificated Convertible
Note that is purchased in part pursuant to the Change of Control Offer, the
Company shall promptly issue and the Trustee shall authenticate and deliver to
the surrendering Holder of such Certificated Convertible Note, a new
Certificated Convertible Note equal in principal amount to the unpurchased
portion of such surrendered Certificated Convertible Note; provided that each
--------
such new Certificated Convertible Note shall be in a principal amount of $1,000
or an integral multiple thereof.
Upon surrender of a Global Convertible Note that is purchased in part
pursuant to a Change of Control Offer, the Paying Agent shall forward such
Global Convertible Note to the Trustee who shall make a notation on Schedule A
thereof to reduce the principal amount of such Global Convertible Note to an
amount equal to the unpurchased portion of such Global Convertible Note, as
provided in Section 2.05(c) hereof.
(e) The Company shall comply with the requirements of Section 14(e)
under the Exchange Act and any other securities laws or regulations, to the
extent such laws and regulations are applicable, in connection with the
repurchase of Convertible Notes pursuant to a Change of Control Offer.
SECTION 4.08. Limitation on Asset Sales. (a) The Company shall not, and
-------------------------
shall not permit any of its Restricted Subsidiaries, directly or indirectly, to,
consummate an Asset Sale, unless:
(i) no Event of Default shall have occurred and be continuing or
shall occur as a consequence thereof;
(ii) the Company or such Restricted Subsidiary, as the case may be,
receives net consideration at the time of such Asset Sale at least equal to
the Fair Market Value (as evidenced by a Board Resolution of the Company
delivered to the Trustee) of the Property or assets sold or otherwise
disposed of;
(iii) at least 75 percent of the consideration received in respect of
such Asset Sale by the Company or such Restricted Subsidiary, as the case
may be, for such Property or assets consists of Cash Proceeds; provided,
--------
however, that
-------
49
<PAGE>
in connection with an Asset Sale of receivables, 100 percent of the
consideration received in respect of such Asset Sale by the Company or such
Restricted Subsidiary, as the case may be, for such receivables shall
consist of Cash Proceeds; and
(iv) the Company or such Restricted Subsidiary, as the case may be,
uses the Net Cash Proceeds from such Asset Sale in the manner set forth in
Section 4.08(b) hereof.
(b) Within 270 days after the closing of any Asset Sale, the Company
or such Restricted Subsidiary, as the case may be, may, at its option:
(i) reinvest an amount equal to the Net Cash Proceeds, or any portion
thereof, from such Asset Sale in Telecommunications Assets; and/or
(ii) apply an amount equal to such Net Cash Proceeds, or remaining Net
Cash Proceeds, (A) to the permanent reduction of Indebtedness of the
Company (other than Indebtedness to a Restricted Subsidiary of the Company)
that is pari passu in right of payment with the Senior Notes and the
---- -----
Convertible Notes; provided, however, that in connection with any such
-------- -------
permanent reduction of Indebtedness of the Company, the Company shall
apply, pro rata, a portion of such Net Cash Proceeds or remaining Net Cash
--- ----
Proceeds to the permanent reduction of the aggregate amount of Senior Notes
and Convertible Notes outstanding, or (B) to the permanent reduction of
Indebtedness of any Restricted Subsidiary of the Company that is pari passu
---- -----
in right of payment with such Restricted Subsidiary's Senior Note Guarantee
and its Convertible Note Guarantee, if applicable (other than Indebtedness
to the Company or another Restricted Subsidiary of the Company).
Net Cash Proceeds from any Asset Sale that are not applied pursuant to
clause (i) or (ii) above shall constitute "Excess Proceeds."
(c) If at any time the aggregate amount of Excess Proceeds calculated
as of such date exceeds $5,000,000, the Company shall, within 30 days of the
date on which such Excess Proceeds exceed $5,000,000, use such Excess Proceeds
to make an offer, as described in Section 4.08(d) hereof (an "Asset Sale
Offer"), to purchase on a pro rata basis from all Holders of the Convertible
--- ----
Notes in an aggregate principal amount equal to the maximum principal amount
that may be purchased out of the then-existing Excess Proceeds, at a purchase
price (the "Asset Sale Purchase Price") in cash equal to 100 percent of the
Accreted Value of such Convertible Notes on any Asset Sale Payment Date
occurring prior to September 30, 1999, plus accrued and unpaid interest, if any,
and Special Interest, if any, to such Asset
50
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Sale Payment Date, or 100 percent of the principal amount at Stated Maturity of
such Senior Notes on any Asset Sale Payment Date occurring on or after September
30, 1999, plus accrued and unpaid interest, if any, and Special interest, if
any, to such Asset Sale Payment Date; provided that, if any Senior Notes are
--------
outstanding and the Senior Note Indenture has not been satisfied or discharged,
the Company shall be required to apply the Excess Proceeds first to a Senior
Note Asset Sale Offer (as described in the Senior Note Indenture) and to the
substantially concurrent repayment or redemption of Pari Passu Indebtedness (if
any) if required by the instruments relating to such Pari Passu Indebtedness
(which repayment or redemption, in the case of a revolving credit arrangement or
multiple advance arrangement, reduces the commitment thereunder) in the manner
permitted by the Senior Note Indenture and to the extent that the aggregate
amount paid pursuant to the Senior Note Asset Sale Offer and, if applicable, the
repayment of Indebtedness as permitted by the Senior Note Indenture is less than
such Excess Proceeds, the Company shall then make an Asset Sale Offer for such
remaining portion of such Excess Proceeds within 100 days of the date on which
such Excess Proceeds exceeded $5,000,000.
(d) Within 30 days (or 100 days if any Senior Notes are outstanding
and the Senior Note Indenture has not been satisfied or discharged) of the date
on which the amount of Excess Proceeds exceeds $5,000,000 (but subject to the
proviso of clause (c) of this Section 4.08), the Company, or the Trustee at the
request and expense of the Company, shall send to each Holder by first class
mail, postage prepaid, a notice prepared by the Company stating:
(i) that an Asset Sale Offer is being made pursuant to this Section
4.08, and that all Convertible Notes that are properly tendered will be
accepted for payment, subject to proration in the event the amount of
Excess Proceeds is less than the aggregate Asset Sale Purchase Price of all
Convertible Notes promptly tendered pursuant to the Asset Sale Offer;
(ii) the Asset Sale Purchase Price, the amount of Excess Proceeds that
are available to be applied to purchase tendered Convertible Notes, and the
date Convertible Notes are to be purchased pursuant to the Asset Sale Offer
(the "Asset Sale Payment Date"), which date shall be a date no earlier than
30 days nor later than 40 days subsequent to the date such notice is
mailed;
(iii) that any Convertible Notes or portions thereof not properly
tendered will continue to accrete in value or accrue interest, as the case
may be, and accrue Special Interest, if applicable and will continue to
have conversion rights;
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(iv) that, unless the Company defaults in the payment of the Asset
Sale Purchase Price with respect thereto, all Convertible Notes or portions
thereof accepted for payment pursuant to the Asset Sale Offer shall cease
to accrete in value or accrue interest, as the case may be, and accrue
Special Interest, if applicable, from and after the Asset Sale Payment Date
and will cease to have conversion rights;
(v) that any Holder electing to have any Convertible Notes or portions
thereof purchased pursuant to the Asset Sale Offer will be required to
surrender such Convertible Notes, with the form entitled "Option of Holder
to Elect Purchase" on the reverse of such Convertible Notes completed, to
the Paying Agent at the address specified in the notice, prior to the close
of business on the third Business Day preceding the Asset Sale Payment
Date;
(vi) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the
second Business Day preceding the Asset Sale Payment Date, a telegram,
telex, facsimile transmission or letter, setting forth the name of the
Holder, the principal amount of Convertible Notes delivered for purchase,
and a statement that such Holder is withdrawing such Holder's election to
have such Convertible Notes or portions thereof purchased pursuant to the
Asset Sale Offer;
(vii) that any Holder electing to have Convertible Notes purchased
pursuant to the Asset Sale Offer must specify the principal amount that is
being tendered for purchase, which principal amount must be $1,000 or an
integral multiple thereof;
(viii) if Certificated Convertible Notes have been issued pursuant to
Section 2.06(b), that any Holder of Certificated Convertible Notes whose
Certificated Convertible Notes are being purchased only in part will be
issued new Certificated Convertible Notes equal in principal amount to the
unpurchased portion of the Certificated Convertible Note or Convertible
Notes surrendered, which unpurchased portion will be equal in principal
amount to $1,000 or an integral multiple thereof;
(ix) that the Trustee will return to the Holder of a Global
Convertible Note that is being purchased in part, such Global Convertible
Note with a notation on Schedule A thereof adjusting the principal amount
thereof to be equal to the unpurchased portion of such Global Convertible
Note; and
(x) the instructions and any other information necessary to enable
any Holder to accept an Asset Sale
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Offer, to tender Convertible Notes and to have such Convertible Notes
purchased, or to effect withdrawal of such acceptance, pursuant to this
Section 4.08.
(e) If the aggregate Asset Sale Purchase Price of the Convertible
Notes surrendered by Holders exceeds the amount of Excess Proceeds as indicated
in the notice required by Section 4.08(d) hereof, the Trustee shall select the
Convertible Notes to be purchased on a pro rata basis based on the Accreted
--- ----
Value, as of the Asset Sale Payment Date if such Asset Sale Payment Date is
prior to September 30, 1999, or the principal amount at Stated Maturity, if such
Asset Sale Payment Date is on or after September 30, 1999, of the Convertible
Notes tendered, with such adjustments as may be deemed appropriate by the
Trustee and may be needed to comply with any securities exchange and other
applicable requirements, so that only Convertible Notes in denominations of
$1,000 or integral multiples thereof shall be purchased.
(f) On or before the Asset Sale Payment Date, the Company shall (i)
accept for payment any Convertible Notes or portions thereof properly tendered
and selected for purchase pursuant to the Asset Sale Offer and Section 4.08(e)
hereof; (ii) irrevocably deposit with the Paying Agent, by 10:00 a.m., New York
City time, on such date, in immediately available funds, an amount equal to the
Asset Sale Purchase Price in respect of all Convertible Notes or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee
the Convertible Notes so accepted together with an Officers' Certificate listing
the Convertible Notes or portions thereof tendered to the Company and accepted
for payment. The Paying Agent shall promptly send by first class mail, postage
prepaid, to each Holder of Convertible Notes or portions thereof so accepted for
payment, payment in an amount equal to the Asset Sale Purchase Price for such
Convertible Notes or portions thereof. The Company shall publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the Asset
Sale Payment Date. For purposes of this Section 4.08, the Trustee shall act as
the Paying Agent.
(g) Upon surrender and cancellation of a Certificated Convertible
Note that is purchased in part, the Company shall promptly issue and the Trustee
shall authenticate and deliver to the surrendering Holder of such Certificated
Convertible Note a new Certificated Convertible Note equal in principal amount
to the unpurchased portion of such surrendered Certificated Convertible Note;
provided that each such new Certificated Convertible Note shall be in a
- --------
principal amount of $1,000 or an integral multiple thereof.
Upon surrender of a Global Convertible Note that is purchased in part
pursuant to an Asset Sale Offer, the Paying Agent shall forward such Global
Convertible Note to the Trustee who shall make a notation on Schedule A thereof
to reduce the
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principal amount of such Global Convertible Note to an amount equal to the
unpurchased portion of such Global Convertible Note, as provided in Section
2.05(c) hereof.
(h) Upon completion of an Asset Sale Offer (including payment of the
Asset Sale Purchase Price for accepted Convertible Notes), any surplus Excess
Proceeds that were the subject of such offer shall cease to be Excess Proceeds,
and the Company may then use such amounts for general corporate purposes.
(i) The Company shall comply with the requirements of Section 14(e)
under the Exchange Act and any other securities laws or regulations, to the
extent such laws and regulations are applicable, in connection with the
repurchase of Convertible Notes pursuant to an Asset Sale Offer.
SECTION 4.09. Limitation on Issuance of Guarantees by Restricted
--------------------------------------------------
Subsidiaries. (a) The Company shall not permit any of its Restricted
- ------------
Subsidiaries, directly or indirectly, to guarantee any Indebtedness of the
Company ("Guaranteed Indebtedness") other than the Convertible Notes, unless (i)
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to this Indenture providing for a Convertible Note Guarantee (a
"Convertible Note Guarantee") of payment of the Convertible Notes by such
Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary of the Company as a result of any payment by
such Restricted Subsidiary under its Convertible Note Guarantee, provided that
--------
any Restricted Subsidiary may guarantee any Credit Facility so long as such
Restricted Subsidiary enters into a Convertible Note Guarantee ranking pari
----
passu with its guarantee under such Credit Facility. If the Guaranteed
- -----
Indebtedness is pari passu with the Convertible Notes, then the guarantee of
---- -----
such Guaranteed Indebtedness shall be pari passu with or subordinated to the
---- -----
Convertible Note Guarantee; and if the Guaranteed Indebtedness is subordinated
to the Convertible Notes, then the guarantee of such Guaranteed Indebtedness
shall be subordinated to the Convertible Note Guarantee at least to the extent
that the Guaranteed Indebtedness is subordinated to the Convertible Notes.
(b) Notwithstanding the provisions of Section 4.10(a) hereof, any
Convertible Note Guarantee by a Restricted Subsidiary shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
the release or discharge of the guarantee which resulted in the creation of such
Restricted Subsidiary's Convertible Note Guarantee, except a discharge or
release by, or as a result of, payment under such guarantee.
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SECTION 4.10. Restricted and Unrestricted Subsidiaries. (a) The Company
----------------------------------------
may designate a Subsidiary (including a newly formed or newly acquired
Subsidiary) of the Company or any of its Restricted Subsidiaries as an
Unrestricted Subsidiary, provided that so long as the Senior Notes remain
outstanding and the Senior Note Indenture has not been satisfied or discharged,
(i) immediately after giving effect to the transaction, the Company could incur
$1.00 of additional Indebtedness pursuant to Section 4.09(a) of the Senior Note
Indenture and (ii) such designation is at the time permitted under Section
4.13(a) of the Senior Note Indenture. Notwithstanding any provision of this
Section 4.10(a), all Subsidiaries of an Unrestricted Subsidiary will be
Unrestricted Subsidiaries.
(b) An Unrestricted Subsidiary may be redesignated as a Restricted
Subsidiary. The designation of a Subsidiary of the Company as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary of the Company as a
Restricted Subsidiary shall be made by the Board of Directors as evidenced by a
Board Resolution delivered to the Trustee and shall be effective as of the date
specified in such Board Resolution, which shall not be prior to the date such
Board Resolution is delivered to the Trustee.
SECTION 4.11. Reports. Whether or not the Company is subject to Section
-------
13(a) or Section 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the Commission the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to Section 13(a) or Section 15(d) of the Exchange Act or any
successor provision thereto if the Company were subject thereto, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required to file
them. The Company shall also (whether or not it is required to file reports with
the Commission), within 30 days of each Required Filing Date, (i) transmit by
mail to all Holders of Convertible Notes, as their names and addresses appear in
the Security Register without cost to such Holders or Persons, and (ii) file
with the Trustee, copies of the annual reports, quarterly reports and other
documents (without exhibits) which the Company has filed or would have filed
with the Commission pursuant to Section 13(a) or Section 15(d) of the Exchange
Act, any successor provisions thereto or this Section 4.11. The Company shall
not be required to file any report with the Commission if the Commission does
not permit such filing.
SECTION 4.12. Compliance Certificate; Notice of Default or Event of
-----------------------------------------------------
Default (a) The Company shall deliver to the Trustee within 120 calendar days
- -------
after the end of each fiscal year of the Company ending after the date hereof,
an Officers' Certificate (which shall be signed by Officers satisfying the
requirements of Section 314 of the Trust Indenture Act), stating whether or not,
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to the best knowledge of such Officers the Company has complied with all
conditions and covenants under this Indenture, and, if the Company shall be in
Default, specifying all such Defaults and the nature thereof of which such
Officer may have knowledge.
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
year-end financial statements delivered pursuant to Section 4.11 above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention which would lead them to believe that the
Company has violated any provision of Article IV or Article V of this Indenture
(or if any violation has occurred, specifying the nature and existence thereof),
it being understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of such violation.
(c) The Company shall deliver written notice to the Trustee within 5
Business Days after becoming aware of (i) any Default or Event of Default, (ii)
any event of default under the Senior Note Indenture or (iii) any event of
default or any default under any other mortgage, indenture or instrument
referred to in Section 6.01(e) hereof, describing such Default, Event of
Default or other event of default or default, its status and what action the
Company is taking or proposes to take with respect thereto.
SECTION 4.13. Issuance of Convertible Note Contingent Warrants. In the
------------------------------------------------
event that the Company has not, on or prior to September 30, 1999, (i)
consummated a Qualified Public Offering or (ii) been sold pursuant to a
Qualified Sale of the Company, the Company will be obligated to issue to the
Holders of the Convertible Notes Convertible Note Contingent Warrants
exercisable for Class A Common Stock representing up to 2.5% of the Common
Stock of the Company on a fully diluted basis (as used herein, the term "fully
diluted" does not include any securities, including Common Stock, issued in any
transaction described in clauses (i) through (xi) of Section 15(d)(ii) of the
Warrant Agreement), after giving effect to the issuance of such Convertible Note
Contingent Warrants. Such Convertible Note Contingent Warrants will be issued
pursuant to the Warrant Agreement, and Holders will have the benefits of the
Registration Rights Agreement, as holders of Convertible Note Contingent
Warrants.
Any Convertible Note Contingent Warrants issued shall be issued to the
Holders of the outstanding Convertible Notes as of September 30, 1999 pro rata,
based upon the aggregate principal amount of the Convertible Notes held by such
Holder as of September 30, 1999.
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SECTION 4.14 Repurchase at the Option of Holders upon a Termination of
---------------------------------------------------------
Trading. (a) In the event of any Termination of Trading occurring after the
- -------
Issue Date and on or prior to Maturity, each Holder of Convertible Notes will
have the right, at such Holder's option, to require the Company to repurchase
all or any part of such Holder's Convertible Notes on the date (the "Repurchase
Date") that is 30 days after the date the Company gives notice of the
Termination of Trading at a price (the "Repurchase Price") equal to 100 percent
of the Accreted Value of such Convertible Notes on any Repurchase Date occurring
prior to September 30, 1999, together with accrued and unpaid interest, if any,
and Special Interest, if any, thereon to the Repurchase Date or 100 percent of
the principal amount at Stated Maturity of such Convertible Notes on any
Repurchase Date occurring on or after September 30, 1999, plus accrued and
unpaid interest, if any, and Special Interest, if any, thereon to the Repurchase
Date. On or prior to 10:00 a.m., New York City time on the Repurchase Date, the
Company shall irrevocably deposit with the Trustee or a Paying Agent an amount
of money sufficient to pay the Repurchase Price of the Convertible Notes which
are to be repurchased on or promptly following the Repurchase Date.
(b) On or before the 15th day after the occurrence of a Termination
of Trading, the Company, or the Trustee at the request and expense of the
Company, shall send to each Holder by first class mail, postage prepaid, a
notice prepared by the Company stating:
(i) that a Termination of Trading has occurred and that each
Holder has the right to require a repurchase of such Holder's Convertible
Notes, which repurchase right is made pursuant to this Section 4.14, and
that all Convertible Notes properly tendered will be repurchased;
(ii) the Repurchase Price, and the date Convertible Notes are
to be repurchased, which date shall be a date occurring no earlier than 30
days nor later than 40 days subsequent to the date such notice is mailed;
(iii) that any Convertible Notes or portions thereof not properly
tendered will continue to accrete in value or accrue interest, as the case
may be, and accrue Special Interest, if applicable, and will continue to
have conversion rights;
(iv) that, unless the Company defaults in the payment of the
Repurchase Price with respect thereto, all Convertible Notes or portions
thereof accepted for payment pursuant to the exercise of such repurchase
right shall cease to accrete in value or accrue interest, as the case may
be, and accrue Special Interest, if applicable, from and after the
Repurchase Date and will cease to have any conversion rights;
57
<PAGE>
(v) that any Holder electing to have any Convertible Notes or
portions thereof repurchased pursuant to the exercise of such repurchase
right will be required to surrender such Convertible Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of such
Convertible Notes completed, to the Paying Agent at the address specified
in the notice, prior to the close of business on the Repurchase Date;
(vi) that any Holder electing to have Convertible Notes
purchased pursuant to such repurchase right must specify the principal
amount that is being tendered for purchase, which principal amount must be
$1,000 or an integral multiple thereof;
(vii) if Certificated Convertible Notes have been issued
pursuant to Section 2.06(b), that any Holder of Certificated Convertible
Notes whose Certificated Convertible Notes are being purchased only in part
will be issued a new Certificated Convertible Note or Certificated
Convertible Notes equal in principal amount to the unpurchased portion of
the Certificated Convertible Note or Certificated Convertible Notes
surrendered, which unpurchased portion will be equal in principal amount to
$1,000 or an integral multiple thereof;
(viii) that the Trustee will return to the Holder of a Global
Convertible Note that is being purchased in part, such Global Convertible
Note with a notation on Schedule A thereof adjusting the principal amount
thereof to be equal to the unpurchased portion of such Global Convertible
Note; and
(ix) the instructions and any other information necessary to
enable any Holder to exercise such repurchase right or effect withdrawal of
such exercise.
(c) To exercise the repurchase right, the Holder of a Convertible
Note must deliver, on or before the close of business on the Repurchase Date,
irrevocable written notice to the Paying Agent (or an agent designated by the
Paying Agent for such purpose) and to the Trustee of the Holder's exercise of
such right, together with the certificates evidencing the Convertible Notes with
respect to which the right is being exercised, duly endorsed for transfer. Such
written notice is irrevocable. The Company or the Trustee shall promptly send by
first class mail, postage prepaid, to each Holder of Convertible Notes or
portions thereof so accepted for payment, payment in an amount equal to the
Repurchase Price for such Convertible Notes or portions thereof. The Company
shall publicly announce the results of the exercises of repurchase rights upon a
Termination of Trading on or as soon as practicable after the Repurchase Date.
For
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purposes of this Section 4.14, the Trustee shall act as the Paying Agent.
SECTION 4.15 Additional Invested Equity. If the Company does not achieve
--------------------------
consolidated total revenues (calculated in accordance with GAAP) of at least
$8,500,000 for the period from June 1, 1997 through June 30, 1997 and if, by
September 30, 1997, the Company has not either (i) consummated a Qualified
Public Offering or (ii) been sold pursuant to a Qualified Sale of the Company,
the Company shall by such date be required to either (A) obtain $10,000,000 of
Additional Invested Equity or (B) (i) grant to the Holders of the Convertible
Notes the right to purchase for $10,000,000 additional convertible securities of
the Company convertible into 16 2/3 percent of the Common Stock on a fully
diluted basis (as used herein, the term "fully diluted" does not include any
securities, including Common Stock, issued in any transaction described in
clauses (i) through (xi) of Section 15(d)(ii) of the Warrant Agreement) after
giving effect to the issuance of such additional convertible securities and (ii)
grant to the holders of the Convertible Notes the right to purchase warrants
(the "Additional Warrants") exercisable for Common Stock representing up to 5%
of the Common Stock of the Company at a purchase price of $.01 per share
(subject to certain adjustments to be specified in the Additional Warrants, if
required) on a fully diluted basis (as used herein, the term "fully diluted"
does not include any securities, including Common Stock, issued in any
transaction described in clauses (i) through (xi) of Section 15(d)(ii) of the
Warrant Agreement) after giving effect to the issuance of such Additional
Warrants.
ARTICLE V
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
SECTION 5.01. Merger, Consolidation or Sale of Assets. The Company shall
---------------------------------------
not in any transaction or series of related transactions, consolidate with, or
merge with or into, any other Person or permit any other Person to merge with or
into the Company (other than a merger of a Restricted Subsidiary of the Company
into the Company in which the Company is the continuing corporation), or sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of the Property and assets of the Company and its Restricted Subsidiaries taken
as a whole to any other Person, unless:
(a) either (i) the Company shall be the continuing corporation or
(ii) the corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the Person which acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or substantially all
of the Property and assets of the Company and its Restricted Subsidiaries taken
as a whole (any such corporation or Person
59
<PAGE>
being the "Surviving Entity") shall be a corporation organized and validly
existing under the laws of the United States of America, any political
subdivision thereof, any state thereof or the District of Columbia, and shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form reasonably satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any) and interest and
Special Interest, if any, on all the Convertible Notes and the performance of
every covenant and obligation in this Indenture on the part of the Company to be
performed or observed;
(b) immediately after giving effect to such transaction or series of
related transactions on a pro forma basis (including, without limitation, any
--- -----
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of related transactions), no Default or
Event of Default shall have occurred and be continuing or would result
therefrom; and
(c) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company (or the Surviving Entity, if the
--- -----
Company is not continuing) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately prior to such
transaction.
In connection with any consolidation, merger, sale, assignment, conveyance,
lease, transfer of assets or other transactions contemplated by this Section
5.01, the Company shall deliver, or cause to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, conveyance, lease, transfer or other transaction and
any supplemental indenture in respect thereto comply with this Article V and
that all conditions precedent herein provided for relating to such transactions
have been complied with (all of the foregoing, a "Permitted Merger").
SECTION 5.02. Successor Corporation Substituted. Upon any Permitted
---------------------------------
Merger, the Surviving Entity shall succeed to, and be substituted for, and may
exercise every right and power of, the Company hereunder and the Convertible
Notes with the same effect as if such Surviving Entity had been named as the
Company herein; and when a Surviving Person duly assumes all of the obligations
and covenants of the Company pursuant hereto and the Convertible Notes, except
in the case of a lease, the predecessor Person shall be relieved of all such
obligations.
If such Surviving Entity shall have succeeded to and been substituted for
the Company, such surviving Entity may cause to be signed, and may issue either
in its own name or in the name of
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the Company prior to such succession any or all of the Convertible Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee; and upon the order of such Surviving Entity,
instead of the Company, and subject to all of the terms, conditions and
limitations in this Indenture, the Trustee shall act thereafter and shall
deliver any Convertible Notes which previously shall have been signed and
delivered by two Officers of the Company to the Trustee for authentication. All
of the Convertible Notes so issued, and any Convertible Notes which such
Surviving Entity thereafter shall cause to be signed and delivered to the
Trustee, shall have the same legal rights and benefits under this Indenture as
the Convertible Notes theretofore or thereafter issued in accordance with the
terms of this Indenture and the Convertible Note Guarantees, if any, as though
all of such Convertible Notes had been issued on the date of execution hereof.
In the case of any such substitution, merger, sale, transfer, conveyance
or other disposal, such changes in phraseology and form (and in substance) may
be made in the Convertible Notes to be issued as may be appropriate.
For all purposes of this Indenture and the Convertible Notes, Subsidiaries
of any Surviving Entity will, upon such transaction or series of transactions,
become Restricted Subsidiaries or Unrestricted Subsidiaries as provided
pursuant to this Indenture.
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default. "Event of Default," wherever used herein
-----------------
with respect to the Convertible Notes, means any one of the following events
(whatever the reason for such event, and whether it shall be voluntary or
involuntary, or be effected by operation of law, pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of interest (or Special Interest, if any)
on any Convertible Note when the same becomes due and payable, and the
continuance of such Default for a period of 30 days; or
(b) default in the payment of the principal of (or premium, if any,
on) any Convertible Note when the same becomes due and payable whether upon
Maturity, optional redemption, required repurchase (including pursuant to a
Change of Control Offer, an Asset Sale Offer or a repurchase offer upon a
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Termination of Trading) or otherwise, or the failure to make an offer to
purchase any Convertible Note as herein required; or
(c) default in the performance, or breach, of any covenant or
agreement contained in Section 4.07, Section 4.08, Section 4.13, Section 4.14,
Section 4.15 or Article V hereof; or
(d) default in the performance, or breach, of any covenant or
warranty of the Company contained in this Indenture or the Convertible Notes
(other than a covenant or warranty addressed in Section 6.01(a), Section 6.01(b)
or Section 6.01(c) hereof), and the continuance of such Default or breach for a
period of 45 days after written notice thereof has been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25
percent of the aggregate principal amount at Stated Maturity of the outstanding
Convertible Notes; or
(e) Indebtedness of the Company or any Restricted Subsidiary is not
paid when due and payable within the applicable grace period, if any, or is
accelerated by the holders thereof and, in either case, the principal amount of
such accelerated or unpaid Indebtedness exceeds $5,000,000; or
(f) the entry by a court of competent jurisdiction of one or more
final nonappealable judgments uninsured or unindemnified for the payment of
money against the Company or any Restricted Subsidiary of the Company in an
aggregate uninsured or unindemnified amount in excess of $5,000,000, which is
not discharged, waived, stayed, bonded or satisfied for a period of 60
consecutive days; or
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Restricted Subsidiary of the Company in an involuntary case or proceeding under
United States bankrupcty laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency, or other similar
law or (ii) a decree or order adjudging the Company or any Significant
Restricted Subsidiary of the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of, or in respect of, the Company or any Significant Restricted
Subsidiary of the Company under United States bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency, or similar law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Significant Restricted Subsidiary of the Company or of any
substantial part of the Property or assets of the Company or any Significant
Restricted Subsidiary of the Company, or ordering the winding-up or liquidation
of the affairs of the Company or any Significant Restricted Subsidiary of the
Company, and the
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continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 60 consecutive days; or
(h) (i) the commencement by the Company or any Significant
Restricted Subsidiary of the Company of a voluntary case or proceeding under
United States bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal, state, or foreign bankruptcy, insolvency or other similar
law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent; or (ii) the consent by the Company or any Significant Restricted
Subsidiary of the Company to the entry of a decree or order for relief in
respect of the Company or any Significant Restricted Subsidiary of the Company
in an involuntary case or proceeding under United States bankruptcy laws, as now
or hereafter constituted, or any other applicable Federal, state, or foreign
bankruptcy, insolvency, or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Significant Restricted Subsidiary of the Company; or (iii) the filing by the
Company or any Significant Restricted Subsidiary of the Company of a
petition or answer or consent seeking reorganization or relief under United
States bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state or foreign bankruptcy, insolvency or other similar law; or (iv)
the consent by the Company or any Significant Restricted Subsidiary of the
Company to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Company or any Significant Restricted Subsidiary of
the Company or of any substantial part of the Property or assets of the Company
or any Significant Restricted Subsidiary, or the making by the Company or any
Significant Restricted Subsidiary of the Company of an assignment for the
benefit of creditors; or (v) the admission by the Company or any Significant
Restricted Subsidiary of the Company in writing of its inability to pay its
debts generally as they become due; or (vi) the taking of corporate action by
the Company or any Significant Restricted Subsidiary of the Company in
furtherance of any such action; or
(i) the occurrence and continuation of an "event of default" under
the Senior Note Indenture for a period of 30 consecutive days, after written
notice of the occurrence of such "event of default" has been given to the
Company by the Trustee or a Holder or Holders of Convertible Notes, which notice
states that such an event constitutes a Default hereunder.
SECTION 6.02. Acceleration. If any Event of Default (other than an Event
------------
of Default specified in Section 6.01(g) or Section 6.01(h) hereof) occurs and is
continuing, then and in every such case, the Trustee by a notice in writing to
the Company, or the Holders of not less than 25 percent of the outstanding
aggregate principal amount at Stated Maturity of Convertible Notes by a
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notice in writing to the Company and the Trustee, may declare the Default
Amount, premium, if any, and any accrued and unpaid interest (and Special
Interest, if any) on all Convertible Notes then outstanding to be immediately
due and payable. Upon any such declaration, such Default Amount, premium, if
any, and any accrued and unpaid interest (and Special Interest, if any) on all
Convertible Notes then outstanding will become and be immediately due and
payable. If an Event of Default specified in Section 6.01(g) or Section 6.01(h)
hereof occurs, the Default Amount, premium, if any, and any accrued and unpaid
interest (and Special Interest, if any) on all Convertible Notes then
outstanding shall ipso facto become and be immediately due and payable without
---- -----
any declaration or other act on the part of the Trustee or any Holder of
Convertible Notes.
In the event of a declaration of acceleration because an Event of Default
set forth in Section 6.01(e) hereof has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to Section 6.01(e)
hereof shall be remedied, or cured or waived by the holders of the relevant
Indebtedness within 60 days after such event of default; provided that no
--------
judgment or decree for the payment of the money due on the Convertible Notes has
been obtained by the Trustee as hereinafter in this Article VI provided. In the
event of a declaration of acceleration because an Event of Default set forth in
Section 6.01(i) hereof has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled (A) if the Senior
Notes have been repaid, (B) if the event of default under the Senior Note
Indenture triggering such Event of Default pursuant to Section 6.01(i) hereof
shall be remedied or cured, or waived by the holders of the Senior Notes, or (C)
if the Senior Notes have been accelerated, then the acceleration of the Senior
Notes shall have been rescinded within 60 days of the occurrence of such event
of default under the Senior Note Indenture, and, in the case of clauses (A), (B)
or (C) above, the Senior Note Trustee so certifies to the Trustee, provided that
any such event described in clause (A), (B) or (C) above must occur prior to the
commencement of an enforcement proceeding with respect to this Indenture.
Until September 30, 1999, the "Default Amount" shall equal the Accreted
Value of the Convertible Notes, as of the date of determination. Thereafter, the
Default Amount of each Convertible Note shall equal 100 percent of the principal
amount at Stated Maturity thereof.
At any time after a declaration of acceleration with respect to Convertible
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article VI provided, the
Holders of a majority in aggregate principal amount at Stated Maturity of the
outstanding Convertible Notes, by written notice to the
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Company and the Trustee, may rescind and annul such declaration and its
consequences if,
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue installments of interest and Special Interest,
if any, on all Convertible Notes,
(ii) the principal of (and premium, if any, on) any Convertible
Notes which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed therefor
in the Convertible Notes and this Indenture,
(iii) to the extent that payment of such interest or Special
Interest, if any, is lawful, interest on the Defaulted Interest at the rate
prescribed therefor in the Convertible Notes and this Indenture, and
(iv) all moneys paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel and all other amounts due to the Trustee
pursuant to Section 7.07 hereof; and
(b) all Events of Default with respect to the Convertible Notes,
other than the non-payment of the principal of Convertible Notes which have
become due solely by such declaration of acceleration, have been cured or
waived by the Holders as provided herein.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 6.03. Other Remedies. The Company covenants that if an Event of
--------------
Default specified in Section 6.01(a) or Section 6.01(b) occurs the Company
shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the
Holders, the whole amount then due and payable on the Convertible Notes for
principal (and premium, if any), accrued and unpaid interest and Special
Interest, if any, and, to the extent that payment of such interest shall be
legally enforceable, interest upon the overdue principal (and premium, if any)
and upon Defaulted Interest, at the rate or rates prescribed therefor in such
Convertible Notes; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and all other amounts due to the Trustee pursuant to
Section 7.07 hereof.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express
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trust, may institute a judicial proceeding for the collection of, or pursue any
available remedy under this Indenture or otherwise to collect, the sums so due
and unpaid, and may prosecute such proceeding to judgment or final decree, and
may enforce the same against the Company or any other obligor upon such
Convertible Notes and collect the moneys adjudged or decreed to be payable in
the manner provided by law out of the Property and assets of the Company or any
other obligor upon such Convertible Notes, wherever situated.
If an Event of Default with respect to the Convertible Notes occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders by such appropriate judicial proceedings as
the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 6.04. Waiver of Existing Defaults. The Holders of a majority in
---------------------------
aggregate principal amount at Stated Maturity of the Convertible Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all the
Convertible Notes waive any existing Default or Event of Default and its
consequences under this Indenture except (a) a continuing Default or Event of
Default in the payment of interest (and Special Interest, if any) on, premium,
if any, on or the principal of, the Convertible Notes, (b) in respect of a
covenant or provision hereof which under Section 9.02 hereof cannot be modified
or amended without the consent of the Holder of each outstanding Note affected
or (c) in respect of the right to require the Company to issue Convertible Note
Contingent Warrants pursuant to Section 4.13 hereof or the issuance of
Additional Warrants pursuant to Section 4.15 hereof, which rights under Section
9.02 hereof cannot be waived without the consent of Holders of not less than 75
percent in aggregate principal amount at Stated Maturity of the outstanding
Convertible Notes. Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 6.05. Control by Majority. The Holders of not less than a
-------------------
majority in aggregate principal amount at Stated Maturity of the outstanding
Convertible Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided that
--------
(a) such direction shall not be in conflict with any rule of law or
with this Indenture or unduly prejudicial to the rights of other Holders and
would not subject the Trustee to personal liability, it being understood that
(subject to Section
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7.01 hereof) the Trustee shall have no duty to ascertain whether or not such
directions are unduly prejudicial to such Holders, and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits. No Holder of Convertible Notes shall
-------------------
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Convertible Notes;
(b) the Holders of not less than 25 percent in aggregate principal
amount at Stated Maturity of the outstanding Convertible Notes shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee security or
indemnity satisfactory to the Trustee in its reasonable discretion against the
costs, expenses and liabilities to be incurred in compliance with such request;
(d) the Trustee for 30 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a majority in
aggregate principal amount at Stated Maturity of the outstanding Convertible
Notes;
in any event, it being understood and intended that no one or more Holders of
Convertible Notes shall have any right in any manner whatever by virtue of, or
by availing of, any provision of this Indenture to affect, disturb or prejudice
the rights of any other Holders of Convertible Notes, or to obtain or to seek to
obtain priority or preference over any other of such Holders or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all Holders of Convertible Notes.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
------------------------------------
other provision of this Indenture, the right of any Holder to receive payment of
principal of (premium, if any) and interest (and Special Interest, if any) on
the Convertible Notes held by such Holder, on or after the respective
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due dates expressed in the Convertible Notes or the Redemption Dates or purchase
dates provided for herein or therein, or to bring suit for the enforcement of
any such payment on or after such respective dates, shall be absolute and
unconditional and shall not be impaired or affected without the consent of such
Holder.
SECTION 6.08. Trustee May File Proofs of Claim. In case of the pendency
--------------------------------
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceedings, or any
voluntary or involuntary case under United States bankruptcy laws, as now or
hereafter constituted, relative to the Company or any other obligor upon the
Convertible Notes or the Property and assets of the Company or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of such Convertible Notes shall then be due and payable as therein expressed or
by declaration or otherwise or irrespective of whether the Trustee or any Holder
shall have made any demand on the Company for the payment of overdue principal
or interest or performed any other act pursuant to the provisions of this
Article) shall be entitled and empowered, by intervention in such proceeding or
otherwise, (i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (and Special Interest, if any) owing and unpaid in
respect of the Convertible Notes, to file such other papers or documents and to
take such other actions, including participating as a member or otherwise in any
official committee of creditors appointed in the matter, 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 all other amounts due to the Trustee
pursuant to Section 7.07 hereof) and of the Holders allowed in such judicial
proceeding, (ii) unless prohibited by applicable law and regulations to vote on
behalf of the Holders of the Convertible Notes in any election of a trustee or
standby trustee in an arrangement, reorganization, liquidation or other
bankruptcy or insolvency proceedings or Person performing similar actions in
comparable proceedings, and (iii) to collect and receive any moneys or other
Property payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, custodian, liquidator, sequestrator (or
other similar official) in any such proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due 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 7.07 hereof. Nothing contained herein
shall be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Convertible Notes or the rights of any
Holder thereof, or to
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authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
In any proceedings brought by the Trustee (and any proceedings involving
the interpretation of this Indenture to which the Trustee shall be a party), the
Trustee shall be held to represent all the Holders of the Convertible Notes, and
it shall not be necessary to make any Holders of the Convertible Notes parties
to any such proceedings.
SECTION 6.09. Priorities. Any money collected by the Trustee pursuant to
----------
this Article VI shall be applied in the following order, at the date or dates
fixed by the Trustee and, in case of the distribution of such money on account
of principal (premium, if any), interest or Special Interest, if any, upon
presentation of the Convertible Notes and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 7.07
hereof;
SECOND: To the payment of the amounts then due and unpaid for principal
of (and premium, if any) or interest and Special Interest, if any, on the
Convertible Notes, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Convertible Notes for principal
(and premium, if any) and interest or Special Interest, if any, respectively;
and
THIRD: To the Company, the Guarantors, if any, or as a court of
competent jurisdiction shall decide.
The Trustee may fix a record date and payment date from any payment to
Holders pursuant to this Section 6.09. At least 15 days before such record
date, the Company shall mail to each Holder and the Trustee a notice that states
such record date, the payment date and amount to be paid. The Trustee may mail
such notice in the name and at the expense of the Company.
SECTION 6.10. Undertaking for Costs. All parties to this Indenture agree,
---------------------
and each Holder of any Convertible Note by such Holder's acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture and the
Convertible Note Guarantees, if any, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigation in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this
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Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10 percent in principal amount at Stated Maturity of the outstanding
Convertible Notes, or to any suit instituted by any Holder for the enforcement
of the payment of the principal of (or premium, if any) or interest or Special
Interest, if any, on any Convertible Note on or after its Stated Maturity.
SECTION 6.11. Waiver of Usury, Stay or Extension Laws. The Company and
---------------------------------------
each Guarantor, if any, (to the extent it may lawfully do so) shall 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 or the Convertible Note Guarantees, if any; and
the Company and each Guarantor, if any, (to the extent that it may lawfully do
so) hereby expressly waive all benefit or advantage of any such law, and shall
not hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 6.12. Trustee May Enforce Claims Without Possession of the
----------------------------------------------------
Convertible Notes. All rights of action and claims under this Indenture, the
- -----------------
Convertible Note Guarantees, if any, or the Convertible Notes may be prosecuted
and enforced by the Trustee without the possession of any of the Convertible
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name, as
trustee of an express trust, and any recovery of judgement shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Convertible Notes.
SECTION 6.13. Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder of Convertible Notes has instituted any proceeding to enforce any right
or remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case the Company, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 6.14. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided in Section 2.07 hereof, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law,
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be cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.15. Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder of any Convertible Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article VI, by the Convertible Note
Guarantees, if any, or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as may be deemed expedient, by the Trustee or by
the Holders, as the case may be.
ARTICLE VII
TRUSTEE
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred
-----------------
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and shall use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default: (i) the
Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and (ii) in the absence
of bad faith on its part, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; provided that in the case of any such
--------
certificates or opinions that by any provision of this Indenture are
specifically required to be furnished to the Trustee, the Trustee shall examine
such certificates and opinions 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, provided that: (i) this paragraph (c) shall not limit the effect of
--------
paragraph (b) of this Section 7.01; (ii) 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 (iii) 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
6.05 hereof.
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(d) 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.
(e) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk of liability is
not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VII and to the provisions of the Trust
Indenture Act.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
-----------------
document believed by it to be genuine and to have been signed or presented by
the proper Person. Except as provided in Section 7.01(b) hereof, 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. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on any
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any such agent; provided that such agent was
--------
appointed with due care by the Trustee.
(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; provided that the Trustee's conduct does not constitute willful
--------
misconduct or negligence.
(e) The Trustee shall not be charged with knowledge of any Default or
Event of Default under Sections 6.01(c), 6.01(d), 6.01(e), 6.01(f), 6.01(g),
6.01(h) or 6.01(i) hereof (provided that the Trustee shall comply with the
automatic stay provisions of United States bankruptcy laws), of the identity of
any Restricted Subsidiary or of the existence of any Change of Control, Asset
Sale or Termination of Trading unless either (i) a Trust Officer shall have
actual knowledge thereof, or (ii) the Trustee shall have received notice thereof
in accordance with
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Sections 4.12 and 14.02 hereof from the Company or in accordance with Section
14.02 hereof from any Holder of Convertible Notes.
(f) The Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture or
other paper or document, but the Trustee, in its discretion may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney.
(h) The Trustee shall be under no obligation to exercise any of the
rights or powers vested by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction.
(i) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
As used throughout this Indenture, the term "actual knowledge" means the
actual fact or statement of knowing, without any duty to make any investigation
with regard thereto.
SECTION 7.03. Individual Rights of Trustee. The Trustee, any Paying Agent
----------------------------
or Registrar, in its individual or any other capacity, may become the owner or
pledgee of Convertible Notes and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee, Paying
Agent or Registrar hereunder, as the case may be; provided that the Trustee must
--------
in any event comply with Section 7.10 and Section 7.11 hereof.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible
--------------------
for and makes no representation as to the validity or adequacy of this
Indenture, the Convertible Note Guarantees, if any, or the Convertible Notes, it
shall not be accountable for the Company's use of the proceeds from the
Convertible Notes, and it shall not be responsible (a) for any statement of the
Company in this Indenture, including the recitals contained herein, or in any
document issued in connection with the sale of the
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Convertible Notes or in the Convertible Notes other than the Trustee's
certificate of authentication or (b) for compliance by the Company with the
Registration Rights Agreement.
SECTION 7.05. Notice of Defaults. Within 90 days after the occurrence of
------------------
any Default hereunder with respect to the Convertible Notes, the Trustee shall
transmit by mail to all Holders, as their names and addresses appear in the
Security Register, notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided that, except in the case
--------
of a Default in the payment of the principal of (or premium, if any) or interest
or Special Interest, if any, on any Convertible Note, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Trust Officers
of the Trustee in good faith determine that the with holding of such notice is
in the interest of Holders.
SECTION 7.06. Preservation of Information; Reports by Trustee to Holders.
----------------------------------------------------------
(a) The Company shall furnish or cause to be furnished to the Trustee:
(i) semiannually, not less than 10 days prior to each Interest
Payment Date, a list, in such form as the Trustee may reasonably require,
of the names and addresses of the Holders as of the Record Date immediately
preceding such Interest Payment Date, and
(ii) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list
of similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
provided that if and so long as the Trustee shall be the Registrar for the
- --------
Convertible Notes, no such list need be furnished with respect to the
Convertible Notes.
(b) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.06(a) hereof and the
names and addresses of Holders received by the Trustee in its capacity as
Registrar, if so acting. The Trustee may destroy any list furnished to it as
provided in Section 7.06(a) hereof upon receipt of a new list so furnished.
(c) Holders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Holders with respect to their rights under this
Indenture, the Convertible Note Guarantees, if any, or the Convertible Notes.
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(d) Each Holder of Convertible Notes, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company nor the
Trustee shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with this
Section 7.06, regardless of the source from which such information was derived,
and that the Trustee shall not be held accountable by reason of mailing any
material pursuant to a request made under this Section 7.06.
(e) Within 60 days after May 15 of each year commencing with the year
1997, the Trustee shall transmit by mail to all Holders of Convertible Notes, a
brief report dated as of such May 15 if and to the extent required under Section
313(a) of the Trust Indenture Act.
(f) The Trustee shall comply with Sections 313(b) and 313(c) of the
Trust Indenture Act.
(g) A copy of each report described in Section 7.06(e) hereof shall,
at the time of its transmission to Holders, be filed by the Trustee with each
securities exchange, if any, upon which the Convertible Notes are then listed,
with the Commission and also with the Company. The Company shall promptly
notify the Trustee of any securities exchange upon which the Convertible Notes
are listed.
SECTION 7.07 Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee from time to time reasonable compensation for its services. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, in addition to
the compensation for its services. Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee's agents
and counsel. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust.
The Company shall indemnify the Trustee for, and hold it harmless against,
any and all loss, liability or expense (including reasonable attorneys' fees)
arising out of or incurred by it in connection with the acceptance or
administration of the trust created by this Indenture and the performance of its
duties hereunder, except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend any such claim and the
Trustee shall cooperate in the defense of such claim. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
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The Company need not reimburse any expense or indemnify against any loss,
liability or expense incurred by the Trustee through the Trustee's own willful
misconduct or negligence.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Convertible Notes on all money or
property held or collected by the Trustee other than money or property held in
trust to pay principal of, premium, if any, and interest (including Special
Interest, if any) on, particular Convertible Notes.
The Company's payment obligations pursuant to this Section 7.07 shall
survive the resignation or removal of the Trustee and discharge of this
Indenture and any Convertible Note Guarantees. Subject to any other rights
available to the Trustee under applicable bankruptcy law, when the Trustee
incurs expenses after the occurrence of a Default specified in Section 6.01(g)
or Section 6.01(h) hereof, the expenses are intended to constitute expenses of
administration under bankruptcy law.
SECTION 7.08. Replacement of Trustee. (a) No resignation or removal of
----------------------
the Trustee and no appointment of a successor Trustee pursuant to this Article
VII shall become effective until the acceptance of appointment by the successor
Trustee under this Section 7.08.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 calendar days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in aggregate principal amount at Stated Maturity of the outstanding
Convertible Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(i) The Trustee shall fail to comply with Section 310(b) of
the Trust Indenture Act after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Convertible Note for at
least six months, unless the Trustee's duty to resign is stayed in
accordance with the provisions of Section 310(b) of the Trust Indenture
Act; or
(ii) The Trustee shall cease to be eligible under Section 7.10
hereof and shall fail to resign after written request therefor by the
Company or by any such Holder; or
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(iii) The Trustee shall become incapable of acting or a decree
or order for relief by a court having jurisdiction in the premises shall
have been entered in respect of the Trustee in an involuntary case under
the United States bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal or state bankruptcy, insolvency or similar law; or
a decree or order by a court having jurisdiction in the premises shall have
been entered for the appointment of a receiver, custodian, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Trustee
or of its Property and assets or affairs, or any public officer shall take
charge or control of the Trustee or of its Property and assets or affairs
for the purpose of rehabilitation, conservation, winding up or liquidation;
or
(iv) The Trustee shall commence a voluntary case under the
United States bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal or state bankruptcy, insolvency or similar law or
shall consent to the appointment of or taking possession by a receiver,
custodian, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trustee or its Property and assets or affairs, or shall
make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due, or shall take
corporate action in furtherance of any such action,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to the Convertible Notes, or (ii) subject to Section 6.10
hereof, any Holder who has been a bona fide Holder of a Convertible Note for at
least six months may, on behalf of such Holder and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee for the Convertible Notes.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by the Holders of a majority in aggregate principal amount at Stated
Maturity of the outstanding Convertible Notes delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with this Section 7.08, become the
successor Trustee and to that extent replace any successor Trustee appointed by
the Company. If no successor Trustee shall have been so appointed by the
Company or the Holders and shall have accepted appointment in the manner
hereinafter provided, any
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Holder that has been a bona fide Holder of a Convertible Note for at least six
months may, subject to Section 6.10 hereof, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by
mailing written notice of such resignation, removal and appointment by first
class mail, postage prepaid, to the Holders as their names and addresses appear
in the Security Register. Each notice shall include the name of the successor
Trustee with respect to the Convertible Notes and the address of its Corporate
Trust Office.
(g) In the event of an appointment hereunder of a successor Trustee,
each such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts, and
duties of the retiring Trustee but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all Property and money held by such former
Trustee hereunder, subject to its Lien, if any, provided for in Section 7.07
hereof.
(h) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in Section 7.08(g) hereof.
(i) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article VII and under the Trust Indenture Act.
SECTION 7.09. Successor Trustee by Merger. Any corporation into which the
---------------------------
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder; provided that such corporation shall be otherwise
--------
qualified and eligible under this Article VII and under the Trust Indenture Act,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Convertible Notes
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shall have been authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Convertible Notes so
authenticated with the same effect as if such successor Trustee had itself
authenticated such Convertible Notes. In the event that any Convertible Notes
shall not have been authenticated by such predecessor Trustee, any such
successor Trustee may authenticate and deliver such Convertible Notes, in either
its own name or that of its predecessor Trustee, with the full force and effect
which this Indenture provides for the certificate of authentication of the
Trustee.
SECTION 7.10. Eligibility; Disqualification. There shall at all times be
-----------------------------
a Trustee hereunder which shall be
(i) a corporation organized and doing business under the laws
of the United States of America, any State or Territory thereof or the
District of Columbia, authorized under such laws to exercise corporate
trust powers, and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority, or
(ii) a corporation or other Person organized and doing business
under the laws of a foreign government that is permitted to act as Trustee
pursuant to a rule, regulation or order of the Commission, authorized under
such laws to exercise corporate trust powers, and subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or examination
applicable to United States institutional trustees, in either case having a
combined capital and surplus of at least $100,000,000.
If such Person publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section 7.10, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible to serve as Trustee hereunder
pursuant to the provisions of this Section 7.10, it shall resign immediately in
the manner and with the effect specified in this Article VII.
The Indenture shall always have a Trustee which satisfies the requirements
of Section 310(a)(1), (2), and (5) of the Trust Indenture Act. If the Trustee
has or shall acquire any "conflicting interest" within the meaning of Section
310(b) of the Trust Indenture Act, the Trustee and the Company shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act. Nothing herein shall prevent the Trustee from filing with the Commission
the application referred to in
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the penultimate paragraph of Section 310(b) of the Trust Indenture Act.
Neither the Company, any Guarantor, any Subsidiary nor any Affiliate of the
Company shall serve as Trustee hereunder.
SECTION 7.11. Preferential Collection of Claims Against Company. The
-------------------------------------------------
Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding
any creditor relationship listed in Section 311(b) of the Trust Indenture Act.
A Trustee who has resigned or been removed shall be subject to Section 311(a) of
the Trust Indenture Act to the extent indicated therein.
ARTICLE VIII
DEFEASANCE
SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant
-------------------------------------------------------
Defeasance. The Company may elect, at its option, at any time, to have Section
- ----------
8.02 or Section 8.03 hereof applied to the outstanding Convertible Notes (in
whole and not in part) upon compliance with the conditions set forth below in
this Article VIII, such election shall be evidenced by a Board Resolution
delivered to the Trustee.
SECTION 8.02. Legal Defeasance and Discharge. Upon the Company's exercise
------------------------------
of its option to have this Section 8.02 applied to the outstanding Convertible
Notes (in whole and not in part), the Company shall be deemed to have been
discharged from its obligations with respect to such Convertible Notes as
provided in this Section 8.02 on and after the date the conditions set forth in
Section 8.04 hereof are satisfied (hereinafter called "Defeasance"). For this
purpose, such Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by such Convertible Notes and the
Company and the Guarantors, if any, shall be deemed to have satisfied all their
other obligations under such Convertible Notes, the Convertible Note Guarantees,
if any, and this Indenture (and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same), subject to the
following which shall survive until otherwise terminated or discharged
hereunder:
(a) the rights of Holders of such Convertible Notes to receive,
solely from the trust fund described in Section 8.04 hereof and as more fully
set forth in such Section 8.04 payments in respect of the principal of and any
premium and interest (and Special Interest, if any) on such Convertible Notes
when payments are due,
(b) the Company's obligations with respect to such Convertible Notes
under Sections 2.06, 2.07, 2.09, 4.02, 4.03, 4.04 and 11.03 hereof,
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(c) the rights, powers, trusts, duties and immunities of the Trustee
under this Indenture,
(d) Article III hereof,
(e) this Article VIII, and
(f) Article XII hereof.
Subject to compliance with this Article VIII, the Company may exercise
its option to have this Section 8.02 applied to the outstanding Convertible
Notes (in whole and not in part) notwithstanding the prior exercise of its
option to have Section 8.03 hereof applied to such Convertible Notes.
SECTION 8.03. Covenant Defeasance. Upon the Company's exercise of its
-------------------
option to have this Section 8.03 applied to the outstanding Convertible Notes
(in whole and not in part), (i) the Company shall be released from its
obligations under Sections 4.05 through 4.11, inclusive, Sections 4.13 through
4.15, inclusive, and any covenant added to this Indenture subsequent to the
Issue Date pursuant to Section 9.01 hereof, (ii) the occurrence of any event
specified in Section 6.01(c) or Section 6.01(d) hereof, with respect to any of
Sections 4.05 through 4.11, inclusive, Sections 4.13 through 4.15, inclusive,
and any covenant added to this Indenture subsequent to the Issue Date pursuant
to Section 9.01 hereof, shall be deemed not to be or result in an Event of
Default, in each case with respect to such Convertible Notes as provided in this
Section 8.03 on and after the date the conditions set forth in Section 8.04
hereof are satisfied (hereinafter called "Covenant Defeasance"). For this
purpose, such Covenant Defeasance means that, with respect to such Convertible
Notes, the Company and the Guarantors, if any, may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such specified Section (to extent so specified in the case of Sections
6.01(c) and 6.01(d) hereof), whether directly or indirectly by reason of any
reference elsewhere herein to any such Section or by reason of any reference in
any such Section to any other provision herein or in any other document; but the
remainder of this Indenture, the Convertible Note Guarantees, if any, and such
Convertible Notes shall be unaffected thereby.
SECTION 8.04. Conditions to Defeasance Covenant Defeasance. The
--------------------------------------------
following shall be the conditions to the application of Section 8.02 or Section
8.03 hereof to the outstanding Convertible Notes:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to the benefits of the Holders of such Convertible Notes, (i) money in an
amount, or
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(ii) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, money in an
amount, or (iii) a combination thereof, in each case sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge,
and which shall be applied by the Trustee (or any such other qualifying trustee)
to pay and discharge, the principal of and any installment of interest
(including Special Interest, if any) on, such Convertible Notes at the Stated
Maturity thereof, in accordance with the terms of this Indenture and such
Convertible Notes.
(b) In the event of an election to have Section 8.02 hereof apply to
the outstanding Convertible Notes, the Company shall have delivered to the
Trustee an Opinion of Counsel stating that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii)
since the date of this Indenture, there has been a change in the applicable
Federal income tax law, in either case (i) or (ii) to the effect that, and based
thereon such opinion shall confirm that, the Holders of such Convertible Notes
will not recognize gain or loss for Federal income tax purposes as a result of
the deposit, Defeasance and discharge to be effected with respect to such
Convertible Notes and will be subject to Federal income tax on the same amount,
in the same manner and at the same times as would be the case if such deposit,
Defeasance and discharge were not to occur.
(c) In the event of an election to have Section 8.03 hereof apply to
the outstanding Convertible Notes, the Company shall have delivered to the
Trustee an Opinion of Counsel to the effect that the Holders of such Convertible
Notes will not recognize gain or loss for Federal income tax purposes as a
result of the deposit and Covenant Defeasance to be effected with respect to
such Convertible Notes and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would be the case if such
deposit and Covenant Defeasance were not to occur.
(d) No Default or Event of Default with respect to the outstanding
Convertible Notes shall have occurred and be continuing at the time of such
deposit after giving effect thereto and no Default or Event of Default under
Section 6.01(g) or 6.01(h) shall have occurred and be continuing on or prior to
the 91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day).
(e) Such Defeasance or Covenant Defeasance shall not cause the
Trustee to have a conflicting interest within the meaning of the Trust Indenture
Act (assuming for the purpose of
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this clause (e) that all Convertible Notes are in default within the meaning of
such Act).
(f) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company or any Guarantor, if any, is a party or by which
it is bound.
(g) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder.
(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 8.05. Deposited Money and U.S. Government Obligations to be Held
-----------------------------------------------------------
in Trust; Miscellaneous Provisions. All money and U.S. Government Obligations
- ----------------------------------
(including the proceeds thereof) deposited with the Trustee pursuant to Section
8.04 hereof in respect of the outstanding Convertible Notes shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Convertible Notes and this Indenture, to the payment, either directly or through
any such Paying Agent as the Trustee may determine, to the Holders of such
Convertible Notes, of all sums due and to become due thereon in respect of
principal and any premium and interest, but money so held in trust need not be
segregated from other funds except to the extent required by law. The Company
shall pay and indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against the U.S. Government Obligations deposited pursuant to
Section 8.04 hereof or the principal and interest received in respect thereof
other than any such tax, fee or other charge which by law is for the account of
the Holders of outstanding Convertible Notes.
Anything in this Article VIII to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Order any
money or U.S. Government Obligations held by it as provided in Section 8.04
hereof which, in the opinion of a nationally recognized firm of independent
public accounts expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof that would be required to be
deposited to effect the Defeasance or Covenant Defeasance, as the case may be,
with respect to the outstanding Convertible Notes.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money in accordance with this Article VIII with respect to any
Convertible Notes by reason of any order or judgment of any court or
governmental authority
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enjoining, restraining or otherwise prohibiting such application then the
obligations under this Indenture, the Convertible Note Guarantees, if any, and
such Convertible Notes from which the Company and any Guarantor has been
discharged or released pursuant to Section 8.02 or 8.03 hereof shall be
revived and reinstated as though no deposit has occurred pursuant to this
Article VIII with respect to such Convertible Notes, until such time as the
Trustee or Paying Agent is permitted to apply all money held in trust pursuant
to Section 8.05 hereof with respect to such Convertible Notes in accordance with
this Article VIII; provided that if the Company or any Guarantor makes any
payment of principal of or any premium, interest or Special Interest, if
any, on any such Convertible Note following such reinstatement of its
obligations, the Company or such Guarantor, as the case may be, shall be
subrogated to the rights (if any) of the Holders of such Convertible Notes to
receive such payment from the money so held in trust.
ARTICLE IX
AMENDMENTS
SECTION 9.01. Without Consent of Holders. The Company, the Guarantors, if
--------------------------
any, and the Trustee may, at any time, and from time to time, without notice to
or consent of any Holders of Convertible Notes, enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(a) to evidence the succession of another Person to the Company or a
Guarantor, as applicable, and the assumption by such successor of the covenants
and obligations of the Company in this Indenture and the Convertible Notes or
such Guarantor contained in its Convertible Note Guarantee and this Indenture;
or
(b) to add to the covenants of the Company, for the benefit of the
Holders of all of the Convertible Notes, or to surrender any right or power
herein conferred upon the Company or the Guarantors, if any, by this Indenture;
or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Convertible Notes in addition to or
in place of Certificated Convertible Notes; or
(e) to evidence and provide for the acceptance of appointment
hereunder of a successor Trustee; or
(f) to cure any ambiguity herein, or to correct or supplement any
provision hereof which may be inconsistent with any other provision hereof or to
add any other provisions with
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respect to matters or questions arising under this Indenture; provided that such
--------
actions shall not adversely affect the interests of the Holders of Convertible
Notes in any material respect; or
(g) to provide for Restricted Subsidiaries to become Guarantors
pursuant to Section 4.09 hereof and Article X hereof; or
(h) to secure the Convertible Notes; or
(i) to make provisions with respect to the conversion rights of
Holders pursuant to the requirements of Section 12.04 or Section 12.11 hereof;
or
(j) to comply with the requirements of the Commission in order to
effect or maintain qualification of this Indenture under the Trust Indenture
Act.
SECTION 9.02. With Consent of Holders. With the consent of the Holders of
-----------------------
not less than a majority in aggregate principal amount of the outstanding
Convertible Notes, by Act of said Holders delivered to the Company, the
Guarantors, if any, and the Trustee, the Company, the Guarantors, if any, and
the Trustee may enter into one or more indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of modify modifying in any manner the
rights of the Holders; provided that no such supplemental indenture shall,
--------
without the consent of the Holder of each outstanding Convertible Note:
(a) change the Stated Maturity of the principal of, or any
installment of interest or Special Interest, if any, on, any Convertible Note,
or reduce the Accreted Value or principal amount at Stated Maturity thereof (or
any premium, if any), or the interest (including Special Interest, if any)
thereon, that would be due and payable upon Stated Maturity thereof, or reduce
the Default Amount that would be due and payable upon Stated Maturity thereof,
or change the place of payment where, or the coin or currency in which, any
Convertible Note or any premium or interest (including Special Interest, if any)
thereon is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof; or
(b) reduce the percentage in principal amount, of the outstanding
Convertible Notes, the consent of whose Holders is necessary for any such
supplemental indenture or required for any waiver of compliance with certain
provisions of this Indenture or the Convertible Note Guarantees, if any, or
Defaults hereunder; or
(c) modify any of the provisions of Section 6.04 hereof, except to
increase any percentage set forth therein or to provide that certain other
provisions of this Indenture cannot be
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modified or waived without the consent of the Holder of each outstanding
Convertible Note affected thereby; or
(d) subordinate in right of payment, or otherwise subordinate, the
Convertible Notes or any Convertible Note Guarantees to any other Indebtedness
other than Senior Indebtedness; or
(e) modify any of the provisions of this Section 9.02, except to
increase any percentage set forth herein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holder of each outstanding Convertible Note affected thereby; or
(f) make any change in the provisions of Article XI, which would
adversely affect the Holders of the Convertible Notes; or
(g) adversely affect the rights of the Holders of the Convertible
Notes to convert such Convertible Notes; or
(h) modify the obligations of the Company to make offers to purchase
Convertible Notes upon a Change of Control or from the proceeds of Asset Sales
or upon a Termination of Trading;
provided that the Holders of not less than 75 percent in aggregate principal
amount at Stated Maturity of the outstanding Convertible Notes may, on behalf of
the Holders of all such Convertible Notes, waive any right to require the
Company to issue to the Holders of the Convertible Notes either Convertible Note
Contingent Warrants or Additional Warrants.
It shall not be necessary for any Act of Holders under this Section 9.02 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. Effect of Supplemental Indentures. Upon the execution of
---------------------------------
any supplemental indenture under this Article IX, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Convertible Notes
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.04. Compliance with Trust Indenture Act. Every amendment or
-----------------------------------
supplement to this Indenture or the Convertible Notes shall comply with the
Trust Indenture Act as then in effect.
SECTION 9.05. Revocation and Effect of Consents and Waivers. A consent
---------------------------------------------
to an amendment, supplement or a waiver by a
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Holder of a Convertible Note shall bind the Holder and every subsequent Holder
of such Convertible Note or portion of such Convertible Note that evidences the
same debt as the consenting Holder's Convertible Note, even if notation of the
consent or waiver is not made on such Convertible Note; provided that any such
--------
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Convertible Note or portion of such Convertible Note if the Trustee receives
the notice of revocation before the date the amendment, supplement or waiver
become effective. After an amendment, supplement or waiver becomes effective
pursuant to this Article IX, it shall bind every Holder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to give their consent or take any
other action described above or required or permitted to be taken pursuant to
this Indenture. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 days after
such record date.
SECTION 9.06. Notation on or Exchange of Convertible Notes. If a
--------------------------------------------
supplemental indenture changes the terms of a Convertible Note, the Trustee may
require the Holder thereof to deliver such Convertible Note to the Trustee. The
Trustee may place an appropriate notation on such Convertible Note regarding the
changed terms and return it to the Holder. Alternatively, if the Company or the
Trustee so determines, the Company in exchange for such Convertible Note shall
issue and the Trustee shall authenticate a new Convertible Note that reflects
the changed terms. Failure to make the appropriate notation or to issue a new
Convertible Note shall not affect the validity of such amendment of supplement.
SECTION 9.07. Trustee to Execute Supplemental Indentures. The Trustee
------------------------------------------
shall execute any supplemental indenture authorized pursuant to this Article IX
if such supplemental indenture does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the Trustee may, but shall
not be required to, execute such supplemental indenture. In executing any
supplemental indenture, the Trustee shall be entitled to received indemnity
reasonably satisfactory to it and to receive, and (subject to Section 7.01
hereof) shall be fully protected in relying upon, an Officers' Certificate
(which need only cover the matters set forth in clause (a) below) and an Opinion
of Counsel provided by the Company stating that:
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(a) such supplemental indenture is authorized or permitted by this
Indenture and that all conditions precedent to the execution, delivery and
performance of such supplemental indenture have been satisfied;
(b) the Company and the Guarantors, if any, have all necessary
corporate power and authority to execute and deliver the supplemental indenture
and that the execution, delivery and performance of such supplemental indenture
has been duly authorized by all necessary corporate action of the Company and
the Guarantors, if any;
(c) the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of or constitute a
default under any of the terms, conditions or provisions of (i) this Indenture,
(ii) the charter documents and by-laws of the Company or any Guarantor, or (iii)
any material agreement or instrument to which the Company or any Guarantor is
subject;
(d) to the best knowledge and belief of legal counsel writing such
Opinion of Counsel, the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of any of the terms,
conditions or provisions of (i) any law or regulation applicable to the Company
or any Guarantor, or (ii) any material order, writ, injunction or decree of any
court or governmental instrumentality applicable to the Company or any
Guarantor;
(e) such supplemental indenture has been duly and validly executed and
delivered by the Company and the Guarantors, if any, and this Indenture
together with such supplemental indenture constitutes a legal, valid and binding
obligation of the Company and the Guarantors, if any, enforceable against the
Company and the Guarantors, as applicable, in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
general equitable principles; and
(f) this Indenture together with such amendment or supplement complies
with the Trust Indenture Act.
SECTION 9.08 Solicitation of Consents. Neither the Company nor any of
------------------------
its Subsidiaries nor any of their Affiliates shall, directly or indirectly, pay
or cause to be paid any consideration, whether by way of interest, fees or
otherwise, to any Holders of any Convertible Notes for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of this
Indenture, the Convertible Note Guarantees, if any, or the Convertible Notes,
unless such consideration is offered to be paid or agreed to be paid to all
Holders of the Convertible Notes that consent, waive or agree to amend in the
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time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
ARTICLE X
CONVERTIBLE NOTE GUARANTEES
SECTION 10.01 Convertible Note Guarantees (a) Subject to the provisions
---------------------------
of this Article X, each Restricted Subsidiary of the Company, if any, which in
accordance with Section 4.09 hereof is required in the future to become a
Guarantor and to guarantee the obligations of the Company and the Guarantors
under the Convertible Notes and the Convertible Note Guarantees, upon execution
of a supplemental indenture, hereby jointly and severally, irrevocably and
unconditionally guarantees to the Trustee and to each Holder of a Convertible
Note authenticated and delivered by the Trustee irrespective of the validity or
enforceability of this Indenture, the Convertible Notes, or the obligations of
the Company and any other Guarantors, under this Indenture that: (i) the
principal of, premium, if any, and any interest, and Special Interest, if any,
on the Convertible Notes (including, without limitation, any interest that
accrues after the filing of a proceeding of the type described in Sections
6.1(g) and (h)) and any fees, expenses and other amounts owing under this
Indenture will be duly and punctually paid in full when due, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, exercise of a repurchase right upon a Termination of Trading,
purchase or otherwise, and interest on the overdue principal and (to the extent
permitted by law) interest, if any, and Special Interest, if any, on the
Convertible Notes and any other amounts due in respect of the Convertible Notes,
if lawful, and all other obligations of the Company and the Guarantors, if any,
to the Holders of the Convertible Notes under this Indenture and the Convertible
Notes, whether now or hereafter existing, will be promptly paid in full or
performed, all strictly in accordance with the terms hereof, of the Convertible
Notes and of the Convertible Note Guarantees, if any; and (ii) in case of any
extension of time of payment or renewal of any Convertible Notes or any of such
other obligations the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, exercise of a repurchase right upon a Termination of Trading,
purchase or otherwise. If payment is not made when due of any amount so
guaranteed for whatever reason, each Guarantor shall be jointly and severally
obligated to pay the same individually whether or not such failure to pay has
become an Event of Default which could cause acceleration pursuant to Section
6.02. Each Guarantor agrees that this is a guarantee of payment and not a
guarantee of collection. An Event of Default under this Indenture or the
Convertible Notes shall
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constitute an Event of Default under this Convertible Note Guarantee, and shall
entitle the Holders to accelerate the obligations of each Guarantor hereunder in
the same manner and to the same extent as the obligations of the Company. This
Convertible Note Guarantee is intended to be superior to or pari passu in right
---- -----
of payment with all Indebtedness of the Guarantors, other than the Senior Note
Guarantees, if any, of such Guarantors, and each Guarantor's obligations are
independent of any obligation of the Company or any other Guarantor.
(b) Each Guarantor hereby agrees that its obligations hereunder shall
be joint and several, absolute, irrevocable and unconditional, irrespective of
the validity, regularity or enforceability of the Convertible Notes, this
Indenture, or any other document relating thereto, the absence of any action to
enforce the same, any waiver or consent by any Holder with respect to any
provisions hereof or thereof, any release of any other Guarantor, the recovery
of any judgment against the Company or any other Person, any action to enforce
the same or any other circumstance (including, without limitation, any statute
of limitations) which might otherwise constitute a legal or equitable discharge
or defense of a Guarantor. Each Guarantor hereby waives promptness, diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company or any other Person, any right to
require a proceeding first against the Company or any other Person, protest
notice and all demands whatsoever and covenants that its Convertible Note
Guarantee will not be discharged except by complete performance of the
obligations contained in the Convertible Notes, this Indenture and this
Convertible Note Guarantee. If any Holder or the Trustee is required by any
court or otherwise to return to the Company or to any Guarantor, or any
receiver, trustee, assignee, liquidator or similar official under any
applicable bankruptcy or insolvency or other similar law any amount paid by the
Company or such Guarantor to the Trustee or such Holder, this Convertible Note
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
(c) Until such time as the Convertible Notes and the other obligations
of the Company guaranteed hereby have been satisfied in full, each Guarantor
hereby irrevocably waives any claim or other rights that it may now or hereafter
acquire against the Company or any other Guarantor that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under this Convertible Note Guarantee, including, without limitation, any right
of subrogation, reimbursement, exoneration, contribution or indemnification and
any right to participate in any claim or remedy of the Holders or the Trustee
against the Company or any other Guarantor, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, including,
without limitation, the right to take or receive from the Company or any other
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Guarantor, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim, remedy or right.
If any amount shall be paid to such Guarantor in violation of the preceding
sentence at any time prior to the later of the payments in full of the
Convertible Notes and all other amounts payable under this Indenture, this
Convertible Note Guarantee and the Stated Maturity of the Convertible Notes,
such amount shall be held in trust for the benefit of the Holders and the
Trustee and shall forthwith be paid to the Trustee to be credited and applied to
the Convertible Notes and all other amounts payable under this Convertible Note
Guarantee, whether matured or unmatured, in accordance with the terms of this
Indenture, or to be held as collateral for any obligations or other amounts
payable under this Convertible Note Guarantee thereafter arising. Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Indenture and that the waiver set
forth in this Section 10.01(c) is knowingly made in contemplation of such
benefits. Each Guarantor further agrees that, as between it, on the one hand,
and the Holders and the Trustee, on the other hand, (x) subject to this Article
X, the maturity of the obligations guaranteed hereby may be accelerated as
provided in Article VI for the purposes of this Convertible Note Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations guaranteed hereby as provided in
Article VI, such obligations (whether or not due and payable) shall further then
become due and payable by the Guarantors for the purposes of this Convertible
Note Guarantee.
(d) A Guarantor that makes a distribution or payment under a
Convertible Note Guarantee shall be entitled to contribution from each other
Guarantor in a pro rata amount based on the Adjusted Net Assets of each such
other Guarantor for all payments, damages and expenses incurred by that
Guarantor in discharging the Company's obligations with respect to the
Convertible Notes and this Indenture, or any other Guarantor with respect to its
Convertible Note Guarantee, so long as the exercise of such right does not
impair the rights of the Holders of the Convertible Notes under the Convertible
Note Guarantees.
(e) The Company shall cause each Restricted Subsidiary which, after
the date of this Indenture, is required pursuant to Section 4.10(a) hereof to
become a Guarantor to (a) execute and deliver to the Trustee a supplemental
indenture in form and substance reasonably satisfactory to the Trustee which
subjects such Restricted Subsidiary to the provisions of this Indenture as a
Guarantor, and (b) deliver to the Trustee an Opinion of Counsel to the effect
that such supplemental indenture has been duly authorized and executed by such
Person and constitutes the legal, valid, binding and enforceable obligation of
such Person (subject to such customary exceptions concerning debtor's rights
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and equitable principles as may be acceptable to the Trustee in its reasonable
discretion) and containing such other matters as the Trustee may reasonably
request.
SECTION 10.02 Limitation of Guarantor's Liability. Each Guarantor and, by
-----------------------------------
its acceptance hereof, each beneficiary hereof, hereby confirms that it is its
intention that the Convertible Note Guarantee by such Guarantor not constitute a
fraudulent transfer or conveyance for purposes of the United States Bankruptcy
Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act, or any other bankruptcy, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law to the
extent applicable to any Convertible Note Guarantees. To effectuate the
foregoing intention, each such Guarantor hereby irrevocably agrees that the
obligation of such Guarantor under its Convertible Note Guarantee under this
Article X shall be limited to the lesser of (a) an amount equal to such
Guarantor's Adjusted Net Assets as of the date such Guarantee is executed and
delivered or (b) the maximum amount as will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under such laws and after giving effect to any collections from, rights
to receive contribution from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under this
Article X result in the obligations of such Guarantor in respect of such maximum
amount not constituting a fraudulent conveyance or fraudulent transfer or not
otherwise being void, voidable or unenforceable under any bankruptcy,
reorganization, receivership, insolvency, liquidation or other similar
legislation or legal principles under any applicable foreign law.
SECTION 10.03 Execution and Delivery of Convertible Note Guarantees. To
-----------------------------------------------------
further evidence its Convertible Note Guarantee set forth in Section 10.01
hereof, each Guarantor hereby agrees that a notation of such Convertible Note
Guarantee may be, but is not required to be, endorsed on each Convertible Note
authenticated and delivered by the Trustee and executed by either manual or
facsimile signature of an authorized officer of such Guarantor. Each Guarantor
hereby agrees that its Convertible Note Guarantee set forth in Section 10.01
hereof shall remain in full force and effect notwithstanding any failure to
endorse on each Convertible Note a notation of such Convertible Note Guarantee.
If an Officer of a Guarantor whose signature is on this Indenture or a
Convertible Note no longer holds that office at the time the Trustee
authenticates such Convertible Note or at any time thereafter, such Guarantor's
Convertible Note Guarantee of such Convertible Note shall be valid nevertheless.
The delivery of any Convertible Note by the Trustee, after the authentication
thereof hereunder, whether or not endorsed with a notation of the Convertible
Note Guarantee, shall constitute due
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delivery of any Convertible Note Guarantee set forth in this Indenture on behalf
of such Guarantor.
SECTION 10.04 When a Guarantor May Merge, etc. No Guarantor shall
-------------------------------
consolidate with or merge with or into (whether or not such Guarantor is the
surviving person) another corporation, Person or entity whether or not
affiliated with such Guarantor (but excluding any consolidation or merger if the
surviving corporation is no longer a Subsidiary) unless (i) subject to the
provisions of Section 10.05 hereof, the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee under the Convertible Notes and this
Indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. In connection with any such consolidation or
merger, the Trustee shall be entitled to receive an Officers' Certificate and an
Opinion of Counsel stating that such consolidation or merger is permitted by
this Section 10.04.
SECTION 10.05 Release of a Guarantor. (a) Upon the sale or other transfer
----------------------
of all of the Capital Stock of a Guarantor to any Person that is not an
Affiliate of the Company in compliance with the terms of this Indenture
(including, without limitation, Section 4.08 hereof), such Guarantor shall be
deemed automatically and unconditionally released and discharged from all
obligations under this Indenture without any further action required on the
part of the Trustee or any Holder; provided that the Net Cash Proceeds of such
--------
sale or other disposition are applied in accordance with Section 4.08 of this
Indenture as if such sale or disposition were an Asset Sale and in accordance
with the applicable provisions of this Indenture. The Trustee shall deliver an
appropriate instrument or instruments evidencing such release upon receipt of a
request of the Company accompanied by an Officers' Certificate and Opinion of
Counsel certifying as to the compliance with this Section 10.05(a) and the other
applicable provisions of this Indenture.
(b) Notwithstanding the foregoing, any Convertible Note Guarantee by a
Restricted Subsidiary shall be automatically and unconditionally released and
discharged upon the release or discharge of the guarantee of Guaranteed
Indebtedness which resulted in the creation of such Convertible Note Guarantee
pursuant to Section 4.09 hereof, except a discharge or release by, or as a
result of, payment under such guarantee. The Trustee shall deliver an
appropriate instrument or instruments evidencing such release upon receipt of a
request of the Company accompanied by an Officers' Certificate and Opinion of
Counsel certifying as to compliance with this Section 10.05(b) and the other
applicable provisions of this Indenture.
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ARTICLE XI
SUBORDINATION OF CONVERTIBLE NOTES
AND CONVERTIBLE NOTE GUARANTEES
SECTION 11.01 Convertible Notes and Convertible Note Guarantees
-------------------------------------------------
Subordinated to Senior Indebtedness. The Company and the Guarantors covenant
- -----------------------------------
and agree, and each Holder of a Convertible Note, by acceptance thereof,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth and except as otherwise set forth in this Article, the Indebtedness
represented by the Convertible Notes and this Indenture (including the
Convertible Note Guarantees) and the payment of the principal of and premium, if
any, and interest (including Special Interest, if any) on each and all of the
Convertible Notes and of any amounts due in respect of any Convertible Notes and
this Indenture (including the Convertible Note Guarantees and any payments
thereon made or to be made by a Guarantor under its Convertible Note Guarantee),
are hereby expressly made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness.
SECTION 11.02 Payment Over of Proceeds Upon Dissolution, etc. In the
----------------------------------------------
event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding,
relative to the Company or other Obligor or to its creditors, as such, or to a
substantial part of its assets, or (b) any proceeding for the liquidation,
dissolution or other winding up of the Company or any other Obligor, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (c) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of the Company or any other Obligor, then and in any such
event the holders of Senior Indebtedness shall be entitled to receive payment in
full of all amounts due or to become due on or in respect of all Senior
Indebtedness, or provision shall be made for such payment in money or money's
worth, before the Holders of the Convertible Notes are entitled to receive any
payment or distribution of any kind or character, whether in cash, property or
securities, on account of principal of or premium, if any, or interest
(including Special Interest, if any) on the Convertible Notes and on account of
any amounts due in respect of any Convertible Notes and any payment thereon made
or to be made by a Guarantor under its Convertible Note Guarantee, and to that
end until the Senior Indebtedness is paid in full the holders of Senior
Indebtedness shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of the
Company or any other Obligor being
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subordinated to the payment of the Convertible Notes or the Convertible Note
Guarantees, as applicable, which may be payable or deliverable in respect of
the Convertible Notes or the Convertible Note Guarantees, as applicable, in any
such case, proceeding, dissolution, liquidation or other winding up, assignment
for the benefit of creditors or other marshalling of assets and liabilities of
the Company or any other Obligor.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Convertible Note shall have received
any payment or distribution of assets of the Company or any other Obligor of any
kind or character, whether in cash, property or securities, prohibited by the
foregoing, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of the Company or
of a Guarantor being subordinated to the payment of the Convertible Notes or a
Convertible Note Guarantee, as applicable, before all Senior Indebtedness is
paid in full or payment thereof provided for, and if such fact shall, at or
prior to the time of such payment or distribution, have been made known to a
Trust Officer of the Trustee in writing or such Holder, as the case may be, then
and in such event such payment or distribution shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of
assets of the Company or any other Guarantor 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 holders of Senior Indebtedness.
For purposes of this Article only, the words "cash, property or securities"
shall not be deemed to include securities of the Company or any other Guarantor
or other Person as reorganized or readjusted, or securities of the Company or
any other Guarantor or any other Person which are Capital Stock or subordinated
in right of payment to all Senior Indebtedness which may at the time be
outstanding to substantially the same extent as, or to a greater extent than,
the Convertible Notes or the Convertible Note Guarantees are so subordinated as
provided in this Article. The consolidation of the Company with, or the merger
of the Company into, another Person or the liquidation or dissolution of the
Company following the conveyance or transfer of its Properties and assets
substantially as an entirety to another person upon the terms and conditions set
forth in Article V shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
and liabilities of the Company for the purposes of this Section if the Person
formed by such consolidation or into which the Company is merged or which
acquires by conveyance or transfer such properties and assets substantially as
an entirety, as the case may be, shall, as part of such consolidation, merger,
conveyance or transfer, comply
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with the conditions set forth in Article V. Similarly, the consolidation of a
Guarantor with, or the merger of a Guarantor into, another Person or the
liquidation or dissolution of a Guarantor to the extent permitted by this
Indenture shall not be deemed a dissolution, winding up, liquidation,
reorganization, assignment for the benefit of creditors or marshalling of assets
and liabilities of a Guarantor for the purposes of this Section.
SECTION 11.03 Prior Payment to Senior Indebtedness upon Acceleration of
---------------------------------------------------------
Convertible Notes. In the event that any Convertible Notes are declared due
- -----------------
and payable before their Stated Maturity, then and in such event the holders of
Senior Indebtedness outstanding at the time such Convertible Notes so become
due and payable shall be entitled to receive payment in full in cash of all
amounts due on or in respect of such Senior Indebtedness before the Holders of
the Convertible Notes are entitled to receive any payment (including any payment
which may be payable by reason of the payment of any other indebtedness of the
Company or any other Obligor being subordinated to the payment of the
Convertible Notes or the Convertible Note Guarantees, as applicable) by the
Company or any other Obligor on account of the principal of or premium, if any,
or interest (including Special Interest, if any), on or other amounts due in
respect of, the Convertible Notes or the Convertible Note Guarantees, as
applicable, or on account of the purchase or other acquisition of Convertible
Notes, except for payments in Capital Stock or securities which are subordinated
in right of payment to all Senior Indebtedness, which may at the time be
outstanding, to substantially the same extent as, or to a greater extent than,
the Convertible Notes or the Convertible Note Guarantees are so subordinated, as
provided in this Article.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Convertible Note prohibited by
the foregoing provisions of this Section, and if such fact shall, at or prior to
the time of such payment, have been made known to a Trust Officer of the Trustee
in writing, or such Holder, as the case may be, then and in such event such
payment shall be paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with respect
to which Section 11.02 would be applicable.
SECTION 11.04 No Payment When Senior Indebtedness in Default. (a) In the
----------------------------------------------
event (i) and during the continuation of any default in the payment of principal
of, premium, if any, on, interest, if any, (including Special Interest, if any)
on, or other amounts due in respect of, any Senior Indebtedness, whether at the
date of a required payment, maturity, upon mandatory prepayment, redemption or
otherwise, or (ii) that any event of default with respect to any Senior
Indebtedness shall have occurred and be continuing and shall have resulted in
such Senior
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Indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable unless and until such event
of default shall have been cured or waived in writing or shall have ceased to
exist and such acceleration shall have been rescinded or annulled or if any
judicial proceeding is pending with respect to such event of default with
respect to the Senior Indebtedness, then no payment (including any payment which
may be payable by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of the Convertible Notes) shall be made by the
Company on account of the principal of, premium, if any, interest (including
Special Interest, if any) on, or other amounts due in respect of, the
Convertible Notes or on account of the purchase, redemption or other acquisition
of Convertible Notes, except for payments in Capital Stock or securities which
are subordinated in right of payment to all Senior Indebtedness, which may at
the time be outstanding, to substantially the same extent as, or to a greater
extent than, the Convertible Notes or the Convertible Note Guarantees are so
subordinated, as provided in this Article.
(b) In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any Convertible Note
prohibited by the foregoing provisions of this Section, and if such fact shall,
at or prior to the time of such payment, have been made known to a Trust Officer
of the Trustee in writing or to such Holder, as the case may be, then and in
such event such payment shall be paid over and delivered forthwith to the
Company.
The provisions of this Section shall not apply to any payment with respect
to which Section 11.02 would be applicable.
SECTION 11.05 Payment Permitted If No Default. Nothing contained in this
-------------------------------
Article or elsewhere in this Indenture or in any of the Convertible Notes shall
prevent (a) the Company or the Guarantors, at any time except during the
pendency of any case, proceeding, dissolution, liquidation, or other winding up,
assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 11.02 or under the conditions
described in Section 11.03 or 11.04, from making payments at any time of
principal of and premium, if any, or interest (including Special Interest, if
any) on the Convertible Notes, or other amounts due in respect of the
Convertible Notes, or the Convertible Note Guarantees, as applicable, or (b) the
application by the Trustee of any money deposited with it hereunder to the
payment of or on account of the principal of, premium, if any, or interest
(including Special Interest, if any) on, or other amounts due in respect of, the
Convertible Notes or retention of such payment by the Holders, if, at the time
of such application by the Trustee, it did not have knowledge that such payment
would have been prohibited by the provisions of this Article.
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SECTION 11.06 Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
Subject to the prior payment in full of all amounts due on or in respect of
Senior Indebtedness, the Holders of the Convertible Notes shall be subrogated to
the extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Article to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of, premium, if any, on, interest (including Special Interest, if any)
on, and any other amounts due in respect of, the Convertible Notes shall be paid
in full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders of the Convertible Notes or the Trustee would be entitled except for
the provisions of this Article, and no payments over pursuant to the provisions
of this Article to the holders of Senior Indebtedness by Holders of the
Convertible Notes or the Trustee, shall, as among the Company and any Guarantor,
as the case may be, its respective creditors other than holders of Senior
Indebtedness and the Holders of the Convertible Notes, be deemed to be a
payment or distribution by the Company or any Guarantor, as applicable, to or on
account of the Senior Indebtedness.
SECTION 11.07 Provisions Solely to Define Relative Rights. The provisions
-------------------------------------------
of this Article are and are intended solely for the purpose of defining the
relative rights of the Holders of the Convertible Notes on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Convertible Notes is intended
to or shall (a) impair, as among the Company or any Guarantor, its respective
creditors other than holders of Senior Indebtedness and the Holders of the
Convertible Notes, the obligation of the Company or such Guarantor, which is
absolute and unconditional, to pay to the Holders of the Convertible Notes, the
principal of, premium, if any, on, interest (including Special Interest, if any)
on, and any other amounts due in respect of, the Convertible Notes or in respect
of the Convertible Note Guarantees, as applicable, as and when the same shall
become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company or the Guarantors, if any, of the Holders of
the Convertible Notes and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Convertible
Notes from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
SECTION 11.08 Trustee to Effectuate Subordination. Each Holder of a
-----------------------------------
Convertible Note by his acceptance thereof authorizes
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and directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided for in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 11.09 No Waiver of Subordination Provisions. No right of any
-------------------------------------
present or future holder 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 any Guarantor or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance by
the Company or any Guarantor with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with. No provision of the subordination provisions contained
in this Article may be amended without the consent of a majority in principal
amount at Stated Maturity of Senior Indebtedness in the manner provided for in
the Senior Note Indenture.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Convertible Notes,
without incurring responsibility to the Holders of the Convertible Notes and
without impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Convertible Notes to be holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment, of, or renew or alter,
Senior Indebtedness, or otherwise amend or supplement in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company or any Guarantor and any other Person.
SECTION 11.10 Notice to Trustee. The Company and each Guarantor shall
-----------------
give prompt written notice to the Trustee of any fact known to the Company or
such Guarantor which would prohibit the making of any payment to or by the
Trustee in respect of the Convertible Notes or the Convertible Note Guarantees,
as applicable. Notwithstanding the provisions of this Article or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee in respect of the Convertible Notes or the Convertible Note
Guarantees unless and until a Trust Officer of the Trustee shall have received
written notice thereof from the Company, any Guarantor or a holder of Senior
Indebtedness or from any trustee
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therefor; and, prior to the receipt of any such written notice, the Trustee,
subject to the provisions of Section 7.01, shall be entitled in all respects to
assume that no such facts exist; provided that if a Trust Officer of the Trustee
--------
shall not have received the notice provided for in this Section at least three
Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of, premium, if any, or interest (including Special Interest, if
any) on, and any other amounts due in respect of any Convertible Note), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within three Business Days
prior to such date.
Subject to the provisions of Section 7.01, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or a trustee therefor) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee
therefor). 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, the Trustee may request such Person to furnish evidence to the
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 such
person under this Article, 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 11.11 Reliance on Judicial Order or Certificate of Liquidating
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Agent. Upon any payment or distribution of assets of the Company referred to in
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this Article, the Trustee, subject to the provisions of Section 7.01, and the
Holders of the Convertible Notes shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered in writing to the Trustee or to the Holders of Convertible Notes, for
the purpose of ascertaining the Persons entitled to participate in such payment
or 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.
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SECTION 11.12 Trustee Not Fiduciary for Holders of Senior Indebtedness.
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The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of Convertible Notes or
to the Company or to any other Person cash, property or securities to which
holders of Senior Indebtedness shall be entitled by virtue of this Article or
otherwise.
SECTION 11.13 Rights of Trustee as Holder of Senior Indebtedness;
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Preservation of Trustee's Rights. The Trustee in its individual capacity shall
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be entitled to all the rights set forth in this Article with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payment to, the
Trustee under or pursuant to Section 7.07.
SECTION 11.14 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 shall
in such case (unless the context otherwise requires) 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 in addition to
or in place of the Trustee; provided that Section 11.13 shall not apply to the
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Company or any Affiliate of the Company if it or such Affiliate acts as Paying
Agent.
SECTION 11.15 Certain Conversions Deemed Payment. For the purposes of
----------------------------------
this Article only, (a) the issuance and delivery of junior securities upon
conversion of Convertible Notes in accordance with Article XII shall not be
deemed to constitute a payment or distribution on account of the principal of,
premium, if any, on, interest (including Special Interest, if any) on, or other
amounts due in respect of, Convertible Notes or on account of the purchase or
other acquisition of Convertible Notes and (b) the payment, issuance or delivery
of cash, property or securities (other than junior securities) upon conversion
of a Convertible Note shall be deemed to constitute payment on account of the
principal of such Convertible Note. For the purposes of this Section, the term
"junior securities" means (i) shares of any class of Capital Stock of the
Company and (ii) securities of the Company or a Guarantor which are subordinated
in right of payment to all Senior Indebtedness which may be outstanding at the
time of issuance or delivery of such securities to substantially the same extent
as, or to a greater extent than, the Convertible Notes are so subordinated as
provided in this Article. Nothing contained in this Article or elsewhere in
this Indenture or in the Convertible Notes or the respective Convertible Note
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Guarantees is intended to or shall impair, as among the Company, its respective
creditors other than holders of Senior Indebtedness and the Holders of the
Convertible Notes, the right, which is absolute and unconditional, of the Holder
of any Convertible Note to convert such Convertible Notes in accordance with and
subject to the provisions of Article XII.
ARTICLE XII
CONVERSION OF CONVERTIBLE NOTES
SECTION 12.01 Conversion Privilege and Conversion Price. Subject to and
-----------------------------------------
upon compliance with the provisions of this Article, at the option of the Holder
thereof, any Convertible Note or any portion of the principal amount thereof
which equals $1,000 or any integral multiple thereof may be converted at any
time on or after 9:00 a.m. New York City time on November 27, 1996 at the
Accreted Value thereof (or of such portion thereof) as of the date of conversion
thereof, if such date of conversion is prior to September 30, 1999, or the
principal amount at Stated Maturity thereof (or of such portion thereof) if the
date of conversion thereof is on or after September 30, 1999, into fully paid
and nonassessable shares (calculated as to each conversion to the nearest 1/100
of a share) of Common Stock, at the Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. Such conversion right shall
expire at the close of business on the Business Day next preceding the Stated
Maturity of principal. In case a Convertible Note or portion thereof is called
for redemption, such conversion right in respect of the Convertible Note or
portion so called shall expire at the close of business on the Business Day next
preceding the Redemption Date, unless the Company defaults in making the payment
due upon redemption.
The price at which Common Stock of the Company shall be delivered upon
conversion (herein called the "Conversion Price") shall be equal to $134.08 per
share.
In the event that the Company consummates a sale or sales of any class of
Capital Stock for an amount, individually or in the aggregate, in excess of
$5,000,000 (each, a "Reset Event") and at the time of such sale or sales, the
equity valuation of the Company based upon such sale or sales (as evidenced by a
Board Resolution delivered to the Trustee) is less than $122,500,000, then on
the date of the consummation of any such Reset Event (the "Reset Date"), the
Conversion Price shall be adjusted (the "Conversion Reset") to equal 115 percent
of the price (the "Conversion Reset Price") at which such sale or sales were
consummated, provided, that if such sale or sales are consummated more than nine
months after a Qualified Public Offering at a total equity valuation of the
Company of at least $122,500,000, then no Conversion Reset will be required. In
the event that the
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Conversion Price before such calculation shall be equal to or
less than the
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Conversion Reset Price, then no additional adjustment to the Conversion Price
shall be made. In addition, if the Company does not achieve consolidated total
revenues (calculated in accordance with GAAP) of at least $8,500,000 for the
period from June 1, 1997 through June 30, 1997 and if, by September 30, 1997,
the Company has not either (i) consummated a Qualified Public Offering or (ii)
been sold pursuant to a Qualified Sale of the Company, the Company shall by such
date be required to either (A) obtain $10,000,000 of Additional Invested Equity
or (B) (i) grant to the Holders of the Convertible Notes the right to purchase
for $10,000,000 additional convertible securities of the Company convertible
into 16 2/3 percent of the Common Stock on a fully diluted basis (as used herein
"fully diluted" does not include any securities, including Common Stock, issued
in any transaction described in clauses (i) through (xi) of Section 15(d)(ii) of
the Warrant Agreement) after giving effect to the issuance of such additional
convertible securities, (ii) grant to the Holders of the Convertible Notes (the
Additional Warrants) on a fully diluted basis (as used herein, the term "fully
diluted" does not include any securities, including Common Stock, issued in any
transaction described in clauses (i) through (xi) of Section 15(d)(ii) of the
Warrant Agreement) after giving effect to issuance of such Additional Warrants,
and (iii) adjust the Conversion Price for the Convertible Notes by dividing the
Conversion Price in effect immediately prior to the issuance of such convertible
securities and warrants by 1.15.
Notwithstanding anything to the contrary contained herein, no Holder shall
be entitled to convert any of its Convertible Notes into Common Stock of the
Company to the extent that any such conversion would constitute a violation of
any applicable securities laws of the United States, or any other applicable
jurisdiction. Any certificates evidencing Common Stock of the Company issued
upon the conversion of Convertible Notes shall bear such legends, including
legends reflecting restrictions on transfer required in order to maintain
compliance with the provisions of the Securities Act, as the Company shall deem
to be necessary or appropriate.
SECTION 12.02 Exercise of Conversion Privileges. In order to exercise the
---------------------------------
conversion privilege, the Holder of any Convertible Note shall surrender such
Convertible Note, duly endorsed or assigned to the Company or in blank, at any
office or agency of the Company maintained pursuant to Section 4.02, accompanied
by written notice to the Company in the form provided in the Convertible Note
(or such other notice as is acceptable to the Company) at such office or agency
that the Holder elects to convert such Convertible Note or, if less than the
entire principal amount thereof is to be converted, the portion thereof to be
converted. In the case of any Convertible Note which is surrendered for
conversion during the period from the close of
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business on any Record Date through and including the next succeeding
Interest Payment Date (other than any Convertible Note whose Maturity is prior
to such Interest Payment Date), interest that is payable on such Interest
Payment Date shall be payable on such Interest Payment Date notwithstanding such
conversion, and such interest (whether or not punctually paid or duly provided
for) shall be paid to the Person in whose name that Convertible Note is
registered at the close of business on such Record Date; provided that
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Convertible Notes surrendered for conversion subsequent to any such Record Date
shall (except in the case of Convertible Notes or portions thereof which have
been called for redemption on a Redemption Date within such period) be
accompanied by payment in New York Clearing House funds or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount being surrendered for conversion.
Except as provided in the immediately preceding sentence, in the case of any
Convertible Note which is converted (a) interest whose Stated Maturity is after
the date of conversion of such Convertible Note shall not be payable, and (b) no
payment or adjustment shall be made upon conversion on account of any dividends
on the Common Stock of the Company issued upon conversion.
Convertible Notes shall be deemed to have been converted immediately prior
to the close of business on the day of surrender of such Convertible Notes for
conversion in accordance with the foregoing provisions, and at such time the
rights of the Holders of such Convertible Notes as Holders shall cease, and the
Person or Persons entitled to receive the Common Stock of the Company issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such Common Stock as and after such time. As promptly as practicable
on or after the conversion date, the Company shall issue and shall deliver at
any office or agency of the Company maintained pursuant to Section 4.02 a
certificate or certificates for the number of full shares of Common Stock of the
Company issuable upon conversion, together with payment in lieu of any fraction
of a share, as provided in Section 12.03.
In the case of any Convertible Note which is converted in part only, upon
such conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Convertible
Note or Convertible Notes of authorized denominations in aggregate principal
amount equal to the unconverted portion of the principal amount of such
Convertible Note.
SECTION 12.03 Fractions of Shares. No fractional share of Common Stock of
-------------------
the Company shall be issued upon conversion of Convertible Notes. If more than
one Convertible Note shall be surrendered for conversion at one time by the same
Holder, the number of full shares of Common Stock which shall be issuable upon
conversion thereof shall be computed on the basis of the
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aggregate principal amount of the Convertible Notes (or specified portions
thereof) so surrendered. Instead of any fractional share of such Common Stock
which would otherwise be issuable upon conversion of any Convertible Note or
Convertible Notes (or specified portions thereof), the Company shall pay a cash
adjustment in respect of such fractional share in an amount equal to such
fraction multiplied by the Closing Price at the close of business on the day of
conversion (or, if such day is not a Trading Day, on the Trading Day
immediately preceding such day).
SECTION 12.04 Adjustment of Conversion Price.
------------------------------
(a) In case the Company shall make a dividend or other distribution
on any class or series of Capital Stock of the Company exclusively in Common
Stock of the Company (other than a distribution referred to in paragraph (c) of
this Section), the Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock of the Company outstanding at the close of business on
the date fixed for such determination and the denominator shall be the sum of
such number of shares of Common Stock and the total number of shares of Common
Stock constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination. In case the Company shall make a dividend
or other distribution on its Common Stock in shares of its Capital Stock other
than Common Stock, and such dividend or distribution would not otherwise require
reduction of the Conversion Price pursuant to paragraph (d), then the
Conversion Price and the number and kind of shares of Capital Stock of the
Company issuable upon the conversion of a Convertible Note (as in effect
immediately prior to such dividend or distribution) shall be proportionately
adjusted, so that the Holder of any Convertible Note thereafter converted may
receive the aggregate number and kind of shares of Capital Stock of the Company
that such Holder would have owned immediately following such dividend or
distribution if such Convertible Note had been converted immediately prior
thereto. For the purpose of this paragraph (a), the amount of Common Stock of
the Company at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of such Common Stock. The
Company shall not pay any dividend or make any distribution on shares of Common
Stock held in the treasury of the Company.
(b) Subject to the last sentence of paragraph (e) of this Section, in
case the Company shall make a dividend or other distribution on its Common Stock
consisting exclusively of, or shall otherwise issue to all holders of its Common
Stock, rights,
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options or warrants entitling the holders thereof to subscribe for or purchase
Common Stock or securities convertible into or exchangeable for Common Stock at
a price per share (determined on an as-converted or as-exercised basis if the
rights, options or warrants pertain to securities convertible into or
exchangeable for Common Stock) which is less than the Current Market Price
(determined as provided in paragraph (h) of this Section) on the date fixed for
the determination of stockholders entitled to receive such rights, options or
warrants, the Conversion Price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price (including the minimum consideration payable
upon conversion or exchange of securities convertible into or exchangeable for
Common Stock) of the total number of shares of such Common Stock so offered for
subscription or purchase would purchase at such Current Market Price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following the date fixed for such determination. For the purposes of this
paragraph (b), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of such Common Stock. The Company shall not issue any rights, options or
warrants in respect of shares of Common Stock held in the treasury of the
Company.
(c) In case outstanding shares of Common Stock of the Company shall be
subdivided into a greater number of shares of such Common Stock, the Conversion
Price in effect at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately reduced, and,
conversely, in case outstanding shares of such Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Price in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which subdivision or
combination becomes effective.
(d)(i) Subject to the last sentence of this paragraph (d)(i) and the
last sentence of paragraph (e) of this Section, in case the Company shall,
by dividend or otherwise, distribute to all holders of its Common Stock
evidences of its Indebtedness, shares of any class of its Capital Stock,
cash or other assets (including securities,
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but excluding any rights, options or warrants referred to in paragraph (b)
of this Section, excluding any dividend or distribution paid exclusively in
cash out of consolidated current or retained earnings as shown on the books
of the Company prepared in accordance with GAAP (other than any
Extraordinary Cash Dividend (as hereinafter defined)) and excluding any
dividend or distribution referred to in paragraph (a) or (c) of this
Section), the Conversion Price shall be reduced by multiplying the
Conversion Price in effect immediately prior to the close of business on
the date fixed for the determination of stockholders entitled to such
distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in paragraph (h) of this Section) on
such date less the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) on such date of the portion of the evidences of Indebtedness,
shares of Capital Stock, cash and other assets to be distributed applicable
to one share of Common Stock and the denominator shall be such Current
Market Price, such reduction to become effective immediately prior to the
opening of business on the day following such date. If the Board of
Directors determines the fair market value of any distribution for purposes
of this paragraph (d)(i) by reference to the actual or when-issued trading
market for any securities comprising part or all of such distribution, it
must in doing so consider those prices in such market over the same period
used in computing the Current Market Price pursuant to paragraph (h) of
this Section, to the extent possible. For purposes of this paragraph (d),
an "Extraordinary Cash Dividend" shall be that portion, if any, of the
aggregate amount of all cash dividends paid in any fiscal year which
exceeds $25,000,000. For purposes of this paragraph (d), any dividend or
distribution that includes shares of Common Stock of the Company, rights,
options or warrants to subscribe for or purchase shares of such Common
Stock or securities convertible into or exchangeable for shares of Common
Stock shall be deemed to be (x) a dividend or distribution of the evidences
of Indebtedness, cash, assets or shares of Capital Stock other than shares
of Common Stock, such rights, options or warrants or such convertible or
exchangeable securities (making any conversion price reduction required by
this paragraph (d)(i)) immediately followed by (y) in the case of shares of
Common Stock or such rights, options or warrants, a dividend or
distribution thereof (making any further conversion price reduction
required by paragraph (a) and (b) of this Section, except any shares of
Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of paragraph (a) of this Section), or (z)
in the case of such convertible or exchangeable securities, a dividend or
distribution of the number of shares of Common
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Stock as would then be issuable upon the conversion or exchange thereof,
whether or not the conversion or exchange of such securities is subject to
any conditions (making any further conversion price reduction required by
paragraph (a) of this Section, except that the shares deemed to constitute
such dividend or distribution shall not be deemed "outstanding at the close
of business on the date fixed for such determination" within the meaning of
paragraph (a) of this Section).
(ii) In case the Company shall issue its Common Stock for a
consideration per share less than the Current Market Price (determined as
provided in paragraph (h) of this Section), the Conversion Price shall be
reduced by multiplying the Conversion Price in effect immediately prior to
the close of business on the date on which the Company fixes the offering
price of such additional Common Stock by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus a fraction equal to
the aggregate consideration received by the Company from the issuance of
such additional shares of Common Stock over the Current Market Price on the
date on which the Company fixes the offering price of such additional
shares of Common Stock (determined as provided in paragraph (h) of this
Section), and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after giving effect to such issuance.
The reduction in the Conversion Price provided for in the preceding
sentence shall not apply to issuances of securities in transactions
described in clauses (i) through (xi) of Section 15(d)(ii) of the Warrant
Agreement;
(iii) In case the Company shall issue any securities convertible
into or exchangeable for its Common Stock for a consideration per share
(including the minimum consideration per share payable upon conversion or
exchange of any securities convertible into or exchangeable for Common
Stock) of Common Stock initially deliverable upon conversion or exchange of
such securities less than the Current Market Price (determined as provided
in paragraph (h) of this Section), the Conversion Price shall be reduced by
multiplying the Conversion Price in effect immediately prior to the close
of business on the date on which the Company fixes the offering price of
such additional shares by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to the
issuance of such securities plus a fraction equal to the aggregate
consideration received for the issuance of such securities (including the
minimum consideration per share payable upon conversion or exchange of any
securities convertible into or exchangeable for such Common Stock) over the
Current Market Price on the date on which the Company
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fixes the offering price of such additional shares (determined as provided
in paragraph (h) of this Section), and the denominator of which shall be
the number of shares outstanding immediately prior to the issuance of such
securities plus the maximum number of shares deliverable upon conversion of
or in exchange for such securities at the initial conversion or exchange
rate. The reduction in the Conversion Price provided for in the preceding
sentence shall not apply to issuances of securities in transactions
described in clauses (i) through (ix) of Section 15(d)(iii) of the Warrant
Agreement.
(e) The reclassification of Common Stock of the Company into
securities which include securities other than such Common Stock (other than any
reclassification upon a consolidation or merger to which Section 12.11 applies)
shall be deemed to involve (i) a distribution of such securities other than such
Common Stock to all holders of such Common Stock (and the effective date of
such reclassification shall be deemed to be "the date fixed for the
determination of stockholders entitled to such distribution" within the meaning
of paragraph (d)(i) of this Section), and (ii) a subdivision or combination, as
the case may be, of the number of shares of Common Stock of the Company
outstanding immediately prior to such reclassification into the number of shares
of Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
becomes effective" within the meaning of paragraph (c) of this Section). Rights,
options or warrants issued by the Company to all holders of the Common Stock
entitling the holders thereof to subscribe for or purchase shares of such Common
Stock (either initially or under certain circumstances), which rights, options
or warrants (i) are deemed to be transferred with such Common Stock, (ii) are
not exercisable and (iii) are also issued in respect of future issuances of such
Common Stock, in each case in clauses (i) through (iii) until or upon the
occurrence of a specified event or events ("Trigger Event"), shall for purposes
of this Section 12.04 not be deemed issued until the occurrence of the earliest
Trigger Event.
(f) In case the Company shall, by dividend or otherwise, at any time
distribute to all holders of the Common Stock of the Company cash (excluding any
cash that is distributed as part of a distribution referred to in paragraph
(d)(i) of this Section in an aggregate amount that, together with (i) the
aggregate amount of any other distributions to all holders of such Common Stock
made exclusively in cash within the 12 months preceding the date fixed for the
determination of shareholders entitled to such distribution and in respect of
which no Conversion Price adjustment pursuant to paragraph (d)(i) or this
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paragraph (f) has been made previously and (ii) the aggregate of any cash plus
the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors) as of such date of determination of consideration payable in respect
of any tender offer by the Company or a Restricted Subsidiary for all or any
portion of its Common Stock, and any purchase by the Company of its Common Stock
in the open market, consummated within the 12 months preceding such date of
determination and in respect of which no Conversion Price adjustment pursuant to
paragraph (f) of this Section has been made previously, exceeds 12.5% of the
product of the Current Market Price (determined as provided in paragraph (h) of
this Section) on such date of determination times the number of shares of Common
Stock of the Company outstanding on such date, the Conversion Price shall be
reduced by multiplying the Conversion Price in effect immediately prior to the
close of business on such date of determination by a fraction of which the
numerator shall be the Current Market Price (determined as provided in
paragraph (h) of this Section) on such date less the amount of cash to be
distributed at such time applicable to one share of such Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day after such
date.
(g) In case a tender or exchange offer made by the Company or any
Subsidiary for all or any portion of the Common Stock of the Company shall be
consummated, or in case the Company shall purchase shares of Common Stock in the
open market, the Conversion Price shall be reduced by multiplying the Conversion
Price in effect immediately prior to the Expiration Time by a fraction of which
(x) the numerator shall be the product of the Current Market Price (determined
as provided in paragraph (h) of this Section) times the number of shares of such
Common Stock outstanding (including any tendered or exchanged shares) at the
Expiration Time and (y) the denominator shall be the sum of (A) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
shareholders upon consummation of such tender or exchange offer, or upon such
purchase, and (B) the product of such Current Market Price times such number of
outstanding shares at the Expiration Time minus the number of shares accepted
for payment in such tender or exchange offer, or so purchased (the "Purchased
Shares"). For the purpose of this paragraph, "Expiration Time" means either the
last time that tenders may be made pursuant to a tender offer or exchanges may
be made pursuant to an exchange offer, or the time of an agreement to purchase
shares in the open market, as the case may be. Any reduction in the Conversion
Price pursuant to this paragraph shall be made immediately following the close
of business on the last Trading Day used to compute Current Market Price;
provided that such reduction shall be deemed to have become effective
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immediately prior to the opening of business on the day following the Expiration
Time. To the extent that a
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Holder converts Convertible Notes prior to the conclusion of the period for
which Current Market Price is to be calculated, any adjustment in the amount of
Common Stock of the Company issuable upon exercise of such Convertible Note
shall inure to the benefit of the Holder of such Convertible Note at the close
of business on the first Trading Day following the Expiration Time. In no event
shall the Exercise Price be increased as a result of the consummation of any of
the transactions contemplated by this paragraph (g).
(h) For the purpose of any computation under this paragraph and
paragraphs (b) and (d), of this Section, the current market price per share of
Common Stock (the "Current Market Price") 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 the date in question. Notwithstanding
anything to the contrary contained in this paragraph, (i) if the "ex" date for
any event (other than the issuance or distribution requiring such computation)
that requires an adjustment to the Conversion Price pursuant to paragraph (a),
(b), (c) or (d) above occurs on or after the 15th Trading Day prior to the date
in question and prior to the "ex" date for the issuance or distribution
requiring such computation, the Closing Price for each Trading Day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (ii) if the "ex" date for any event
(other than the issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to paragraph (a), (b),
(c) or (d), above occurs on or after the "ex" date for the issuance or
distribution requiring such computation and on or prior to the date in question,
the Closing Price for each Trading Day on and after the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by the reciprocal of
the fraction by which the Conversion Price is so required to be adjusted as a
result of such other event, and (iii) if the "ex" date for the issuance or
distribution requiring such computation is on or prior to the date in question,
after taking into account any adjustment required pursuant to clause (ii) of
this proviso, the Closing Price for each Trading Day on or after such "ex" date
shall be adjusted by adding thereto the amount of any cash and the fair market
value on the date in question (as determined by the Board of Directors in a
manner consistent with any determination of such value for purposes of paragraph
(d) of this Section, whose determination shall be conclusive and described in a
Board Resolution) of the evidences of Indebtedness, shares of Capital Stock or
assets being distributed applicable to one share of Common Stock of the Company
as of the close of business on the day before such "ex" date. If on any date
there has not been a Public Equity Offering of if there is no Closing Price
available for the Common Stock of the Company on any date, the Current Market
Price shall be determined (a) in good faith by the Board
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of Directors of the Company and certified in a board resolution, based on the
most recently completed arm's-length transaction between the Company and a
person other than an Affiliate (as defined in Rule 405 of the Securities Act of
1933, as amended) of the Company and the closing of which occurs on such date or
within such a six-month period of (b) if no transaction shall have occured with
the six-month period preceding such date or if such transaction is in excess of
$1 million, by an Independent Financial Expert appointed in the manner provided
for in paragraph (g)(i) of this Section 12.04.
(i) (i) If any event shall occur as to which the other provisions of
this Section 12.04 are not strictly applicable but the failure to make any
adjustment would have the effect of depriving Holders of the benefit of all
or a portion of the conversion rights in respect of any Convertible Note in
accordance with the essential intent and principles of this Section 12.04,
then, in each such case, the Company shall appoint an Independent Financial
Expert, which shall give its opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in
this Section 12.04 necessary to preserve, without dilution, such conversion
rights. Upon receipt of such opinion, the Company will promptly mail a
copy thereof to the Holders and shall make the adjustments described
therein. As used herein, an "Independent Financial Expert" is a firm (A)
which does not, and whose directors, officers and employees or Affiliates
do not, have a direct or indirect financial interest in the Company and (B)
which, in the judgment of the Board of Directors, is otherwise independent
and qualified to perform the task for which it is to be engaged.
(ii) The Company will not, by amendment of its certificate of
incorporation or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the Convertible Notes, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the
rights of the Holders thereof against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (i) will take
all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares
of its Common Stock on the conversion of the Convertible Notes from time to
time outstanding and (ii) will not take any action which results in any
adjustment of the Conversion Price if the total number of shares of its
Common Stock issuable after the action upon the conversion of all of the
Convertible Notes would exceed the total number of shares of such Common
Stock
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then authorized by the Company's certificate of incorporation and available
for the purposes of issue upon such exercise.
(j) The Company may, but shall not be obligated to, make such
reductions in the Conversion Price, in addition to those required by paragraphs
(a), (b), (c), (d) and (e) of this Section, as it considers to be advisable in
order that any event treated for United States federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients or, if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
(k) No adjustment in the Conversion Price shall be required unless
such adjustment (plus any other adjustments not previously made by reason of
this paragraph (k) would require an increase or decrease of at least 1 percent
in the Conversion Price; provided that any adjustments which by reason of this
--------
paragraph (k) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment.
(l) Notwithstanding any other provision of this Section 12.04, no
adjustment to the Conversion Price shall reduce the Conversion Price below the
then par value per share of the Common Stock of the Company, and any such
purported adjustment shall instead reduce the Conversion Price to such par
value. The Company hereby covenants not to take any action to increase the par
value per share of its Common Stock.
(m) In any case in which this Section 12.04 shall require that an
adjustment in the Conversion Price be made effective as of or immediately after
a record date for a specified event, the Company may elect to defer until the
occurrence of such event (i) issuing to the Holder of any Convertible Note
exercised after such record date the shares of Common Stock and other Capital
Stock of the Company, if any, issuable upon such exercise over and above the
shares of Common Stock and other Capital Stock of the Company, if any, issuable
upon such exercise on the basis of the Conversion Price prior to such adjustment
and (ii) paying to such Holder any amount in cash in lieu of a fractional share
pursuant to Section 12.03 hereof; provided that the Company shall deliver to
--------
such Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional shares of Common Stock, other Capital Stock and
cash upon the occurrence of the event requiring such adjustment.
(n) When No Adjustment Required.
----------------------------
(i) No adjustment need be made for a transaction referred to in
subsections (a), (b), (c) or (d) of this Section 12.04 if Holders are to
participate in the transaction on a basis and with notice that the Board
of
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Directors determines to be fair and appropriate in light of the basis and
notice on which holders of Common Stock of the Company participate in the
transaction.
(ii) No adjustment need be made for a change in the par value,
or from par value to no par value, or from no par value to par value, of
the Common Stock of the Company.
(iii) No adjustment need to be made in respect of (x) the
issuance of any Warrants pursuant to the terms of the Warrant Agreement
including Initial Warrants, Senior Note Contingent Warrants and Convertible
Note Contingent Warrants or the exercise of any such Warrants.
(iv) No adjustment need to be made in respect of (x) the
issuance of any Additional Warrants or convertible securities pursuant to
Section 4.15 hereof or the exercise of such Additional Warrants or the
conversion of such convertible securities.
(v) No adjustment need be made in respect of (x) any adjustment
in the warrant exercise price of the Warrants being issued pursuant to the
Warrant Agreement as contemplated by such Warrant Agreement, (y) any
adjustment in the warrant exercise price of the Additional Warrants as
contemplated thereby or (z) any adjustment in the conversion price of the
convertible securities as contemplated thereby to be issued pursuant to
Section 4.15 hereof.
SECTION 12.05 Notice of Adjustments of Conversion Price. Whenever the
-----------------------------------------
Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Section 12.04 and shall prepare a certificate signed by the
Treasurer or Chief Financial Officer of the Company setting forth the adjusted
Conversion Price and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be filed (with a copy
to the Trustee) at each office or agency maintained for the purpose of
conversion of Convertible Notes pursuant to Section 4.02; and
(b) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall forthwith be prepared, and as
soon as practicable after it is prepared, such notice shall be furnished by the
Company to the Trustee and mailed by the Company at its expense to all Holders
at their last addresses as they shall appear in the Security Register.
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SECTION 12.06 Notice of Certain Corporate Action. In case:
----------------------------------
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require a Conversion Price
adjustment pursuant to paragraph (d) (i) of Section 13.04; or
(b) the Company shall authorize the granting to the holders of its
Common Stock of rights, options or warrants to subscribe for or purchase any
shares of Capital Stock of any class or of any other rights (excluding shares of
Capital Stock or options for Capital Stock issued pursuant to a benefit plan for
employees, officers or directors of the Company); or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of the outstanding shares of such Common
Stock), or of any consolidation, merger or share exchange to which the Company
is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the assets
of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary shall commence a tender or exchange
offer (other than an exchange offer contemplated by clause (c) above) for all
or a portion of the outstanding shares of Common Stock (or shall amend any such
tender or exchange offer to change the maximum number of shares being sought or
the amount or type of consideration being offered (including by exchange)
therefor);
then the Company shall cause to be filed at each office or agency maintained
pursuant to Section 4.02, and shall cause to be mailed to all Holders at their
last addresses as they shall appear in the Note Register, at least 21 days (or
11 days in any case specified in clause (a), (b) or (e) above) prior to the
applicable record, effective or expiration date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights, options or warrants, or, if a
record is not to be taken, the date as of which the holders of its Common Stock
of record who will be entitled to such dividend, distribution, rights, options
or warrants are to be determined, (y) the date on which such reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of its Common Stock of record shall be entitled to
exchange their Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, share exchange, sale,
transfer,
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dissolution, liquidation or winding up, or (z) the date on which such tender or
exchange offer (other than an exchange offer contemplated by clause (y) above)
commenced, the date on which such tender or exchange offer is scheduled to
expire unless extended, the consideration offered and the other material terms
thereof (or the material terms of any amendment thereto). Neither the failure to
give any such notice nor any defect therein shall affect the legality or
validity of any action described in clauses (a) through (e) of this Section
12.06.
SECTION 12.07 Company to Reserve Common Stock. The Company shall at all
-------------------------------
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock or out of its Common Stock held in
treasury, for the purpose of effecting the conversion of Convertible Notes, the
full number of shares of its Common Stock then issuable upon the conversion of
all outstanding Convertible Notes.
SECTION 12.08 Taxes on Conversions. The Company will pay any and all
--------------------
original issuance, transfer, stamp and other similar taxes that may be payable
in respect of the issue or delivery of shares of its Common Stock on conversion
of Convertible Notes pursuant hereto. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of its Common Stock in a name other than
that of the Holder of the Convertible Note or Convertible Notes to be converted,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid.
SECTION 12.09 Covenant as to Common Stock.
---------------------------
(a) The Company covenants that all shares of its Common Stock which
may be issued upon conversion of Convertible Notes will upon issue be validly
issued, fully paid and nonassessable.
(b) The Company shall from time to time take all action necessary so
that the Common Stock which may be issued upon conversion of Convertible Notes,
immediately upon their issuance (or, if such Common Stock is subject to
restrictions on transfer under the Securities Act, upon their resale pursuant to
an effective Convertible Note Shares Shelf Registration Statement), will be
listed on the principal securities exchanges, interdealer quotation systems and
markets, if any, on which other shares of Common Stock of the Company are then
listed or quoted.
SECTION 12.10 Cancellation of Converted Convertible Notes. All
-------------------------------------------
Convertible Notes delivered for conversion shall be delivered to the Trustee to
be canceled by or at the direction of the
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Trustee, which shall dispose of the same as provided in Section 2.10.
SECTION 12.11 Provisions as to Consolidation, Merger or Sale of Assets.
--------------------------------------------------------
In case of any consolidation of the Company with, or merger of the Company into,
any other person, any merger of another person into the Company (other than a
merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any sale
or transfer of all or substantially all of the assets of the Company, the Person
formed by such consolidation or resulting from such merger or which acquires
such assets, as the case may be, shall execute and deliver to the Trustee a
supplemental indenture providing that the Holder of each Convertible Note then
outstanding shall have the right thereafter, during the period such Convertible
Note shall be convertible as specified in Section 12.01, but subject to Section
12.12 hereof, to convert such Convertible Note only into the kind and amount of
securities, cash and other Property, if any, receivable upon such
consolidation, merger, sale or transfer by a holder of the amount of Common
Stock of the Company into which such Convertible Note might have been converted
immediately prior to such consolidation, merger, sale or transfer, assuming
such holder of Common Stock (i) is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be (a "Constituent
Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise
his rights of election, if any, as to the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash and other Property
--------
receivable upon such consolidation, merger, sale or transfer is not the same for
each share of Common Stock held immediately prior to such consolidation, merger,
sale or transfer by other than a Constituent Person or an Affiliate thereof and
in respect of which such rights of election shall not have been exercised
("nonelecting share"), then for the purpose of this Section the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by each nonelecting share shall be deemed to be the
kind and amount so receivable per share by a plurality of the nonelecting
shares). Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Article. The above provisions of this Section shall similarly apply to
successive consolidations, mergers, sales or transfers.
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ARTICLE XIII
SATISFACTION AND DISCHARGE
SECTION 13.01 Satisfaction and Discharge. This Indenture shall upon the
--------------------------
request of the Company cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of Convertible Notes herein
expressly provided for, the Company's obligations under Sections 7.07 and 13.04
hereof, and the Company's, the Trustee's and the Paying Agent's obligations
under Section 13.03 hereof) and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture when
(a) either
(i) all Convertible Notes theretofore authenticated and
delivered (other than (A) Convertible Notes which have been destroyed, lost
or stolen and which have been replaced or paid as provided in Section 2.07
and (B) Convertible Notes for whose payment money has been deposited in
trust with the Trustee or any Paying Agent and thereafter paid to the
Company or discharged from such trust) have been delivered to the Trustee
for cancellation; or
(ii) all such Convertible Notes not theretofore delivered to the
Trustee for cancellation
(A) have become due and payable, or
(B) will become due and payable at their Stated Maturity
within one year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clause (A), (B) or (C) above, has
irrevocably deposited or caused to be deposited with the Trustee as trust
funds in trust for such purpose money or U.S. Government Obligations in an
amount sufficient (as certified by an independent public accountant
designated by the Company) to pay and discharge the entire indebtedness on
such Convertible Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest and Special
Interest, if any, to the date of such deposit (in the case of Convertible
Notes which have become due and payable) or the Stated Maturity or
Redemption Date, as the case may be;
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(b) the Company has paid or caused to be paid all other sums then due
and payable hereunder by the Company;
(c) no Default or Event of Default with respect to the Convertible
Notes shall have occurred and be continuing on the date of such deposit and
after giving effect to such deposit; and
(d) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
Company's obligations in Sections 2.03, 2.04, 2.06, 2.07, 2.11, 7.07, 7.08,
13.02, 13.03 and 13.04 and the conversion provisions contained in Article XII
and the Trustee's and Paying Agent's obligations in Section 13.03 shall survive
until the Convertible Notes are no longer outstanding. Thereafter, only the
Company's obligations in Sections 7.07, 13.03 and 13.04 and the Trustee's and
Paying Agent's obligations in Section 13.03 shall survive.
In order to have money available on a payment date to pay principal or
interest on the Convertible Notes, the U.S. Government Obligations shall be
payable as to principal or interest at least one Business Day before such
payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
SECTION 13.02 Application of Trust Money. All money deposited with the
--------------------------
Trustee pursuant to Section 13.01 shall be held in trust and, at the written
direction of the Company, be invested prior to maturity in U.S. Government
Obligations, and applied by the Trustee in accordance with the provisions of the
Convertible Notes and this Indenture, to the payment, either directly or through
any Paying Agent as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium if any) and interest (including Special Interest,
if any) for the payment of which money has been deposited with the Trustee; but
such money need not be segregated from other funds except to the extent required
by law.
SECTION 13.03 Repayment to the Company. The Trustee and the Paying Agent
------------------------
shall promptly pay to the Company upon written request any excess money or
securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided, that the Company shall have either caused notice of
--------
such payment
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to be mailed to each Holder of the Convertible Notes entitled thereto no less
than 30 days prior to such repayment or within such period shall have published
such notice in a financial newspaper of widespread circulation published in The
City of New York, including, without limitation, The Wall Street Journal. After
payment to the Company, Holders entitled to the money must look to the Company
for payment as general creditors unless an applicable abandoned property law
designates another person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
SECTION 13.04 Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money or U.S. Government Obligations in accordance with Section 13.01
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's and Guarantors' obligations under this
Indenture, the Convertible Notes and the Convertible Note Guarantees, if any,
shall be revived and reinstated as though no deposit has occurred pursuant to
Section 13.01 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with Section
13.02; provided that if the Company or the Guarantors have made any payment of
--------
interest on or principal of any Convertible Notes because of the reinstatement
of their obligations, the Company or such Guarantors shall be subrogated to the
rights of the Holders of such Convertible Notes to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Trust Indenture Act Controls. If and to the extent that
----------------------------
any provision of this Indenture limits, qualifies or conflicts with the duties
imposed by, or with another provision (an "incorporated provision") included in
this Indenture by operation of, Sections 310 to 318, inclusive, of the Trust
Indenture Act, such imposed duties or incorporated provision shall control. If
any provisions of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or excluded, as the case may
be.
SECTION 14.02. Notices. Any notice or communication shall be in writing
-------
and delivered in person or mailed by first class mail, postage prepaid,
addressed as follows: if to the Company: United USN, Inc., 10 South Riverside
Plaza, Suite 410, Chicago, Illinois 60606-3709, Attention: Ronald W. Gavillet,
with a copy to Skadden, Arps, Slate, Meager & Flom, 333 West Wacker Drive,
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Chicago, Illinois 60606, Attention: Gary P. Cullen; if to the Trustee: Harris
Trust and Savings Bank, 311 West Monroe, Chicago, Illinois 60606, Attention:
Indenture Trustee Administration.
The Company or the Trustee, by notice to the other, many designate
additional or different addresses for subsequent notices or communications. Any
notice or communication mailed to a Holder shall be sent to the Holder by first
class mail, postage prepaid, at the Holder's address as it appears in the
Security Register and shall be duly given if so sent within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed to the Company, the Trustee or a Holder in the manner
provided above, it is duly given, whether or not the addressee receives it, but
shall not be effective in the case of the Trustee unless it is actually
received. In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give notice by mail to
Holders, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose hereunder.
SECTION 14.03. Certificate and Opinion as to Conditions Precedent. Upon
--------------------------------------------------
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee: (a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and (b) an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 14.04. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture (other than pursuant to Section 4.12 hereof)
shall include: (a) a statement that the individual making such certificate or
opinion has read such covenant or condition; (b) 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; (c) a statement
that, in the opinion of such individual, such person has made such examination
or investigation as is necessary to enable such person to express an informed
opinion as to whether or not such covenant or condition has been complied with;
and (d) a statement as to whether or not, in the opinion of such individual,
such covenant or condition has been complied with.
SECTION 14.05. Communications by Holders with Other Holders. Holders may
---------------------------------------------
communicate pursuant to Section 312(b) of the Trust Indenture Act with other
Holders with respect to their
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rights under this Indenture or the Convertible Notes. The Company, the
Guarantors, the Trustee, the Registrar and anyone else shall have the protection
of Section 312(c) of the Trust Indenture Act.
SECTION 14.06. Rules by Trustee, Paying Agent and Registrar. The Trustee
---------------------------------------------
may make reasonable rules for action by or a meeting of Holders, and any
Registrar and Paying Agent may make reasonable rules for their functions;
provided that no such rule shall conflict with terms of this Indenture or the
- --------
Trust Indenture Act.
SECTION 14.07. Payments on Business Days. If a payment hereunder is
-------------------------
scheduled to be made on a date that is not a Business Day, payment shall be
made on the next succeeding date that is a Business Day, and no interest shall
accrue with respect to that payment during the intervening period. If a regular
record date is a date that is not a Business Day, such record date shall not be
affected.
SECTION 14.08. Governing Law. THIS INDENTURE AND THE CONVERTIBLE NOTES
-------------
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, EXCEPT WITH REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
SECTION 14.09. No Recourse Against Others. No director, officer,
--------------------------
employer, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Convertible Notes or this
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation, solely by reason of its status as a director,
officer, employee, incorporator or stockholder of the Company. By accepting a
Convertible Note, each Holder waives and releases all such liability (but only
such liability) as part of the consideration for issuance of such Convertible
Note to such Holder.
SECTION 14.10. Successors. All agreements of the Company in this
----------
Indenture and the Convertible Notes shall bind its successors and assigns
whether so expressed or not. All agreements of the Trustee in this Indenture
shall bind its successors and assigns whether so expressed or not.
SECTION 14.11. Counterparts. This Indenture may be executed in any
------------
number of counterparts and by the parties thereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
SECTION 14.12. Table of Contents; Headings. The table of contents, cross-
---------------------------
reference table and headings of the Articles and Sections of this Indenture have
been inserted for convenience of
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reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms of provisions hereof.
SECTION 14.13. Severability. In case any provision in this Indenture or
------------
in the Convertible Notes 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 14.14. 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 14.15. Independent Covenants. Each covenant contained in this
---------------------
Indenture is intended by the parties to be a separate and independent covenant,
the compliance or noncompliance with such to be determined independently and
without regard to whether the Company or a Restricted Subsidiary is in
compliance with another covenant contained in this Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
UNITED USN, INC.
By______________________________
Name: J. Thomas Elliott
Title: President,
Chief Executive Officer
and Chief Operating Officer
[Corporate Seal]
Attest
- ----------------------
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By________________________________
Name:
Title:
[Corporate Seal]
Attest
- ----------------------
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STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of September, 1996, before me personally came J. Thomas
Elliott, to me known, who being by me duly sworn, did depose and say that he is
President, Chief Executive Officer and Chief Operating Officer of United USN,
Inc., one of the corporations described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by authority of
the Board of Directors of said corporation, and that he signed his name thereto
by like authority.
_________________________________
Notary Public
State of New York
My commission expires
[Seal]
125
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STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On the ___ day of September, 1996, before me personally came Joseph
McFaddden, to me known, who being by me duly sworn, did depose and say that he
is Vice President of Harris Trust and Savings Bank, the Trustee described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
_________________________________
Notary Public
State of New York
My commission expires
[Seal]
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PURCHASE AGREEMENT
DATED APRIL 20, 1994
BY AND AMONG
CIBC WOOD GUNDY VENTURES, INC.,
CHEMICAL VENTURE CAPITAL ASSOCIATES
AND
UNITED USN, INC.
<PAGE>
TABLE OF CONTENTS
Page
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Section 1. Authorization and Closing ................................... 1
1A. Authorization of the Stock .................................. 1
1B. Purchase and Sale of Stock .................................. 1
1C. The Tranche I Closing ....................................... 1
1D. Tranche II Participation .................................... 2
1E. The Tranche II Closings ..................................... 3
Section 2. Conditions of Each Purchaser's Obligation at the Tranche I
Closing ..................................................... 3
2A. Representations and Warranties; Covenants ................... 3
2B. Certificate of Incorporation ................................ 3
2C. Certificate of Designation .................................. 4
2D. Bylaws ...................................................... 4
2E. Registration Agreement ...................................... 4
2F. Subscription Agreement ...................................... 4
2G. Stockholders Agreement ...................................... 4
2H. Employment Agreements ....................................... 4
2I. Sale of Stock to Each Purchaser ............................. 5
2J. Binding Preliminary Agreement ............................... 5
2K. Blue Sky Clearance .......................................... 5
2L. UTS Agreement and Schwartz Agreement ........................ 5
2M. FCCC Fees ................................................... 5
2N. Closing Documents ........................................... 5
2O. Opinion of Network's Counsel ................................ 6
2P. Compliance with Applicable Laws ............................. 6
2Q. Due Diligence ............................................... 6
2R. Investment Committee Approval ............................... 6
2S. Proceedings ................................................. 6
2T. Waiver ...................................................... 6
Section 3. Conditions of Each Purchaser's and Third Party Purchaser's
Obligation at a Tranche II Closing .......................... 7
3A. Effective Agreements ........................................ 7
3B. Blue Sky Clearance .......................................... 7
3C. Sale of Stock to Each Purchaser or Third Party Purchaser .... 7
3D. Closing Documents ........................................... 7
3E. Opinion of the Company's Counsel ............................ 8
3F. Compliance with Applicable Laws ............................. 8
3G. Investment Committee Approval ............................... 8
3H. Proceedings ................................................. 8
3I. Waiver ...................................................... 8
Section 4. Covenants ................................................... 9
4A. Financial Statements and Other Information .................. 9
4B. Attendance at Board Meetings ................................ 11
4C. Inspection of Property ...................................... 12
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4D. Restrictions ................................................ 12
4E. Affirmative Covenants ....................................... 16
4F. Compliance with Agreements .................................. 17
4G. Current Public Information .................................. 17
4H. Amendment of UTS Agreement, Schwartz Agreement and
Employment Agreements ....................................... 18
4I. Proprietary Rights and CAP Agreements ....................... 18
4J. Preemptive Rights ........................................... 18
4K. Regulatory Compliance Cooperation ........................... 19
4L. Public Disclosures .......................................... 20
4M. Management Option Pool ...................................... 20
4N. Key-Man Life Insurance ...................................... 20
Section 5. Transfer of Restricted Securities ........................... 21
Section 6. Representations and Warranties of the Company ............... 21
6A. Organization and Corporate Power ............................ 22
6B. Capital Stock and Related Matters ........................... 22
6C. Subsidiaries; Investments ................................... 24
6D. Authorization; No Breach .................................... 24
6E. Financial Statements ........................................ 25
6F. Absence of Undisclosed Liabilities .......................... 25
6G. No Material Adverse Change....... ........................... 25
6H. Absence of Certain Developments ............................. 25
6I. Assets ...................................................... 27
6J. Tax Matters ................................................. 27
6K. Conduct of Business; Liabilities ............................ 28
6L. Contracts and Commitments ................................... 28
6M. Proprietary Rights .......................................... 29
6N. Litigation, etc ............................................. 29
6O. Brokerage ................................................... 30
6P. Governmental Consent, etc ................................... 30
6Q. Insurance ................................................... 30
6R. Employees ................................................... 30
6S. ERISA ....................................................... 31
(a) Multiemployer Plans .................................... 31
(b) Retiree Welfare Plans .................................. 31
(c) Defined Benefit Plans .................................. 31
(d) Defined Contribution Plans ............................. 31
(e) Other Plans ............................................ 31
(f) The Company ............................................ 32
6T. Compliance with Laws ........................................ 32
6U. Small Business Matters ...................................... 32
6V. Affiliated Transactions ..................................... 32
6W. Disclosure .................................................. 32
6X. Knowledge ................................................... 33
6Y. Tranche I Closing Date ...................................... 33
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Section 7. Put Arrangements ............................................ 33
7A. The Put ..................................................... 33
7B. Put Closing ................................................. 34
7C. Put Payment ................................................. 34
7D. Put Price ................................................... 35
7E. Put Termination ............................................. 35
Section 8. Definitions ................................................. 35
Section 9. Miscellaneous ............................................... 43
9A. Expenses .................................................... 43
9B. Remedies .................................................... 43
9C. Purchaser's Investment Representations ...................... 44
9D. Treatment of the Preferred Stock ............................ 44
9E. Consent to Amendments ....................................... 44
9F. Survival of Representations and Warranties .................. 45
9G. Successors and Assigns ...................................... 45
9H. Capital and Surplus; Special Reserves ....................... 45
9I. Generally Accepted Accounting Principles .................... 45
9J. Severability ................................................ 45
9K. Counterparts ................................................ 46
9L. Descriptive Headings; Interpretation ........................ 46
9M. Governing Law ............................................... 46
9N. Notices ..................................................... 46
9O. Understanding Among the Purchasers .......................... 46
9P. Indemnification ............................................. 47
9Q. No Solicitation, Etc. ....................................... 47
9R. Insurance Proceeds .......................................... 47
Schedules and Exhibits
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Tranche I Schedule of Purchasers
Tranche II Schedule of Purchasers
List of Exhibits
List of Disclosure Schedules
Attachment A
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<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT is made as of April 20, 1994, by and among United USN,
Inc., a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), and Chemical Venture Capital Associates, a
California limited partnership ("Chemical" and collectively with CIBC, the
"Purchasers"). Capitalized terms used herein are defined in Section 8 hereof.
WHEREAS, the parties hereto desire to capitalize the Company pursuant to
the terms of this Agreement and the terms of the Subscription Agreement as a
single plan of capitalization.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Stock. The Company shall authorize the issuance
and sale to the Purchasers of an aggregate of 9,900 shares of Preferred Stock
having the rights and preferences set forth in Exhibit A attached hereto, and
96,420 shares of Common Stock.
1B. Purchase and Sale of Stock.
(i) At the Tranche I Closing, the Company shall sell to each Purchaser
and, subject to the terms and conditions set forth herein, each Purchaser
shall purchase from the Company the number of shares of Preferred Stock set
forth opposite such Purchaser's name on the Tranche I Schedule of
Purchasers attached hereto at a price of $1,000 per share and the number of
shares of Common Stock set forth opposite such Purchaser's name on the
Tranche I Schedule of Purchasers attached hereto at a price of $1.00 per
share.
(ii) At any Tranche II Closing, the Company shall sell to each
Purchaser and, subject to paragraph 1D below and the terms and conditions
set forth herein, each Purchaser shall purchase from the Company up to the
number of shares of Preferred Stock set forth opposite such Purchaser's
name on the Tranche II Schedule of Purchasers attached hereto at a price of
$1,000 per share and up to the number of shares of Common Stock set forth
opposite such Purchaser's name on the Tranche II Schedule of Purchasers
attached hereto at a price of $1.077 per share.
(iii) The sale of Stock to each Purchaser shall constitute a separate
sale hereunder.
1C. The Tranche I Closing. Subject to the satisfaction of the conditions
set forth in Section 2, the Tranche I Closing shall take place at the offices of
Kirkland & Ellis, Citicorp
<PAGE>
Center, 153 East 53rd Street, New York, New York 10022-4675 at such date and
time as may be mutually agreeable to the Company and each Purchaser, or at such
other place as may be mutually agreeable to the Company and each Purchaser, but
in no event later than April 25, 1994. At the Tranche I Closing, the Company
shall deliver to each Purchaser stock certificates evidencing the Stock to be
purchased by such Purchaser, registered in such Purchaser's or its nominee's
name, upon payment of the purchase price thereof by a cashier's or certified
check, or by wire transfer of immediately available funds to the Company's
account at Madison Bank & Trust, in the amounts set forth opposite such
Purchaser's name on the Tranche I Schedule of Purchasers.
1D. Tranche II Participation.
(i) The board of directors of the Company shall issue a Tranche II
Notice indicating the number of shares of Stock, up to the number of shares
of Stock set forth opposite each Purchaser's name on the Tranche II
Schedule of Purchasers less the number of shares of such Stock which
previously have been purchased by the Purchasers or a Third Party Purchaser
in any Tranche II Closing, which the Company desires to sell to each
Purchaser in a Tranche II Purchase. If either Purchaser determines not to
fully participate in a Tranche II Purchase, the Declining Purchaser shall
deliver a Decline Notice to the Company and the other Purchaser within five
days after receipt of the Tranche II Notice. Upon receipt of a Decline
Notice, a Participating Purchaser, at its option, may purchase any or all
of the Declined Stock. If the Participating Purchaser determines not to
purchase all of the Declined Stock, the Participating Purchaser may invite
a Third Party Purchaser to purchase any remaining shares of Declined Stock.
If a Third Party Purchaser determines to purchase any portion of the
Declined Stock, the Participating Purchaser shall deliver a Third Party
Purchaser Notice to the Company and the Declining Purchaser. Upon receipt
of a Third Party Purchaser Notice, the Declining Purchaser shall have the
right to purchase all of the Stock to be purchased by the Third Party
Purchaser as set forth in the Third Party Purchaser Notice. In order to
exercise its purchase rights hereunder, the Declining Purchaser must within
five days after receipt of the Third Party Purchaser Notice deliver a
written notice to the Company and the Participating Purchaser describing
its election hereunder.
(ii) The Company shall give each Purchaser written notice of a Change
of Control at least 30 days prior to the consummation of a Change of
Control. At any time within five days after the receipt by a Purchaser of
the written notice of a Change of Control or at any time within 30 days
after the fifth anniversary of the date of this Agreement, each of the
Purchasers shall have the option in a Tranche II Purchase to purchase from
the Company up to the number of shares of Stock
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set forth opposite each Purchaser's name on the Tranche II Schedule of
Purchasers less the number of shares of such Stock which previously have
been purchased by the Purchasers or a Third Party Purchaser in any Tranche
II Closing. A Purchaser may exercise its purchase rights hereunder by
delivering a Tranche II Demand. If either Purchaser does not fully exercise
its option pursuant to this subparagraph lD(ii) or fails to deliver a
Tranche II Demand within the applicable option period specified above, a
Participating Purchaser may purchase any or all of the remaining shares of
Stock set forth on the Tranche II Schedule of Purchasers by delivering an
additional Tranche II Demand within five days after the expiration of the
applicable option period.
1E. The Tranche II Closings. Subject to satisfaction of the conditions set
forth in Section 3, a Tranche II Closing shall take place at the time and place
set forth in the Tranche II Notice or in the Tranche II Demand relating to such
Tranche II Purchase. The date of a Tranche II Closing shall be no earlier than
20 business days after the date on which the Tranche II Notice is delivered to
each Purchaser or the Tranche II Demand is delivered to the Company and each
Purchaser. At a Tranche II Closing, the Company shall deliver to each Purchaser
and Third Party Purchaser participating in such Tranche II Purchase stock
certificates evidencing the Stock to be purchased by such Purchaser and Third
Party Purchaser, respectively, registered in such Purchaser's, Third Party
Purchaser's or their nominee's name, upon payment of the purchase price thereof
by a cashier's or certified check, or by wire transfer of immediately available
funds to the Company's account at a bank specified by the Company, up to the
amounts set forth opposite such Purchaser's name on the Tranche II Schedule of
Purchasers, subject to the provisions of paragraph 1D.
Section 2. Conditions of Each Purchaser's Obligation at the Tranche I
Closing. The obligation of each Purchaser to purchase and pay for the Stock at
the Tranche I Closing is subject to the satisfaction as of the Tranche I Closing
of the following conditions:
2A. Representations and Warranties; Covenants. The representations and
warranties contained in Section 6 hereof shall be true and correct at and as of
the Tranche I Closing as though then made, except to the extent of changes
caused by the transactions expressly contemplated herein, and the Company shall
have performed in all material respects all of the covenants required to be
performed by them hereunder prior to the Tranche I Closing.
2B. Certificate of Incorporation. The Certificate of Incorporation shall be
in full force and effect under the laws of the State of Delaware as of the
Tranche I Closing and shall not have been amended or modified.
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<PAGE>
2C. Certificate of Designation. The Company shall have duly adopted,
executed and filed with the Secretary of State of the State of Delaware the
Certificate of Designation, and the Company shall not have adopted or filed any
other document designating terms, relative rights or preferences of its
preferred stock. The Certificate of Designation shall be in full force and
effect as of the Tranche I Closing under the laws of the State of Delaware and
shall not have been amended or modified.
2D. Bylaws. The Company's bylaws shall (i) permit the holders of stock of
the Company entitled to cast not less than twenty percent (20%) of the votes at
a special meeting of the Company's stockholders to call for a meeting of the
Company's stockholders in the shortest period of time permitted by applicable
law, (ii) permit any member of the Company's board of directors to call a
meeting of the board of directors in the shortest period of time permitted by
applicable law, (iii) permit the Company's stockholders to establish the size of
the board from 5 to 11 directors and permit the stockholders to fill any
vacancies on the board of directors, and (iv) require meetings of the board of
directors to be held at least once during each of the Company's fiscal quarters.
The Company's bylaws shall be in full force and effect as of the Tranche I
Closing and shall not have been amended or modified.
2E. Registration Agreement. The Company and the Purchasers shall have
entered into the Registration Agreement, and the Registration Agreement shall be
in full force and effect as of the Tranche I Closing.
2F. Subscription Agreement. The Company, FCCC and the current holders of
Network Stock shall have entered into the Subscription Agreement, and the
Subscription Agreement shall be in full force and effect as of the Tranche I
Closing. The Subscription Agreement shall provide for the holders of the Network
Stock to exchange the Network Stock for Preferred Stock and Common Stock and for
FCCC to purchase Common Stock. Upon consummation of the transactions
contemplated by the Subscription Agreement concurrently with the Tranche I
Closing, Network shall become a wholly-owned subsidiary of the Company.
2G. Stockholders Agreement. The Company and the holders of all of the
outstanding Common Stock after giving effect to the transactions contemplated by
this Agreement and the Subscription Agreement shall have entered into the
Stockholders Agreement, and the Stockholders Agreement shall be in full force
and effect as of the Tranche I Closing.
2H. Employment Agreements. Network shall have amended its employment
agreements with Thomas C. Brandenburg and Charles E. Buckman in form and
substance as set forth on Exhibit F attached hereto, the Employment Agreements
shall be in full force and effect as of the Closing.
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<PAGE>
2I. Sale of Stock to Each Purchaser. The Company shall have tendered to
each Purchaser duly executed certificates for the Stock to be purchased by such
Purchaser hereunder at the Tranche I Closing.
2J. Binding Preliminary Agreement. The Binding Preliminary Agreement dated
December 28, 1993 between Network, UTS, United Telecom of America, Inc. and
Stephen C. Schwartz shall be terminated and released by the parties thereto
simultaneously with the Tranche I Closing.
2K. Blue Sky Clearance. The Company shall have made all pre-sale filings
under applicable state securities laws necessary to consummate the issuance of
the Stock pursuant to this Agreement in compliance with such laws.
2L. UTS Agreement and Schwartz Agreement. The Company shall have entered
into the UTS Agreement and the UTS Agreement shall be in full force and effect
as of the Tranche I Closing. The Company shall have entered into the Schwartz
Agreement and the Schwartz Agreement shall be in full force and effect as of the
Tranche I Closing.
2M. FCCC Fees. Network shall have reached an agreement with FCCC regarding
the payment of fees to FCCC in connection with the transactions contemplated by
this Agreement, which agreement shall be satisfactory to each of the Purchasers
in its sole discretion.
2N. Closing Documents. The Company shall have delivered to each Purchaser
all of the following documents:
(i) an Officer's Certificate, dated the date of the Tranche I
Closing, stating that the conditions specified in Section 1 and paragraphs
2A through 2M, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Registration Agreement, the Stockholders
Agreement, the Subscription Agreement and each of the other agreements
contemplated hereby, the filing of the Certificate of Designation, the
issuance and sale of the Stock, and the consummation of all other
transactions contemplated by this Agreement;
(iii) certified copies of the Certificate of Incorporation, the
Certificate of Designation and the Company's bylaws, each as in effect at
the Tranche I Closing;
(iv) copies of all third party and governmental consents, approvals
and filings required in connection with
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<PAGE>
the consummation of the transactions hereunder (including, without
limitation, all blue sky law filings and waivers of all preemptive rights
and rights of first refusal);
(v) SBA Forms 480, 652 and 1031 and a list of (a) the name of each of
the Company's directors as of the Tranche I Closing, (b) the name and title
of each of the Company's officers as of the Tranche I Closing, and (c)
after giving effect to the transactions contemplated by this Agreement at
the Tranche I Closing, the name of each of the Company's stockholders
setting forth the number and class of shares held; and
(vi) such other documents relating to the transactions contemplated
by this Agreement as any Purchaser or its special counsel may reasonably
request.
2O. Opinion of Network's Counsel. Each Purchaser shall have received from
Baker & Hostetler, counsel for Network, an opinion with respect to the matters
set forth in Exhibit H attached hereto, which shall be addressed to each
Purchaser, dated the date of the Tranche I Closing and in form and substance
satisfactory to each of the Purchasers in its sole discretion.
2P. Compliance with Applicable Laws. The purchase of Stock by each
Purchaser hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject such Purchaser to any penalty,
liability or, in such Purchaser's sole judgment, other onerous condition under
or pursuant to any applicable law or governmental regulation, and shall be
permitted by laws and regulations of the jurisdictions to which such Purchaser
is subject.
2Q. Due Diligence. The Purchasers shall be reasonably satisfied with the
results of their continuing business, legal and accounting due diligence review
of Network, UTS and their Subsidiaries.
2R. Investment Committee Approval. Each Purchaser's investment committee
or similar authority shall have approved the transactions contemplated by this
Agreement and the UTS Agreement.
2S. Proceedings. All corporate and other proceedings taken or required to
be taken by the Company in connection with the transactions contemplated hereby
to be consummated at or prior to the Tranche I Closing and all documents
incident thereto shall be satisfactory in form and substance to the Purchasers
and their special counsel.
2T. Waiver. Any condition specified in this Section 2 may be waived if
consented to by all Purchasers; provided that no such waiver shall be effective
against any Purchaser unless it is set forth in a writing executed by such
Purchaser.
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<PAGE>
Section 3. Conditions of Each Purchaser's and Third Party Purchaser's
Obligation at a Tranche II Closing. The obligation of each Purchaser and Third
Party Purchaser participating in a Tranche II Purchase to purchase and pay for
the Stock at a Tranche II Closing is subject to the satisfaction as of such
Tranche II Closing of the following conditions:
3A. Effective Agreements. The Registration Agreement, Stockholders
Agreement and Employment Agreements shall be in full force and effect as of the
Tranche II Closing and any Third Party Purchaser shall have become a party to
the Stockholders Agreement.
3B. Blue Sky Clearance. The Company shall have made all pre-sale filings
under applicable state securities laws necessary to consummate the issuance of
the Stock pursuant to this Agreement in compliance with such laws.
3C. Sale of Stock to Each Purchaser or Third Party Purchaser. The Company
shall have tendered to each Purchaser and Third Party Purchaser participating in
the Tranche II Purchase duly executed certificates for the Stock to be purchased
by each such Purchaser or Third Party Purchaser hereunder at the Tranche II
Closing.
3D. Closing Documents. The Company shall have delivered to each Purchaser
and Third Party Purchaser participating in the Tranche II Purchase all of the
following documents:
(i) an Officer's Certificate, dated the date of the Tranche II
Closing, stating that the conditions specified in Section 1 and paragraphs
3A through 3C, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the Company's
board of directors authorizing the transactions contemplated by this
Agreement to occur at the Tranche II Closing;
(iii) certified copies of the Certificate of Incorporation, the
Certificate of Designation and the Company's bylaws, each as in effect at
the Tranche II Closing;
(iv) copies of all third party and governmental consents, approvals
and filings required in connection with the consummation of the
transactions hereunder to occur at the Tranche II Closing (including,
without limitation, all blue sky law filings and waivers of all preemptive
rights and rights of first refusal);
(v) SBA Forms 480, 652 and 1031 and a list of (a) the name of each of
the Company's directors as of the Tranche II Closing, (b) the name and
title of each of the Company's officers as of the Tranche II Closing, and
(c) after
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<PAGE>
giving effect to the transactions contemplated by this Agreement at the
Tranche II Closing, the name of each of the Company's stockholders setting
forth the number and class of shares held; and
(vi) such other documents relating to the transactions contemplated
by this Agreement as such Purchaser or its special counsel may reasonably
request.
3E. Opinion of the Company's Counsel. Each Purchaser and Third Party
Purchaser participating in the Tranche II Purchase shall have received from
counsel for the Company or Network an opinion, which shall be addressed to each
such Purchaser or Third Party Purchaser, dated the date of the Tranche II
Closing and in form and substance satisfactory to each such Purchaser or Third
Party Purchaser in its sole discretion.
3F. Compliance with Applicable Laws. The purchase of Stock by each
Purchaser or Third Party Purchaser participating in the Tranche II Purchase
hereunder shall not be prohibited by any applicable law or governmental
regulation, shall not subject such Purchaser or Third Party Purchaser to any
penalty, liability or, in such Purchaser's or Third Party Purchaser's sole
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation, and shall be permitted by laws and regulations of the
jurisdictions to which such Purchaser or Third Party Purchaser is subject.
3G. Investment Committee Approval. The investment committee or similar
authority of each Purchaser or Third Party Purchaser participating in the
Tranche II Purchase shall have approved the transactions contemplated by this
Agreement to occur at the Tranche II Closing.
3H. Proceedings. All corporate and other proceedings taken or required to
be taken by the Company in connection with the transactions contemplated hereby
to be consummated at or prior to the Tranche II Closing and all documents
incident thereto shall be satisfactory in form and substance to the Purchasers
and Third Party Purchasers participating in the Tranche II Purchase and their
special counsel.
3I. Waiver. Any condition specified in this Section 3 may be waived if
consented to by all Purchasers and Third Party Purchasers participating in the
Tranche II Purchase; provided that no such waiver shall be effective against any
such Purchaser or Third Party Purchaser unless it is set forth in a writing
executed by such Purchaser or Third Party Purchaser.
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<PAGE>
Section 4. Covenants.
4A. Financial Statements and Other Information. The Company shall deliver
to each Qualified Holder:
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
statements of income and cash flows of each of the Company, Network and UTS
and unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such monthly period and for
the period from the beginning of the fiscal year to the end of such month,
and balance sheets of each of the Company, Network and UTS and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each
case comparisons to the annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently
applied;
(ii) accompanying the financial statements referred to in
subparagraph (i), an Officer's Certificate stating that there is no Event
of Noncompliance in existence and that neither the Company nor any of its
Subsidiaries is in default under any of its other material agreements or,
if any Event of Noncompliance or any such default exists, specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(iii) within 90 days after the end of each fiscal year, statements of
income and cash flows of each of the Company, Network and UTS and
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and balance sheets of
each of the Company, Network and UTS and consolidating and consolidated
balance sheets of the Company and its Subsidiaries as of the end of such
fiscal year, setting forth in each case comparisons to the annual budget
and to the preceding fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by
(a) with respect to the consolidated portions of such statements, an
opinion containing no exceptions or qualifications (except for
qualifications regarding specified contingent liabilities) of an
independent accounting firm of recognized national standing acceptable to
the holders of a majority of the Investor Preferred Stock and the holders
of a majority of the Investor Common Stock, (b) a certificate from such
accounting firm, addressed to the Company's board of directors, stating
that in the course of its examination nothing came to its attention that
caused it to believe that there was an Event of
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<PAGE>
Noncompliance in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any other material
agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any Event of Noncompliance or other
default by the Company or any Subsidiary exists, a certificate specifying
the nature and period of existence thereof, and (c) a copy of such firm's
annual management letter to the board of directors;
(iv) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's or its Subsidiaries' operations or financial
affairs given to the Company or its Subsidiaries by its independent
accountants (and not otherwise contained in other materials provided
hereunder);
(v) at least 30 days prior to the beginning of each fiscal year, an
annual budget prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated statements of
income and cash flows and balance sheets), and promptly upon preparation
thereof any other significant budgets prepared by the Company or its
Subsidiaries and any revisions of such annual or other budgets, and within
30 days after any monthly period in which there is a material adverse
deviation from the annual budget, an Officer's Certificate explaining the
deviation and what actions the Company has taken and proposes to take with
respect thereto;
(vi) promptly (but in any event within five business days) after the
discovery or receipt of notice of any Event of Noncompliance, any default
under any material agreement to which the Company or any of its
Subsidiaries is a party or any other material adverse event or circumstance
affecting the Company or any Subsidiary (including the filing of any
material litigation against the Company or any Subsidiary or the existence
of any dispute with any Person which involves a reasonable likelihood of
such litigation being commenced), an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(vii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration statements and all regular, special or periodic
reports which it files, or any of its officers or directors file with
respect to the Company, with the Securities and Exchange
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Commission or with any securities exchange on which any of its securities
are then listed, and copies of all press releases and other statements made
available generally by the Company or its Subsidiaries to the public
concerning material developments in the business of the Company or its
Subsidiaries;
(viii) within ten days after receipt thereof, copies of all financial
statements provided by UTS to the Company; and
(ix) with reasonable promptness, such other information and financial
data concerning the Company and its Subsidiaries as any Person entitled to
receive information under this paragraph 4A may reasonably request.
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end audit adjustments (none of which would,
alone or in the aggregate, be materially adverse to the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole).
Notwithstanding the foregoing, the provisions of this paragraph 4A, other
than subparagraph 4A(ix), shall cease to be effective so long as the Company (a)
is subject to the periodic reporting requirements of the Securities Exchange Act
and continues to comply with such requirements and (b) promptly provides to each
Person otherwise entitled to receive information pursuant to this paragraph 4A
all reports and other materials filed by the Company with the Securities and
Exchange Commission pursuant to the periodic reporting requirements of the
Securities Exchange Act; provided that so long as any Investor Preferred Stock
remains outstanding, the Company shall continue to deliver to each Qualified
Holder the information specified in subparagraphs 4A(ii), 4A(iii)(b) and 4A(vi).
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each Person entitled to receive information
regarding the Company and its Subsidiaries under paragraph 4A shall use its best
efforts to maintain the confidentiality of all nonpublic information obtained by
it hereunder which the Company or its Subsidiaries has reasonably designated as
proprietary or confidential in nature; provided that each such Person may, to
the extent required by law, disclose such information in connection with the
sale or transfer of any Stock if such Person's transferee agrees in writing to
be bound by the provisions hereof.
4B. Attendance at Board Meetings. The Company shall give each Qualified
Holder who does not have a representative on
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<PAGE>
the Company's board of directors written notice of each meeting of its board of
directors and each committee thereof at least three business days prior to the
date of each such meeting, and the Company shall permit representatives of all
Qualified Holders to attend as observers all meetings of its board of directors
and committees thereof; provided that in the case of telephonic meetings
conducted in accordance with the Company's bylaws and applicable law, each such
Qualified Holder need receive only actual notice thereof at least 48 hours prior
to any such meeting, and each such Qualified Holder's representative shall be
given the opportunity to listen to such telephonic meetings. Each representative
shall be entitled to receive all written materials and other information
(including, without limitation, copies of meeting minutes) given to directors in
connection with such meetings at the same time such materials and information
are given to the directors. If the Company proposes to take any action by
written consent in lieu of a meeting of its board of directors or of any
committee thereof, the Company shall give written notice thereof to each such
Qualified Holder prior to the effective date of such consent describing in
reasonable detail the nature and substance of such action. The Company shall pay
the reasonable out-of-pocket expenses of each representative incurred in
connection with attending such board and committee meetings.
4C. Inspection of Property. The Company shall permit any representatives
designated by any Qualified Holder, upon reasonable notice and during normal
business hours and such other times as any such holder may reasonably request,
to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such corporations with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries. The presentation of an executed copy of this Agreement by
any Qualified Holder to the Company's independent accountants shall constitute
the Company's permission to its independent accountants to participate in
discussions with such Qualified Holder.
4D. Restrictions. So long as a Purchaser holds any Investor Common Stock
or any Investor Preferred Stock, the Company shall not, without the Required
Approval:
(i) directly or indirectly declare or pay any dividends or make any
distributions upon any of its equity securities except for dividends and
distributions on the Preferred Stock pursuant to the terms of the
Certificate of Designation or dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise acquire, or
permit any Subsidiary to redeem, purchase or otherwise acquire, any of the
Company's equity
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<PAGE>
securities (including, without limitation, warrants, options and other
rights to acquire equity securities) other than the Preferred Stock
pursuant to the terms of the Certificate of Designation or the Puts under
Section 7 of this Agreement.
(iii) except as expressly contemplated by this Agreement, authorize,
issue or enter into any agreement providing for the issuance (contingent or
otherwise) of, (a) any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities convertible
into or exchangeable for equity securities, issued in connection with the
issuance of equity securities or containing profit participation features)
or (b) any equity securities (or any securities convertible into or
exchangeable for any equity securities) which are senior to or on a parity
with the Preferred Stock with respect to the payment of dividends,
redemptions or distributions upon liquidation or otherwise;
(iv) except as contemplated by the UTS Agreement and the Schwartz
Agreement, permit any Subsidiary to authorize, issue or enter into any
agreement providing for the issuance (contingent or otherwise) of any notes
or debt securities containing equity features (including, without
limitation, any notes or debt securities convertible into or exchangeable
for equity securities, issued in connection with the issuance of equity
securities or containing profit participation features);
(v) make, or permit any Subsidiary to make, any loans or advances to,
guarantees for the benefit of, or Investments in, any Person (other than a
wholly-owned Subsidiary established under the laws of a jurisdiction of the
United States or any of its territorial possessions), except for (a)
reasonable advances to employees in the ordinary course of. business, (b)
acquisitions permitted pursuant to subparagraph (x) below, (c) Investments
in UTS pursuant to the UTS Agreement or as approved by a majority of the
members of the Company's board of directors, and (d) Investments having a
stated maturity no greater than one year from the date the Company makes
such Investment in (1) obligations of the United States government or any
agency thereof or obligations guaranteed by the United States government,
(2) certificates of deposit of commercial banks having combined capital and
surplus of at least $50 million or (3) commercial paper with a rating of at
least "Prime-l" by Moody's Investors Service, Inc.;
(vi) merge or consolidate with any Person or, except as permitted by
subparagraph (x) below, permit any Subsidiary to merge or consolidate with
any Person (other than a wholly-owned Subsidiary);
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<PAGE>
(vii) sell, lease or otherwise dispose of more than 10% of the
consolidated assets of the Company and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Company's board of directors in its reasonable good faith
judgment) in any transaction or series of related transactions (other than
sales in the ordinary course of business) or sell, transfer, assign or
otherwise dispose of, or pledge or encumber, any of its CAP Agreements or
Proprietary Rights;
(viii) permit any Subsidiary to sell, lease or otherwise dispose of
more than 15% of the assets of such Subsidiary (computed on the basis of
book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Company's board of directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business) or sell, transfer, assign or otherwise dispose
of, or pledge or encumber (other than pursuant to the UTS Agreement), any
of such Subsidiary's CAP Agreements or Proprietary Rights;
(ix) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into partnership form);
(x) except for CAP Agreements approved by a majority of the members
of the Company's board of directors and investments in UTS pursuant to the
UTS Agreement or as approved by a majority of the members of the Company's
board of directors, acquire, or permit any Subsidiary to acquire, any
interest in any business (whether by a purchase of assets, purchase of
stock, merger or otherwise), or enter into any joint venture, involving an
aggregate consideration (including the assumption of liabilities whether
direct or indirect) exceeding $500,000 in any one transaction or exceeding
$1,000,000 in any twelve-month period;
(xi) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than as a
provider of competitive access telecommunications services;
(xii) become subject to, or permit any of its Subsidiaries to become
subject to, any agreement or instrument which by its terms would (under any
circumstances) restrict (a) the right of any Subsidiary to make loans or
advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the
Registration Agreement, the Stockholders
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<PAGE>
Agreement, the Certificate of Designation, the Certificate of Incorporation
or the Company's bylaws (including, without limitation, provisions relating
to payment of dividends on and making redemptions of the Preferred Stock);
(xiii) except as expressly contemplated by this Agreement, make any
amendment to the Certificate of Incorporation, the Certificate of
Designation or the Company's bylaws, or file any resolution of the board of
directors with the Secretary of State of the State of Delaware containing
any provisions, which would increase the number of authorized shares of the
Preferred Stock or adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Stock or the Investor
Common Stock under this Agreement, the Certificate of Incorporation, the
Certification of Designation, the Company's bylaws, the Registration
Agreement or the Stockholders Agreement;
(xiv) enter into, or permit any Subsidiary to enter into, any
transaction with the Company's or any Subsidiary's officers, directors,
employees or Affiliates or any individual related by blood or marriage to
any such Person or any entity in which any such Person or individual owns a
beneficial interest, except pursuant to the UTS Agreement, the Schwartz
Agreement, normal employment arrangements and benefit programs on
reasonable terms and except as otherwise expressly contemplated by this
Agreement;
(xv) except pursuant to the UTS Agreement, create, incur, assume or
suffer to exist, or permit any Subsidiary to create, incur, assume or
suffer to exist, Indebtedness exceeding in the aggregate $1,500,000
outstanding at any time on a consolidated basis;
(xvi) except pursuant to CAP Agreements approved by a majority of the
members of the Company's board of directors, make any capital expenditures
(including, without limitation, payments with respect to capitalized
leases, as determined in accordance with generally accepted accounting
principles consistently applied) exceeding $1,500,000 in the aggregate on a
consolidated basis during any twelve-month period;
(xvii) except pursuant to CAP Agreements approved by a majority of
the members of the Company's board of directors, enter into any leases or
other rental agreements (excluding capitalized leases, as determined in
accordance with generally accepted accounting principles consistently
applied) under which the amount of the aggregate lease payments for all
such agreements exceeds $1,500,000 on a consolidated basis for any twelve-
month period;
(xviii) change its fiscal year;
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<PAGE>
(xix) increase the authorized size of its board of directors above 11
members or decrease the authorized size of its board of directors below 5
members, subject to increase upon the occurrence of certain Events of
Noncompliance in the Certificate of Designation;
(xx) adopt any new stock option plan or employee stock ownership plan
or issue any shares of Common Stock to its or its Subsidiaries' employees
other than as approved by a majority of the members of the Company's board
of directors in connection with the Management Option Pool;
(xxi) except pursuant to the UTS Agreement, issue or sell any shares
of the capital stock, or rights to acquire shares of the capital stock, of
any Subsidiary to any Person other than the Company or another Subsidiary;
or
(xxii) borrow against, pledge, assign, modify, cancel or surrender
any key-man life insurance policies required to be maintained under
paragraph 4E hereof.
4E. Affirmative Covenants. So long as a Purchaser holds any Investor
Common Stock or any Investor Preferred Stock, the Company shall, and shall cause
each Subsidiary to:
(i) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses;
(ii) maintain and keep its properties in good repair, working order
and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly
and advantageously conducted at all times;
(iii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all claims for labor, materials or
supplies which if unpaid would by law become a lien upon any of its
property, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(iv) comply with all other obligations which it incurs pursuant to
any contract or agreement, whether oral or written, express or implied, as
such obligations become due, unless and to the extent that the same are
being contested in
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<PAGE>
good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(v) comply with all applicable laws, rules and regulations of all
governmental authorities, including the Federal Communications Commission,
the Public Utilities Commission of Ohio and the New York Public Service
Commission, the violation of which would reasonably be expected to have a
material adverse effect upon the financial condition, operating results,
assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole;
(vi) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for well-insured corporations of similar size
engaged in similar lines of business;
(vii) maintain the key-man life insurance policies referred to in
paragraph 4N hereof and maintain officers and directors liability insurance
coverage of at least $2,500,000; and
(viii) maintain proper books of record and account which fairly
present its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves as in
each case are required in accordance with generally accepted accounting
principles, consistently applied.
4F. Compliance with Agreements. The Company shall perform and observe (i)
all of its obligations to each holder of the Stock set forth in the Certificate
of Incorporation, the Certificate of Designation and the Company's bylaws, (ii)
all of its obligations to each holder of Registrable Securities set forth in the
Registration Agreement, and (iii) all of its obligations under the Stockholders
Agreement.
4G. Current Public Information. At all times after the Company has filed a
registration statement with the Securities and Exchange Commission pursuant to
the requirements of either the Securities Act or the Securities Exchange Act,
the Company shall file all reports required to be filed by it under the
Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder and shall take such
further action as any holder or holders of Restricted Securities may reasonably
request, all to the extent required to enable such holders to sell Restricted
Securities pursuant to (i) Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter
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<PAGE>
adopted by the Securities and Exchange Commission or (ii) a registration
statement on Form S-2 or S-3 or any similar registration form hereafter adopted
by the Securities and Exchange Commission. Upon request, the Company shall
deliver to any holder of Restricted Securities a written statement as to whether
it has complied with such requirements.
4H. Amendment of UTS Agreement, Schwartz Agreement and Employment
Agreements. The Company shall not amend, modify or waive any provision of the
UTS Agreement, the Schwartz Agreement or the Employment Agreements without the
Required Approval, and the Company shall enforce the provisions of the UTS
Agreement, the Schwartz Agreement and the Employment Agreements and shall
exercise all of its rights and remedies thereunder (including, without
limitation, any repurchase options and first refusal rights) unless it otherwise
receives the Required Approval.
4I. Proprietary Rights and CAP Agreements. The Company shall, and shall
cause each Subsidiary to, possess and maintain all material Proprietary Rights
necessary to the conduct of their respective businesses and own all right, title
and interest in and to, or have a valid license for, all material Proprietary
Rights used by the Company and each Subsidiary in the conduct of their
respective businesses. Neither the Company nor any Subsidiary shall take any
action, or fail to take any action, which would result in the invalidity, abuse,
misuse or unenforceability of its Proprietary Rights or CAP Agreements or which
would infringe upon any rights of other Persons.
4J. Preemptive Rights.
(i) Except for the issuance of Common Stock (a) pursuant to a Tranche
II Closing, (b) pursuant to the Management Option Pool as contemplated by
this Agreement, (c) in connection with the acquisition of another business
as contemplated by paragraph 4D(x), or (d) pursuant to a public offering
registered under the Securities Act, if the Company authorizes the issuance
or sale of any of its equity securities, any securities containing options
or rights to acquire any shares of its equity securities (other than as a
dividend on outstanding equity securities), the Company shall first offer
to sell to each holder of Investor Common Stock a portion of such stock or
securities equal to the quotient determined by dividing (1) the number of
shares of Investor Common Stock held by such holder by (2) the sum of the
total number of shares of outstanding Investor Common Stock and the number
of shares of Common Stock outstanding which are not shares of Investor
Common Stock. Each holder of Investor Common Stock shall be entitled to
purchase such stock or securities at the most favorable price and on the
most favorable terms as such stock or securities are to be offered to any
other Persons. The purchase price for all stock and securities offered to
the holders of the Investor Common Stock
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<PAGE>
shall be payable in cash or, to the extent otherwise required hereunder,
notes issued by such holders.
(ii) In order to exercise its purchase rights hereunder, a holder of
Investor Common Stock must within 30 days after receipt of written notice
from the Company describing in reasonable detail the stock or securities
being offered, the purchase price thereof, the payment terms, a management
financial forecast, use of proceeds and such holder's percentage allotment
deliver a written notice to the Company describing its election hereunder.
If all of the stock and securities offered to the holders of Investor
Common Stock is not fully subscribed by such holders, the remaining stock
and securities shall be reoffered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph, except
that such holders must exercise their purchase rights within five days
after receipt of such reoffer.
(iii) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the
holders of Investor Common Stock have not elected to purchase during the 30
days following such expiration on terms and conditions no more favorable to
the purchasers thereof than those offered to such holders. Any stock or
securities offered or sold by the Company after such 30-day period must be
reoffered to the holders of Investor Common Stock pursuant to the terms of
this paragraph.
4K. Regulatory Compliance Cooperation.
(i) In the event that a Purchaser determines that it has a Regulatory
Problem, the Company agrees to take all such actions as are reasonably
requested by the Purchaser in order (a) to effectuate and facilitate any
transfer by the Purchaser of any securities of the Company then held by the
Purchaser to any person designated by the Purchaser, (b) to permit the
Purchaser (or any Affiliate of the Purchaser) to exchange all or any
portion of the Common Stock then held by the Purchaser on a share-for-share
basis for shares of a class of nonvoting common stock of the Company, which
nonvoting common stock shall be identical in all respects to such Common
Stock, except that such common stock shall be nonvoting and shall be
convertible into Common Stock on such terms as are requested by the
Purchaser in light of regulatory considerations then prevailing, and (c) to
continue and preserve the respective allocation of the voting interests
with respect to the Company with respect to the Purchaser's ownership of
the Common Stock. Such actions may include, but shall not necessarily be
limited to:
(a) entering into such additional agreements as are requested by
the Purchaser to permit any person(s)
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<PAGE>
designated by the Purchaser to exercise any voting power which is
relinquished by the Purchaser upon any exchange of Common Stock for
nonvoting stock of the Company; and
(b) entering into such additional agreements, adopting such
amendments to the Certificate of Incorporation and bylaws of the
Company and taking such additional actions as are reasonably requested
by the Purchaser in order to effectuate the intent of the foregoing.
(ii) Without limiting the effect of paragraph 9G, the Company shall
grant to any subsequent holder of Investor Common Stock or Investor
Preferred Stock, upon such holder's request, the same rights granted to the
Purchasers pursuant to this paragraph.
4L. Public Disclosures. The Company shall not, nor shall it permit any
Subsidiary to, disclose any Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of such Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
4M. Management Option Pool. Prior to the Tranche I Closing, the Company
shall reserve for issuance pursuant to the Management Option Pool a number of
shares of Common Stock equal to 18.2% of the outstanding shares of Common Stock
on a fully diluted basis after giving prospective effect to the Tranche I
Closing and assuming the issuance of all shares reserved under the Management
Option Pool. Prior to a Tranche II Closing, the Company shall reserve for
issuance pursuant to the Management Option Pool additional shares of Common
Stock such that the total number of shares so reserved equals 18.2% of the
outstanding shares of Common Stock on a fully diluted basis after giving
prospective effect to such Tranche II Closing and assuming the issuance of all
shares reserved under the Management Option Pool. The Company shall issue
options in the Management Option Pool to senior management of the Company as
incentive compensation at such times and with such terms as determined by the
Company's board of directors.
4N. Key-Man Life Insurance. Within 15 days from the date of the Tranche I
Closing, Network shall have obtained key-man life insurance policies on the
lives of Thomas C. Brandenburg and Charles E. Buckman in the face amount of
$2,500,000 each. Such insurance policies shall name the Purchasers as
beneficiary and shall provide that such insurance policies may not be cancelled
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<PAGE>
unless the insurance carrier gives at least 30 days prior written notice of such
cancellation to each Purchaser.
Section 5. Transfer of Restricted Securities.
(i) Restricted Securities are transferable only pursuant to (a) public
offerings registered under the Securities Act, (b) Rule 144 or Rule 144A of
the Securities and Exchange Commission (or any similar rule or rules then
in force) if such rule is available, and (c) subject to the conditions
specified in subparagraph (ii) below, any other legally available means of
transfer.
(ii) In connection with the transfer of any Restricted Securities
(other than a transfer described in subparagraph 5(i)(a) or (b) above), the
holder thereof shall (unless such requirement is waived in writing by the
Company) deliver written notice to the Company describing in reasonable
detail the transfer or proposed transfer, together with an opinion of
Kirkland & Ellis or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that
such transfer of Restricted Securities may be effected without registration
of such Restricted Securities under the Securities Act. In addition, if the
holder of the Restricted Securities delivers to the Company an opinion of
Kirkland & Ellis or such other counsel that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the
Securities Act legend set forth in paragraph 9C. If the Company is not
required to deliver new certificates for such Restricted Securities not
bearing such legend, the holder thereof shall not transfer the same until
the prospective transferee has confirmed to the Company in writing its
agreement to be bound by the conditions contained in this subparagraph and
paragraph 9C.
(iii) Upon the request of any holder of Restricted Securities which
are eligible for sale pursuant to Rule 144(k) together with the delivery to
the Company of an opinion of Kirkland & Ellis or such other counsel that no
subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall remove the
foregoing legend from the certificates for such holder's Restricted
Securities.
Section 6. Representations and Warranties of the Company. As a material
inducement to the Purchasers to enter into this Agreement and purchase the
Stock, the Company hereby represents and warrants that:
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6A. Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company has all requisite corporate power and authority and
all licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's and each Subsidiary's charter documents
and bylaws which have been furnished to the Purchasers' special counsel reflect
all amendments made thereto at any time prior to the date of this Agreement and
are correct and complete.
6B. Capital Stock and Related Matters.
(i) As of the Tranche I Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 50,000 shares
of preferred stock, of which 20,000 shares shall be designated as Series A
10% Senior Cumulative Preferred Stock, 6,300 shares shall be issued and
outstanding and 4,950 shares reserved for issuance pursuant to any Tranche
II Closing, and (b) 200,000 shares of Common Stock, of which 85,000 shares
shall be issued and outstanding, 46,420 shares shall be reserved for
issuance pursuant to any Tranche II Closing, 18,912 shares shall be
reserved for issuance in connection with the Management Option Pool
subsequent to the Tranche I Closing and 10,328 shares shall be reserved for
issuance in connection with the Management Option Pool subsequent to any
Tranche II Closing. As of the Tranche I Closing and immediately thereafter,
the stockholders of the Company shall be as set forth in the following
chart:
No. of Shares of No. of Shares of
Stockholder Common Stock Preferred Stock
----------- ---------------- ----------------
Chemical Venture Capital
Associates 25,000 2,475
CIBC Wood Gundy Ventures,
Inc. 25,000 2,475
First Continental Capital
Corporation 3,500 0
Thomas C. Brandenburg 10,000 175
Thomas C. Brandenburg, as
Trustee for David w.
Montville 10,000 175
Kevin Maddock 1,533 200
Robert Nisbett 767 100
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<TABLE>
<CAPTION>
No. of Shares of No. of Shares of
Stockholder Common Stock Preferred Stock
----------- ---------------- ----------------
<S> <C> <C>
Joseph Montanile 767 l00
David McCarthy 767 100
Howard Gerson 767 l00
Sal Fabricante 767 l00
Al Dentale, Jr. 767 l00
Demo Cervelli 767 l00
Larry Gladysz 2,299 50
Louis Rappaport 2,299 50
</TABLE>
As of the Tranche I Closing, the authorized capital stock of Network shall
consist of 1,000,000 shares of Network Stock, of which 200,000 shares shall be
issued and outstanding and subject to the Subscription Agreement. As of the
Tranche I Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans,
except as set forth on the attached "Capitalization Schedule" or as provided in
this Agreement or the Subscription Agreement. As of the Tranche I Closing,
neither the Company nor any Subsidiary shall be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any warrants, options or other rights to acquire
its capital stock, except as provided in the Stockholders Agreement, as set
forth on the Capitalization Schedule, pursuant to the Certificate of
Designation and the Certificate of Incorporation or pursuant to Section 7 of
this Agreement. As of the Tranche I Closing, all of the outstanding shares of
the Company's capital stock shall be validly issued, fully paid and
nonassessable.
(ii) There are no statutory or contractual stockholders' preemptive rights
or rights of refusal with respect to the issuance of the Stock hereunder. The
Company and its Subsidiaries have not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of their
capital stock, and the offer, sale and issuance of the Stock hereunder does not
require registration under the Securities Act or any applicable state securities
laws. Except as set forth on the Capitalization Schedule and pursuant to the
Stockholders Agreement, to the
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best of the Company's knowledge, there are no agreements between the
stockholders of the Company or its Subsidiaries with respect to the voting
or transfer of the capital stock of the Company or its Subsidiaries or with
respect to any other aspect of the affairs of the Company or its
Subsidiaries.
6C. Subsidiaries; Investments. The attached "Subsidiary Schedule" correctly
sets forth the name of each Subsidiary, the jurisdiction of its incorporation
and the Persons owning the outstanding capital stock of such Subsidiary. Each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority and all material licenses, permits and authorizations necessary to
own its properties and to carry on its businesses as now being conducted and as
presently proposed to be conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify. All of the outstanding shares of capital stock of each
Subsidiary are validly issued, fully paid and nonassessable, and all such shares
are owned by the Company or another Subsidiary free and clear of any lien,
charge or encumbrance. Except as set forth on the Subsidiary Schedule, neither
the Company nor any Subsidiary owns or holds the right to acquire any shares of
stock or any other security or interest in any other Person except as provided
in the UTS Agreement.
GD. Authorization; No Breach. The execution, delivery and performance of
this Agreement, the Registration Agreement, the UTS Agreement, and all other
agreements contemplated hereby to which the Company or Network is a party, and
the filing of the Certificate of Designation have been duly authorized by the
Company and, if applicable, Network. This Agreement, the Registration Agreement,
the UTS Agreement, the Certificate of Incorporation, the Certificate of
Designation and all other agreements contemplated hereby each constitutes a
valid and binding obligation of the Company, and, if applicable, Network,
enforceable in accordance with its terms. The execution and delivery by the
Company and, if applicable, Network, of this Agreement, the Registration
Agreement, the UTS Agreement and all other agreements contemplated hereby to
which the Company and/or Network is a party, the offering, sale and issuance of
the Stock hereunder, the filing of the Certificate of Designation, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company and, if applicable, Network do not and shall not (i) conflict with
or result in a breach of the terms, conditions or provisions of, (ii) constitute
a default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Company's or any Subsidiary's capital stock or
assets pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice to
any court or administrative or governmental body pursuant to, the Certificate of
Designation or
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the charter or bylaws of the Company or any Subsidiary, or any law, statute,
rule or regulation to which the Company or any Subsidiary is subject, or any
agreement, instrument, order, judgment or decree to which the Company or any
Subsidiary is subject.
6E. Financial Statements. Attached hereto as the "Financial Statements
Schedule" is the unaudited consolidated balance sheet of Network as of March 31,
1994 (the "Latest Balance Sheet"), and statements of income and cash flows (or
the equivalent) for the period from inception through March 31, 1994. Each of
the foregoing financial statements (including in all cases the notes thereto,
if any) is accurate and complete in all material respects, is consistent with
the books and records of Network (which, in turn, are accurate and complete in
all material respects) and has been prepared in accordance with generally
accepted accounting principles, consistently applied.
6F. Absence of Undisclosed Liabilities. Except as set forth on the attached
"Liabilities Schedule," the Company and its Subsidiaries do not have any
obligation or liability (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to the Company or any Subsidiary, whether due or
to become due and regardless of when asserted), including any obligations or
liabilities to FoneNet Corporation or arising pursuant to Network's merger with
U.S. Network Corporation, an Illinois corporation, arising out of transactions
entered into at or prior to the Tranche I Closing, or any action or inaction at
or prior to the Tranche I Closing, or any state of facts existing at or prior to
the Tranche I Closing other than: (i) liabilities set forth on the Latest
Balance Sheet (including any notes thereto), (ii) liabilities and obligations
which have arisen after the date of the Latest Balance Sheet in the ordinary
course of business (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and (iii)
other liabilities and obligations expressly disclosed in the other Schedules to
this Agreement.
6G. No Material Adverse Change. Since the date of the Latest Balance Sheet,
there has been no material adverse change in the financial condition, operating
results, assets, operations, business prospects or employee relations of the
Company and its Subsidiaries taken as a whole.
6H. Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement, the UTS
Agreement or the Schwartz Agreement or as set forth on the attached
"Developments Schedule," since the date of the Latest Balance Sheet,
neither the Company nor any Subsidiary have:
(a) issued any notes, bonds or other debt securities or any
equity securities or any securities
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convertible, exchangeable or exercisable into any equity securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the
ordinary course of business;
(c) discharged or satisfied any lien or encumbrance or paid any
obligation or liability, other than current liabilities paid in the
ordinary course of business;
(d) declared or made any payment or distribution of cash or
other property to its stockholders with respect to its stock or
purchased or redeemed any shares of its stock or any warrants, options
or other rights to acquire its stock;
(e) mortgaged or pledged any of its properties or assets or
subjected them to any lien, security interest, charge or other
encumbrance, except liens for current property taxes not yet due and
payable;
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or cancelled any debts or
claims;
(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other
intangible assets, or disclosed any proprietary confidential
information to any Person;
(h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $100,000;
(j) entered into any other transaction other than in the
ordinary course of business or entered into any other material
transaction, whether or not in the ordinary course of business;
(k) made any loans or advances to, guarantees for the benefit
of, or any Investments in, any Persons in excess of $100,000 in the
aggregate;
(1) made any charitable contributions or pledges;
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(m) suffered any damage, destruction or casualty loss exceeding
in the aggregate $l00,000, whether or not covered by insurance; or
(n) made any Investment in or taken steps to incorporate any
Subsidiary.
(ii) Neither the Company nor any Subsidiary has at any time made any
payments for political contributions or made any bribes, kickback payments
or other illegal payments.
6I. Assets. Except as set forth on the attached "Assets Schedule," the
Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in, the properties and assets used by them, located on their
premises or shown on the Latest Balance Sheet or acquired thereafter, free and
clear of all liens, security interests, charges and encumbrances, except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for liens disclosed on the Latest
Balance Sheet (including any notes thereto) and liens for current property taxes
not yet due and payable. Except as described on the Assets Schedule, the
Company's and each Subsidiary's buildings, equipment and other tangible assets
are in good operating condition in all material respects and are fit for use in
the ordinary course of business. The Company and each Subsidiary own, or have a
valid leasehold interest in, all assets necessary for the conduct of their
respective businesses as presently conducted and as presently proposed to be
conducted.
6J. Tax Matters. Except as set forth in the attached "Taxes Schedule,"
the Company and each Subsidiary have filed all tax returns which they are
required to file under applicable laws and regulations; all such returns are
complete and correct in all material respects; the Company and each Subsidiary
in all material respects have paid all taxes due and owing by them and have
withheld and paid over all taxes which they are obligated to withhold from
amounts paid or owing to any employee, stockholder, creditor or other third
party; neither the Company nor any Subsidiary has waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to a tax assessment or deficiency; the accrual for current taxes on the
Latest Balance Sheet would be adequate to pay all of the Company's and its
Subsidiaries' current tax liabilities if their current tax year were treated as
ending on the date of the Latest Balance Sheet; the assessment of any additional
taxes for periods for which returns have been filed shall not exceed the
recorded liability therefor on the Latest Balance Sheet; no foreign, federal,
state or local tax audits are pending or being conducted with respect to the
Company or any Subsidiary, no information related to tax matters has been
requested by any foreign, federal, state or local taxing authority and no notice
indicating an intent to open an audit or other review has been received by the
Company or its Subsidiaries from any foreign, federal, state or local taxing
authority; and
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there are no material unresolved questions or claims concerning the Company's or
any Subsidiary's tax liability. Neither the Company nor any of its Subsidiaries
has made an election under (S)341(f) of the Internal Revenue Code of 1986, as
amended.
6K. Conduct of Business; Liabilities. Except as set forth on the attached
"Liabilities Schedule" and "Contracts Schedule," prior to the Tranche I Closing,
neither the Company nor any of its Subsidiaries has conducted any business,
incurred any expenses, obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known to the Company and
whether due or to become due) or entered into any contracts or agreements. In
addition, prior to the Tranche I Closing, neither the Company nor any of its
Subsidiaries has violated any laws or governmental rules or regulations.
6L. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set
forth on the attached "Contracts Schedule," as of the Tranche I Closing,
neither the Company nor any Subsidiary is a party to any written or oral
contract, agreement, instrument or legally binding obligation, including
any employment agreements.
(ii) All of the contracts, agreements and instruments set forth on
the Contracts Schedule are valid, binding and enforceable in accordance
with their respective terms. The Company and each Subsidiary have performed
all obligations required to be performed by them and are not in default
under or in breach of nor in receipt of any claim of default or breach
under any contract, agreement or instrument to which the Company or any
Subsidiary is subject; no event has occurred which with the passage of time
or the giving of notice or both would result in a default, breach or event
of noncompliance under any contract, agreement or instrument to which the
Company or any Subsidiary is subject; neither the Company nor any
Subsidiary has any present expectation or intention of not fully performing
all such obligations; neither the Company nor any Subsidiary has knowledge
of any breach or anticipated breach by the other parties to any contract or
commitment to which it is a party; and neither the Company nor any
Subsidiary is a party to any materially adverse contract or commitment.
(iii) The Purchasers' special counsel has been supplied with a true
and correct copy of each of the written contracts and an accurate
description of the oral contracts which are referred to on the Contracts
Schedule, together with all amendments, waivers or other changes thereto.
6M. Proprietary Rights. The attached "Proprietary Rights Schedule"
contains a complete and accurate list of (i) all
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patented and registered Proprietary Rights owned by the Company or any
Subsidiary, (ii) all pending patent applications and applications for
registrations of other Proprietary Rights filed by the Company or any
Subsidiary, (iii) all unregistered trade names and corporate names owned or used
by the Company and its Subsidiaries and (iv) all unregistered trademarks,
service marks and copyrights and computer software which are material to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole. The Proprietary Rights
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company or any Subsidiary to any third party with respect
to any Proprietary Rights and all licenses and other rights granted by any third
party to the Company or any Subsidiary with respect to any Proprietary Rights.
The Company or one of its Subsidiaries owns or has the right to use pursuant to
a valid license all Proprietary Rights necessary for the operation of the
businesses of the Company and its Subsidiaries as presently conducted and as
presently proposed to be conducted. The loss or expiration of any Proprietary
Right or related group of Proprietary Rights would not have a material adverse
effect on the conduct of the Company's and its Subsidiaries' respective
businesses, and no such loss or expiration is threatened, pending or reasonably
foreseeable. The Company and its Subsidiaries have taken all necessary and
desirable actions to maintain and protect the Proprietary Rights which they own
and use. To the best of the Company's knowledge, the owners of any Proprietary
Rights licensed to the Company or any Subsidiary have taken all necessary and
desirable actions to maintain and protect the Proprietary Rights which are
subject to such licenses. Except as indicated on the Proprietary Rights
Schedule, (i) the Company and its Subsidiaries own all right, title, and
interest in and to all of the Proprietary Rights listed on such schedule and all
other Proprietary Rights material to the operation of the businesses of the
Company and its Subsidiaries, (ii) there have been no claims made against the
Company or any Subsidiary asserting the invalidity, misuse or unenforceability
of any of such rights, and there are no grounds for the same, (iii) neither the
Company nor any Subsidiary has received a notice of conflict with the asserted
rights of others within the last five years, and (iv) the conduct of the
Company's and each Subsidiary's business, including the use of their Proprietary
Rights, has not infringed or misappropriated and does not infringe or
misappropriate any Proprietary Rights of other Persons, nor would any future
conduct as presently contemplated infringe any Proprietary Rights of other
Persons and, to the best of the Company's knowledge, the Proprietary Rights
owned by the Company or any Subsidiary have not been infringed or
misappropriated by other Persons.
6N. Litigation, etc. Except as set forth on the attached "Litigation
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or threatened against or affecting the Company or any Subsidiary
(or pending or threatened against or affecting any of the officers, directors
or
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employees of the Company and its Subsidiaries with respect to their businesses
or proposed business activities) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality
(including, without limitations, any actions, suit, proceedings or
investigations with respect to the transactions contemplated by this Agreement);
neither the Company nor any Subsidiary is subject to any arbitration proceedings
under collective bargaining agreements or otherwise or any governmental
investigations or inquiries (including inquiries as to the qualification to hold
or receive any license or permit); and there is no basis for any of the
foregoing. Neither the Company nor any Subsidiary is subject to any judgment,
order or decree of any court or other governmental agency. Except as set forth
on the attached Litigation Schedule, neither the Company nor any Subsidiary has
received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business.
6O. Brokerage. Except as described in the attached "Brokerage Schedule,"
there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold each Purchaser harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
6P. Governmental Consent, etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
6Q. Insurance. The attached "Insurance Schedule" contains a description
of each insurance policy maintained by the Company and its Subsidiaries with
respect to its properties, assets and businesses, and each such policy is in
full force and effect as of the Tranche I Closing. Neither the Company nor any
Subsidiary is in default with respect to its obligations under any insurance
policy maintained by it. The insurance coverage of the Company and its
Subsidiaries is customary for well-insured corporations of similar size engaged
in similar lines of business.
6R. Employees. The Company is not aware that any executive or key
employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary, except as contemplated by paragraph 2H. The Company and each
Subsidiary
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has complied in all material respects with all laws relating to the employment
of labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes, and the Company and its Subsidiaries have no material labor relations
problems (including any union organization activities, threatened or actual
strikes or work stoppages or material grievances). Neither the Company, its
Subsidiaries nor any of their employees is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar agreements
relating to, affecting or in conflict with the present or proposed business
activities of the Company and its Subsidiaries, except for agreements between
the Company and its present and former employees.
6S. ERISA.
(a) Multiemployer Plans. The Company does not have any obligation to
contribute to (or any other liability, including current or potential
withdrawal liability, with respect to) any "multiemployer plan" (as defined
in Section 3(37) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")).
(b) Retiree Welfare Plans. The Company does not maintain or have any
obligation to contribute to (or any other liability with respect to) any
plan or arrangement whether or not terminated, which provides medical,
health, life insurance or other welfare-type benefits for current or future
retired or terminated employees (except for limited continued medical
benefit coverage required to be provided under Section 4980B of the IRC or
as required under applicable state law).
(c) Defined Benefit Plans. The Company does not maintain, contribute
to or have any liability under (or with respect to) any employee plan which
is a tax-qualified "defined benefit plan" (as defined in Section 3(35) of
ERISA), whether or not terminated.
(d) Defined Contribution Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any employee
plan which is a tax-qualified "defined contribution plan" (as defined in
Section 3(34) of ERISA), whether or not terminated.
(e) Other Plans. The Company does not maintain, contribute to or
have any liability under (or with respect to) any plan or arrangement
providing benefits to current or former employees, including any bonus
plan, plan for deferred compensation, employee health or other welfare
benefit plan or other arrangement, whether or not terminated.
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(f) The Company. For purposes of this paragraph 6S, the term "Company"
includes all organizations under common control with the Company pursuant
to Section 414(b) or (c) of the IRC.
6T. Compliance with Laws. Except as set forth on the attached "Compliance
Schedule," neither the Company nor any Subsidiary has violated any law or any
governmental regulation or requirement which violation would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received notice of any such violation. Neither the Company nor any
Subsidiary is subject to any clean up liability, or has reason to believe it may
become subject to any clean up liability, under any federal, state or local
environmental law, rule or regulation.
6U. Small Business Matters. Network, together with its "affiliates" (as
that term is defined in Title 13, Code of Federal Regulations, (S)121.401), is a
"small business concern" within the meaning of the Small Business Investment Act
of 1958 and the regulations thereunder, including Title 13, Code of Federal
Regulations, (S)121.802. The information set forth in the Small Business
Administration Forms 480, 652 and Section A of Form 1031 regarding the Company
and Network is accurate and complete. Copies of such forms shall have been
completed by the Company and Network and delivered to each Purchaser at the
Tranche I Closing. Neither the Company nor any Subsidiary presently engages in,
and it shall not hereafter engage in, any activities, nor shall the Company or
any Subsidiary use directly or indirectly the proceeds from the sale of the
Stock hereunder for any purpose, for which a Small Business Investment Company
is prohibited from providing funds by the Small Business Investment Act of 1958
and the regulations thereunder, including Title 13, Code of Federal Regulations,
(S)107.901.
6V. Affiliated Transactions. Except as set forth on the attached
"Affiliated Transactions Schedule" and pursuant to the UTS Agreement, the
Schwartz Agreement, the Stockholders Agreement, the Subscription Agreement and
the Employment Agreements, no officer, director, shareholder or Affiliate of the
Company or any Subsidiary or any individual related by blood or marriage to any
such Person or any entity in which any such Person or individual owns any
beneficial interest, is a party to any agreement, contract, commitment or
transaction with the Company or any Subsidiary or has any material interest in
any material property used by the Company or any Subsidiary.
6W. Disclosure. Neither this Agreement nor any of the schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to any Purchaser by or on behalf of the Company and its Subsidiaries
with respect to the
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transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading; provided that with respect to the financial projections
furnished to the Purchasers by the Company and its Subsidiaries, the Company
represents only that such projections were based upon assumptions reasonably
believed by the Company and its Subsidiaries to be reasonable and fair as of the
date the projections were prepared in the context of the Company's and its
Subsidiaries' history and current and reasonably foreseeable business
conditions. There is no fact which the Company and its Subsidiaries have not
disclosed to the Purchasers in writing and of which any of their officers,
directors or executive employees is aware (other than matters of a general
economic nature) and which has had or would reasonably be anticipated to have a
material adverse effect upon the existing or expected financial condition,
operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company and its Subsidiaries taken as a whole.
6X. Knowledge. As used in this Section 6, the terms "knowledge" or "aware"
shall mean and include (i) the actual knowledge or awareness of the Company and
its Subsidiaries (which shall include the actual knowledge and awareness of the
officers, directors and key employees of the Company and its Subsidiaries,
including Thomas C. Brandenburg, Charles E. Buckman and David W. Montville), and
(ii) the knowledge or awareness which a prudent business person would have
obtained in the conduct of his business after making reasonable inquiry and
reasonable diligence with respect to the particular matter in question.
6Y. Tranche I Closing Date. The representations and warranties of the
Company contained in this Section 6 and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in any
writing delivered by, or on behalf of, the Company and its Subsidiaries to any
Purchaser shall be true and correct in all material respects (provided that any
projections shall be based on underlying assumptions which provide a reasonable
basis for such projections) on the date of the Tranche I Closing as though then
made, except as affected by the transactions expressly contemplated by this
Agreement.
Section 7. Put Arrangements.
7A. The Put. At any time after the Put Trigger Date, Purchasers holding 33%
of the Investor Common Stock shall have the right to Put any or all of the
Investor Common Stock held by such Purchasers at the Put Price by delivering the
Put Notice; provided, however, that no Purchaser shall have the right to Put an
amount of Investor Common Stock which is less than 25% of the amount of Investor
Common Stock held by such Purchaser on the date hereof after giving effect to
the Tranche I Closing or to deliver any Put Notice within six months of the
delivery of any previous Put Notice. Within five days after receipt of a Put
Notice, the
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Company shall deliver the Exercise Notice to all other Purchasers. Each
Purchaser receiving an Exercise Notice may request to participate in the Put by
delivering a Participation Notice to the Company within five days after receipt
of the Exercise Notice. The right to exercise the Put will inure to the benefit
of all transferees of the Investor Common Stock.
7B. Put Closing. Upon the delivery of the Put Notice and any Participation
Notice, the Company and the Purchasers participating in the Put shall in good
faith promptly determine the Put Price as provided hereunder, and, subject to
the provisions hereof, within ten days after the determination of the Put Price,
the Company will purchase and such Purchasers will sell the number of shares of
Investor Common Stock specified in the Put Notice and any Participation Notice
at a mutually agreeable time and place.
7C. Put Payment. At the Put Closing, the Purchasers participating in the
Put shall deliver to the Company certificates representing the Investor Common
Stock to be repurchased by the Company and the Company shall deliver to such
Purchasers the Put Price for all shares of Investor Common Stock to be
repurchased by the Company by cashier's or certified check payable to each such
Purchaser or by wire transfer of immediately available funds to an account
designated by each such Purchaser; provided that if the Company does not have
sufficient funds to pay the Put Price for any shares of Investor Common Stock to
be repurchased by the Company, then:
(i) the Company promptly will pay to the Purchasers participating in
the Put (pro rata, according to the aggregate amount of Put Price owing to
each such Purchaser) such funds as are then available or which later become
available for the payment of the Put Price, until the Put Price of all such
shares has been paid in full; and
(ii) the Board of Directors of the Company will use its best efforts
to effect a sale of the Company's assets or stock, or a merger,
consolidation, share exchange or similar transaction, or obtain debt or
equity financing, which will result in cash proceeds to the Company which
will be sufficient to pay the portion of the Put Price which is then
unpaid.
If the Company does not have sufficient funds to pay the Put Price for any
shares of Investor Common Stock to be repurchased by the Company at the Put
Closing and subsequently such funds become available, the Company shall deliver
a written notice to each of the Purchasers participating in the Put indicating
that such funds have become available. Upon receipt of such notice, each
Purchaser participating in the Put shall have the right to rescind the exercise
of the Put with respect to the shares of Investor Common Stock for which the Put
Price has not been paid by delivering written notice of such rescission to the
Company within five days
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of the receipt of the Company's notice regarding the availability of funds to
pay the Put Price. If a Purchaser has delivered a rescission notice to the
Company as set forth above, such Purchaser may deliver a subsequent Put Notice
without regard to the six month time period set forth in paragraph 7A.
7D. Put Price. The "Put Price" of the Investor Common Stock to be
repurchased shall mean the product of (A) the sum of the Market Value of the
Company and the total exercise price to be paid to the Company assuming the
exercise or conversion of all outstanding options, warrants or convertible
securities of the Company, multiplied by (B) a fraction, the numerator of which
will be the number of shares of Investor Common Stock to be repurchased and the
denominator of which will be the total number of shares of Common Stock
outstanding on a fully diluted basis. Unless otherwise agreed by the Company and
the Purchasers participating in the Put, Market Value shall be determined by an
investment banking firm reasonably acceptable to the Company and such
Purchasers, which firm shall submit to the Company and such Purchasers a written
report setting forth such determination. If the parties are unable to agree on
an investment banking firm within 15 days after delivery of a Put Notice, a firm
shall be selected by lot from the investment banking firms listed on Attachment
A hereto, after the Company and such Purchasers have each eliminated one such
firm. The expenses of such firm will be borne equally by the Company and the
Purchasers participating in the Put, and the determination of such firm will be
final and binding upon all parties, except that after the determination of
Market Value following the exercise of the Put, such Purchasers may rescind
their exercise of such Put.
7E. Put Termination. The Put rights contained in this Section 7 shall
terminate upon a Qualified Public Offering.
Section 8. Definitions. For the purposes of this Agreement, the following
terms have the meanings set forth below:
"Affiliate" of any particular person or entity means any other person or
entity controlling, controlled by or under common control with such particular
person or entity.
"CAP Agreements" means agreements to provide telephone services within and
between local access transport areas, such services to be provided primarily on
facilities owned or leased by the Company.
"Certificate of Incorporation" means the Company's Certificate of
Incorporation in the form set forth in Exhibit B hereto.
"Certificate of Designation" means the Company's Certificate of Designation
of Rights and Preference of Series A Preferred Stock establishing the terms and
the relative rights and
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preferences of the Preferred Stock in the form set forth in Exhibit A hereto.
"Change of Control" shall be deemed to have occurred at such time as any of
the following events shall occur:
(i) There shall be consummated any sale or issuance or series of sales
and/or issuance of shares of Common Stock by the Company or any holders
thereof which results in any Person or affiliated Persons (other than the
owners of Common Stock or their Affiliates as of the date of the Purchase
Agreement after giving effect to the transactions contemplated hereby,
including any Tranche II Purchases, and by the Subscription Agreement)
owning Common Stock of the Company possessing the voting power (under
ordinary circumstances) to elect a majority of the Company's board of
directors.
(ii) There shall be consummated a sale or transfer of more than 30% of
the assets of the Company and its Subsidiaries on a consolidated basis in
any transaction or series of transactions (other than sales in the ordinary
course of business).
(iii) There shall be consummated any merger or consolidation to which
the Company is a party, except for a merger in which the Company is the
surviving corporation and, after giving effect to such merger, the holders
of Common Stock immediately prior to the merger shall own Common Stock
possessing the voting power (under ordinary circumstances) to elect a
majority of the Company's board of directors.
"Chemical" means Chemical Venture Capital Associates, a California limited
partnership.
"CIBC" means CIBC Wood Gundy Ventures, Inc., a Delaware corporation.
"Closing" means the Tranche I Closing or the Tranche II Closing.
"Common Stock" means the Company's common stock, par value $.01 per share.
"Company" means United USN, Inc., a Delaware corporation.
"Decline Notice" means a written notice delivered by the Declining
Purchaser to the Company and the other Purchaser within five days of the
Declining Purchaser's receipt of the Tranche II Notice specifying the number of
shares of Stock the Declining Purchaser will purchase in the Tranche II
Purchase.
"Declined Stock" means the number of shares of Stock equal to the number of
shares of Stock the Company requested the
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Declining Purchaser to purchase in the Tranche II Purchase pursuant to the
Tranche II Notice less the number of shares of Stock purchased by the Declining
Purchaser, if any.
"Declining Purchaser" means a Purchaser not fully participating in a
Tranche II Purchase.
"Employment Agreements" means Network's employment agreements with Thomas
C. Brandenburg and Charles E. Buckman, as amended in form and substance as set
forth on Exhibit F attached hereto, and a consulting agreement with David W.
Montville.
"Event of Noncompliance" has the meaning set forth in the Certificate of
Designation.
"Exercise Notice" means a written notice of the Company indicating that the
Put has been exercised and specifying each Purchaser exercising the Put and the
number of shares to be purchased from each such Purchaser.
"FCCC" means First Continental Capital Corporation, a Texas corporation.
"Indebtedness" shall mean at a particular time, without duplication, (i)
indebtedness for borrowed money or for the deferred purchase price of property
or services in respect of which any Person is liable, contingently or otherwise,
as obligor or otherwise (other than trade payables and other current liabilities
incurred in the ordinary course of business) or any commitment by which any
Person assures a creditor against loss, including contingent reimbursement
obligations with respect to letters of credit, (ii) indebtedness guaranteed in
any manner by any Person, including guarantees in the form of an agreement to
repurchase or reimburse, (iii) obligations under capitalized leases in respect
of which obligations any Person is liable, contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of which obligations any Person
assures a creditor against loss and (iv) any unsatisfied obligation of any
Person for "withdrawal liability" to a "multiemployer plan" as such terms are
defined under ERISA.
"Investment" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Investor Common Stock" means (i) the Common Stock issued pursuant to this
Agreement and (ii) any Common Stock issued or issuable with respect to the
Common Stock referred to in clause (i) above by way of stock dividends or stock
splits or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular shares
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of Investor Common Stock, such shares shall cease to be Investor Common Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the Registration statement covering them or (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar rule then in force).
"Investor Preferred Stock" means (i) the Preferred Stock issued pursuant to
this Agreement and (ii) any Preferred Stock issued or issuable with respect to
the Preferred Stock referred to in clause (i) above by way of stock dividends or
stock splits or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. As to any particular shares of
Investor Preferred Stock, such shares shall cease to be Investor Preferred Stock
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the Registration statement covering them or (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar rule then in force).
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"Management Option Pool" means options to purchase shares of Common Stock
to be issued by the Company to senior management as incentive compensation upon
terms to be determined by the Company's board of directors.
"Market Value" means the highest price for which all of the outstanding
Common Stock of the Company could be sold in an orderly sale as between a
willing buyer and a willing seller within the 12 months prior to the date of
delivery of the Put Notice to the Company.
"Network" means U.S. Network Corporation, a Delaware corporation.
"Network Stock" means Network common stock, par value $.001 per share.
"NYNEX" means NYNEX Corp. and its Subsidiaries, including New York
Telephone Company.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him
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to verify the accuracy of the information set forth in such certificate and (ii)
to the best of such officer's knowledge, such certificate does not misstate any
material fact and does not omit to state any fact necessary to make the
certificate not misleading.
"Participating Purchaser" means a Purchaser fully participating in a
Tranche II Purchase.
"Participation Notice" means a written notice delivered to the Company by a
Purchaser specifying the number of shares to be purchased from such Purchaser
pursuant to the Put.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.
"Preferred Stock" means the Company's Series A 10% Senior Cumulative
Preferred Stock, par value $1.00 per share.
"Proprietary Rights" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other confidential information (including, without limitation, the "U.S. Network
Corporation, Competitive Access Project, Outline of Project Requirements" dated
October 1993, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier
lists and information), (vii) other intellectual property rights, and (viii)
copies and tangible embodiments thereof (in whatever form or medium).
"Purchasers" means CIBC and Chemical collectively and "Purchaser" means
CIBC or Chemical individually.
"Put" means the right of the Purchasers to require the Company to
repurchase all or any portion of the Investor Common Stock.
"Put Closing" means the closing of the Put.
"Put Notice" means a written notice delivered by the Purchasers to the
Company specifying the number of shares to be purchased from each Purchaser
pursuant to the Put.
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"Put Price" means the price for Common Stock to be paid by the Company to a
Purchaser pursuant to the Put determined in accordance with paragraph 7D.
"Put Trigger Date" means the earlier of the fifth anniversary of the
Tranche I Closing or the date upon which a Change of Control of the Company
occurs.
"Qualified Holder" means a holder of at least 15% of the outstanding
Investor Preferred Stock or a holder of at least 15% of the outstanding Investor
Common Stock.
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock which
would result in at least 20% of the shares of Common Stock outstanding after
such offering having been registered pursuant to the Securities Act, with such
shares outstanding having an aggregate value of at least $20 million.
"Registration Agreement" means the registration agreement between the
Company and the Purchasers in form and substance as set forth in Exhibit C
hereto.
"Regulatory Problem" means any set of facts or circumstances wherein it has
been asserted by any governmental regulatory agency (or the Purchaser believes
that there is a substantial risk of such assertion) that the Purchaser is not
entitled to hold, or exercise any significant right with respect to, the Stock.
"Required Approval" means the Company must have delivered a written notice
to the Purchasers stating the action proposed to be taken by the Company and
Purchasers holding at least 50% of the outstanding Investor Common Stock must
have approved such action by a written approval delivered to the Company.
"Restricted Securities" means (i) the Investor Preferred Stock and the
Investor Common Stock issued hereunder, and (ii) any securities issued with
respect to the securities referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(b) become eligible for sale pursuant to Rule 144 (or any similar provision then
in force) under the Securities Act or (c) been otherwise transferred and new
certificates for them not bearing the Securities Act legend set forth in
paragraph 9C have been delivered by the Company in accordance with paragraph
5(ii). Whenever any particular securities cease to be Restricted Securities, the
holder thereof shall be entitled to receive from the Company, without expense,
new
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securities of like tenor not bearing a Securities Act legend of the character
set forth in paragraph 9C.
"Schwartz Agreement" means an agreement between the Company, Stephen C.
Schwartz and UTS that, in the sole discretion of each of the Purchasers,
positions the Company and its Subsidiaries to pursue arrangements similar to
that entered into by UTS and NYNEX with regional Bell operating companies other
than NYNEX on terms acceptable to the Purchasers.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Stock" means the Preferred Stock and the Common Stock collectively.
"Stockholders Agreement" means the stockholders agreement between the
Company and the holders of Common Stock in form and substance as set forth in
Exhibit E attached hereto.
"Subscription Agreement" means the stock subscription agreement between the
Company, FCCC and the current holders of Network Stock in form and substance as
set forth in Exhibit D attached hereto.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity. For purposes of the provisions of this Agreement, all references to the
Company and its Subsidiaries or a Subsidiary of the Company (a) shall be deemed
to include Network and its Subsidiaries notwithstanding the fact that Network
and its Subsidiaries will
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become wholly-owned Subsidiaries of the Company concurrently with the Tranche I
Closing, and (b) shall be deemed to include UTS and its Subsidiaries for so long
as the Company controls a majority of the board of directors of UTS or UTS is
deemed a Subsidiary under clause (i) above; provided, however, all references to
the Company and its Subsidiaries shall not include UTS and its Subsidiaries for
purposes of Section 6.
"Third Party Purchaser" means a person not originally a party to this
Agreement who participates in a Tranche II Purchase.
"Third Party Purchaser Notice" means a written notice delivered by a
Participating Purchaser to the Company and the Declining Purchaser specifying
the name of a proposed Third Party Purchaser and the number of shares of Stock
to be purchased by such Third Party Purchaser.
"Tranche I Closing" means the closing of the Tranche I Purchase.
"Tranche II Closing" means a closing of a Tranche II Purchase.
"Tranche II Demand" means a written notice delivered by a Purchaser to the
Company and the other Purchaser exercising its option pursuant to subparagraph
1D(ii) and specifying the number of shares of Stock to be purchased in a Tranche
II Purchase and the time and place where such Tranche II Closing shall occur.
"Tranche II Notice" means a written notice given by the board of directors
of the Company to the Purchasers specifying the number of shares of Stock to be
purchased in a Tranche II Purchase and the time and place where such Tranche II
Closing shall occur.
"Tranche I Purchase" means the sale by the Company to each Purchaser and
the purchase from the Company by each Purchaser of the number of shares of stock
set forth opposite such Purchaser's name on the Tranche I Schedule of Purchasers
attached hereto.
"Tranche II Purchase" means the sale by the Company to each Purchaser and
the purchase from the Company by each Purchaser of up to the number of shares of
Stock set forth opposite such Purchaser's name on the Tranche II Schedule of
Purchasers attached hereto in one or more transactions, subject to the
provisions of paragraph 1D.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
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"UTS" means United Telemanagement Service, Inc., a Delaware corporation.
"UTS Agreement" means the Note and Stock Purchase Agreement dated as of
April 20, 1994 by and between the Company and UTS in form and substance as set
forth in Exhibit G attached hereto.
Section 9. Miscellaneous.
9A. Expenses. The Company agrees to pay, and hold each Purchaser harmless
against liability for the payment of, (i) the fees and expenses of their special
counsel arising in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing or, if the Closing does not
occur, payable upon demand, (ii) all out-of-pocket costs and expenses and
consultants' fees in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at Closing or, if the Closing does not occur,
payable upon demand, (iii) the fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement, the agreements contemplated hereby, the Certificate
of Incorporation or the Certificate of Designation, (iv) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any shares of Stock, (v) the fees
and expenses incurred with respect to the enforcement of the rights granted
under this Agreement, the agreements contemplated hereby, the Certificate of
Incorporation and the Certificate of Designation, (vi) the fees and expenses
incurred by each such Person in any filing with any governmental agency with
respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company or its Subsidiaries which
mentions such Person, and (vii) the reasonable fees and expenses incurred by any
such Person in connection with any transaction, claim or event which such Person
believes affects the Company or its Subsidiaries and as to which such Person
seeks advice of counsel.
9B. Remedies. Each holder of Stock shall have all rights and remedies set
forth in this Agreement, the Certificate of Incorporation and the Certificate
of Designation and all rights and remedies which such holders have been granted
at any time under any other agreement or contract and all of the rights which
such holders have under any law. Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
9C. Purchaser's Investment Representations. Each Purchaser hereby
represents that it is acquiring the Restricted
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Securities purchased hereunder or acquired pursuant hereto for its own account
with the present intention of holding such securities for purposes of
investment, and that it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein shall prevent any
Purchaser and subsequent holders of Restricted Securities from transferring such
securities in compliance with the provisions of Section 5 hereof. Each
certificate for Restricted Securities shall be imprinted with a legend in
substantially the following form:
"The securities represented by this certificate were originally issued on
April 20, 1994, and have not been registered under the Securities Act of
1933, as amended. The transfer of the securities represented by this
certificate is subject to the conditions specified in the Purchase
Agreement, dated as of April 20, 1994, between the issuer (the "Company")
and certain investors, and the Company reserves the right to refuse the
transfer of such securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions shall be furnished by
the Company to the holder hereof upon written request and without charge."
9D. Treatment of the Preferred Stock. The Company covenants and agrees
that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports. The Company acknowledges and
agrees that the increased dividend rate on the Preferred Stock provided for in
the Certificate of Designation upon the occurrence of certain Events of
Noncompliance has been negotiated by (and is intended by) the Company and the
Purchasers as a reasonable increase in yield necessitated by the increased risk
to the holders of the Preferred Stock which would arise upon any such
occurrence.
9E. Consent to Amendments. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended or waived and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if the Company has obtained the Required Approval. No
other course of dealing between the Company and the holder of any Stock or any
delay in exercising any rights hereunder or under the Certificate of
Incorporation or Certificate of Designation shall operate as a waiver of any
rights of any such holders. For purposes of this Agreement, shares of Stock
held by the Company or any Subsidiaries shall not be deemed to be outstanding.
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9F. Survival of Representations and warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
9G. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Stock are also for the benefit of, and enforceable by,
any subsequent holder of such Stock.
9H. Capital and Surplus; Special Reserves. The Company agrees that the
capital of the Company (as such term is used in Section 154 of the General
Corporation Law of the State of Delaware) in respect of the Stock issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement. The Company also agrees that it shall not create any special
reserves under Section 171 of the General Corporation Law of the State of
Delaware without the prior written consent of each of the Purchasers.
9I. Generally Accented Accounting Principles. Where any accounting
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles the Company would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall continue
to be made in accordance with the Company's previous accounting methods and
policies, unless otherwise directed by each of the Purchasers.
9J. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9K. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such
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counterparts taken together shall constitute one and the same Agreement.
9L. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a Section
of this Agreement. The use of the word "including" in this Agreement shall be by
way of example rather than by limitation.
9M. Governing Law. The corporate law of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by the internal law, and not the law of conflicts, of the State of New
York.
9N. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, dispatched by telegram or electronic facsimile transmission
(confirmed in writing by mail simultaneously dispatched), sent to the recipient
by reputable express courier service (charges prepaid) or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to each
Purchaser at the address indicated on the Tranche I Schedule of Purchasers and
to the Company at the address indicated below:
United USN, Inc.
l0 South Riverside Plaza, Suite 316
Chicago, Illinois 60606
Attention: Thomas C. Brandenburg
Telephone: (312) 906-3600
Facsimile: (312) 906-3636
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9O. Understanding Among the Purchasers. The determination of each
Purchaser to purchase the Stock pursuant to this Agreement has been made by such
Purchaser independent of any other Purchaser and independent of any statements
or opinions as to the advisability of such purchase or as to the properties,
business, prospects or condition (financial or otherwise) of the Company and its
Subsidiaries which may have been made or given by any other Purchaser or by any
agent or employee of any other Purchaser.
9P. Indemnification. The Company agrees to indemnify and hold each
Purchaser harmless against and in respect of any and all direct out-of-pocket
damages, losses, liabilities, obligations,
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costs and expenses (including reasonable attorneys' fees) which the Purchasers,
or any of them, may suffer or incur as a result of a breach of any of the
representations, warranties or agreements by the Company set forth herein
(notwithstanding any investigations or verifications made by or on behalf of the
Purchasers).
9Q. No Solicitation, Etc.
During such time as this Agreement is in effect and prior to the Tranche I
Closing, neither the Company, its Subsidiaries or any of their stockholders,
directors, officers, employees, agents or representatives (collectively, the
"Company Parties"), without the prior written approval of each of the
Purchasers, (a) will solicit, initiate, encourage or discuss any proposal or
offer from any person other than the Purchasers relating to an equity financing
of the Company or its Subsidiaries (other than as contemplated by Section 2L and
other than any communications necessary to advise investors of the Company's or
its Subsidiaries' lack of interest in such proposal), or (b) furnish any
information with respect to, or assist or participate in, or facilitate in any
other manner, any effort or attempt by any person to do or seek the foregoing.
Promptly after execution of this Agreement, all Company Parties will terminate
all discussions with any third party regarding the foregoing and will notify
each of the Purchasers immediately after any Company Party learns that any
person has made any proposal, offer, inquiry or contact with respect to the
foregoing. The Company's acknowledgement of and agreement with the terms and
conditions set forth in this Agreement will constitute a representation and
warranty that neither the Company, its Subsidiaries nor, to their knowledge, any
other Company Party, has entered into any executory agreement or accepted any
commitment with respect to the foregoing transactions.
9R. Insurance Proceeds.
The Purchasers agree that following the payment to Purchasers of any
insurance proceeds under paragraph 4N, (i) the Purchasers shall remit to the
Company an amount of such proceeds, if any, which is equal to (a) the aggregate
amount of proceeds received under paragraph 4N by the Purchasers, less (b) the
Liquidation Value of any Investor Preferred Stock then outstanding, together
with accrued and unpaid dividends, plus the purchase price of any Investor
Common Stock then outstanding; and (ii) the Purchasers agree to return to the
Company for cancellation the shares of Investor Preferred Stock for which
payment in full (including accrued and unpaid dividends) has been received from
such insurance proceeds.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-----------------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
-----------------------------------------
By:
--------------------------------------
Its:
--------------------------------------
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EXHIBIT E
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of April 20, 1994, by and among United USN, Inc.,
a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), Chemical Venture Capital Associates, a California
limited partnership ("Chemical," and collectively with CIBC, the "Investors"),
and each of the stockholders listed on the Schedule of United Stockholders
attached hereto (the "United Stockholders"). The Investors and the United
Stockholders are collectively referred to as the "Stockholders" and individually
as a "Stockholder." Capitalized terms used herein are defined in paragraph 6
hereof.
The Investors and the United Stockholders have agreed upon a plan for the
formation and capitalization of the Company. Pursuant to that plan, the
Investors will purchase shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), and Series A 10% Senior Cumulative Preferred Stock,
par value $1.00 per share (the "Preferred Stock"), pursuant to a purchase
agreement between the Investors and the Company dated as of the date hereof (the
"Purchase Agreement"). The United Stockholders will acquire shares of Common
Stock and Preferred Stock pursuant to a stock subscription agreement between the
Company and the United Stockholders dated as of the date hereof (the
"Subscription Agreement") by contributing shares of common stock of U.S. Network
Corporation (except in the case of First Continental Capital Corporation which
will acquire shares of Common Stock in partial consideration for certain fees
payable to FCCC in connection with the transactions contemplated by the Purchase
Agreement).
The Company, the Investors and the United Stockholders desire to enter into
this Agreement for the purpose, among others, of (i) establishing the
composition of the Company's Board of Directors (the "Board"), and (ii) limiting
the manner and terms by which the Stockholder Shares may be transferred. The
execution and delivery of this Agreement is a condition to the Investors'
purchase of the Common Stock and Preferred Stock pursuant to the Purchase
Agreement. This Agreement shall become effective upon the consummation of the
Tanche I Closing (as defined in the Purchase Agreement) pursuant to the Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the
<PAGE>
receipt and sufficiency of which are hereby acknowledged, the parties to this
Agreement hereby agree as follows:
1. Board of Directors.
(a) From and after the Tranche I Closing (as defined in the Purchase
Agreement) and until the provisions of this Paragraph 1 cease to be effective,
each Stockholder shall vote all of his Stockholder Shares and any other voting
securities of the Company over which such Stockholder has voting control and
shall take all other necessary or desirable actions within its control (whether
in its capacity as a stockholder or officer of the Company or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions within
its control (including, without limitation, calling special board and
stockholder meetings), so that:
(i) subject to paragraph l(g), the authorized number of directors on
the Board shall be established at five directors;
(ii) the following persons shall be elected to the Board:
(A) three representatives designated by the holders of Investor
Common Stock, determined by a vote of the holders of a majority of the
outstanding Investor Common Stock (the "Investor Directors"); and
(B) two representatives (the "Management Directors") designated
by Thomas C. Brandenburg ("Brandenburg"), provided that until the
first annual meeting of the Company's stockholders, Brandenburg and
Charles E. Buckman shall serve as the Management Directors;
(iii) the composition of the board of directors (the "Network Board")
of U.S. Network Corporation, a Delaware corporation ("Network"), shall be
the same as that of the Board;
(iv) any representatives the Company is entitled to designate to the
board of directors of any subsidiary of the Company other than Network (the
"Sub Directors") shall be designated by the holders of Investor Common
Stock, determined by a vote of the holders of a majority of the outstanding
Investor Common Stock.
(v) the removal from the Board or the Network Board with or without
cause) of any representative designated
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<PAGE>
hereunder by the holders of Investor Common Stock or by Brandenburg shall
be at the written request of holders of a majority of the Investor Common
Stock or Brandenburg, respectively, but only upon such written request and
under no other circumstances (in the case of the Investor Common Stock,
determined on the basis of a vote of the holders of a majority of the
outstanding Investor Common Stock), provided that if any director elected
pursuant to (ii)(B) above ceases to be an employee of the Company and its
subsidiaries, such director shall be removed as a director promptly after
his employment ceases;
(vi) the removal of a Sub Director shal1 be at the written request of
holders of a majority of the Investor Common Stock, but only upon such
written request and under no other circumstances, determined on the basis
of a vote of the holders of a majority of the outstanding Investor Common
Stock;
(vii) in the event that any representative designated hereunder by the
holders of Investor Common Stock or Brandenburg for any reason ceases to
serve as a member of the Board or the Network Board during such director's
term of office, the resulting vacancy on the Board or the Network Board
shall be filled by a representative designated by the holders of Investor
Common Stock or Brandenburg, respectively, as provided hereunder; and
(viii) in the event a Sub Director for any reason ceases to serve as a
member of such director's respective board of directors, the resulting
vacancy shall be filled by a representative designated by the holders of
Investor Common Stock as provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the
Board, the Network Board or the board of any other Subsidiary and any committees
thereof. So long as any Investor Director serves on the Board and for 5 years
thereafter, the Company shall maintain directors and officers indemnity
insurance coverage satisfactory to the Investors.
(c) The rights of the holders of Investor Common Stock under this
paragraph 1 shall terminate at such time as the Investors hold in the aggregate
less than 5% of the outstanding Common Stock.
(d) The rights of Brandenburg under this paragraph 1 shall terminate
at such time as (i) Brandenburg holds in the
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<PAGE>
aggregate less than 5% of the outstanding Common Stock or (ii) Brandenburg
ceases to be employed by the Company.
(e) The provisions of this paragraph l shall terminate automatically
and be of no further force and effect upon the first to occur of (i) the tenth
anniversary of the date hereof unless extended by the parties hereto in
accordance with Section 218 of the General Corporation Law of the State of
Delaware or (ii) a Qualified Public Offering.
(f) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the election of a person
to such directorship shall be accomplished in accordance with the Company's
bylaws and applicable law.
(g) Notwithstanding anything to the contrary contained in this
paragraph 1, in the event a Third Party Purchaser (as defined in the Purchase
Agreement) participates in a Tranche II Closing (as defined in the Purchase
Agreement), paragraph l(a)(i) shall provide that the authorized number of
directors on the Board shall be established at seven directors and paragraph
l(a)(ii)(A) shall provide for five representatives designated by the holders of
Investor Common Stock, determined by a vote of the holders of a majority of the
outstanding Investor Common Stock, to be elected to the Board. All other
provisions of paragraph 1 shall remain in full force and effect.
(h) If any Stockholder's right to designate representatives to the
Board pursuant to this paragraph 1 shall terminate, any director position which
is no longer subject to designation pursuant to the terms of this paragraph 1
shall be elected pursuant to the requirements of the General Corporation Law of
the State of Delaware and the bylaws of the Company.
2. Irrevocable Proxy: Conflicting Agreements.
(a) In order to secure each United Stockholder's obligation to vote
his Stockholder Shares and other voting securities of the Company in accordance
with the provisions of paragraph 1 hereof, each United Stockholder hereby
appoints Brandenburg as his true and lawful proxy and attorney-in-fact, with
full power of substitution, to vote all of his Stockholder Shares and other
voting securities of the Company for the election and/or removal of directors
and all such other matters as expressly provided for in paragraph 1. Brandenburg
may exercise the irrevocable proxy granted to him hereunder at any time any
United Stockholder fails to comply with the provisions of this Agreement. The
proxies and powers granted by each United Stockholder pursuant to this paragraph
2 are coupled with an interest and are given to secure the performance of the
United Stockholder's obligations to
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<PAGE>
the Investors under this Agreement. Such proxies and powers will be irrevocable
for the term set forth in paragraph l(e) of this Agreement and will survive the
death, incompetency and disability of such United Stockholder and the subsequent
holders of such Stockholder Shares.
(b) Each Stockholder represents that he has not granted and is not a
party to any proxy, voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement, and no holder of Stockholder
Shares shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with or conflicts with the provisions of this
Agreement, except for the Voting Trust Agreement dated April 15, 1994 by and
between David W. Montville ("Montville") and Brandenburg, as trustee (the
"Trustee"), pursuant to which Montville granted to the Trustee all rights,
including the right to vote, in connection with Montville's Stockholder Shares;
the Stock Option dated April 15, 1994 by and between Brandenburg and Elizabeth
Montville (the "Brandenburg Option"), the Stock Option dated April 15, 1994 by
and between Montville and Elizabeth Montville (the "Montville Option") and the
Stock Option dated April 15, 1994 by and between Montville and Elizabeth Howe
(the "Howe Option").
3. Transfer of Stockholder Shares.
(a) Unless otherwise approved in writing by all of the Investors,
prior to an initial public offering of the Common Stock Brandenburg shall not
sell, transfer, assign, pledge or otherwise dispose of (a "Transfer") any
Stockholder Shares held by him on the date hereof or hereafter acquired other
than pursuant to the Brandenburg Option as in effect on the date of this
Agreement.
(b) Unless otherwise approved in writing by all of the Investors, each
United Stockholder agrees not to consummate any Transfer until 30 days after the
later of the delivery to the Company and the Investors of such United
Stockholder's Offer Notice (as defined below), unless the parties to the
Transfer have been finally determined pursuant to this paragraph 3 prior to the
expiration of such 30-day period (the "Election Period") or the transfer is
pursuant to the Brandenburg Option, the Montville Option or the Howe Option as
in effect on the date of this Agreement.
(c) Subject to the provisions of subparagraph 3(a), at least 30 days
prior to making any Transfer of any Stockholder Shares, the transferring United
Stockholder (the "Transferring Stockholder") shall deliver a written notice (the
"Offer Notice") to the Company and the Investors. The Offer Notice shall
disclose in reasonable detail the proposed number of Stockholder Shares to
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<PAGE>
Transfer. First, the Company may elect to purchase all or any portion of the
Stockholder Shares specified in the Offer Notice at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Stockholders and the Investors as soon as practical but in any
event within ten days after the delivery of the Offer Notice. If the Company has
not elected to purchase all of the Stockholder Shares within such ten-day
period, each Investor may elect to purchase all (but not less than all) of his
Pro Rata Share (as defined below) of the Stockholder Shares specified in the
Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Transferring Stockholder as soon as
practical but in any event within 20 days after delivery of the Offer Notice.
Any Stockholder Shares not elected to be purchased by the end of such 20-day
period shall be reoffered for the ten-day period prior to the expiration of the
Election Period by the Transferring Stockholder on a pro rata basis to the
Investors who have elected to purchase their Pro Rata Share. If the Company or
any Investors have elected to purchase Stockholder Shares from the Transferring
Stockholder, the transfer of such shares shall be consummated as soon as
practical after the delivery of the election notices, but in any event within 15
days after the expiration of the Election Period. To the extent that the Company
and the Investors have not elected to purchase all of the Stockholder Shares
being offered, the Transferring Stockholder may, within 90 days after the
expiration of the Election Period, transfer such Stockholder Shares to one or
more third parties at a price no less than 95% of the price per share specified
in the Offer Notice. The purchase price specified in any Offer Notice shall be
payable solely in cash at the closing of the transaction or in installments over
time, and no Stockholder Shares may be pledged without the prior written consent
of the Investors which consent may be withheld in their sole discretion. Each
Stockholder's "Pro Rata Share" shall be based upon such Stockholder's
proportionate ownership of all Stockholder Shares on a fully-diluted basis.
(d) The restrictions contained in this paragraph 3 shall not apply
with respect to any Transfer of Stockholder Shares by any United Stockholder (i)
pursuant to applicable laws of descent and distribution or among such
Stockholder's Family Group or (ii) among its Affiliates; provided that the
restrictions contained in this paragraph 3 shall continue to be applicable to
the Stockholder Shares after any such Transfer and provided further that the
transferees of such Stockholder Shares shall have agreed in writing to be bound
by the provisions of this Agreement affecting the Stockholder Shares so
transferred. "Family Group" means a Stockholder's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of the
Stockholder and/or the Stockholder's spouse and/or descendants. "Affiliate" of a
Stockholder means any other person, entity or investment fund
-6-
<PAGE>
Stockholder means any other person, entity or investment fund controlling,
controlled by or under common control with an Investor and any partner of an
Investor which is a partnership.
(e) The restrictions on transfer set forth in this paragraph 3 shall
continue with respect to each Stockholder Share of the United Stockholders until
the consummation of a Qualified Public Offering.
4. Holdback Aqreement. Each United Stockholder agrees not to effect any
public sale or distribution of the Company's equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 120-day period beginning on the effective
date of any underwritten registration of the Common Stock, including an initial
public offering thereof, or any underwritten Piggyback Registration (as defined
in the Registration Agreement dated as of the date hereof between the Investors
and the Company) unless the underwriters managing the registration otherwise
agree. The restrictions on the transfer of Stockholder Shares set forth in this
paragraph 4 shall continue with respect to each Stockholder Share until the date
on which such Stockholder Share has been transferred in a Qualified Public
Offering.
5. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The securities represented by this certificate are subject to a
Stockholders Agreement dated as of April 20, 1994 by and among the
issuer of such securities (the "Company") and certain of the Company's
stockholders. A copy of such Stockholders Agreement will be furnished
without charge by the Company to the holder hereof upon written request."
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Stockholder Shares in accordance with paragraph 7
hereof.
6. Transfer. Prior to transferring any Stockholder Shares (other than in a
Qualified Public Offering) to any person or entity, including transfers pursuant
to the Brandenburg Option, the Montville Option or the Howe Option, the
transferring Stockholder shall cause the prospective transferee to execute and
deliver to
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<PAGE>
the Company and the other Stockholders a counterpart of this Agreement.
7. Definitions.
"Investor Common Stock" means (i) the Common Stock issued to the Investors
pursuant to the Purchase Agreement and (ii) any Common Stock issued or issuable
with respect to the Common Stock referred to in clause (i) above by way of stock
dividends or stock splits or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock which
would result in at least 20% of the shares of Common Stock outstanding after
such offering having been registered pursuant to the Securities Act, with such
shares outstanding having an aggregate value of at least $20 million.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Stockholder Shares" means (i) any Common Stock purchased or otherwise
acquired by any Stockholder and (ii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares constituting Stockholder Shares,
such shares will cease to be Stockholder Shares when they have been (x)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (y) sold to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act.
8. Transfers in Violation of Aqreement. Any transfer or attempted transfer
of any Stockholder Shares in violation of any provision of this Agreement shall
be void, and the Company shall not record such transfer on its books or treat
any purported transferee of such Stockholder Shares as the owner of such shares
for any purpose.
9. Sale of the Company. If the Board and the holders of a majority of the
shares of Investor Common Stock then outstanding approve a sale of all or
substantially all of the Company's assets determined on a consolidated basis or
a sale of all or substantially all of the Company's outstanding capital stock
(whether by merger, recapitalization, consolidation, reorganization, combination
or otherwise) to any other person or
-8-
<PAGE>
entity (collectively an "Approved Sale"), each Stockholder shal1 vote for,
consent to and raise no objections against such Approved Sale. If the Approved
Sale is structured as a (i) merger or consolidation, each Stockholder shall
waive any dissenters rights, appraisal rights or similar rights in connection
with such merger or consolidation or (ii) sale of stock, each Stockholder shall
agree to sell all of his shares of Common Stock and rights to acquire shares of
Common Stock on the terms and conditions approved by the Board and the holders
of a majority of the Investor Common Stock then outstanding. Each Stockholder
shall take all necessary or desirable actions in connection with the
consummation of the Approved Sale as requested by the Company.
10. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company, the holders of a
majority of the outstanding Investor Common Stock and the holders of a majority
of the Stockholder Shares which are not Investor Common Stock. The failure of
any party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
11. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Entire Agreement. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder
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<PAGE>
Shares and the respective successors and assigns of each of them, so long as
they hold Stockholder Shares.
14. Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
15. Remedies. The Company, the Investors and the United Stockholders shall
be entitled to enforce their rights under this Agreement specifically to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in their favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that the Company, any Investor and any
United Stockholder may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief (without posting a bond or other security) in order to enforce or prevent
any violation of the provisions of this Agreement.
16. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to any other recipient at the address
indicated on the schedules hereto and to any subsequent holder of Stockholder
Shares subject to this Agreement at such address as indicated by the Company's
records, or at such address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder when delivered personally,
three days after deposit in the U.S. mail and one day after deposit with a
reputable overnight courier service. The Company's address is:
United USN, Inc.
10 South Riverside Plaza, Suite 316
Chicago, Illinois 60606
Attention: Thomas C. Brandenburg
Telephone: (312) 906-3600
Facsimile: (312) 906-3636
17. Governing Law. The corporate law of the State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity and interpretation of
this Agreement shall be governed by the internal law, and not the law of
conflicts, of the State of New York.
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<PAGE>
18. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-----------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
-------------------------------------
By:----------------------------------
Its:---------------------------------
FIRST CONTINENTAL CAPITAL CORPORATION
/s/ C. Richard Ronchetti
-------------------------------------
By: C. Richard Ronchetti
----------------------------------
Its: President
/s/ Thomas C. Brandenburg
-------------------------------------
THOMAS C. BRANDENBURG
/s/ Thomas C. Brandenburg
-------------------------------------
THOMAS C. BRANDENBURG, as Trustee
for David W. Montville
/s/ Larry Gladysz
/s/ Louis Rappaport, Attorney in fact
-------------------------------------
KEVIN MADDOCK
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/s/ LARRY GLADYSZ Attorney in Fact
/s/ LOUIS RAPPAPORT Attorney in Fact
-----------------------------------------------
ROBERT NISBETT
/s/ LARRY GLADYSZ Attorney in Fact
/s/ LOUIS RAPPAPORT Attorney in Fact
-----------------------------------------------
JOSEPH MONTANILE
/s/ LARRY GLADYSZ Attorney in Fact
/s/ LOUIS RAPPAPORT Attorney in Fact
-----------------------------------------------
DAVID MCCARTHY
/s/ LARRY GLADYSZ Attorney in Fact
/s/ LOUIS RAPPAPORT Attorney in Fact
-----------------------------------------------
HOWARD GERSON
/s/ LARRY GLADYSZ Attorney in Fact
/s/ LOUIS RAPPAPORT Attorney in Fact
-----------------------------------------------
SAL FABRICANTE
/s/ LARRY GLADYSZ Attorney in Fact
/s/ LOUIS RAPPAPORT Attorney in Fact
-----------------------------------------------
AL DENTALE, JR.
/s/ LARRY GLADYSZ Attorney in Fact
/s/ LOUIS RAPPAPORT Attorney in Fact
-----------------------------------------------
DEMO CERVELLI
/s/ LARRY GLADYSZ
-----------------------------------------------
LARRY GLADYSZ
/s/ LOUIS RAPPAPORT
-----------------------------------------------
LOUIS RAPPAPORT
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<PAGE>
SCHEDULE OF INVESTORS
---------------------
CIBC Wood Gundy Ventures, Inc.
425 Lexington Avenue
New York, New York 10017-3903
Attention: Richard J. Brekka, President
Telephone: (212) 856-3736
Facsimile: (212) 697-1544
Chemical Venture Capital Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
Attention: Donald J. Hofmann, Jr.
Telephone: (212) 270-1366
Facsimile: (212) 270-2379
<PAGE>
SCHEDULE OF UNITED STOCKHOLDERS
-------------------------------
First Continental Capital Corporation
2311 Cedar Springs Road, Suite 400
Dallas, Texas 75201
Attention: C. Richard Ronchetti
Telephone: (214) 871-7000
Facsimile: (214) 871-0540
Thomas C. Brandenburg
10 S. Riverside Plaza, Suite 316
Chicago, IL 60606
Thomas C. Brandenburg, as Trustee for
David W. Montville
10 S. Riverside Plaza, Suite 316
Chicago, IL 60606
Kevin Maddock
22611 Puntallana
Mission Viejo, CA 92692
Robert Nisbett
9 Tamalpais Road
Berkeley, CA 94708
Josepn Montanile
1097 Korfitsen Road
New Milford, NJ 07646
David McCarthy
1706 72nd Ave. North
Brooklyn Center, MN 55430
Howard Gerson
47-42 188th Street
Flushing, NJ 11358
Sal Fabricante
9 Candlewood Path N.
Dix Hills, NY 11746
Al Dentale, Jr.
30 Vone's Lane
Raritan, NJ 08869
Demo Cervelli
15 Bell Avenue
Fords, NJ 08863
<PAGE>
Larry Gladysz
1 Talburn Lane
Dix Hills, NY 11746
Louis Rappaport
184 White Oak Ridge Road
Short Hills, NJ 07078
<PAGE>
EXHIBIT C
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of April 20, 1994, by and among United USN,
Inc., a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), and Chemical Venture Capital Associates, a
California limited partnership ("Chemical").
The parties to this Agreement are parties to a Purchase Agreement of
even date herewith (the "Purchase Agreement"). In order to induce CIBC and
Chemical (the "Investors") to enter into the Purchase Agreement, the Company has
agreed to provide the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the Tranche I Closing
under the Purchase Agreement. This Agreement shall become effective upon the
consummation of the Tranche I Closing (as defined in the Purchase Agreement)
pursuant to the Purchase Agreement. Unless otherwise provided in this Agreement,
capitalized terms used herein shall have the meanings set forth in paragraph 8
hereof.
The parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Subject to subparagraphs 1(b), (c) and
(e), the holders of at least 30% of the Registrable Securities outstanding may
at any time request registration under the Securities Act of all or part of
their Registrable Securities on Form S-1 or any similar long-form registration
("Long-Form Registrations") and the holders of at least 30% of the Registrable
Securities outstanding may at any time request registration under the Securities
Act of all or part of their Registrable Securities on Form S-2 or S-3 or any
similar short-form registration ("Short-Form Registrations") if available. Each
request for a Demand Registration shall be in writing and shall specify the
approximate number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company will give written notice of such
requested registration to all other holders of Registrable Securities and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice. All registrations requested pursuant
to this paragraph l(a) are referred to herein as "Demand Registrations".
<PAGE>
(b) Long-Form Registrations. The holders of Registrable Securities
will be entitled to request two Long-Form Registrations in which the Company
will pay all Registration Expenses of the Company and the holders of Registrable
Securities; provided that the aggregate offering value of Registrable Securities
requested to be registered in any Long-Form Registration must equal at least
$20,000,000. A registration will not count as one of the permitted Long-Form
Registrations until it has become effective, and no Long-Form Registration will
count as one of the permitted Long-Form Registrations unless the holders of
Registrable Securities are able to register and sell at least 90% of the
Registrable Securities requested to be included in such registration; provided
that in any event the Company will pay all Registration Expenses of the Company
and the holders of Registrable Securities in connection with any registration
initiated as a Long-Form Registration whether or not it has become effective.
(c) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to paragraph l(b), the holders of Registrable
Securities will be entitled to request an unlimited number of Short-Form
Registrations, if available, in which the Company will pay all Registration
Expenses of the Company and the holders of Registrable Securities; provided that
the aggregate offering value of Registrable Securities requested to be
registered in any Short-Form Registration must equal at least $5,000,000. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. After the Company has become subject to the
reporting requirements of the Securities Exchange Act, the Company will use its
best efforts to make Short-Form Registrations available for the sale of
Registrable Securities.
(d) Priority on Demand Registrations. The Company will not include in
any Demand Registration any securities which are not Registrable Securities
without the prior written consent of the holders of the Registrable Securities
initially requesting such registration. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of the Registrable Securities initially requesting
registration, the Company will include in such registration prior to the
inclusion of any securities which are not Registrable Securities the number of
Registrable Securities requested to be included which in the opinion of such
underwriters can be sold in an orderly manner within the price range of such
offering, pro rata among the respective holders thereof on the basis of the
amount of
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<PAGE>
Registrable Securities requested to be included by each such holder.
(e) Restrictions on Long-Form Registrations. The Company will not be
obligated to effect any Long-Form Registration within six months after the
effective date of a previous Long-Form Registration. The Company may postpone
for up to six months the filing or the effectiveness of a registration statement
for a Demand Registration if the Company and the holders of the Registrable
Securities initially requesting such registration agree that such Demand
Registration would reasonably be expected to have an adverse effect on any
proposal or plan by the Company or any of its Subsidiaries to engage in any
acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction; provided that in
such event, the holders of Registrable Securities initially requesting a Long-
Form Registration will be entitled to withdraw such request and, if such request
is withdrawn, such Long-Form Registration will not count as one of the permitted
Long-Form Registrations hereunder and the Company will pay all Registration
Expenses of the Company and the holders of Registrable Securities in connection
with such registration.
(f) Selection of Underwriters. The holders of the Registrable
Securities initially requesting Demand Registration will have the right to
select the investment banker(s) and manager(s) to administer the offering,
subject to the Company's approval which will not be unreasonably withheld.
(g) Other Registration Rights. Except as provided in this Agreement,
the Company will not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of the Registrable Securities; provided that the Company
may grant rights to employees of the Company and its Subsidiaries to participate
in Piggyback Registrations (as hereinafter defined) so long as such rights are
subordinate to the rights of the holders of Registrable Securities with respect
to such Piggyback Registrations.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
will give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in
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<PAGE>
such registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 15 days after the
receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company will include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Registrable Securities on the basis of the number of shares
requested to be included by each such holder, and (iii) third, other securities
requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata among the holders of such securities on the basis of the
number of securities requested to be included by each such holder, and (ii)
second, other securities requested to be included in such registration.
(e) Selection of Underwriters. It any Piggyback Registration is an
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by a majority of the holders of the Registrable
Securities included in such Piggyback Registration. Such approval will not be
unreasonably withheld.
(f) Other Registrations. If the Company has previously Filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
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<PAGE>
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least six months has elapsed from the effective date of such
previous registration.
3. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 120-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration in which Registrable Securities are
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 120-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause each holder of its
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
reasonable best efforts to cause
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<PAGE>
such registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the holders of the
Registrable Securities covered by such registration statement copies of all such
documents proposed to be filed, which documents will be subject to the review of
such counsel);
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than six months and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under state securities or blue sky laws of such jurisdictions within
the United States as any seller reasonably requests and do any and all other
acts and things which nay be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact
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<PAGE>
or omit to state any fact necessary to make the statements therein not
misleading;
(f) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed and, if not so listed, to be listed on the
NASD automated quotation system and, if listed on the NASD automated quotation
system, use its reasonable best efforts to secure designation of all such
Registrable Securities covered by such registration statement as a NASDAQ
"national market system security" within the meaning of Rule llAa2-1 of the
Securities and Exchange Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to use its reasonable best efforts to arrange for
at least two market makers to register as such with respect to such Registrable
Securities with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in form reasonably satisfactory to the Company) and take all such
other actions as the holders of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisione of Section 11(a) of the Securities Act and Rule 158 thereunder;
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<PAGE>
(k) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included; provided, however, that this
provision shall not require the Company to disclose any information which it
reasonably believes to be confidential or proprietary and not otherwise required
to be disclosed under the Securities Act;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Registrable Securities included in such registration statement for sale in
any jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(m) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the sellers thereof to consummate the disposition of such Registrable
Securities; and
(n) use its reasonable best efforts to obtain a cold comfort letter
from the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by cold comfort letters as the
holders of a majority of the Registrable Securities being sold reasonably
request (provided that such Registrable Securities constitute at least 10% of
the securities covered by such registration statement).
If any such registration or comparable statement refers to any holder
by name or otherwise as the holder of any securities of the Company and if in
its sole and exclusive judgment, such holder is or might be deemed to be a
controlling person of the Company, such holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such holder and presented to the Company in writing, to the effect that the
holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force, the
deletion of the reference to such holder; provided that with respect to this
clause (ii) such holder shall furnish to
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<PAGE>
the Company an opinion of counsel to such effect, which opinion and counsel
shall be reasonably satisfactory to the Company.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions which, with
respect to Registrable Securities, shall be payable by the holder of such
Registrable Securities) and other Persons retained by the Company (all such
expenses being herein called "Registration Expenses"), will be borne as provided
in this Agreement, except that the Company will, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of the Registrable Securities initially requesting
such registration.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with
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<PAGE>
an underwritten offering, the Company will indemnify such underwriters, their
officers and directors and each Person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel of its
choice reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
will not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any
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<PAGE>
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
8. Definitions.
"Registrable Securities" means (i) any Investor Common Stock issued
pursuant to the Purchase Agreement, (ii) any Investor Common Stock issued or
issuable with respect to the securities referred to in clause (i) by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, and (iii) any
other shares of Common Stock held by Persons holding securities described in
clauses (i) or (ii) above. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been
distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public through a broker, dealer or market maker in
compliance with Rule 144 under the Securities Act (or any similar rule then in
force). For purposes of this Agreement, a Person will be deemed to be a holder
of Registrable Securities whenever such Person has the right to acquire directly
or indirectly such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
Unless otherwise stated, other capitalized terms contained herein have
the meanings set forth in the Purchase Agreement.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the
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<PAGE>
ability of the holders of Registrable Securities to include such Registrable
Securities in a registration undertaken pursuant to this Agreement or which
would adversely affect the marketability of such Registrable Securities in any
such registration (including, without limitation, effecting a stock split or a
combination of shares).
(c) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the holders of the Registrable Securities.
(e) Successors and Assigns. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of purchasers
or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(f) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and the
same Agreement.
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<PAGE>
(h) Descriptive Headings. The descriptive headings or this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(i) Governing Law. The corporate law of the State of Delaware will govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto will be governed by the
internal law, and not the law of conflicts, of the State of New York.
(j) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications will be sent to each Investor at the address indicated on the
Tranche I Schedule of Purchasers to the Purchase Agreement and to the Company at
the address indicated below:
United USN, Inc.
10 South Riverside Plaza, Suite 316
Chicago, Illinois 60606
Attention: Thomas C. Brandenburg
Telephone: (312) 906-3600
Facsimile: (312) 906-3636
or to such other address or to the attention or such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------------
By: Thomas C. Brandenburg
Its: President
CIBC WOOD GUNDY VENTURES, INC
/s/ Richard J. Brekka
-----------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
-----------------------------------
By:
-------------------------------
Its:
-------------------------------
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<PAGE>
FIRST AMENDMENT TO
PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (the "Amendment") is made
as of June 10, 1994, by and among United USN, Inc., a Delaware corporation (the
"Company"), CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC"),
Chemical Venture Capital Associates, a California limited partnership
("Chemical"), and Hancock Venture Partners IV - Direct Fund L.P., a Delaware
limited partnership ("Hancock" and, collectively with CIBC and Chemical, the
"Purchasers"), and amends that certain Purchase Agreement dated as of April 20,
1994 by and among the Company, CIBC and Chemical (the "Purchase Agreement").
WHEREAS, Hancock desires to purchase shares of Common Stock, par value
$.01 per share (the "Common Stock"), of the Company and Series A 10% Senior
Cumulative Preferred Stock, par value $1.00 per share (the "Preferred Stock"),
of the Company; and
WHEREAS, the Company and the Purchasers desire to enter into this
Amendment to make Hancock a party to the Purchase Agreement and to amend the
Purchase Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Hancock hereby agrees that by its execution of this Amendment it
shall become a party to and be bound by the terms and provisions of the Purchase
Agreement, as amended hereby.
2. At the closing of the transactions contemplated by this Amendment
(the "Closing"), the Company shall sell to Hancock and, subject to the terms and
conditions set forth herein, Hancock shall purchase from the Company the number
of shares of Preferred Stock set forth opposite Hancock's name on the Tranche I
Schedule of Purchasers attached hereto at a price of $1,000 per share and the
number of shares of Common Stock set forth opposite Hancock's name on the
Tranche I Schedule of Purchasers attached hereto at a price of $1.077 per share.
3. The Closing shall take place at the offices of the Company, 10
South Riverside Plaza, Suite 316, Chicago, Illinois 60606 at such date and time
as may be mutually agreeable to the Company and the Purchasers, or at such other
place as may be mutually agreeable to the Company and the Purchasers. At the
Closing, the Company shall deliver to Hancock stock certificates evidencing the
Preferred Stock and the Common Stock to be purchased by Hancock, registered in
Hancock's or its nominee's name, upon payment of the purchase price thereof by a
cashier's or certified check, or by wire transfer of immediately available funds
to the
<PAGE>
Company's account at Madison Bank & Trust, in the amount set forth opposite
Hancock's name on the Tranche I Schedule of Purchasers.
4. The obligation of Hancock to purchase and pay for the Preferred
Stock and the Common Stock at the Closing is subject to the Company's tendering
to Hancock duly executed certificates for the Preferred Stock and Common Stock
to be purchased by Hancock hereunder at the Closing.
5. The obligation of the Company to issue the Preferred Stock and the
Common Stock to be purchased by Hancock hereunder at the Closing is subject to
Hancock's tendering to the Company, by cashier's check or certified check, or by
wire transfer of immediately available funds to the Company's account at Madison
Bank & Trust of the purchase price thereof in the aggregate amount of
$2,500,000.
6. The Company shall authorize the issuance and sale to Hancock of an
aggregate of 4,950 shares of Preferred Stock and 44,949 shares of Common Stock.
7. The Company, CIBC and Chemical hereby agree that Hancock, by its
execution of this Amendment pursuant to which it has become a party to the
Purchase Agreement, shall be entitled to rely on the representations and
warranties contained in the Purchase Agreement and shall be afforded all rights
and benefits as a Purchaser under the Purchase Agreement as if Hancock
originally had been a party to the Purchase Agreement on the date of execution.
8. The Company hereby represents and warrants to Hancock that there
has been no material adverse change in the financial condition, operating
results, assets, operations, business prospects or employee relations of the
Company since the date of the Purchase Agreement.
9. Hancock hereby represents that it is acquiring the shares of Common
Stock and Preferred Stock purchased hereunder or acquired pursuant hereto for
its own account with the present intention of holding such securities for
purposes of investment, and that it has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein shall
prevent Hancock from transferring such securities in compliance with the
provisions of Section 5 of the Purchase Agreement. Each certificate for such
shares shall be imprinted with a legend in substantially the following form:
"The securities represented by this certificate were originally issued on
June 10, 1994, and have not been
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<PAGE>
registered under the Securities Act of 1933, as amended. The transfer of
the securities represented by this certificate is subject to the conditions
specified in the Purchase Agreement, dated as of April 20, 1994, as
amended, between the issuer (the "Company") and certain investors, and the
Company reserves the right to refuse the transfer of such securities until
such conditions have been fulfilled with respect to such transfer. A copy
of such conditions shall be furnished by the Company to the holder hereof
upon written request and without charge."
10. The Company hereby agrees that Hancock may rely on the Officer's
Certificate and Secretary's Certificate delivered by the Company at the closing
of the transactions contemplated by the Purchase Agreement on April 20, 1994.
11. CIBC and Chemical hereby waive any and all rights they may have
pursuant to Section 4J of the Purchase Agreement to purchase the Preferred Stock
and the Common Stock being sold to Hancock pursuant to the terms and provisions
of this Amendment.
12. Section 1D of the Purchase Agreement is amended and restated as
follows:
1D. Tranche II Participation.
(i) The board of directors of the Company shall issue a Tranche II
Notice indicating the number of shares of Stock, up to the number of shares
of Stock set forth opposite each Purchaser's name on the Tranche II
Schedule of Purchasers less the number of shares of such Stock which
previously have been purchased by the Purchasers or a Third Party Purchaser
in any Tranche II Closing, which the Company desires to sell to each
Purchaser in a Tranche II Purchase. If a Purchaser determines not to fully
participate in a Tranche II Purchase, such Declining Purchaser shall
deliver a Decline Notice to the Company and the other Purchasers within
five days after receipt of the Tranche II Notice. Upon receipt of a Decline
Notice, a Participating Purchaser, at its option, may within seven days
elect to purchase any or a11 of its Pro Rata Share of the Declined Stock.
To the extent the Participating Purchasers have determined not to purchase
all of their Pro Rata Share of the Declined Stock, the Declined Stock shall
be reoffered to a Participating Purchaser purchasing all of its Pro Rata
Share of the Declined Stock and such Participating Purchaser, at its
option, may within seven days elect to purchase any or all of the remaining
Declined Stock. If the Participating Purchasers determine not to purchase
all of the Declined Stock, the Participating Purchasers may invite
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<PAGE>
a Third Party Purchaser to purchase any remaining shares of Declined Stock.
If a Third Party Purchaser determines to purchase any portion of the
Declined Stock, the Participating Purchasers shall deliver a Third Party
Purchaser Notice to the Company and the Declining Purchasers. Upon receipt
of a Third Party Purchaser Notice, the Declining Purchasers shall have the
right to purchase all of their Pro Rata Share of the Stock to be purchased
by the Third Party Purchaser as set forth in the Third Party Purchaser
Notice. In order to exercise their purchase rights hereunder, the Declining
Purchasers must within five days after receipt of the Third Party Purchaser
Notice deliver a written notice to the Company and the Participating
Purchasers describing their election hereunder.
(ii) The Company shall give each Purchaser written notice of a Change
of Control at least 30 days prior to the consummation of a Change of
Control. At any time within five days after the receipt by a Purchaser of
the written notice of a Change of Control or at any time within 30 days
after the fifth anniversary of the date of this Agreement, each of the
Purchasers shall have the option in a Tranche II Purchase to purchase from
the Company up to the number of shares of Stock set forth opposite each
Purchaser's name on the Tranche II Schedule of Purchasers less the number
of shares of such Stock which previously have been purchased by the
Purchasers or a Third Party Purchaser in any Tranche II Closing. A
Purchaser may exercise its purchase rights hereunder by delivering a
Tranche II Demand. If a Purchaser does not fully exercise its option
pursuant to this subparagraph lD(ii) or fails to deliver a Tranche II
Demand within the applicable option period specified above, a Participating
Purchaser may purchase any or all of its Pro Rata Share of the remaining
shares of Stock set forth on the Tranche II Schedule of Purchasers by
delivering an additional Tranche II Demand within five days after the
expiration of the applicable option period. To the extent the Participating
Purchasers have determined not to purchase all of their Pro Rata Share of
the remaining shares of Stock set forth on the Tranche II Schedule of
Purchasers, a Participating Purchaser purchasing all of its Pro Rata Share
of such remaining Stock may purchase any or all of the remaining shares of
Stock set forth on the Tranche II Schedule of Purchasers by delivering an
additional Tranche II Demand within ten days after the expiration of the
applicable option period.
13. Section 4A(iii) of the Purchase Agreement is amended and restated
as follows:
(iii) within 90 days after the end of each fiscal year, statements of
income and cash flows of each of the
-4-
<PAGE>
Company, Network and UTS and consolidating and consolidated statements of
income and cash flows of the Company and its Subsidiaries for such fiscal
year, and balance sheets of each of the Company, Network and UTS and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, setting forth in each case
comparisons to the annual budget and to the preceding fiscal year, all
prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by (a) with respect to the
consolidated portions of such statements, an opinion containing no
exceptions or qualifications (except for qualifications regarding specified
contingent liabilities) of an independent accounting firm of recognized
national standing acceptable to the holders of 66 2/3% of the Investor
Preferred Stock and the holders of 66 2/3% of the Investor Common Stock,
(b) a certificate from such accounting firm, addressed to the Company's
board of directors, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was an Event of
Noncompliance in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any of
the terms, covenants, provisions or conditions of any other material
agreement to which the Company or any Subsidiary is a party or, if such
accountants have reason to believe any Event of Noncompliance or other
default by the Company or any Subsidiary exists, a certificate specifying
the nature and period of existence thereof, and (c) a copy of such firm's
annual management letter to the board of directors;
14. Section 4D(xix) of the Purchase Agreement is amended and restated
as follows:
(xix) increase the authorized size of its board of directors above 11
members or decrease the authorized size of its board of directors below 5
members;
15. Section 6E of the Purchase Agreement is amended and restated as
follows:
6E. Financial Statements. Attached hereto as the "Financial
Statements Schedule" is the unaudited consolidated balance sheet of Network
as of April 15, 1994 (the "Latest Balance Sheet"), and statements of income
and cash flows (or the equivalent) for the period from inception through
April 15, 1994. Each of the foregoing financial statements (including in
all cases the notes thereto, if any) is accurate and complete in all
material respects, is consistent with the books and records of Network
(which, in turn, are accurate and complete in all material respects) and
has been prepared in
-5-
<PAGE>
accordance with generally accepted accounting principles, consistently
applied.
16. Section 7A of the Purchase Agreement is amended and restated as
follows:
7A. The Put. At any time after the Put Trigger Date, Purchasers
holding 30% of the Investor Common Stock shall have the right to Put any or
all of the Investor Common Stock held by such Purchasers at the Put Price
by delivering the Put Notice; provided, however, that no Purchaser shall
have the right to Put an amount of Investor Common Stock which is less than
25% of the amount of Investor Common Stock held by such Purchaser on the
date hereof after giving effect to the Tranche I Closing or to deliver any
Put Notice within six months of the delivery of any previous Put Notice.
Within five days after receipt of a Put Notice, the Company shall deliver
the Exercise Notice to all other Purchasers. Each Purchaser receiving an
Exercise Notice may request to participate in the Put by delivering a
Participation Notice to the Company within five days after receipt of the
Exercise Notice. The right to exercise the Put will inure to the benefit of
all transferees of the Investor Common Stock.
16. The following definitions set forth in Section 8 of the Purchase
Agreement are amended and restated as follows:
"Decline Notice" means a written notice delivered by the
Declining Purchaser to the Company and the other Purchasers within five
days of the Declining Purchaser's receipt of the Tranche II Notice
specifying the number of shares of Stock the Declining Purchaser will
purchase in the Tranche II Purchase.
"Purchasers" means CIBC, Chemical and Hancock collectively and
"Purchaser" means CIBC, Chemical or Hancock individually.
"Required Approval" means the Company must have delivered a
written notice to the Purchasers stating the action proposed to be taken by
the Company and Purchasers holding at least 66 2/3% of the outstanding
Investor Common Stock must have approved such action by a written approval
delivered to the Company.
"Third Party Purchaser Notice" means a written notice delivered
by a Participating Purchaser to the Company and the Declining Purchasers
specifying the name of a proposed Third Party Purchaser and the number of
shares of Stock to be purchased by such Third Party Purchaser.
-6-
<PAGE>
"Tranche II Demand" means a written notice delivered by a
Purchaser to the Company and the other Purchasers exercising its option
pursuant to subparagraph lD(ii) and specifying the number of shares of
Stock to be purchased in a Tranche II Purchase and the time and place where
such Tranche II Closing shall occur.
17. The following definitions are added to Section 8 of the Purchase
Agreement:
"Hancock" means Hancock Venture Partners IV - Direct Fund L.P., a
Delaware limited partnership.
"Pro Rata Share" means each Purchaser's pro rata share based upon
such Purchaser's proportionate ownership of all Investor Common Stock on a
fully diluted basis, excluding for purposes of Section 1D the shares of
Investor Common Stock held by a Declining Purchaser.
* * * * *
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
----------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
----------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
----------------------------------
By:_______________________________
Its:______________________________
HANCOCK VENTURE PARTNERS IV - DIRECT
FUND L.P.
By: BACK BAY PARTNERS XII L.P.
By: HANCOCK VENTURE PARTNERS, INC.
/s/ William A. Johnston
----------------------------------
By:_______________________________
Its:______________________________
-8-
<PAGE>
<TABLE>
<CAPTION>
TRANCHE I SCHEDULE OF PURCHASERS
--------------------------------
Total Total
No. of Purchase No. of Purchase
Shares Price Shares Price
of for of for
Names and Preferred Preferred Common Common
Addresses Stock Stock Stock Stock
--------- --------- ---------- ------ -------
<S> <C> <C> <C> <C>
Chemical Venture Capital 2,475 $2,475,000 25,000 $25,000
Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
CIBC Wood Gundy Ventures, Inc. 2,475 $2,475,000 25,000 $25,000
425 Lexington Avenue
New York, New York 10017-3903
Hancock Venture Partners IV - 2,475 $2,475,000 23,210 $25,000
Direct Fund L.P.
One Financial Center, 44th Floor
Boston, Massachusetts 02111
--------- ---------- ------ -------
TOTAL 7,425 $7,425,000 73,210 $75,000
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
TRANCHE II SCHEDULE OF PURCHASERS
---------------------------------
Total Total
No. of Purchase No. of Purchase
Shares Price Shares Price
of for of for
Names and Preferred Preferred Common Common
Addresses Stock Stock Stock Stock
--------- --------- ---------- ------ -------
<S> <C> <C> <C> <C>
Chemical Venture Capital 2,475 $2,475,000 23,210 $25,000
Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
CIBC Wood Gundy Ventures, Inc. 2,475 $2,475,000 23,210 $25,000
425 Lexington Avenue
New York, New York 10017-3903
Hancock Venture Partners IV - 2,475 $2,475,000 21,739 $25,000
Direct Fund L.P.
One Financial Center, 44th Floor
Boston, Massachusetts 02111
--------- ---------- ------ -------
TOTAL 7,425 $7,425,000 68,159 $75,000
</TABLE>
-10-
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Purchaser Number of Shares
of Common Stock
<S> <C>
Chemical Venture Capital Associates 20,784
CIBC Wood Gundy Ventures, Inc. 20,784
BT Capital Partners, Inc. 31,177
Hancock Venture Partners IV - Direct Fund, L.P. 20,784
Northwood Ventures 4,739
Northwood Capital Partners LLC 1,496
Enterprises and Transcommunications, L.P. 10,393
-------
TOTAL 110,157
</TABLE>
<PAGE>
FIRST AMENDMENT TO
STOCKHOLDERS AGREEMENT
THIS FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT (the "Amendment") is made as
of June 10, 1994, by and among United USN, Inc., a Delaware corporation (the
"Company"), CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC"),
Chemical Venture Capital Associates, a California limited partnership
("Chemical"), Hancock Venture Partners IV - Direct Fund L.P., a Delaware limited
partnership ("Hancock" and, collectively with CIBC and Chemical, the
"Investors"), and the United Stockholders (as defined in that certain
Stockholders Agreement dated as of April 20, 1994 (the "Stockholders Agreement")
by and among the Company, CIBC, Chemical and the United Stockholders), and
amends the Stockholders Agreement.
Hancock will purchase shares of the Company's Common Stock, par value $.01
per share, and Series A 10% Senior Cumulative Preferred Stock, par value $1.00
per share, pursuant to a First Amendment to Purchase Agreement between the
Investors and the Company dated as of the date hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Amendment hereby agree as follows:
1. Hancock hereby agrees that by its execution of this Amendment it shall
become a party to and be bound by the terms and provisions of the Stockholders
Agreement, as amended hereby, and the term "Investors" as used in the
Stockholders Agreement, as amended hereby, shall be deemed to include Hancock.
2. Paragraph l(a)(ii)(A) of the Stockholders Agreement is amended and
restated as follows:
(A) three representatives designated by the holders of Investor Common
Stock, determined by a vote of the holders of 66 2/3% of the outstanding
Investor Common Stock (the "Investor Directors"); and
3. Paragraph l(a)(iv) of the Stockholders Agreement is amended and
restated as follows:
(iv) any representatives the Company is entitled to designate to the
board of directors of any subsidiary of the Company other than Network (the
"Sub Directors") shall be designated by the holders of Investor Common
Stock, determined by a vote of the holders of 66 2/3% of the outstanding
Investor Common Stock.
<PAGE>
4. Paragraph l(a)(v) of the Stockholders Agreement is amended and restated
as follows:
(v) the removal from the Board or the Network Board (with or without
cause) of any representative designated hereunder by the holders of
Investor Common Stock or by Brandenburg shall be at the written request of
holders of 66 2/3% of the Investor Common Stock or Brandenburg,
respectively, but only upon such written request and under no other
circumstances (in the case of the Investor Common Stock, determined on the
basis of a vote of the holders of 66 2/3% of the outstanding Investor
Common Stock), provided that if any director elected pursuant to (ii)(B)
above ceases to be an employee of the Company and its subsidiaries, such
director shall be removed as a director promptly after his employment
ceases;
5. Paragraph l(a)(vi) of the Stockholders Agreement is amended and
restated as follows:
(vi) the removal of a Sub Director shall be at the written request of
holders of 66 2/3% of the Investor Common Stock, but only upon such written
request and under no other circumstances, determined on the basis of a vote
of the holders of 66 2/3% of the outstanding Investor Common Stock;
6. Paragraph l(a)(vii) of the Stockholders Agreement is amended and
restated as follows:
(vii) in the event that any representative designated hereunder by the
holders of Investor Common Stock or Brandenburg for any reason ceases to
serve as a member of the Board or the Network Board during such director's
term of office, the resulting vacancy on the Board or the Network Board
shall be filled by a representative designated by the holders of 66 2/3% of
the outstanding Investor Common Stock or Brandenburg, respectively, as
provided hereunder;
7. Paragraph l(a)(viii) of the Stockholders Agreement is amended and
restated as follows:
(viii) in the event a Sub Director for any reason ceases to serve as a
member of such director's respective board of directors, the resulting
vacancy shall be filled by a representative designated by the holders of
66 2/3% of the outstanding Investor Common Stock as provided hereunder; and
8. Paragraph l(g) of the Stockholders Agreement is amended and restated as
follows:
-2-
<PAGE>
(g) Notwithstanding anything to the contrary contained in this
paragraph 1, in the event a Third Party Purchaser (as defined in the
Purchase Agreement) participates in a Tranche II Closing (as defined in the
Purchase Agreement), paragraph l(a)(i) shall provide that the authorized
number of directors on the Board shall be established at seven directors
and paragraph l(a)(ii)(A) shall provide for five representatives designated
by the holders of Investor Common Stock, determined by a vote of the
holders of 66 2/3% of the outstanding Investor Common Stock, to be elected
to the Board. All other provisions of paragraph 1 shall remain in full
force and effect.
9. The following Paragraph l(i) is added to the Stockholders Agreement:
(i) Notwithstanding the provisions in this paragraph 1, if the
authorized number of directors on the Board is increased, the persons
filling such Board positions shall be designated by the holders of Investor
Common Stock, determined by a vote of the holders of 66 2/3% of the
outstanding Investor Common Stock.
10. Paragraph 9 of the Stockholders Agreement is amended and restated as
follows:
9. Sale of the Company. If the Board and the holders of 66 2/3% of
the shares of Investor Common Stock then outstanding approve a sale of all
or substantially all of the Company's assets determined on a consolidated
basis or a sale of all or substantially all of the Company's outstanding
capital stock (whether by merger, recapitalization, consolidation,
reorganization, combination or otherwise) to any other person or entity
(collectively an "Approved Sale"), each Stockholder shall vote for, consent
to and raise no objections against such Approved Sale. If the Approved Sale
is structured as a (i) merger or consolidation, each Stockholder shall
waive any dissenters rights, appraisal rights or similar rights in
connection with such merger or consolidation or (ii) sale of stock, each
Stockholder shall agree to sell all of his shares of Common Stock and
rights to acquire shares of Common Stock on the terms and conditions
approved by the Board and the holders of 66 2/3% of the Investor Common
Stock then outstanding. Each Stockholder shall take all necessary or
desirable actions in connection with the consummation of the Approved Sale
as requested by the Company.
11. Paragraph 10 of the Stockholders Agreement is amended and restated as
follows:
-3-
<PAGE>
10. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall
be effective against the Company or the Stockholders unless such
modification, amendment or waiver is approved in writing by the Company,
the holders of 66 2/3% of the outstanding Investor Common Stock and the
holders of a majority of the Stockholder Shares which are not Investor
Common Stock. The failure of any party to enforce any of the provisions of
this Agreement shall in no way be construed as a waiver of such provisions
and shall not affect the right of such party thereafter to enforce each and
every provision of this Agreement in accordance with its terms.
12. The Schedule of Investors attached to the Stockholders Agreement is
amended and restated as attached hereto.
13. The parties hereby acknowledge that pursuant to Section 10 of the
Stockholders Agreement (as in effect immediately prior to this Amendment) this
Amendment shall become effective when executed by the holders of a majority of
the outstanding Investor Common Stock and the holders of a majority of the
Stockholder Shares which are not Investor Common Stock.
* * * * *
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
day and year first above written.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-----------------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
-----------------------------------------
By:
--------------------------------------
Its:
-------------------------------------
HANCOCK VENTURE PARTNERS IV - DIRECT
FUND L.P.
By: BACK BAY PARTNERS XII L.P.
By: HANCOCK VENTURE PARTNERS, INC.
-----------------------------------------
By: /s/ William A. Johnston
--------------------------------------
Its: SVP
-------------------------------------
/s/ THOMAS C. BRANDENBURG
-----------------------------------------
THOMAS C. BRANDENBURG
/s/ THOMAS C. BRANDENBURG
-----------------------------------------
THOMAS C. BRANDENBURG, as Trustee
for David W. Montville
-5-
<PAGE>
FIRST CONTINENTAL CAPITAL
CORPORATION
/s/ C. R. Ronchetti
-----------------------------------------
By: C. R. Ronchetti
--------------------------------------
Its: President
-------------------------------------
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
KEVIN MADDOCK
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
ROBERT NISBETT
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
JOSEPH MONTANILE
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
DAVID MCCARTHY
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
HOWARD GERSON
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
SAL FABRICANTE
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
AL DENTALE, JR.
/s/ Larry Gladysz, Attorney in Fact
/s/ Louis Rappaport, Attorney in Fact
-----------------------------------------
DEMO CERVELLI
/s/ LARRY GLADYSZ
-----------------------------------------
LARRY GLADYSZ
/s/ LOUIS RAPPAPORT
-----------------------------------------
LOUIS RAPPAPORT
-6-
<PAGE>
SCHEDULE OF INVESTORS
---------------------
CIBC Wood Gundy Ventures, Inc.
425 Lexington Avenue
New York, New York 10017-3903
Attention: Richard J. Brekka, President
Telephone: (212) 856-3736
Facsimile: (212) 697-1544
Chemical Venture Capital Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
Attention: Donald J. Hofmann, Jr.
Telephone: (212) 270-1366
Facsimile: (212) 270-2379
Hancock Venture Partners IV - Direct Fund L.P.
One Financial Center, 44th Floor
Boston, Massachusetts 02111
Attention: William Johnston
Telephone: (617) 348-3707
Facsimile: (617) 350-0305
<PAGE>
FIRST AMENDMENT TO REGISTRATION AGREEMENT
THIS FIRST AMENDMENT TO REGISTRATION AGREEMENT (the "Amendment") is made as
of June 10, 1994, by and among United USN, Inc., a Delaware corporation (the
"Company"), CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC"),
Chemical Venture Capital Associates, a California limited partnership
("Chemical"), and Hancock Venture Partners IV - Direct Fund L.P., a Delaware
limited partnership ("Hancock" and, collectively with CIBC and Chemical, the
"Investors"), and amends that certain Registration Agreement dated as of April
20, 1994 by and among the Company, CIBC and Chemical (the "Registration
Agreement").
The parties to this Amendment are parties to a First Amendment to Purchase
Agreement of even date herewith amending the Purchase Agreement dated April 20,
1994 (collectively with the First Amendment, the "Purchase Agreement"). In order
to induce Hancock to enter into the Purchase Agreement, the Company has agreed
to provide the registration rights set forth in the Registration Agreement, as
amended hereby.
The parties hereto agree as follows:
1. Hancock, CIBC, Chemical and the Company hereby agree that by their
execution of this Amendment Hancock shall become a party to, be entitled to all
registration rights under and be bound by the terms and provisions of the
Registration Agreement, as amended hereby, and the term "Investors" as used in
the Registration Agreement, as amended hereby, shall be deemed to include
Hancock.
2. The parties hereby acknowledge and agree that the term "Registrable
Securities" as used in the Registration Agreement shall include the Investor
Common Stock (as defined in the Purchase Agreement) acquired by Hancock pursuant
to the Purchase Agreement.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
--------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-------------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
--------------------------------------
By:
-----------------------------------
Its:
----------------------------------
HANCOCK VENTURE PARTNERS IV - DIRECT
FUND L.P.
By: BACK BAY PARTNERS XII L.P.
By: HANCOCK VENTURE PARTNERS, INC.
/s/ William A. Johnston
--------------------------------------
By:
-----------------------------------
Its:
----------------------------------
-2-
<PAGE>
THIRD AMENDMENT TO
PURCHASE AGREEMENT
THIS THIRD AMENDMENT TO PURCHASE AGREEMENT (the "Amendment") is made as of
November 1, 1994, by and among United USN, Inc., a Delaware corporation (the
"Company"), CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC"),
Chemical Venture Capital Associates, a California limited partnership
("Chemical"), and Hancock Venture Partners IV - Direct Fund L.P., a Delaware
limited partnership ("Hancock" and, collectively with CIBC and Chemical, the
"Purchasers"), and amends that certain Purchase Agreement dated as of April 20,
1994 by and among the Company, CIBC and Chemical, as amended (the "Purchase
Agreement"). Except as otherwise set forth in this Amendment, capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Purchase Agreement.
WHEREAS, the Company and the Purchasers desire to enter into this Amendment
to increase the number of shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company which Hancock may purchase in a Tranche II
Purchase.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Company shall authorize the issuance and sale to Hancock of an
additional 1,471 shares of Common Stock in a Tranche II Purchase pursuant to the
Purchase Agreement.
2. The Tranche II Schedule of Purchasers attached to the First Amendment
to Purchase Agreement dated as of June 10, 1994 by and among the Company, CIBC,
Chemical and Hancock is amended and restated as set forth in the Tranche II
Schedule of Purchasers attached to this Amendment.
3. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original and all of which, when taken together,
shall constitute one and the same Amendment.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-------------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
-------------------------------------
By:
----------------------------------
Its:
---------------------------------
HANCOCK VENTURE PARTNERS IV - DIRECT
FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
-------------------------------------
By:
----------------------------------
Its:
---------------------------------
-2-
<PAGE>
TRANCHE II SCHEDULE OF PURCHASERS
---------------------------------
<TABLE>
<CAPTION>
Total Total
No. of Purchase No. of Purchase
Shares Price Shares Price
of for of for
Names and Preferred Preferred Common Common
Addresses Stock Stock Stock Stock
--------- --------- --------- ------ -------
<S> <C> <C> <C> <C>
Chemical Venture Capita1 2,475 $2,475,000 23,210 $25,000
Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
CIBC Wood Gundy Ventures, Inc. 2,475 $2,475,000 23,210 $25,000
425 Lexington Avenue
New York, New York 10017-3903
Hancock Venture Partner IV - 2,475 $2,475,000 23,210 $25,000
Direct Fund L.P.
One Financial Center, 44th F1oor
Boston, Massachusetts 02111
------ ---------- ------ -------
TOTAL 7,425 $7,425,000 69,630 $75,000
</TABLE>
-3-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), made as of the 13th day
of June, 1995, by and among United Telemanagement Services, Inc., a Delaware
corporation with an office at 655 Third Avenue, New York, New York 10017
("UTS"), Quest United, Inc., a newly-formed Delaware corporation with a
mailing address at c/o UTS, 655 Third Avenue, New York, New York 10017
("Newco"), Quest America Management, Inc., a Delaware corporation with an office
at 10 Post Office Square, Boston, Massachusetts 02109 ("QAM"), Edward H. Lavin,
Jr. ("Lavin"), residing at 100 North Ocean Boulevard, Delray Beach, Florida
33483, J. Thomas Elliott ("Elliott"), residing at 7 Shoreline Point Drive, The
Woodlands, Texas 77381, and Quest America, LP, a Delaware limited partnership
with an office at 10 Post Office Square, Boston, Massachusetts 02109 (including
its successors and assigns, "Quest").
WITNESSETH:
----------
WHEREAS, QAM and Quest West, Inc., a Washington corporation with an office
at 1201 Third Avenue, Suite 5400, Seattle, Washington 98101 ("QWI"), are the
general partners of Quest;
WHEREAS, Elliott and Lavin are the sole stockholders of QAM;
<PAGE>
WHEREAS, UTS is a majority-owned subsidiary of United USN, Inc., a Delaware
corporation with an office at 10 South Riverdale Plaza, Suite 300, Chicago,
Illinois 60606 ("USN"), and Newco is a wholly-owned subsidiary of UTS;
WHEREAS, USN, Quest, QAM, Lavin, and Elliott have entered into that certain
letter agreement, dated as of December 15, 1994, as amended by that certain
letter agreement dated as of January 15, 1995, as further amended and restated
by that certain letter agreement dated February 10, 1995 (as so amended and
restated, the "Letter Agreement"), pursuant to which they agreed to negotiate in
good faith to reach an agreement whereby Quest would assign certain of its
assets, subject to stated liabilities, to Newco in exchange for shares of Common
Stock (as hereinafter defined) (the "Asset Purchase Transaction"), and UTS would
contribute up to $4,000,000 to Newco (including, without limitation, those
certain eight (8) promissory notes of Quest, each in the principal amount of
$75,000 due March 31, 1995 in favor of USN (the "Notes"));
WHEREAS, upon the execution of this Agreement, Quest shall issue to USN a
demand note (the "Demand Note") in the form attached hereto as Exhibit A, in the
principal amount equal to the outstanding principal and accrued interest owed to
USN under the Notes, the Replacement Note (as such terms are defined in the
Letter Agreement), if any, and those certain demand notes, dated April 12, 1995,
April 27, 1995, May 15, 1995, and May 26, 1995 respectively, in the principal
amounts of $100,000, $75,000, $100,000, and $75,000 respectively (collectively,
the "1995 Notes"), which Demand Note shall be jointly and severally
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guaranteed by Elliott and Lavin, and USN shall surrender and cancel the Notes,
the Replacement Note, if any, and the 1995 Notes; and
WHEREAS, USN shall (i) assign the Demand Note and the Additional Demand
Notes (as defined below) to UTS in exchange for shares of Common Stock and
shares of Preferred Stock (as hereinafter defined) (the "USN Assignment"), and
(ii) subscribe for additional shares of Common Stock and additional shares of
Preferred Stock to provide up to $4,000,000, less the amounts (including accrued
interest), if any, due under the Demand Note and the Additional Demand Notes, to
UTS at the times and in the amounts, if any, authorized by the UTS Board for
investment in Newco.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, covenants, representations, warranties, and conditions contained
herein, the parties hereto, intending to be legally bound, agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the following
respective meanings:
"Affiliate" of any particular person or entity means any person or
entity controlling, controlled by, or under common control with such particular
person or entity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the common stock of UTS, $0.0001 par value per
share.
"E&L Agreement" shall have the meaning set forth in Section 2.7
hereof.
"Employment Agreements" means the duly executed employment and
personal service agreements of each of Elliott and Lavin, in the forms attached
hereto as Exhibits B and C, respectively.
"Environmental Law" means all federal, state and local laws relating
to pollution or protection of the environment, and rules and regulations
promulgated pursuant thereto, including laws relating to manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling, emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, effluent, or hazardous substances or wastes into the
environment (including ambient air, surface water, groundwater, land surface or
subsurface strata) including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Hazardous Materials Transportation Act, as amended, the Resource Conservation
and Recovery Act, as amended, the Clean Air Act, as amended, and the Clean Water
Act, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
including the rules and regulations of the Commission promulgated thereunder.
"Instructions" means the irrevocable instructions of Quest to issue to
QAM, the then sole remaining partner of Quest, the shares of Common Stock which
Quest is to receive in exchange for the sale of the Assigned Business to Newco,
and the irrevocable instructions of QAM to issue such shares of Common Stock to
Lavin and Elliott, the sole stockholders of QAM, thus giving effect to the
Related Transactions.
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"Mid-Com Distribution Agreement" means the distribution agreement
between Quest and Mid-Com Communications, Inc., dated December 28, 1993, as the
same may be amended.
"Newco Board" means the Board of Directors of Newco.
"Options" has the meaning set forth in Section 2.6 of this Agreement.
"Partnership Agreement" means the First Amended and Restated Agreement
of Limited Partnership of Quest.
"Preferred Stock" means the preferred stock of UTS, having a
liquidation preference of $1,000 per share.
"PSC" means the Public Service Commission of the State of New York.
"PSC Approval" means the PSC's approval of the issuance of the shares
of Common Stock contemplated by and pursuant to the terms of this Agreement.
"Retained Assets" has the meaning set forth in Section 2.1.9 of this
Agreement.
"QWI Note" means that certain note, in the principal amount of
$155,610, made by Quest and currently held by QWI.
"QWI/Newco Redemption Note" has the meaning set forth in Section 2.1
of this Agreement.
"Schiff Demand Notes" means those certain notes, in the aggregate
principal amount of $835,000, made by Quest and currently held by Northwood
Ventures and its affiliates (collectively, "Northwood").
"Securities Act" means the Securities Act of 1933, as amended,
including the rules and regulations of the Commission promulgated thereunder.
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"Stated Liabilities" has the meaning set forth in Section 2.1 of this
Agreement.
"Stockholders" means Elliott and Lavin.
"Stockholders' Agreement" means the UTS stockholders' agreement dated
as of April 20, 1994, as amended by a First Amendment to Stockholders Agreement
dated as of June 10, 1994, as further amended by a Second Amendment and Joinder
to Stockholders Agreement dated as of July 22, 1994, as further amended by a
Third Amendment to Stockholders Agreement dated as of September 29, 1994 (all of
which previously has been furnished to the parties to this Agreement), and as
possibly further amended on the Closing Date (as defined below) by the
Stockholders' Agreement Amendment (as defined below) as provided in Section 2.7
hereof.
"Stockholders' Agreement Amendment" shall mean the Fourth Amendment
and Joinder to the Stockholders' Agreement, in the form attached hereto as
Exhibit D.
"Tax" or "Taxes" means any federal, state, local, foreign or other
taxes (including, without limitation, income (net or gross), gross receipts,
profits, alternate or add-on minimum, franchise, license, capital, capital
stock, intangible, services, premium, transfer, sales, use, ad valorem, payroll,
wage, severance, employment, occupation, property (real or personal), windfall
profits, import, excise, custom, stamp, withholding or governmental charges of
any kind whatsoever (including interest, penalties, additions to tax or
additional amounts with respect to such items).
"USN Board" means the Board of Directors of USN.
"UTS Board" means the Board of Directors of UTS.
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SECTION 2. SALE OF ASSETS; CAPITALIZATION OF NEWCO; ISSUANCE OF COMMON STOCK;
RELATED TRANSACTIONS; STOCK OPTIONS; STOCKHOLDERS' AGREEMENT.
2.1 Transfer of Assets by Quest. Subject to the terms and conditions
contained herein, and in consideration for the shares of Common Stock to be
issued by UTS (and delivered by Newco) to Elliott and Lavin pursuant to the
Instructions and in accordance with Section 2.4 hereof, the $738,000 promissory
note of Newco (the "QWI/Newco Redemption Note") and the assumption of the Stated
Liabilities (as hereinafter defined), Quest shall sell, assign, transfer, convey
and deliver to Newco all of Quest's right, title and interest in and to all
businesses, properties, contracts and assets of Quest (other than Retained
Assets, as hereinafter defined) (collectively, the "Assigned Business"),
including, but not limited to, those assets set forth below in this Section 2.1,
and subject only to those duties, obligations, liabilities and responsibilities
of Quest set forth on Schedule 2.1 hereto (the "Stated Liabilities").
2.1.1 Machinery, Equipment and Supplies. All tangible personal
property, machinery, equipment and supplies (including, but not limited to,
office equipment, furniture, fixtures and leasehold improvements, computer
equipment, telephone equipment, production machinery, tools, and all maintenance
and other operating supplies, including small tools and spare parts and other
expendables or non-inventoried items which may not have been treated as assets
for accounting purposes in past years, including, without limitation, those
listed on Schedule 2.1.1) owned or leased by Quest and used or useful in the
operation of the Assigned Business.
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2.1.2 Books and Records. All files, books, records, invoices,
accounts and surveys used or useful in connection with the ownership and/or
operation of the Assigned Business, including, without limitation, all current
supplier and customer lists relating to the Assigned Business, including,
without limitation, those listed on Schedule 2.1.2.
2.1.3 Intangibles. All of Quest's right, title and interest in and to
(i) all contracts and agreements, including, without limitation, the Mid-Com
Distribution Agreement, and all other service contracts, employment contracts,
contracts with suppliers and distributors, and insurance policies, including,
without limitation, those insurance policies set forth on Schedule 2.1.3 hereto,
and all rights and benefits accruing to Quest under such contracts and
agreements; (ii) all trademarks, tradenames, servicemarks, copyrights, patents
and applications therefor; (iii) all permits, certificates, leases, subleases,
licenses, franchises and privileges, including, without limitation, all
governmental licenses, certificates and other authorizations presently issued to
Quest which are required to operate the Assigned Business; (iv) all software in
development and source codes, flow charts, notes or outlines relating thereto,
proposals, bids and other documents and information, or copies thereof, relating
to any marketing or promotional efforts undertaken in connection therewith; (v)
all goodwill associated with the Assigned Business; (vi) all right, title and
interest in the name "Quest", whether presently owned by Quest, QAM, QWI,
Elliott or Lavin; (vii) all causes of action, judgments, claims and demands of
whatever nature of Quest against other persons or entities; and (viii) all other
intangible assets owned by Quest and/or used or useful in connection with the
Assigned
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Business, or held for the benefit of Quest, including, without limitation, the
intangibles described on Schedule 2.1.3 hereto.
2.1.4 Cash. All of Quest's cash or cash equivalents on hand, on
deposit or in transit. Schedule 2.1.4 attached hereto contains a list of all
cash and cash equivalents on hand, on deposit or in transit as of April 11,
1995.
2.1.5 Inventories. All inventory items held by Quest on the Closing
Date (as hereinafter defined), including, without limitation, all raw materials,
work in process, and finished goods. Schedule 2.1.5 attached hereto contains a
list of the inventories valued at the lower of cost or fair market value as of
March 28, 1995.
2.1.6 Accounts Receivable. All of Quest's receivables for products
sold or services rendered which are not collected as of the Closing Date.
Schedule 2.1.6 attached hereto contains a complete list of the accounts
receivable as of March 28, 1995.
2.1.7 Prepaid Items. All of Quest's prepaid items as of the Closing
Date. Schedule 2.1.7 attached hereto is a complete list of all of the prepaid
items as of March 28, 1995.
2.1.8 All Assets Scheduled. The assets described in this Section 2.1
(other than Section 2.1.8) are hereinafter referred to as the "Assigned Assets."
At the request of UTS, any
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of the Schedules set forth in this Agreement shall be updated to a date within
three (3) days of the Closing Date and delivered to Newco at or prior to the
Closing.
2.1.9 Retained Assets. It is understood and agreed that those assets
listed on Schedule 2.1.9 attached hereto (the "Retained Assets") shall not be
included in the Assigned Assets.
2.2 Assumption of Stated Liabilities. Subject to the terms and conditions
of this Agreement, Newco shall undertake, assume and agree to satisfy and
perform, pay or discharge, to the extent not satisfied or performed, paid or
discharged prior to the Closing, all of the Stated Liabilities.
2.3 UTS Contribution. As from time to time authorized by the UTS Board,
and subject to the terms and conditions contained herein, UTS shall assign,
transfer and convey to Newco as a capital contribution cash in the aggregate
amount of up to $4,000,000, less the outstanding principal and accrued interest
owed to UTS under the Demand Note and the Additional Demand Notes (as defined
below), if any. The Demand Note and the Additional Demand Notes, if any, shall
be assumed by Newco from Quest, and shall be surrendered, cancelled and
contributed to the capital of Newco by UTS.
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2.4 Issuance of Common Stock.
2.4.1 In partial consideration for the transfer of the Assigned
Business and Assigned Assets by Quest to Newco pursuant to Section 2.1, and
pursuant to the Instructions, UTS shall issue (and Newco shall deliver) to
Elliott and Lavin up to an aggregate of 230,000 shares of Common Stock, at the
times and in the amounts set forth on Schedule 2.4 hereto; provided, however, if
either Elliott or Lavin is terminated for "cause" (as such term is defined in
their respective Employment Agreements) or voluntarily resigns, such terminated
person shall not be entitled to receive any shares of Common Stock pursuant to
this Section 2.4 which, in accordance with Schedule 2.4 and pursuant to the
Instructions, were not scheduled to be issued prior to the date of such
termination or resignation; and provided, further, if either Elliott or Lavin is
terminated without cause, then, notwithstanding the distribution schedule set
forth in Schedule 2.4, on the date of such termination, such terminated person
shall receive all shares of Common Stock which are to be delivered to such
terminated person pursuant to this Agreement (other than shares of Common Stock
issuable upon the exercise of the Options). Notwithstanding the foregoing, at
the Closing the 230,000 shares of Common Stock issuable to Elliott and Lavin as
above set forth shall be increased or decreased so that such shares constitute
7.2% of the Then Fully Diluted UTS Shares Outstanding and Schedule 2.4 shall be
adjusted accordingly. "Then Fully Diluted UTS Shares Outstanding" shall mean (i)
the issued and outstanding Common Stock on the date hereof, plus (ii) all
options for the purchase of unissued shares of Common Stock (including the
Options), plus (iii) shares of Common Stock issuable to the existing
shareholders of UTS upon conversion of $3,650,000 of loans made to UTS (of which
$3,500,000 has been or will be loaned by USN) but not including shares of Common
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Stock issuable upon conversion of any loans in excess of such principal amount
(including the additional $l,000,000 to be loaned by UISN to UTS as approved at
the June 8, 1995 Board of Directors meeting of UTS), plus (iv) the shares of
Common Stock issuable in order to obtain the up to $4,000,000 to be invested in
Newco less $525,000 advanced from UTS Working Capital. Any other shares of
Common Stock issued shall not be included in Then Fully Diluted UTS Shares
Outstanding.
2.4.2 The issuance of the shares of Common Stock pursuant to Section
2.4.1 hereof is subject to obtaining the PSC Approval. UTS covenants to promptly
apply for the PSC Approval. Until the earlier of the Closing (as defined below)
or UTS being notified by the PSC that the PSC Approval shall not be forthcoming,
UTS shall make bi-weekly loans to Quest to fund the continuing operations of
Quest (the "Bi-Weekly Loans") which, individually, shall not exceed $75,000
(unless otherwise agreed to by UTS, in its sole discretion) and, in the
aggregate, shall not exceed $4,000,000 (less the amounts (including accrued
interest), if any, due under the Demand Note and the Additional Demand Notes),
and each of which shall be evidenced by demand notes in the form annexed hereto
as Exhibit E (the "Additional Demand Notes") and shall be jointly and severally
guaranteed by the Stockholders; provided, however, UTS's obligation to the Bi-
Weekly Loans as provided in this Section 2.4.2 shall terminate if (i) upon
demand for payment by UTS, Quest is in default under the Demand Note or any of
the Additional Demand Notes, or (ii) UTS terminates this Agreement as provided
in Section 12 hereof.
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2.5 Related Transactions.
2.5.1 Immediately following the consummation of the Asset Purchase
Transaction, (A) Quest shall redeem QWI's partnership interest in Quest,
purchase the QWI Note, and deliver to QWI cash in the aggregate amount of
$100,000 and assign the QWI/Newco Redemption Note; (B) Quest shall redeem the
sole limited partnership interest in Quest for $60; (C) Quest shall liquidate
and distribute its shares of Common Stock to QAM and thereafter shall dissolve;
and (D) QAM shall liquidate and distribute its shares of Common Stock to Elliott
and Lavin and thereafter shall dissolve (collectively, the "Related
Transactions").
2.5.2 For purposes of this Agreement, the parties hereto agree that
the Asset Purchase Transaction and the Related Transactions all shall be deemed
to be consummated concurrently and none shall be completed until all are
completed.
2.6 Stock Options. Upon the consummation of the Asset Purchase
Transaction, UTS shall grant to Lavin and Elliott, in the aggregate, options to
purchase up to 115,000 shares of Common Stock at $2.50 per share, upon such
terms and conditions as shall be specified by the UTS Board (the "Options"). The
Options shall vest at the rate of twenty percent (20%) per year over a five (5)
year period, commencing with the first anniversary of the Closing Date. The
Options automatically shall terminate if the optionee is terminated for cause
(as such term is defined in such optionee's Employment Agreement) or voluntarily
resigns, and the Option shall become fully-vested if the optionee is terminated
without cause. Notwithstanding the foregoing, at the Closing the Options for up
to 115,000 shares of Common Stock to be granted to Lavin
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and Elliott shall be adjusted to an amount which is equal to 50% of the number
of shares of Common Stock issuable to Elliott and Lavin pursuant to Section
2.4.1 hereof, as such number of shares are therein adjusted.
2.7 Stockholders' Agreement/E&L Agreement. Concurrently with the
consummation of the Asset Purchase Transaction, the Stockholders' Agreement
Amendment shall be executed and delivered by the parties thereto; provided,
however, in UTS's sole discretion, in lieu of the Stockholders' Agreement
Amendment, UTS, Elliott and Lavin shall execute and deliver an agreement, in
form and substance satisfactory to UTS, containing substantially similar terms
and conditions (but somewhat different parties) as the Stockholders' Agreement,
except that paragraphs 1 and 9 of the Stockholders' Agreement shall be deleted
(the "E&L Agreement"). UTS agrees that upon and in the event of the execution
and delivery of the E&L Agreement, (i) Elliott and Lavin, as a group, shall have
the right to designate one director for election to the Newco Board and (ii)
UTS shall obtain a USN undertaking to vote for one nominee of Elliott and
Lavin, as a group, for election to the UTS Board for so long as Elliott and
Lavin are employed by UTS and retain in the aggregate, at least the requisite
number of shares of UTS Common Stock as provided in paragraph l(d) of the
Stockholders' Agreement Amendment as if the Stockholders' Agreement Amendment
had been executed.
SECTION 3. CLOSING
3.1 The closing of the transactions contemplated herein shall take place
at the offices of Morrison Cohen Singer & Weinstein, LLP, 750 Lexington Avenue,
New York, New York
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10022, within five (5) days after receipt of the PSC Approval (the "Closing
Date"), or on such other date as the parties hereto shall agree (the "Closing").
3.2 At the Closing, Quest, QAM, Elliott and Lavin shall deliver to Newco
and UTS:
3.2.1 A duly executed bill of sale (the "Bill of Sale") and a duly
executed assignment and assumption agreement (the "Assignment and Assumption
Agreement") (collectively, the "Sale Documents").
3.2.2 In addition to the Sale Documents, such other certificates and
instruments of transfer, sale, transfer, conveyance, assignment and/or
confirmation as may be necessary or desirable to transfer, assign and convey all
of Quest's right, title, and interest in and to the Assigned Business and all of
the Assigned Assets to Newco, free and clear of all mortgages, liens,
encumbrances, liabilities, title defects or claims, except Stated Liabilities.
3.2.3 A certificate of a general partner of Quest, (A) attaching a
copy of the Partnership Agreement and stating that it is in full force and
effect as of the Closing Date and has not been amended or otherwise modified or
supplemented, (B) attaching a copy of the written consent of the general
partners of Quest to the execution, delivery and performance of this Agreement
by Quest and the transactions and actions contemplated hereby, (C) attaching an
executed copy of the redemption agreement between Quest and QWI, in form and
substance satisfactory to UTS, whereby QWI surrenders and cancels the QWI Note,
conveys good title to its entire general partnership interest in Quest to Quest,
free and clear of all liens and
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encumbrances, and releases Quest, USN, UTS and Newco from any and all claims it
may have against any of them or their directors, officers, employees, agents, or
Affiliates against payment by Quest to QWI of the cash and the QWI/Newco
Redemption Note (the "Redemption Agreement"), (D) attaching a release pursuant
to which John Orehek, the sole limited partner of Quest (the "Limited Partner"),
releases Quest, USN, UTS and Newco from any and all claims he may have against
any of them or their directors, officers, employees, agents, or Affiliates (the
"Limited Partner Release"), and (E) attaching evidence satisfactory to UTS that
Quest has redeemed the Limited Partner's limited partnership interest in Quest
("Limited Partner Redemption Receipt").
3.2.4 Copies of resolutions adopted by the Board of Directors and the
stockholders of QAM authorizing the execution, delivery, and performance of this
Agreement by QAM and Quest and the transactions and actions contemplated hereby,
including, without limitation, the Redemption Agreement, certified to by the
Secretary of QAM.
3.2.5 A certificate of the Secretary of QAM, attaching a copy of
QAM's Certificate of Incorporation and By-laws, and stating that each is in full
force and effect as of the Closing Date and has not been amended or otherwise
modified or supplemented.
3.2.6 Copies of resolutions adopted by the Board of Directors and the
stockholders of QWI authorizing the execution, delivery, and performance of this
Agreement
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by QWI and Quest and the transactions and actions contemplated hereby,
including, without limitation, the Redemption Agreement, certified to by the
Secretary of QWI.
3.2.7 A certificate of the Secretary of QWI, attaching a copy of
QWI's Certificate of Incorporation and By-laws, and stating that each is in full
force and effect as of the Closing Date and has not been amended or otherwise
modified or supplemented.
3.2.8 Duly executed Certificates of Dissolution of Quest and QAM (the
"Dissolution Certificates"), together with Quest's, QAM's, Elliott's and Lavin's
irrevocable instructions for Newco to file the Dissolution Certificates
concurrently with the consummation of the transactions contemplated herein.
3.2.9 Certificates of Good Standing of Quest and QAM in Delaware and
Massachusetts as of a date within ten (10) days of the Closing Date.
3.2.10 Certificate of Good Standing of QWI in the State of Washington
as of a date within ten (10) days of the Closing Date.
3.2.11 A certificate of a general partner of Quest certifying that
the closing conditions set forth in Sections 9.1.14 and 9.1.15 of this Agreement
have been satisfied.
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3.2.12 An opinion of counsel to Quest, dated the Closing Date, in the
scope and form of Exhibit F attached hereto.
3.2.13 Copies of all consents, approvals and filings required in
connection with the consummation of the transactions hereunder.
3.2.14 The Instructions.
3.3 At the Closing, Elliott and Lavin each shall deliver
3.3.1 To Newco, a duly executed Employment Agreement.
3.3.2 To UTS and Newco:
A. A duly executed guaranty agreement in the form attached
hereto as Exhibit G (the "Guaranty Agreement").
B. A duly executed escrow agreement in the form attached
hereto as Exhibit H (the "Escrow Agreement") pursuant to which Elliott and Lavin
shall deposit their shares of Common Stock with Morrison Cohen Singer &
Weinstein, LLP as escrow agent (the "Escrow Agent") to secure payment of any
amounts due pursuant to their guaranty obligation set forth in the Guaranty
Agreement and pursuant to their indemnification obligation set forth in Section
11.2 of this Agreement.
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C. A TRW Credit Report on each of Lavin and Elliott as of a
date within three (3) business days of the Closing Date (collectively, the
"Credit Reports").
3.3.3 To the Escrow Agent, a duly executed Escrow Agreement and stock
certificates, with stock powers attached, representing the shares of Common
Stock to be deposited with the Escrow Agent to secure payment of any amounts due
pursuant to the guaranty set forth in the Guaranty Agreement and pursuant to the
indemnification obligation set forth in Section 11.2 of this Agreement.
3.4 At the Closing, UTS shall deliver to Quest:
3.4.1 Copies of resolutions adopted by the UTS Board authorizing the
execution, delivery, and performance of this Agreement by UTS and the
transactions and actions contemplated thereby, certified to by the Secretary of
UTS.
3.4.2 A certificate of the Secretary of UTS, attaching a copy of
UTS's Certificate of Incorporation and By-laws, and stating that each is in full
force and effect as of the Closing Date and has not been amended or otherwise
modified or supplemented.
3.4.3 Certificates of Good Standing of UTS in Delaware and New York as
of a date within ten (10) days of the Closing.
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3.4.4 A certificate of the President of UTS certifying that the
closing conditions set forth in Sections 9.2.2 and 9.2.5 of this Agreement have
been satisfied.
3.4.5 An opinion of counsel to UTS, dated the Closing Date, in the
scope and form of Exhibit I attached hereto.
3.5 At the Closing, UTS shall deliver to each of Newco, Quest, QAM,
Elliott and Lavin a copy of the PSC Approval;
3.6 At the Closing, Newco shall:
3.6.1 Deliver to Quest duly executed Assignment and Assumption
Agreement; and
3.6.2 Deliver to each of Elliott and Lavin:
A. A duly executed Employment Agreement; and
B. A certificate or certificates, each in definitive form,
representing the shares of Common Stock to be issued and delivered (as per the
Instructions) to each such Stockholder at the Closing pursuant to Schedule 2.4
hereto.
3.7 At the Closing, the Escrow Agent shall deliver a duly executed Escrow
Agreement to Newco, UTS, Elliott and Lavin.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF QUEST AND QAM.
For the benefit of USN, UTS, U.S. Network Corporation ("Network"),
Phonenet/Ohio, Inc. ("Phonenet") and Newco, Quest and QAM hereby jointly and
severally represent and warrant as follows:
4.1 Organization, Standing and Qualification. Quest and QAM each are duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Quest and QAM each have all requisite power and authority to own its
property and assets and to conduct its business as now conducted, and are duly
qualified, in good standing and duly authorized to do business in all
jurisdictions in which the ownership of its property makes such qualification
necessary.
4.2 Execution, Delivery and Performance of this Agreement; No Conflict.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary partnership action on the part of Quest and by all necessary corporate
action on the part of QAM, and will not violate any provision of law or any
order of any court or other agency of government, and will not conflict with,
result in any breach of any of the provisions of, constitute (with due notice
and/or lapse of time) a default under or a violation of, the provisions of any
agreement or other instrument to which Quest or QAM is a party or by which Quest
or QAM or their respective property may be bound. This Agreement constitutes,
and upon execution the other agreements contemplated
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hereby shall constitute, the legal, valid and binding obligation of each of
Quest and QAM, enforceable against each in accordance with its terms.
4.3 No Consents. Except as set forth on Schedule 4.3 hereto, no permit,
consent, approval or authorization of, or declaration, filing or registration
with, or the giving of notice to, any public body or authority or other person
or entity, including, but not limited to, the Massachusetts Department of Public
Utilities, is necessary in connection with the execution, delivery and
performance by Quest and QAM of this Agreement, the agreements contemplated
hereby and transactions contemplated hereby and thereby.
4.4 Litigation. Except as set forth on Schedule 4.4 hereto, there are no
actions, suits, proceedings, investigations or claims pending, threatened
against or affecting Quest or QAM, at law or in equity, in any court or before
any foreign, federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality wherein an unfavorable
judgment, decree or order would (a) restrain, prohibit, invalidate, rescind or
make unlawful the execution, delivery and performance by Quest or QAM of this
Agreement or any of the agreements contemplated hereby, (b) result in a material
adverse change in the business, condition (financial or otherwise), assets,
liabilities, properties or prospects of Quest or QAM, (c) materially and
adversely affect the ability of Quest or QAM to conduct the Assigned Business as
presently conducted, (d) materially impact the ability of Quest or QAM to
perform this Agreement or the agreements contemplated hereby, or (e) apply to
the Assigned Business. Each of (a), (b), (c), (d) or (e) above, or any other
event or occurrence which results in a material
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adverse change in the business, condition (financial or otherwise), assets,
liabilities, properties or prospects of Quest or QAM shall be referred to herein
as a "Material Adverse Effect".
4.5 Assigned Business. The Assigned Business is not conducted through any
affiliate of Quest. Except for the Retained Assets, the Assigned Assets and the
assets utilized in the Assigned Business under the agreements included in the
Stated Liabilities, constitute all of the assets of Quest. Quest is not a
coventurer in any joint venture or other business enterprise. Quest has complied
in all material respects with all laws, rules, regulations, ordinances, orders,
judgments and decrees (collectively, "Applicable Laws") applicable to the
Assigned Business or the properties used therein; neither the ownership of the
Assigned Business by Quest, nor the use of such properties by Quest, nor the
conduct of such business by Quest conflicts with the rights of any other person
or entity or violates any Applicable Laws. Quest has all approvals,
authorizations, consents, licenses, orders and other permits required to conduct
the Assigned Business as it is now operated and as it is contemplated to be
operated.
4.6 Financial Statements; No Material Adverse Effects.
4.6.1 Quest has delivered to UTS and Newco an unaudited balance sheet
of Quest as of December 31, 1994 and the related statement of income for the
twelve-month period then ended (the "Quest Financial Statements"). The Quest
Financial Statements are in accordance with the books and records of Quest
(which, in turn, are accurate and complete in all material respects), and have
been prepared in accordance with generally accepted accounting principles,
consistently applied in accordance with the past practice of Quest, and are
true,
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correct and complete in all respects and fairly present the financial position
of Quest as of the date thereof and the results of operations for the period
covered thereby. Since the date of the Quest Financial Statements, there have
been no Material Adverse Effects. As of the date thereof, the Quest Financial
Statements reflect, and any other financial statements furnished to UTS and
Newco by Quest shall reflect, the Assigned Assets. The amounts reflected with
respect to such Assigned Assets are, and in the case of financial statements
delivered after the date hereof shall be, stated in accordance with generally
accepted accounting principles and reflect all Assigned Assets that, in
accordance with such principles, are required to be reflected in the Quest
Financial Statements and such other financial statements. All assets reflected
in the Quest Financial Statements constitute Assigned Assets, except for the
Retained Assets.
4.6.2 Quest has delivered to UTS copies of its monthly financial
statements, commencing with the financial statements for January, 1995. Such
financial statements fairly present the financial condition of Quest as of the
date thereof and the results of operations for the period covered thereby.
4.7 Books and Records. Quest's books and records are, and until the
Closing will be, maintained currently and in good order so that Newco and/or its
representatives may inspect the same and use the same, immediately upon and
after the Closing, to conduct the Assigned Business.
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4.8 Capitalization.
4.8.1 As of the Closing Date, (i) QAM and QWI are the only general
partners of Quest and the Limited Partner is the only limited partner of Quest,
each having a percentage interest in Quest as set forth in the Partnership
Agreement (the "Quest Interest"); (ii) QAM, QWI and the Limited Partner own
their respective Quest Interests free and clear of any and all liens, pledges,
encumbrances, charges, agreements, or claims, whatsoever; and (ii) no options,
warrants, or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any partnership
interests of Quest have been granted or entered into by Quest, QWI, QAM, Elliott
or Lavin or the Limited Partner.
4.8.2 As of the Closing Date, the authorized capital stock of QAM
shall consist of 100 shares of common stock, $0.01 par value per share (the "QAM
Stock"), all of which shall be issued and outstanding. All shares of QAM Stock
are owned beneficially and of record by Lavin and Elliott and are duly
authorized, validly issued, fully paid and nonassessable. As of the Closing
Date, no options, warrants, or other rights to purchase, agreements or other
obligations to issue, or agreements or other rights to convert any obligation
into, any shares of capital stock of QAM have been granted or entered into by
QAM, Elliott or Lavin.
4.9 Liabilities. Quest has no debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, whether due or to
become due, that is not reflected or reserved against and fully shown in the
Quest Financial Statements, except for those (i) that may have been incurred
after the date of the applicable Quest Financial Statements, or (ii) that
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are not required by generally accepted accounting principles consistently
applied in accordance with the past practice of Quest to be included in the
Quest Financial Statements (including the footnotes thereto). All debts,
liabilities and obligations not set forth in the Quest Financial Statements
and/or incurred after the date of the Quest Financial Statements (x) were
incurred in the ordinary course of business of Quest consistent with its past
practice, and are usual and normal in type and in amount, and (y) are listed and
described in Schedule 4.9 hereto to the extent any such item exceeds $1,000 or
the aggregate of such items exceeds $5,000.
4.10 Absence of Certain Changes or Events. Except as set forth on Schedule
4.10 attached hereto, or except as authorized in writing by UTS, Quest has
heretofore conducted and shall hereafter conduct the Assigned Business only in
the ordinary course and has not:
4.10.1 incurred any obligation or liability, absolute, accrued,
contingent or otherwise whether due or to become due, except liabilities or
obligations incurred in the ordinary course of the business of Quest and
consistent with its prior practice;
4.10.2 mortgaged, pledged or subjected to lien, charge or security
interest or any other incumbrance or restriction any of the property, business
or assets, tangible or intangible, of Quest, including any Assigned Assets;
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4.10.3 sold, transferred, leased to others or otherwise disposed of
any of the assets of Quest, or committed to do any of the foregoing, including
the payment of any loans owed to any affiliate;
4.10.4 cancelled or compromised any debt or claim, or waived or
released any right of substantial value, except in the ordinary course of
business and consistent with its prior practice;
4.10.5 suffered any damage, destruction or loss (whether or not
covered by insurance) which has resulted in a Material Adverse Effect;
4.10.6 modified, amended or terminated any material contract,
including, but not limited to, the Mid-Com Distribution Agreement;
4.10.7 made any change in the rate of compensation, commission, bonus
or other direct or indirect remuneration payable, or paid, agreed or orally
promised to pay, conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to any salesperson or employee of Quest,
except in the ordinary course of business consistent with prior practice;
4.10.8 created any capital expenditures or capital additions or
betterments in excess of 1,000 or $5,000 in the aggregate;
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4.10.9 instituted any litigation, action or proceeding before any
court or governmental body relating to it or its property or waived or
compromised any right of a substantial value to the Assigned Business, except
for litigation, actions or proceedings instituted and waivers and compromises
given in the ordinary course of business and consistent with its prior practice;
or
4.10.10 suffered any Material Adverse Effect.
4.11 Property.
4.11.1 The Assigned Assets to be transferred hereunder constitute all
of the properties, assets, rights, contracts, leases, easements, licenses, and
real and personal property utilized by Quest in the conduct of the Assigned
Business, except for the Retained Assets, and no other assets, whether tangible
or intangible, are required to engage in the Assigned Business as presently
conducted by Quest. Quest has good and marketable title to all of the Assigned
Assets, and has the ability to transfer and shall transfer the Assigned Assets
to Newco free and clear of any adverse claims, conditional bills of sales,
chattel mortgages, security agreements, financing statements or other security
interests or liens of any kind, except as provided in Schedule 4.11.1 hereto.
4.11.2 The property owned or leased by Quest is in good order and
proper repair and meets all standards, clearances and ratings in effect on the
date hereof in respect of those rules and regulations promulgated by federal,
state and municipal agencies and departments
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applicable thereto, except for (i) items of machinery and equipment which will
require replacement in the ordinary course of business, the temporary lack of
use of which will not materially disrupt normal operations, and (ii) minor
defects which do not, individually or collectively, interfere in a material way
with the continued use thereof.
4.11.3 All property used in the Assigned Business is owned by Quest,
free and clear of all liens and encumbrances, except as set forth in Schedule
4.11.1, and none of such property is leased except as set forth in Schedule
4.11.3.
4.11.4 All books, records, files, client lists and other documents
and instruments delivered or required to be delivered to Newco hereunder are
true, complete and correct originals or copies thereof. There will not exist at
Closing any duplicates, summaries, extracts or synopses of the foregoing.
4.12 Intangibles. All licenses, patents, patent rights, patent
applications, trademarks, trademark applications, tradenames, service marks,
service mark applications, copyrights, and other intangibles, if any, owned by
Quest (collectively, the "Intangible Properties") are listed in Schedule 2.1.3
attached hereto, and no other intangible property is required by Newco to
operate the Assigned Business after the Closing. Quest has good title to all of
the Intangible Properties, free of all liens and encumbrances, other than as
described on Schedule 4.11.1, and Quest's rights to the Intangible Properties
are valid and enforceable. Other than as set forth on Schedule 4.12, no license
has been granted with respect to, and no third party has any rights to
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or in, any of the Intangible Properties. No claim is pending, or, to the
knowledge of Quest, QAM, Elliott or Lavin, has been made to the effect that the
present or past Assigned Business operations of Quest or the use by Quest of any
of the Intangible Properties infringe or conflict with any rights of others.
4.13 Contracts. Schedule 4.13 attached hereto sets forth a true and
complete list and summary description of all contracts, leases, agreements and
other instruments to which Quest is party or otherwise affecting the Assigned
Business (each, a "Contract"). Each Contract is valid, binding and enforceable
against the parties thereto in accordance with its terms, and is in full force
and effect as of the date hereof. Quest has performed all obligations required
to be performed by it to date under each Contract; Quest is not in default in
respect of any Contract; no Contract is the subject of any default or
termination notice by any party thereto; Quest does not know of any existing
state of facts which, with due notice or lapse of time or both, would constitute
an event of default or give rise to termination rights by any of the parties to
any Contract; and Quest has not received any notice from any party to any
Contract with respect to such party's unwillingness or inability to perform
thereunder. Except as set forth on Schedule 4.13 hereto, all Contracts are
assignable to Newco and such assignment will not create any default thereunder
or constitute an act which with the giving of notice or passage of time or both,
would become a default thereunder.
4.14 Accuracy of Representations and Warranties. None of Quest's or QAM's
representations, warranties or statements contained in this Agreement, or in the
exhibits or
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schedules hereto, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make any of such representations,
warranties or statements not misleading. All information relating to Quest, the
Assigned Business or the Assigned Assets which is known or, on reasonable
inquiry, would be known to Quest or QAM and which may be material to a purchaser
for value of all of the assets, businesses and operations of Quest has been
disclosed in writing to UTS and Newco, and any such information arising on or
before the Closing Date forthwith will be disclosed in writing to UTS and Newco.
4.15 Compliance with Laws. Quest has complied with all applicable statutes
and regulations of the United States, the States of Delaware and Massachusetts,
and all municipalities and agencies thereof, with respect to the conduct of its
operations, and has not received any notice or notices of violations of any such
statutes or regulations which have not been cured, which violations could have a
material adverse effect on the business, financial condition or prospects of
Quest or on the Assigned Business or the Assigned Assets.
4.16 Taxes. Except as set forth in Schedule 4.16 attached hereto, Quest
has filed all Tax returns which it is required to file under applicable laws and
regulations; all such returns are complete and correct in all material respects;
Quest has paid all Taxes due and owing by it and has withheld and paid over all
Taxes which it is obligated to withhold from amounts paid or owing to any
salesperson, employee, stockholder, creditor or other third party; Quest has not
waived any statute of limitations with respect to Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency; the accrual
for current Taxes on Quest's unaudited
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balance sheet dated as of December 31, 1994 (the "Latest Quest Balance Sheet")
would be adequate to pay all of Quests' current Tax liabilities if its current
Tax year were treated as ending on the date of the Latest Quest Balance Sheet;
the assessment of any additional Taxes for periods for which returns have been
filed shall not exceed the recorded liability therefor on the Latest Quest
Balance Sheet; no foreign, federal, state or local Tax audits are pending or
being conducted with respect to Quest, no information related to Tax matters has
been requested by any foreign, federal, state or local taxing authority, and no
notice indicating an intent to open an audit or other review has been received
by Quest from any foreign, federal, state or local taxing authority; and there
are no material unresolved questions or claims concerning Quest's Tax liability.
4.17 Employees. Schedule 4.17A to this Agreement sets forth an accurate
and complete list of all current employees of Quest, their dates of hire,
current rates of compensation, job titles and duties, the number of vacation
days and sick days due to each of them, and all written and oral employment
contracts and collective bargaining agreements and all other agreements or
arrangements providing for employee compensation to which Quest is a party or by
which Quest is bound. Each of Quest and QAM has complied in all material
respects with all laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other Taxes, and neither Quest nor QAM is
aware that it has any material labor relations problems (including any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither Quest, nor QAM, nor any of their respective
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employees are subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreements relating to, affecting or in
conflict with the present or proposed business activities of Quest or QAM,
respectively, except as set forth and described in Schedule 4.17B attached
hereto.
4.18 ERISA. Except as set forth on Schedule 4.18, neither Quest nor QAM
has any plan or arrangement that would constitute or is intended to qualify as
an employee benefit plan under Section 3(3) of the Employee Retirement Income
Security Agreement, as amended ("ERISA") or as an employee pension benefit plan
under Section 3(2) of ERISA or as an employee welfare benefit plan under Section
3(1) of ERISA. All plans or arrangements listed in Schedule 4.18 are in
compliance with all applicable laws.
4.19 Environmental Liability. Except as set forth on Schedule 4.19 hereto,
(i) Quest has obtained all permits, licenses and other authorizations which are
required with respect to the operation of the Assigned Business and Assigned
Assets under the Environmental Laws; (ii) Quest and QAM are in compliance with
all terms and conditions of the required permits, licenses and authorizations
required by the Environmental Laws; (iii) there is no civil, criminal or
administrative action, suit, demand, claim, hearing notice of violation,
proceeding, notice or demand letter pending relating to the Assigned Business or
Assigned Assets or threatened against Quest or QAM relating in any way to any
Environmental Laws or any regulation, code, plan, order, decree, judgment or
injunction issued, entered, promulgated or approved thereunder; (iv) to the best
knowledge of Quest, QAM, Elliott and Lavin, there are no investigations or
internal
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or non-public agency proceedings pending against Quest or QAM which relate in
any way to any Environmental Laws or any regulation, code, plan, order, decree,
judgment or injunction issued, entered, promulgated or approved thereunder; and
(v) there has been no generation, production, refining, processing,
manufacturing, use, storage, disposal, treatment, shipment, emission, receipt or
release of a Hazardous Substance (as hereinafter defined) or petroleum or
petroleum by-product on, in or under such of the Assigned Assets constituting
real property which would subject the owner or operator of the real property or
business, or any past or future owner or operator of the real property to
liability for the removal, remediation or cleanup of the Hazardous Substance,
petroleum or petroleum by-product under the Environmental Laws or common law.
"Hazardous Substance" shall include, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes, toxic
substances, or related or similar materials, asbestos or any material containing
asbestos, or any other substance or material regulated by any Environmental Law
or the regulations adopted and publications promulgated pursuant thereto. Quest
shall deliver to UTS and Newco true and complete copies of all environmental
studies since its inception relating to the Assigned Business and Assigned
Assets. Except as set forth in Schedule 4.19 hereof, on the date hereof there
are and as of and at Closing there will be no materials or equipment forming
part of the Assigned Assets which are constituted, in whole or in part, of
Hazardous Substances or other materials which, if discharged as waste, would
constitute "hazardous waste", which term shall have the meaning set forth in the
Resource Conservation and Recovery Act and rules and regulations promulgated
thereunder. No Hazardous Substance has ever been spilled, released, leaked,
poured, leached,
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dumped, discharged, placed or disposed of, or otherwise caused to be located at
any property which has at any time been owned, leased or used by Quest or QAM.
4.20 Credit Reports. Each of Elliott and Lavin has delivered to USN, UTS
and Newco a true and complete Credit Report as of a date prior to execution of
this Agreement and will deliver an updated Credit Report as of a date within
three (3) days prior to the Closing Date.
4.21 Brokerage. Except for Carolina Barnes, whose fees are as set forth in
the Stated Liabilities, there are no claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding on Quest or QAM.
Quest shall pay, and shall hold USN, UTS, and Newco harmless against, any loss,
liability or expense (including without limitation, interest, penalties,
reasonable costs of defense and investigation, and reasonable attorneys' fees)
arising out of or in connection with any such claim.
4.22 Insurance Policies. Schedule 2.1.3 to this Agreement is a true and
complete schedule of all policies and binders of life, fire, liability,
workers' compensation, errors and omissions, vehicular, major medical, vision,
dental and other forms of insurance and performance bonds which are owned by
Quest which relate in any manner to the business of Quest. Schedule 2.1.3 sets
forth a brief description of each listed policy, including the insurance
carrier, policy number or covering note number with respect to binders, policy
limits, deductibles, expiration dates and any pending claims. There are no
disputes with underwriters
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of any such policies or bonds, all premiums due and payable have been paid, and
Quest has not received any notice of cancellation or termination of any such
policies. Quest has not received notice from any insurance carrier that any
insurance premiums on the insurance policies set forth on Schedule 2.1.3 be
materially increased on the renewal thereof or that the insurance policies will
not otherwise be renewed on substantially the same terms as are now in effect.
4.23 Accredited Investor; Authorization, etc. Quest is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act.
Each of Quest and QAM has the individual, corporate, or partnership (as the
case may be) power and authority to enter into and perform this Agreement and to
purchase the shares of Common Stock.
4.24 Investment Knowledge. Quest and QAM each has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the risks and merits of its investment in UTS; and each is capable of bearing
the economic risks of such investments, including a complete loss of its
investment.
4.25 Opportunity to Discuss. Quest and QAM each has had an opportunity to
discuss the business, management, and financial affairs of UTS with UTS's
representatives.
4.26 Distribution. Quest and QAM each are acquiring the shares of Common
Stock for its own account for the purpose of investment and not with a view to
or for resale in connection with any distribution thereof or interest therein,
except at upon the dissolution of
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Quest and QAM pursuant to Section 2.5.1 hereof Messrs. Elliott and Lavin will
receive the Common Stock.
4.27 Registration. Quest and QAM each understand that (i) the shares of
Common Stock have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof, (ii) the shares of Common Stock
must be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration, (iii) the shares
of Common Stock shall bear a legend to such effect, and (iv) UTS will make a
notation on its transfer books to such effect.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF UTS AND NEWCO.
Each of UTS and Newco hereby severally, not jointly, represent and warrant
as follows:
5.1 Organization, Standing and Qualification. It is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. It has all requisite corporate power and authority to own its property
and assets and to conduct its business as now conducted, and is duly qualified,
in good standing and duly authorized to do business in all jurisdictions in
which the ownership of its property makes such qualification necessary.
5.2 Execution, Delivery and Performance of this Agreement; No Conflict.
The execution and delivery of this Agreement by UTS and Newco, respectively, and
the
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consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and approval of UTS and Newco,
respectively, and will not violate any provision of law or any order of any
court or other agency of government, and will not conflict with, result in any
breach of any of the provisions of, constitute (with due notice and/or lapse of
time) a default under or violation of, the provisions of any agreement or other
instrument to which it is a party or by which it or its property may be bound.
This Agreement constitutes, and upon execution the other agreements contemplated
hereby shall constitute, the legal, valid and binding obligation of UTS and
Newco, respectively, enforceable against each of them in accordance with its
terms.
5.3 No Consents. Except for the PSC Approval, no permit, consent, approval
or authorization of, or declaration, filing or registration with, or the giving
of notice to, any public body or authority or other person or entity is
necessary in connection with its execution, delivery and performance of this
Agreement, the agreements contemplated hereby and transactions contemplated
hereby and thereby.
5.4 Litigation. There are no actions, suits, proceedings, investigations
or claims pending, threatened against or affecting it, at law or in equity, in
any court or before any foreign, federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality wherein an
unfavorable judgment, decree or order would (a) restrain, prohibit, invalidate,
rescind or make unlawful its execution, delivery and performance of this
Agreement or any of the agreements contemplated hereby, (b) result in a
material adverse
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change in its business, condition (financial or otherwise), assets, liabilities,
properties or prospects, or (c) materially impact its ability to perform this
Agreement or the agreements contemplated hereby.
5.5 Accuracy of Representations and Warranties. None of its
representations, warranties or statements contained in this Agreement, or in the
exhibits or schedules hereto, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make any of such
representations, warranties or statements not misleading.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF UTS.
6.1 UTS represents and warrants as follows:
6.1.1 Due Authorization; Valid Issuance. As of the Closing Date, the
shares of Common Stock to be issued and delivered to Elliott and Lavin as per
the Instructions and pursuant to Section 2.4 of this Agreement shall have been
duly authorized and, when issued in accordance with this Agreement, shall be
validly issued, fully paid, and nonassessable, with the rights and privileges as
set forth herein and in the Certificate of Incorporation of UTS, and, except as
provided herein or in the Stockholders' Agreement or the E&L Agreement, as the
case may be, will be free and clear of all liens, charges, restrictions, claims,
and encumbrances imposed by or through UTS. Except as provided in the
Stockholders' Agreement or the E&L Agreement, as the case may be, the issuance,
sale, and delivery of such shares of Common
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Stock by UTS is not subject to any preemptive right of any stockholder of UTS or
to any right of first refusal or other right in favor of any person.
6.1.2 Capitalization. As of the date hereof, the authorized capital
stock of UTS consists of 1,000,000 shares of Common Stock and 4,000 shares of
Preferred Stock. All outstanding shares of Common Stock and Preferred Stock are
duly authorized, validly issued, fully paid and nonassessable. As of the Closing
Date, the authorized capital stock of UTS shall be sufficient to consummate the
transactions contemplated by this Agreement. Except (A) for those shares of
Common Stock which may be issued to UTS stockholders pursuant to the exercise of
their preemptive rights as set forth in the Stockholders' Agreement or the E&L
Agreement, as the case may be, (B) those shares of Common Stock which may be
issued to USN, upon PSC Approval, pursuant to the conversion of convertible
promissory notes issued or to be issued by UTS to USN evidencing capital
contributions by USN to UTS of up to $4,500,000, and (C) as set forth on
Schedule 6.1.2 hereto, no options, warrants, or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of Common Stock have been granted or
entered into by UTS.
6.1.3 Financial Statements. UTS has delivered to Quest an audited
balance sheet of UTS as of December 31, 1994 and the related statement of income
for the twelve-month period then ended (the "UTS Financial Statements"). The UTS
Financial Statements are in accordance with the books and records of UTS (which,
in turn, are accurate and complete in all material respects), and have been
prepared in accordance with generally accepted accounting
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principles, consistently applied in accordance with the past practice of UTS,
and are true, correct and complete in all respects and fairly present the
financial position of UTS as of the date thereof and the results of operations
for the period covered thereby.
Section 7. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS; RESTRICTIONS
ON TRANSFER.
7.1 Each Stockholder severally, not jointly, represents and warrants to
UTS and Newco that, as of the date hereof:
7.1.1 Good Title to QAM Shares; No Agreements. He has good and
marketable title in and to the shares of common stock of QAM owned beneficially
and of record by him (the "QAM Shares"), free and clear of all mortgages,
pledges, liens, encumbrances, claims and equities, whatsoever. Except for that
certain QAM stockholders' agreement, dated November 2, 1993, he is not a party
to any voting trust agreement or other contract, or agreement, arrangement,
commitment, plan or understanding restricting or otherwise relating to voting
rights with respect to the QAM Shares.
7.1.2 Execution, Delivery and Performance of this Agreement; No
Conflict. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and the performance under their respective
Employment Agreements will not violate any provision of law or any order of any
court or other agency of government, and will not conflict with, result in any
breach of any of the provisions of, constitute (with due notice and/or lapse
of time) a default under or a violation of, the provisions of any agreement
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or other instrument to which such Stockholder is a party or by which such
Stockholder or his property may be bound. This Agreement constitutes, and upon
execution the other agreements contemplated hereby shall constitute, the legal,
valid and binding obligation of such Stockholder, enforceable against him in
accordance with its terms.
7.1.3 No Consents. No permit, consent, approval or authorization of,
or declaration, filing or registration with, or the giving of notice to, any
public body or authority or other person or entity, including, but not limited
to, the Massachusetts Department of Public Utilities, is necessary in connection
with his execution, delivery and performance of this Agreement, the agreements
contemplated hereby and transactions contemplated hereby and thereby.
7.1.4 Litigation. There are no actions, suits, proceedings,
investigations or claims pending, threatened against or affecting such
Stockholder, at law or in equity, in any court or before any foreign, federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality wherein an unfavorable judgment, decree or order would
(a) restrain, prohibit, invalidate, rescind or make unlawful such Stockholder's
execution, delivery and performance of this Agreement or any of the agreements
contemplated hereby, (b) materially and adversely affect the ability of such
Stockholder to conduct the Assigned Business as presently conducted, or (c)
materially impact the ability of such Stockholder to perform this Agreement or
the agreements contemplated hereby.
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7.1.5 Accuracy of Representations and Warranties. To his actual
knowledge, none of the representations, warranties or statements contained in
this Agreement, or in the exhibits or schedules hereto, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make any of such representations, warranties or statements not
misleading.
7.1.6 Brokerage. Except for Carolina Barnes, whose fees are as set
forth in the Stated Liabilities, there are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding on
Quest, QAM, or the Stockholders. The Stockholders shall pay, and shall hold USN,
UTS, and Newco harmless against, any loss, liability or expense (including
without limitation, interest, penalties, reasonable costs of defense and
investigation, and reasonable attorneys' fees) arising out of or in connection
with any such claim.
7.1.7 Accredited Investor; Authorization, etc. He is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act,
and he has the individual, corporate, or partnership (as the case may be) power
and authority to enter into and perform this Agreement and to purchase the
shares of Common Stock.
7.1.8 Investment Knowledge. He has sufficient knowledge and experience
in financial and business matters so as to be capable of evaluating the risks
and merits of his
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investment in UTS; and he is capable of bearing the economic risks of such
investments, including a complete loss of his investment.
7.1.9 Opportunity to Discuss. He has had an opportunity to discuss
the business, management, and financial affairs of UTS with UTS's
representatives.
7.1.10 Distribution. The shares of Common Stock are being acquired
for his own account for the purpose of investment and not with a view to or for
resale in connection with any distribution thereof or interest therein.
7.1.11 Registration. He understands that (i) the shares of Common
Stock have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof, (ii) the shares of Common Stock
must be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration, (iii) the shares
of Common Stock shall bear a legend to such effect, and (iv) UTS will make a
notation on its transfer books to such effect.
7.2 Restrictions. To insure compliance with the provisions of the
Securities Act and state securities laws, each Stockholder agrees:
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7.2.1 Restrictive Legend. Unless and until otherwise permitted by
this Section 7.2, each Common Stock certificate issued to such Stockholder, or
its nominee, or to any subsequent transferee of such certificate, shall be
stamped or otherwise imprinted with the following restrictive legend:
"The securities represented by this Certificate have been acquired
for investment and have not been registered pursuant to the Securities
Act of 1933, as amended (the "Act"), or any applicable state statutes.
Such securities may not be sold, transferred, pledged, hypothecated,
or otherwise disposed of unless (i) a registration statement under the
Act or applicable state securities laws shall have become effective
with regard thereto, or (ii) an exemption from registration exists
under the Act (or the regulations promulgated thereunder) and
applicable state securities laws and such exemption is applicable
thereto."
7.2.2 Notice of Proposed Transfer. Subject to the foregoing and the
terms of the Stockholders' Agreement or the E&L Agreement, as the case may be,
prior to any transfer or sale of any of the shares of Common Stock, the holder
thereof desiring to effect such transfer or sale shall deliver to UTS (i) a
written notice briefly describing the manner of such transfer or sale, (ii) if
requested by UTS, a written opinion of counsel for such holder (provided that
such counsel, and the form and substance of such opinion, are reasonably
satisfactory to UTS) to the effect that such transfer or sale may be effected
without the registration of such shares of Common Stock under the Securities Act
and applicable state law, and (iii) the agreement of the transferee to the
provisions of this Section 7.2, and UTS shall thereupon permit or cause its
transfer agent (if any) to permit such transfer or sale to be effected.
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7.2.3 Termination of Restrictions.
A. Notwithstanding the foregoing, the restrictions imposed by
this Section 7.2 upon the transferability of the shares of Common Stock shall
terminate when (1) such shares of Common Stock have been registered under the
Securities Act and sold by the holder thereof in accordance with such
registration, (2) a written opinion has been received from counsel for the
holder thereof (provided that such counsel, and the form and substance of such
opinion, are reasonably satisfactory to UTS) or counsel for UTS, to the effect
that such restrictions are no longer required or necessary under any federal or
state securities law or regulation, (3) such shares of Common Stock have been
sold without registration under the Securities Act in compliance with Rule 144
or Rule 144A promulgated under the Securities Act, (4) UTS is reasonably
satisfied that the holder of such shares of Common Stock, in accordance with the
terms of Subsection (k) of Rule 144 or of Rule 144A promulgated under the
Securities Act, shall be entitled to sell such shares of Common Stock pursuant
to such Subsection, or (5) a letter or an order has been issued to the holder
thereof by the staff of the Commission stating that no enforcement action shall
be recommended by such staff or taken by the Commission, as the case may be, if
such shares of Common Stock are transferred without registration under the
Securities Act in accordance with the conditions set forth in such letter or
order and such letter or order specifies that no subsequent restrictions on
transfer are required.
B. Whenever the restrictions imposed by this Section 7.2 shall
terminate as hereinabove provided, the holder of a certificate representing any
of the shares of Common Stock then outstanding as to which such restrictions
shall have terminated shall be
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entitled to receive from UTS, without expense to such holder, one or more new
certificates for Common Stock not bearing the restrictive legend set forth in
Section 7.2.1.
SECTION 8. COVENANTS.
8.1 Liabilities. Newco hereby assumes and agrees to discharge the Stated
Liabilities. Except for the Stated Liabilities, Quest acknowledges that Newco
will have assumed no liabilities, known or unknown, due or to become due,
absolute or contingent, of Quest, and Quest, QAM, Lavin and Elliott jointly and
severally covenant to pay or cause to be paid all liabilities (except Stated
Liabilities) incurred by Quest as and when they come due. QAM acknowledges that
Newco will have assumed no liabilities, known or unknown, due or to become due,
absolute or contingent, of QAM, and QAM, Elliott and Lavin jointly and severally
covenant to pay or cause to be paid all liabilities of QAM as and when they come
due.
8.2 Consummation of Transactions. Each of Lavin and Elliott covenant and
agree that they shall use their best efforts (both individually and in their
capacity as the sole shareholders of QAM and otherwise) to cause QAM and Quest
to take, or cause to be taken, any and all actions and to do, or cause to be
done, any and all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement and the other
agreements and instruments contemplated hereby, including, but not limited to
satisfying all of the conditions precedent set forth in Section 9.1 hereof.
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8.3 Conduct of Assigned Business Pending the Closing.
8.3.1 Elliott, Lavin, QAM and Quest shall not take any action (or
intentionally omit to take a required action) which shall cause Quest to operate
the Assigned Business other than in the ordinary course of business consistent
with Quest's past practice during the period commencing with the execution and
delivery of this Agreement and ending with the Closing Date, and shall avoid any
act that might injure or detract from the goodwill and reputation of the
Assigned Business. Quest, QAM, Elliott and Lavin shall not take any action (or
intentionally omit to take a required action) which shall adversely affect the
goodwill of the Assigned Business' suppliers, customers, distributors, sales
representatives and others having business relations with Quest.
8.3.2 Quest shall use its commercially reasonable best efforts to
keep available for Newco the services of its present salespeople and employees
whose primary activities relate to the Assigned Business.
8.3.3 Quest shall, and Elliott, Lavin and QAM shall cause Quest to:
A. at all times cause to be done all things necessary to
maintain, preserve and renew its existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses;
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B. maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly and
advantageously conducted at all times;
C. pay and discharge when payable all Taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or supplies which, if
unpaid, would by law become a lien upon any of its property, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with generally
accepted accounting principles, consistently applied) have been established on
its books with respect thereto;
D. comply with all other obligations which it incurs pursuant
to any contract or agreement, whether oral or written, express or implied, as
such obligations become due, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect thereto;
E. comply with all applicable laws, rules and regulations of
all governmental authorities, including the Federal Communications Commission
and the
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Massachusetts Department of Public Utilities, the violation of which would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of Quest;
and
F. maintain proper books of record and account which fairly
present its financial condition and results of operations, and make provisions
on its financial statements for all such proper reserves as in each case are
required in accordance with generally accepted accounting principles,
consistently applied.
G. give UTS and its representatives full access, during normal
business hours, to all of Quest's premises, books, records, employees, and
independent public accountants possessing any information relating in any manner
to Quest, its properties, assets or business, and shall furnish UTS and its
representatives such financial and operating data and other information with
respect to the business, assets and/or properties of UTS as Quest or its
representatives, from time to time, reasonably shall request.
8.4 Negative Covenants. Quest, QAM, Elliott and Lavin covenant that,
except as permitted by the written consent of UTS, Quest shall operate the
Assigned Business only in the ordinary course consistent with its past practice
and Quest shall not, and QAM shall not permit Quest to, take any of the
following actions:
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8.4.1 propose or adopt any amendment to Quest's Agreement of Limited
Partnership, or declare or make any cash distributions to any of the partners of
Quest;
8.4.2 issue, sell, offer to issue or sell, or otherwise distribute
any partnership interests of Quest;
8.4.3 enter into any agreement (including any agreement in principle)
with respect to any merger, consolidation or business combination (other than
the transactions contemplated by this Agreement), any acquisition of a material
amount of assets or securities of any other entity, any disposition of a
material amount of its own assets or securities or any change in its
capitalization, or any release or relinquishment of any material contract right
not in the ordinary course of business consistent with past practice;
8.4.4 waive, release, grant or transfer any rights of value or modify
or change in any respect any existing license, lease, contract or document,
other than those which are cancelable within sixty (60) days for non-payment,
involve payments of less than $1,000, and are in the ordinary course of business
consistent with past practice;
8.4.5 fail to maintain its existing insurance coverage on the
Assigned Assets in effect on the date of this Agreement or, in the event any
such coverage shall be terminated or lapse, procure substantially similar
substitute insurance policies with financially sound and
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reputable insurance companies in at least such amounts and against such risks as
are currently covered by such terminated or lapsed policies;
8.4.6 adopt or amend in any respect any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any of Quest's
partners or employees, or (except for normal increases in the ordinary course of
business consistent with past practices) increase in any manner the compensation
or fringe benefits of any partner, salesperson or employee, or pay any material
benefit not required by any existing plan or arrangement, or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing;
8.4.7 make any capital expenditures or commitments for capital
expenditures in excess of $1,000 with respect to any single capital expenditure
or $5,000 in the aggregate;
8.4.8 fail to advise Newco in writing within three (3) business days
upon obtaining knowledge of any material change in the Assigned Business or
Assigned Assets;
8.4.9 incur any additional indebtedness for borrowed money or place a
lien on any Assigned Asset, or incur any other liabilities or indebtedness other
than in the ordinary course of business;
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8.4.10 amend or terminate the Mid-Com Distribution Agreement; or
8.4.11 agree in writing or otherwise to take any of the foregoing
actions or any action which would constitute or result in a violation of this
Agreement or make any representation or warranty contained in this Agreement
untrue or incorrect in any material respect; or
8.4.12 enter into any agreement of whatever type or nature which (i)
is not cancelable without penalty on sixty (60) days notice and (ii) during its
non-cancelable term requires the payment of more than $1,000.
8.5 Employee Matters.
8.5.1 Newco shall offer employment to those individuals set forth on
Schedule 4.17A, on terms materially no less favorable (and, in any event, with
respect to non-management employees, initially the same cash compensation) than
the terms in effect on the date hereof. All such individuals who accept offers
of employment with Newco as of the Closing shall be referred to herein as
"Transferred Employees"; provided, however, employees who are disabled on the
Closing Date shall not be considered Transferred Employees until they report to
work for Newco. Quest, QAM, Elliott and Lavin shall assist Newco in effecting
such Transferred Employees' change of employment as of the Closing Date in an
orderly fashion.
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8.5.2 Except as expressly set forth in Sections 2.2 and 4.18 hereof,
Newco shall not assume any assets or liabilities or any other obligation
whatsoever with respect to any employee benefit plan (within the meaning of
Section 3(3) of ERISA) maintained at any time by Quest or to which contributions
were made or required to be made by Quest.
8.5.3 Newco shall give credit to each Transferred Employee for all
vacation or sick days due to such Transferred Employee arising from his
employment with Quest.
8.5.4 Each Transferred Employee shall become fully vested in his
accrued benefit in each Tax Qualified plan maintained by Quest as of the Closing
Date. Quest, QAM, Elliott and Lavin agree that they will take such steps as are
necessary to carry out the obligations of the first sentence of this paragraph
and, as promptly as practicable, shall supply to Newco evidence of the actions
taken and copies of the operative documents. Newco agrees that it shall confirm,
as of the Closing Date, the name of all Transferred Employees.
8.5.5 As soon as practicable after the Closing Date, and effective as
of the Closing Date, Newco shall make available the USN profit-sharing plan with
a salary reduction arrangement that covers Transferred Employees and meets the
requirements of Sections 401(a) and 401(K) of the Code.
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8.6 Transfer Taxes. All transfer Taxes, realty Taxes, documentary Taxes,
stamp Taxes, and sales and use Taxes, if any, payable by reason of this
transaction or the sale, transfer or delivery of the Assigned Business shall be
paid and borne by Quest.
8.7 Bulk Sales Requirements. UTS and Newco hereby waive compliance by
Quest of any bulk sales notice requirements of applicable law, and Quest and
QAM, jointly and severally shall indemnify and hold USN, UTS and Newco harmless
from any and all losses, liabilities and expenses which shall arise against or
be incurred by USN, UTS or Newco for the failure to comply with such
requirements.
8.8 Registration Rights. If UTS shall grant piggyback registration rights
to its full-time executive officers with respect to any of the shares of Common
Stock owned personally by such executive officers, then UTS shall grant
substantially identical piggyback registration rights to Lavin and Elliott with
respect to the shares of Common Stock owned by each of Elliott and Lavin.
SECTION 9. CONDITIONS PRECEDENT TO CLOSING
9.1 Conditions Precedent to Obligation of UTS and Newco. The obligations
of UTS and Newco to consummate the transactions hereunder are subject to the
satisfaction of, or the waiver by UTS and Newco of, the following conditions
prior to or contemporaneously with the Closing:
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9.1.1 Related Transactions. Other than set forth in the Redemption
Agreement, the Related Transactions shall have been concurrently consummated.
9.1.2 Regulatory Approval. UTS shall have received the PSC Approval.
9.1.3 Guaranty Agreement. The Guaranty Agreement shall have been
executed and delivered by the parties thereto and shall be in full force and
effect.
9.1.4 USN Assignment. The USN Assignment shall have been consummated.
9.1.5 Escrow Agreement. The Escrow Agreement shall have been executed
and delivered by the parties thereto and shall be in full force and effect, and
the shares of Common Stock owned by Elliott and Lavin shall have been deposited
with the Escrow Agent with stock powers attached.
9.1.6 Employment Agreements. Elliott and Lavin each shall have
executed and delivered to Newco their respective Employment Agreements, and each
shall be in full force and effect.
9.1.7 Schiff Demand Notes. Quest and Northwood shall have agreed to
the repayment of the Schiff Demand Notes on terms acceptable to UTS.
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9.1.8 QWI Note. Quest and QWI shall have agreed to the repayment to
QWI of (i) the QWI Note and (ii) QWI's capital in Quest, each on terms
acceptable to UTS as provided in the Redemption Agreement.
9.1.9 Stockholders' Agreement Amendment; E&L Agreement. The
Stockholders' Agreement Amendment or the E&L Agreement, as the case may be,
shall have been executed and delivered by the parties thereto and shall be in
full force and effect.
9.1.10 Mid-Com Distribution Agreement. Except as otherwise agreed to
by Quest and UTS, Quest shall have obtained the consent to assign the Mid-Com
Distribution Agreement to Newco, and the Mid-Com Distribution Agreement shall
have been amended to UTS's reasonable satisfaction.
9.1.11 Redemption Agreement. The Redemption Agreement shall have been
executed and delivered by the parties thereto in form and substance acceptable
to UTS and shall be in full force and effect.
9.1.12 Limited Partner Release; Limited Partner Redemption Receipt.
The Limited Partner shall have executed and delivered the Limited Partner
Release, and UTS shall have received the Limited Partner Redemption Receipt.
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9.1.13 Dissolution Certificates; Instructions. The Dissolution
Certificates and the Instructions shall have been executed and delivered to
Newco.
9.1.14 Representations and Warranties Are True. The representations
and warranties of Quest, QAM, Elliott and Lavin contained in this Agreement
shall be true and correct in all material respects as of the Closing Date as if
made at and as of the Closing Date.
9.1.15 Conditions and Agreements Performed. Quest, QAM, Elliott and
Lavin shall have performed and complied in all respects with all agreements,
covenants, and conditions contained in this Agreement which are required to be
performed or complied with by them prior to or at the Closing.
9.1.16 No Actions, Suits or Proceedings. No action, suit, or
proceeding before any court or governmental regulatory authority shall be
pending, no investigation by any governmental regulatory authority shall have
been commenced, and no action, suit or proceeding by any governmental or
regulatory authority shall have been threatened against Quest, QAM, Elliott,
Lavin, USN, UTS or Newco or any of their principals, officers, directors or
partners seeking to restrain, prevent or change the transactions contemplated by
this Agreement or by any of the agreements contemplated hereby, or questioning
the legality or validity of any such transactions or agreements, or seeking
damages in connection with any such transactions or agreements.
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9.1.17 Delivery of Books and Records. Newco shall have received all
books and records of the Assigned Business.
9.1.18 No Adverse Effect. Since the date of the Quest Financial
Statements, the financial condition and business prospects of Quest and the
ability of Quest to conduct the Assigned Business in the manner in which such
business was conducted on or prior to that date shall not have been materially
adversely affected in any manner or by any cause whatsoever, whether or not
beyond the control of Quest, QAM, Elliott or Lavin, and whether or not covered
by insurance.
9.1.19 General Partner's Certificate. UTS and Newco shall have
received the certificate of a general partner of Quest certifying that the
conditions specified in Sections 9.1.14 and 9.1.15 have been satisfied.
9.1.20 Legal Opinion. Quest shall have furnished Newco with an
opinion of counsel in the scope and form of Exhibit F attached hereto.
9.1.21 OWI Certificate. Newco shall have received a certificate of
the President of QWI substantially in the form attached hereto as Exhibit J,
stating that (i) QWI is aware of and has consented to the transactions
contemplated by this Agreement, (ii) QWI has received cash and the QWI/Newco
Redemption Note in connection with the redemption of its partnership interest in
Quest, and (iii) upon completion of the transactions contemplated by this
Agreement,
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neither the Limited Partner nor QWI shall have any rights or interests in, or
claims against, Quest, USN, UTS, Network, Phonenet or Newco, or their respective
officers, directors, employees, agents or Affiliates, except (i) for payment of
the QWI/Newco Redemption Note and (ii) in the case of Quest, claims under the
Redemption Agreement.
9.1.22 Consent. Quest, QAM, Elliott and/or Lavin shall have obtained
copies of all consents required in connection with the transactions contemplated
hereunder, and shall have delivered copies of such consents to UTS and Newco.
9.1.23 Credit Reports. Newco and UTS shall have received the Credit
Reports, each as of date within three (3) days of the Closing Date and UTS shall
be satisfied with the content of such Credit Reports.
9.1.24 Northwood Release. UTS shall have received a general release
from Northwood in form and substance satisfactory to UTS pursuant to which
Northwood (on its own behalf and on behalf of its affiliates) shall release any
and all claims it may have against UTS and its affiliates.
9.2 Conditions Precedent to Obligations of Quest, QAM, Elliott and Lavin.
The obligation of Quest, QAM, Lavin and Elliott to consummate the transactions
contemplated hereby is subject to the satisfaction of, or the waiver by Quest,
QAM, Elliott and Lavin of, the following conditions prior to or
contemporaneously with the Closing:
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9.2.1 Regulatory Approval. UTS shall have received the PSC Approval.
9.2.2 Representations and Warranties Are True. The representations
and warranties made by UTS and Newco in this Agreement shall be true and correct
in all material respects as of the Closing Date as if made at and as of the
Closing Date.
9.2.3 Stockholders' Agreement Amendment; E&L Agreement. The
Stockholders' Agreement Amendment or the E&L Agreement, as the case may be,
shall have been executed and delivered by the parties thereto and shall be in
full force and effect.
9.2.4 USN Assignment. The USN Assignment shall have been consummated.
9.2.5 Conditions and Agreements Performed. Each of UTS and Newco
shall have performed and complied in all respects with all agreements, covenants
and conditions contained in this Agreement which are required to be performed or
complied with by it prior to or at the Closing.
9.2.6 No Actions, Suits or Proceedings. No action, suit, or
proceeding before any court or governmental regulatory authority shall be
pending, no investigation by any governmental regulatory authority shall have
been commenced, and no action, suit or proceeding by any governmental or
regulatory authority shall have been threatened against Quest, QAM, Elliott,
Lavin, USN, UTS or Newco or any of their principals, officers, directors or
partners
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seeking to restrain, prevent or change the transactions contemplated by this
Agreement or by any of the agreements contemplated hereby, or questioning the
legality or validity of any such transactions or agreements, or seeking damages
in connection with any such transactions or agreements.
9.2.7 Certificate of Incorporation. The Certificate of Incorporation
of Newco shall be in full force and effect under the laws of the State of
Delaware as of the Closing Date and shall not have been amended or modified.
9.2.8 Blue Sky Clearance. UTS shall have made all filings under
applicable state securities laws necessary to consummate the issuance of the
shares of Common Stock pursuant to this Agreement.
9.2.9 Officer's Certificate. Quest shall have received the
certificate of the President of UTS certifying that the conditions contained in
Sections 9.2.2 and 9.2.5 have been satisfied.
9.2.10 Legal Opinion. UTS shall have furnished Quest with an opinion
of counsel in the scope and form of Exhibit I attached hereto.
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SECTION 10. POST-CLOSING COVENANTS.
Pursuant to the Instructions and except as otherwise provided herein,
UTS agrees to issue and Newco agrees to deliver to Elliott and Lavin, a
certificate or certificates, in the amounts and at the times set forth in
Schedule 2.4 hereto, each in definitive form, representing the shares of Common
Stock to be issued to Elliott and Lavin pursuant to Section 2.4 hereto.
SECTION 11. INDEMNIFICATION.
11.1 Indemnification by Ouest. Quest hereby agrees to indemnify, defend
and hold harmless each of UTS, Newco and their respective officers, directors,
shareholders, and agents from and against, and to pay for as incurred, any and
all losses, liabilities, damages or deficiencies (including, without limitation,
interest, penalties, reasonable costs of defense and investigation, and
reasonable attorneys' fees) (collectively, "Losses") arising out of or due to
(i) a breach of any of the representations, warranties or covenants of Quest
contained in this Agreement, or (ii) any claim, cause of action, or suit with
respect to the Assigned Business or the Assigned Assets, other than for the
collection of Stated Liabilities (collectively, the "Damages").
11.2 Indemnification by the Stockholders. The Stockholders, jointly and
severally, hereby agree to indemnify, defend and hold harmless each of UTS,
Newco, and their respective officers, directors, shareholders, agents from and
against, and to pay for as incurred, any and all Losses arising out of or due to
a breach of any of their representations, warranties or covenants contained in
this Agreement.
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11.3 Security. The obligations contained in Section 11.1 hereof shall be
guaranteed by the Stockholders, with recourse only to the shares of Common Stock
deposited with the Escrow Agent, as more fully set forth in the Guaranty
Agreement. The Stockholders' guaranty obligations set forth in the Guaranty
Agreement, and their indemnification obligations set forth in Section 11.2
hereof shall be secured by the deposit of shares of Common Stock owned by
Elliott and Lavin with the Escrow Agent in accordance with the terms of the
Escrow Agreement.
11.4 Indemnification by UTS and Newco. UTS and Newco hereby agree to
indemnify, defend and hold harmless each of Quest, QAM, Elliott and Lavin from
and against, and to pay for as incurred, any and all Losses arising out of or
due to a breach of any of the representations, warranties or covenants of UTS or
Newco contained in this Agreement.
SECTION 12. TERMINATION.
UTS, in its sole discretion, may terminate this Agreement at any time:
12.1 On or after August 1, 1995 if any of the closing conditions set
forth in Section 9.1 of this Agreement have not been satisfied prior to August
1, 1995; or
12.2 Prior to the Closing if, on or before June 22, 1995, the
closing conditions set forth in Sections 9.1.7, 9.1.8, 9.1.10 and 9.1.11 have
not been satisfied.
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SECTION 13. NOTICES.
All notices and other communications hereunder will be in writing and
will be given by personal delivery, telegram, telex, facsimile or other standard
form of telecommunication, or by registered or certified mail, return receipt
requested, to the parties at their respective addresses set forth above, with
copies as follows:
If to UTS or Newco, to:
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, NY 10022
Attn: Henry A. Singer, Esq.
If to Quest, Elliott, Lavin or QAM, to:
Hale and Dorr
60 State Street
Boston, MA 02109
Attn: Joseph E. Mullaney, Esq.
or to such other addresses as the recipient, by notice given pursuant hereto,
shall notify the other parties hereto.
SECTION 14. MISCELLANEOUS.
14.1 Survival. Except as otherwise specifically provided, the provisions
of this Agreement, including, but not limited to, all representations,
warranties and covenants (including, without limitation, the indemnification
obligations contained in Section 11 of this Agreement) contained herein, shall
survive the Closing.
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14.2 Entire Agreement. This Agreement, together with the agreements
entered into in accordance with the terms hereof and contemplated hereby,
constitute the entire understanding between the parties hereto with respect to
the subject matter hereof and supersede any and all prior agreements between the
parties hereto with respect to the subject matter hereof.
14.3 Assignment. This Agreement is binding on the parties hereto and their
successors. This Agreement is not assignable and any purported assignment shall
be null and void and of no effect.
14.4 Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
14.5 Effect of Headings. The Section headings contained herein are for
convenience only and shall not affect the construction hereof.
14.6 Governing Law. The provisions of this Agreement and all the rights
and obligations of the parties hereunder shall be governed by and construed in
accordance with the
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substantive laws of the State of New York applicable to agreements negotiated
and executed wholly within such State.
14.7 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
United Telemanagement Services, Inc.
By: /s/ Thomas C. Brandenburg
----------------------------------------------
Thomas C. Brandenburg, Chief Executive Officer
Quest United, Inc.
By: /s/ Thomas C. Brandenburg
----------------------------------------------
Thomas C. Brandenburg, Chairman of the Board
Quest America Management, Inc.
By: /s/ Edward H. Lavin, Jr.
----------------------------------------------
Edward H. Lavin, Jr., President
Quest America, LP
By: Quest America Management, Inc.
By /s/ Edward H. Lavin, Jr.
------------------------------------------
Edward H. Lavin, Jr., President
By: Quest West, Inc.
By: /s/ John M. Orehek
-----------------------------------------
Edward H. Lavin, Jr.
/s/ Edward H. Lavin, Jr.
-------------------------------------------------
J. Thomas Elliott
/s/ J. Thomas Elliott
-------------------------------------------------
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FOURTH AMENDMENT TO
PURCHASE AGREEMENT
THIS FOURTH AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made
as of June 22, 1995, by and among United USN, Inc., a Delaware corporation (the
"Company"), CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC"),
Chemical Venture Capital Associates, a California limited partnership
("Chemical"), and Hancock Venture Partners IV - Direct Fund L.P., a Delaware
limited partnership ("Hancock" and, collectively with CIBC and Chemical, the
"Purchasers"), and amends that certain Purchase Agreement dated as of April 20,
1994 by and among the Company, CIBC and Chemical, as amended (as so amended, the
"Purchase Agreement").
The Purchasers are holders of shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock"), and Series A 10% Senior
Cumulative Preferred Stock, par value $1.00 per share (the "Preferred Stock").
The Company is seeking to raise additional equity capital and has proposed to
sell Common Stock and Series A-2 10% Senior Cumulative Preferred Stock to each
of the Purchasers, BT Capital Partners, Inc., a Delaware corporation ("BT"), and
possibly certain other parties for an aggregate purchase price of up to
$26,500,000 pursuant to a Purchase Agreement, dated as of June 22, 1995 (the
"Second Purchase Agreement"), by and among the Company, each of the Purchasers,
BT and possibly certain other parties. In order to induce BT and the Purchasers
to consummate the Second Purchase Agreement, the Purchasers desire to and hereby
amend certain provisions of the Purchase Agreement and waive certain rights
under the Purchase Agreement pursuant to Section 9E thereof. The Company enters
into this Amendment to induce the Purchasers to waive certain rights under the
Purchase Agreement and to induce BT and the Purchasers to consummate the Second
Purchase Agreement. Execution of this Agreement is a condition precedent to the
obligations of the Purchasers and BT under the Second Purchase Agreement. Unless
otherwise indicated, each capitalized term used herein has the meaning given
such term in the Purchase Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
1. Amendment of Section 4. Each of the parties hereto agrees that
Section 4 of the Purchase Agreement is hereby amended by inserting the following
after the section heading "Covenants." before the first covenant which begins
with the heading "4A. Financial Statements and Other Information.":
The Company shall comply with each covenant set forth in this Section
4 from the date of this Agreement and continuing until the Second
Purchase Agreement Closing but will not be obligated to comply with
any covenant set forth in this Section 4 during the period commencing
upon consummation of the Second Purchase Agreement Closing:
2. Waiver of Certain Rights and Restrictions. Each of the Purchasers
waives any breach by the Company of any of its agreements pursuant to the
Purchase Agreement resulting from the issuance by the Company of Common Stock
and Preferred Stock pursuant to the Second Purchase Agreement, including,
without limitation, the Company's failure to comply with Section 3D(iii),
Section 3D(xiii) and Section 3J in connection with the transactions contemplated
by the Second Purchase Agreement.
3. Amendment of Section 8. Each of the parties hereto agrees that
Section 8 of the Purchase Agreement is hereby amended by inserting the following
definition:
"Second Purchase Agreement Closing" has the meaning given the term
"Closing" in the Purchase Agreement, dated as of June 22, 1995, by and
among the Company, the Purchasers and certain other investors.
4. Anti-dilution Adjustment. Each holder of Investor Common Stock will
benefit from certain rights to protect them against issuances, or deemed
issuances, of stock of the Company which may otherwise have the effect of
diluting such holders' equity interests in the Company, as set forth in Exhibit
I hereto.
5. Counterparts. This Amendment may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such
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<PAGE>
counterparts taken together shall constitute one and the same Amendment.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-----------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
-----------------------------------
By:
--------------------------------
Its:
-------------------------------
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
-----------------------------------
By:
--------------------------------
Its:
------------------------------
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<PAGE>
PURCHASE AGREEMENT
DATED AS OF JUNE 22, 1995
BY AND AMONG
CIBC WOOD GUNDY VENTURES, INC.,
CHEMICAL VENTURE CAPITAL ASSOCIATES,
HANCOCK VENTURE PARTNERS IV - DIRECT FUND, L.P.,
BT CAPITAL PARTNERS, INC.,
NORTHWOOD CAPITAL PARTNERS LLC,
NORTHWOOD VENTURES
AND
UNITED USN, INC.
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Authorization and Closing......................1
1A. Authorization of the Stock......................1
1B. Purchase and Sale of Stock......................1
1C. The Closing.....................................1
1D. The Additional Purchase.........................2
Section 2. Conditions to Each Purchaser's
Obligation at the Closing......................4
2A. Representations and Warranties: Covenants.......4
2B. Certificate of Designation......................4
2C. Certificate of Incorporation and Bylaws.........4
2D. Amended Registration Agreement..................4
2E. Stockholders Agreement..........................4
2F. Employment Agreements...........................5
2G. Sale of Stock to Each Purchaser.................5
2H. Blue Sky Clearance..............................5
2I. Amendment to First Purchase Agreement...........5
2J. Closing Documents...............................5
2K. Opinion of Network's Counsel....................6
2L. Compliance with Applicable Laws.................6
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<TABLE>
<CAPTION>
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2M. Due Diligence.................................................................... 7
2N. Investment Committee Approval.................................................... 7
2O. Proceedings...................................................................... 7
2P. Waiver........................................................................... 7
Section 3. Covenants...................................................................... 7
3A. Financial Statements and Other Information....................................... 7
3B. Attendance at Board Meetings..................................................... 11
3C. Inspection of Property........................................................... 11
3D. Restrictions..................................................................... 11
3E. Affirmative Covenants............................................................ 16
3F. Compliance with Agreements....................................................... 17
3G. Current Public Information....................................................... 17
3H. Amendment of UTS Agreement, Schwartz
Agreement and Employment Agreements.............................................. 18
3I. Proprietary Rights and CAP Agreements............................................ 18
3J. Preemptive Rights................................................................ 18
3K. Regulatory Compliance Cooperation................................................ 19
3L. Public Disclosures............................................................... 20
3M. Management Option Pool........................................................... 20
3N. Key-Man Life Insurance........................................................... 21
3O. SBIC Regulatory Provisions....................................................... 21
Section 4. Transfer of Restricted Securities.............................................. 23
</TABLE>
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<TABLE>
<CAPTION>
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Section 5. Representations and Warranties of the Company.................................. 24
5A. Organization and Corporate Power................................................. 24
5B. Capital Stock and Related Matters................................................ 24
5C. Subsidiaries; Investments........................................................ 26
5D. Authorization; No Breach......................................................... 26
5E. Financial Statements............................................................. 27
5F. Absence of Undisclosed Liabilities............................................... 27
5G. No Material Adverse Change....................................................... 28
5H. Absence of Certain Developments.................................................. 28
5I. Assets........................................................................... 29
5J. Tax Matters...................................................................... 30
5K. Contracts and Commitments........................................................ 30
5L. Proprietary Rights............................................................... 33
5M. Litigation, etc.................................................................. 34
5N. Brokerage........................................................................ 34
5O. Governmental Consent, etc........................................................ 34
5P. Insurance........................................................................ 35
5Q. Employees........................................................................ 35
5R. ERISA............................................................................ 35
(a) Multiemployer Plans.......................................................... 35
(b) Retiree Welfare Plans........................................................ 35
</TABLE>
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<TABLE>
<CAPTION>
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(c) Defined Benefit Plans........................................................ 36
(d) Defined Contribution Plans................................................... 36
(e) Other Plans.................................................................. 36
(f) The Company.................................................................. 36
5S. Compliance with Laws............................................................. 36
5T. Small Business Matters........................................................... 36
5U. Affiliated Transactions.......................................................... 37
5V. New York Telephone Company Agreement............................................. 37
5W. Disclosure....................................................................... 37
5X. Knowledge........................................................................ 38
5Y. Closing Date..................................................................... 38
5Z. Projections and Pro Forma Financial Statements................................... 38
Section 6. Put Arrangements............................................................... 39
6A. The Put.......................................................................... 39
6B. Put Closing...................................................................... 39
6C. Put Payment...................................................................... 39
6D. Put Price........................................................................ 41
6E. Put Termination.................................................................. 41
Section 7. Additional Protections for Holders of Investor Common Stock.................... 42
7A.................................................................................... 42
7B.................................................................................... 42
</TABLE>
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<TABLE>
<CAPTION>
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Section 8. Definitions.................................................................... 42
Section 9. Miscellaneous.................................................................. 50
9A. Expenses.......................................................................... 50
9B. Remedies.......................................................................... 50
9C. Purchaser's Investment Representations............................................ 51
9D. Treatment of the Preferred Stock.................................................. 51
9E. Consent to Amendments............................................................. 51
9F. Survival of Representations and Warranties........................................ 52
9G. Successors and Assigns............................................................ 52
9H. Capital and Surplus; Special Reserves............................................. 52
9I. Generally Accepted Accounting Principles.......................................... 52
9J. Severability...................................................................... 53
9K. Counterparts...................................................................... 53
9L. Descriptive Headings; Interpretation.............................................. 53
9M. Governing Law..................................................................... 53
9N. Notices........................................................................... 53
9O. Understanding Among the Purchasers................................................ 54
9P. Indemnification................................................................... 54
9Q. No Solicitation, Etc.............................................................. 54
9R. Insurance Proceeds................................................................ 55
</TABLE>
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<PAGE>
Schedules and Exhibits and Appendices
- -------------------------------------
Schedule of Purchasers
List of Exhibits
List of Disclosure Schedules
Attachment A
Appendix I
-vi-
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT is made as of June 22, 1995 by and among United USN,
Inc., a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), Chemical Venture Capital Associates, a California
limited partnership ("Chemical"), Hancock Venture Partners IV - Direct Fund,
L.P., a Delaware limited partnership ("Hancock"), BT Capital Partners, Inc., a
Delaware corporation ("BT"), Northwood Capital Partners LLC, a New York limited
liability company ("Northwood Capital") and Northwood Ventures, a New York
limited partnership ("Northwood Ventures," and collectively with CIBC, Chemical,
Hancock and Northwood Capital, the "Purchasers"). Capitalized terms used herein
are defined in Section 8 hereof.
The Company, CIBC, Chemical and Hancock are parties to a Purchase
Agreement dated as of April 20, 1994, as amended as of June 10, 1994, and
November 1, 1994 (as so amended, the "First Purchase Agreement"), pursuant to
which CIBC, Chemical and Hancock purchased from the Company certain shares of
the Company's Preferred Stock - Series 1 and Common Stock. The Purchasers desire
to purchase from the Company and the Company desires to sell to the Purchasers
shares of Preferred Stock - Series 2 and additional shares of Common Stock.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Authorization and Closing.
-------------------------
1A. Authorization of the Stock. The Company shall authorize the
issuance and sale to the Purchasers of an aggregate of 22,869 shares of
Preferred Stock - Series 2 having the rights and preferences set forth in
Exhibit A attached hereto, and 118,462 shares of Common Stock.
1B. Purchase and Sale of Stock. At the Closing, the Company shall
sell to each Purchaser and, subject to the terms and conditions set forth
herein, each Purchaser shall purchase from the Company the number of shares of
Preferred Stock - Series 2 set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto at a price of $1,000 per share and the
number of shares of Common Stock set forth opposite such Purchaser's name on
<PAGE>
the Schedule of Purchasers attached hereto at a price of $1.95 per share.
1C. The Closing. Subject to the satisfaction of the conditions set
forth in Section 2, the closing of the transactions contemplated by Sections 1A
and 1B (the "Closing") shall take place at the offices of Kirkland & Ellis,
Citicorp Center, 153 East 53rd Street, New York, New York 10022-4675 at 10:00
a.m. on June 22, 1995, or at such other place as may be mutually agreeable to
the Company and each Purchaser. At the Closing, the Company shall deliver to
each Purchaser stock certificates evidencing the Stock to be purchased by such
Purchaser, registered in such Purchaser's or its nominee's name, upon payment of
the purchase price thereof by a cashier's or certified check, or by wire
transfer of immediately available funds to the Company's account at Madison Bank
& Trust, in the amounts set forth opposite such Purchaser's name on the Schedule
of Purchasers. The Company hereby acknowledges receipt of $1,000,000 from each
of CIBC, Chemical and Hancock, which amount was delivered to the Company by each
of such parties on or prior to May 26, 1995 as an advance payment of a portion
of the purchase price payable pursuant to this Agreement, and which amount will
be deducted from amounts otherwise payable by each such Purchaser at the
Closing.
1D. The Additional Purchase.
-----------------------
(i) The Company shall authorize the issuance and sale to Prime
Cable and/or one or more of its controlled Affiliates (such purchaser(s),
the "Additional Purchaser") of an aggregate of 2,475 shares of Preferred
Stock - Series 2 and 12,821 shares of Common Stock (the "Additional
Stock"); provided, that the Company will authorize the issuance and sale of
such Additional Stock to CIBC, Hancock and Chemical in the event that the
Additional Purchaser fails for any reason to consummate such purchase by
July 15, 1995. In the event that the Additional Purchaser executes and
delivers a counterpart to this Agreement and consummates the purchase of
Additional Stock by July 15, 1995 and otherwise in accordance with this
Agreement, the Additional Purchaser will be deemed to be a "Purchaser" for
all purposes hereof.
(ii) In the event that the Additional Purchaser fails for any
reason to purchase the Additional Stock by July
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<PAGE>
15, 1995, each of CIBC, Hancock and Chemical will purchase, by not later
than August 1, 1995 and for the same price and on the same terms as it will
purchase the other shares of Preferred Stock and Common Stock as
contemplated by Section 1B above, the Residual Preferred Number of Shares
of Preferred Stock and the Residual Common Number of Shares of Common
Stock; provided that, so long as the sale of Stock contemplated to occur at
the Closing is consummated, the only condition to the obligations of each
of CIBC, Hancock and Chemical to consummate such purchase will be that such
Purchaser's investment committee or similar authority shall have approved
the purchase contemplated by this Section 1D. In such event, each of CIBC,
Hancock and Chemical will be permitted to rely on all documents and
certificates delivered to the Purchasers at the Closing, including the
legal opinion delivered pursuant to Section 2 below, in connection with its
purchase of such additional Stock. For purposes of this Section 1D, the
"Residual Preferred Number" means (a) one-third multiplied by (b) the
excess, if any, of (x) 1,881, minus (b) the aggregate number of shares of
Preferred Stock sold to the Additional Purchaser as contemplated by this
Section 1D, or to any other Person, at a price of $1,000 or more per share,
at or prior to the Second Closing; and the "Residual Common Number" means
5.180202 multiplied by the Residual Preferred Number.
(iii) The closing of the purchase and sale of the Additional
Stock (the "Second Closing") shall take place at the offices of Kirkland &
Ellis, Citicorp Center, 153 East 53rd Street, New York, New York 10022-4675
at 10:00 a.m. on July 15, 1995 (if to the Additional Purchaser) or August
1, 1995 (if to CIBC, Hancock and/or Chemical), or at such other place as
may be mutually agreeable to the Company and the Additional Purchaser (or
CIBC, Hancock and/or Chemical, as appropriate). At the Second Closing, the
Company shall deliver to the Additional Purchaser (or CIBC, Hancock and/or
Chemical, as appropriate) stock certificates evidencing the Additional
Stock to be purchased by the Additional Purchaser (or CIBC, Hancock and/or
Chemical, as appropriate), registered in such Purchaser's or its nominee's
name, upon payment of the purchase price thereof by a cashier's or
certified check, or by wire transfer of immediately available funds to the
Company's account at Madison Bank & Trust, in the amounts of
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<PAGE>
the purchase price for such Additional Stock. AT THE SECOND CLOSING, THE
ADDITIONAL PURCHASER WILL BECOME A PARTY TO THE AMENDED REGISTRATION
AGREEMENT AND THE AMENDED STOCK TRANSFER AGREEMENT by executing
counterparts thereto.
(iv) Northwood Capital and Northwood Ventures Additional
Purchase. Northwood Capital and Northwood Ventures shall have certain
obligations and rights to purchase 891 shares of Preferred Stock - Series 2
and 4,616 shares of Common Stock on the terms and subject to the conditions
set forth in Appendix I attached hereto. The terms of Appendix I are
incorporated into this Agreement. Except as set forth in such Appendix, any
such purchase will be on the terms set forth in this Agreement, except
that, so long as the Closing is consummated hereunder, none of the
conditions set forth in Section 2 hereof will apply to the obligations of
Northwood Capital and Northwood Ventures as described in such Appendix.
Northwood Capital and Northwood Ventures each represents and warrants that
they collectively hold title to the Notes (as defined in Appendix I hereto)
free and clear of all liens, charges and encumbrances, and they jointly and
severally agree not to transfer any interest in the Notes to any Person,
other than the Company, prior to the 91st day following the Closing.
Section 2. Conditions to Each Purchaser's Obligation at the Closing.
The obligation of each Purchaser to purchase and pay for the Stock at the
Closing is subject to the satisfaction as of the Closing of the following
conditions:
2A. Representations and Warranties: Covenants. The representations
and warranties contained in Section 5 hereof shall be true and correct at and as
of the Closing as though then made, except to the extent of changes caused by
the transactions expressly contemplated herein, and the Company shall have
performed in all material respects all of the covenants required to be performed
by them hereunder prior to the Closing.
2B. Certificate of Designation. The Company shall have duly adopted,
executed and filed with the Secretary of State of the State of Delaware the
Certificate of Designation, and the Company shall not have adopted or filed any
other document designating terms, relative rights or preferences of its
preferred stock. The Certificate of Designation shall be in full force and
effect as of
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<PAGE>
the Closing under the laws of the State of Delaware and shall not have been
amended or modified.
2C. Certificate of Incorporation and Bylaws. The Company's bylaws
shall permit the Company's stockholders to establish the size of the board from
6 to 11 directors and permit the stockholders to fill any vacancies on the board
of directors and the Company's bylaws shall each be in full force and effect as
of the Closing and shall not have been otherwise amended or modified. The
Company shall have duly adopted, executed and filed with the Secretary of State
of the State of Delaware the Certificate of Amendment and, as amended thereby,
the Company's Certificate of Incorporation shall be in full force and effect as
of the Closing and shall not have been otherwise amended or modified.
2D. Amended Registration Agreement. The Company and the Purchasers
shall have entered into the Amended Registration Agreement, and the Amended
Registration Agreement shall be in full force and effect as of the Closing.
2E. Stockholders Agreement. The Company, each Purchaser, Thomas C.
Brandenburg and Thomas C. Brandenburg as Trustee for David W. Montville shall
have authorized, executed and delivered the Amended Stockholders Agreement, and
the Amended Stockholders Agreement shall be in full force and effect as of the
Closing.
2F. Employment Agreements. The Employment Agreements shall be in full
force and effect as of the Closing.
2G. Sale of Stock to Each Purchaser. The Company shall have
consummated the sale to each other Purchaser of all Stock contemplated by
Section 1B to be sold to each such other Purchaser and the Company shall have
tendered duly executed certificates for the Stock to be purchased by such
Purchaser hereunder at the Closing.
2H. Blue Sky Clearance. The Company shall have made all pre-sale
filings under applicable state securities laws necessary, if any, to consummate
the issuance of the Stock pursuant to this Agreement in compliance with such
laws.
-5-
<PAGE>
2I. Amendment to First Purchase Agreement. The Company and the
Purchasers (other than BT, Northwood Capital and Northwood Ventures) shall have
entered into the Fourth Amendment to Purchase Agreement, and the First Purchase
Agreement, as amended by such amendment, shall be in full force and effect as of
the Closing.
2J. Closing Documents. The Company shall have delivered to each
Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing,
stating that the conditions specified in Section 1 and paragraphs 2A
through 2I, inclusive, have been fully satisfied;
(ii) certified copies of the resolutions duly adopted by the
Company's board of directors authorizing the execution, delivery and
performance of this Agreement, the Amended Registration Agreement, the
Amended Stockholders Agreement, the Fourth Amendment to Purchase Agreement
and each of the other agreements contemplated hereby, the filing of the
Certificate of Designation, the filing of the Certificate of Amendment, the
issuance and sale of the Stock, and the consummation of all other
transactions contemplated by this Agreement;
(iii) certified copies of the Certificate of Incorporation (as
amended by the Certificate of Amendment), the Certificate of Designation
and the Company's bylaws, each as in effect at the Closing;
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder (including, without limitation, all blue sky law
filings and waivers of all preemptive rights and rights of first refusal);
(v) duly completed and executed SBA Forms 480, 652 and Part A of
1031;
(vi) a business plan showing the Company's financial projections
(including balance sheets and income and cash flow statements) for a 5-year
period;
-6-
<PAGE>
(vii) a written statement from the Company regarding its intended
use of the proceeds of the Financing;
(viii) a list, after giving effect to the transactions
contemplated by this Agreement, of (a) the name of each of the Company's
directors, (b) the name and title of each of the Company's officers, and
(c) the name of each of the Company's stockholders setting forth the number
and class of shares held;
(ix) a duly executed Amendment to Plan of Divestiture in the
form set forth in Exhibit I attached hereto; and
(x) such other documents relating to the transactions
contemplated by this Agreement as any Purchaser or its special counsel may
reasonably request.
2K. Opinion of Company's Counsel. Each Purchaser shall have received
from Baker & Hostetler, counsel for Company, an opinion with respect to the
matters set forth in Exhibit H attached hereto, which shall be addressed to each
Purchaser, dated the date of the Closing and in form and substance satisfactory
to each of the Purchasers in its sole discretion.
2L. Compliance with Applicable Laws. The purchase of Stock by each
Purchaser hereunder shall not be prohibited by any applicable law or
governmental regulation, shall not subject such Purchaser to any penalty,
liability or, in such Purchaser's sole judgment, other onerous condition under
or pursuant to any applicable law or governmental regulation, and shall be
permitted by laws and regulations of the jurisdictions to which such Purchaser
is subject.
2M. Due Diligence. BT shall be reasonably satisfied with the results
of its continuing business, legal and accounting due diligence review of the
Company and each of its Subsidiaries.
2N. Investment Committee Approval. Each Purchaser's investment
committee or similar authority shall have approved the transactions contemplated
by this Agreement.
-7-
<PAGE>
2O. Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be satisfactory in form and substance to the
Purchasers and their special counsel.
2P. Waiver. Any condition specified in this Section 2 may be waived
if consented to by all Purchasers; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
Section 3. Covenants.
---------
3A. Financial Statements and Other Information. The Company shall
deliver to the Purchasers, and if the Purchasers have transferred any part of
its interest in the Company, also to any other holder of Investor Preferred
Stock or Investor Common Stock (other than any such holder actively engaged in
the telecommunications industry and in good faith determined by the Company's
board of directors to be a competitor of the company or any of its
Subsidiaries):
(i) As soon as available but in any event within 30 days after
the end of each monthly accounting period in each fiscal year (other than
the fourth such quarterly accounting period of any year), unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period
from the beginning of the fiscal year to the end of such month, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each
case comparisons to the annual budget and to the corresponding period in
the preceding fiscal year;
(ii) As soon as available but in any event within 45 days after
the end of each quarterly accounting period in each fiscal year (other than
the fourth such quarterly accounting period of any year), unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such quarterly period and for the period
from the beginning of the fiscal year to the end of such quarter, and
consolidating and consolidated balance sheets of the
-8-
<PAGE>
Company and its Subsidiaries as of the end of such quarterly period,
setting forth in each case comparisons to the annual budget and to the
corresponding period in the preceding fiscal year;
(iii) accompanying the financial statements referred to in
subparagraph (ii), an Officer's Certificate, in the form attached to the
First Purchase Agreement, stating that there is no Event of Noncompliance
in existence and that neither the Company nor any of its Subsidiaries is in
default under any of its other material agreements or, if any Event of
Noncompliance or any such default exists, specifying the nature and period
of existence thereof and what actions the Company and its Subsidiaries have
taken and propose to take with respect thereto; and a management discussion
and analysis of such financial statements and comparisons;
(iv) within the 90 days after the end of each fiscal year,
unaudited consolidating and audited consolidated statements of income and
cash flows of the Company and its Subsidiaries for such fiscal year, and
unaudited consolidating and audited consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal year, setting
forth in each case comparisons to the preceding fiscal year and comparisons
to budget will be provided under separate cover, and accompanied by (a)
with respect to the consolidated portions of such statements, an opinion
containing no exceptions or qualifications (except for qualifications
regarding specified contingent liabilities) of an independent accounting
firm of recognized national standing acceptable to the holders of at least
66 2/3% of the Investor Preferred Stock and the holders of at least 66 2/3%
of the Investor Common Stock, (b) a certificate from such accounting firm,
addressed to the Company's board of directors, stating that in the course
of its examination nothing came to its attention that caused it to believe
that there was an Event of Noncompliance in existence or that there was any
other default by the Company or any Subsidiary in the fulfillment of or
compliance with any of the terms, covenants, provisions or conditions of
any other material agreement to which the Company or any Subsidiary is a
party or, if such accountants have reason to believe any Event of
Noncompliance or other default by the company or any Subsidiary exists, a
certificate
-9-
<PAGE>
specifying the nature and period of existence thereof, and (c) a copy of
such firm's annual management letter to the board of directors;
(v) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's or its Subsidiaries, operations or financial
affairs given to the Company or its Subsidiaries by its independent
accountants (and not otherwise contained in other materials provided
hereunder);
(vi) at least 30 days prior to the beginning of each fiscal year,
an annual budget prepared on a monthly basis for the Company and its
Subsidiaries for such fiscal year (displaying anticipated statements of
income and cash flows and balance sheets), and promptly upon preparation
thereof any other significant budgets prepared by the Company or its
Subsidiaries and any revisions of such annual or other budgets, and within
30 days after any monthly period in which there is a material adverse
deviation from the annual budget, an Officer's Certificate explaining the
deviation and what actions the Company has taken and proposes to take with
respect thereto;
(vii) promptly (but in any event within five business days) after
the discovery or receipt of notice of any Event of Noncompliance, any
default under any material agreement to which the Company or any of its
Subsidiaries is a party or any other material adverse event or circumstance
affecting the Company or any Subsidiary (including the filing of any
material litigation against the Company or any Subsidiary or the existence
of any dispute with any Person which involves a reasonable likelihood of
such litigation being commenced), an Officer's Certificate specifying the
nature and period of existence thereof and what actions the Company and its
Subsidiaries have taken and propose to take with respect thereto;
(viii) within 10 days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general
written communications which the Company sends to its stockholders and
copies of all registration
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statements and all regular, special or periodic reports which it files, or
any of its officers or directors file with respect to the Company, with the
Securities and Exchange Commission or with any securities exchange on which
any of its securities are then listed, and copies of all press releases and
other statements made available generally by the Company or its
Subsidiaries to the public concerning material developments in the business
of the Company or its Subsidiaries;
(ix) unless included the unaudited consolidating financial
statements, otherwise delivered pursuant to this Section 3A, within 10 days
after receipt thereof, copies of all financial statements provided by UTS
to the Company unless such financial statements have been forwarded to each
Purchaser by UTS; and
(x) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably
request.
Each of the financial statements referred to in any of subparagraphs (i), (ii)
and (iv) shall be true and correct in all material respects as of the dates and
for the periods stated therein, be prepared in accordance with generally
accepted accounting principles consistently applied, subject in the case of the
unaudited financial statements to changes resulting from normal year-end audit
adjustments (none of which would, alone or in the aggregate, be materially
adverse to the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole) and
except for the absence of footnotes.
Notwithstanding the foregoing, the provisions of this paragraph 3A, other
than subparagraph 3A(x), shall cease to be effective so long as the Company (a)
is subject to the periodic reporting requirements of the Securities Exchange Act
and continues to comply with such requirements and (b) promptly provides to each
Person otherwise entitled to receive information pursuant to this paragraph 3A
all reports and other materials filed by the Company with the Securities and
Exchange Commission pursuant to the periodic reporting requirements of the
Securities Exchange Act;
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provided that so long as any Investor Preferred Stock remains outstanding, the
Company shall continue to deliver to each Qualified Holder the information
specified in subparagraphs 3A(i), (ii), 3A(iv)(b) and 3A(vii).
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each Person entitled to receive information
regarding the Company and its Subsidiaries under paragraph 3A shall use its best
efforts to maintain the confidentiality of all nonpublic information obtained by
it hereunder which the Company or its Subsidiaries has reasonably designated as
proprietary or confidential in nature; provided that each such Person may, to
the extent required by law, disclose such information in connection with the
sale or transfer of any Stock if such Person's transferee agrees in writing to
be bound by the provisions hereof.
3B. Attendance at Board Meetings. The Company shall give each
Qualified Holder who does not have a representative on the Company's board of
directors written notice of each meeting of its board of directors and each
committee thereof at least three business days prior to the date of each such
meeting, and the Company shall permit representatives of all Qualified Holders
to attend as observers all meetings of its board of directors and committees
thereof; provided that in the case of telephonic meetings conducted in
accordance with the Company's bylaws and applicable law, each such Qualified
Holder need receive only actual notice thereof at least 48 hours prior to any
such meeting, and each such Qualified Holder's representative shall be given the
opportunity to listen to such telephonic meetings. Each representative shall be
entitled to receive all written materials and other information (including,
without limitation, copies of meeting minutes) given to directors in connection
with such meetings at the same time such materials and information are given to
the directors. If the Company proposes to take any action by written consent in
lieu of a meeting of its board of directors or of any committee thereof, the
Company shall give written notice thereof to each such Qualified Holder prior to
the effective date of such consent describing in reasonable detail the nature
and substance of such action. The Company shall pay the reasonable out-of-pocket
expenses of each representative incurred in connection with attending such board
and committee meetings.
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3C. Inspection of Property. The Company shall permit any
representatives designated by any Qualified Holder, upon reasonable notice and
during normal business hours and such other times as any such holder may
reasonably request, to (i) visit and inspect any of the properties of the
Company and its Subsidiaries, (ii) examine the corporate and financial records
of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and (iii) discuss the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries. The presentation of an executed
copy of this Agreement by any Qualified Holder to the Company's independent
accountants shall constitute the Company's permission to its independent
accountants to participate in discussions with such Qualified Holder.
3D. Restrictions. So long as a Purchaser holds any Investor Common
Stock or any Investor Preferred Stock, the Company shall not, without the
Required Approval:
(i) directly or indirectly declare or pay any dividends or make
any distributions upon any of its equity securities except for dividends
and distributions on the Preferred Stock pursuant to the terms of the
Certificate of Incorporation (as amended by the Certificate of Amendment)
or Certificate of Designation or dividends payable in shares of Common
Stock issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise
acquire, any of the Company's equity securities (including, without
limitation, warrants, options and other rights to acquire equity
securities) other than (a) the Preferred Stock pursuant to the terms of
the Certificate of Incorporation (as amended by the Certificate of
Amendment) or the Certificate of Designation, (b) pursuant to any Put
under Section 6 of this Agreement, or (c) shares of Common Stock pursuant
to Section 7 of the First Purchase Agreement, so long as the Company also
offers to repurchase from each holder of Investor Common Stock the number
of shares of Investor Common Stock held by such holder which represents
the same proportion of such holder's Investor Common Stock as the Company
would offer to repurchase from such holder pursuant to Section 7 of the
First Purchase Agreement if such shares of Investor Common
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Stock were "Investor Common Stock" within the meaning of the First Purchase
Agreement, on the same terms as the Company repurchases such shares of
Common Stock, and consummates such purchase of shares of Investor Common
Stock concurrently with such repurchase (it being understood that each such
holder may elect to sell to the Company all or any portion of the number of
shares which the Company offers to purchase);
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities containing
equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for equity securities, issued
in connection with the issuance of equity securities or containing profit
participation features) or (b) any equity securities (or any securities
convertible into or exchangeable for any equity securities) which are
senior to or on a parity with the Preferred Stock with respect to the
payment of dividends, redemptions or distributions upon liquidation or
otherwise;
(iv) except as contemplated by the UTS Agreement and the Schwartz
Agreement, permit any Subsidiary to authorize, issue or enter into any
agreement providing for the issuance (contingent or otherwise) of any notes
or debt securities containing equity features (including, without
limitation, any notes or debt securities convertible into or exchangeable
for equity securities, issued in connection with the issuance of equity
securities or containing profit participation features);
(v) make, or permit any Subsidiary to make, any loans or advances
to, guarantees for the benefit of or Investments in any Person (other than
a wholly-owned Subsidiary established under the laws of a jurisdiction of
the United States or any of its territorial possessions), except for (a)
reasonable advances to employees in the ordinary course of business, (b)
acquisitions permitted pursuant to subparagraph (x) below, (c) Investments
in UTS pursuant to the UTS Agreement or as approved by a majority of the
members of the Company's board of directors, (d) Investments having a
stated maturity no greater than one year from the date the Company makes
such Investment in (1) obligations of the United States government or any
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agency thereof or obligations guaranteed by the United States government,
(2) certificates of deposit of commercial banks having combined capital and
surplus of at least $50 million, (3) commercial paper with a rating of at
least "Prime-1" by Moody's Investors Service, Inc., or (4) certificates of
deposit or interest-bearing demand deposits of Madison Bank and Trust
Company, and (e) Investments made in accordance with cash investment
policies approved by the Company's board of directors from time to time;
(vi) merge or consolidate with any Person or, except as permitted
by subparagraph (x) below, permit any Subsidiary to merge or consolidate
with any Person (other than a wholly-owned Subsidiary);
(vii) sell, lease or otherwise dispose of more than 10% of the
consolidated assets of the Company and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted
accounting principles consistently applied, or fair market value,
determined by the Company's board of directors in its reasonable good faith
judgment) in any transaction or series of related transactions (other than
sales in the ordinary course of business) or sell, transfer, assign or
otherwise dispose of, or pledge or encumber, any of its CAP Agreements or
Proprietary Rights;
(viii) permit any Subsidiary to sell, lease or otherwise dispose
of more than 15% of the assets of such Subsidiary (computed on the basis of
book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Company's board of directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales in the
ordinary course of business) or sell, transfer, assign or otherwise dispose
of, or pledge or encumber (other than pursuant to the UTS Agreement), any
of such Subsidiary's CAP Agreements or Proprietary Rights;
(ix) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into partnership form);
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(x) except for CAP Agreements approved by a majority of the
members of the Company's board of directors and of investments in UTS
pursuant to the UTS Agreement or as approved by a majority of the members
of the Company's board of directors, acquire, or permit any Subsidiary to
acquire, any interest in any business (whether by a purchase of assets,
purchase of stock, merger or otherwise), or enter into any joint venture,
involving an aggregate consideration (including the assumption of
liabilities whether direct or indirect) exceeding $500,000 in any one
transaction or exceeding $1,000,000 in any twelve-month period;
(xi) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business other than as a
provider of telecommunications services and related software and equipment;
(xii) become subject to, or permit any of its Subsidiaries to
become subject to, any agreement or instrument which by its terms would
(under any circumstances) restrict (a) the right of any Subsidiary to make
loans or advances or pay dividends to, transfer property to, or repay any
Indebtedness owed to, the Company or another Subsidiary or (b) the
Company's right to perform the provisions of this Agreement, the Amended
Registration Agreement, the Amended Stockholders Agreement, the Certificate
of Designation, the Certificate of Incorporation (as amended by the
Certificate of Amendment) or the Company's bylaws (including, without
limitation, provisions relating to payment of dividends on and making
redemptions of any series of the Preferred Stock);
(xiii) except as expressly contemplated by this Agreement, make
any amendment to the Certificate of Incorporation (as amended by the
Certificate of Amendment), the Certificate of Designation or the Company's
bylaws, or file any resolution of the board of directors with the Secretary
of State of the State of Delaware containing any provisions which would
increase the number of authorized shares of any series of the Preferred
Stock or adversely affect or otherwise impair the rights or relative
priority of the holders of any series of the Preferred Stock or the
Investor Common Stock under this Agreement, the Certificate of
Incorporation, the Certificate of
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Designation, the Company's bylaws, the Amended Registration Agreement or the
Amended Stockholders Agreement;
(xiv) enter into, or permit any Subsidiary to enter into, any
transaction with the Company's or any Subsidiary's officers, directors,
employees or Affiliates or any individual related by blood or marriage to
any such Person or any entity in which any such Person or individual owns a
beneficial interest, except (a) pursuant to the UTS Agreement, (b) the
Schwartz Agreement, (c) normal employment arrangements and benefit programs
on reasonable terms, (d) agreements for consulting services, other
services, office space or the purchase of goods on terms and conditions no
less favorable than available in arm's length transactions with unrelated
third parties if such agreements are approved by the Company's Chief
Financial Officer, and (e) as otherwise expressly contemplated by this
Agreement;
(xv) except pursuant to the UTS Agreement and except for debt
financing secured solely by accounts receivable of the company and its
Subsidiaries as approved by the Company's board of directors, create,
incur, assume or suffer to exist, or permit any Subsidiary to create,
incur, assume or suffer to exist, Indebtedness exceeding in the aggregate
$1,500,000 outstanding at any time on a consolidated basis;
(xvi) except pursuant to CAP Agreements approved by a majority of
the members of the Company's board of directors, make, or permit any
Subsidiary to make, any capital expenditures (including, without
limitation, payments with respect to capitalized leases, as determined in
accordance with generally accepted accounting principles consistently
applied) exceeding $4,500,000 in the aggregate on a consolidated basis
during any twelve-month period;
(xvii) except pursuant to CAP Agreements approved by a majority
of the members of the Company's board of directors, enter into, or permit
any Subsidiary to enter into, any leases or other rental agreements
(excluding capitalized leases, as determined in accordance with generally
accepted accounting principles consistently applied) under which the amount
of the aggregate lease payments for all such agreements for both the
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Company and its Subsidiaries exceeds $4,500,000 on a consolidated basis for
any twelve-month period;
(xviii) change its fiscal year;
(xix) increase the authorized size of its board of directors
above 11 members or decrease the authorized size of its board of directors
below 6 members;
(xx) adopt any new stock option plan or employee stock
ownership plan or issue any shares of Common Stock to any of its employees
or any employees of any of its Subsidiaries, other than as approved by a
majority of the members of the Company's board of directors in connection
with the Management Option Pool;
(xxi) except pursuant to the UTS Agreement, issue or sell any
shares of the capital stock, or rights to acquire shares of the capital
stock, of any Subsidiary to any Person other than the Company or another
Subsidiary; or
(xxii) borrow against, pledge, assign, modify, cancel or
surrender any key-man life insurance policies required to be maintained
under paragraph 3E hereof.
3E. Affirmative Covenants. So long as a Purchaser holds any
Investor Common Stock or any Investor Preferred Stock, the Company shall, and
shall cause each Subsidiary to:
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its properties in good repair, working
order and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be properly
and advantageously conducted at all times;
(iii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each
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case before the same becomes delinquent and before penalties accrue
thereon) and all claims for labor, materials or supplies which if unpaid
would by law become a lien upon any of its property, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have been
established on its books with respect thereto;
(iv) comply with all other obligations which it incurs pursuant
to any contract or agreement, whether oral or written, express or implied,
as such obligations become due, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its books with
respect thereto;
(v) comply with all applicable laws, rules and regulations of
all governmental authorities, including the Federal Communications
Commission, the Public Utilities Commission of Ohio, the New York Public
Service Commission, and all similar governmental authorities of the State
of Massachusetts, the violation of which would reasonably be expected to
have a material adverse effect upon the financial condition, operating
results, assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole;
(vi) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in
such amounts as are customary for well-insured corporations of similar size
engaged in similar lines of business;
(vii) maintain the key-man life insurance policies referred to
in paragraph 3N hereof and maintain officers and directors liability
insurance coverage of at least $2,500,000; and
(viii) maintain proper books of record and account which fairly
present its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves as in
each case are required in
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accordance with generally accepted accounting principles, consistently
applied.
3F. Compliance with Agreements. The Company shall perform and observe
(i) all of its obligations to each holder of the Stock set forth in the
Certificate of Incorporation (as amended by the Certificate of Amendment), the
Certificate of Designation and the Company's bylaws, (ii) all of its obligations
to each holder of Registrable Securities set forth in Amended Registration
Agreement, and (iii) all of its obligations under the Amended Stockholders
Agreement.
3G. Current Public Information. At all times after the Company has
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
3H. Amendment of UTS Agreement, Schwartz Agreement and Employment
Agreements. The Company shall not amend, modify or waive any provision of the
UTS Agreement, the Schwartz Agreement or the Employment Agreements without the
Required Approval, and the Company shall enforce the provisions of the UTS
Agreement, the Schwartz Agreement and the Employment Agreements and shall
exercise all of its rights, and remedies thereunder (including, without
limitation, any repurchase options and first refusal rights) unless it otherwise
receives the Required Approval.
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3I. Proprietary Rights and CAP Agreements. The Company shall, and
shall cause each Subsidiary to, possess and maintain all material Proprietary
Rights necessary to the conduct of their respective businesses and own all
right, title and interest in and to, or have a valid license for, all material
Proprietary Rights used by the Company and each Subsidiary in the conduct of
their respective businesses. Neither the Company nor any Subsidiary shall take
any action, or fail to take any action, which would result in the invalidity,
abuse, misuse or unenforceability of any of its Proprietary Rights or CAP
Agreements or which would infringe upon any rights of other Persons.
3J. Preemptive Rights.
(i) Except for the issuance of Common Stock (a) pursuant to the
Management Option Pool as contemplated by this Agreement, (b) in connection
with the acquisition of another business as contemplated by paragraph
3D(x), or (c) pursuant to a public offering registered under the Securities
Act, if the Company authorizes the issuance or sale of any of its equity
securities, any securities containing options or rights to acquire any
shares of its equity securities (other than as a dividend on outstanding
equity securities), the Company shall first offer to sell to each holder of
Investor Common Stock a portion of such stock or securities equal to the
quotient determined by dividing (1) the number of shares of Investor Common
Stock held by such holder by (2) the sum of the total number of shares of
outstanding Investor Common Stock and the number of shares of Common Stock
outstanding which are not shares of Investor Common Stock. Each holder of
Investor Common Stock shall be entitled to purchase such stock or
securities at the most favorable price and on the most favorable terms as
such stock or securities are to be offered to any other Persons. The
purchase price for all stock and securities offered to the holders of the
Investor Common Stock shall be payable in cash or, to the extent otherwise
required hereunder, notes issued by such holders.
(ii) In order to exercise its purchase rights hereunder, a holder
of Investor Common Stock must, within 30 days after receipt of written
notice from the Company describing in reasonable detail the stock or
securities being offered, the purchase price thereof, the payment terms, a
management
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financial forecast, use of proceeds and such holder's percentage allotment,
deliver a written notice to the Company describing its election hereunder.
If all of the stock and securities offered to the holders of Investor
Common Stock is not fully subscribed by such holders, the remaining stock
and securities shall be reoffered by the Company to the holders purchasing
their full allotment upon the terms set forth in this paragraph (i.e., pro-
rata among such holders, except that such holders must exercise their
purchase rights within five days after receipt of such reoffer).
(iii) Upon the expiration of the offering periods described above
the Company shall be entitled to sell such stock or securities which the
holders of Investor Common Stock have not elected to purchase during the 30
days following such expiration on terms and conditions no more favorable to
the purchasers thereof than those offered to such holders. Any stock or
securities offered or sold by the Company after such 30-day period must be
reoffered to the holders of Investor Common Stock pursuant to the terms of
this paragraph.
3K. Regulatory Compliance Cooperation.
---------------------------------
(i) In the event that any SBIC Holder determines that it has a
Regulatory Problem (as defined below), such SBIC Holder shall have the right to
transfer any securities of the Company without regard to any restriction on
transfer set forth in this Agreement other than the securities laws restrictions
set forth in Section 5 (provided that the transferee agrees to become a party to
this Agreement), and the Company shall take all such actions as are reasonably
requested by such SBIC Holder in order to (a) effectuate and facilitate any
transfer by such SBIC Holder of any securities of the Company then held by such
SBIC Holder to any Person designated by such SBIC Holder, (b) permit such SBIC
Holder (or any of its affiliates) to exchange all or any portion of any voting
security then held by it on a share-for-share basis for shares of a nonvoting
security of the Company, which nonvoting security shall be identical in all
respects to the voting security exchanged for it, except that it shall be
nonvoting and shall be convertible into a voting security on such terms as are
requested by such SBIC Holder in light of regulatory considerations then
prevailing, (c) continue and preserve the respective allocations of the voting
interests with respect to the Company arising out of the SBICs'
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aggregate ownership of voting securities and/or provided in the Amended
Stockholders Agreement before the transfers and amendments referred to above
(including entering into such additional agreements as are requested by such
SBIC Holder to permit any Person(s) designated by such SBIC Holder reasonably
acceptable to the Company to exercise any voting power which is relinquished by
such SBIC Holder), and (d) amend this Agreement, the Certificate of
Incorporation, the Bylaws and related agreements and instruments to effectuate
and reflect the foregoing. The parties to this Agreement agree to vote their
securities in favor of such amendments and actions.
(ii) For purposes of this Agreement, a "Regulatory Problem" means any
set of facts or circumstances wherein it has been asserted by any governmental
regulatory agency (or any SBIC Holder believes that there is a substantial risk
of such assertion) that such SBIC Holder is not entitled to hold, or exercise
any significant right with respect to, all or any portion of the Stock.
3L. Public Disclosures. The Company shall not, nor shall it permit
any Subsidiary to, disclose any Purchaser's name or identify as an investor in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of such Purchaser, unless such disclosure is required by applicable law
or governmental regulations or by order of a court of competent jurisdiction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reasonable detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
3M. Management Option Pool. Prior to the Closing, the Company shall
reserve for issuance pursuant to the Management Option Pool shares of Common
Stock such that the total number of shares so reserved plus the total number
subject to outstanding employee stock options, plus the total number previously
issued upon exercise of employee stock options, equals 15% of the outstanding
shares of Common Stock on a fully diluted basis after giving prospective effect
to the issuance of Common Stock contemplated hereby, assuming the issuance of
all shares reserved under the Management Option Pool. The Company shall issue
options in the Management Option Pool to senior management of the Company
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as incentive compensation at such times and with such terms as determined by the
Company's board of directors.
3N. Key-Man Life Insurance. The Company shall maintain a key-man
life insurance policy on the life of Thomas C. Brandenburg, and shall diligently
pursue and in good faith attempt to obtain within 90 days following the Closing
and thereafter at all times maintain key-man life insurance policies on the
lives of Robert J. Luth and Ronald W. Gavillet, in the face amount of $2,500,000
each. Such insurance policies shall name the Purchasers as beneficiary and shall
provide that such insurance policies may not be cancelled unless the insurance
carrier gives at least 30 days prior written notice of such cancellation to each
Purchaser.
3O. SBIC Regulatory Provisions.
(i) The Company shall notify each holder of Stock which is an SBIC
(an "SBIC Holder") as soon as practicable (and, in any event, not later than 15
days) prior to taking any action after which the number of record holders of the
Company's voting stock would be increased from fewer than 50 to 50 or more, and
the Company shall notify each SBIC Holder of any other action or occurrence
after which the number of record holders of the Company's voting stock was
increased (or would increase) from fewer than 50 to 50 or more, as soon as
practicable after the Company becomes aware that such other action or occurrence
has occurred or is proposed to occur. Upon the occurrence of any such event or
transaction, the Company shall enter into a Plan of Divestiture with each SBIC
Holder as required by the SBIC Regulations.
(ii) Within 75 days after the Closing and each subsequent Financing
hereunder by an SBIC Holder and at the end of each month thereafter until all of
the proceeds from the Financing hereunder have been used by the Company and its
Subsidiaries, the Company shall deliver to each SBIC Holder a written statement
certified by the Company's president or chief financial officer describing in
reasonable detail the use of the proceeds of the Financing hereunder by the
Company and its Subsidiaries. In addition to any other rights granted hereunder,
the Company shall grant each SBIC Holder and the United States Small Business
Administration (the "SBA") access to the Company's records for the purpose of
verifying the use of such proceeds.
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(iii) Upon the occurrence of a Regulatory Violation or in the event
that any SBIC Holder determines in its reasonable good faith judgment that a
Regulatory Violation has occurred, in addition to any other rights and remedies
to which it may be entitled as a holder of Class A Preferred or Underlying
Common Stock (whether under this Agreement, the Certificate of Incorporation or
otherwise), each SBIC Holder shall have the right, to the extent required under
the SBIC Regulations, to demand the immediate repurchase of all of the
outstanding shares of Stock owned by such SBIC Holder at a price per share equal
to the purchase price paid for such stock hereunder, plus (in the case of the
Preferred Stock) all accrued or declared and unpaid dividends thereon, by
delivering written notice of such demand to the Company. The Company shall pay
the purchase price for such stock by a cashier's or certified check or by wire
transfer of immediately available funds to each SBIC Holder demanding repurchase
within 30 days after the Company's receipt of the demand notice, and upon such
payment, each such SBIC Holder shall deliver the certificates evidencing the
Stock to be repurchased duly endorsed for transfer or accompanied by duly
executed forms of assignment.
(iv) For purposes of this paragraph, "Regulatory Violation" means,
with respect to any SBIC Holder providing Financing under this Agreement, (a) a
diversion of the proceeds of such Financing from the reported use thereof on SBA
Form 1031 delivered at the Closing, if such diversion was effected without
obtaining the prior written consent of the SBIC Holders (which may be withheld
in their sole discretion) or (b) a change in the principal business activity of
the Company and its Subsidiaries to an ineligible business activity (within the
meaning of the SBIC Regulations) if such change occurs within one year after the
date of the initial Financing hereunder; "SBIC Regulations" means the Small
Business Investment Act of 1958 and the regulations issued thereunder as set
forth in 13 CFR 107 and 121, as amended; and the term "Financing" shall have the
meaning set forth in the SBIC Regulations.
(vi) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year) the Company shall deliver to each SBIC Holder
a written assessment of the economic impact of each SBIC Holder's investment in
the Company, specifying the full-time equivalent jobs created or retained in
connection with the
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investment, the impact of the investment on the businesses of the Company in
terms of expanded revenue and taxes, and other economic benefits resulting from
the investment, including but not limited to, technology development or
commercialization, minority business development, urban or rural business
development, expansion of exports.
Section 4. Transfer of Restricted Securities.
---------------------------------
(i) Restricted Securities are transferable only pursuant to (a)
public offerings registered under the Securities Act, (b) Rule 144 or Rule
144A of the Securities and Exchange Commission (or any similar rule or
rules then in force) if such rule is available, and (c) subject to the
conditions specified in subparagraph (ii) below, any other legally
available means of transfer.
(ii) In connection with the transfer of any Restricted Securities
(other than a transfer described in subparagraph 5(i)(a) or (b) above), the
holder thereof shall (unless such requirement is waived in writing by the
Company) deliver written notice to the Company describing in reasonable
detail the transfer or proposed transfer, together with an opinion of
Kirkland & Ellis or other counsel which (to the Company's reasonable
satisfaction) is knowledgeable in securities law matters to the effect that
such transfer of Restricted Securities may be effected without registration
of such Restricted Securities under the Securities Act. In addition, if the
holder of the Restricted Securities delivers to the Company an opinion of
Kirkland & Ellis or such other counsel that no subsequent transfer of such
Restricted Securities shall require registration under the Securities Act,
the Company shall promptly upon such contemplated transfer deliver new
certificates for such Restricted Securities which do not bear the
Securities Act legend set forth in paragraph 8C. If the Company is not
required to deliver new certificates for such Restricted Securities not
bearing such legend, the holder thereof shall not transfer the same until
the prospective transferee has confirmed to the Company in writing its
agreement to be bound by the conditions contained in this subparagraph and
paragraph 8C.
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(iii) Upon the request of any holder of Restricted Securities
which are eligible for sale pursuant to Rule 144(k) together with the
delivery to the Company of an opinion of Kirkland & Ellis or such other
counsel that no subsequent transfer of such Restricted Securities shall
require registration under the Securities Act, the Company shall remove the
foregoing legend from the certificates for such holder's Restricted
Securities.
Section 5. Representations and Warranties of the Company. As a
material inducement to the Purchasers to enter into this Agreement and purchase
the Stock, the Company hereby represents and warrants that:
5A. Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is qualified to do business in every
jurisdiction in which its ownership of property or conduct of business requires
it to qualify. The Company has all requisite corporate power and authority and
all licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to carry out the transactions contemplated by this
Agreement. The copies of the Company's and each Subsidiary's charter documents
and bylaws which have been furnished to the Purchasers' special counsel reflect
all amendments made thereto at any time prior to the date of this Agreement and
are correct and complete.
5B. Capital Stock and Related Matters.
---------------------------------
(i) As of the Closing and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 50,000 shares of
preferred stock, of which 20,000 shares shall be designated as Series A
10% Senior Cumulative Preferred Stock, 16,230 of which shall be issued and
outstanding, and 30,000 shares shall be designated as Series A-2 10%
Senior Cumulative Preferred Stock, 22,869 of which shall be issued and
outstanding, and (b) 500,000 shares of Common Stock, of which 296,302
shares shall be issued and outstanding, 54,551 shares shall be reserved
for issuance in connection with the Management Option Pool subsequent to
the Closing. As of the Closing and immediately thereafter, the
stockholders of the
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Company shall be as set forth in the "Capitalization Schedule" hereto.
(ii) As of the Closing, neither the Company nor any Subsidiary
shall have outstanding any stock or securities convertible or exchangeable
for any shares of its capital stock or containing any profit participation
features, nor shall it have outstanding any rights or options to subscribe
for or to purchase its capital stock or any stock or securities convertible
into or exchangeable for its capital stock or any stock appreciation rights
or phantom stock plans, except as set forth on the attached Capitalization
Schedule or as provided in this Agreement or the Subscription Agreement.
The Capitalization Schedule accurately sets forth the following information
with respect to all outstanding options and rights to acquire the Company's
capital stock: the holder, the number of shares covered, the exercise price
and the expiration date. As of the Closing, neither the Company nor any
Subsidiary shall be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock
or any warrants, options or other rights to acquire its capital stock,
except as provided in the Amended Stockholders Agreement, as set forth on
the Capitalization Schedule, pursuant to the Certificate of Designation and
the Certificate of Incorporation (as amended by the Certificate of
Amendment), pursuant to Section 7 of the First Purchase Agreement or
pursuant to Section 6 of this Agreement. As of the Closing, all of the
outstanding shares of the Company's capital stock shall be validly issued,
fully paid and nonassessable.
(iii) There are no statutory or contractual stockholders'
preemptive rights or rights of refusal with respect to the issuance of the
Stock hereunder. The Company and its Subsidiaries have not violated any
applicable federal or state securities laws in connection with the offer,
sale or issuance of any of their capital stock, and the offer, sale and
issuance of the Stock hereunder does not require registration under the
Securities Act or any applicable state securities laws. Except as set forth
on the Capitalization Schedule and pursuant to the Amended Stockholders
Agreement, to the best of the Company's knowledge, there are no agreements
between the stockholders of the Company or its Subsidiaries with respect to
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the voting or transfer of the capital stock of the Company or its
Subsidiaries or with respect to any other aspect of the affairs of the
Company or its Subsidiaries.
(iv) As of the Closing, the outstanding capital stock of UTS
shall consist of (a) 1,000,000 shares of common stock, of which the Company
owns 501,000 shares and (b) 2,025 shares of preferred stock, of which the
Company owns 2,025 shares. The Company paid an aggregate of $2,000,000 in
exchange for all such shares held as of the Closing. The Company has the
right, but is not obligated, to purchase additional shares of UTS common
stock and preferred stock, at a price of $1,000 for units ("Units") each
comprised of one share of preferred stock and 250 shares of UTS common
stock. The Company and UTS are parties to an agreement pursuant to which
the Company has agreed to purchase from UTS and UTS has agreed to sell to
the Company Units of additional UTS common stock and UTS preferred stock in
exchange for an aggregate purchase price of $1,350,000. Such purchase
agreement, and the transactions contemplated thereby, have been approved by
the board of directors and stockholders of UTS, and the sale of stock
contemplated thereby will be consummated at such time as such sale has been
approved by the New York Public Service Commission (the "NYPSC"). As of the
Closing, in addition to the $1,350,000 advanced pursuant to such purchase
agreement, the Company has advanced an aggregate $1,800,000 to UTS,
evidenced by promissory notes issued by UTS and which amounts the Company
may, at its sole discretion, convert into Units at the price indicated
above (subject only to the prior approval thereof by the NYPSC).
5C. Subsidiaries; Investments. The attached "Subsidiary Schedule"
correctly sets forth the name of each Subsidiary, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted and is qualified
to do business in every jurisdiction in which its ownership of property or the
conduct of business requires it to qualify. All of the outstanding shares of
capital
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stock of each Subsidiary are validly issued, fully paid and nonassessable and,
except as set forth on the Subsidiary Schedule, all such shares are owned by the
Company or another Subsidiary free and clear of any lien, charge or encumbrance.
Except as set forth on the Subsidiary Schedule, neither the Company nor any
Subsidiary owns or holds the right to acquire any shares of stock or any other
security or interest in any other Person, except as provided in the UTS
Agreement.
5D. Authorization; No Breach. The execution, delivery and
performance of this Agreement, the Amended Registration Agreement, the Amended
Stockholders Agreement and all other agreements contemplated hereby to which the
Company is a party, and the filing of the Certificate of Designation and the
Certificate of Amendment have been duly authorized by the Company. This
Agreement, the Amended Registration Agreement, the Amended Stockholders
Agreement, the Certificate of Amendment, the Certificate of Incorporation, the
Certificate of Designation and all other agreements contemplated hereby each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms. The execution and delivery by the Company of this
Agreement, the Amended Registration Agreement, the Amended Stockholders
Agreement and all other agreements contemplated hereby to which the Company is a
party, the offering, sale and issuance of the Stock hereunder, the filing of the
Certificate of Amendment and the Certificate of Designation, and the fulfillment
of and compliance with the respective terms hereof and thereof by the Company do
not and shall not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result in
the creation of any lien, security interest, charge or encumbrance upon the
Company's or any Subsidiary's capital stock or assets pursuant to, (iv) give any
third party the right to modify, terminate or accelerate any obligation under,
(v) result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice to any court or administrative
or governmental body pursuant to, the Certificate of Amendment or the
Certificate of Designation or the charter or bylaws of the Company or any
Subsidiary, or any law, statute, rule or regulation to which the Company or any
Subsidiary is subject, or any agreement, instrument, order, judgment or decree
to which the Company or any Subsidiary is subject.
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5E. Financial Statements. Attached hereto as the "Financial
Statements Schedule" are the following financial statements:
(i) the audited consolidated and unaudited consolidating balance
sheets of the Company and its Subsidiaries as of December 31, 1994, and the
related statements of income and cash flows (or the equivalent) for the
respective period then ended; and
(ii) the unaudited consolidated and consolidating balance sheet
of the Company and its Subsidiaries as of April 30, 1995 (the "Latest
Balance Sheet"), and the related statements of income and cash flows (or
the equivalent) for the four-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and changes resulting from normal year-end adjustments (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
5F. Absence of Undisclosed Liabilities. Except as set forth on the
attached "Liabilities Schedule," the Company and its Subsidiaries do not have
any obligation or liability (whether accrued, absolute, contingent, unliquidated
or otherwise, whether or not known to the Company or any Subsidiary, whether due
or to become due and regardless of when asserted), arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (i) liabilities set forth on the Latest Balance Sheet (including any notes
thereto), (ii) liabilities and obligations which have arisen after the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit)
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and (iii) other liabilities and obligations expressly disclosed in the other
Schedules to this Agreement.
5G. No Material Adverse Change. Since the date of the Latest Balance
Sheet, there has been no material adverse change in the financial condition,
operating results, assets, operations, business prospects or employee relations
of the Company and its Subsidiaries taken as a whole.
5H. Absence of Certain Developments.
(i) Except as expressly contemplated by this Agreement or as set
forth in the "Developments Schedule" hereto, since the date of the Latest
Balance Sheet, neither the Company nor any Subsidiary has:
(a) issued any notes, bonds or other debt securities or any
equity securities or any securities convertible, exchangeable or
exercisable into any equity securities;
(b) borrowed any amount or incurred or become subject to any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any lien or encumbrance or paid any
obligation or liability, other than current liabilities paid in the
ordinary course of business;
(d) declared or made any payment or distribution of cash or other
property to its stockholders with respect to its stock or purchased or
redeemed any shares of its stock or any warrants, options or other rights
to acquire its stock;
(e) mortgaged or pledged any of its properties or assets or
subjected them to any lien, security interest, charge or other encumbrance,
except liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any of its tangible assets,
except in the ordinary course of business, or cancelled any debts or
claims;
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(g) sold, assigned or transferred any patents or patent
applications, trademarks, service marks, trade names, corporate names,
copyrights or copyright registrations, trade secrets or other intangible
assets, or disclosed any proprietary confidential information to any
Person;
(h) suffered any extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
(i) made capital expenditures or commitments therefor that
aggregate in excess of $250,000;
(j) entered into any other transaction other than in the ordinary
course of business or entered into any other material transaction, whether
or not in the ordinary course of business;
(k) made any loans or advances to, guarantees for the benefit of,
or any Investments in, any Persons in excess of $250,000 in the aggregate;
(1) made any charitable contributions or pledges;
(m) any damage, destruction or casualty loss exceeding in the
aggregate $100,000, whether or not covered by insurance; or
(n) made any Investment in or taken steps to incorporate any
Subsidiary.
(ii) Neither the Company nor any Subsidiary has at any time made
any payments for political contributions or made any bribes, kickback
payments or other illegal payments.
5I. Assets. Except as set forth on the attached "Assets Schedule," the
Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in, the properties and assets used by them, located on their
premises or shown on the Latest Balance Sheet or acquired thereafter, free and
clear of all liens, security interests, charges and encumbrances, except for
properties and assets disposed of in the ordinary course of business since the
date of the Latest Balance Sheet and except for
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liens disclosed on the Latest Balance Sheet (including any notes thereto) and
liens for current property taxes not yet due and payable. Except as described on
the Assets Schedule, the Company's and each Subsidiary's buildings, equipment
and other tangible assets are in good operating condition in all material
respects and are fit for use in the ordinary course of business. The Company
and each Subsidiary own, or have a valid leasehold interest in, all assets
necessary for the conduct of their respective businesses as presently conducted
and as presently proposed to be conducted.
5J. Tax Matters. Except as set forth in the attached "Taxes Schedule,"
the Company and each Subsidiary have filed all tax returns which they are
required to file under applicable laws and regulations (or have obtained
extensions for such filings); all such returns are complete and correct in all
material respects; the Company and each Subsidiary in all material respects have
paid all taxes due and owing by them and have withheld and paid over all taxes
which they are obligated to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to taxes or agreed
to any extension of time with respect to a tax assessment or deficiency; the
accrual for current taxes on the Latest Balance Sheet would be adequate to pay
all of the Company's and its Subsidiaries' current tax liabilities if their
current tax year were treated as ending on the date of the Latest Balance Sheet;
the assessment of any additional taxes for periods for which returns have been
filed shall not exceed the recorded liability therefor on the Latest Balance
Sheet; no foreign, federal, state or local tax audits are pending or being
conducted with respect to the Company or any Subsidiary, no information related
to tax matters has been requested by any foreign, federal, state or local taxing
authority and no notice indicating an intent to open an audit or other review
has been received by the Company or its Subsidiaries from any foreign, federal,
state or local taxing authority; and there are no material unresolved questions
or claims concerning the Company's or any Subsidiary's tax liability. Neither
the Company nor any of its Subsidiaries has made an election under (S) 341(f) of
the Internal Revenue Code of 1986, as amended.
5K. Contracts and Commitments.
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(i) Except as expressly contemplated by this Agreement or as set forth
on the attached "Contracts Schedule" or the attached "Employee Benefits
Schedule," neither the Company nor any Subsidiary is a party to or bound by any
written or oral:
(i) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan or
arrangement, or any collective bargaining agreement or any other contract
with any labor union, or severance agreements, programs, policies or
arrangements;
(ii) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other
basis providing annual compensation in excess of $100,000 or having a
remaining term of 3 years or longer, or contract relating to loans to
officers, directors or Affiliates;
(iii) contract under which the Company or any Subsidiary has
advanced or loaned any other Person amounts in the aggregate exceeding
$10,000;
(iv) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company and its
Subsidiaries;
(v) guarantee of any obligation in excess of $10,000 (other than
by the Company of a Wholly-Owned Subsidiary's debts or a guarantee by a
Subsidiary of the Company's debts or another Subsidiary's debts);
(vi) lease or agreement under which the Company or any Subsidiary
is lessee of or holds or operates any property, real or personal, owned by
any other party, except for any lease of real or personal property under
which the aggregate annual rental payments do not exceed $100,000;
(vii) lease or agreement under which the Company or any
Subsidiary is lessor of or permits any third party to
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hold or operate any property, real or personal, owned or controlled by the
Company or any Subsidiary;
(viii) contract or group of related contracts with the same party
or group of affiliated parties the performance of which involves payments
in any period of 12 consecutive months in excess of $100,000;
(ix) assignment, license, indemnification or agreement with
respect to any intangible property (including, without limitation, any
Intellectual Property);
(x) warranty agreement with respect to its services rendered or
its products sold or leased;
(xi) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(xii) sales, distribution or franchise agreement;
(xiii) agreement with a term of more than six months which is not
terminable by the Company or any Subsidiary upon less than 30 days notice
without penalty;
(xiv) contract, agreement or other arrangement (A) with any
officer, director, stockholder, employee or (B) involving an aggregate of
$50,000 or more in any period of 12 consecutive months, with Affiliate, or
any Affiliate of any officer, director, stockholder or employee;
(xv) contract or agreement prohibiting it from freely engaging in
any business or competing anywhere in the world; or
(xvi) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $120,000
annually (excluding any purchase order involving less than $250,000).
(ii) All of the contracts, agreements and instruments set forth on the
Contracts Schedule are valid, binding and enforceable
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in accordance with their respective terms. The Company and each Subsidiary have
performed all material obligations required to be performed by them, including
under the contracts, agreements and instruments listed on the Contracts
Schedule, and are not in default under or in breach of nor in receipt of any
claim of default or breach under any material contract, agreement or instrument
to which the Company or any Subsidiary is subject; no event has occurred which
with the passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance by the Company or any Subsidiary under
any material contract, agreement or instrument to which the Company or any
Subsidiary is subject, including any listed on the Contracts Schedule; neither
the Company nor any Subsidiary has any present expectation or intention of not
fully performing all such obligations; neither the Company nor any Subsidiary
has knowledge of any breach or anticipated breach by the other parties to any
material contract, including any agreement, instrument or commitment listed on
the Contracts Schedule; and neither the Company nor any Subsidiary is a party to
any material contract or commitment requiring it to purchase or sell goods or
services or lease property above or below (as the case may be) prevailing market
prices and rates.
(iii) The Purchasers' special counsel has been supplied with a true
and correct copy of each of the written instruments, plans, contracts and
agreements and an accurate description of each of the oral arrangements,
contracts and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto.
5L. Proprietary Rights. The attached "Proprietary Rights Schedule"
contains a complete and accurate list of (i) all patented and registered
Proprietary Rights owned by the Company or any Subsidiary, (ii) all pending
patent applications and applications for registrations of other Proprietary
Rights filed by the Company or any Subsidiary, (iii) all unregistered trade
names and corporate names owned or used by the Company and its Subsidiaries and
(iv) all unregistered trademarks, service marks and copyrights and computer
software which are material to the financial condition, operating results,
assets, operations or business prospects of the Company and its Subsidiaries
taken as a whole. The Proprietary Rights Schedule also contains a complete and
accurate list of all licenses and other rights granted by the
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Company or any Subsidiary to any third party with respect to any Proprietary
Rights and all licenses and other rights granted by any third party to the
Company or any Subsidiary with respect to any Proprietary Rights. The Company or
one of its Subsidiaries owns or has the right to use pursuant to a valid license
all Proprietary Rights necessary for the operation of the businesses of the
Company and its Subsidiaries as presently conducted and as presently proposed to
be conducted. The loss or expiration of any Proprietary Right or related group
of Proprietary Rights would not have a material adverse effect on the conduct of
the Company's and its Subsidiaries' respective businesses, and no such loss or
expiration is threatened, pending or reasonably foreseeable. The Company and its
Subsidiaries have taken all necessary and desirable actions to maintain and
protect the Proprietary Rights which they own and use. To the best of the
Company's knowledge, the owners of any Proprietary Rights licensed to the
Company or any Subsidiary have taken all necessary and desirable actions to
maintain and protect the Proprietary Rights which are subject to such licenses.
Except as indicated on the Proprietary Rights Schedule, (i) the Company and its
Subsidiaries own all right, title, and interest in and to all of the Proprietary
Rights listed on such schedule and all other Proprietary Rights material to the
operation of the businesses of the Company and its Subsidiaries, (ii) there have
been no claims made against the Company or any Subsidiary asserting the
invalidity, misuse or unenforceability of any of such rights, and there are no
grounds for the same, (iii) neither the Company nor any Subsidiary has received
a notice of conflict with the asserted rights of others within the last five
years, and (iv) the conduct of the Company's and each Subsidiary's business,
including the use of their Proprietary Rights, has not infringed or
misappropriated and does not infringe or misappropriate any Proprietary Rights
of other Persons, nor would any future conduct as presently contemplated
infringe any Proprietary Rights of other Persons and, to the best of the
Company's knowledge, the Proprietary Rights owned by the Company or any
Subsidiary have not been infringed or misappropriated by other Persons.
5M. Litigation, etc. Except as set forth on the attached "Litigation
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or threatened against or affecting the Company or any Subsidiary
(or pending or threatened against or affecting any of the officers, directors or
employees of the Company and its Subsidiaries with respect to their
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businesses or proposed business activities) at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitations, any actions, suit, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); neither the Company nor any Subsidiary is subject to any arbitration
proceedings under collective bargaining agreements or otherwise or any
governmental investigations or inquiries (including inquiries as to the
qualification to hold or receive any license or permit); and there is no basis
for any of the foregoing. Neither the Company nor any Subsidiary is subject to
any judgment, order or decree of any court or other governmental agency. Except
as set forth on the attached Litigation Schedule, neither the Company nor any
Subsidiary has received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business.
5N. Brokerage. Except as described on the attached "Brokerage
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay, and hold each Purchaser harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any such claim.
5O. Governmental Consent, etc. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental authority
is required in connection with the execution, delivery and performance by the
Company of this Agreement or the other agreements contemplated hereby, or the
consummation by the Company of any other transactions contemplated hereby or
thereby, except as expressly contemplated herein or in the exhibits hereto.
5P. Insurance. The attached "Insurance Schedule" contains a
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect as of the Closing. Neither the Company
nor any Subsidiary is in default with respect to its obligations under any
insurance policy
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maintained by it. The insurance coverage of the Company and its Subsidiaries is
customary for well-insured corporations of similar size engaged in similar lines
of business.
5Q. Employees. The Company is not aware that any executive or key
employee of the Company or any Subsidiary or any group of employees of the
Company or any Subsidiary has any plans to terminate employment with the Company
or any Subsidiary. The Company and each Subsidiary has complied in all material
respects with all laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes, and the Company and its
Subsidiaries have no material labor relations problems (including any union
organization activities, threatened or actual strikes or work stoppages or
material grievances). Neither the Company, its Subsidiaries nor any of their
employees is subject to any noncompete, nondisclosure, confidentiality,
employment, consulting or similar agreements relating to, affecting or in
conflict with the present or proposed business activities of the Company and its
Subsidiaries, except for agreements between the Company and its present and
former employees.
5R. ERISA.
(a) Multiemployer Plans. The Company does not have any obligation
to contribute to (or any other liability, including current or
potential withdrawal liability, with respect to) any "multiemployer
plan" (as defined in Section 3(37) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")).
(b) Retiree Welfare Plans. The Company does not maintain or have
any obligation to contribute to (or any other liability with respect
to) any plan or arrangement whether or not terminated, which provides
medical, health, life insurance or other welfare-type benefits for
current or future retired or terminated employees (except for limited
continued medical benefit coverage required to be provided under
Section 4980B of the IRC or as required under applicable state law).
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(c) Defined Benefit Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any
employee plan which is a tax-qualified "defined benefit plan" (as
defined in Section 3(35) of ERISA), whether or not terminated.
(d) Defined Contribution Plans. The Company does not maintain,
contribute to or have any liability under (or with respect to) any
employee plan which is a tax-qualified "defined contribution plan" (as
defined in Section 3(34) of ERISA), whether or not terminated.
(e) Other Plans. The Company does not maintain, contribute to or
have any liability under (or with respect to) any plan or arrangement
providing benefits to current or former employees, including any bonus
plan, plan for deferred compensation, employee health or other welfare
benefit plan or other arrangement, whether or not terminated.
(f) The Company. For purposes of this paragraph 6S, the term
"Company" includes all organizations under common control with the
Company pursuant to Section 414(b) or (c) of the IRC.
5S. Compliance with Laws. Except as set forth on the attached
"Compliance Schedule," neither the Company nor any Subsidiary has violated any
law or any governmental regulation or requirement which violation would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Company and its Subsidiaries taken as a whole, and neither the Company nor any
Subsidiary has received notice of any such violation. Neither the Company nor
any Subsidiary is subject to any clean up liability, or has reason to believe it
may become subject to any clean up liability, under any federal, state or local
environmental law, rule or regulation.
5T. Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
(S)121.401), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal
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Regulations, (S)121.802. The information regarding the Company and its
affiliates set forth in the Small Business Administration Form 480, Form 652 and
Section A of Form 1031 delivered at the Closing is accurate and complete. Copies
of such forms shall have been completed and executed by the Company and
delivered to each Purchaser at the Closing together with a written statement of
the Company regarding its planned use of the proceeds from the sale of the
Stock. Neither the Company nor any Subsidiary presently engages in, and it shall
not hereafter engage in, any activities, nor shall the Company or any Subsidiary
use directly or indirectly the proceeds from the sale of the Stock hereunder for
any purpose, for which a Small Business Investment Company is prohibited from
providing funds by the Small Business Investment Act of 1958 and the regulations
thereunder (including Title 13, Code of Federal Regulations, (S)107.804 and
(S)107.901).
5U. Affiliated Transactions. Except as set forth on the attached
"Affiliated Transactions Schedule" and pursuant to the UTS Agreement, the
Schwartz Agreement, the Amended Stockholders Agreement, the Subscription
Agreement and the Employment Agreements, and except for arrangements with any
Person which will not directly or indirectly involve more than an aggregate of
$50,000 for any such Person in any period of 12 consecutive months, no officer,
director, shareholder or Affiliate of the Company or any Subsidiary or any
individual related by blood or marriage to any such Person or any entity in
which any such Person or individual owns any beneficial interest, is a party to
any agreement, contract, commitment or transaction with the Company or any
Subsidiary or has any material interest in any material property used by the
Company or any Subsidiary.
5V. New York Telephone Company Agreement. As of the Closing, the
Price Quote - Intellipath II Digital Centrex Service with Specialized Route
Selection Arrangement (100 or more lines), dated as of December 29, 1993 (the
"NYTC Agreement"), by and between UTS and New York Telephone Company is in full
force and effect, AS AMENDED BY THE FIRST AMENDMENT TO PRICE QUOTE, DATED AS OF
FEBRUARY 24, 1994, without further amendment or modification thereto, and
represents the full agreement between the parties concerning the provision by
New York Telephone Company to UTS of Service (as that term is defined in the
NYTC Agreement).
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5W. Disclosure. Neither this Agreement nor any of the schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to any Purchaser by or on behalf of the Company and its Subsidiaries
with respect to the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact necessary to make each
statement contained herein or therein not misleading; provided that with respect
to the financial projections furnished to the Purchasers by the Company and its
Subsidiaries, the Company represents only that such projections were based upon
assumptions reasonably believed by the Company and its Subsidiaries to be
reasonable and fair as of the date the projections were prepared in the context
of the Company's and its Subsidiaries' history and current and reasonably
foreseeable business conditions. There is no fact which the Company and its
Subsidiaries have not disclosed to the Purchasers in writing and of which any of
their officers, directors or executive employees is aware (other than matters of
a general economic nature) and which has had or would reasonably be anticipated
to have a material adverse effect upon the existing or expected financial
condition, operating results, assets, customer or supplier relations, employee
relations or business prospects of the Company and its Subsidiaries taken as a
whole.
5X. Knowledge. As used in this Section 5, the terms "knowledge" or
"aware", shall mean and include (i) the actual knowledge or awareness of the
Company and its Subsidiaries (which shall include the actual knowledge and
awareness of any of the officers, directors and key employees of the Company and
its Subsidiaries, including Thomas C. Brandenburg, Robert J. Luth, Ronald W.
Gavillet, Charles Buckman and Richard S. Vanderwoude), and (ii) the knowledge or
awareness which a prudent business person would have obtained in the conduct of
his business after making reasonable inquiry and reasonable diligence with
respect to the particular matter in question.
5Y. Closing Date. The representations and warranties of the Company
contained in this Section 5 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any writing
delivered by, or on behalf of, the Company and its Subsidiaries to any Purchaser
shall be true and correct in all material respects (provided that any
projections shall be based on underlying assumptions which provide a reasonable
basis for such projections) on the date of the Closing as though
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then made, except as affected by the transactions expressly contemplated by this
Agreement.
5Z. Projections and Pro Forma Financial Statements.
(a) The projections and pro-forma financial statements contained in
the United USN, Inc. Confidential Business Overview dated April 6, 1995 and
previously delivered to purchasers are true and complete copy of the latest
projections of the consolidated income and cash flows of the Company and its
Subsidiaries for the fiscal years ending 2004. Such projections are based on
underlying assumptions of the Company which provide a reasonable basis for the
projections contained therein. Such projections have been prepared on the basis
of the assumptions set forth therein, which the Company reasonably believes are
fair and reasonable in light of the historical financial performance of the
Company and its Subsidiaries and of current and reasonably foreseeable business
conditions.
(b) The previously delivered pro forma consolidated balance sheet of
the Company and its Subsidiaries as of April 30, 1995 is complete and correct in
all material respects and presents fairly in all material respects the
consolidated financial condition of the Company and its Subsidiaries as of such
date.
Section 6. Put Arrangements.
----------------
6A. The Put. At any time, and from time to time, after the Put
Trigger Date, Purchasers holding 30% of the Investor Common Stock shall have the
right to Put any or all of the Investor Common Stock held by such Purchasers at
the Put Price by delivering the Put Notice; provided, however, that no Purchaser
shall have the right to Put an amount of Investor Common Stock which is less
than 25% of the amount of Investor Common Stock held by such Purchaser on the
date hereof after giving effect to the Closing or to deliver any Put Notice
within six months of the delivery of any previous Put Notice. Within five days
after receipt of a Put Notice, the Company shall deliver the Exercise Notice to
all other Purchasers. Any Purchaser receiving an Exercise Notice may request to
participate in the Put by delivering a Participation Notice to the Company
within five days after receipt of the Exercise Notice. The right to exercise the
Put will inure to the benefit of all transferees of the Investor Common Stock.
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6B. Put Closing. Upon the delivery of the Put Notice and any
Participation Notice, the Company and the Purchasers participating in the Put
shall in good faith promptly determine the Put Price as provided hereunder, and,
subject to the provisions hereof, within ten days after the determination of the
Put Price, the Company will purchase and such Purchasers will sell the number of
shares of Investor Common Stock specified in the Put Notice and any
Participation Notice at a mutually agreeable time and place.
6C. Put Payment. At the Put Closing, the Purchasers participating in
the Put shall deliver to the Company certificates representing the Investor
Common Stock to be repurchased by the Company and the Company shall deliver to
such Purchasers the Put Price for all shares of Investor Common Stock to be
repurchased by the Company by cashier's or certified check payable to each such
Purchaser or by wire transfer of immediately available funds to an account
designated by each such Purchaser; provided that if the Company does not have
sufficient funds to pay the Put Price for any shares of Investor Common Stock to
be repurchased by the Company, then:
(i) the Company promptly will pay to the Purchasers participating
in the Put (pro rata, according to the aggregate amount of Put Price owing
to each such Purchaser) such funds as are then available or which later
become available for the payment of the Put Price, until the Put Price of
all such shares has been paid in full;
(ii) the Board of Directors of the Company will use its best
efforts to effect a sale of the Company's assets or stock, or a merger,
consolidation, share exchange or similar transaction, or obtain debt or
equity financing, which will result in cash proceeds to the Company which
will be sufficient to pay the portion of the Put Price which is then
unpaid; and
(iii) the Put Price will increase at the rate of 25% per annum
(or the maximum rate allowable by applicable law, whichever is less)
multiplied by the sum of (A) the portion of the Put Price not paid in cash
at the Put Closing, plus (B) the additional Put Price which remains accrued
and unpaid as of the end of each calendar month following such Put Closing;
provided that, at the election of the holder of any
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shares of Investor Common Stock subject to a Put hereunder in respect of
which a Put Price has not been paid in full in cash at a Put Closing, the
Company will issue to such holder, in lieu of all or any portion of the
additional Put Price calculated pursuant to this subparagraph (iii) (the
"Converted Portion"), a number of shares of Common Stock equal to the
quotient determined by dividing (x) the Converted Portion, by (y) the
lesser of $1.95 (as adjusted for any subdivision or combination of shares
of Common Stock or similar recapitalization) or the fair market value of
one share of Common Stock at such time.
If the Company does not have sufficient funds to pay the Put Price for any
shares of Investor Common Stock to be repurchased by the Company at the Put
Closing and subsequently such funds become available, the Company shall deliver
a written notice to each of the Purchasers participating in the Put indicating
that such funds have become available. Upon receipt of such notice, each
Purchaser participating in the Put shall have the right to rescind the exercise
of the Put with respect to the shares of Investor Common Stock for which the Put
Price has not been paid by delivering written notice of such rescission to the
Company within five days of the receipt of the Company's notice regarding the
availability of funds to pay the Put Price. If a Purchaser has delivered a
rescission notice to the Company as set forth above, such Purchaser may deliver
a subsequent Put Notice without regard to the six month time period set forth in
paragraph 6A.
6D. Put Price. The "Put Price" of the Investor Common Stock to be
repurchased shall mean the product of (A) the sum of the Market Value of the
Company and the total exercise price to be paid to the Company assuming the
exercise or conversion of all outstanding options, warrants or convertible
securities of the Company, multiplied by (B) a fraction, the numerator of which
will be the number of shares of Investor Common Stock to be repurchased and the
denominator of which will be the total number of shares of Common Stock
outstanding on a fully diluted basis. Unless otherwise agreed by the Company and
the Purchasers participating in the Put, Market Value shall be determined by an
investment banking firm reasonably acceptable to the Company and such
Purchasers, which firm shall submit to the Company and such Purchasers a written
report setting forth such determination. If the parties are unable to agree on
an investment banking firm within 15 days
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after delivery of a Put Notice, a firm shall be selected by lot from the
investment banking firms listed on Attachment A to the First Purchase Agreement
(as in effect on April 20, 1994), after the Company and such Purchasers have
each eliminated one such firm. The expenses of such firm will be borne equally
by the Company and the Purchasers participating in the Put, and the
determination of such firm will be final and binding upon all parties, except
that after the determination of Market Value following the exercise of the Put,
such Purchasers may rescind their exercise of such Put.
6E. Put Termination. The Put rights contained in this Section 6
shall terminate upon a Qualified Public Offering.
Section 7. Additional Protections for Holders of Investor Common
-----------------------------------------------------
Stock.
- -----
7A. Anti-Dilution Protection. Each holder of Investor Common Stock
will benefit from certain rights to protect them against issuances, or deemed
issuances, of stock of the Company which may otherwise have the effect of
diluting such holders' equity interests in the Company, as set forth in Exhibit
I hereto.
7B. "Most Favored Nations" Protection. In the event that, in
connection with the issuance of any Common Stock or Preferred Stock - Series 2
to the Additional Purchaser or any Person other than a Purchaser hereunder at
any time after the Closing, the Company enters into any agreement containing any
term or provision which is more favorable to the Additional Purchaser, or such
Person than any corresponding term or provision of this Agreement or any other
agreement applicable to the holders of Investor Common Stock or Investor
Preferred Stock, or for which there is no corresponding term or provision of
this Agreement or any other agreement applicable to the holders of Investor
Common Stock or Investor Preferred Stock, then the Company will promptly notify
each of such holders thereof and, upon the request of any holder of Investor
Common Stock or Investor Preferred Stock, will enter into agreements
satisfactory to such holder which will ensure that such holder will benefit from
such favorable term or provision as if such term or provision had been included
in this Agreement (or any other appropriate agreement applicable to such
holder).
Section 8. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
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"Affiliate" of any particular person or entity means any other person
or entity controlling, controlled by or under common control with such
particular person or entity.
"Amended Registration Agreement" means the Amended and Restated
Registration Agreement between the Company and the Purchasers in form and
substance as set forth in Exhibit C hereto.
"Amended Stock Transfer Agreement" means the Amended and Restated
Stock Transfer Agreement dated as of June 22, 1995 between the Company and the
Purchasers.
"Amended Stockholders Agreement" means the Amended and Restated
Stockholders Agreement between the Company and the holders of Common Stock in
form and substance as set forth in Exhibit E attached hereto.
"BT" means BT Capital Partners, Inc., a Delaware corporation.
"BT Common Stock" has the meaning given such term in the Amended
Stockholders Agreement.
"CAP Agreements" means agreements to provide telephone services within
and between local access transport areas, such services to be provided primarily
on facilities owned or leased by the Company.
"Certificate of Amendment" means an amendment to the Company's
Certificate of Incorporation in the form set forth in Exhibit A-l hereto.
"Certificate of Incorporation" means the Company's Certificate of
Incorporation in the form set forth in Exhibit B hereto.
"Certificate of Designation" means the Company's Amended and Restated
Certificate of Designation of rights and preferences of Series A-1 Preferred
Stock establishing the terms and the relative rights and preferences of the
Preferred Stock - Series 1 and Preferred Stock - Series 2 in the form set forth
in Exhibit A hereto.
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"Change of Control" shall be deemed to have occurred at such time as
any of the following events shall occur:
(i) There shall be consummated any sale or issuance or series of
sales and/or issuances of shares of Common Stock by the Company or any
holders thereof which results in any Person or affiliated Persons (other
than the owners of Common Stock or their Affiliates as of the date of the
Purchase Agreement after giving effect to the transactions contemplated
hereby) owning Common Stock of the Company possessing the voting power
(under ordinary circumstances) to elect a majority of the Company's board
of directors.
(ii) There shall be consummated a sale or transfer of more than
30% of the assets of the Company and its Subsidiaries on a consolidated
basis in any transaction or series of transactions (other than sales in the
ordinary course of business).
(iii) There shall be consummated any merger or consolidation to
which the Company is a party, except for a merger in which the Company is
the surviving corporation and, after giving effect to such merger, the
holders of Common Stock immediately prior to the merger shall own Common
Stock possessing the voting power (under ordinary circumstances) to elect a
majority of the Company's board of directors.
"Chemical" means Chemical Venture Capital Associates, a California
limited partnership.
"CIBC" means CIBC Wood Gundy Ventures, Inc., a Delaware corporation.
"Closing" has the meaning given such term in Section 1 above.
"Common Stock" means the Company's common stock, par value $.01 per
share.
"Company" means United USN, Inc., a Delaware corporation.
"Employment Agreements" means Network's employment agreements with
Thomas C. Brandenburg, Robert J. Luth, Ronald W.
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Gavillet and Richard Vanderwoude, each in the form previously delivered to the
Purchasers.
"Event of Noncompliance" has the meaning set forth in the Certificate
of Designation.
"Exercise-Notice" means a written notice of the Company indicating
that the Put has been exercised and specifying each Purchaser exercising the Put
and the number of shares to be purchased from each such Purchaser.
"Hancock" means Hancock Venture Partners IV - Direct Fund L.P., a
Delaware limited partnership.
"Indebtedness" shall mean at a particular time, without duplication,
(i) indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which any Person is liable, contingently or
otherwise, as obligor or otherwise (other than trade payables and other current
liabilities incurred in the ordinary course of business) or any commitment by
which any Person assures a creditor against loss, including contingent
reimbursement obligations with respect to letters of credit, (ii) indebtedness
guaranteed in any manner by any Person, including guarantees in the form of an
agreement to repurchase or reimburse, (iii) obligations under capitalized leases
in respect of which obligations any Person is liable, contingently or otherwise,
as obligor, guarantor or otherwise, or in respect of which obligations any
Person assures a creditor against loss and (iv) any unsatisfied obligation of
any Person for "withdrawal liability" to a "multiemployer plan" as such terms
are defined under ERISA.
"Investment" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Investor Common Stock" means (i) the Common Stock issued pursuant to
this Agreement, (ii) for all purposes hereof other than Section 6 above, Section
3D(ii) above, Section 7 above or the definition of "Put" below, the Common Stock
issued pursuant to the First Purchase Agreement and (iii) any Common Stock
issued or
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issuable with respect to the Common Stock referred to in clause (i) above (and,
for all purposes hereof other than Section 6 or the definition of "Put" below,
also the Common Stock referred to in clause (ii) above) by way of stock
dividends or stock splits or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular shares of Investor Common Stock, such shares shall cease to be
Investor Common Stock when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with the Registration statement
covering them or (b) distributed to the public through a broker, dealer or
market maker pursuant to Rule 144 under the Securities Act (or any similar rule
then in force).
"Investor Preferred Stock" means (i) the Preferred Stock issued
pursuant to this Agreement or the First Purchase Agreement and (ii) any
Preferred Stock issued or issuable with respect to the Preferred Stock referred
to in clause W above by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares of Investor Preferred Stock, such
shares shall cease to be Investor Preferred Stock when they have been (a)
effectively registered under the Securities Act and disposed of in accordance
with the Registration statement covering them or (b) distributed to the public
through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar rule then in force).
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"Management Option Pool" means options to purchase shares of Common
Stock to be issued by the Company to senior management as incentive compensation
upon terms to be determined by the Company's board of directors.
"Market Value" means the highest price for which all of the
outstanding Common Stock of the Company could be sold in an orderly sale as
between a willing buyer and a willing seller within
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the 12 months prior to the date of delivery of the Put Notice to the Company.
"Network" means U.S. Network Corporation, a Delaware corporation.
"Northwood Capital" means Northwood Capital Partners LLC, a New York
limited liability company.
"Northwood Ventures" means Northwood Ventures, a New York limited
partnership.
"NYNEX" means NYNEX Corp. and its Subsidiaries, including New York
Telephone Company.
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate and (ii) to the best of such officer's knowledge, such
certificate does not misstate any material fact and does not omit to state any
fact necessary to make the certificate not misleading.
"Participation Notice" means a written notice delivered to the Company
by a Purchaser specifying the number of shares to be purchased from such
Purchaser pursuant to the Put.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Preferred Stock" means the Preferred Stock - Series 1 and the
Preferred Stock - Series 2.
"Preferred Stock - Series 1" means the Company's Series A 10% Senior
Cumulative Preferred Stock, par value $1.00 per share.
"Preferred Stock - Series 2" means the Company's Series A-2 10% Senior
Cumulative Preferred Stock, par value $1.00 per share.
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"Proprietary Rights" means all (i) patents, patent applications,
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names and corporate names and registrations and applications for
registration thereof, (iii) copyrights and registrations and applications for
registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software, data and documentation, (vi) trade
secrets and other confidential information (including, without limitation, the
"U.S. Network Corporation, Competitive Access Project, Outline of Project
Requirements" dated October 1993, ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial and marketing plans and customer
and supplier lists and information), (vii) other intellectual property rights,
and (viii) copies and tangible embodiments thereof (in whatever form or medium).
"Purchasers" means CIBC, Chemical, Hancock, BT, Northwood Capital,
Northwood Ventures and the Additional Purchaser, if any, collectively and
"Purchaser" means CIBC, Chemical, Hancock, BT, Northwood Capital, Northwood
Ventures or the Additional Purchaser, if any, individually; provided that the
Additional Purchaser will not be deemed to be a Purchaser for any purpose unless
and until it consummates the purchase of Additional Stock on the terms set forth
herein.
"Put" means the right of the Purchasers to require the Company to
repurchase all or any portion of the Investor Common Stock.
"Put Closing" means the closing of the Put.
"Put Notice" means a written notice delivered by the Purchasers to the
Company specifying the number of shares to be purchased from each Purchaser
pursuant to the Put.
"Put Price" means the price for Common Stock to be paid by the Company
to a Purchaser pursuant to the Put determined in accordance with paragraph 7D.
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"Put Trigger Date" means the earlier of the fifth anniversary of the
Closing or the date upon which a Change of Control of the Company occurs.
"Qualified Holder" means any (i) Purchaser, so long as such Purchaser
holds Investor Preferred Stock or Investor Common Stock, (ii) holder of at least
15% of the outstanding Investor Preferred Stock or (iii) holder of at least
12,821 shares of Investor Common Stock (as such number is adjusted for stock
splits, stock dividends, combinations of shares and similar recapitalizations).
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock which
would result in at least 20% of the shares of Common Stock outstanding after
such offering having been registered pursuant to the Securities Act, with such
shares outstanding having an aggregate value of at least $20 million; provided
that upon consummation thereof the Common Stock is listed on a national
securities exchange or the NASDAQ National Market System.
"Regulatory Problem" means any set of facts or circumstances wherein
it has been asserted by any governmental regulatory agency (or the Purchaser
believes that there is a substantial risk of such assertion) that the Purchaser
is not entitled to hold, or exercise any significant right with respect to, the
Stock.
"Required Approval" means the Company must have delivered a written
notice to the Purchasers stating the action proposed to be taken by the Company
and Purchasers holding at least 66 2/3% of the outstanding Investor Common Stock
must have approved such action by a written approval delivered to the Company.
"Restricted Securities" means (i) the Investor Preferred Stock and the
Investor Common Stock issued hereunder, and (ii) any securities issued with
respect to the securities referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the
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Securities Act and disposed of in accordance with the registration statement
covering them, (b) become eligible for sale pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or (c) been otherwise
transferred and new certificates for them not bearing the Securities Act legend
set forth in paragraph 8C have been delivered by the Company in accordance with
paragraph [5 (ii)]. Whenever any particular securities cease to be Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing a Securities Act
legend of the character set forth in paragraph 8C.
"SBIC" means a small business investment company licensed under the
Small Business Investment Act of 1958, as amended.
"Schwartz Agreement" means an agreement between the Company, Stephen
C. Schwartz and UTS that, in the sole discretion of each of the Purchasers,
positions the Company and its Subsidiaries to pursue arrangements similar to
that entered into by UTS and NYNEX with regional Bell operating companies other
than NYNEX on terms acceptable to the Purchasers.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.
"Stock" means the Preferred Stock and the Common Stock collectively.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership
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or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or other business entity.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the IRC, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"UTS" means United Telemanagement Service, Inc., a Delaware
corporation.
"UTS Agreement" means the Note and Stock Purchase Agreement dated as
of April 20, 1994 by and between the Company and UTS, as amended.
Section 9. Miscellaneous.
9A. Expenses. The Company agrees to pay, and hold each Purchaser
harmless against liability for the payment of, (i) the fees and expenses of
their special counsel arising in connection with the negotiation and execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing or, if the Closing does not
occur, payable upon demand, (ii) all out-of-pocket costs and expenses and
consultants, fees in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at Closing or, if the Closing does not occur,
payable upon demand, (iii) the fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of this Agreement, the agreements contemplated hereby, the Certificate
of Incorporation (as amended by the Certificate of Amendment) or the Certificate
of Designation, (iv) stamp and other taxes which may be payable in respect of
the execution and delivery of this Agreement or the issuance, delivery or
acquisition of any
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shares of Stock, (v) the fees and expenses incurred with respect to the
enforcement of the rights granted under this Agreement, the agreements
contemplated hereby, the Certificate of Incorporation (as amended by the
Certificate of Amendment) or the Certificate of Designation, (vi) the fees and
expenses incurred by each such Person in any filing with any governmental agency
with respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company or its Subsidiaries which
mentions such Person, and (vii) the reasonable fees and expenses incurred by any
such Person in connection with any transaction, claim or event which such Person
believes affects the Company or its Subsidiaries and as to which such Person
seeks advice of counsel.
9B. Remedies. Each holder of Stock shall have all rights and remedies
set forth in this Agreement, the Certificate of Incorporation and the (as
amended by the Certificate of Amendment) and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
9C. Purchaser's Investment Representations. Each Purchaser hereby
represents that it is an "accredited investor" within the meaning of Rule 501(a)
of Regulation D promulgated under the Securities Act, it is acquiring the
Restricted Securities purchased hereunder or acquired pursuant hereto for its
own account with the present intention of holding such securities for purposes
of investment, and that it has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein shall
prevent any Purchaser and subsequent holders of Restricted Securities from
transferring such securities in compliance with the provisions of Section 5
hereof. Each certificate for Restricted Securities shall be imprinted with a
legend in substantially the following form:
"The securities represented by this certificate were originally issued on
June 22, 1995, and have not been
-57-
<PAGE>
registered under the Securities Act of 1933, as amended. The transfer of
the securities represented by this certificate is subject to the conditions
specified in the Purchase Agreement, dated as of June 22, 1995, between the
issuer (the "Company") and certain investors, and the Company reserves the
right to refuse the transfer of such securities until such conditions have
been fulfilled with respect to such transfer. A copy of such conditions
shall be furnished by the Company to the holder hereof upon written request
and without charge."
9D. Treatment of the Preferred Stock. The Company covenants and agrees
that (i) so long as federal income tax laws prohibit a deduction for
distributions made by the Company with respect to preferred stock, it shall
treat all distributions paid by it on the Preferred Stock as non-deductible
dividends on all of its tax returns and (ii) it shall treat the Preferred Stock
as preferred stock in all of its financial statements and other reports and
shall treat all distributions paid by it on the Preferred Stock as dividends on
preferred stock in such statements and reports. The Company acknowledges and
agrees that the increased dividend rate on the Preferred Stock provided for in
the Certificate of Designation upon the occurrence of certain Events of
Noncompliance has been negotiated by (and is intended by) the Company and the
Purchasers as a reasonable increase in yield necessitated by the increased risk
to the holders of the Preferred Stock which would arise upon any such
occurrence.
9E. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended or waived and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the Required
Approval; provided that no amendment of Section 3D(ii) which would have the
effect of permitting the company to repurchase directly or indirectly, shares of
Common Stock pursuant to Section 7 of the First Purchase Agreement without
offering to purchase Investor Common Stock on the terms set forth in Section
3D(ii)(c) will be effective without the prior written consent of the holders of
a majority of the BT Common Stock then outstanding. No other course of dealing
between the Company and the holder of any Stock or any delay in exercising any
rights hereunder or under the Certificate of Incorporation (as amended by the
Certificate of Amendment) or Certificate of Designation shall operate as a
waiver of any rights
-58-
<PAGE>
of any such holders. For purposes of this Agreement, shares of Stock held by the
Company or any Subsidiaries shall not be deemed to be outstanding.
9F. Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
9G. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Stock are also for the benefit of, and enforceable by,
any subsequent holder of such Stock.
9H. Capital and Surplus; Special Reserves. The Company agrees that
the capital of the Company (as such term is used in Section 154 of the General
Corporation Law of the State of Delaware) in respect of the Stock issued
pursuant to this Agreement shall be equal to the aggregate par value of such
shares and that it shall not increase the capital of the Company with respect to
any shares of the Company's capital stock at any time on or after the date of
this Agreement. The Company also agrees that it shall not create any special
reserves under Section 171 of the General Corporation Law of the State of
Delaware without the prior written consent of each of the Purchasers.
9I. Generally Accepted Accounting Principles. Where any accounting
determination or calculation is required to be made under this Agreement or the
exhibits hereto, such determination or calculation (unless otherwise provided)
shall be made in accordance with generally accepted accounting principles,
consistently applied, except that if because of a change in generally accepted
accounting principles the Company would have to alter a previously utilized
accounting method or policy in order to remain in compliance with generally
accepted accounting principles, such determination or calculation shall continue
to be made in
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<PAGE>
accordance with the Company's previous accounting methods and policies, unless
otherwise directed by each of the Purchasers.
9J. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
9K. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
9L. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a Section
of this Agreement. The use of the word "including" in this Agreement shall be by
way of example rather than by limitation.
9M. Governing Law. The corporate law of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules hereto shall be
governed by the internal law, and not the law of conflicts, of the State of New
York.
9N. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, dispatched by telegram or electronic facsimile transmission
(confirmed in writing by mail simultaneously dispatched), sent to the recipient
by reputable express courier service (charges prepaid) or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications shall be sent to each
Purchaser at the address indicated on the Schedule of Purchasers and to the
Company at the address indicated below:
-60-
<PAGE>
United USN, Inc.
10 South Riverside Plaza, Suite 316
Chicago, Illinois 60606
Attention: Thomas C. Brandenburg
Telephone: (312) 906-3600
Facsimile: (312) 906-3636
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9O. Understanding Among the Purchasers. The determination of each
Purchaser to purchase the Stock pursuant to this Agreement has been made by such
Purchaser independent of any other Purchaser and independent of any statements
or opinions as to the advisability of such purchase or as to the properties,
business, prospects or condition (financial or otherwise) of the Company and its
Subsidiaries which may have been made or given by any other Purchaser or by any
agent or employee of any other Purchaser.
9P. Indemnification. The Company agrees to indemnify and hold each
Purchaser harmless against and in respect of any and all direct out-of-pocket
damages, losses, liabilities, obligations, costs and expenses (including
reasonable attorneys' fees) which the Purchasers, or any of them, may suffer or
incur as a result of a breach of any of the representations, warranties or
agreements by the Company set forth herein (notwithstanding any investigations
or verifications made by or on behalf of the Purchasers).
9Q. No Solicitation, Etc.
During such time as this Agreement is in effect and prior to the
Closing, neither the Company, its Subsidiaries or any of their stockholders,
directors, officers, employees, agents or representatives (collectively, the
"Company Parties"), without the prior written approval of the Company's board of
directors, (a) will solicit, initiate, encourage or discuss any proposal or
offer from any person other than the Purchasers relating to an equity financing
of the Company or its Subsidiaries (other than as contemplated by Section 2L and
other than any communications necessary to advise investors of the Company's or
its Subsidiaries, lack of interest in such proposal), or (b) furnish any
information
-61-
<PAGE>
with respect to, or assist or participate in, or facilitate in any other manner,
any effort or attempt by any person to do or seek the foregoing. Promptly after
execution of this Agreement, all Company Parties will terminate all discussions
with any third party regarding the foregoing and will notify each of the
Purchasers immediately after any Company Party learns that any person has made
any proposal, offer, inquiry or contact with respect to the foregoing. The
Company's acknowledgement of and agreement with the terms and conditions set
forth in this Agreement will constitute a representation and warranty that
neither the Company, its Subsidiaries nor, to their knowledge, any other Company
Party, has entered into any executory agreement or accepted any commitment with
respect to the foregoing transactions.
9R. Insurance Proceeds.
The Purchasers agree that following the payment to Purchasers of any
insurance proceeds under paragraph 3N, (i) the Purchasers shall remit to the
Company an amount of such proceeds, if any, which is equal to (a) the aggregate
amount of proceeds received under paragraph 3N by the Purchasers, less (b) the
Liquidation Value of any Investor Preferred Stock then outstanding, together
with accrued and unpaid dividends, plus the purchase price of any Investor
Common Stock then outstanding; and (ii) the Purchasers agree to return to the
Company for cancellation the shares of Investor Preferred Stock for which
payment in full (including accrued and unpaid dividends) has been received from
such insurance proceeds.
* * * * *
-62-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
-----------------------------
By:
--------------------------
Its:
-------------------------
CIBC WOOD GUNDY VENTURES, INC.
-----------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
-----------------------------
By:
--------------------------
Its:
-------------------------
HANCOCK VENTURE PARTNERS IV - DIRECT FUND
L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
-----------------------------
By:
--------------------------
Its:
-------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
/s/ Paul S. Lattanzio
------------------------------
By:
---------------------------
Its:
--------------------------
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
------------------------------
By:
---------------------------
Its:
--------------------------
HANCOCK VENTURE PARTNERS IV - DIRECT FUND
L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
------------------------------
By:
---------------------------
Its:
--------------------------
<PAGE>
NORTHWOOD CAPITAL PARTNERS LLC
/s/ Henry T. Wilson
------------------------------------
By: HENRY T. WILSON
---------------------------------
Its: PRESIDENT
--------------------------------
NORTHWOOD VENTURES
/s/ Henry T. Wilson
------------------------------------
By: HENRY T. WILSON, Attorney in Fact
for Peter G. Schiff
---------------------------------
Its: GENERAL PARTNER
--------------------------------
-2-
<PAGE>
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Total Total
No. of Purchase No. of Purchase
Shares Price Shares Price
of for of for
Names and Preferred Preferred Common Common
Addresses Stock Stock Stock Stock
<S> <C> <C> <C> <C>
Chemical Venture Capital 4,950 $ 4,950,000 25,641 $ 49,999.95
Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
CIBC Wood Gundy Ventures, Inc. 4,950 $ 4,950,000 25,641 $ 49,999.95
425 Lexington Avenue
New York, New York 10017-3903
BT Capital Partners, Inc. 7,425 $ 7,425,000 38,462 $ 75,000.90
130 Liberty Street
New York, NY 10006
Hancock Venture Partners IV - 4,950 $ 4,950,000 25,641 $ 49,999.95
Direct Fund L.P.
One Financial Center
Boston, Massachusetts 02111
Northwood Ventures 594 $ 594,000 3,077 $ 6,000.15
485 Underhill Blvd.
Syosset, NY 11791
Additional Purchaser 2,475 $ 2,475,000 12,821 $ 25,000.95
Total 25,344 $25,344,000 131,283 $256,001.85
Purchasers Pursuant to Appendix I
- ---------------------------------
Northwood Capital Partners LLC 356 $ 356,000 1,846 $ 3,599.75
485 Underhill Blvd.
Syosset, NY 11791
Northwood Ventures 535 $ 535,000 2,770 $ 5,401.50
485 Underhill Blvd.
Syosset, NY 11791
Total 891 $ 891,00 4,616 $ 9,001.25
GRAND TOTAL 26,235 $26,235,000 135,899 $265,003.10
</TABLE>
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<PAGE>
ADHERENCE AGREEMENT
(PLAN OF DIVESTITURE)
June 22, 1995
CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC") and
Chemical Venture Capital Associates, a California limited partnership
("Chemical") entered into an Agreement and Plan of Divestiture with United USN,
Inc., a Delaware corporation (the "Company") dated as of April 20, 1994, in
connection with their initial investment in the Company. A copy of the Plan of
Divestiture is attached as Exhibit A hereto (the "Plan of Divestiture").
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned to such terms in the Plan of Divestiture.
CIBC and Chemical are both SBICs. As of immediately after their initial
investment in the Company, CIBC and Chemical held, in the aggregate, 58.8% of
the Company's outstanding voting stock. As a result of investments by other
investors since that date, their aggregate percentage of the Company's voting
stock declined to 54.2%. However, on the date hereof, BT Capital Partners, Inc.,
a Delaware corporation which is also an SBIC ("BT Capital"), made an investment
in the Company. As of immediately after BT Capital's investment (and add-on
investments by other shareholders, including CIBC and Chemical), the three SBIC
investors, CIBC, Chemical, and BT Capital, hold approximately 62.7% of the
Company's outstanding voting stock and, under Section 107.801 of the SBA
Regulations, the SBICs may be presumed to be in control of the Company.
NOW THEREFORE, in consideration of the premises and the mutual and
dependent promises hereinafter set forth, the undersigned parties agree to amend
the Plan of Divestiture to include BT Capital as a party thereto, as follows:
1. Adherence by BT Capital. BT Capital hereby becomes a party to the Plan
of Divestiture, and agrees to perform all the obligations of an SBIC thereunder
as if it had been an original party thereto.
2. Agreement of Other Parties. The other parties to the Plan of Divestiture
hereby agree to BT Capital's becoming a party thereto with all the rights and
obligations of an original SBIC party thereto.
3. Approval by SBA. This Adherence Agreement will be effective as of the
date hereof but will be subject to approval by SBA as hereinafter provided and
to renegotiation in the event that SBA at any time determines that renegotiation
is appropriate. A fully executed copy of this Agreement will be filed with SBA
within 30 days after the date hereof. Following receipt of such executed copy of
this Agreement, SBA will have, pursuant to Section 107.801 of the SBA
Regulations, 90 days within which to notify the SBICs that the amendment of the
Plan of Divestiture provided herein has not been approved. In the absence of
such notice, this Agreement and the
<PAGE>
amendment of the Plan of Divestiture contained herein will be deemed to have
been approved by SBA.
4. Affirmation of Plan. All provisions of the Plan of Divestiture not
expressly amended hereby are hereby confirmed. In particular, and without
limiting the generality of the foregoing, all time periods for divestiture by
the SBICs of voting control of the Company pursuant to the Plan of Divestiture
as amended hereby shall begin as of the original date of the Plan of
Divestiture, April 20, 1994, and not as of the date of this Adherence Agreement.
5. Miscellaneous. Sections 6-9 (Binding Agreement, Assignment; Governing
Law, Amendments; Headings; Counterparts) of the Plan of Divestiture are hereby
incorporated herein by reference and made a part hereof.
* * * * * * * * * * * *
I.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
UNITED USN, INC.
/s/ Robert J. Luth
-----------------------------------------
By: Robert J. Luth
Its: Executive Vice President
CIBC WOOD GUNDY VENTURES, INC.
-----------------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
-----------------------------------------
By:
--------------------------------------
Its:
-------------------------------------
BT CAPITAL PARTNERS, INC.
By:
--------------------------------------
Its:
-------------------------------------
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
UNITED USN, INC.
-----------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-----------------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
-----------------------------------------
By:
--------------------------------------
Its:
-------------------------------------
BT CAPITAL PARTNERS, INC.
By:
--------------------------------------
Its:
-------------------------------------
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
UNITED USN, INC.
---------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CBIC WOOD GUNDY VENTURES, INC.
---------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ DONALD J. HOFMANN, JR.
---------------------------------
By:
Its:
BT CAPITAL PARTNERS, INC.
---------------------------------
By:
------------------------------
Its:
-----------------------------
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
UNITED USN, INC.
---------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
CIBC WOOD GUNDY VENTURES, INC.
---------------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
---------------------------------------
By:
------------------------------------
Its:
-----------------------------------
BT CAPITAL PARTNERS, INC.
/s/ PAUL LATTANZIO
------------------------------------
By: Paul Lattanzio
Its: Managing Director
-6-
<PAGE>
APPENDIX I
THIS APPENDIX I (this "Appendix I") is an appendix to the Purchase
Agreement, dated as of June 22, 1995 (the "Agreement"). Each capitalized term
used and not otherwise defined in this Appendix I has the meaning given such
term in the Agreement. Northwood Ventures and Northwood Capital are the holders
of certain promissory notes (collectively, the "Notes") in the aggregate
principal amount of $835,000 issued by Quest America, L.P., a Delaware limited
partnership ("Quest"). UTS is a party to an Asset Purchase Agreement dated as of
June 13, 1995 (the "Asset Purchase Agreement") by and among Quest, UTS and
certain other parties.
1. Purchase of Stock if Quest Acquisition Consummated. Upon consummation
of the transactions contemplated by the Asset Purchase Agreement (the
"Acquisition"), Northwood Ventures and Northwood Capital will jointly and
severally be obligated to purchase from the Company, and the Company will sell
to, Northwood Ventures and Northwood Capital, an aggregate of an additional 891
shares of Preferred Stock - Series 2 and 4,616 shares of Common Stock, for an
aggregate purchase price of $900,001.20 and on the other terms of the Agreement.
Northwood Ventures, Northwood Capital and the Company will consummate such
transactions not later than two business days after consummation of such
transactions, and Northwood Capital and Northwood Ventures will be permitted to
assign to the Company all or any portion of their rights to receive amounts of
principal and interest payable under the Notes in payment of their obligations
to pay corresponding amounts of such additional purchase price. The closing for
such purchases shall take place at the offices of Kirkland & Ellis, Citicorp
Center, 153 East 53rd Street, New York, New York 10022-4675, or at such other
place as may be mutually agreeable to the Company, Northwood Capital and
Northwood Ventures. At such closing, the Company shall deliver to each of
Northwood Capital and Northwood Ventures stock certificates evidencing the Stock
to be purchased by each Purchaser, registered in such Purchaser's or its
nominee's name, upon delivery by such Purchaser of the purchase price thereof;
provided that, if any portion of such purchase price is to be paid by assignment
of all or any portion of the Notes, Northwood Ventures and Northwood Capital
shall deliver the Notes to the Company, free and clear of all liens, charges and
encumbrances and with forms of assignment thereof reasonably satisfactory to the
Company. Northwood Ventures and Northwood Capital will cease to
<PAGE>
have any rights or obligations pursuant to this paragraph l upon termination of
the Asset Purchase Agreement.
2. Purchase of Stock if Quest Acquisition Not Consummated. Upon
termination of the Asset Purchase Agreement, and termination of the rights and
obligations of Northwood Capital and Northwood Ventures pursuant to paragraph 1
above, then Northwood Capital and Northwood Ventures shall have the right (but
not the obligation) to purchase from the Company an aggregate of 891 shares of
Preferred Stock - Series 2 and 4,616 shares of Common Stock issued by the
Company for an aggregate purchase price of $900,001.20 (but may not purchase any
of such shares unless they purchase all of such shares of Preferred Stock -
Series 2 and Common Stock). To exercise a right to purchase Stock pursuant to
this paragraph 2, Northwood Ventures and/or Northwood Capital must deliver a
written notice thereof within 10 business days after termination of the Asset
Purchase Agreement, and upon delivery of such notice the delivering party will
be bound to purchase Stock from the Company as described therein. The closing
for such purchases shall take place at the offices of Kirkland & Ellis, Citicorp
Center, 153 East 53rd Street, New York, New York 10022-4675, or at such other
place as may be mutually agreeable to the Company and Northwood Capital and
Northwood Ventures, on a business day designated by the Company not less than
two days after delivery of such notice. At such closing, the Company shall
deliver to each of Northwood Capital and Northwood Ventures stock certificates
evidencing the Stock to be purchased by each Purchaser, registered in such
Purchaser's or its nominee's name, upon payment of the purchase price thereof by
such Purchaser by a cashier's or certified check, or by wire transfer of
immediately available funds to the Company's account at Madison Bank & Trust, in
the amounts of the purchase price for such Purchaser.
3. Stock Issued Pursuant to Agreement. Any Stock issued by the Company to
Northwood Capital or Northwood Ventures hereunder shall be deemed for all
purposes to have been issued under and pursuant to the Agreement.
-2-
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of June 22, 1995, by and among United USN,
Inc., a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), Chemical Venture Capital Associates, a California
limited partnership ("Chemical"), Hancock Venture Partners IV - Direct Fund
L.P., a Delaware limited partnership ("Hancock"), BT Capital Partners, Inc., a
Delaware corporation ("BT"), Northwood Capital Partners LLC, a New York limited
liability company ("Northwood Capital") and Northwood Ventures, a New York
limited partnership ("Northwood Ventures", and collectively with CIBC, Chemical,
Hancock and Northwood Capital, and subject to paragraph 7 below, the
"Investors"), and each of the stockholders listed on the Schedule of United
Stockholders attached hereto (the "United Stockholders"). The Investors and the
United Stockholders are collectively referred to as the "Stockholders" and
individually as a "Stockholder". Capitalized terms used herein are defined in
paragraph 6 hereof.
The Investors are parties to a Purchase Agreement with the Company of
even date herewith (as amended hereafter in accordance with its terms, the
"Purchase Agreement") pursuant to which the Investors will purchase shares of
the Company's Common Stock, par value $.01 per share (the "Common Stock"), and
Series A-2 10% Senior Cumulative Preferred Stock, par value $1.00 per share (the
"Preferred Stock"). The Company, CIBC, Chemical, Hancock and the United
Stockholders are parties to a Stockholders Agreement dated as of April 20, 1994,
as amended (the "Original Agreement"), which agreement such parties executed for
the purpose, among others, of (i) establishing the composition of the Company's
Board of Directors (the "Board"), and (ii) limiting the manner and terms by
which the Stockholder Shares may be transferred.
The Company, the Investors and the undersigned United Stockholders
desire to amend and restate the Original Agreement on the terms set forth
herein. Under the terms of the Original Agreement, such agreement may be amended
with the consent of the holders of 66 2/3% of the outstanding Investor Common
Stock and the holders of a majority of the Stockholder Shares which are not
Investor Common Stock. The undersigned Investors hold all of the
<PAGE>
Investor Common Stock and the undersigned United Stockholders hold a majority
of the Stockholder Shares which are not Investor Common Stock. The execution and
delivery of this Agreement is a condition to the Investors' purchase of the
Common Stock and Preferred Stock pursuant to the Purchase Agreement. This
Agreement shall become effective upon the consummation of the Closing (as
defined in the Purchase Agreement) pursuant to the Purchase Agreement.
Pursuant to the Purchase Agreement, Prime Cable and/or one or more of
its controlled Affiliates (collectively, "Prime") may purchase certain shares of
the Common Stock and Preferred Stock at the Second Closing.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Board of Directors.
(a) From and after the Closing (as defined in the Purchase Agreement)
and until the provisions of this paragraph 1 cease to be effective, each
Stockholder shall vote all of his Stockholder Shares and any other voting
securities of the Company over which such Stockholder has voting control and
shall take all other necessary or desirable actions within its control (whether
in its capacity as a stockholder or officer of the Company or otherwise, and
including, without limitation, attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions within
its control (including, without limitation, calling special board and
stockholder meetings), so that:
(i) subject to paragraph l(g), the authorized number of directors on
the Board shall be established at six directors (provided that, upon
consummation of the sale of Additional Stock to Prime in accordance with the
terms of the Purchase Agreement and execution by Prime of a counterpart to this
Agreement, the authorized number of directors on the Board shall be established
at seven directors);
(ii) the following persons shall be elected to the Board:
<PAGE>
(A) one representative designated by the holders of CIBC Common
Stock, determined by a vote of the holders of a majority
(iii) the composition of the board of directors (the "Quest Board") of
Quest United, Inc., a Delaware corporation, shall include each of the directors,
if any, designated to the Board pursuant to subparagraph (A), (B), (C), (D) or
(E) of paragraph l(a)(ii) above and not more than four (4) other persons; (the
"CIBC Director");
(A) one representative designated by the holders of Chemical
Common Stock, determined by a vote of the holders of a majority of the
outstanding shares of Chemical Common Stock (the "Chemical Director");
(B) one representative designated by the holders of Hancock
Common Stock, determined by a vote of the holders of a majority of the
outstanding shares of Hancock Common Stock (the "Hancock Director");
(C) one representative designated by the holders of BT Common
Stock, determined by a vote of the holders of a majority of the outstanding
shares of BT Common Stock (the "BT Director");
(D) two representatives (the "Management Directors") designated
by Thomas C. Brandenburg ("Brandenburg"), provided that until the first annual
meeting of the Company's stockholders, Brandenburg and Charles E. Buckman shall
serve as the Management Directors; and
(E) upon and after consummation of the sale of Additional Stock
to Prime in accordance with the terms of the Purchase Agreement and execution by
Prime of a counterpart to this Agreement, one representative designated by the
holders of Prime Common Stock, determined by a vote of the holders of a majority
of the outstanding shares of Prime Common Stock (the "Prime Director");
<PAGE>
(iv) the composition of the board of directors (the "Network Board") of
U.S. Network Corporation, a Delaware corporation ("Network"), shall be the same
as that of the Board;
(v) the composition of the board of directors (the "UTS Board") of UTS
shall include each of the directors, if any, designated to the Board pursuant to
subparagraph (A), (B), (C), (D), or (E) of paragraph l(a)(ii) above and not more
than four (4) other persons;
(vi) the composition of the board of directors (the "Quest Board") of Quest
United, Inc., a Delaware corporation, shall include each of the directors, if
any, designated to the Board pursuant to subparagraph (A), (B), (C), (D) or (E)
of paragraph l(a)(ii) above and not more than four (4) other persons;
(vii) the composition of the board of directors (a "Sub-Board") of each
other Subsidiary of the Company shall include each of the directors, if any,
designated to the Board pursuant to subparagraph (A), (B), (C), (D) or (E) of
paragraph l(a)(ii) above and not more than four (4) other persons; provided that
the board of directors of USN Solutions, Inc. and the board of directors of USN
Communications, Inc. shall be comprised solely of one director, and such
director shall be Brandenburg, unless and until the holders of a majority of the
outstanding shares of CIBC Common Stock, Chemical Common Stock, Hancock Common
Stock, BT Common Stock or Prime Common Stock request otherwise;
(viii) the removal from the Board, or any Sub Board (with or without cause)
of any representative designated hereunder by the holders of CIBC Common Stock,
Chemical Common Stock, Hancock Common Stock, BT Common Stock or Prime Common
Stock or by Brandenburg shall be at the written request of holders of a majority
of the outstanding shares of CIBC Common Stock, Chemical Common Stock, Hancock
Common Stock, BT Common Stock or Prime Common Stock respectively, or by
Brandenburg, respectively, but only upon such written request and under no other
circumstances, provided that if any director elected pursuant to (ii)(C) above
ceases to be an employee of the
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<PAGE>
Company and its subsidiaries, such director shall be removed as a director
promptly after his employment ceases; and
(ix) in the event that any representative designated hereunder by the
holders of CIBC Common Stock, Chemical Common Stock, Hancock Common Stock,
BT Common Stock or Prime Common Stock, respectively, or Brandenburg for any
reason ceases to serve as a member of the Board or any Sub Board during
such director's term of office, the resulting vacancy on the Board or Sub
Board shall be filled by a representative designated by the holders of a
majority of the outstanding shares of CIBC Common Stock, Chemical Common
Stock, Hancock Common Stock, BT Common Stock or Prime Common Stock,
respectively, or by Brandenburg, respectively, as provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses
incurred by each director in connection with attending the meetings of the Board
or the board of any Subsidiary and any committees thereof. So long as any CIBC
Director, Chemical Director, Hancock Director, BT Director or Prime Director
serves on the Board and for 5 years thereafter, the Company shall maintain
directors and officers indemnity insurance coverage satisfactory to the
Investors.
(c) The rights of the holders of CIBC Common Stock under this
paragraph 1 shall terminate at such time as (i) the CIBC Common Stock represents
less than 5% of the outstanding Common Stock, and (ii) CIBC and its Affiliates
collectively hold less than 66 2/3% of the aggregate amount of Investor Common
Stock originally issued to CIBC pursuant to the Purchase Agreement and the First
Purchase Agreement, as such amount is adjusted appropriately for stock splits,
stock dividends, combinations of shares and similar recapitalizations. The
rights of the holders of Chemical Common Stock under this paragraph 1 shall
terminate at such time as (i) the Chemical Common Stock represents less than 5%
of the outstanding Common Stock, and (ii) Chemical and its Affiliates
collectively hold less than 66 2/3% of the aggregate amount of Investor Common
Stock originally issued to Chemical pursuant to the Purchase Agreement and the
First Purchase Agreement, as such amount is adjusted appropriately for stock
splits, stock dividends, combinations of shares and similar recapitalizations.
The rights of the holders of Hancock Common Stock under this paragraph 1 shall
terminate at such time as (i) the Hancock Common Stock represents
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<PAGE>
less than 5% of the outstanding Common Stock, and (ii) Hancock and its
Affiliates collectively hold less than 66 2/3% of the aggregate amount of
Investor Common Stock originally issued to Hancock pursuant to the Purchase
Agreement and the First Purchase Agreement, as such amount is adjusted
appropriately for stock splits, stock dividends, combinations of shares and
similar recapitalizations. The rights of the holders of BT Common Stock under
this paragraph 1 shall terminate at such time as (i) the BT Common Stock
represents less than 5% of the outstanding Common Stock, and (ii) BT and its
Affiliates collectively hold less than 66 2/3% of the aggregate amount of
Investor Common Stock originally issued to BT pursuant to the Purchase
Agreement, as such amount is adjusted appropriately for stock splits, stock
dividends, combinations of shares and similar recapitalizations. The rights of
the holders of Northwood Capital Common Stock under this paragraph 1 shall
terminate at such time as (i) the Northwood Capital Common Stock represents less
than 5% of the outstanding Common Stock, and (ii) Northwood Capital and its
Affiliates collectively hold less than 66 2/3% of the aggregate amount of
Investor Common Stock originally issued to Northwood Capital pursuant to the
Purchase Agreement, as such amount is adjusted appropriately for stock splits,
stock dividends, combinations of shares and similar recapitalizations. The
rights of the holders of Northwood Ventures Common Stock under this paragraph 1
shall terminate at such time as (i) the Northwood Ventures Common Stock
represents less than 5% of the outstanding Common Stock, and (ii) Northwood
Ventures and its Affiliates collectively hold less than 66 2/3% of the aggregate
amount of Investor Common Stock originally issued to Northwood Ventures pursuant
to the Purchase Agreement, as such amount is adjusted appropriately for stock
splits, stock dividends, combinations of shares and similar recapitalizations.
The rights of the holders of Prime Common Stock under this paragraph 1 shall
terminate at such time as (i) the Prime Common Stock represents less than 5% of
the outstanding Common Stock, and (ii) Prime and its Affiliates collectively
hold less than 66 2/3% of the aggregate amount of Investor Common Stock
originally issued to Prime pursuant to the Purchase Agreement, as such amount is
adjusted appropriately for stock splits, stock dividends, combinations of shares
and similar recapitalizations.
(d) The rights of Brandenburg under this paragraph 1 shall terminate
at such time as (i) Brandenburg holds in the
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<PAGE>
aggregate less than 2% of the outstanding Common Stock or (ii) Brandenburg
ceases to be employed by the Company.
(e) The provisions of this paragraph 1 shall terminate automatically
and be of no further force and effect upon the first to occur of (i) April 20,
2004, unless extended by the parties hereto in accordance with Section 218 of
the General Corporation Law of the State of Delaware or (ii) a Qualified Public
Offering.
(f) If any party fails to designate a representative to fill a
directorship pursuant to the terms of this paragraph 1, the election of a person
to such directorship shall be accomplished in accordance with the Company's
bylaws and applicable law.
(g) If any Stockholder's right to designate representatives to the
Board pursuant to this paragraph 1 shall terminate, any director position which
is no longer subject to designation pursuant to the terms of this paragraph 1
shall be elected pursuant to the requirements of the General Corporation Law of
the State of Delaware and the bylaws of the Company.
(h) Notwithstanding the provisions in this paragraph 1, if the
authorized number of directors on the Board is increased, the persons filling
such Board positions shall be designated by the holders of Investor Common
Stock, determined by a vote of the holders of 66 2/3% of the outstanding
Investor Common Stock.
2. Irrevocable Proxy; Conflicting Agreement.
(a) In order to secure each United Stockholder's obligation to vote
his Stockholder Shares and other voting securities of the Company in accordance
with the provisions of paragraph 1 hereof, each United Stockholder hereby
appoints Brandenburg as his true and lawful proxy and attorney-in-fact, with
full power of substitution, to vote all of his Stockholder Shares and other
voting securities of the Company for the election and/or removal of directors
and all such other matters as expressly provided for in paragraph 1. Brandenburg
may exercise the irrevocable proxy granted to him hereunder at any time any
United Stockholder fails to comply with the provisions of this Agreement. The
proxies and powers granted by each United Stockholder pursuant to this paragraph
2 are coupled with an interest and are given to secure the performance of the
United Stockholder's obligations to
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<PAGE>
the holders of the Investor Common Stock and BT Common Stock under this
Agreement. Such proxies and powers will be irrevocable for the term set forth in
paragraph i(e) of this Agreement and will survive the death, incompetency and
disability of such United Stockholder and the subsequent holders of such
Stockholder Shares.
(b) Each Stockholder represents that he has not granted and is not a
party to any proxy, voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement, and no holder of Stockholder
Shares shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with or conflicts with the provisions of this
Agreement, except for the Voting Trust Agreement dated April 15, 1994 by and
between David W. Montville ("Montville") and Brandenburg, as trustee (the
"Trustee"), pursuant to which Montville granted to the Trustee all rights,
including the right to vote, in connection with Montville's Stockholder Shares;
the Stock Option dated April 15, 1994 by and between Brandenburg and Elizabeth
Montville (the "Brandenburg Option"), the Stock Option dated April 15, 1994 by
and between Montville and Elizabeth Montville (the "Montville Option") and the
Stock Option dated April 15, 1994 by and between Montville and Elizabeth Howe
(the "Howe Option").
3. Transfer of Stockholder Shares.
(a) Unless otherwise approved in writing by all of the Investors,
prior to an initial public offering of the Common Stock Brandenburg shall not
sell, transfer, assign, pledge or otherwise dispose of (a "Transfer") any
Stockholder Shares held by him on the date hereof or hereafter acquired other
than pursuant to the Brandenburg Option as in effect on April 20, 1994.
(b) Unless otherwise approved in writing by all of the Investors,
each United Stockholder agrees not to consummate any Transfer until 30 days
after the later of the delivery to the Company and the Investors of such United
Stockholder's Offer Notice (as defined below), unless the parties to the
Transfer have been finally determined pursuant to this paragraph 3 prior to the
expiration of such 30-day period (the "Election Period") or the Transfer is
pursuant to the Brandenburg Option, the Montville Option or the Howe Option as
in effect on April 20, 1994.
-8-
<PAGE>
(c) Subject to the provisions of subparagraph 3(a), at least 30 days
prior to making any Transfer of any Stockholder Shares, the transferring United
Stockholder (the "Transferring Stockholder") shall deliver a written notice (the
"Offer Notice") to the Company and the Investors. The Offer Notice shall
disclose in reasonable detail the proposed number of Stockholder Shares to
Transfer. First, the Company may elect to purchase all or any portion of the
Stockholder Shares specified in the Offer Notice at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Stockholders and the Investors as soon as practical but in any
event within ten days after the delivery of the Offer Notice. If the Company has
not elected to purchase all of the Stockholder Shares within such ten day
period, each Investor may elect to purchase all (but not less than all) of his
Pro Rata Share (as defined below) of the Stockholder Shares specified in the
Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Transferring Stockholder as soon as
practical but in any event within 20 days after delivery of the Offer Notice.
Any Stockholder Shares not elected to be purchased by the end of such 20-day
period shall be reoffered for the ten-day period prior to the expiration of the
Election Period by the Transferring Stockholder on a pro rata basis to the
Investors who have elected to purchase their Pro Rata Share. If the Company or
any Investors have elected to purchase Stockholder Shares from the Transferring
Stockholder, the transfer of such shares shall be consummated as soon as
practical after the delivery of the election notices, but in any event within 15
days after the expiration of the Election Period. To the extent that the Company
and the Investors have not elected to purchase all of the Stockholder Shares
being offered, the Transferring Stockholder may, within 90 days after the
expiration of the Election Period, transfer such Stockholder Shares to one or
more third parties at a price no less than 95% of the price per share specified
in the Offer Notice. The purchase price specified in any Offer Notice shall be
payable solely in cash at the closing of the transaction or in installments over
time, and no Stockholder Shares may be pledged without the prior written consent
of the Investors, which consent may be withheld in their sole discretion. Each
Stockholder's "Pro Rata Share" shall be based upon such Stockholder's
proportionate ownership of all Stockholder Shares on a fully-diluted basis.
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<PAGE>
(d) The restrictions contained in this paragraph 3 shall not apply
with respect to any Transfer of Stockholder Shares by any United Stockholder
pursuant to applicable laws of descent and distribution or among such
Stockholder's Family Group or (ii) among its Affiliates; provided that the
restrictions contained in this paragraph 3 shall continue to be applicable to
the Stockholder Shares after any such Transfer and provided further that the
transferees of such Stockholder Shares shall have agreed in writing to be bound
by the provisions of this Agreement affecting the Stockholder Shares so
transferred. "Family Group" means a Stockholder's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of the
Stockholder and/or the Stockholder's spouse and/or descendants. "Affiliate" of a
Stockholder means any other person, entity or investment fund controlling,
controlled by or under common control with an Investor and any partner of an
Investor which is a partnership; and, in the case of BT, "Affiliate" of BT shall
also include any entity controlled by individuals who, immediately prior to any
applicable transfer, are officers of BT.
(e) The restrictions on transfer set forth in this paragraph 3 shall
continue with respect to each Stockholder Share of the United Stockholders until
the consummation of a Qualified Public Offering.
4. Holdback Agreement. Each United Stockholder agrees not to effect
any public sale or distribution of the Company's equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 120-day period beginning on the effective
date of any underwritten registration of the Common Stock, including an initial
public offering thereof, or any underwritten Piggyback Registration (as defined
in the Registration Agreement dated as of the date hereof between the Investors
and the Company) unless the underwriters managing the registration otherwise
agree. The restrictions on the transfer of Stockholder Shares set forth in this
paragraph 4 shall continue with respect to each Stockholder Share until the date
on which such Stockholder Share has been transferred in a Qualified Public
Offering.
5. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain
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<PAGE>
Stockholder Shares as defined herein after such transfer) shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The securities represented by this certificate are subject to an
Amended and Restated Stockholders Agreement dated as of June 22, 1995
by and among the issuer of such securities (the "Company"), as
amended, and certain of the Company's stockholders. A copy of such
Stockholders Agreement will be furnished without charge by the Company
to the holder hereof upon written request."
The legend set forth above shall be removed from the certificates evidencing any
shares which cease to be Stockholder Shares in accordance with paragraph 7
hereof.
6. Transfer. Prior to transferring any Stockholder Shares (other than
in a Qualified Public Offering) to any person or entity, including transfers
pursuant to the Brandenburg Option, the Montville Option or the Howe Option, the
transferring Stockholder shall cause the prospective transferee to execute and
deliver to the Company and the other Stockholders a counterpart of this
Agreement.
7. Definitions. Unless otherwise defined herein, each capitalized
term used herein shall have the meaning given such term in the Purchase
Agreement.
"BT Common Stock" means (i) the Common Stock issued to BT pursuant to
the Purchase Agreement and (ii) any Common Stock issued or issuable with respect
to the Common Stock referred to in clause (i) foregoing by way of stock
dividends or stock splits or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Chemical Common Stock" means (i) the Common Stock issued to Chemical
pursuant to the Purchase Agreement or the First Purchase Agreement and (ii) any
Common Stock issued or issuable with respect to the Common Stock referred to in
clause (i) foregoing by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger,
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<PAGE>
consolidation or other reorganization.
"CIBC Common Stock" means (i) the Common Stock issued to CIBC pursuant
to the Purchase Agreement or the First Purchase Agreement and (ii) any Common
Stock issued or issuable with respect to the Common Stock referred to in clause
(i) foregoing by way of stock dividends or stock splits or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Hancock Common Stock" means (i) the Common Stock issued to Hancock
pursuant to the Purchase Agreement or the First Purchase Agreement and (ii) any
Common Stock issued or issuable with respect to the Common Stock referred to in
clause (i) foregoing by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Investor" means any of CIBC, Chemical, Hancock, BT and, upon
consummation of the sale of Additional Stock to Prime in accordance with the
terms of the Purchase Agreement and execution by Prime of a counterpart to this
Agreement, Prime; and "Investors" means all of such Persons, collectively.
"Investor Common Stock" means (i) the Common Stock issued to the
Investors pursuant to the Purchase Agreement or Original Purchase Agreement and
(ii) any Common Stock issued or issuable with respect to the Common Stock
referred to in clause (i) foregoing by way of stock dividends or stock splits or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"Northwood Capital Common Stock" means (i) the Common Stock issued to
Northwood Capital pursuant to the Purchase Agreement and (ii) any Common Stock
issued or issuable with respect to the Common Stock referred to in clause (i)
foregoing by way of stock dividends or stock splits or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Northwood Ventures Common Stock" means (i) the Common Stock issued to
Northwood Ventures pursuant to the Purchase Agreement and (ii) any Common Stock
issued or issuable with respect
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<PAGE>
to the Common Stock referred to in clause (i) foregoing by way of stock
dividends or stock splits or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Qualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock which
would result in at least 20% of the shares of Common Stock outstanding after
such offering having been registered pursuant to the Securities Act, with such
shares outstanding having an aggregate value of at least $20 million; provided
that upon consummation thereof the Common Stock is listed on a national
securities exchange or the NASDAQ National Market System.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Stockholder Shares" means (i) any Common Stock purchased or otherwise
acquired by any Stockholder and (ii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares constituting Stockholder Shares,
such shares will cease to be Stockholder Shares when they have been (x)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (y) sold to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act.
8. Transfers in Violation of Agreement. Any transfer or attempted
transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such transfer on its
books or treat any purported transferee of such Stockholder Shares as the owner
of such shares for any purpose.
9. Sale of the Company. If the Board and the holders of 66-2/3% of
the shares of Investor Common Stock then outstanding approve a sale of all or
substantially all of the Company's assets determined on a consolidated basis or
a sale of all or
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<PAGE>
substantially all of the Company's outstanding capital stock (whether by merger,
recapitalization, consolidation, reorganization, combination or otherwise) to
any other person or entity (collectively an "Approved Sale"), each Stockholder
shall vote for, consent to and raise no objections against such Approved Sale.
If the Approved Sale is structured as a (i) merger or consolidation, each
Stockholder shall waive any dissenters rights, appraisal rights or similar
rights in connection with such merger or consolidation or (ii) sale of stock,
each Stockholder shall agree to sell all of his shares of Common Stock and
rights to acquire shares of Common Stock on the terms and conditions approved by
the Board and the holders of 66 2/3% of the Investor Common Stock then
outstanding. Each Stockholder shall take all necessary or desirable actions in
connection with the consummation of the Approved Sale as requested by the
Company.
10. Representations and Warranties. Each of the undersigned United
Stockholders hereby represents and warrants to United and each of the Investors
that he holds, free and clear of any liens, charges and encumbrances, the number
of shares of Common Stock set forth opposite his name on the "Schedule of United
Stockholders" hereto. Based upon the foregoing representation, the Company
hereby represents and warrants to the Investors that the undersigned United
Stockholders hold a majority of the outstanding Stockholder Shares which are not
Investor Common Stock.
11. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company, the holders of
66 2/3% of the outstanding Investor Common Stock and the holders of a majority
of the Stockholder Shares which are not Investor Common Stock; provided that no
modification, amendment or waiver of any provision of this Agreement which
adversely affects the ability of the holders of a majority of the outstanding
shares of BT Common Stock to designate, elect or remove any BT Director or Sub
Director pursuant to the terms of this Agreement as in effect on the date
hereof, or which directly or indirectly modifies, amends or waives Section 9
above in any respect, shall be effective without the prior written consent of
the holders of a majority of the outstanding shares of BT Common Stock. The
failure of any party to enforce any of the provisions of this Agreement shall in
no way be
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<PAGE>
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
12. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Entire Agreement. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
14. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
15. Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
16. Remedies. The Company, the Investors and the United Stockholders
shall be entitled to enforce their rights under this Agreement specifically to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights existing in their favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that the Company, any Investor and any
United Stockholder may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific
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<PAGE>
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
17. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class mail
(postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Stockholder Shares subject to this Agreement at such address as
indicated by the Company's records, or at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notices will be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
United USN, Inc.
10 South Riverside Plaza, Suite 316
Chicago, Illinois 60606
Attention: Thomas C. Brandenburg
Telephone: (312) 906-3600
Facsimile: (312) 906-3636
18. Governing Law. The corporate law of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of the State of New York.
19. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
20. Execution of this Agreement by Prime. By executing a counterpart
to this Agreement, Prime assumes all of the obligations, and inures to all of
the benefits, of an Investor and a Stockholder hereunder.
* * * * *
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
/s/ Paul S. Lattanzio
-----------------------------------
By:
Its:
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
-----------------------------------
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
-----------------------------------
By:
Its:
HANCOCK VENTURE PARTNERS IV - DIRECT FUND
L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
-----------------------------------
By:
Its:
<PAGE>
NORTHWOOD CAPITAL PARTNERS LLC
/s/ Henry T. Wilson
-------------------------------
By: Henry T. Wilson
---------------------------
Its: President
---------------------------
NORTHWOOD VENTURES
/s/ Henry T. Wilson
-------------------------------
By: Henry T. Wilson
---------------------------
Attorney-in-fact for
Peter G. Schiff
Its: General Partner
---------------------------
<PAGE>
SCHEDULE OF INVESTORS
---------------------
CIBC Wood Gundy Ventures, Inc.
425 Lexington Avenue
New York, New York 10017-3903
Attention: Richard J. Brekka, President
Telephone: (212) 846-3736
Facsimile: (212) 697-1544
Chemical Venture Capital Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
Attention: Donald J. Hofmann, Jr.
Telephone: (212) 270-1366
Facsimile: (212) 270-2379
Hancock Venture Partners IV - Direct Fund L.P.
One Financial Center, 44th Floor
Boston, Massachusetts 02111
Attention: William Johnston
Telephone: (617) 348-3707
Facsimile: (617) 350-0305
BT Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, New York 10006
Attention: Paul Lattanzio
Telephone: (212) 250-9560
Facsimile: (212) 250-7651
Northwood Capital Partners LLC
485 Underhill Blvd.
Syosset, NY 11791
Attention: Henry T. Wilson
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
Northwood Ventures
485 Underhill Blvd.
Syosset, NY 11791
Attention: Henry T. Wilson
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
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SCHEDULE OF UNITED STOCKHOLDERS
-------------------------------
First Continental Capital Corporation
2311 Cedar Springs Road, Suite 400
Dallas, Texas 75201
Attention: C. Richard Ronchetti
Telephone: (214) 871-7000
Facsimile: (214) 871-0540
Thomas C. Brandenburg
10 S. Riverside Plaza, Suite 316
Chicago, IL 60606
Thomas C. Brandenburg, as Trustee for
David W. Montville
10 S. Riverside Plaza, Suite 316
Chicago, IL 60606
Kevin Maddock
22611 Puntallana
Mission Viejo, CA 92692
Robert Nisbett
9 Tamalpais Road
Berkeley, CA 94708
Joseph Montanile
1097 Korfitsen Road
New Milford, NJ 07646
David McCarthy
1706 72nd Ave. North
Brooklyn Center, MN 55430
Howard Gerson
47-42 188th Street
Flushing, NJ 11358
Sal Fabricante
9 Candlewood Path N.
Dix Hills, NY 11746
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A1 Dentale, Jr.
30 Vone's Lane
Raritan, NJ 08869
Demo Cervelli
15 Bell Avenue
Fords, NJ 08863
Larry Gladysz
1 Talburn Lane
Dix Hills, NY 11746
Louis Rappaport
184 White Oak Ridge Road
Short Hills, NJ 07078
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AMENDED AND RESTATED REGISTRATION AGREEMENT
THIS AGREEMENT is made as of June 22, 1995, by and among United USN, Inc.,
a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), Chemical Venture Capital Associates, a California
limited partnership ("Chemical"), Hancock Venture Partners IV - Direct Fund
L.P., a Delaware limited partnership ("Hancock"), BT Capital Partners, Inc., a
Delaware corporation ("BT"), Northwood Capital Partners LLC, a New York limited
liability company ("Northwood Capital") and Northwood Ventures, New York limited
partnership ("Northwood Ventures" and collectively, with CIBC, Chemical, Hancock
and Northwood Capital, subject to Section 9(a) below, the "Investors").
The parties to this Agreement are parties to a Purchase Agreement of even
date herewith (the "Purchase Agreement"). In order to induce the Investors to
enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the Closing under the Purchase Agreement. This
Agreement shall become effective upon the consummation of the Closing (as
defined in the Purchase Agreement) pursuant to the Purchase Agreement.
The parties to this Agreement, other than BT, are parties to a Registration
Agreement dated as of April 20, 1994, as amended (the "Original Agreement"). The
parties hereto enter into this Agreement to amend and restate the terms of the
Original Agreement. Unless otherwise provided in this Agreement capitalized
terms used herein shall have the meanings set forth in paragraph 8 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Subject to subparagraphs l(b), (c) and (e),
the holders of at least 33 1/3% of the Registrable Securities outstanding may at
any time request registration under the Securities Act of all or part of their
Registrable Securities on Form S-1 or any similar long-form registration ("Long-
Form Registrations") and the holders of at least 33 1/3% of the Registrable
Securities outstanding may at any
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time request registration under the Securities Act of all or part of their
Registrable Securities on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations") if available. Each request for a Demand
Registration shall be in writing and shall specify the approximate number of
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. Within ten days after receipt of any such
request, the Company will give written notice of such requested registration to
all other holders of Registrable Securities and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice. All registrations requested pursuant to this paragraph
l(a) are referred to herein as "Demand Registrations".
(b) Long-Form Registrations. The holders of Registrable Securities will be
entitled to request four Long-Form Registrations in which the Company will pay
all Registration Expenses of the company and the holders, of Registrable
Securities; provided that offering value of Registrable Securities requested in
the aggregate be registered in any Long-Form Registration must equal at least
$10,000,000. A registration will not count as one of the permitted Long-Form
Registrations until it has become effective, and no Long-Form Registration will
count as one of the permitted Long-Form Registrations unless the holders of
Registrable Securities are able to register and sell at least 90% of the
Registrable Securities requested to be included in such registration; provided
that in any event the Company will pay all Registration Expenses of the Company
and the holders of Registrable Securities in connection with any registration
initiated as a Long-Form Registration whether or not it has become effective.
(c) Short-Form Registrations. In addition to the Long-Form Registrations
provided pursuant to paragraph l(b), the holders of Registrable Securities will
be entitled to request an unlimited number of Short-Form Registrations, if
available, in which the Company will pay all Registration Expenses of the
Company and the holders of Registrable Securities; provided that the aggregate
offering value of Registrable Securities requested to be registered in any
Short-Form Registration must equal at least $5,000,000, or such lesser amount
representing 20% of the Registrable Securities then outstanding. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. After the Company has become
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subject to the reporting requirements of the Securities Exchange Act, the
Company will use its best efforts to make Short-Form Registrations available for
the sale of Registrable Securities.
(d) Priority on Demand Registrations. The Company will not include in any
Demand Registration any securities which are not Registrable Securities without
the prior written consent of the holders of at least 66 2/3% of the Registrable
Securities initially requesting such registration. If a Demand Registration is
an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of 66 2/3% the Registrable Securities initially
requesting registration, the Company will include in such registration prior to
the inclusion of any securities which are not Registrable Securities the number
of Registrable Securities requested to be included which in the opinion of such
underwriters can be sold in an orderly manner within the price range of such
offering, pro rata among the respective holders thereof on the basis of the
amount of Registrable Securities requested to be included by each such holder.
(e) Restrictions on Long-Form Registrations. The Company will not be
obligated to effect any Long-Form Registration within six months after the
effective date of a previous Long-Form Registration. The Company may postpone
for up to six months the filing or the effectiveness of a registration statement
for a Demand Registration if the Company and the holders of at least 66 2/3% of
the Registrable Securities initially requesting such registration agree that
such Demand Registration would reasonably be expected to have an adverse effect
on any proposal or plan by the Company or any of its subsidiaries to engage in
any acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or similar transaction; provided that in
such event, the holders of Registrable Securities initially requesting a Long-
Form Registration will be entitled to withdraw such request and, if such request
is withdrawn, such Long-Form Registration will not count as one of the permitted
Long-Form Registrations hereunder and the Company will pay all Registration
Expenses of the Company and the holders of Registrable Securities in connection
with such registration.
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(f) Selection of Underwriters. The holders of at least 66 2/3% of the
Registrable Securities initially requesting Demand Registration will have the
right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which will not be unreasonably
withheld.
(g) Other Registration Rights. Except as provided in this Agreement, the
Company will not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of at least 66 2/3% of the Registrable Securities;
provided that the Company may grant rights to employees of the Company and its
Subsidiaries to participate in Piggyback Registrations (as hereinafter defined)
so long as such rights are subordinate to the rights of the holders of
Registrable Securities with respect to such Piggyback Registrations.
2. Piggyback Registrations.
(a) Right to Pickaback. Whenever the Company proposes to register any of
its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
will give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 15 days after the receipt of the
Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company will include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Registrable
Securities requested to be
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included in such registration, pro rata among the holders of such Registrable
Securities on the basis of the number of shares requested to be included by each
such holder, and (iii) third, other securities requested to be included in such
registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company will include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata among the holders of such securities on the basis of the
number of securities requested to be included by each such holder, and (ii)
second, other securities requested to be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by a majority of the holders of the Registrable
Securities included in such Piggyback Registration. Such approval will not be
unreasonably withheld.
(f) Other Registrations. If the Company has previously filed a registration
statement with respect to Registrable Securities pursuant to paragraph 1 or
pursuant to this paragraph 2, and if such previous registration has not been
withdrawn or abandoned, the Company will not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least six months has elapsed from the effective date of such previous
registration.
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3. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect
any public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 120-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration in which Registrable Securities are
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 120-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) to cause each holder of its
Common Stock, or any securities convertible into or exchangeable or exercisable
for Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission
a registration statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such registration statement to become effective
(provided that
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before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by the
holders of the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel);
(b) prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under state securities or blue sky laws of such jurisdictions within
the United States as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material
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fact or omits any fact necessary to make the statements therein not misleading,
and, at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such Prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed and, if not so listed, to be listed on the
NASD automated quotation system and, if listed on the NASD automated quotation
system, use its reasonable best efforts to secure designation of all such
Registrable Securities covered by such registration statement as a NASDAQ
"national market system security" within the meaning of Rule llAa2-1 of the
Securities and Exchange Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to use its reasonable best efforts to arrange for
at least two market makers to register as such with respect to such Registrable
Securities with the NASD;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in form reasonably satisfactory to the Company) and take all such
other actions as the holders of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller,
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underwriter, attorney, accountant or agent in connection with such registration
statement;
(j) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in-the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included; provided, however, that this
provision shall not require the Company to disclose any information which it
reasonably believes to be confidential or proprietary and not otherwise required
to be disclosed under the Securities Act;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Registrable Securities included in such registration statement for sale in
any jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order;
(m) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the sellers thereof to consummate the disposition of such Registrable
Securities; and
(n) use its reasonable best efforts to obtain a cold comfort letter
from the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by cold comfort letters as the
holders of a majority of the Registrable Securities being sold reasonably
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request (provided that such Registrable Securities constitute at least 10% of
the securities covered by such registration statement).
If any such registration or comparable statement refers to any holder by
name or otherwise as the holder of any securities of the Company and if, in its
sole and exclusive judgment, such holder is or might be deemed to be a
controlling person of the Company, such holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such holder and presented to the Company in writing, to the effect that the
holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force, the
deletion of the reference to such holder; provided that with respect to this
clause (ii) such holder shall furnish to the Company an opinion of counsel to
such effect, which opinion and counsel shall be reasonably satisfactory to the
Company.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the company and all independent certified public
accountants, underwriters (excluding discounts and commissions which, with
respect to Registrable Securities, shall be payable by the holder of such
Registrable Securities) and other Persons retained by the company (all such
expenses being herein called "Registration Expenses"), will be borne as provided
in this Agreement, except that the Company will, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system.
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(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of the Registrable Securities initially requesting
such registration.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers and directors and each
Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or
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necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such holder.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel of its
choice reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party will not be subject to any liability for any
settlement made by the indemnified party without its consent (but such consent
will not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the company's indemnification
is unavailable for any reason.
7. Participation in Underwritten Registrations. No person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
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8. Definitions.
"Registrable Securities" means (i) any Investor Common Stock issued
pursuant to the Purchase Agreement or the First Purchase Agreement, (ii) any
Investor Common Stock issued or issuable with respect to the securities referred
to in clause (i) by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization, and (iii) any other shares of Common Stock held by Persons
holding securities described in clauses (i) or (ii) above. As to any particular
Registrable Securities, such securities will cease to be Registrable Securities
when they have been distributed to the public pursuant to an offering registered
under the Securities Act or sold to the public through a broker, dealer or
market maker in compliance with Rule 144 under the Securities Act (or any
similar rule then in force). For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such Person has the
right to acquire directly or indirectly such Registrable Securities (upon
conversion or exercise in connection with a transfer of securities or otherwise,
but disregarding any restrictions or limitations upon the exercise of such
right), whether or not such acquisition has actually been effected.
Unless otherwise stated, other capitalized terms contained herein have
the meanings met forth in the Purchase Agreement.
9. Miscellaneous.
(a) Additional Purchaser. In the event that an Additional
Purchaser purchases Stock at the Second Closing, on the terms and subject to the
terms of the Purchase Agreement, the Company shall cause such Additional
Purchaser to execute a counterpart to this Agreement, and upon execution thereof
such Additional Purchaser will be deemed to be an "Investor" for all purposes
hereof.
(b) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the holders of Registrable Securities in
this Agreement.
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(c) Adjustments Affecting Registrable Securities. The Company will
not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(d) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(e) Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the holders of the Registrable Securities.
(f) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(g) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
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(h) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such Counterparts taken together will constitute
one and the same Agreement.
(i) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(j) Governing Law. The corporate law of the State of Delaware will
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules hereto will be
governed by the internal law, and not the law of conflicts, of the State of New
York.
(k) Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable express courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications will be sent to each Investor at the address indicated on the
Schedule of Purchasers to the Purchase Agreement and to the Company at the
address indicated below:
United USN, Inc.
10 South Riverside Plaza, Suite 316
Chicago, Illinois 60606
Attention: Thomas C. Brandenburg
Telephone: (312) 906-3600
Facsimile: (312) 906-3636
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above
UNITED USN, INC.
/s/ Thomas C. Brandenburg
_____________________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
/s/ Paul S. Lattanzio
_____________________________________________
By:__________________________________________
Its:_________________________________________
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
_____________________________________________
By: Richard J. Brekka
Its: President
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
_____________________________________________
By:__________________________________________
Its:_________________________________________
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
_____________________________________________
By:__________________________________________
Its:_________________________________________
<PAGE>
NORTHWOOD CAPITAL PARTNERS LLC
/s/ Henry T. Wilson
-----------------------------------------
By: Henry T. Wilson
--------------------------------------
Its: President
-------------------------------------
NORTHWOOD VENTURES
/s/ Henry T. Wilson
-----------------------------------------
By: Henry T. Wilson, Attorney-in-Fact for
Peter G. Schiff
--------------------------------------
Its: General Partner
-------------------------------------
-2-
<PAGE>
FIRST AMENDMENT TO
PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AGREEMENT (the "Amendment") is made
as of July 21, 1995, by and among United USN, Inc., a Delaware corporation (the
"Company"), CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC"),
Chemical Venture Capital Associates, a California limited partnership
("Chemical"), Hancock Venture Partners IV - Direct Fund L.P., a Delaware limited
partnership ("Hancock"), BT Capital Partners, Inc., a Delaware corporation
("BT"), Northwood Capital Partners LLC, a New York limited liability company
("Northwood Capital"), Northwood Ventures, a New York limited partnership
("Northwood Ventures"), and Enterprises & Transcommunications, L.P., a Delaware
limited partnership ("Prime" and, collectively with CIBC, Chemical, Hancock, BT,
Northwood Capital and Northwood Ventures, the "Purchasers"), and amends that
certain Purchase Agreement dated as of June 22, 1995 by and among the Company,
CIBC, Chemical, Hancock, BT, Northwood Ventures and Northwood Capital (the
"Purchase Agreement").
WHEREAS, the Purchasers other than Prime have purchased, and Prime
desires to purchase, shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company and Series A 10% Senior Cumulative Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), of the Company; and
WHEREAS, the Company and the Purchasers desire to enter into this
Amendment to amend the Purchase Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Prime shall be deemed to be the Additional Purchaser for all
purposes of the Purchase Agreement.
2. The following definition is hereby added to Section 8 of the
Purchase Agreement:
"Prime Common Stock" has the meaning given such term in the Amended
Stockholders Agreement.
<PAGE>
3. Section 9E of the Purchase Agreement is hereby amended and restated
as follows:
9E. Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended or waived and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company has obtained the
Required Approval; provided that no amendment of Section 3D(ii) which would
have the effect of permitting the Company to repurchase, directly or
indirectly, shares of Common Stock pursuant to Section 7 of the First
Purchase Agreement without offering to purchase BT Common Stock on the
terms set forth in Section 3D(ii)(c) will be effective without the prior
written consent of the holders of a majority of the BT Common Stock then
outstanding, or without offering to purchase Prime Common Stock on the
terms set forth in Section 3D(ii)(c) will be effective without the prior
written consent of the holders of a majority of the Prime Common Stock then
outstanding. No other course of dealing between the Company and the holder
of any Stock or any delay in exercising any rights hereunder or under the
Certificate of Incorporation (as amended by the Certificate of Amendment)
or Certificate of Designation shall operate as a waiver of any rights of
any such holders. For purposes of this Agreement, shares of Stock held by
the Company or any Subsidiaries shall not be deemed to be outstanding.
4. Exhibit I to the Purchase Agreement as in effect at the Closing is
hereby amended and restated as set forth in Exhibit I hereto.
5. The address for Prime to be set forth on the Schedule of Purchasers
is as follows:
-2-
<PAGE>
Enterprises & Transcommunications, L.P.
3000 One American Center
600 Congress Avenue
Austin, Texas 78701
6. Severability. Whenever possible, each provision of this Amendment
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Amendment.
7. Counterparts. This Amendment may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Amendment.
8. Descriptive Headings; Interpretation. The descriptive headings of
this Amendment are inserted for convenience only and do not constitute a part of
this Amendment. The use of the word "including" in this Amendment shall be by
way of example rather than by limitation.
* * * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED USN, INC.
-----------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
-----------------------------------------
By:
Its:
CIBC WOOD GUNDY VENTURES, INC.
-----------------------------------------
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND
L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
-----------------------------------------
By:
Its:
CHEMICAL VENTURE CAPITAL ASSOCIATES
------------------------------------------
By:
Its:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED USN, INC.
_____________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
_____________________________________
By:
Its:
CIBC WOOD GUNDY VENTURES, INC.
_____________________________________
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
-------------------------------------
By: William A. Johnston
Its: Senior Vice President
CHEMICAL VENTURE CAPITAL ASSOCIATES
_____________________________________
By:
Its:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED USN, INC.
___________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
___________________________________
By:
Its:
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
------------------------------------
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
____________________________________
By:
Its:
CHEMICAL VENTURE CAPITAL ASSOCIATES
___________________________________
By:
Its:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED USN, INC.
_____________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
_____________________________________
By:
-----------------------------------
Its:
---------------------------------
CIBC WOOD GUNDY VENTURES, INC.
_____________________________________
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
________________________________________
By:
-------------------------------------
Its:
------------------------------------
CHEMICAL VENTURE CAPITAL ASSOCIATES
________________________________________
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
------------------------------
By:
---------------------------
Its:
--------------------------
CIBC WOOD GUNDY VENTURES, INC.
------------------------------
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
------------------------------
------------------------------
By:
---------------------------
Its:
--------------------------
CHEMICAL VENTURE CAPITAL ASSOCIATES
------------------------------
By:
---------------------------
Its:
--------------------------
<PAGE>
NORTHWOOD CAPITAL PARTNERS LLC
---------------------------------
By:
------------------------------
Its: Chairman and CEO
-----------------------------
NORTHWOOD VENTURES
---------------------------------
By:
------------------------------
Its: General Partners
-----------------------------
ENTERPRISES & TRANSCOMMUNICATIONS, L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management, L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
---------------------------------
By:
------------------------------
Its:
-----------------------------
<PAGE>
NORTHWOOD CAPITAL PARTNERS LLC
---------------------------------
By:
------------------------------
Its:
-----------------------------
NORTHWOOD VENTURES
---------------------------------
By:
------------------------------
Its:
-----------------------------
ENTERPRISES & TRANSCOMMUNICATIONS, L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management, L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
/s/ William P. Glasgow
---------------------------------
By:
------------------------------
Its:
-----------------------------
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of July 21, 1995, by and among United USN, Inc.,
a Delaware corporation (the "Company"), CIBC Wood Gundy Ventures, Inc., a
Delaware corporation ("CIBC"), Chemical Venture Capital Associates, a California
limited partnership ("Chemical"), Hancock Venture Partners IV - Direct Fund
L.P., a Delaware limited partnership ("Hancock"), BT Capital Partners, Inc., a
Delaware corporation ("BT"), Northwood Capital Partners LLC, a New York limited
liability company ("Northwood Capital"), Northwood Ventures, a New York limited
partnership ("Northwood Ventures"), and Enterprises & Transcommunications, L.P.,
a Delaware limited partnership ("Prime," and collectively with CIBC, Chemical,
Hancock, Northwood Capital, and subject to paragraph 7 below, the "Investors"),
and each of the stockholders listed on the Schedule of United Stockholders
attached hereto (the "United Stockholders"). The Investors and the United
Stockholders are collectively referred to as the "Stockholders" and individually
as a "Stockholder." Capitalized terms used herein are defined in paragraph 6
hereof.
The Investors (other than Prime) are parties to an Amended and Restated
Stockholders Agreement dated as of June 22, 1995 (the "Original Agreement"), and
all of the Investors are parties to a Purchase Agreement with the Company dated
as of such date and amended as of the date hereof (as amended through the date
hereof and hereafter in accordance with its terms, the "Purchase Agreement")
pursuant to which the Investors other than Prime have purchased, and in
connection with the execution hereof Prime will purchase, shares of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), and
Series A-2 10% Senior Cumulative Preferred Stock, par value $1.00 per share (the
"Preferred Stock"). The Investors (other than Prime) executed the Original
Agreement for the purpose, among others, of (i) establishing the composition of
the Company's Board of Directors (the "Board"), and (ii) limiting the manner and
terms by which the Stockholder Shares may be transferred.
The Company, the Investors and the undersigned United Stockholders desire
to amend and restate the Original Agreement on the terms set forth herein. The
undersigned Investors hold all of
<PAGE>
the Investor Common Stock and the undersigned United Stockholders hold a
majority of the Stockholder Shares which are not Investor Common Stock. The
execution and delivery of this Agreement is a condition to Prime's purchase of
the Common Stock and Preferred Stock pursuant to the Purchase Agreement. This
Agreement shall become effective upon the consummation of the Second Closing (as
defined in the Purchase Agreement) pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Board of Directors.
(a) From and after the Closing (as defined in the Purchase Agreement) and
until the provisions of this paragraph 1 cease to be effective, each Stockholder
shall vote all of his Stockholder Shares and any other voting securities of the
Company over which such Stockholder has voting control and shall take all other
necessary or desirable actions within its control (whether in its capacity as a
stockholder or officer of the Company or otherwise, and including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings), and
the Company shall take all necessary and desirable actions within its control
(including, without limitation, calling special board and stockholder meetings),
so that:
(i) subject to paragraph l(g), the authorized number of directors on
the Board shall be established at seven directors;
(ii) the following persons shall be elected to the Board:
(A) one representative designated by the holders of CIBC Common
Stock, determined by a vote of the holders of a majority of the
outstanding shares of CIBC Stock (the "CIBC Director");
(B) one representative designated by the holders of Chemical
Common Stock, determined by a vote of the
-2-
<PAGE>
holders of a majority of the outstanding shares of Chemical Common
Stock (the "Chemical Director");
(C) one representative designated by the holders of Hancock
Common Stock, determined by a vote of the holders of a majority of the
outstanding shares of Hancock Common Stock (the "Hancock Director");
(D) one representative designated by the holders of BT Common
Stock, determined by a vote of the holders of a majority of the
outstanding shares of BT Common Stock (the "BT Director");
(E) two representatives (the "Management Directors") designated
by Thomas C. Brandenburg ("Brandenburg"), provided that until the
first annual meeting of the Company's stockholders, Brandenburg and
Charles E. Buckman shall serve as the Management Directors; and
(F) upon and after consummation of the sale of Additional Stock
to Prime in accordance with the terms of the Purchase Agreement and
execution by Prime of a counterpart to this Agreement, one
representative designated by the holders of Prime Common Stock,
determined by a vote of the holders of a majority of the outstanding
shares of Prime Common Stock (the "Prime Director");
(iii) the composition of the board of directors (the "Quest Board") of
Quest United, Inc., a Delaware corporation, shall include each of the
directors, if any, designated to the Board pursuant to subparagraph (A),
(B), (C), (D), (E) or (F) of paragraph l(a)(ii) above and not more than two
(2) other persons (three (3) other persons so long as Stephen C. Schwartz
owns common stock of UTS);
(iv) the composition of the board of directors (the "Network Board")
of U.S. Network Corporation, a Delaware corporation ("Network"), shall be
the same as that of the Board;
-3-
<PAGE>
(v) the composition of the board of directors (the "UTS Board") of UTS
shall include each of the directors, if any, designated to the Board
pursuant to subparagraph (A), (B), (C), (D), (E) or (F) of paragraph
l(a)(ii) above and not more than three (3) other persons; provided,
however, that until such time as the existing agreement among stockholders
of UTS is amended to accommodate the foregoing (it being understood that
each of the parties hereto will take reasonable steps to cause such
agreement to be amended), such board shall include each of the directors
designated to the board pursuant to subparagraph (A),(B) or (C), one
director designated pursuant to subparagraph (E), and Stephen C. Schwartz.
(vi) the composition of the board of directors (a "Sub Board") of each
other Subsidiary of the Company shall include each of the directors, if
any, designated to the Board pursuant to subparagraph (A), (B), (C), (D),
(E) or (F) of paragraph l(a)(ii) above and not more than four (4) other
persons; provided that the board of directors of USN Solutions, Inc. and
the board of directors of USN Communications, Inc. shall be comprised
solely of one director, and such director shall be Brandenburg, unless and
until the holders of a majority of the outstanding shares of CIBC Common
Stock, Chemical Common Stock, Hancock Common Stock, BT Common Stock or
Prime Common Stock request otherwise;
(vii) the removal from the Board, or any Sub Board (with or without
cause) of any representative designated hereunder by the holders of CIBC
Common Stock, Chemical Common Stock, Hancock Common Stock, BT Common Stock
or Prime Common Stock or by Brandenburg shall be at the written request of
holders of a majority of the outstanding shares of CIBC Common Stock,
Chemical Common Stock, Hancock Common Stock, BT Common Stock or Prime
Common Stock, respectively, or by Brandenburg, respectively, but only upon
such written request and under no other circumstances, provided that if any
director elected pursuant to (ii)(C) above ceases to be an employee of the
Company and its subsidiaries, such director shall be removed as a director
promptly after his employment ceases; and
(viii) in the event that any representative designated hereunder by
the holders of CIBC Common Stock, Chemical Common
-4-
<PAGE>
Stock, Hancock Common Stock, BT Common Stock or Prime Common Stock,
respectively, or Brandenburg for any reason ceases to serve as a member of
the Board or any Sub Board during such director's term of office, the
resulting vacancy on the Board or Sub Board shall be filled by a
representative designated by the holders of a majority of the outstanding
shares of CIBC Common Stock, Chemical Common Stock, Hancock Common Stock,
BT Common Stock or Prime Common Stock, respectively, or by Brandenburg,
respectively, as provided hereunder.
(b) The Company shall pay the reasonable out-of-pocket expenses incurred by
each director in connection with attending the meetings of the Board or the
board of any Subsidiary and any committees thereof. So long as any CIBC
Director, Chemical Director, Hancock Director, BT Director or Prime Director
serves on the Board and for 5 years thereafter, the Company shall maintain
directors and officers indemnity insurance coverage satisfactory to the
Investors.
(c) The rights of the holders of CIBC Common Stock under this paragraph 1
shall terminate at such time as (i) the CIBC Common Stock represents less than
5% of the outstanding Common Stock, and (ii) CIBC and its Affiliates
collectively hold less than 66 2/3% of the aggregate amount of Investor Common
Stock originally issued to CIBC pursuant to the Purchase Agreement and the First
Purchase Agreement, as such amount is adjusted appropriately for stock splits,
stock dividends, combinations of shares and similar recapitalizations. The
rights of the holders of Chemical Common Stock under this paragraph 1 shall
terminate at such time as (i) the Chemical Common Stock represents less than 5%
of the outstanding Common Stock, and (ii) Chemical and its Affiliates
collectively hold less than 66 2/3% of the aggregate amount of Investor Common
Stock originally issued to Chemical pursuant to the Purchase Agreement and the
First Purchase Agreement, as such amount is adjusted appropriately for stock
splits, stock dividends, combinations of shares and similar recapitalizations.
The rights of the holders of Hancock Common Stock under this paragraph 1 shall
terminate at such time as (i) the Hancock Common Stock represents less than 5%
of the outstanding Common Stock, and (ii) Hancock and its Affiliates
collectively hold less than 66 2/3% of the aggregate amount of Investor Common
Stock originally issued to Hancock pursuant to the Purchase Agreement and the
First Purchase Agreement, as such amount is adjusted appropriately for stock
-5-
<PAGE>
splits, stock dividends, combinations of shares and similar recapitalizations.
The rights of the holders of BT Common Stock under this paragraph 1 shall
terminate at such time as (i) the BT Common Stock represents less than 5% of the
outstanding Common Stock, and (ii) BT and its Affiliates collectively hold less
than 66 2/3% of the aggregate amount of Investor Common Stock originally issued
to BT pursuant to the Purchase Agreement, as such amount is adjusted
appropriately for stock splits, stock dividends, combinations of shares and
similar recapitalizations. The rights of the holders of Northwood Capital Common
Stock under this paragraph 1 shall terminate at such time as (i) the Northwood
Capital Common Stock represents less than 5% of the outstanding Common Stock,
and (ii) Northwood Capital and its Affiliates collectively hold less than
66 2/3% of the aggregate amount of Investor Common Stock originally issued to
Northwood Capital pursuant to the Purchase Agreement, as such amount is adjusted
appropriately for stock splits, stock dividends, combinations of shares and
similar recapitalizations. The rights of the holders of Northwood Ventures
Common Stock under this paragraph 1 shall terminate at such time as (i) the
Northwood Ventures Common Stock represents less than 5% of the outstanding
Common Stock, and (ii) Northwood Ventures and its Affiliates collectively hold
less than 66 2/3% of the aggregate amount of Investor Common Stock originally
issued to Northwood Ventures pursuant to the Purchase Agreement, as such amount
is adjusted appropriately for stock splits, stock dividends, combinations of
shares and similar recapitalizations. The rights of the holders of Prime Common
Stock under this paragraph 1 shall terminate at such time as (i) the Prime
Common Stock represents less than 5% of the outstanding Common Stock, and (ii)
Prime and its Affiliates collectively hold less than 66 2/3% of the aggregate
amount of Investor Common Stock originally issued to Prime pursuant to the
Purchase Agreement, as such amount is adjusted appropriately for stock splits,
stock dividends, combinations of shares and similar recapitalizations.
(d) The rights of Brandenburg under this paragraph 1 shall terminate at
such time as (i) Brandenburg holds in the aggregate less than 2% of the
outstanding Common Stock or (ii) Brandenburg ceases to be employed by the
Company.
(e) The provisions of this paragraph 1 shall terminate automatically and be
of no further force and effect upon the first to occur of (i) April 20, 2004,
unless extended by the parties
-6-
<PAGE>
hereto in accordance with Section 218 of the General Corporation Law of the
State of Delaware or (ii) a Qualified Public Offering.
(f) If any party fails to designate a representative to fill a directorship
pursuant to the terms of this paragraph 1, the election of a person to such
directorship shall be accomplished in accordance with the Company's bylaws and
applicable law.
(g) If any Stockholder's right to designate representatives to the Board
pursuant to this paragraph 1 shall terminate, any director position which is no
longer subject to designation pursuant to the terms of this paragraph 1 shall be
elected pursuant to the requirements of the General Corporation Law of the State
of Delaware and the bylaws of the Company.
(h) Notwithstanding the provisions in this paragraph 1, if the authorized
number of directors on the Board is increased, the persons filling such Board
positions shall be designated by the holders of Investor Common Stock,
determined by a vote of the holders of 66 2/3% of the outstanding Investor
Common Stock.
2. Irrevocable Proxy: Conflicting Agreement.
(a) In order to secure each United Stockholder's obligation to vote his
Stockholder Shares and other voting securities of the Company in accordance with
the provisions of paragraph 1 hereof, each United Stockholder hereby appoints
Brandenburg as his true and lawful proxy and attorney-in-fact, with full power
of substitution, to vote all of his Stockholder Shares and other voting
securities of the Company for the election and/or removal of directors and all
such other matters as expressly provided for in paragraph 1. Brandenburg may
exercise the irrevocable proxy granted to him hereunder at any time any United
Stockholder fails to comply with the provisions of this Agreement. The proxies
and powers granted by each United Stockholder pursuant to this paragraph 2 are
coupled with an interest and are given to secure the performance of the United
Stockholder's obligations to the holders of the CIBC Common Stock, Chemical
Common Stock, Hancock Common Stock, BT Common Stock and Prime Common Stock under
this Agreement. Such proxies and powers will be irrevocable for the term set
forth in paragraph i(e) of this Agreement and will survive the death,
incompetency and disability of such United Stockholder and the subsequent
holders of such Stockholder Shares.
-7-
<PAGE>
(b) Each Stockholder represents that he has not granted and is not a party
to any proxy, voting trust or other agreement which is inconsistent with or
conflicts with the provisions of this Agreement, and no holder of Stockholder
Shares shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with or conflicts with the provisions of this
Agreement, except for the Voting Trust Agreement dated April 15, 1994 by and
between David W. Montville ("Montville") and Brandenburg, as trustee (the
"Trustee"), pursuant to which Montville granted to the Trustee all rights,
including the right to vote, in connection with Montville's Stockholder Shares;
the Stock Option dated April 15, 1994 by and between Brandenburg and Elizabeth
Montville (the "Brandenburg Option"), the Stock Option dated April 15, 1994 by
and between Montville and Elizabeth Montville (the "Montville Option") and the
Stock Option dated April 15, 1994 by and between Montville and Elizabeth Howe
(the "Howe Option").
3. Transfer of Stockholder Shares.
(a) Unless otherwise approved in writing by all of the Investors, prior to
an initial public offering of the Common Stock Brandenburg shall not sell,
transfer, assign, pledge or otherwise dispose of (a "Transfer") any Stockholder
Shares held by him on the date hereof or hereafter acquired other than pursuant
to the Brandenburg Option as in effect on April 20, 1994.
(b) Unless otherwise approved in writing by all of the Investors, each
United Stockholder agrees not to consummate any Transfer until 30 days after the
later of the delivery to the Company and the Investors of such United
Stockholder's Offer Notice (as defined below), unless the parties to the
Transfer have been finally determined pursuant to this paragraph 3 prior to the
expiration of such 30-day period (the "Election Period") or the Transfer is
pursuant to the Brandenburg Option, the Montville Option or the Howe Option as
in effect on April 20, 1994.
(c) Subject to the provisions of subparagraph 3(a), at least 30 days prior
to making any Transfer of any Stockholder Shares, the transferring United
Stockholder (the "Transferring Stockholder") shall deliver a written notice (the
"Offer Notice") to the Company and the Investors. The Offer Notice shall
disclose in reasonable detail the proposed number of Stockholder Shares to
-8-
<PAGE>
Transfer. First, the Company may elect to purchase all or any portion of the
Stockholder Shares specified in the Offer Notice at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Stockholders and the Investors as soon as practical but in any
event within ten days after the delivery of the Offer Notice. If the Company has
not elected to purchase all of the Stockholder Shares within such ten day
period, each Investor may elect to purchase all (but not less than all) of his
Pro Rata Share (as defined below) of the Stockholder Shares specified in the
Offer Notice at the price and on the terms specified therein by delivering
written notice of such election to the Transferring Stockholder as soon as
practical but in any event within 20 days after delivery of the Offer Notice.
Any Stockholder Shares not elected to be purchased by the end of such 20-day
period shall be reoffered for the ten-day period prior to the expiration of the
Election Period by the Transferring Stockholder on a pro rata basis to the
Investors who have elected to purchase their Pro Rata Share. If the Company or
any Investors have elected to purchase Stockholder Shares from the Transferring
Stockholder, the transfer of such shares shall be consummated as soon as
practical after the delivery of the election notices, but in any event within 15
days after the expiration of the Election Period. To the extent that the Company
and the Investors have not elected to purchase all of the Stockholder Shares
being offered, the Transferring Stockholder may, within 90 days after the
expiration of the Election Period, transfer such Stockholder Shares to one or
more third parties at a price no less than 95% of the price per share specified
in the Offer Notice. The purchase price specified in any Offer Notice shall be
payable solely in cash at the closing of the transaction or in installments over
time, and no Stockholder Shares may be pledged without the prior written consent
of the Investors, which consent may be withheld in their sole discretion. Each
Stockholder's "Pro Rata Share" shall be based upon such Stockholder's
proportionate ownership of all Stockholder Shares on a fully-diluted basis.
(d) The restrictions contained in this paragraph 3 shall not apply with
respect to any Transfer of Stockholder Shares by any United Stockholder pursuant
to applicable laws of descent and distribution or among such Stockholder's
Family Group or (ii) among its Affiliates; provided that the restrictions
contained in this paragraph 3 shall continue to be applicable to the Stockholder
Shares after any such Transfer and provided further that the
-9-
<PAGE>
transferees of such Stockholder Shares shall have agreed in writing to be bound
by the provisions of this Agreement affecting the Stockholder Shares so
transferred. "Family Group" means a Stockholder's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of the
Stockholder and/or the Stockholder's spouse and/or descendants. "Affiliate" of a
Stockholder means any other person, entity or investment fund controlling,
controlled by or under common control with an Investor and any partner of an
Investor which is a partnership; and, in the case of BT, "Affiliate" of BT shall
also include any entity controlled by individuals who, immediately prior to any
applicable transfer, are officers of BT.
(e) The restrictions on transfer set forth in this paragraph 3 shall
continue with respect to each Stockholder Share of the United Stockholders until
the consummation of a Qualified Public Offering.
4. Holdback Agreement. Each United Stockholder agrees not to effect any
public sale or distribution of the Company's equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 120-day period beginning on the effective
date of any underwritten registration of the Common Stock, including an initial
public offering thereof, or any underwritten Piggyback Registration (as defined
in the Registration Agreement dated as of the date hereof between the Investors
and the Company) unless the underwriters managing the registration otherwise
agree. The restrictions on the transfer of Stockholder Shares set forth in this
paragraph 4 shall continue with respect to each Stockholder Share until the date
on which such Stockholder Share has been transferred in a Qualified Public
Offering.
5. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The securities represented by this certificate are
subject to an Amended and Restated Stockholders Agreement
dated as of
-10-
<PAGE>
June 22, 1995 by and among the issuer of such
securities (the "Company"), as amended, and
certain of the Company's stockholders. A copy
of such Stockholders Agreement will be furnished
without charge by the Company to the holder hereof
upon written request."
The legend set forth above shall be removed from the certificates
evidencing any shares which cease to be Stockholder Shares in accordance with
paragraph 7 hereof.
6. Transfer. Prior to transferring any Stockholder Shares (other than in a
Qualified Public Offering) to any person or entity, including transfers pursuant
to the Brandenburg Option, the Montville Option or the Howe Option, the
transferring Stockholder shall cause the prospective transferee to execute and
deliver to the Company and the other Stockholders a counterpart of this
Agreement.
7. Definitions. Unless otherwise defined herein, each capitalized term used
herein shall have the meaning given such term in the Purchase Agreement.
"BT Common Stock" means (i) the Common Stock issued to BT pursuant to the
Purchase Agreement and (ii) any Common Stock issued or issuable with respect to
the Common Stock referred to in clause (i) foregoing by way of stock dividends
or stock splits or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization.
"Chemical Common Stock" means (i) the Common Stock issued to Chemical
pursuant to the Purchase Agreement or the First Purchase Agreement and (ii) any
Common Stock issued or issuable with respect to the Common Stock referred to in
clause (i) foregoing by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
"CIBC Common Stock" means (i) the Common Stock issued to CIBC pursuant to
the Purchase Agreement or the First Purchase Agreement and (ii) any Common Stock
issued or issuable with respect to the Common Stock referred to in clause (i)
foregoing by way of stock dividends or stock splits or in connection with a
combination
-11-
<PAGE>
of shares, recapitalization, merger, consolidation or other reorganization.
"Hancock Common Stock" means (i) the Common Stock issued to Hancock
pursuant to the Purchase Agreement or the First Purchase Agreement and (ii) any
Common Stock issued or issuable with respect to the Common Stock referred to in
clause (i) foregoing by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Investor" means any of CIBC, Chemical, Hancock, BT, Northwood Capital,
Northwood Ventures and Prime; and "Investors" means all of such Persons,
collectively.
"Investor Common Stock" means (i) the Common Stock issued to the Investors
pursuant to the Purchase Agreement or First Purchase Agreement and (ii) any
Common Stock issued or issuable with respect to the Common Stock referred to in
clause (i) foregoing by way of stock dividends or stock splits or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Northwood Capital Common Stock" means (i) the Common Stock issued to
Northwood Capital pursuant to the Purchase Agreement and (ii) any Common Stock
issued or issuable with respect to the Common Stock referred to in clause (i)
foregoing by way of stock dividends or stock splits or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Northwood Ventures Common Stock" means (i) the Common Stock issued to
Northwood Ventures pursuant to the Purchase Agreement and (ii) any Common Stock
issued or issuable with respect to the Common Stock referred to in clause (i)
foregoing by way of stock dividends or stock splits or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Prime Common Stock" means (i) the Common Stock issued to Prime pursuant to
the Purchase Agreement and (ii) any Common Stock issued or issuable with respect
to the Common Stock referred to in clause (i) foregoing by way of stock
dividends or stock splits or
-12-
<PAGE>
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
"Oualified Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of shares of Common Stock which
would result in at least 20% of the shares of Common Stock outstanding after
such offering having been registered pursuant to the Securities Act, with such
shares outstanding having an aggregate value of at least $20 million; provided
that upon consummation thereof the Common Stock is listed on a national
securities exchange or the NASDAQ National Market System.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Stockholder Shares" means (i) any Common Stock purchased or otherwise
acquired by any Stockholder and (ii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clause
(i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular shares constituting Stockholder Shares,
such shares will cease to be Stockholder Shares when they have been (x)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them or (y) sold to the public through
a broker, dealer or market maker pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act.
8. Transfers in Violation of Agreement. Any transfer or attempted transfer
of any Stockholder Shares in violation of any provision of this Agreement shall
be void, and the Company shall not record such transfer on its books or treat
any purported transferee of such Stockholder Shares as the owner of such shares
for any purpose.
9. Sale of the Company. If the Board and the holders of 66 2/3% of the
shares of Investor Common Stock then outstanding approve a sale of all or
substantially all of the Company's assets determined on a consolidated basis or
a sale of all or substantially all of the Company's outstanding capital stock
(whether by merger, recapitalization, consolidation,
-13-
<PAGE>
reorganization, combination or otherwise) to any other person or entity
(collectively an "Approved Sale"), each Stockholder shall vote for, consent to
and raise no objections against such Approved Sale. If the Approved Sale is
structured as a (i) merger or consolidation, each Stockholder shall waive any
dissenters rights, appraisal rights or similar rights in connection with such
merger or consolidation or (ii) sale of stock, each Stockholder shall agree to
sell all of his shares of Common Stock and rights to acquire shares of Common
Stock on the terms and conditions approved by the Board and the holders of
66 2/3% of the Investor Common Stock then outstanding. Each Stockholder shall
take all necessary or desirable actions in connection with the consummation of
the Approved Sale as requested by the Company.
10. Representations and Warranties. Each of the undersigned United
Stockholders hereby represents and warrants to United and each of the Investors
that he holds, free and clear of any liens, charges and encumbrances, the number
of shares of Common Stock set forth opposite his name on the "Schedule of United
Stockholders" hereto. Based upon the foregoing representation, the Company
hereby represents and warrants to the Investors that the undersigned United
Stockholders hold a majority of the outstanding Stockholder Shares which are not
Investor Common Stock.
11. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company, the holders of
66 2/3% of the outstanding Investor Common Stock and the holders of a majority
of the Stockholder Shares which are not Investor Common Stock; provided that no
modification, amendment or waiver of any provision of this Agreement which (A)
adversely affects (i) the ability of the holders of a majority of the
outstanding shares of CIBC Common Stock, Chemical Common Stock, Hancock Common
Stock, BT Common Stock or Prime Common Stock, respectively, to designate or
remove any CIBC Director, Chemical Director, Hancock Director, BT Director, or
Prime Director, respectively, (ii) the obligation of any Stockholder pursuant to
paragraph 2 above with respect to the election or removal of any such person as
a director, respectively, or (iii) the obligation of the Company, directly or
indirectly through its Subsidiaries, to elect a designee of such holder to the
board of directors of each of the Company's Subsidiaries pursuant
-14-
<PAGE>
to the terms of this Agreement as in effect on the date hereof, or (B) directly
or indirectly modifies, amends or waives Section 9 above in any respect, shall
be effective without the prior written consent of the holders of a majority of
the outstanding shares of CIBC Common Stock, Chemical Common Stock, Hancock
Common Stock, BT Common Stock or Prime Common Stock, respectively. The failure
of any party to enforce any of the provisions of this Agreement shall in no way
be construed as a waiver of such provisions and shall not affect the right of
such party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.
12. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Entire Agreement. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
14. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
15. Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
16. Remedies. The Company, the Investors and the United Stockholders shall
be entitled to enforce their rights under this
-15-
<PAGE>
Agreement specifically to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in their
favor. The parties hereto agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that the
Company, any Investor and any United Stockholder may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
17. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to any other recipient at the address
indicated on the schedules hereto and to any subsequent holder of Stockholder
Shares subject to this Agreement at such address as indicated by the Company's
records, or at such address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder when delivered personally,
three days after deposit in the U.S. mail and one day after deposit with a
reputable overnight courier service. The Company's address is:
United USN, Inc.
10 South Riverside Plaza, Suite 316
Chicago, Illinois 60606
Attention: Thomas C. Brandenburg
Telephone: (312) 906-3600
Facsimile: (312) 906-3636
18. Governing Law. The corporate law of the State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity and interpretation of
this Agreement shall be governed by the internal law, and not the law of
conflicts, of the State of New York.
19. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
-16-
<PAGE>
20. Execution of this Agreement by Prime. By executing this Agreement,
Prime assumes all of the obligations, and inures to all of the benefits, of an
Investor and a Stockholder hereunder.
* * * * *
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
UNITED USN, INC.
/s/ Thomas C. Brandenburg
-----------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
_________________________________
By:______________________________
Its:_____________________________
CIBC WOOD GUNDY VENTURES, INC.
______________________________
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND
L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture
Partners, Inc.
_________________________________
By:______________________________
Its:_____________________________
CHEMICAL VENTURE CAPITAL
ASSOCIATES
_________________________________
By:______________________________
Its:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
UNITED USN, INC.
_________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
/s/ Paul S. Lattanzio
_________________________________
By:______________________________
Its:_____________________________
CIBC WOOD GUNDY VENTURES, INC.
_________________________________
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV -
DIRECT FUND L.P,
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
_________________________________
By:______________________________
Its:_____________________________
CHEMICAL VENTURE CAPITAL
ASSOCIATES
_________________________________
By:______________________________
Its:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
UNITED USN, INC.
_________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
________________________________
By:______________________________
Its:_____________________________
CIBC WOOD GUNDY VENTURES, INC.
/s/ Richard J. Brekka
_________________________________
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
_________________________________
By:______________________________
Its:_____________________________
CHEMICAL VENTURE CAPITAL ASSOCIATES
_________________________________
By:______________________________
Its:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
UNITED USN, INC.
_________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
_________________________________
By:______________________________
Its:_____________________________
CIBC WOOD GUNDY VENTURES, INC.
_________________________________
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
_________________________________
By: William A. Johnston
Its: S.V.P.
_____________________________
CHEMICAL VENTURE CAPITAL ASSOCIATES
_________________________________
By:______________________________
Its:_____________________________
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
UNITED USN, INC.
_________________________________
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
_________________________________
By:______________________________
Its:_____________________________
CIBC WOOD GUNDY VENTURES, INC.
_________________________________
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
_________________________________
By:______________________________
Its:_____________________________
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann, Jr.
_________________________________
By:______________________________
Its:_____________________________
<PAGE>
ENTERPRISES & TRANSCOMMUNICATIONS, L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management, L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
/s/ William P. Glasgow
_______________________________________
By:____________________________________
Its:___________________________________
NORTHWOOD CAPITAL PARTNERS LLC
_______________________________________
By:____________________________________
Its:___________________________________
NORTHWOOD VENTURES
_______________________________________
By:____________________________________
Its:___________________________________
THOMAS C. BRANDENBURG
_______________________________________
THOMAS C. BRANDENBURG, as Trustee for
David W. Montville
_______________________________________
<PAGE>
ENTERPRISES & TRANSCOMMUNICATIONS, L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management, L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
_______________________________________
By:____________________________________
Its:___________________________________
NORTHWOOD CAPITAL PARTNERS LLC
/s/ Peter G. Schiff
_______________________________________
By:
____________________________________
Its: Chairman and CEO
___________________________________
NORTHWOOD VENTURES
/s/ Peter G. Schiff
_______________________________________
By:
____________________________________
Its: General Partner
___________________________________
THOMAS C. BRANDENBURG
_______________________________________
THOMAS C. BRANDENBURG, as Trustee for
David W. Montville
_______________________________________
<PAGE>
ENTERPRISES & TRANSCOMMUNICATIONS, L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management, L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
_______________________________________
By:____________________________________
Its:___________________________________
NORTHWOOD CAPITAL PARTNERS LLC
_______________________________________
By:____________________________________
Its:___________________________________
NORTHWOOD VENTURES
_______________________________________
By:____________________________________
Its:___________________________________
THOMAS C. BRANDENBURG
/s/ Thomas C. Brandenburg
_______________________________________
THOMAS C. BRANDENBURG, as Trustee for
David W. Montville
/s/ Thomas C. Brandenburg
_______________________________________
<PAGE>
SCHEDULE OF INVESTORS
---------------------
CIBC Wood Gundy Ventures, Inc.
425 Lexington Avenue
New York, New York 10017-3903
Attention: Richard J. Brekka, President
Telephone: (212) 846-3736
Facsimile: (212) 697-1544
Chemical Venture Capital Associates
270 Park Avenue, 5th Floor
New York, New York 10017-2070
Attention: Donald J. Hofmann, Jr.
Telephone: (212) 270-1366
Facsimile: (212) 270-2379
Hancock Venture Partners IV - Direct Fund L.P.
One Financial Center, 44th Floor
Boston, Massachusetts 02111
Attention: William Johnston
Telephone: (617) 348-3707
Facsimile: (617) 350-0305
BT Capital Partners, Inc.
130 Liberty Street, 25th Floor
New York, New York 10006
Attention: Paul Lattanzio
Telephone: (212) 250-9560
Facsimile: (212) 250-7651
Northwood Capital Partners LLC
485 Underhill Blvd.
Syosset, NY 11791
Attention: Henry T. Wilson
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
Northwood Ventures
485 Underhill Blvd.
Syosset, NY 11791
Attention: Henry T. Wilson
Telephone: (516) 364-5544
Facsimile: (516) 364-0879
-21-
<PAGE>
Enterprises & Transcommunications, L.P.
600 Congress, Suite 3000
One American Center
Austin, Texas 78701
Attention: William P. Glasgow
Telephone: (512) 476-7888
Facsimile: (512) 476-4869
Attention: Danny Fennewalt
Telephone: (512) 505-4171
Facsimile: (516) 505-4110
SCHEDULE OF UNITED STOCKHOLDERS
-------------------------------
First Continental Capital Corporation
2311 Cedar Springs Road, Suite 400
Dallas, Texas 75201
Attention: C. Richard Ronchetti
Telephone: (214) 871-7000
Facsimile: (214) 871-0540
Thomas C. Brandenburg
10 S. Riverside Plaza, Suite 316
Chicago, IL 60606
Thomas C. Brandenburg, as Trustee for
David W. Montville
10 S. Riverside Plaza, Suite 316
Chicago, IL 60606
Kevin Maddock
22611 Puntallana
Mission Viejo, CA 92692
Robert Nisbett
9 Tamalpais Road
Berkeley, CA 94708
Joseph Montanile
1097 Korfitsen Road
New Milford, NJ 07646
David McCarthy
-22-
<PAGE>
1706 72nd Ave. North
Brooklyn Center, MN 55430
Howard Gerson
47-42 188th Street
Flushing, NJ 11358
Sal Fabricante
9 Candlewood Path N.
Dix Hills, NY 11746
Al Dentale, Jr.
30 Vone's Lane
Raritan, NJ 08869
Demo Cervelli
15 Bell Avenue
Fords, NJ 08863
Larry Gladysz
1 Talburn Lane
Dix Hills, NY 11746
Louis Rappaport
184 White Oak Ridge Road
Short Hills, NJ 07078
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<PAGE>
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 to the Asset Purchase Agreement (this "Amendment")
made as of October 27, 1995 by and among United Telemanagement Services, Inc., a
Delaware corporation with an office at 655 Third Avenue, New York, New York
10017 ("UTS"), Quest United, Inc., a Delaware corporation with a mailing address
at c/o UTS, 655 Third Avenue, New York, New York 10017, Quest America
Management, Inc., a Delaware corporation with an office at 10 Post Office
Square, Boston, Massachusetts 02109, Edward H. Lavin, Jr., residing at 100 North
Ocean Boulevard, Delray Beach, Florida 33483, J. Thomas Elliott, residing at 7
Shoreline Point Drive, The Woodlands, Texas 77381, and Quest America, LP, a
Delaware limited partnership with an office at 10 Post Office Square, Boston,
Massachusetts 02109.
WITNESSETH:
WHEREAS, the parties hereto are parties to that Asset Purchase Agreement
dated as of June 13, 1995 ("Asset Purchase Agreement"). All capitalized terms
used herein and not otherwise defined herein shall have the respective meanings
as set forth in the Asset Purchase Agreement; and
WHEREAS, the parties hereto desire to enter into this Amendment to amend
certain provisions of the Asset Purchase Agreement including, without
limitation, the purchase price payable for the Assigned Business and the
Assigned Assets.
<PAGE>
TERMS
In consideration of the mutual covenants contained herein and good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, the parties to this Amendment
hereby agree as follows:
1. Amendments to Asset Purchase Agreement. The Asset Purchase Agreement is
hereby amended as follows:
(a) The second recital appearing on page 2 of the Asset Purchase
Agreement is hereby amended by deleting the phrase "in exchange for shares of
Common Stock (as hereinafter defined)" appearing on the 6th and 7th lines
thereof and replacing such phrase with the following: "Newco's agreement to
assume such stated liabilities."
(b) The defined term "Instructions" appearing on page 4 of the Asset
Purchase Agreement is hereby deleted in its entirety.
(c) The defined term "Options" appearing on page 5 of the Asset
Purchase Agreement is hereby deleted in its entirety.
(d) The terms "PSC" and "PSC Approval" appearing on page 5 of the Asset
Purchase Agreement are hereby deleted in their entirety.
2
<PAGE>
(e) The defined terms "Stockholders' Agreement" and "Stockholders'
Agreement Amendment" appearing on page 6 of the Asset Purchase Agreement are
hereby deleted in their entirety.
(f) Section 2.1 of the Asset Purchase Agreement is amended by (i)
deleting the phrase "the shares of Common Stock to be issued by UTS (and
delivered by Newco) to Elliott and Lavin pursuant to the Instructions and in
accordance with Section 2.4 hereof, the $738,000 promissory note of" is hereby
deleted from the second, third and fourth lines of Section 2.1 of the Asset
Purchase Agreement on page 7 thereof and in lieu thereof inserting the
following: ", that certain $738,000 promissory note to be issued by Quest in
connection with the actions described in clauses (A) and (B) of Section 2.5.1
below and assumed by" and (ii) deleting the last line thereof and in lieu
thereof inserting the following: "of Quest set forth on Schedule 2.1 hereto and
each liability of Quest not in excess of $10,000 incurred after the date hereof
through the Closing Date in the ordinary course of Quest's business consistent
with its past practice (the "Stated Liabilities").".
(g) Section 2.4 of the Asset Purchase Agreement is amended as follows:
(i) Section 2.4.1 shall be deleted in its entirety and replaced by
the following: "[Intentionally Omitted.]"; and
(ii) Section 2.4.2 thereof shall be amended by deleting the first,
second and third lines thereof in their entirety and replacing such lines with
the
3
<PAGE>
following: "Until the Closing (as defined below), UTS shall make bi-weekly loans
to Quest to".
(h) Section 2.5 of the Asset Purchase Agreement is amended by deleting
the last three lines of Section 2.5.1 thereof in their entirety and replacing
such lines with the following: "and (C) Quest shall liquidate and shall
thereafter dissolve (collectively, the "Related Transactions")".
(i) Sections 2.6 and 2.7 of the Asset Purchase Agreement are each
deleted in their entirety and replaced by the following: "[Intentionally
Omitted.]".
(j) Section 3.1 of the Asset Purchase Agreement is hereby amended by
deleting in its entirety the first line of page 15 thereof and in lieu thereof
inserting the following: "10022, on October 13, 1995 (the "Closing Date"), or on
such".
(k) Section 3.2.14 of the Asset Purchase Agreement is deleted in its
entirety and replaced by the following: "[Intentionally Omitted.]".
(l) Section 3.3.2(B) of the Asset Purchase Agreement is hereby deleted
in its entirety and replaced by the following: "[Intentionally Omitted.]".
(m) Section 3.3.3 of the Asset Purchase Agreement is hereby deleted
4
<PAGE>
in its entirety and replaced by the following: "[Intentionally Omitted.]".
(n) Section 3.5 of the Asset Purchase Agreement is hereby deleted in
its entirety and replaced by the following: "[Intentionally Omitted.]".
(o) Section 3.6.2(B) of the Asset Purchase Agreement is hereby deleted
in its entirety and replaced by the following: "[Intentionally Omitted.]".
(p) Section 3.7 of the Asset Purchase Agreement is hereby deleted in
its entirety and replaced by the following: "[Intentionally Omitted.]".
(q) Each of Sections 4.23, 4.24, 4.25, 4.26 and 4.27 of the Asset
Purchase Agreement are hereby deleted in its entirety and replaced by the
following: "[Intentionally Omitted.]".
(r) Section 5.3 of the Asset Purchase Agreement is amended by deleting
the phrase "except for the PSC Approval, no" on the first line thereof replacing
such phrase with the following: "No".
(s) Each of Section 6.1.1 and Section 6.1.2 of the Asset Purchase
Agreement is hereby deleted in its entirety and replaced by the following:
"[Intentionally Omitted.]".
5
<PAGE>
(t) Section 7.1.7 through Section 7.1.11 inclusive and Section 7.2 of
the Asset Purchase Agreement are hereby deleted in their entirety and each of
such Sections is replaced with the following: "[Intentionally Omitted.]".
(u) Section 8.8 of the Asset Purchase Agreement is hereby deleted in
its entirety and replaced by the following: "[Intentionally Omitted.]".
(v) Section 9.1 of the Asset Purchase Agreement is hereby amended by
deleting Sections 9.1.2, 9.1.5, 9.1.6 and 9.1.9, in their entirety and placing
each of such Sections with the following "[Intentionally Omitted.]"; and Section
9.1.13 of the Asset Purchase Agreement is hereby amended and restated in its
entirety to read as follows: "9.1.13. Dissolution Certificates. The Dissolution
Certificates shall have been executed and delivered to Newco."
(w) Section 9.2 of the Asset Purchase Agreement is hereby amended by
deleting Sections 9.2.1, 9.2.3, and 9.2.8 thereof in their entirety and
replacing each of such Sections with the following: "[Intentionally Omitted.]".
(x) Section 11.3 of the Asset Purchase Agreement is hereby deleted in
its entirety and replaced with the following: "11.3 Security. The obligations
contained in Section 11.1 hereof shall be guaranteed by the Stockholders as more
fully set forth in the Guaranty Agreement and shall be secured by a pledge of
certain securities as set forth in the
6
<PAGE>
Guaranty Agreement.".
(y) All cross-references in the Asset Purchase Agreement to any
Sections and/or Exhibits deleted by this Amendment shall be considered deleted
from the Asset Purchase Agreement and the remaining text of any provision of the
Asset Purchase Agreement which contain such cross-reference shall be construed
as if such cross-reference did not exist.
(z) Exhibit G to the Asset Purchase Agreement is hereby amended and
restated in its entirety and shall be in the form of Annex A annexed to this
Amendment.
(aa) The heading of Section 2 shall be amended and restated to read as
follows: "SECTION 2. SALE OF ASSETS; CAPITALIZATION OF NEWCO; RELATED
TRANSACTIONS.".
(bb) The heading of Section 7 shall be amended and restated to read as
follows: "SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.".
2. Waiver of Certain Closing Conditions. Newco and UTS hereby waive the
deliveries at the Closing contemplated by Section 3.3.1 of the Asset Purchase
Agreement; and Elliot and Lavin each hereby waives the deliveries at the Closing
contemplated by Section 9.1.6 of the Asset Purchase Agreement.
7
<PAGE>
3. Termination of Letter Agreement. With respect to that certain side
letter agreement dated as of June 13, 1995 executed and delivered in connection
with the execution and delivery of the Asset Purchase Agreement concerning the
treatment of certain of the Stated Liabilities, all of the parties' rights,
duties and obligations thereunder are hereby terminated of no further force and
effect, and such letter agreement shall be void ab initio.
4. Balance of Asset Purchase Agreement Unchanged. Other than as set forth
in this Amendment, the Asset Purchase Agreement shall remain unchanged and in
full force and effect.
5. Counterparts. If the Amendment may be executed in multiple
counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute just one instrument.
6. Governing Law. The provisions of the Amendment and all the rights and
obligations of the parties hereunder shall be governed by and construed in
accordance with the substantive laws of the State of New York applicable to
agreements negotiated and executed wholly within such state, without regard to
its principles of conflicts of law. The parties hereto acknowledge that this
governing law provision shall replace Section 14.6 of the Asset Purchase
Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
United Telemanagement Services, Inc.
By: /s/ Thomas C. Brandenburg
----------------------------------------------
Thomas C. Brandenburg, Chief Executive Officer
Quest United, Inc.
By: /s/ Thomas C. Brandenburg
----------------------------------------------
Thomas C. Brandenburg, Chairman of the Board
Quest America Management, Inc.
By: /s/ Edward H. Lavin, Jr.
----------------------------------------------
Edward H. Lavin, Jr., President
Quest America, LP
By: Quest America Management, Inc.
By: /s/ Edward H. Lavin, Jr.
-----------------------------------------
Edward H. Lavin, Jr., President
By: Quest West, Inc.
By: /s/ John M. Orehek
-----------------------------------------
Edward H. Lavin, Jr.
/s/ Edward H. Lavin, Jr.
--------------------------------------------------
J. Thomas Elliott
/s/ J. Thomas Elliot
--------------------------------------------------
9
<PAGE>
SECOND AMENDMENT TO
PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AGREEMENT (this "Amendment") is made
as of March 5, 1996, by and among United USN, Inc., a Delaware corporation (the
"Company"), CIBC Wood Gundy Ventures, Inc., a Delaware corporation ("CIBC"),
Chemical Venture Capital Associates, a California limited partnership
("Chemical"), Hancock Venture Partners IV -Direct Fund L.P., a Delaware limited
partnership ("Hancock"), BT Capital Partners, Inc., a Delaware corporation
("BT"), Northwood Capital Partners LLC, a New York limited liability company
("Northwood Capital"), Northwood Ventures, a New York limited partnership
("Northwood Ventures"), and Enterprises & Transcommunications, L.P., a Delaware
limited partnership ("Prime" and, collectively with CIBC, Chemical, Hancock, BT,
Northwood Capital and Northwood Ventures, the "Purchasers"), and amends that
certain Purchase Agreement, dated as of June 22, 1995 by and among the Company,
CIBC, Chemical, Hancock, BT, Northwood Ventures and Northwood Capital, as
amended by the First Amendment to Purchase Agreement, dated as of July 21, 1995
(the "First Amendment"), by and among the company, CIBC, Chemical, Hancock, BT,
Northwood Capital, Northwood Ventures and Prime (the "Purchase Agreement" or the
"Agreement"). The Company, CIBC, Chemical and Hancock (CIBC, Chemical and
Hancock, collectively, the "Original Purchasers") are parties to a Purchase
Agreement dated as of April 20, 1994, as amended, pursuant to which each of the
Original Purchasers purchased from the Company certain shares of the Company's
Common Stock and Preferred Stock - Series 1. Each capitalized term used herein
not defined herein shall have the meaning given such term in the Purchase
Agreement.
To induce the Purchasers to settle a certain dispute between the
Purchasers and the Company arising from the Company's projections of the
financial performance of the Company made prior to and as of the Closing (the
"Prior Projections"), the Company desires to, without admitting or denying
liability for any breach of any such representations or warranties, (i) issue an
aggregate of 110,157 shares of its Common Stock to the Purchasers pro rata based
on the number of shares of Common Stock purchased from the Company by each such
Purchaser and Additional Purchaser under the Purchase Agreement (in the amounts
set forth on the Schedule of Purchasers attached hereto) for no additional
financial consideration in order to adjust from $1.95 to $1.077 the purchase
price per share of Common Stock purchased under the Purchase Agreement, (ii)
cause the Preferred Stock - Series 2 to be senior to the Preferred Stock -Series
1 (the actions necessary to effect (i) and (ii), collectively, the
"Recapitalization"), and (iii) agree to the matters described below.
<PAGE>
To induce the Purchasers (other than the Original Purchasers) to
settle that certain dispute between the Purchasers and the Company arising from
the Prior Projections, the Original Purchasers will (i) consent to the
transactions described above, including the issuance of 110,157 shares of Common
Stock to effect the Recapitalization, (ii) amend the Amended and Restated
Stockholders Agreement, dated as of July 21, 1995, by and among the Company, the
Purchasers and certain other stockholders, as amended (the "Stockholders
Agreement"), to increase the number of directors of the corporation to nine (9)
in order to permit the addition of another outside member to the Company's board
of directors (the "Board"), and (iii) amend the Agreement as set forth herein.
The Purchasers (including the Original Purchasers) and the Board have
authorized the Recapitalization, including, without limitation, filing an
amended Certificate of Designation (attached hereto as Exhibit A) which causes
the Preferred Stock - Series 2 to be senior to the Preferred Stock - Series 1
(the "Amended Certificate of Designation"). The Purchasers and the Company
desire to enter into this Amendment to amend the Purchase Agreement.
Counsel for the Company has provided an opinion substantially in the
form of Exhibit I attached hereto. In addition, certain holders of the Company's
capital stock have executed consents substantially in the form Exhibit II
attached hereto.
NOW, THEREFORE, the parties hereto agree as follows:
1. Authorization of the Stock. The Company has authorized the issuance and
sale to the Purchasers of an aggregate of 110,157 shares of Common Stock.
2. Issuance of Stock. At the Recapitalization Closing (as defined below),
the Company shall issue (the "Issuance") to each Purchaser the number of shares
of Common Stock set forth opposite such Purchaser's name on the Schedule of
Purchasers attached hereto. All stock issued hereunder shall be deemed to have
been issued as of the Recapitalization Closing and shall be deemed for all
purposes of the Purchase Agreement and each of the agreements contemplated by
the Agreement (including without limitation the Stockholders Agreement and the
Amended and Restated Registration Agreement dated as of June 22, 1995 among the
Company, the other parties hereto and certain other Persons), to have been
issued under and pursuant to the Purchase Agreement.
3. The Closing. The closing of the transactions contemplated by Section 2
(the "Recapitalization Closing") shall take place at the offices of Kirkland &
Ellis, Citicorp Center,
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<PAGE>
153 East 53rd Street, New York, New York 10022-4675 at 10:00
a.m. on March 14, 1996, or at such other time and place as may be mutually
agreeable to the Company and each Purchaser. At the Recapitalization Closing,
the Company shall deliver to each Purchaser stock certificates evidencing the
number of shares of Common Stock set forth opposite such Purchaser's name on the
Schedule of Purchasers, registered in such Purchaser's or its nominee's name.
4. Company Representations. As an inducement to the Purchasers to enter
into this Amendment, the Company represents and warrants that:
a. Capital Stock and Related Matters.
(i) As of the Recapitalization Closing and immediately
thereafter, the authorized capital stock of the Company shall consist
of (a) 50,000 shares of preferred stock, of which 20,000 shares shall
be designated as Series A 10% Senior Cumulative Preferred Stock,
16,200 of which shall be issued and outstanding, and 30,000 shares
shall be designated as Series A-2 10% Senior Cumulative Preferred
Stock, 26,235 of which shall be issued and outstanding, and (b)
500,000 shares of Common Stock, of which 423,896 shares shall be
issued and outstanding, and 54,551 shares of which shall be reserved
for issuance in connection with the Management Option Pool subsequent
to the Recapitalization Closing. As of the Recapitalization Closing
and immediately thereafter, the Company's issued and outstanding
capital stock will be held by the Persons and in the amounts as set
forth in the "Capitalization Schedule" hereto.
(ii) As of the Recapitalization Closing, neither the Company nor
any Subsidiary shall have outstanding any stock or securities
convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor shall it have
outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or
phantom stock plans, except as set forth on the attached
Capitalization Schedule or as provided in this Agreement. The
Capitalization Schedule accurately sets forth the following
information with respect to all outstanding options and rights to
acquire the Company's capital stock: the holder, the number of shares
covered, the exercise price and the expiration date. As of the
Recapitalization Closing, neither the Company nor any Subsidiary shall
be subject to any
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<PAGE>
obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except as
provided in the Amended Stockholders Agreement, as set forth on the
Capitalization Schedule, pursuant to the Certificate of Designation
and the Certificate of Incorporation (as amended by the Amended
Certificate of Designation), pursuant to Section 7 of the First
Purchase Agreement or pursuant to Section 6 of this Agreement. As of
the Recapitalization Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and
nonassessable.
(iii) There are no statutory or contractual stockholders'
preemptive rights or rights of refusal with respect to the issuance of
the Stock hereunder. The Company and its Subsidiaries have not
violated any applicable federal or state securities laws in connection
with the offer, sale or issuance of any of their capital stock, and
the offer, sale and issuance of the Stock hereunder does not require
registration under the Securities Act or any applicable state
securities laws. Except as set forth on the Capitalization Schedule
and pursuant to the Stockholders Agreement, to the best of the
Company's knowledge, there are no agreements between the stockholders
of the Company or its Subsidiaries with respect to the voting or
transfer of the capital stock of the Company or its Subsidiaries or
with respect to any other aspect of the affairs of the Company or its
Subsidiaries.
b. Authorization; No Breach. The execution, delivery and performance
of this Amendment and the Stockholders Agreement Amendment, and the filing
of the Amended Certificate of Designation have been duly authorized by the
Company. This Amendment, the Stockholders Agreement Amendment and the
Amended Certificate of Designation each constitutes a valid and binding
obligation of the Company, enforceable in accordance with its terms. The
execution and delivery by the Company of this Amendment and the amendment
to the Stockholders Agreement, dated as of the date hereof, the offering
and issuance of the Stock hereunder, the filing of the Amended Certificate
of Designation, and the fulfillment of and compliance with the respective
terms hereof and thereof by the Company do not and shall not (i) conflict
with or result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, (iii) result in the creation of any lien,
security interest, charge or encumbrance upon the Company's or any
Subsidiary's capital stock or assets pursuant to, (iv) give any third party
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<PAGE>
the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent,
approval, exemption or other action by or notice to any court or
administrative or governmental body pursuant to, the Certificate of
Incorporation or the Certificate of Designation or the charter or bylaws of
the Company or any Subsidiary, or any law, statute, rule or regulation to
which the Company or any Subsidiary is subject, or any agreement,
instrument, order, judgment or decree to which the Company or any
Subsidiary is subject.
5. Amendment of Section 3D. The first sentence of Section 3D of the
Purchase Agreement before the colon in the third line thereof is hereby amended
and restated as follows:
"So long as a Purchaser holds any Investor Common Stock or any
Investor Preferred Stock, the Company shall not, without the Required
Approval (and with respect to clause 3D(iii)(b) below, so long as BT,
Prime and Northwood, collectively, hold at least 25% of the aggregate
number of shares of Investor Preferred Stock purchased by such
Persons, collectively, pursuant to the Second Purchase Agreement, the
Company shall not, without the prior written consent of any one of BT,
Prime or Northwood (so long as such consenting party holds at least
25% of the aggregate number of shares of Investor Preferred Stock
purchased by such Person pursuant to this Agreement), which consent
shall not be unreasonably withheld, and without the Required
Approval):".
6. Release. Each Purchaser, upon consummation of the Recapitalization
Closing, hereby releases the Company and its Subsidiaries and their respective
officers, directors and employees from any and all liability in connection with
or arising from any breach of the representations and warranties included in
Section 5Z of the Purchase Agreement and from any breach of any other
representation or warranty in the Purchase Agreement arising from the events and
circumstances which resulted in the Prior Projections being questioned by the
Purchasers (any such breach a "Prior Projections Breach"). In so doing each of
the Purchasers acknowledges that the Company has neither admitted nor denied
liability for any Prior Projections Breach.
7. Waiver. Each Purchaser, upon consummation of the Recapitalization
Closing, hereby agrees that the proposed sale of certain assets of FoneNet/Ohio,
Inc. on the terms previously disclosed to such Purchaser will not be deemed to
be a "Fundamental Change" for purposes of the Amended Certificate of Designation
(it being understood that the foregoing agreement by the Purchasers is limited
to such sale of assets and is not applicable to any other
-5-
<PAGE>
sale of assets). Further, each Purchaser waives any and all claims which such
Purchaser may have based upon the existence of any "Event of Non-Compliance"
under the Company's Amended Certificate of Designation which arises from a Prior
Projections Breach.
8. Waiver of Rights; Consent to Company Actions. Each of the undersigned
hereby waives any right pursuant to the Purchase Agreement to object to, and
hereby consents to, the transactions contemplated by this Amendment, including
without limitation the Issuance and the filing of the Amended Certificate of
Designation. Without limiting the generality of the foregoing, each of the
undersigned waives any rights it may have pursuant to Sections 3J and 3D
(including, but not limited to, 3D(iii), 3D(ix) and 3D(xii)) of the Purchase
Agreement, and consents to the transactions contemplated hereby.
9. Purchaser Representations. As an inducement to the Company to enter
into this Amendment, each Purchaser represents and warrants that such Purchaser
owns, free and clear of any liens, the number of shares attributed to such
Purchaser on the Capitalization Schedule.
10. Subparagraphs lD(i) lD(ii), and lD(iii). Subparagraphs lD(i), lD(ii)
and lD(iii) of the Purchase Agreement are hereby amended by replacing "July 15,
1995" with "July 21, 1995" in each place in which it appears.
11. Subparagraph lD(iii). The third sentence of subparagraph (iii) of
Section 1D of the Purchase Agreement is hereby amended and restated to read:
"At the Second Closing, the Additional Purchaser will become a party
to the Amended Registration Agreement, the Amended Stockholders
Agreement and the Amended Stock Transfer Agreement by executing
counterparts thereto."
12. Subparagraph 1D(iv). The last sentence of subparagraph (iv) of Section
1D of the Purchase Agreement is hereby amended and restated to read:
"Northwood Capital and Northwood Ventures each represents and warrants
that they collectively hold title to the Notes (as defined in Appendix
I hereto) free and clear of all liens, charges and encumbrances, and
they jointly and severally agree not to transfer any interest in the
Notes to any Person, other
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<PAGE>
than the Company, prior to the 120th day following the Closing."
13. Subparagraph 2J(ix). Subparagraph (ix) of Section 2J of the Purchase
Agreement is hereby amended and restated to read:
"a duly executed Amendment to Plan of Divestiture; and"
14. Subparagraph 3A. The first sentence of subparagraph 3A of the Purchase
Agreement is hereby amended and restated to read:
"The Company shall deliver to the Purchasers, and if the Purchasers
have transferred any part of its interest in the Company, also to any
other Qualified Holder of Investor Preferred Stock or Investor Common
Stock (other than any such holder actively engaged in the
telecommunications industry and in good faith determined by the
Company's board of directors to be a competitor of the Company or any
of its Subsidiaries):"
15. Subparagraph 3A(i). The first sentence of subparagraph (i) of Section
3A of the Purchase Agreement is hereby amended and restated to read:
"As soon as available but in any event within 30 days after the end of
each monthly accounting period in each fiscal year (other than
quarterly accounting periods), unaudited consolidating and
consolidated statements of income and cash flows of the Company and
its Subsidiaries for such monthly period and for the period from the
beginning of the fiscal year to the end of such month, and
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in
each case comparisons to the annual budget and to the corresponding
period in the preceding fiscal year;"
16. Subparagraph 3A(iv). Subparagraph (iv) of Section 3A of the Purchase
Agreement is hereby amended and restated to read:
"within the 90 days after the end of each fiscal year, unaudited
consolidating and audited consolidated statements of income and cash
flows of the Company and its Subsidiaries
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<PAGE>
for such fiscal year, and unaudited consolidating and audited
consolidated balance sheets of the Company and its Subsidiaries as of
the end of such fiscal year, setting forth in each case comparisons to
the preceding fiscal year (which comparisons to budget will be
provided under separate cover), and accompanied by (a) with respect to
the consolidated portions of such statements, an opinion containing no
exceptions or qualifications (except for qualifications regarding
specified contingent liabilities) of an independent accounting firm of
recognized national standing acceptable to the holders of at least
66-2/3% of the Investor Preferred Stock and the holders of at least
66-2/3% of the Investor Common Stock, (b) a certificate from such
accounting firm, addressed to the Company's board of directors,
stating that in the course of its examination nothing came to its
attention that caused it to believe that there was an Event of
Noncompliance in existence or that there was any other default by the
Company or any Subsidiary in the fulfillment of or compliance with any
of the terms, covenants, provisions or conditions of any other
material agreement to which the Company or any Subsidiary is a party
or, if such accountants have reason to believe any Event of
Noncompliance or other default by the Company or any Subsidiary
exists, a certificate specifying the nature and period of existence
thereof, and (c) a copy of such firm's annual management letter to the
board of directors;"
17. Subparagraph 3A(ix). Subparagraph (ix) of Section 3A of the Purchase
Agreement is hereby amended and restated to read:
"unless included within the unaudited consolidating financial
statements otherwise delivered pursuant to this Paragraph 3A, within
10 days after receipt thereof, copies of all financial statements
provided by UTS to the Company unless such financial statements have
been forwarded to each Purchaser by UTS; and"
18. Subparagraph 3D(xv). Subparagraph (xv) of Section 3D of the Purchase
Agreement is hereby amended and restated to read:
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<PAGE>
"except pursuant to the UTS Agreement and except for debt
financing secured solely by accounts receivable of the
Company and its Subsidiaries as approved by the Company's
board of directors and except for obligations assumed by
the Company or its Subsidiaries pursuant to the Quest Asset
Purchase Agreement (as defined in Appendix I), create,
incur, assume or suffer to exist, or permit any Subsidiary
to create, incur, assume or suffer to exist, Indebtedness
exceeding in the aggregate $1,500,000 outstanding at any
time on a consolidated basis;"
19. Subparagraph 3K(ii). The first sentence of subparagraph (ii) of Section
3K of the Purchase Agreement is hereby amended and restated to read:
"For purposes of this Agreement, a "Regulatory Problem" means any set
of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or any SBIC Holder believes that there
is a substantial risk of such assertion) that such SBIC Holder is not
entitled to hold, or exercise any significant right with respect to,
all or any portion of the Stock."
20. Subparagraph 30(v). Subparagraph (v) of Section 30 of the Purchase
Agreement is hereby amended by designating the second subparagraph (iv) as
subparagraph (v).
21. Subparagraph 5B(i). The first sentence of subparagraph (i) of Section
5B of the Purchase Agreement is hereby amended and restated to read:
"As of the Closing and immediately thereafter, the authorized capital
stock of the Company shall consist of (a) 50,000 shares of preferred
stock, of which 20,000 shares shall be designated as Series A 10%
Senior Cumulative Preferred Stock, 16,200 of which shall be issued and
outstanding, and 30,000 shares shall be designated as Series A-2 10%
Senior Cumulative Preferred Stock, 22,869 of which shall be issued and
outstanding, and (b) 500,000 shares of Common Stock, of which 296,302
shares shall be issued and outstanding, and 54,551 shares of which
shall
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<PAGE>
be reserved for issuance in connection with the Management
Option Pool subsequent to the Closing."
22. Subparagraph 5B(iv). Subparagraph (iv) of Section 5B of the Purchase
Agreement is hereby amended and restated to read:
"As of the Closing, the outstanding capital stock of UTS shall consist
of (a) 1,000,000 shares of common stock, of which the Company owns
501,000 shares and (b) 2,000 shares of preferred stock, of which the
Company owns 2,000 shares. The Company paid an aggregate of $2,000,000
in exchange for all such shares held as of the Closing. The Company
has agreed to accept an additional 25 shares of preferred stock in
consideration of interest due on its original investment, which shares
can be issued only after approval by the New York Public Service
Commission (the "NYPSC"). The Company has the right, but is not
obligated, to purchase additional shares of UTS common stock and
preferred stock, at a price of $1,000 for units ("Units") each
comprised of one share of preferred stock and 250 shares of UTS common
stock. The Company and UTS are parties to an agreement pursuant to
which the Company has agreed to purchase from UTS and UTS has agreed
to sell to the Company Units of additional UTS common stock and UTS
preferred stock in exchange for an aggregate purchase price of
$1,350,000. Such purchase agreement, and the transactions contemplated
thereby, have been approved by the board of directors and stockholders
of UTS, and the sale of stock contemplated thereby will be consummated
at such time as such sale has been approved by the NYPSC. As of the
Closing, in addition to the $1,350,000 advanced pursuant to such
purchase agreement, the Company has advanced an aggregate $1,800,000
to UTS, evidenced by promissory notes issued by UTS and which amounts
the Company may, at its sole discretion convert into Units at the
price indicated above (subject only to the prior approval thereof by
the NYPSC and to certain preemptive rights possessed by Stephen C.
Schwartz ("Schwartz") and Richard Vanderwoude under the Stockholders
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<PAGE>
Agreement, dated as of April 20, 1994, by and among the
Company, UTS and Schwartz)."
23. Subparagraph 5C. The last sentence of subparagraph 5C of the Purchase
Agreement is hereby amended and restated to read:
"Except as set forth on the Subsidiary Schedule, neither the Company
nor any Subsidiary owns or holds the right to acquire any shares of
stock or any other security or interest in any other Person (except as
provided in the UTS Agreement)."
24. Subparagraph 5K(iii). The first sentence of subparagraph (iii) of
Section 5K of the Purchase Agreement is hereby amended and restated to read:
"The Purchasers' special counsel has been supplied with a true and
correct copy of each of the written instruments, plans, contracts and
agreements requested by Purchasers or Purchasers' Special Counsel and
an accurate description of each of the oral arrangements, contracts
and agreements which are referred to on the Contracts Schedule,
together with all amendments, waivers or other changes thereto."
25. Subparagraph 5W. The first sentence of subparagraph 5W of the Purchase
Agreement is hereby amended and restated to read:
"Neither this Agreement nor any of the schedules, attachments, written
statements, documents, certificates or other items prepared or
supplied to any Purchaser by or on behalf of the Company and its
Subsidiaries with respect to the transactions contemplated hereby
contain any untrue statement of a material fact or omit a material
fact necessary to make each statement contained herein or therein not
misleading; provided that with respect to the financial projections
furnished to the Purchasers by the Company and its Subsidiaries, the
Company represents only that such projections were based upon
assumptions reasonably believed by the Company and its Subsidiaries to
be reasonable and fair as of the date the projections were prepared in
the context of the Company's and its Subsidiaries' history and current
and reasonably foreseeable business conditions."
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<PAGE>
26. Subparagraph 5X. The first sentence of subparagraph 5X of the Purchase
Agreement is hereby amended and restated read:
"As used in this Section 5, the terms "knowledge" or "aware", shall
mean and include (i) the actual knowledge or awareness of the Company
and its Subsidiaries (which shall include the actual knowledge and
awareness of any of the officers, directors and key employees of the
Company and its Subsidiaries, including Thomas C. Brandenburg, Robert
J. Luth, Ronald W. Gavillet, Charles Buckman and Richard S.
Vanderwoude), and (ii) the knowledge or awareness which a prudent
business person would have obtained in the conduct of his business
after making reasonable inquiry and reasonable diligence with respect
to the particular matter in question."
27. Subparagraph 5Z. The first sentence of subparagraph 5Z of the Purchase
Agreement is hereby amended and restated to read:
"(a) The projections and pro forma financial statements contained in
the United USN, Inc. Confidential Business Overview dated April 6,
1995 and previously delivered to Purchasers are true and complete
latest projections of the consolidated income and cash flows of the
Company and its Subsidiaries for the fiscal years ending 2004."
28. Section 8. The definition of "Certificate of Designation" in Section 8
of the Purchase Agreement is hereby amended and restated to read:
"Certificate of Designation" means the Company's Amended
Certificate of Designation establishing the terms and the
relative rights and preferences of the Preferred Stock -
Series 1 and Preferred Stock - Series 2 in the form set
forth in Exhibit A hereto."
29. Section 8. Clause (i) of the definition of "Change of Control" in
Section 8 of the Purchase Agreement is hereby amended and restated to read:
"(i) There shall be consummated any sale or issuance or series of
sales and/or issuances of shares of Common Stock by the Company or
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<PAGE>
any holders thereof which results in any Person or
affiliated Persons (other than the owners of any Common
Stock or their Affiliates as of the date of the Purchase
Agreement after giving effect to the transactions
contemplated hereby) owning Common Stock of the Company
possessing the voting power (under ordinary circumstances)
to elect a majority of the Company's board of directors."
30. Section 8. The second sentence of the defined term, "Restricted
Securities" in Section 8 of the Purchase Agreement is hereby amended and
restated to read:
"As to any particular Restricted Securities, such securities shall
cease to be Restricted Securities when they have (a) been effectively
registered under the Securities Act and disposed of in accordance with
the registration statement covering them, (b) become eligible for sale
pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act or (c) been otherwise transferred and new
certificates for them not bearing the Securities Act legend set forth
in paragraph 8C have been delivered by the Company in accordance with
Section 4(ii)."
31. List of Exhibits. The List of Exhibits of the Purchase Agreement is
hereby amended by replacing "Exhibit D - Subscription Agreement" with "Exhibit
D - None".
32. List of Disclosure Schedules. The List of Disclosure Schedules of the
Purchase Agreement is hereby amended and restated to include "Employee Benefits
Schedule" after "Contracts Schedule".
33. Subparagraph 3A(iv). Subparagraph (iv) of Section 3A of the Purchase
Agreement is hereby further amended to add the words "and any 'going concern'
qualifications" after the words "except for qualifications regarding specified
contingent liabilities" in clause (a) thereof.
34. Subparagraph 3D(xv). Subparagraph (xv) of Section 3D of the Purchase
Agreement is hereby further amended to replace "1,500,000" with "4,500,000."
35. Effect of Amendment and First Amendment. The amendments to the Purchase
Agreement set forth in Sections 10 through 32 hereof and in Section 4 of the
First Amendment shall be deemed to be effective as of the Closing for all
purposes as if the Purchase
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<PAGE>
Agreement included such amendments as of the Closing (including, without
limitation, for purposes of reliance by the law firms delivering legal opinions
in connection with the Purchase Agreement). The amendments to the Purchase
Agreement set forth in Sections 5, 33 and 34 hereof shall be deemed to be
effective as of the Recapitalization Closing. The Purchase Agreement as amended
hereby shall remain in full force and effect and is hereby ratified and
confirmed.
36. Severability. Whenever possible, each provision of this Amendment shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Amendment is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Amendment.
37. Counterparts. This Amendment may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Amendment.
38. Descriptive Headings; Intercretation. The descriptive headings of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment. The use of the word "including" in this Amendment shall be by way of
example rather than by limitation.
39. Governing Law. The corporate law of the State of Delaware shall govern
all issues concerning the relative rights of the Company and its stockholders.
All other questions concerning the construction, validity and interpretation of
this Amendment and the exhibits and schedules hereto shall be governed by the
internal law, and not the law of conflicts, of the State of New York.
* * * * *
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
UNITED USN, INC.
/s/ THOMAS C. BRANDENBURG
-----------------------------------------
By: Thomas C. Brandenburg
Its: Chief Executive Officer
BT CAPITAL PARTNERS, INC.
/s/ Paul S. Lattanzio
-----------------------------------------
By:
------------------------------------
Its:
------------------------------------
CIBC WOOD GUNDY VENTURES, INC.
/s/ RICHARD J. BREKKA
-----------------------------------------
By: Richard J. Brekka
Its: President
HANCOCK VENTURE PARTNERS IV - DIRECT
FUND L.P.
By: Back Bay Partners XII L.P.
By: Hancock Venture Partners, Inc.
/s/ William A. Johnston
-----------------------------------------
By:
------------------------------------
Its: SVP
------------------------------------
CHEMICAL VENTURE CAPITAL ASSOCIATES
/s/ Donald J. Hofmann
-----------------------------------------
By:
------------------------------------
Its:
------------------------------------
-15-
<PAGE>
ENTERPRISES & TRANSCOMMUNICATIONS, L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management, L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
------------------------------------------------
By:
-------------------------------------------
Its:
-------------------------------------------
NORTHWOOD CAPITAL PARTNERS LLC
/s/ PETER G. SCHIFF
------------------------------------------------
By: Peter G. Schiff
-------------------------------------------
Its: Chairman
-------------------------------------------
NORTHWOOD VENTURES
/s/ PETER G. SCHIFF
------------------------------------------------
By: Peter G. Schiff
-------------------------------------------
Its: General Partner
-------------------------------------------
-16-
<PAGE>
ENTERPRISES & TRANSCOMMUNICATIONS, L.P.
By: Prime Enterprises, L.P.
By: Prime New Ventures Management, L.P.
By: Prime II Management, L.P.
By: Prime II Management, Inc.
/s/ WILLIAM P. GLASGOW
-----------------------------------------------
By: William P. Glasgow
------------------------------------------
Its: SVP
------------------------------------------
NORTHWOOD CAPITAL PARTNERS LLC
-----------------------------------------------
By:
------------------------------------------
Its:
------------------------------------------
NORTHWOOD VENTURES
-----------------------------------------------
By:
------------------------------------------
Its:
------------------------------------------
-16-
<PAGE>
NEW YORK TELEPHONE COMPANY RESALE LOCAL EXCHANGE SERVICE AGREEMENT
This Agreement is by and between New York Telephone Company
("Company") and United Telemanagement Services, Inc. ("Customer").
WHEREAS, the Company will offer business local exchange services
("Service(s)") for resale;
WHEREAS, the Customer is a certified reseller in the State of New
York;
WHEREAS, the Company and the Customer have negotiated in good faith
for the resale of such Services pursuant to and consistent with the
Telecommunications Act of 1996; and
WHEREAS, the parties agree that the Discount Rates, as defined below,
are in excess of the Company's avoided costs as filed in Cases 92-C-0657,
94-C-0095, and 91-C-1174 and, as such, fully comply with Section 251(c)(4) of
the Telecommunications Act of 1996.
NOW, THEREFORE, in consideration of the mutual obligations set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Customer agree
as follows:
1. SERVICE TERM
The Customer subscribes to the Services for ten (10) years ("Service
Term"). The Service Term shall begin upon implementation of Service.
Implementation of Service commences upon the provisioning of any portion of
the Service by the Company that includes the use of electronic interfaces
as required herein.
2. SERVICES ORDERED
The Customer subscribes to Services pursuant to this Agreement for the
sole purpose of resale. The Customer may not utilize any Service or
portion thereof for its own use or that of its parent, subsidiaries,
or affiliates, except on an incidental basis; provided, however, this
section shall not preclude the resale of Services to another certified
reseller by Customer. The Customer subscribes to those Services in the
volumes stated in Attachment 1 on a monthly basis for the Service
Term. Except as provided elsewhere in this Agreement, the Customer
agrees to have in service a monthly average of Local Exchange Access
Lines as stated in Attachment 1 for each year of the Service Term
("Volume Commitment"). As of the date of execution of this Agreement
by both parties, the Company shall only provide such Services in New
York State. Such
<PAGE>
Service shall be provided pursuant to New York Telephone Company's PSC
915 Tariff, which is incorporated by reference as if set forth fully
herein, and pursuant to the terms and conditions set forth in this
Agreement.
3. SERVICE RATES
The Customer shall pay the Company a charge for Services for the Service
Term calculated as a percentage discount off the Company's month-to-month
or applicable time and volume retail rates as stated in the Company's
retail tariff at the time Service is provided ("Discount Rate"). The
applicable Discount Rates are stated in Attachment 1. Except as otherwise
provided in this Agreement, such Discount Rates shall be the sole means of
calculating the charges applicable to Services provided pursuant to this
Agreement. Unless otherwise required by a Commission order, no other
discounts or promotions, included but not limited to, discounts and
promotions offered as part of the sale of retail services and NYNEX Local
Usage Plans provided pursuant to tariff, are applicable hereunder.
4. SERVICE ORDERS AND SERVICE ORDERING CHARGES
4.1 The Customer shall order, modify or cancel the Service using the
electronic interfaces designated by the Company as soon as such
interfaces are made available by the Company; provided, however, the
Customer may submit orders in a manner other than through the
designated electronic interfaces as agreed to by the parties from
October 1, 1996 to the later of December 29, 1996 or the date such
interfaces are made available by the Company as capable of processing
orders from any reseller ("Interim Period") and such orders shall
count toward Customer's Volume Commitment. The Company intends to
utilize an EIF interface except where an industry EDI interface is
available. All orders by Customer must contain the information
required by the Company in its sole discretion. During the Interim
Period, the Discount Rates specified in this Agreement shall not apply
and the resale tariff month-to-month discount rates shall apply.
Service orders submitted to the Company in excess of the Volume
Commitment will not increase the Volume Commitment unless this
Agreement is amended as provided below.
4.2 In addition to the Discount Rates set forth herein, the Customer
shall pay all service ordering charges, channel charges, special
construction charges, non-recurring charges, and other scheduled rates
and charges, as applicable, as set forth in the Company's PSC 900,
901, and 915 tariffs, which tariffed charges are incorporated by
reference as if set forth fully herein. Additionally, the Customer
shall pay a EUCL charge for each Local Exchange Access Line it orders.
2
<PAGE>
5. IMPLEMENTATION
5.1 The Company shall begin implementation of the Service within thirty
(30) days of the execution of this Agreement by both parties provided
that the Customer has submitted timely and adequate service orders. If
Customer's service orders are inadequate, the Company shall promptly
notify Customer of that inadequacy. Notwithstanding any other
provision of this Agreement, implementation shall not occur prior to
October 1, 1996 or the date upon which the Company makes the
electronic interfaces available, whichever is later.
5.2 Upon execution of this Agreement by both parties, the Company and
Customer shall endeavor to jointly develop an implementation plan for
Services.
5.3 The Company shall implement Customer's service orders on a timely
basis and within implementation intervals no less promptly than
Company implements other service orders for the same resold service
provided to similarly situated retail customers or other similarly
situated resellers.
5.4 For maintenance and repair services performed on the Company's side of
the network interface, Company agrees that quality and timeliness of
such services will be no less than the services provided to similarly
situated retail customers or other similarly situated resellers
provided such Service by the Company.
6. FAILURE TO MEET VOLUME COMMITMENT DURING SERVICE TERM
6.1 The Customer shall not be liable to the Company for meeting its Volume
Commitment for the first thirty-six (36) consecutive months following
implementation of any portion of the Service (the "Ramp Up Period);
provided, however, any orders submitted during the Interim Period
without the use of the electronic interfaces designated by the Company
shall not commence the Ramp Up Period. Upon expiration of the Ramp Up
Period, the Customer shall meet its Volume Commitment on an annual
basis for the remaining years of the Service Term or otherwise pay the
Company as follows. On an annual basis beginning twelve (12) months
after the expiration of the Ramp Up Period, the Company shall
calculate the Customer's average monthly volume for the prior twelve
month period of the Service Term by measuring the number of Local
Exchange Access Lines in service for each month ("Actual Usage") and
dividing by twelve (12)("Annual Volume Commitment Calculation"). For
purposes of the Annual Volume Commitment Calculation only, in addition
to the Local Exchange Access Lines in service, the Customer's Actual
Usage shall include any Centrex lines, Intellipath II lines, and NYNEX
Resale
3
<PAGE>
Business Service lines, which the Customer subscribes to and paid for
during the applicable twelve (12) month period up to a maximum of
fifty percent (50%) of the Volume Commitment.
6.2 If the Customer's Annual Volume Commitment Calculation is less than or
greater than the Volume Commitment ("Shortfall" or "Excess,"
respectively), the amount of such difference shall be set aside in a
carryover pool ("Carryover Pool"); provided, however, the Customer may
elect at any time to pay the Company an amount equal to (i) the
Shortfall; (ii) multiplied by the Customer's average rate per line for
Local Exchange Access Lines derived from the Customer's most recent
monthly bill ("Average Monthly Local Exchange Access Line Rate"); and
(iii) that product multiplied by nine (9). The amount in the Carryover
Pool shall not exceed two hundred percent (200%) of the Volume
Commitment ("Carryover Pool Cap"). A Shortfall shall be reflected in
the Carryover Pool as a positive number. The number of lines in excess
of the Customer's Annual Volume in the Carryover Pool shall be
reflected as a negative number.
6.3 At any time the amount of lines in the Carryover Pool exceeds the
Carryover Pool Cap, the Customer shall pay to the Company an amount
equal to (i) the difference between the amount of lines in the
Carryover Pool and the Carryover Pool Cap; (ii) multiplied by the
Average Monthly Local Exchange Access Line Rate; and (iii) that
product multiplied by nine (9).
6.4 Notwithstanding any other provision of this Agreement, the Customer
shall not be liable to the Company for that portion of the Shortfall
that in all material respects is due to a material breach of this
Agreement by the Company.
7. FAILURE TO MEET VOLUME COMMITMENT UPON EXPIRATION OF SERVICE TERM
7.1 If the number of lines in the Carryover Pool is zero (0) or less at
the end of the Service Term, the Customer has satisfied its Volume
Commitment. If the number of lines in the Carryover Pool at the end of
the Service Term is greater than zero (0), Customer shall, at its sole
discretion, either (a) pay the Company an amount equal to (i) the
number of lines in the Carryover Pool; (ii) multiplied by the Average
Monthly Local Exchange Access Line Rate; and (iii) that product
multiplied by nine (9); or (b) shall subscribe to an equivalent number
of lines as in the Carryover Pool for up to an additional thirty-six
(36) month term at the Discount Rate in effect at the expiration of
the Service Term ("Extension Term"). Such amounts shall reduce the
Carryover Pool on a line-by-line basis.
4
<PAGE>
7.2 At the end of the Extension Term, the Customer shall pay the Company
for any lines remaining in the Carryover Pool. Customer shall pay the
Company an amount equal to (i) the number of remaining lines; (ii)
multiplied by the Average Monthly Local Exchange Access Line Rate;
and (iii) that product multiplied by nine (9).
8. TERMINATION LIABILITY
8.1 If the Customer terminates this Agreement prior to implementation of
the Service or fails to submit any orders for Service within ninety
(90) days from the date of execution of this Agreement by the parties
or October 1, 1996 ("Failure"), whichever date is later, the Customer
shall pay to the Company its reasonable costs and expenses incurred by
the Company with respect to that Customer up until the date of
termination or Failure as determined by Company.
8.2 Except as otherwise provided herein, if the Customer terminates this
Agreement prior to the expiration of the Service Term for any reason
other than a material breach of this Agreement by the Company, the
Customer shall pay the Company a termination charge ("Termination
Charge"). The Termination Charge shall equal (i) the Average Monthly
Local Exchange Access Rate; (ii) multiplied by the Volume Commitment;
and (iii) that product multiplied by the number of years or portion of
years remaining in the Service Term as of the date of termination
excluding the Ramp Up Period. This amount shall be adjusted to net
present worth using the Company's cost of money as of the date such
Termination Charge is assessed.
8.3 In addition to the Termination Charge, the Customer shall also pay the
Company if, at the date of termination or Failure, there is a
Shortfall, or be credited with, if there is an Excess, an amount
equal to (i) the number of lines, if any, in the Carryover Pool; (ii)
multiplied by the Monthly Average Business Line Rate; and (iii) that
product multiplied by nine (9) months.
9. PAYMENT TERMS
9.1 The Company shall bill the Customer for Service on a monthly basis.
The Customer shall pay all bills within thirty-one (31) days from date
of bill or by the next bill date, whichever is sooner. If timely
payment is not received by the Company, the Company may bill and the
Customer shall pay all costs, including reasonable attorneys' fees,
expended in collecting unpaid amounts and a late payment charge on the
unpaid balance calculated as the lesser of: (i) The highest interest
rate (in decimal value) which may be levied by law for commercial
transactions, for the number
5
<PAGE>
of days from the payment date to and including the date that the
Customer actually makes the payment to the Company, or (ii) 0.0005 per
day, simple interest, for the number of days from the payment date to
and including the date that the Customer actually makes the payment to
the Company.
9.2 If a Customer fails to comply with the payment terms of this
Agreement, the Company may, on thirty (30) days written notice by
Certified U.S. Mail to the Customer, refuse additional applications
for Service, refuse to complete any pending orders for Service, and/or
discontinue the provision of Service. In the case of discontinuance of
Service, all applicable charges, including termination charges and
amounts due in the Carryover Pool, shall become due. If the Company
does not discontinue Service and/or refuse additional applications for
Service on the date specified in the thirty (30) days notice, and the
Customer's noncompliance continues, nothing contained herein shall
preclude the Company's right to discontinue Service and/or refuse
additional applications for Service without further notice to the
Customer.
9.3 The Company reserves the right to refuse an application for Service
made by the Customer, its majority owner or affiliate, while it is
indebted to the Company for Service previously furnished, until the
indebtedness is satisfied. In the event that Service is connected for
the Customer who is indebted to the Company for Service previously
furnished to the Customer, the Service may be terminated by the
Company unless the Customer satisfies the indebtedness within thirty
(30) days after written notification.
10. RATE CHANGES
10.1 If the Company, either pursuant to contract or tariff, provides the
same Service in a state at a greater Discount Rate or pursuant to more
favorable terms and conditions to a similarly situated customer in
that state (i.e., a company reselling or repackaging Local Exchange
Access Lines), then the Company shall provide such Discount Rate
and/or more favorable term and condition to the Customer in the
affected state only. If such greater Discount Rate is associated with
a greater term and volume commitment than that made by the Customer,
the Company and Customer shall negotiate a reasonable transition to
the same or similar term and volume commitment. In the instance of a
change hereunder pursuant to a contract, the Company shall notify the
Customer within forty-five (45) days of such Discount Rate and/or
provision(s) becoming available.
10.2 Notwithstanding any other provision of this Agreement, if the
application of the Discount Rate to the Company's retail tariff rate
results in an effective price for the Service lower than the Company's
long run
6
<PAGE>
incremental costs of providing that Service, the Discount Rate shall
be that rate which provides the Service at the Company's long run
incremental costs, unless otherwise required by the FCC or the New
York Public Service Commission.
11. PROMOTIONAL MATERIAL
The Company shall provide the Customer with a reasonable amount of
information related to the use of the Services for Customer's use in its
marketing and product materials. The Company, in consultation with
Customer, shall determine the type, quantity, and availability of the
information to be provided to Customer. The Company shall also make
available to Customer's personnel basic training related to the use and
operation of the services. The Company shall reasonably determine the
timing and content of such training. Such training and promotional material
shall be provided to the Customer only and the Company is under no
obligation to provide any training or promotional material to any other
person or entity the Customer may engage in the sale, provision, or use of
the Services.
12. CREDIT ALLOWANCES FOR SERVICE INTERRUPTIONS
The Customer shall be entitled to credit allowances for Service
interruptions in accordance with applicable Company tariffs.
13. CHANGED CIRCUMSTANCES
13.1 Upon thirty (30) days notice provided by either party, the Company
and Customer shall meet to review any unforeseen material changes in
the competitive circumstances in the industry including the
competitiveness of the rates herein.
13.2 In the event the Customer subscribes to a new Company service that
utilizes a new technology or network configuration to provide the
same or an equivalent service to Customer by means of fewer Local
Exchange Access lines, and, by reason of this conversion alone, the
Customer fails to achieve the Volume Commitment for the applicable
twelve (12) month period of the Service Term, the Company and the
Customer shall renegotiate to adjust the Volume Commitment for the
current term and for each twelve (12) month period remaining in the
Service Term to reflect the Customer's use of the new service.
13.3 If the Company files a state tariff or otherwise provides any Service
subscribed to by the Customer in that state at an effective month-to
month resale price that is less than the effective resale price
obtained by applying the minimum discount rate then offered by the
Company for Services in
7
<PAGE>
the aggregate, whether such filing is ordered by the Commission or
made voluntarily by the Company, the Customer shall be entitled to
renegotiate this Agreement with respect to the affected Service in
the affected state only. If the parties cannot agree in good faith
on a renegotiated Discount Rate, the Company shall credit the
Customer's Volume Commitment for the number of lines of the
affected Service in the affected state that the Customer purchases
at the month-to-month tariff discount rate.
14. TARIFF(S)
14.1 Except for the rates provided in Section 9.1.1 of the Company's PSC
915 Tariff, all terms and conditions of that resale tariff, shall
apply to the provision of Services herein.
14.2 The Company shall use its best efforts to maintain its tariffs in a
manner consistent with the terms of this Agreement, except where the
terms of this Agreement may lawfully differ from the tariff. If the
Company revises any tariff in a manner inconsistent with the
provisions of this Agreement in any material manner and the Company
fails to remedy such inconsistency within one hundred and twenty
(120) days after receipt of written notice, the parties shall first
seek to renegotiate in good faith revisions of the Agreement.
Failing agreement on material issues, the Customer may elect to
terminate this Agreement without liability after an additional
thirty (30) days written notice.
15. BRANDING
Neither the Company nor the Customer may offer Services to its end users
or others under any of the brand names of the other party or any of its
parents, subsidiaries or affiliates, regardless of whether or not such
brand names are registered trademarks or servicemarks, without the other
party's written authorization. Neither party shall state or imply that
there is any partnership or other joint business arrangement with the
other party, its parent, subsidiaries, or affiliates, for the provision of
Services to the other party's end users or others. The Company and
Customer may jointly develop a press release publicizing their
relationship under this Agreement, subject to both (1) any prior non-
disclosure agreement, and (2) mutually agree upon language and media.
Notwithstanding this section, the Customer is entitled to identify NYNEX
as the underlying carrier of these Services.
16. LEGAL RELATIONSHIPS
16.1 Neither this Agreement, nor any actions taken by the Company or the
Customer in compliance with this Agreement, shall be deemed to
create an
8
<PAGE>
agency or joint venture relationship between Customer and Company, or
any relationship other than that of purchaser and seller of services.
16.2 Neither this Agreement, nor any actions taken by the Company or the
Customer in compliance with this Agreement, shall create a
contractual, agency, or any other type of relationship or third party
liability between the Company and the Customer's end users or others.
17. PROVISION OF CERTIFICATIONS, INFORMATION, ETC.
17.1 The Customer shall provide the Company with any certifications or
other documentation that may be required under state or federal tax
law. The Customer will be required to indemnify the Company against
any liability the Company may incur in reliance on such certificates
and documentation. So long as the Customer provides assurances of
indemnification on request of the Company, the Customer may elect to
contest or otherwise pursue proceedings related to its tax liability
or status in accordance with applicable procedures.
17.2 The Customer shall provide, within sixty (60) days of a request by
the Company, forecasts of the approximate number of Local Exchange
Access Lines and other services that the Customer expects to require
from the Company in particular geographic areas as stated in the
request. The Company shall provide, within sixty (60) days of a
request by Customer, forecasts regarding the current availability of
Services by specified end office. Such forecasts shall be fully
subject to the confidentiality provisions set forth herein.
17.3 Each party shall provide to the other party any additional
information that is reasonably necessary to enable each party to
fulfill its obligations under this Agreement, subject to all
applicable legal and regulatory constraints.
17.4 If at any time during the Service Term, the Customer ceases to be a
certified reseller, this Agreement shall terminate and the Customer
shall pay to the Company the termination charges stated in Section 8;
provided, however, the Company shall not terminate this Agreement
pursuant to this section if Customer restores its certification
within forty-five (45) days of the loss or expiration of
certification.
18. DISCLOSURE OF RESELLER INFORMATION TO OTHER RESELLERS OR TO TELEPHONE
COMPANY RETAIL MARKETING PERSONNEL
18.1 Except as provided otherwise in this section, neither Company
personnel involved in the marketing of services to end user
customers, nor other
9
<PAGE>
resellers, will have access to information relating to specific
orders placed by Customer under this Agreement.
18.2 Section 18.1, above, shall not prohibit the disclosure to any local
exchange carrier (including the Company or any reseller), of the fact
that a particular end user who was previously a customer of such
carrier, is no longer one of its customers.
18.3 Section 18.1, above, shall not prohibit the use by the Company of
aggregate data relating to sales to resellers for any legitimate
business purpose of the Company.
18.4 Section 18.1, above, shall not preclude the disclosure to Company
retail marketing personnel or to other resellers of information
pertaining to a Customer's end user where the end user consents to
and authorizes such disclosure.
18.5 Section 18.1, above, shall not prohibit attempts to sell Company
services by Company employees who have access to information relating
to specific orders placed by Customer under this Agreement so long
as:
(a) the employee is not primarily involved in the marketing of
Company services, and
(b) the employee does not utilize the Customer's information in
such sales attempts.
18.6 In the case of an end user customer who chooses to switch his/her/its
service from Customer to the Company, or to another reseller, Section
18.1 above shall not prohibit the disclosure to Company marketing
personnel, or to such other reseller, of information necessary to
enable the Company or such other reseller to assume the account,
including the end user customer's service configuration and Billed
Name and Address.
18.7 Section 18.1, above shall not preclude the disclosure to Company
marketing personnel of the identity of the Customer as providing
service to an end user for the purpose of responding to a question
from the end user about the identity of his/her/its service provider.
18.8 Notwithstanding any other provison of this Agreement, neither party
is obligated to hold in confidence information that:
(i) was already known to the party free of any obligation to keep
confidential;
10
<PAGE>
(ii) was or becomes publicly available by other than unauthorized
disclosure; or
(iii) was rightfully obtained from a third party not obligated to
hold such information in confidence;
(iv) was independently developed by a party; or
(v) that is required to be disclosed by law or regulatory or
judicial decree or order.
19. DISCLOSURE OF CUSTOMER INFORMATION
19.1 Except as otherwise provided in this Agreement, the Company will not
provide information on any end user customer to Customer without the
consent and authorization of such customer.
19.2 If a Company end user customer subsequently becomes an end user of
Customer, the Company will provide the Customer with all information
necessary to enable it to assume the end user's account, including
the end user's service configuration and Billed Name and Address.
19.3 Section 19.1, above shall not preclude disclosure of information
pursuant to industry-wide arrangements for the exchange of
information on end user credit histories, consistent with New York
State Public Service Commission requirements.
19.4 Where under the preceding sections end user consent is required for
particular use or disclosure of information, such consent must be
obtained, and must be confirmed and verified, in the manner set forth
in 47 C.F.R. (S) 64.1100.
20. ADDITIONAL OBLIGATIONS OF CUSTOMER
20.1 Except as otherwise provided in this Agreement, Customer purchasing
Service under this Agreement has all of the obligations that would be
imposed by the retail tariff for such Service upon an end user
purchasing the service directly from the Company. Such obligations
include, without limitation, the obligation to pay for the Service,
whether or not the Customer is being paid by its own customers.
20.2 The Customer assumes the responsibility for enforcement of all retail
tariff regulations and class of service restrictions imposed for any
particular service (e.g., prohibitions against unlawful use, damage
to Company property, distinctions between residences and businesses)
and any liability arising from violations thereof.
11
<PAGE>
20.3 The Customer shall be responsible for monitoring the accuracy of the
Company's bills and shall have the duty to notify the Company of any
discrepancies between such bills and the services provided by the
Company.
21. RESPONSIBILITY FOR ENFORCEMENT OF TARIFF REGULATIONS
21.1 Where Customer resells Service to an end user customer, such end user
will be able to access any and all services that an end user customer
of the Company would normally be able to access on a Local Exchange
Access Line. Such services, to the extent provided by the Company,
will be deemed to have been sold by the Company to the Customer as
they are utilized by the Customer's end user, and the Customer will
be responsible to the Company for payment for such services.
21.2 Customer will be allowed to purchase services that restrict end user
access to particular capabilities to the extent such services are
available under, and on the same terms and conditions as set forth
in, the Company tariffs applicable to end user customers.
22. NO OBLIGATION TO DEAL WITH RESELLER'S CUSTOMERS
22.1 The Company will render bills for Services only to the Customer, and
will seek payment only from the Customer. The Company will not be
required to seek payment from the Customer's customers prior to
terminating the Customer's service or pursuing any other remedies for
nonpayment by the Customer. The Customer will be a direct obligor of
the Company, and not guarantor or surety for any obligations of the
Customer's customer.
22.2 Repair requests, complaints, orders for the purchase of Services, and
requests for additions to, rearrangements of, or discontinuance of
existing Services will be accepted by the Company only from the
Customer, and not from the Customer's end users.
22.3 Notices relating to Services will be provided by the Company only to
the Customer, and not to the Customer's end users. The Customer, and
not the Company, will be responsible for providing to the end users
any notices, bill inserts, or other information required by
Commission rule or order (or otherwise required by law) to be
provided to end users.
22.4 The Company shall have no responsibility for allocating the
Customer's total bill among its end users. The Company will have no
responsibility for preparing or mailing separate bills to each of the
Customer's end users.
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<PAGE>
22.5 The Customer shall be responsible for the accuracy and completeness
of all orders it submits. The Company will not be responsible for
Service discrepancies resulting from the Customer's failure to place
a service order or the placement of an incorrect service order. By
way of example, and without limitation, the Customer will remain
responsible for charges for all Services on a line until it submits
an order to discontinue the provision of such Services, whether or
not the Customer's end user is still using such Services.
23. CHOICE OF PRIMARY INTEREXCHANGE CARRIER ON RESOLD LINES
The Company will only accept an order to change the primary interexchange
carrier (whether inter- or intraLATA) for a resold telephone exchange
service line from the Customer. The Company will not accept an order to
"freeze" the primary interexchange carrier (whether inter- or intraLATA)
for resold telephone exchange service line from the Customer. The Customer
will be responsible for all charges for such changes.
24. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, except a provision of law which would refer
any issue to another jurisdiction.
25. ENTIRE AGREEMENT
This Agreement, its Attachment(s), and incorporated tariffs constitute the
entire understanding between the parties with respect to the subject matter
hereof and supersedes all prior understandings, oral or written
representations, statements, negotiations, proposals and undertakings in
oral written form. Attachment 1 attached hereto is hereby incorporated by
reference. In the event of a conflict between this Agreement and any
applicable Company tariff, the tariff shall prevail.
26. AMENDMENT AND WAIVERS
26.1 This Agreement may be amended or additional provisions may be added
by written agreement signed by or on behalf of both parties. No
amendment or waiver of any provisions of this Agreement, and no
consent to any default under this Agreement, shall be effective
unless the same shall be in writing and signed by a duly authorized
representative on behalf of the party against whom such amendment,
waiver or consent is claimed, except as otherwise provided in this
Agreement preceding. In addition, no course of dealing or failure of
any party to enforce strictly any
13
<PAGE>
term, right or condition of this Agreement shall be construed as a
waiver of such term, right or condition.
26.2 Either party's failure at any time to enforce any of the provisions
of this Agreement or any right with respect thereto, or to exercise
any option herein provided, will in no way be construed to be a
waiver of such provisions, rights, or options or in any way to affect
the validity of this Agreement. The exercise by either party of any
rights or options under the terms herein shall not preclude or
prejudice the exercise thereafter of the same or other rights under
this Agreement.
27. ASSIGNMENT
Neither party may assign or transfer (whether by operation of law or
otherwise) this Agreement (or any rights or obligations hereunder) to a
third party without the prior written consent of the other party which
consent shall not be unreasonably withheld; provided, however, each party
may assign this Agreement to a corporate affiliate or an entity under its
common control or an entity acquiring all or substantially all of its
assets or equity by providing prior written notice to the other party of
such assignment or transfer. Any attempted assignment or transfer that is
not permitted shall be void ab initio. All obligations and duties of any
---------
party shall be binding on all successors in interest and assigns of such
party.
28. NOTICE AND DEMAND
Except as otherwise provided under this Agreement, all notices, demands, or
requests which may be given by any party to the other party shall be in
writing and shall be deemed to have been duly given on the date delivered
in person or deposited, postage prepaid, in the United States Mail via
Certified Mail or nationally recognized overnight carrier, return receipt
requested, and addressed as follows:
To Customer: General Counsel
----------- United Telemanagement Services, Inc.
10 South Riverside Plaza
Suite 4100
Chicago, Illinois 60606
To Company: Account Manager - Resale Services
---------- 222 Bloomingdale Road
2nd floor
White Plains, NY 10605
14
<PAGE>
cc: NYNEX Corporation
General Counsel
1095 Avenue of the Americas
41st floor
New York, NY 10036
If personal delivery is selected as the method of giving notice under this
Section, a receipt of such delivery shall be obtained. The address to which
such notices, demands, requests, elections or other communications are to
be given by either party may be changed by written notice given by such
party to the other party pursuant to this Section.
29. THIRD-PARTY BENEFICIARIES
This Agreement shall not provide any person not a party to this Agreement
with any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
30. FORCE MAJEURE
Neither party shall be deemed to be negligent, at fault, or otherwise
liable in any respect for any delay or failure in performance of any part
of this Agreement to the extent that such failure or delay is caused by
acts of God, acts of civil or military authority, government regulations,
embargoes, epidemics, war, terrorist acts, riots, insurrections, fires,
explosions, earthquakes, nuclear accidents, floods, strikes, power
blackouts, volcanic action, other major environmental disturbances,
unusually severe weather conditions, inability to secure products or
services of other persons or transportation facilities, or acts or
omissions of transportation common carries or other causes beyond the
control of the party obligated to perform. If any force majeure condition
occurs, the party delayed or unable to perform shall give immediate notice
to the other Party and shall take all reasonable steps to correct the force
majeure condition. During the pendency of the force majeure, the duties of
the parties under this Agreement affected by the force majeure condition
shall be abated and shall resume without liability thereafter.
31. LIMITATION OF LIABILITY
31.1 Notwithstanding any other provision of this Agreement, neither party,
nor its parent, subsidiaries, or affiliates shall be liable to the
other party, whether such liability arises under warranty, tariff,
contract, strict liability in tort, negligence, or otherwise, for
lost revenues, lost profits or other special, incidental, indirect
consequential damages or for loss, damages or expenses indirectly
arising from the Company's provision or the
15
<PAGE>
Customer's resale of services, even if one party has advised the
other party of the possibility of such damages.
31.2 The Company's liability to the Customer shall be limited by the
Company's PSC 900, 901, and 915 tariffs and all other New York State
public service laws and regulations, which are incorporated by
reference as if set forth fully herein.
32. CONTINGENCY
Notwithstanding any other provision of this Agreement, this Agreement is
subject to change, modification, or cancellation as may be required by a
regulatory authority or court in the exercise of its lawful jurisdiction.
33. NON-EXCLUSIVE AGREEMENT
This Agreement is non-exclusive. The Company reserves the right to extend
to others the Services and rights provided for herein.
34. INDEMNIFICATION
Each party (the "Indemnifying Party") shall indemnify and hold harmless the
other party ("Indemnified Party") from any loss, cost, claim, liability,
damage, and expense (including reasonable attorneys' fees) to third
parties, relating to or arising out of the performance or non-performance
of this Agreement by the Indemnifying Party, its employees, agents, or
contractors. In addition, the Indemnifying Party shall defend any action or
suit brought by a third party against the Indemnified Party for any such
loss, cost, claim, liability, damage or expense. The Indemnified Party will
notify the Indemnifying Party promptly in writing or any written claims,
lawsuits, or demands by third parties for which the Indemnified Party
alleges that the Indemnifying Party is responsible under this Section, and,
if requested by the Indemnifying Party, will tender the defense of such
claim, lawsuit or demand. The parties will cooperate in every reasonable
manner with the defense or settlement of such claim, demand, or lawsuit.
The Indemnifying Party will not be liable under this Section for
settlements by the Indemnified Party of any claim, demand, or lawsuit
unless the Indemnifying Party has approved the settlement in advance or
unless the defense of the claim, demand, or lawsuit has been tendered to
the Indemnifying Party in writing and the Indemnifying Party has failed
promptly to undertake the defense.
16
<PAGE>
35. SURVIVAL OF OBLIGATIONS
Any liabilities or obligations of a party or acts or omissions prior to the
cancellation or termination of this Agreement, any obligation of a party
under the provisions regarding indemnification, disclosure of information,
limitation of liability, termination liability, and any other provisions of
this Agreement which, by their terms, are contemplated to survive (or to be
performed after) termination of this Agreement, shall survive cancellation
or termination thereof.
36. EEO CLAUSE
Both parties agree and warrant that, in the performance of this Agreement,
neither will discriminate or permit discrimination in employment against
any person or group of persons on the grounds of sex, race, age, religion,
national origin or handicap in any manner prohibited by the laws of the
United States or any state or local government having jurisdiction.
37. TERMINATION
Except as provided in Section 9 above, in the event of a default under or
breach of any material term or condition of this Agreement by either party,
the other party shall have the right to terminate this Agreement upon sixty
(60) days written notice to the party in breach, if the default or breach
is not cured within sixty (60) days of the date that written notice of such
default or breach is given by one party to the other. A party shall also
have an immediate right to terminate this Agreement in the event of the
other party's bankruptcy, liquidation, insolvency or receivership.
38. NON-PUBLICITY
Both the Company and the Customer agree that neither will use the other's
name without the written permission of the other in connection with
promotional, advertising or other marketing material.
39. SEVERABILITY
In the event any of the provisions of this Agreement are found to be
invalid by any administrative agency, arbitrator or court or competent
jurisdiction, the remaining provisions of this Agreement, whether relating
to similar or dissimilar subjects, shall nevertheless be binding with the
same effect as though the invalid provisions were deleted, unless the
result would be to substantially change the rights or obligations of either
party, in which event the parties shall seek to negotiate in good faith
revisions to the Agreement consistent with their earlier intent. Failing
further agreement, this Agreement shall terminate and no party shall be
liable to the other, except for outstanding amounts due under this
17
<PAGE>
Agreement, including, but not limited to, amounts due pursuant to the
payment terms, the carryover pool, and any other amounts which survive
termination as stated in this Agreement.
40. EXECUTED IN COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute but
one and the same document.
41. HEADINGS
The headings in this Agreement are for convenience and shall not be
construed to define or limit any of the terms herein or affect the meanings
or interpretation of this Agreement.
42. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED UNDER THIS AGREEMENT, NO PARTY MAKES OR
RECEIVES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES,
FUNCTIONS AND PRODUCTS IT PROVIDES UNDER OR CONTEMPLATED BY THIS AGREEMENT
AND THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
43. JOINT WORK PRODUCT
This Agreement is the joint work product of the Parties and has been
negotiated by the Parties and their respective counsel and shall be fairly
interpreted in accordance with its terms and, in the event of any
ambiguities, no inferences shall be drawn against either party.
IN WITNESS WHEREOF, the parties have executed this Agreement.
NEW YORK TELEPHONE COMPANY UNITED TELEMANAGEMENT
SERVICES, INC.
By: /s/ J. Goldberg By: /s/ John Thomas Elliott
------------------------ -----------------------
Date: ________________________ Date: 7/8/96
-----------------------
18
<PAGE>
ATTACHMENT 1
LOCAL EXCHANGE SERVICES
<TABLE>
<CAPTION>
Volume Discount Rate
------ -------------
Commitment (%)
---------- ---
<S> <C> <C>
1. Local Exchange Access Lines
IMB
DID Trunks
PBX Trunks (digital or analog)
Total: 100,00 12.50%
-----
2. Local Usage Service 15.00%
-----
Message Rate Service
3. Telecommunications Features 45.00%
-----
Touch-Tone Calling Service
--------------------------
Custom Calling Services
-----------------------
Speed Calling 8
Speed Calling 30
Three-way Calling
Call Forwarding
Call Waiting
Call Forwarding II
------------------
PhoneSmart(R) Services
----------------------
Call Return
Repeat Dialing
Caller ID
Per Call Blocking
All Call Blocking
Call Trace
Anonymous Call Rejection
Caller ID Deluxe
Call Waiting ID
Call Waiting ID Deluxe
Call Manager
Call Manager Deluxe
Voice Messaging Service
-----------------------
Listings
--------
Alphabetical Directory
Classified Directory
4. IntraLATA Toll Services 25.00%
-----
Message Rate Service
</TABLE>
<PAGE>
CONFIDENTIAL
AMERITECH RESALE LOCAL EXCHANGE SERVICE
CONFIRMATION OF SERVICE ORDER
This Confirmation of Service Order ("Agreement") is by and between
Ameritech Information Industry Services, a division of Ameritech Services, Inc.,
a Delaware corporation with offices at 350 North Orleans Street, Third Floor,
Chicago, Illinois, 60654, on behalf of Illinois Bell Telephone Company
("Ameritech") and U.S. Network Corporation, a Delaware corporation with offices
at 10 South Riverside Plaza, Suite 401, Chicago, Illinois, 60606, on behalf of
USN Communications, Inc. ("Carrier").
WHEREAS, Ameritech intends to offer Resale Local Exchange Services in MSA-1
("Service") at the rates and conditions set forth in the tariff attached hereto
as Exhibit A; and
WHEREAS, Carrier desires to purchase Ameritech Resale Local Exchange
Services in MSA-1 under the rates, terms and conditions set forth herein and in
Exhibit A;
NOW, THEREFORE, in consideration of the mutual obligations set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Ameritech and Carrier agree as
follows:
1.0 SERVICE ORDER
Carrier hereby orders Ameritech Resale Local Exchange Service in MSA-1
offered under Illinois Bell Tariff I.C.C. No. 5, Part 22, which Ameritech
intends to file with the Illinois Commerce Commission in a form
substantially similar to the Resale Local Exchange Service tariff attached
hereto as Exhibit A and incorporated by reference into this Agreement.
Carrier orders the following services under Ameritech's Resale Local
Exchange Service for a term of ten (10) years ("Service Term") and commits
to a minimum annual volume of 150,000 business access lines per month,
which totals 1.8 million monthly business access lines per year ("Volume
Commitment"). The business access lines are described in Section 1.0
(A)(1). Each PBX Trunk shall count as a single business access line.
A. Access Lines
------------
Price
-----
1. Business Direct Lines
(All Business Direct Line Prices include
the End User Common Line Charge)
Single Line Subscribers Area A $7.64 (per month)
Single Line Subscribers Area B $11.04 (per month)
Single Line Subscribers Area C $14.16 (per month)
CONFIDENTIAL
------------
SUBJECT TO NON-DISCLOSURE AGREEMENT
<PAGE>
Multiline Subscribers Area A $8.07 (per month)
Multiline Subscribers Area B $11.47 (per month)
Multiline Subscribers Area C $14.59 (per month)
PBX Trunk, Area A $8.29 (per month)
PBX Trunk, Area B $11.69 (per month)
PBX Trunk, Area C $14.88 (per month)
2. Service Ordering Charges
As set forth in I.C.C. No.5, Part 1, Section 6. These Service Ordering
Charges are in addition to any other scheduled rates and charges normally
applying under tariff. They apply in addition to, and not in lieu of,
Channel Charges, Initial Non-Recurring Charges or Construction Charges made
because of unusual cost in establishing service.
B. Usage
-----
1. Business Local Usage Services
Band A $.0098 (per minute)
Band B $.0202 (per minute)
Band C $.0516 (per minute)
2. Business Operator Assisted Usage Services
Band A $.0098 (per minute)
Band B $.0202 (per minute)
Band C $.0516 (per minute)
3. Operator Surcharges
Person to Person
- Business $2.604 (per call)
Billed to a Third Number
- Business $1.6368 (per call)
Collect Calls
- Business $1.2276 (per call)
2
<PAGE>
Automated Available-Calling Card
Customer Dialed
- Business $0.4836 (per call)
Automated Available-Calling Card
Operator Dialed
- Business $1.3020 (per call)
Automated Not Available-Operator
Must Assist
- Business $0.4836 (per call)
Sent Paid/Operator Assisted
Other Telephones
- Business $0.7812 (per call)
Busy Line Verify
- Business $1.488 (per request)
Busy Line Verify and Interrupt
- Business $3.72 (per request)
C. Telecommunications Features
---------------------------
1. Touch Tone Service
- Business No Additional Charge
2. Call Waiting
- Business $1.40 (per month)
3. Call Forwarding Variable
- Business $1.40 (per month)
4. Threeway Calling
- Business $1.40 (per month)
5. Call Trace
- Business $3.00 (per month)
6. Distinctive Ringing
- Business $1.40 (per month)
7. Call Screening
- Business $1.40 (per month)
3
<PAGE>
8. Caller ID
- Business $3.66 (per month)
9. Caller ID with Name
- Business $1.50 (per month)
10. Pay Per Use-Automatic Call Back
- Business $0.45 (per use)
11. Pay Per Use-Repeat Dialing
- Business $0.45 (per use)
12. 900 Special Access Code
Blocking Service No Additional Charge
13. 976 Prefix Blocking Service No Additional Charge
14. Multi Ring Service
First Line
- Business $1.40 (per month)
Second Line
- Business $1.20 (per month)
15. Busy Line Transfer
- Business $0.75 (per month)
16. Alternate Answering
- Business $0.75 (per month)
17. Customer Control Options-Busy Line
Transfer or Alternate Answering
- Business $0.85 (per month)
18. Message Waiting Tone
- Business $0.21 (per month)
19. Easy Call
- Business $3.00 (per month)
20. Special Delivery Service
- Business $0.09 (per month)
21. Temporary Intercept
Business
- per Central Office line $2.91 (non-recurring
charge)
4
<PAGE>
- per port intercepted $2.91 (non-recurring
charge)
22. Remote Call Forwarding
- Business $9.31 (per month)
23. Customer Controlled Reroute Service
- Business $300.00 (per month)
- Non-recurring charge $3000.00
D. Other Services
-------------
1. Extra Listings
Business
- Multiline $1.02 (per listing)
- Other Directory $1.02 (per listing)
2. Private
- Business $0.85 (per month)
3. Semi-Private
- Business $0.55 (per month)
4. Directory Assistance Call Service
- Business $0.2232 (per call)
5. Information Call Completion Service
- Business $0.1711 (per call)
Note: Items 6-20 Refer to Ameritech ISDN only
6. National ISDN CO Termination $9.41 (per month)
Non-recurring charge $50.00
7. ISDN Direct CO Termination $9.41 (per month)
Non-recurring charge $50.00
8. ISDN National Line or Direct Line
- Area A $7.86 (per month)
- Area B $11.26 (per month)
- Area C $14.38 (per month)
9. Distance Extension Charge, per line $22.50 (per month)
10. Circuit Switched Service Element
Per "B" channel $1.80 (per month)
5
<PAGE>
<TABLE>
<S> <C>
Non-recurring charge $15.00
11. Additional Call Offering $1.20 (per month)
Non-recurring charge $5.00
12. Additional Multiple Call Appearances (each) $1.20 (per month)
Non-recurring charge $5.00
13. Intercom Calling $1.20 (per month)
Non-recurring charge $5.00
14. Secondary Telephone Number (each) $1.20 (per month)
Non-recurring Charge $5.00
15. Station Controlled Conference - 6 port $8.40 (per month)
Non-recurring charge $15.00
16. Message Waiting Indicator (each) $1.50 (per month)
Non-recurring charge $5.00
17. On Demand Packet Switched
Data "B" Channel $12.00 (per month)
Non-recurring charge $50.00
18. Alternate Circuit Switched Voice/Data $5.40 (per month)
Non-recurring charge $15.00
19. Packet Switched Data "B" Channel $51.00 (per month0
Non-recurring charge $100.00
20. Packet Switched Data "D" Channel $3.90 (per month)
Non-recurring charge $15.00
Note: Items 21 - 25 refer to Direct Inward Dialing (DID)
Service only
21. Common Equipment, per DID trunk group $12.35 (per month)
Non-recurring charge $1,356.88
22. DID Trunk CO Termination, per trunk $18.44 (per month)
Non-recurring charge $32.95
23. DID Trunk CO Termination with
touch tone, per trunk $18.44 (per month)
24. Subsequent additions, deletions
or rearrangements $276.22 (non-recurring
</TABLE>
6
<PAGE>
25. DID Number Charges
- 10 assigned DID station
numbers, or fraction thereof $.18 (per month)
- 10 reserved DID station
numbers, or fraction thereof $.18 (per month)
Note: Items 26 - 31 refer to 2-way DID with Call Transfer
SERVICE ESTABLISHMENT
26. Area A
- With initial DID service
(per trunk group) $175.00 (non-recurring)
- Subsequent to establishment of DID
service (per trunk group) $175.00 (non-recurring)
- 2-way DID Trunk with Call Transfer $13.28 (per month)
27. Area B
- With initial DID service
(per trunk group) $175.00 (non-recurring)
- Subsequent to establishment of DID
service (per trunk group) $175.00 (non-recurring)
- 2-way DID Trunk with Call Transfer $17.70 (per month)
28. Area C
- With initial DID service
(per trunk group) $175.00 (non-recurring)
- Subsequent to establishment of DID
service (per trunk group) $175.00 (non-recurring)
- 2-way DID Trunk with Call Transfer $18.59 (per month)
29. All Areas
- Change in Outpulsing, Start Dial or
Signal Type (per trunk group) $28.00 (non-recurring)
- Change or Redesign in Signaling or
Transmission Interface (per occurrence) $150.00 (non-recurring)
CONVERSIONS
30. All Areas
- Of entire DID trunk group to 2-way
DID or entire 2-way DID trunk
group to DID $300.00 (non-recurring)
- Of individual DID trunks to a new
2 way DID trunk group $175.00 (non-recurring)
7
<PAGE>
- Change in Outpulsing, Start Dial or
Signal Type $28.50 (non-recurring)
- Change or Redesign in Signaling or
Transmission Interface (per occurrence) $150.00 (non-recurring)
31. Foreign District Service (mileage charge)
- per first airline mile, or fraction thereof $16.20 (per month)
- per additional airline mile, or
fraction thereof $2.10 (per month)
2.0 FAILURE TO MEET VOLUME COMMITMENT
2.1 For each twelve (12) month period following the Ramp Up Period (as
defined in Section 5.1), Carrier's actual usage shall be calculated by
adding the actual in-service business access lines at the end of each
month during the twelve (12) month period ("Actual Usage").
2.2 For each twelve (12) month period following the end of the Ramp Up
Period, subject to Section 3.0, Carrier shall pay Ameritech if it
fails to meet the Volume Commitment. Carrier's underutilization
liability for such failure to meet the Volume Commitment shall be
calculated as follows:
X x Y, where:
X = an average of Carrier's business line rates which, for
purposes of this Section, shall be $14 ("Average Business Line
Rate");
Y = 1.8 million less the Actual Usage.
If the final period at the end of the Service Term is less than twelve
(12) months, the underutilization liability shall be calculated on a
pro rata basis.
3.0 VOLUME COMMITMENT FLEXIBILITY
3.1 In any twelve (12) month period following the Ramp Up Period in which
Carrier's Actual Usage is less than or greater than the Volume
Commitment, the amount of the shortfall ("Shortfall Amount") or the
excess ("Excess Amount") shall be placed into a pool ("Carryover
Pool"). Shortfall amounts shall increase the Carryover Pool and Excess
8
<PAGE>
Amounts shall decrease the Carryover Pool. For example, if Carrier's
Volume Commitment is 1.8 million lines and its Actual Usage for the
twelve (12) month period is 1.2 million lines, the Carryover Pool
would be increased by 600,000 lines. If, in the following year,
Carrier's Actual Usage for the twelve (12) month period is 2.4
million lines, the Carryover Pool would be decreased by 600,000
lines.
3.2 The line volume in the Carryover Pool will not be subject to the
underutilization charge (except as provided in Section 3.4) and may
never exceed 3.6 million lines ("Carryover Pool Cap'). If, at the end
of any twelve (12) month period following the Ramp Up Period, the
lines in the Carryover Pool exceed the Carryover Pool Cap, Carrier
shall pay Ameritech an amount equal to the excess lines above the
Carryover Pool Cap multiplied by the Average Business Line Rate.
3.3 If the number of lines in the Carryover Pool at the end of the
Service Term is zero to less, no further action is required. If the
number of lines in the Carryover Pool at the end of the Service Term
is greater than zero Carrier shall, at its option, pay Ameritech an
amount equal to each line in the Carryover Pool multiplied by the
Average Business Rate or shall subscribe on a monthly basis to an
equivalent number of lines during the next three year period
("Extension Term"). For example, if the number of lines in the
Carryover pool is 300,000, Carrier could subscribe to 300,000 lines
for a single month or, in the alternative, could subscribe to 100,000
lines per month for three months. The same terms and conditions which
apply to the ten (10) year Service Term shall apply to any Extension
Term. Carrier shall have the option to fulfill this obligation during
any consecutive period of time within the Extension Term, as long as
such consecutive period immediately follows the end of the Service
Term.
3.4 Carrier shall pay Ameritech for any unsubscribed lines remaining in
the Carryover Pool at the end of the Extension Term or, if earlier,
at the end of any consecutive period of Service described in Section
3.3. Carrier shall pay Ameritech an amount equal to the number of
remaining lines multiplied by the Average Business Line Rate.
4.0 EFFECTIVE DATE
The effective date of this Agreement is October 31, 1995. Service shall
commence thirty (30) days after the tariff attached as Exhibit A becomes
effective ("Service Start Date"), but in no event shall service commence
prior to February 1, 1996.
9
<PAGE>
5.0 TERM AND TERMINATION
5.1 The Service Term is ten (10) years, beginning on the Service Start
Date. The "Ramp Up Period" shall begin ninety (90) days following the
Service Start Date and shall end eighteen (18) months thereafter.
5.2 If Carrier cancels this order before the Service Start Date, Carrier
shall reimburse Ameritech for costs incurred by Ameritech on behalf
of Carrier up until the time of cancellation.
5.3 If, after the Service Start Date, Carrier terminates this Agreement
prior to the end of the term specified in Section 5.1, for any reason
other than for cause or for taking Service pursuant to Section 7.0,
Carrier shall pay Ameritech for the unmet portion of the Volume
Commitment at the month to month rates for the time remaining in the
term. This termination liability shall be calculated according to the
formula set forth below, and shall then be adjusted to the net
present worth using the Ameritech cost of money as set forth in
I.C.C. No.5, Part 16, Section 3.4B(2):
X x Y x Z, where:
X = an average of month to month business line rates, weighted
to reflect Carrier's mix of business lines in access areas A, B
and C ("Average Monthly Business Line Rate");
Y = the Volume Commitment; and
Z = the number of years or fractional years remaining in the
Service Term after the Ramp Up Period.
Carrier shall also pay Ameritech an amount equal to the number lines,
if any, in the Carryover Pool multiplied by the Average Business
Line Rate - $14.
5.4 Either party may terminate services under the tariff immediately
following written notice and opportunity to cure as set forth
hereunder in the event the other party is in default as to any of its
material obligations hereunder provided that (a) the defaulting party
receives notice of termination containing a reasonably complete
description of the default and (b) the defaulting party fails to cure
such default within thirty (30) days of receiving such notice or ten
(10) days of such notice if the default is nonpayment.
5.5 If the tariff revisions that implement Ameritech's Resale Local
Exchange Service to Carrier are suspended for more than six (6)
months or are rejected, or if the terms of this Agreement or the
terms of the Resale
10
<PAGE>
Local Exchange Service tariff are altered in any material manner,
then either party may elect to terminate this Agreement without
liability on thirty (30) days' written notice given not later than
sixty (60) days after the event giving rise to the termination right.
6.0 CONDITIONS PRECEDENT
6.1 Neither party shall be required to perform its respective obligations
under this Agreement unless and until Ameritech's tariff for Resale
Local Exchange Service goes into effect in substantially the same
form as set forth in Exhibit A.
6.2 Neither party shall be required to perform its respective obligations
under this Agreement unless and until Carrier obtains certification
as a local exchange Carrier in MSA-1 in the state of Illinois under
220 ILCS 13/405.
7.0 RATE CHANGES
In consideration for Carrier agreeing to the maximum volume and term
commitment currently available, if Ameritech sells the same service at a
lower rate to a similarly situated customer (i.e., resale customer making
a term and/or volume commitment including MSA-1), then Ameritech shall
make such lower rate available to Carrier. Ameritech shall notify Carrier
within forty-five (45) days of such lower rates becoming available. This
provision shall apply regardless of whether the Service is offered under
tariff or contract.
8.0 NEW SERVICES
If Ameritech introduces any new services to its Resale Local Exchange
Service during the period of Carrier's Service Term, and if those services
have a volume or term discount, those services shall be made available to
Carrier at the rate which corresponds to Carrier's volume and term
commitment.
9.0 PROMOTIONAL MATERIALS
Ameritech shall provide Carrier with information related to the use of
the services suitable for Carrier's use in its marketing and promotional
material. Ameritech shall also make available to Carrier's personnel, at
then prevailing prices, training related to the use and operation of the
services.
11
<PAGE>
10.0 CREDIT ALLOWANCES FOR SERVICE INTERRUPTIONS
Carrier shall be entitled to credit allowances for service interruptions
in accordance with I.C.C. No. 5, Part 1, Section 5.
11.0 CHANGED CIRCUMSTANCES
11.1 Upon reasonable notice provided by either party, Ameritech and
Carrier shall meet to review any unforeseen material changes in the
competitive circumstances in the industry, including the
competitiveness of the rates herein, and shall negotiate concerning
any changes that may be necessary to the rates for any services in
this Agreement. Any changes agreed upon shall not become effective
until any applicable regulatory filing requirements are met.
11.2 In the event Carrier converts to a new Ameritech service that
utilizes a change in technology to provide the same service to
Carrier with fewer business access lines, and as a result of this
conversion Carrier fails to achieve the Volume Commitment for that
twelve month period, Carrier's Volume Commitment for that twelve
month period and for each twelve period remaining in the Service Term
shall be reduced by an amount equal to the estimated amount of
reduced access lines associated with the service conversion each
year.
12.0 IMPLEMENTATION
12.1 Following execution of this Agreement, Ameritech and Carrier shall
jointly develop an implementation plan for services. This
implementation plan shall address, among other things, procedures for
on-line ordering, provisioning, and access to customer service
records with proper authorization.
12.2 Ameritech shall implement Carrier's service orders on a timely basis
and within implementation intervals no less promptly than Ameritech
implements other service orders for similar items, including retail
service orders. If Ameritech fails to implement a service order
within such an interval and such failure is not caused by a force
majeure (which shall include fires, embargoes, labor disputes, acts
of God, the public enemy or other causes beyond Ameritech's
reasonable control) or some fault of Carrier (which "fault" shall
include any delays associated with Carrier notification periods and
suspensions of change orders provided for in Ameritech's tariff for
Resale Local Exchange Service), then Ameritech will waive any non-
recurring charges associated with implementation of the Ameritech
service.
12
<PAGE>
13.0 TARIFF
13.1 All terms and conditions of Ameritech's Resale Local Exchange
Service are set forth in the applicable tariff, which fully
determines the rights and obligations of Ameritech and Carrier. No
representation or agreements, written or oral, shall alter or in any
way affect these rights or obligations. The tariff and this
Agreement contain all the applicable rates and charges to be paid by
Carrier in connection with Resale Local Exchange Service. In the
event of a conflict or discrepancy between the provisions of this
Agreement and the provisions of the tariff, the provisions of the
tariff shall govern.
13.2 Ameritech will use its best efforts to maintain its tariffs in a
manner consistent with the terms of this Agreement. If Ameritech
revises any tariff in a manner that is inconsistent with the
provisions of this Agreement in any material respect and Ameritech
does not effect revisions that remedy such inconsistency within
ninety (90) days after receipt of written notice from Carrier, then
Carrier may elect to terminate this Agreement without liability
after an additional thirty (30) days written notice.
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14.0 PUBLICITY
Except as otherwise provided in this Agreement, Carrier shall not use any
of the trademarks, trade names, service marks or other proprietary marks
of Ameritech or its corporate affiliates in any advertising, press
releases, publicity matters or other promotional materials without
Ameritech's prior written permission. Ameritech and Carrier shall jointly
develop a press release publicizing their relationship under this
Agreement, subject to both (1) the parties' prior non-disclosure
agreement, and (2) mutually agreed upon language and media.
IN WITNESS WHEREOF, this Agreement has been executed by the parties set
forth below.
U.S. Network Corporation Ameritech Information Industry Services,
a division of Ameritech Services, Inc., on
behalf of Illinois Bell Telephone Company
By: /s/ Thomas C. Brandenburg By: /s/ Neil E. Cox
--------------------------- --------------------------------------
Name: Thomas C. Brandenburg Name: Neil E. Cox
------------------------- ------------------------------------
Title: Chairman and CEO Title: President
------------------------ -----------------------------------
Date: October 31, 1995 Date: October 31, 1995
------------------------- ------------------------------------
[SEAL]
14
<PAGE>
AGREEMENT BETWEEN
AMERITECH INFORMATION INDUSTRY SERVICES
AND U.S. NETWORK CORPORATION
FOR RESALE SERVICES
This Agreement is entered into as of April 26, 1996 ("Effective Date")
--------
between Ameritech Information Industry Services, a division of Ameritech
Services, Inc., a Delaware corporation, on behalf of Ameritech Michigan, with
offices at 350 North Orleans Street, Third Floor, Chicago, Illinois 60654
("Ameritech") and U.S. Network Corporation, a Delaware corporation, with offices
at 10 South Riverside Plaza, Suite 401, Chicago, Illinois 60606, on behalf of
USN Communications, Inc. ("Customer").
WHEREAS, Customer has signed a Confirmation of Service Order to order
Resale Services pursuant to M.P.S.C. No. 20R, Part 22; and
WHEREAS, Customer would like to purchase certain non-tariffed services
related to the Resale Services in the Tariff;
NOW THEREFORE, in consideration of the covenants and undertakings herein,
Ameritech agrees to furnish and Customer agrees to subscribe to and pay for the
Resale Services described below;
1.0 SERVICE TO BE PROVIDED
Ameritech will provide the Resale Services described in Attachment 1 at
the Customer's Network Point of Presence in Michigan for lines provided
pursuant to the Confirmation of Service Order. The parties hereby agree
that the tariffed terms and conditions which apply to Resale Local
Exchange Services, M.P.S.C. No. 20R, Part 2 and M.P.S.C. No 20R, Part 22
and the Confirmation of Service Order shall also apply as a matter of
contract to the provisions of Resale Services hereunder and are
incorporated by reference in this Agreement.
2.0 RATES
Ameritech agrees to provide the Resale Services at the rates shown on
Attachment 1.
3.0 SERVICE CHARGES
Service Charges, if any, as described in M.P.S.C. No. 20R, Part 3, Section
1 are not included in the rates specified in Attachment 1.
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4.0 RATE STABILITY AND TERM
The rates specified in Attachment 1 shall not be subject to increases for
a period of years from the date the Resale Services are provided pursuant
to this Agreement ("Term").
5.0 TERMS OF PAYMENTS
Customer shall be liable for the Monthly Rate and Non-Recurring Charge as
specified in Attachment 1 for each month the Resale Services are provided
to Customer during the Term of this Agreement. All payments shall be made
in accordance with Ameritech's standard billing procedures.
6.0 EXCUSED PERFORMANCE
Ameritech shall not be liable in any way for any delay or any failure of
performance of the Resale Services provided hereunder or for any loss or
damage due to any of the following:
(a) Any causes beyond Ameritech's reasonable control, including but not
limited to, fires, floods, epidemics, quarantine, restrictions,
unusually severe weather strikes, embargoes, manufacturer's delays,
explosions, power blackouts, wars, labor disputes, acts of civil
disobedience, acts of civil or military authorities, acts stemming
from governmental requirements and priorities, acts of nature, acts
of public enemies, or acts or omissions of carriers; provided,
Ameritech has exercised reasonable measures, if feasible, to
mitigate such delay; or
(b) Any wrongful or negligent act or omission of the Customer or its
employees and agents.
7.0 BREACH
If either party fails to perform any substantial and material term of this
Agreement, the aggrieved party shall be entitled to serve written notice
of its intent to terminate (which notice shall include a reasonably
detailed statement of the nature of such breach), upon the breaching
party. If such material breach continues unremedied for forty-five (45)
days after actual receipt by the breaching party of such written notice,
the aggrieved party may, by written notice, either terminate an
appropriate portion of its obligation under this Agreement, or terminate
the entire Agreement, if such breach substantially and materially affects
the aggrieved party's
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rights under this Agreement. Except as expressly provided in this
Agreement, in the event of a breach of this Agreement by either Ameritech
or Customer, the other party will be entitled to pursue any and all
remedies available to it at law or in equity including court costs and
reasonable attorneys' fees.
8.0 INDEMNIFICATION
Each party shall indemnify and hold harmless the other party, its
employees, agents, subcontractors and affiliates against all injury, loss,
damage or expense (including court costs and reasonable attorneys' fees)
which they may sustain or become liable for on account of injury to or
death of persons, or on account of damage to or destruction of property
resulting in whole or substantial part from the performance of this
Agreement; provided, however, that the indemnitor's obligation shall only
extend to any inquiry, loss, damage or expense caused by a willful or
negligent act or omission of the indemnitor or its authorized employees,
agents, subcontractors or affiliates.
Ameritech shall be indemnified and saved harmless (including court costs
and reasonable attorneys' fees) by Customer against claims for libel,
slander, or the infringement of copyright arising directly or indirectly
from the material transmitted over the facilities or the use thereof;
against claims for infringement of patents arising from, combining with,
or using in connection with facilities furnished by Ameritech, apparatus
and system of Customer; and against all other claims arising out of any
act or omission of Customer in connection with the facilities provided by
Ameritech.
9.0 TAXES
Upon execution of this Agreement, Customer shall provide Ameritech with a
copy of Customer's Certificate of Exemption in accordance with 26 USCS
4251 (1986) and Act No. 94 of the Public Act of Michigan 1937, as amended.
In the event Customer does not provide its Certificate of Exemption,
Customer shall remit to Ameritech all applicable federal and state taxes
for remittance to the appropriate taxing authority.
10.0 LIMITATION OF LIABILITY
EXCEPT FOR OBLIGATIONS UNDER THE INDEMNITY PROVISIONS OF THIS AGREEMENT,
AMERITECH SHALL NOT BE LIABLE TO CUSTOMER FOR ANY INDIRECT,INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS AND BUSINESS
OPPORTUNITIES, REGARDLESS OF THE CAUSE OF
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ACTION, ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OR
NONPERFORMANCE OF OBLIGATIONS UNDERTAKEN UNDER THIS AGREEMENT.
AMERITECH'S LIABILITY TO CUSTOMER FOR ANY LOSS, CLAIM, INJURY, LIABILITY
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES, RELATING TO OR ARISING
OUT OF ANY NEGLIGENT ACT OR OMISSION IN ITS PERFORMANCE OF THIS AGREEMENT
(EXCEPT AN ACT OR OMISSION INVOLVING WANTON OR WILFUL MISCONDUCT) SHALL BE
LIMITED TO THE TOTAL MONTHLY CHARGES PAID BY CUSTOMER TO AMERITECH FOR SIX
MONTHS.
It is understood and agreed that Ameritech is not an insurer and that the
rates for Resale Service provided hereunder are based solely on their
value and on the scope of liabilities set forth in this Agreement and that
said rates are unrelated to the potential for indirect, incidental,
consequential or other damages. Ameritech and Customer agree that this
allocation of risk and liability is fair and reasonable.
11.0 SUCCESSORS AND ASSIGNS
Neither party shall assign any right or obligation under this Agreement
without the other party's prior written consent. Any assignment made
without the consent of the other party shall be void.
Notwithstanding the foregoing, Ameritech may assign this Agreement, in
whole or in part, to any of its affiliates. Upon such assignment and
assumption of liability thereto by the assignee, the assignor shall be
discharged of any liability under this Agreement.
Without limiting the generality of the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties' respective
successors and assigns.
12.0 MODIFICATION
Any supplement to or modification or waiver of any provision of this
Agreement must be in writing and signed by authorized representatives of
both parties.
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13.0 ENFORCEABILITY
If any of the provisions of this Agreement, or any portion of any
provision, are held to be illegal or invalid, Customer and Ameritech shall
negotiate an adjustment consistent with the purposes of this Agreement.
Subject to the foregoing, the illegality or invalidity of any provision of
this Agreement will not affect the legality or enforceability of the
remaining provisions, and this Agreement shall then be construed as if
such enforceable or unlawful provision, or portion of a provision, had not
been contained therein.
14.0 TARIFF REFERENCES
Each reference to a tariff provision in this Agreement shall be deemed to
mean or include any and all similar tariff provisions or other regulations
changed or established from time to time in lieu of said tariff provision.
15.0 GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
laws of the State of Michigan.
16.0 ENTIRE AGREEMENT
This is the entire and exclusive agreement between the parties with
respect to the Resale Service hereunder and supersedes all prior
agreements, proposals or understandings, whether written or oral, except
to the extent the same may be specifically incorporated herein by
reference.
17.0 SECTION HEADINGS
All section headings contained herein are for convenience of reference
only and are not intended to define or limit the scope of any provisions
of this Agreement.
18.0 WAIVER
Failure to enforce or insist upon compliance with any of the terms or
conditions of this Agreement shall not constitute a general waiver or
relinquishment of any such terms or conditions, but the same shall remain
at all times in full force and effect.
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19.0 DISCLOSURE
Neither party shall identify, either expressly or by implication, the
other party or its corporate affiliates or use any of their names,
trademarks, trade names, service marks or other proprietary marks in any
advertising, press releases, publicity matters or other promotional
materials without such party's prior written consent.
20.0 PUBLICITY
Except as otherwise provided in this Agreement, Customer shall not use any
of the trademarks, trade names, service marks or other proprietary marks
of Ameritech or its corporate affiliates in any advertising, press
releases, publicity matters or other promotional materials without
Ameritech's prior written permission. Ameritech and Customer shall jointly
develop a press release publicizing their relationship under this
Agreement, subject to both (1) the parties' prior non-disclosure
agreement, and (2) mutually agreed upon language and media.
20.1 NOTICES
All communications required or permitted under this Agreement shall be
deemed given when delivered or deposited in the U.S. mail, by certified or
registered, postage prepaid and addressed as follows:
If intended for Customer:
U.S. Network Corporation
10 South Riverside Plaza
Suite 401
Chicago, Illinois 60606
Attn: Thomas C. Brandenburg
If intended for Ameritech:
Ameritech Information Industry Services
350 North Orleans, Floor 3
Chicago, Illinois 60654
Attn: Vice President-Sales and Service
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with a copy to:
Ameritech Information Industry Services
350 North Orleans, Floor 3
Chicago, Illinois 60654
Attn: Vice President and General Counsel
Executed this 26th day of APRIL, 1996.
U.S. NETWORK CORPORATION, ON AMERITECH INFORMATION INDUSTRY
BEHALF OF USN COMMUNICATIONS, INC. SERVICES, A DIVISION OF
AMERITECH SERVICES, INC., ON
BEHALF OF AMERITECH MICHIGAN
By: /s/ J. Thomas Elliot By: /s/ Neil E. Cox
--------------------------- ----------------------------
Name: JOHN THOMAS ELLIOTT Name: NEIL E. COX
-------------------------- --------------------------
Title: PRESIDENT Title: PRESIDENT
------------------------- -------------------------
Date: 4-26-96 Date: 4/27/96
-------------------------- --------------------------
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ATTACHMENT 1
TO THE AGREEMENT BETWEEN
AMERITECH INFORMATION INDUSTRY SERVICES
AND U.S. COMMUNICATIONS CORPORATION
FOR RESALE SERVICES
<TABLE>
<CAPTION>
Monthly
-------
Business
--------
<S> <C>
1. LINE CONNECTION AND
OTHER SERVICE CHARGES
Line Connection Charge $38.09
Miscellaneous Service Charge $ 7.10
Line Rearrangement Charge (each line)
Touch-Tone $ 4.57
Change in Number $18.37
C.O. Services $10.00
2. OPERATOR SURCHARGES
Person-to-Person $2.70
Billed to a Third Number $1.32
Collect Calls $1.26
Calling Card Calls
- Non Local
Assisted Calling Card Services $1.128
Customer Dialed Calling Card $0.390
- Local
Assisted Calling Card Services $1.128
Customer Dialed Calling Card $0.390
Sent Paid/Operator Assisted
Other Telephones $1.26
Busy Line Verify, Each Occasion $1.20
Busy Line Interrupt, Each Occasion $3.00
3. CUSTOM CALLING FEATURES
Calling Waiting $1.90
Calling Forwarding - Variable $1.90
Threeway Calling $1.90
Speed Call 8 $1.90
Speed Call 30 $1.90
</TABLE>
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<TABLE>
<S> <C>
Distinctive Ringing $1.90
</TABLE>
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<TABLE>
<S> <C>
3. CUSTOM CALLING FEATURES (Cont'd)
Call Screening $1.90
Caller ID $3.58
Caller ID With Name $1.10
(plus charge for CallerID)
4. PAY PER USE
Per Use
-------
Business
--------
Automatic Callback, per use $0.41
Repeat Dialing, per use $0.41
5. OPTIONAL LINE FEATURE
Monthly
-------
Business
--------
Multi Ring Service
1st Line $2.08
2nd Line $1.10
6. COMPLIMENTARY CENTRAL
OFFICE SERVICES
Busy Line Transfer $0.75
Alternate Answering $0.75
Customer Control Option
Busy Line Transfer $0.55
Alternate Answering $0.55
Message Waiting Tone $0.14
Easy Call $0.83
7. ROUTING SERVICES
Remote Call Forwarding
(per path) $11.25
Customer Locator Alternate Routing
Service Establishment $200.00
Protected #'s 1-100 $ 0.55
</TABLE>
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7. ROUTING SERVICE (Cont'd)
Customer Locator Alternate Routing (Cont'd)
Protected #'s 101-999 $ 0.44
Protected #'s 1,000+ $ 0.33
Per add'l alternate routing plan $ 8.25
Routing plan change per telephone
number $ 5.50
Activation of plan $ 5.50
Network Switch Alternate Routing
Service Establishment $450.00
Protected #'s 1-100 $ 0.55
Protected #'s 101-999 $ 0.44
Protected #'s 1,000+ $ 0.33
Per add'l alternate routing plan $ 8.25
Activation of plan $ 5.50
Routing plan change per telephone
number $ 5.50
Coord. Test Activation $110.00
8. OTHER SERVICES
Directory Services
Extra Listings $1.65
Private $0.83
Semi-Private (Each Listing) $0.55
Directory Assistance $0.18
Information Call Completion Service $0.18
<TABLE>
<CAPTION>
Business
Non-Recurring Monthly
USOC Charge Rate
---- ------------- --------
<S> <C> <C> <C>
Ameritech ISDN Direct
ISDN Direct line/1/
National N2B $75.00 $11.44*
ISDN Direct Basic Feature Package/2/ FPGOX ----- $ 5.00
Distance extension charges for beyond
normal transmission range per ISDN
line XTN ----- $20.25
______________
</TABLE>
* End User Common Line Charges also apply.
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8. OTHER CHARGES (Cont'd)
<TABLE>
<CAPTION>
Business
Non-Recurring Monthly
USOC Charge Rate
---- ------------- --------
<S> <C> <C> <C>
Ameritech ISDN Direct (Cont'd)
Circuit Switched Voice Service Element LTQ5X $15.00 $ 2.20
Multiple Call Appearances, Each NCO $ 5.00 $ 1.10
Secondary Telephone Numbers, Each DO6 $ 5.00 $ 1.10
Additional Call Offering AC5PB $ 5.00 $ 1.38
Intercom Calling NZV $ 5.00 $ 1.38
Message Waiting Indicator MLN $ 5.00 $ 1.38
Station Controlled Conference-6 Port EQ6 $15.00 $ 7.70
Circuit Switched Data Service Elements LTQ6X $15.00 $ 4.40
Alternate Circuit LTX1X $15.00 $ 4.95
Packet Switched Data "B" Channel LTQ3X $100.00 $46.75
On-Demand Packet Switched Data "B"
Channel LTH7X $50.00 $11.00
Packet Switched Data Service "D" Channel
Element Charge LTQ4X $15.00 $ 3.58
Subsequent charges for Circuit Switched
Voice and/or Circuit Switched Data and/or
Packet Switched Data Rearrangements to
add line appearances per occasion REA1Z $15.00 ----
Circuit Switched Data Schedule - Each ISDN
Circuit Switched Data Call which originates
and terminates within the customer's local
calling area will be rated based on the Usage
Schedule shown below:
a. The initial 10 minute calling period (or
fraction thereof) $0.09
b. Each additional 5 minute period (or
fraction thereof) $0.09
</TABLE>
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8. OTHER CHARGES (Cont'd)
Business
Monthly
Rate
--------
Ameritech ISDN Direct (Cont'd)
c. ISDN Circuit Switched Data Calls outside
the customer's local calling area will be
billed at existing zone and MST usage
rates. The ISDN Circuit Switched Usage
Schedule above does not apply to
Centrex Intercom Calls.
Ameritech Intercept Referral
Extension Service $3.30
9. INTERZONE MESSAGE CHARGES
Business
Rate Miles Minute of Use
---------- -------------
1-20 $0.0528
10. MESSAGE TELECOMMUNICATIONS SERVICES
Message Toll Service:
<TABLE>
<CAPTION>
Business
Rate Step Rate Miles Minute of Use
--------- ---------- --------
<S> <C> <C>
1 1 - 10 $0.0403
2 11 - 15 $0.0602
3 16 - 20 $0.0729
4 21 - 25 $0.0824
5 26 - 30 $0.0890
6 31 - 50 $0.0919
7 51 - 100 $0.0947
8 Over 100 $0.0928
</TABLE>
Business
Monthly
Rate
--------
Toll Restriction Service
Per Business line Equipped $3.57
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LOCAL EXCHANGE TELECOMMUNICATIONS
SERVICES RESALE AGREEMENT
This Local Exchange Telecommunications Services Resale Agreement (this
"Agreement") is effective as of the 13th day of May, 1996, by and between
Ameritech Information Industry Services, a division of Ameritech Services, Inc.,
a Delaware corporation with offices at 350 North Orleans Street, Third Floor,
Chicago, Illinois, 60654, on behalf of The Ohio Bell Telephone Company
("Ameritech") and U.S. Network Corporation, a Delaware corporation with offices
at 10 South Riverside Plaza, Suite 401, Chicago, Illinois 60606 on behalf of USN
Communications, Inc. ("Reseller").
WHEREAS, Section 251 (c)(4) of The Telecommunications Act (as defined
below) provides, inter alia, that Ameritech offer for resale at wholesale rates
----------
any telecommunications services that it provides to subscribers who are not
telecommunication carriers;
WHEREAS, Ameritech provides certain local exchange telecommunications
services to subscribers within the State of Ohio (the "Territory"); and
WHEREAS, Reseller desires to purchase certain local exchange
telecommunications services from Ameritech and resell such services to its
Customers (as defined below) in the Territory; and
WHEREAS, the Parties are entering into this Agreement to set forth the
respective obligations of the Parties and the terms and conditions under which
Ameritech shall provide, and Reseller shall purchase, local exchange
telecommunications services as set forth herein for resale to such Reseller's
Customers in the Territory.
NOW, THEREFORE, in consideration of the mutual obligations set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows:
1.0 DEFINITIONS AND CONSTRUCTION
1.1. Specified Meanings. As used in this Agreement, the following
------------------
terms have the meanings specified below:
"Average Line Rate" means the weighted average annual line rate
of a Business or Residential Line, as applicable, which, for
purposes of this Agreement shall be $6.87 for a Residential Line
and $20.26 for a Business Line, as the case may be.
"Business Line" means an access line which
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(a) is used primarily or substantially for a paid commercial,
professional or institutional activity; or
(b) is situated in a commercial, professional or institutional
location, or other location serving primarily or substantially as
a site of an activity for pay; or
(c) uses a service number listed as the principal or only number for
a business in any Ameritech PagesPlus(R) directory; or
(d) is used to conduct promotions, solicitations, or market research
for which compensation or reimbursement is paid or provided;
provided, that use of a line without compensation or
--------
reimbursement for a charitable or civic purpose shall not
constitute business use or render such line a "Business Line"; or
(e) does not otherwise qualify as a Residential Line (as defined
herein).
"Commission" or "PUCO" means the Ohio Public Utilities Commission.
"Customer" means a third party end-user who contracts with Reseller
for Service or purchases local exchange telecommunications services
from Ameritech.
"FCC" means the Federal Communications Commission.
"Losses" means any and all losses, costs (including court costs),
claims, damages (including fines, penalties, and criminal or civil
judgments and settlements), injuries, liabilities and expenses
(including attorneys' fees).
"Nondisclosure Agreement" means the Nondisclosure Agreement dated as
of October 3, 1995 by and between Ameritech and Reseller.
"Residential Line" means an access line which
(a) does not qualify as a Business Line;
(b) is used primarily and substantially for social or domestic
purposes; and
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(c) is located in a residence, or, in the case of a combined
business and residence premises, is located in a bona fide
residential quarters of such premises and a separate Business
Line is located in the business quarters of the same premises.
"Telecommunications Act" means the Telecommunications Act of 1996
and any rules and regulations promulgated thereunder.
1.2. Interpretation and Construction. The definitions in Section 1.1
-------------------------------
shall apply equally to both the singular and plural forms of the
terms defined. All references to Sections, Exhibits and Schedules
shall be deemed to be references to Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise
require. The headings of the Sections are inserted for convenience
of reference only and are not intended to be a part of or affect the
meaning or interpretation of this Agreement. Unless the context
shall otherwise require, any reference to any agreement, other
instrument (including Ameritech or other third party offerings,
guides and practices), statute, regulation, rule or tariff is to
such agreement, instrument, statute, regulation, rule or tariff as
amended and supplemented from time to time (and, in the case of a
statute, regulation, rule or tariff, to any successor provision).
2.0 PROVISION OF SERVICE AND VOLUME COMMITMENT
2.1. Reseller hereby purchases from Ameritech for resale to its Customers
in the Territory the local exchange telecommunications services set
forth on Schedule 2.1(a) at the rates set opposite each such local
exchange telecommunications service (such services collectively
referred to herein as the "Service"). Ameritech's Resale Local
Exchange Service tariff will describe the Services which Reseller
may purchase pursuant to this Agreement. Subject to Section 2.2,
Reseller agrees to order and utilize during the Service Term a
minimum annual volume of 100,000 Business Lines and a minimum annual
volume of 10,000 Residential Lines (respectively, "Volume
Commitment"), at the rates set forth on Schedule 2.1(a).
2.2. In addition to the rates set forth on Schedule 2.1(a), Reseller
shall pay Ameritech for any additional charges or fees incident to
the establishment or provision of the Service, including, without
limitation, channel charges, initial non-recurring charges and
construction charges, where applicable.
2.2. Reseller shall have a period of eighteen (18) months ( the "Ramp Up
Period") beginning ninety (90) days from the Service Start Date (as
defined below) in which to market and resell the Service to its
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Customers. During the Ramp Up Period, Reseller shall not be subject
to any underutilization penalties provided in Section 4.2 for
failure to meet its Volume Commitment for Business Lines or
Residential Lines.
2.4. Subject to the next sentence, Service shall commence (the "Service
Start Date") upon the earlier of (i) thirty (30) days after the
approval of this Agreement by the Commission or (ii) the approval by
the Commission of Ameritech's Resale Local Exchange Service tariffs.
Notwithstanding the foregoing, the Service Start Date may not be
earlier than October 1, 1996 or, if later than October 1, 1996, the
date on which Reseller obtains the appropriate certification from
the Commission as a reseller or as a local exchange carrier in the
Territory, which certification Reseller agrees to use its best
efforts to obtain at the earliest possible date. The initial term of
this Agreement shall be ten (10) years (the "Service Term") which
shall begin on the Service Start Date.
Unless an Extension Term is elected by Reseller pursuant to Section
5.3, this Agreement shall be automatically renewed after the Service
Term and shall continue in full force and effect until terminated in
writing by either party ninety (90) days in advance of the
expiration of the Service Term. Subsequent to the Service Term, this
Agreement may be terminated by either party with ninety (90) days
written notice. If an Extension Term is elected, this Agreement
shall terminate at the expiration of the Extension Term.
2.5. The terms and conditions relating to the rights and obligations of
the Parties regarding the provision of Service shall be as
prescribed by this Agreement, any applicable tariff reference herein
and Commission rules, regulations and orders. In the event of a
conflict or discrepancy between the provisions of this Agreement and
the provisions of such tariffs, rules, regulations and orders, the
provisions of such tariff rules, regulations and orders shall
govern. If the tariff revisions that implement Ameritech's Resale
Local Exchange Service to Reseller are suspended for more than six
(6) months or are rejected, or if the terms of this Agreement or the
terms of the Resale Local Exchange Service tariff are altered in any
material adverse manner, then either party may elect to terminate
this Agreement without liability on thirty (30) days' written notice
given not later than sixty (60) days after the event giving rise to
the termination right.
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3.0 IMPLEMENTATION AND FORECASTS
3.1. Following execution of this Agreement, the parties shall jointly
agree on an implementation plan ("Implementation Plan") for the
Service. The Implementation Plan shall address, inter alia,
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procedures for electronic service ordering, provisioning, billing
processes, trouble administration and repair, access to Customer
service records with proper authorization, other electronic
interfaces, marketing support and such other matters as the Parties
may agree. Notwithstanding the foregoing, the Implementation Plan as
agreed upon by the Parties shall be consistent with and subject to
any applicable provision of this Agreement. Upon agreement of the
Parties on the Implementation Plan, the Implementation Plan and any
amendments thereto will be attached hereto as Schedule 3.1 and
become part of this Agreement.
3.2. Reseller acknowledges that Ameritech has provided Reseller with
certain interface specifications so that Reseller may establish
electronic access with Ameritech as provided in Section 7.1.
Reseller agrees that regardless of the date Ameritech disclosed such
specifications to Reseller, such specifications shall be deemed
Proprietary Information (as defined in Section 21.5.1) of Ameritech
and subject to the limitations and restrictions of Section 21.5.
3.3. On or before August 1, 1996 and thereafter, commencing with the date
which is ninety (90) days after the Service Start Date, every ninety
(90) days during the Service Term, Reseller shall provide Ameritech
with a rolling six (6) month forecast of its traffic requirements
for the Service in the form and in such detail as reasonably
requested by Ameritech. Such forecast will be deemed Proprietary
Information and will not limit or alter the terms or availability of
Service.
3.4. Ameritech shall implement Reseller's service orders on a timely
basis and within implementation intervals no less promptly than
Ameritech implements other service orders for similar items,
including retail service orders. If Ameritech fails to implement a
service order within such interval and such failure is not caused by
a force majeure event as defined in Section 21.4, or some fault of
Reseller (which "fault" shall include any delays associated with
Reseller notification periods and suspensions of change orders
provided for in Ameritech's tariff for Resale Local Exchange
Service), then Ameritech will waive any non-recurring charges
associated with implementation of the Ameritech service.
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3.5. For maintenance and repair services performed on Ameritech's side of
the network interface, Ameritech agrees that quality and timeliness
of such services will be no less than the services provided to its
retail customers. If Ameritech provides support, installation,
maintenance and/or repair to any similarly situated customer under
more favorable terms and conditions, then Ameritech shall make such
terms and conditions available to Reseller.
4.0 FAILURE TO MEET VOLUME COMMITMENT
4.1. For each twelve (12) month period (each, a "Service Period")
following the Ramp Up Period, Ameritech shall measure Reseller's
actual in-service Business Lines and Residential Lines at the end of
each such Service Period to determine the number of lines utilized
during such Service Period ("Actual Usage") for purposes of
measuring Reseller's compliance with its Volume Commitment.
4.2. Subject to Section 5.0, if during any Service Period Reseller fails
to attain its Volume Commitment for Residential Lines or Business
Lines, Reseller shall pay Ameritech an underutilization penalty (as
separately calculated for Residential Lines and Business Lines)
calculated as follows:
X x Y x 12, where:
X = the Average Line Rate of the Business Line or Residential
Line, as applicable; and
Y = the Volume Commitment less the Actual Usage
If the final Service Period is less than twelve (12) months, the
underutilization penalty shall be calculated on pro rata basis.
5.0 VOLUME COMMITMENT FLEXIBILITY
5.1. In any Service Period in which Reseller's Actual Usage of either
Residential Lines or Business Lines is less than or greater than its
applicable Volume Commitment, the amount of the shortfall
("Shortfall Amount") or the excess ("Excess Amount") shall be placed
into a pool ("Carryover Pool"), subject to the respective Carryover
Pool Caps set forth in Section 5.2. There shall be a separate
Carryover Pool for Business Lines and Residential Lines. No more
than 100,000 Business Lines 10,000 Residential Lines may be added to
the applicable Carryover Pool in any Service Period. Shortfall
Amounts shall increase the Carryover Pool and Excess Amounts shall
decrease the Carryover Pool. For example, if Reseller's Residential
Line Volume Commitment is 100,00 lines
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and its Actual Usage of Residential Lines for a Service Period is
75,000 lines, the Residential Line Carryover Pool would be increased
by 25,000 lines. If, however, Reseller's Actual Usage of Residential
Lines for a Service Period is 125,000 lines, the Residential Line
Carryover Pool would be decreased by 25,000 lines.
5.2. Except as provided in Section 5.4, the number of lines in each
Carryover Pool shall not be subject to any underutilization penalty.
The number of lines may never exceed 20,000 lines for the
Residential Line Carryover Pool or 200,000 lines for the Business
Line Carryover Pool (respectively, the "Carryover Pool Cap"). If,
however, at the end of any Service Period the Shortfall Amount for
such Service Period in either Carryover Pool would have caused the
number of lines to exceed the applicable Carryover Pool Cap in such
Carryover Pool, Reseller shall pay Ameritech an amount equal to such
excess lines above the Carryover Pool Cap multiplied by the
applicable Average Line Rate.
5.3. If the number of lines in each Carryover Pool at the end of the
Service Term is zero or less, no payments shall be due from
Reseller. If, however, the number of lines in a Carryover Pool at
the end of the Service Term is greater than zero, Reseller shall, at
its option, either pay Ameritech an amount equal to each line in the
Carryover Pool multiplied by the applicable Average Line Rate or
shall subscribe on a monthly basis to an equivalent number of lines
during a three (3) year period ("Extension Term"); such Extension
Term to commence immediately upon the expiration of the Service
Term. For example, if the number of Residential Lines in the
Residential Line Carryover Pool is 5,000, Reseller could subscribe
to 5,000 Residential Lines for one (1) year or, in the alternative,
could subscribe to 2,500 Residential Lines for a two (2) year
period. The same terms and conditions which apply to the Service
Term shall apply to any Extension Term.
5.4. If at the end of the Extension Term any lines remain in a Carryover
Pool, Reseller shall pay Ameritech an amount equal to the number of
remaining lines in each Carryover Pool multiplied by the Average
Line Rate applicable to that Carryover Pool. Reseller shall not use
excess lines in one Carryover Pool to offset its shortfall in
another Carryover Pool.
6.0 RESPONSIBILITIES OF RESELLER
6.1. Prior to submitting an order under this Agreement, Reseller shall
have obtained documentation from the Customer (e.g., written or
electronic authorization, tape recorded conversation, password
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verification, or other method permitted by the Commission or FCC),
explicitly authorizing Reseller to provide Service to such Customer
("Documentation Authorization"). Reseller shall retain all
Documentation of Authorization on file, which shall be available for
inspection by Ameritech at its request during normal business hours.
If Reseller submits an order under this Agreement, and the
applicable Customer notifies Ameritech, within the greater of ninety
(90) days or two (2) billing cycles of the date Reseller submitted
such order, that such Customer did not authorize Reseller to provide
Service to such Customer ("Unauthorized Switching"), Reseller shall
provide Ameritech with that Customer's Documentation of
Authorization within three (3) business days of Ameritech notifying
Reseller of such alleged Unauthorized Switching. If Reseller cannot
provide the Documentation of Authorization within three (3) business
days, Reseller shall within three (3) business days thereafter:
(1) notify Ameritech to change the Customer back to the carrier
that provided resale local exchange telecommunications
services to such Customer before the change to Reseller was
made, and
(2) provide to the original carrier any Customer information and
billing records Reseller has obtained relating to such
Customer, and
(3) notify the Customer and Ameritech that the change to the
original carrier has been made, and
(4) pay Ameritech per line to compensate Ameritech for switching
the Customer back to the original carrier.
6.2. Ameritech may change its Customer's or Reseller's Customer's Primary
Local Exchange Company ("PLEC") only upon - notification from such
Customer enrolled in such a program that it wishes to change its
PLEC.
6.3. When Ameritech receives an order for Service from Reseller for
Reseller's Customer, and Ameritech currently provides resale local
exchange telecommunications services to another carrier ("Carrier of
Record") for the same Customer, Ameritech shall notify such Carrier
of Record of such order coincident with processing the order. It
shall then be the responsibility of the Carrier of Record and
Reseller to resolve any issues related to that Customer. Reseller
agrees to indemnify and hold Ameritech harmless against any and all
Losses that may result from Ameritech acting under this Section 6.3.
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6.4. Reseller shall be responsible for providing to its Customers and to
Ameritech a telephone number or numbers that Reseller's Customers
can use to contact Reseller in the event of Service or repair
requests. If Reseller's Customers contact Ameritech with regard to
such requests, Ameritech shall inform such Customers that they
should call Reseller and may provide Reseller's contact number to
such Customers. Reseller may enter into a contractual arrangement
with Ameritech for the transfer to Reseller of calls placed by
Reseller's Customers for Service or repair requests.
6.5. Reseller shall provide Ameritech with accurate and complete
information regarding Reseller's Customers in a method reasonably
prescribed by Ameritech, so that Ameritech may keep its Emergency
Telephone Number Service database updated.
6.6. In addition to its indemnity obligations under Section 12.3,
Reseller shall provide, in its tariffs and contracts with its
Customers that relate to any Service provided or contemplated under
this Agreement, that in no case shall such Reseller or any of its
agents, contractors or others retained by such parties be liable to
any Customer or third party for (i) any Loss relating to or arising
out of this Agreement, whether in contract or tort, that exceeds the
amount such Reseller would have charged the applicable Customer for
the Service(s) that gave rise to such Loss, and (ii) any
Consequential Damages (as defined in Section 13.6 below).
6.7. Reseller is solely responsible for the Service it provides to its
Customers and to other telecommunications carriers.
6.8. Prior to the Service Start Date, Reseller shall have received and
communicated to Ameritech its Carrier Identification Code and its
Access Carrier Name Abbreviation or Interxchange Access Customer
Code.
6.9. Reseller shall enter into Ameritech's standard Electronic Data
Interchange Trading Partner Agreement.
6.10. Reseller is solely responsible for the payment of charges for all
Services furnished pursuant this Agreement including, but not
limited to, calls originated or accepted at its and its Customers'
service locations.
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6.11. If Reseller ceases to resell the Service to its Customers and fails
to make arrangements for the continuation of such Service, Reseller
shall provide an option to its Customers to select an alternate
carrier to provide resale local exchange telecommunications services
to such Customers.
7.0 RESPONSIBILITIES OF AMERITECH
7.1. Ameritech shall provide Reseller with electronic access to (a) allow
Reseller to place service orders with Ameritech; (b) allow Reseller
to receive phone number assignments from Ameritech; (c) allow
Ameritech to transmit information necessary for Reseller to bill its
Customers; and (d) allow Reseller to inform Ameritech of cases of
trouble.
7.2. Ameritech shall provide access to the following services where
Ameritech is the underlying 911 service provider.
7.2.1. Universal Emergency Number Service (911), is a telephone
exchange communication service whereby a Public Safety
Answering Point ("PSAP") designated by the governmental body
may receive telephone calls dialed to the telephone number
911. Universal Emergency Number Service (911) includes lines
and equipment necessary for answering, transferring and
dispatching public emergency telephone calls originated by
persons within the telephone central office areas arranged
for 911 calling.
7.2.2. Basic 911 service provides for routing all 911 calls
originated by telephone having telephone numbers beginning
with a given central office prefix code or codes to a single
PSAP equipped to receive those calls. Both Reseller and its
Customers purchasing Service under this Agreement are not
charged for calls to the 911 number except as provided in
any applicable tariff or pursuant to any applicable law.
7.2.3. Enhanced 911 ("E911") service provides additional features
such as selective routing of 911 calls to a specific PSAP
which is selected from the various PSAP's serving Customers
within that central office area. Both Reseller and its
Customers purchasing Service under this Agreement are not
charged for calls to the 911 number except as provided in
any applicable tariff or pursuant to any applicable law.
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7.3 Ameritech shall provide Reseller with information related to the use
of the services suitable for Reseller's use in its marketing and
promotional material. Ameritech shall also make available to
Reseller's personnel, at then prevailing prices, training related to
the use and operation the services.
7.4. Ameritech shall provide Reseller credit allowances for service
interruptions in accordance with P.U.C.O. No. 20, Part 2, Section 2.
8.0 BILLING
8.1. Ameritech shall provide Reseller a specific Daily Usage File ("DUF")
for Service provided hereunder. The DUF shall include specific daily
usage for each individual Service and shall include sufficient
detail to enable Reseller to bill its Customers. No other detailed
billing shall be provided by Ameritech to Reseller.
8.2. Interexchange call detail forwarded to Ameritech for billing, which
would otherwise be processed by Ameritech, shall be passed through
and separately identified on a per resold line basis. Ameritech
shall not bill Reseller's Customers for pass-through billing.
Billing for 900 and 976 calls or other pay-per-call services will
also be passed through. If Reseller does not wish to be responsible
for 900 and 976 calls, it must order blocking for resold lines.
8.3. Reseller shall be responsible for providing all billing information
to its Customers who purchase Service from Reseller.
8.4. The Parties may agree on other billing and collection services to be
provided by Ameritech to Reseller on a contract basis. The terms and
conditions under which these services are provided will be defined
in a separate billing and collection agreement.
8.5. Ameritech shall not charge Reseller the applicable rate for Service
Ameritech provided to Reseller in this Agreement, for which, and
only to the extent that:
(1) Ameritech did not provide Reseller billing information
required to bill its Customers as provided in this Section
8.0; and
(2) Such failure to provide billing information was not caused
in part or in whole, by actions of Reseller or any third
party; and
(3) Neither Reseller nor Ameritech can provide the billing
information within one year by another method that will
enable Reseller to bill its Customers.
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9.0 USE OF SERVICE
9.1. Service shall not be used for any purpose in violation of law.
Reseller, and not Ameritech, shall be responsible to ensure that its
and its Customers' use of the Service complies at all times with all
applicable laws. Ameritech may refuse to furnish Service to Reseller
or may disconnect the Service of Reseller or, as appropriate, the
Reseller's Customer, when:
(1) An order is issued by a court, the Commission or any other
duly authorized agency, finding that probable cause exists to
believe that the use made or to be made of the Service is
prohibited by law, or
(2) Ameritech is notified in writing by a law enforcement agency
acting within its jurisdiction that any facility furnished by
Ameritech is being used or will be used for the purpose of
transmitting or receiving gambling information in interstate
or foreign commerce in violation of law.
Termination of Service shall take place after reasonable notice is
provided to Reseller, or as ordered by a court.
If communications facilities have been physically disconnected by
law enforcement officials at the premises where located, and if
there is not presented to Ameritech the written finding of a judge,
then upon written request of Reseller, and agreement to pay restoral
of Service charges and other applicable charges, Ameritech shall
promptly restore such Service.
9.2. Service shall not be used for the purpose of solicitation by
recorded message when such solicitation occurs as a result of
unrequested calls initiated by the solicitor by means of automatic
dialing devices. Such devices, with storage capability of numbers to
be called or a random or sequential number generator that produces
numbers to be called and having the capability, working alone or in
conjunction with other equipment, or disseminating a prerecorded
message to the number called and which are calling party or called
party controlled, are expressly prohibited.
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9.3. Service shall not be used in any manner that interferes with other
persons in the use of their Service, prevents other persons from
using their Service, or otherwise impairs the quality of Service to
other carriers or Ameritech's Customers.
9.4. If Reseller's use of Service interferes unreasonably with the
Service of other carriers or their customers or of Reseller or
Ameritech's Customers, Reseller shall be required to take Service in
sufficient quantity or of a different class or grade.
9.5. The determination as to whether Service provided under this
Agreement should be classified as a Business Line or Residential
Line shall be based on the character of the use to be made of the
Service by Reseller's Customer.
10.0 PAYMENTS; TAXES AND AUDITS
10.1. Reseller shall pay Ameritech amounts due under this Agreement as set
forth in the applicable invoice and in the manner agreed upon by the
Parties in the Implementation Plan.
10.2. Reseller shall furnish Ameritech a proper resale tax exemption
certificate as authorized or required by statute or regulation by
the jurisdiction providing said resale exemption. Failure to timely
provide said resale certificate will result in no exemption being
available to Reseller in which case Reseller shall pay or otherwise
be responsible for all federal, state, or local sales, use, excise,
gross receipts, transaction or similar taxes, fees or surcharges
levied against or upon such Reseller for the provision of Service as
contemplated by this Agreement.
10.3. If any portion of an amount due to Ameritech under this Agreement is
subject to a bona fide dispute between the Parties, Reseller shall
within forty-five (45) days of its receipt of the invoice containing
such disputed amount give notice to Ameritech of the amounts it
disputes ("Disputed Amounts") and include in such notice the
specific details and reasons for disputing each item. Reseller shall
pay when due (i) all undisputed amounts to Ameritech and (ii) all
Disputed Amounts into an interest bearing escrow account with a
third party escrow agent mutually agreed upon by the Parties. If the
Parties are unable to resolve issues related to the Disputed Amounts
within thirty (30) days after Ameritech's receipt of notice of the
Disputed Amounts, then either Party may file a compliant with the
Commission to resolve
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such issues. The Commission may direct release of any or all funds
(including any accrued interest) in the escrow account, plus
applicable late fees, to be paid to either Party.
10.4. Any undisputed amounts not paid when due shall accrue interest from
the date such amounts were due at the lesser of (i) one and one-half
percent (1-1/2%) per month or (ii) the highest rate of interest that
may be charged under applicable law.
10.5. If Reseller fails to pay any undisputed amounts within five (5) days
of receiving demand from Ameritech for payment of undisputed amounts
which are due, Reseller shall, at its sole expense, within five (5)
business days after such demand notify its Customers that their
Service may be disconnected for Reseller's failure to pay such
undisputed amounts, and that such Customers shall select a new
carrier to provide resale local exchange telecommunications
services. If Reseller fails to provide such notification or any of
Reseller's Customers fail to select a new carrier within the
applicable time period, Ameritech shall provide local
telecommunications exchange services to Reseller's Customers at then
current tariff rates except that otherwise applicable service
establishment charges will not apply to Reseller's Customer, but
instead will be assessed to and payable by Reseller. Ameritech may
discontinue Service to Reseller upon Reseller's failure to pay
undisputed amounts as provided in this Section 10.5, and shall have
no liability to Reseller or Reseller's Customers in the event of
such disconnection.
10.6. Ameritech may perform no more than twice per calendar year an audit
of Reseller's Customer records or other records and documentation to
determine Reseller's proper classification of access lines as either
a Business Line or Residential Line. Subject to the penultimate
sentence of this Section 10.6, Ameritech shall bear the expense of
any audit it requests. Such audit may be conducted by the internal
auditing staff of Ameritech or by an independent auditor acceptable
to both Parties and shall be conducted on Reseller's premises during
normal business hours. If the audit confirms any instances of
misclassification of Service resulting in an undercharge of at least
$5,000 in the aggregate, then Reseller shall (i) immediately
compensate Ameritech at the proper rate for all such misclassified
Service, together with interest at the rate specified in Section
10.4 from the date of such misclassification and (ii) reimburse
Ameritech for the cost of the audit. Reseller shall maintain
Customer records relevant to the subject matter of this Agreement
for a period of not less than eighteen (18) months.
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10.0 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
EXCEPT AS EXPRESSLY PROVIDED HEREIN, NO PARTY MAKES OR RECEIVES ANY
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICE CONTEMPLATED BY
THIS AGREEMENT, AND THE PARTIES DISCLAIM THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.
12.0 INDEMNIFICATION
12.1. Each Party shall be responsible only for the services and facilities
(including Service provided by Reseller and other telecommunications
services provided by Ameritech) which are provided by that Party,
its authorized agents, subcontractors, or others retained by such
parties, and neither Party shall bear any responsibility of the
services and facilities provided by the other Party, its agents,
subcontractors, or others retained by such parties.
12.2. Except as otherwise provided in Sections 6.3, 12.3, 12.4 and 21.2,
and to the extent not prohibited by law and not otherwise controlled
by applicable tariff, each Party (the "Indemnifying Party") shall
defend and indemnify the other Party (the "Indemnified Party") and
hold such Indemnified Party harmless against any Loss to a third
party arising out of the negligence or willful misconduct by such
Indemnifying Party, its agents, its Customers, contractors, or
others retained by such parties, in connection with its provision of
Service under this Agreement.
12.3. In the case of any Loss alleged or made by a Customer of either
Party, the Party ("Indemnifying Party") whose Customer is the source
of such Loss shall defend and indemnify the other Party (the
"Indemnified Party") and hold such Indemnified Party harmless
against any or all of such Loss alleged by each and every Customer.
12.4. Reseller shall defend and indemnify Ameritech and hold Ameritech
harmless against any Loss which may arise from or in connection with
the Service offered under this Agreement, including, without
limitation:
(1) Claims for libel, slander, invasion of privacy, or infringement
of copyright arising from the Reseller's own communications or
the communications of Reseller's Customers;
(2) Claims for patent, trademark, copyright infringement or other
infringement of intellectual property rights, arising from
Reseller's combination or use of the Service;
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(3) Except for claims caused primarily by the negligence or wilfull
misconduct of Ameritech, claims for injuries to persons or from
property damage or any other damage in connection with the
Service or any other service provided by Ameritech,
(4) Except for claims caused primarily by the negligence or wilfull
misconduct of Ameritech, claims for interruption of or
deficiencies, failures or errors in the Service and any
consequences thereof and claims arising from mistakes in or
omissions of directory listings.
12.5. Ameritech shall not be responsible for the manner in which the use of
Service, or the associated charges are allocated to others by Reseller
in reselling the Service. All applicable rates and charges for the
Service shall be billed to and be the responsibility of Reseller.
12.6. The Indemnifying Party agrees to defend any suit brought against the
Indemnified Party for any Loss identified in this Section 12.0. The
Indemnified Party agrees to notify the Indemnifying Party promptly, in
writing, of any written claims, lawsuits, or demand for which such
Indemnifying Party is or may be responsible and of which the
Indemnified Party has knowledge and to cooperate in every reasonable
way to facilitate defense or settlement of claims. The Indemnifying
Party shall have the exclusive right to control and conduct the
defense and settlement of any such actions or claims subject to
consultation with the Indemnified Party. The Indemnifying Party shall
not be liable for any settlement by the Indemnified Party unless such
Indemnifying Party has approved such settlement in advance and agrees
to be bound by the agreement incorporating such settlement.
12.7. Without limiting the generality of the foregoing, to the extent that
any services are performed in the State of Ohio each party hereby
waives any immunity from its obligations to defend, indemnify and hold
harmless the other party, its corporate affiliates, their officers,
employees and agents against and from claims by employees of each
party, which immunity would otherwise arise by operation of Ohio
Revised Code (S)(S)4123.74 and 4123.41 and Section 35, Article II,
Ohio Constitution or any other statute or constitutional provision.
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13.0 LIMITATION OF LIABILITY
13.1. Except as otherwise provided in Section 12.0, no Party shall be
liable to the other Party for any Loss, defect or equipment failure
caused by the conduct of the other Party, the other Party's agents,
servants, contractors or others acting in aid or in concert with the
other Party.
13.2. Except for Losses alleged or made by a Customer of either Party, in
the case of any Loss arising from the negligence or willful
misconduct of both Parties, each Party shall bear, and its
obligations under this Section 13.0 shall be limited to, that
portion (as mutually agreed to by the Parties) of the resulting
expense caused by its (including that of its agents, servants,
contractors or others acting in aid or concert with it) negligence
or willful misconduct.
13.3. Except for indemnity obligations under Sections 12.2 and 12.4. each
Party's liability to the other for any Loss relating to or arising
out of any negligent act or omission in its performance of this
Agreement, whether in contract or in tort, shall be limited to the
total amount that is or would have been charged to the other Party
by such negligent or breaching Party for the service(s) or
function(s) not performed or improperly performed.
13.4. Ameritech shall be responsible for the Service or facilities that it
provides and shall not be responsible for Reseller's or Reseller's
Customer's integration of service components. Such liability shall
not exceed an amount equal to the proportionate charge for the
Service or facilities provided for the period during which the
Service was affected. No other liability whatsoever shall attach to
Ameritech.
13.5. Ameritech shall not be responsible for mistakes that appear in
Ameritech's listings, 911 and information databases, or for
incorrect referrals of Customers to Reseller for or any ongoing
Reseller Service, sales or repair inquiries.
13.6. IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY WHATSOEVER TO THE
OTHER PARTY FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR
PUNITIVE DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED
PROFITS OR REVENUE OR OTHER ECONOMIC LOSS IN CONNECTION WITH OR
ARISING FROM ANYTHING SAID, OMITTED OR DONE HEREUNDER.
(COLLECTIVELY, "CONSEQUENTIAL DAMAGES"), EVEN IF THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, THAT THE
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FOREGOING SHALL NOT LIMIT A PARTY'S OBLIGATION UNDER SECTION 12.0 TO
INDEMNIFY, DEFEND AND HOLD THE OTHER PARTY HARMLESS AGAINST ANY
AMOUNTS PAYABLE TO A THIRD PARTY, INCLUDING ANY LOSSES, COSTS,
FINES, PENALTIES, CRIMINAL OR CIVIL JUDGMENTS OF SETTLEMENTS,
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EXPENSES (INCLUDING ATTORNEYS' FEES) AND CONSEQUENTIAL DAMAGES OF
SUCH THIRD PARTY.
14.0 TERMINATION
14.1 Ameritech shall have the right to terminate this Agreement prior
to the Service Start Date if Reseller has not obtained within
ninety (90) days after execution of this Agreement certification
from the Commission as a reseller or local exchange carrier within
the Territory. Termination shall be effective upon Reseller's
receipt of written notice thereof.
14.2. If Reseller terminates this Agreement prior to the Service Start
Date, or if Ameritech terminates this Agreement pursuant to
Section 14.1, Reseller shall reimburse Ameritech for direct, out-
of-pocket costs incurred by Ameritech on behalf of Reseller until
the date of cancellation.
14.3. If reseller terminates this Agreement prior to the end of the
Service Term, for any reason other than for cause, Reseller shall
pay Ameritech an amount equal to
14.4. Either Party may terminate this Agreement in the event that the
other Party (i) fails to pay any amount when due hereunder
(excluding Disputed Amounts pursuant to Section 10.4) and fails to
cure such nonpayment within thirty (30) days after receipt of
written notice thereof; or (ii) fails to perform any other
material obligation required
18
CONFIDENTIAL
<PAGE>
to be performed by it pursuant to this Agreement and fails to cure
such material nonperformance within fifteen (15) days after written
notice thereof.
14.5. Upon termination of expiration of this Agreement in accordance with
this Section 14.4:
a) each Party shall comply immediately with its obligations set
forth in Section 21.5.3; and
b) each Party shall promptly pay all amounts (including any late
payment charges) owed under this Agreement.
14.6. No remedy set forth in this Agreement is intended to be exclusive
and each and every remedy shall be cumulative and in addition to any
other rights or remedies now or hereafter existing under applicable
law or otherwise.
15.0 REGULATORY APPROVAL
The Parties understand and agree that this Agreement will be filed with
the Commission and may thereafter be filed with the FCC. The Parties
covenant and agree that the Agreement is satisfactory to them as an
agreement under Section 251 of the Telecommunications Act. Each Party
covenants and agrees to fully support approval of this Agreement by the
Commission or the FCC under Section 252 of the Telecommunications Act
without modification. In the event the Commission rejects any portion of
this Agreement, the Parties agree to meet and negotiate in good faith to
arrive at mutually acceptable modification of the rejected Agreement.
16.0 BRANDING
16.1. Reseller shall not, without Ameritech's written authorization,
offer Service under any of the brand names of Ameritech or any of
its affiliates, nor may Reseller state or imply that there is any
joint business association or an similar arrangement with Ameritech
in the provision of Service to Reseller's Customers. Ameritech may
brand local exchange telecommunications services with its own brand
name but will not provide for Reseller branding of the Service.
16.2. Reseller may brand the Service with its own brand name. Branding
for Directory Assistance (555-XXXX) is provided at rates and on
terms contained in separate contracts between Ameritech and
Reseller.
17.0 RATE CHANGES
19
<PAGE>
17.1 In consideration of Reseller agreeing to the maximum Volume
Commitment and Service Term commitment currently available, if
Ameritech sells the same service at a lower rate to a similarly
situated customer (i.e., a Reseller making a term and/or volume
commitment), then Ameritech shall make such lower rate available to
Reseller. Ameritech shall notify Reseller within forty-five (45)
days of such lower rates becoming available. This provison shall
apply regardless of whether the Service is offered under tariff or
contract.
17.1. Upon reasonable notice provided by either party, and in
consideration of Reseller agreeing to the maximum Service Term and
Volume Commitment currently available, Ameritech and Reseller shall
meet to review any unforseen material changes in the competitive
circumstances in the industry, including the competitiveness of the
rates herein, and shall negotiate concerning any changes that may
be necessary to the rates for any services in this Agreement. In
the event that any component of Ameritech's averaged discounted
retail rates for the services contained in this Agreement as
computed in Schedule 2.1(a), are reduced below the rates in
Ameritech's Resale Local Exchange Service Tariff during the term of
this Agreement, then Ameritech and Reseller shall re-evaluate and
revise the rates as applicable for services in this Agreement. Any
changes agreed upon shall not become effective until any applicable
regulatory filing requirements are met.
17.3 In the event Reseller converts to a new Ameritech service that
utilizes a change in technology to provide the same service to
Reseller with fewer business access lines, and as a result of this
conversion Reseller fails to achieve the Volume Commitment for that
twelve (12) month period, Reseller's Volume Commitment for that
twelve (12) month period and for each twelve (12) month period
remaining in the Service Term shall be reduced by an amount equal
to the estimated amount of reduced access lines associated with the
service conversion each year.
18.0 NEW SERVICES
If Ameritech adds any additional services to its resale local exchange
telecommunications services offering during the Service Term, and if those
services have a volume or term discount, those services shall be made
available to Reseller at the rate which corresponds to Reseller's Service
Term and Volume Commitment.
20
CONFIDENTIAL
<PAGE>
19.0. PUBLICITY
Except as otherwise provided in this Agreement, Reseller shall not use
any of the trademarks, trade names, service marks or other proprietary
marks of Ameritech or its affiliates in any advertising, press releases,
publicity matters or other promotional materials without Ameritech's
prior written consent. Ameritech and Reseller shall jointly develop a
press release publicizing their relationship under this Agreement,
subject to both (1) the existing terms of the Nondisclosure Agreement and
(2) mutually agreed upon language and media.
20.0 NON-SEVERABILITY
20.1. The terms and conditions of this Agreement were mutually
negotiated by the Parties as a total arrangement and are intended
to be non-severable. Neither Party may elect to take any portion
of this Agreement, or any associated Service, function or
information, free of the balance of the terms of this Agreement.
20.2. Nothing in this Agreement shall be construed as requiring or
permitting either Party to contravene any mandatory requirement of
federal or state law, or any regulations or orders adopted
pursuant to such law.
21.0 MISCELLANEOUS
21.1 Compliance. Each Party shall comply with all applicable federal,
----------
state, and local laws, rules, and regulations applicable to its
performance under this Agreement.
21.2. Compliance with the Communications Law Enforcement Act of 1994
--------------------------------------------------------------
("CALEA"). Each Party represents and warrants that any equipment,
---------
facilities or Service provided to the other Party under this
Agreement comply with CALEA. Each Party shall indemnify and hold
the other Party harmless from any and all penalties imposed upon
the other Party for such non-compliance and shall at the non-
complaint Party's sole cost and expense, modify or replace any
equipment, facilities or Service provided to the other Party under
this Agreement to ensure that such equipment, facilities and
Service fully comply with CALEA.
21.3. Independent Contractor. Ameritech shall provide the Service
----------------------
hereunder as an independent contractor and nothing herein shall be
construed as creating any other relationship between the Parties.
Each Party and each Party's contractor shall be solely responsible
for the withholding or payment of all applicable federal, state
and local income taxes, social security taxes and other payroll
taxes with respect to their employees, as well as any taxes,
contributions or other obligations imposed by applicable state
unemployment or
21
<PAGE>
workers' compensation acts. Each Party has sole authority and
responsibility to hire, fire and otherwise control its employees.
21.4. Force Majeure. Neither Party shall be liable for any delay or
-------------
failure in performance of any part of this Agreement from any cause
beyond its control and without its fault or negligence including,
without limitation, acts of nature, acts of civil or military
authority, government regulations, embargoes, epidemics, or
terrorist acts, riots, insurrections, fires, explosions,
earthquakes, nuclear accidents, floods, work stoppages, equipment
failure, power blackouts, volcanic action, other major environmental
disturbances, unusually severe weather conditions, inability to
secure products or services of other persons or transportation
facilities or acts or omissions of transportation carriers.
21.5. Confidentiality.
---------------
21.5.1. Any information such as specifications, drawings,
sketches, interface specifications, business
information, forecasts, models, samples, data, computer
programs and other software and documentation of one
Party (a "Disclosing Party") that is furnished or made
available or otherwise disclosed to the other Party or
any of its employees, contractors, agents or affiliates
(its "Representatives" and with a Party, a "Receiving
Party") pursuant to this Agreement ("Proprietary
Information") shall be deemed the property of the
Disclosing Party. Proprietary Information, if written,
shall be marked "Confidential" or "Proprietary" or by
other similar notice, and, if oral or visual, shall be
confirmed in writing as confidential by the Disclosing
Party to the Receiving Party within ten (10) days after
disclosure. Unless Proprietary Information was
previously known by the Receiving Party free of any
obligation to keep it confidential, or has been or is
subsequently made public by an act not attributable to
the Receiving Party, or is explicitly agreed in writing
not to be regarded as confidential, it (a) shall be
held in confidence by each Receiving Party; (b) shall
be disclosed to only those Representatives who have a
need for it in connection with this Agreement and shall
be used only for such purposes; and (c) may be used for
other purposes only upon such terms and conditions as
may be mutually agreed to in advance of use in writing
by the Parties. Notwithstanding the foregoing sentence,
a Receiving Party shall be entitled to disclose or
provide Proprietary Information as
22
CONFIDENTIAL
<PAGE>
required by any governmental authority or applicable
law only in accordance with Section 21.5.2.
21.5.2. If any Receiving Party is required by any governmental
authority or required by applicable law to disclose any
Proprietary Information, then such Receiving Party
shall provide the Disclosing Party with written notice
of such request or requirement as soon as possible and
prior to such disclosure. The Disclosing Party may then
either seek appropriate protective relief from all or
part of such request or requirement or, if it fails to
successfully do so, it shall be deemed to have waived
the Receiving Party's compliance with Section 21.5 with
respect to all or part of such request or requirement.
The Receiving Party shall use all commercially
reasonable efforts to cooperate with the Disclosing
Party in attempting to obtain any protective relief
which such Disclosing Party chooses to obtain.
21.5.3. In the event of the termination of this Agreement for
any reason whatsoever, each Party shall return to the
other Party or destroy all Proprietary Information and
other documents, work papers and other material
(including all copies thereof) obtained from the other
Party in connection with this Agreement and shall use
all reasonable efforts, including instructing its
employees and others who have had access to such
information, to keep confidential and not to use any
such information, unless such information is now, or is
hereafter disclosed, through no act, omission or fault
of such Party, in any manner making it available to the
general public.
21.6. Governing Law. For all claims under this Agreement that are based
-------------
upon issues within the jurisdiction (primary or otherwise) of the
FCC, the exclusive jurisdiction for all such claims shall be with
the FCC, and the exclusive remedy for such claims shall be as
provided for by the FCC. For all claims under this Agreement that
are based upon issues within the jurisdiction (primary or otherwise)
of the Commission, the exclusive jurisdiction for all such claims
shall be with such Commission, and the exclusive remedy for such
claims
23
<PAGE>
shall be as provided for by such Commission. In all other respects,
this Agreement shall be governed by the domestic laws of the state
of Illinois without reference to conflict of law provisions.
21.7. Non-Assignment. Neither Party may assign (whether by operation of
--------------
law or otherwise) this Agreement (or any rights or obligations
hereunder) to a third party without the prior written consent of the
other; provided that each Party may assign this Agreement to a
corporate affiliate or an entity under its common control or an
entity acquiring all or substantially all of its assets upon written
notice. Any attempted assignment that is not permitted is void ab
--
initio. Without limiting the generality of the foregoing, this
------
Agreement shall be binding upon and shall inure to the benefit of
the Parties' respective successors and assigns. In the event that
Reseller acquires an interest of more than 50% in an entity that is
a party to a similar resale agreement with Ameritech ("Acquisition
Entity"), then upon the request of Reseller and the Acquisition
Entity, Ameritech agrees to terminate without liability the resale
agreement with the Acquisition Entity in order for the Acquisition
Entity and its Customers to take service under this Agreement.
21.8. Non-Waiver. Failure of either Party to insist on performance of any
----------
term or condition of this Agreement or to exercise any right or
privilege hereunder shall not be construed as a continuing or future
waiver of such term, condition, right or privilege.
21.9. Notices. Notices given by one Party to the other Party under this
-------
Agreement shall be in writing and shall be (a) delivered personally,
(b) delivered by express delivery service, (c) mailed, certified
mail or first class U.S. mail postage prepaid, return receipt
requested or (d) delivered by telecopy to the following addresses of
the Parties:
To Reseller:
USN Communications, Inc.
10 South Riverside Plaza; Suite 401
Chicago, Illinois 60606
Attn: President
Facsimile: 312-906-3636
With a copy to:
USN Communications, Inc.
10 South Riverside Plaza; Suite 401
Chicago, Illinois 60606
Attn: General Counsel
24
CONFIDENTIAL
<PAGE>
To Ameritech:
Ameritech Information Industry Services
350 North Orleans, Floor 3
Chicago, IL 60654
Attn.: Vice President - Network Providers
Facsimile:
with a copy to:
Ameritech Information Industry Services
350 North Orleans, Floor 3
Chicago, IL 60654
Attn.: Vice President and General Counsel
Facsimile: (312) 595-1504
or to such other address as either Party shall designate by proper
notice. Notices will be deemed given as of the earlier of (i) the
date of actual receipt, (ii) the next business day when notice is
sent via express mail or personal delivery, (iii) three (3) days
after mailing in the case of first class or certified U.S. mail or
(iv) on the date set forth on the confirmation in the case of
telecopy.
21.10. Survival. The Parties' obligations under this Agreement which by
--------
their nature are intended to continue beyond the termination or
expiration of this Agreement shall survive the termination or
expiration of this Agreement, including without limitation,
Sections 4.0, 5.0, 6.10, 10.1, 10.3, 10.4, 10.5, 12.0, 13.0, 14.0,
21.5 and 21.13.
21.11. Joint Work Product. This Agreement is the joint work product of the
------------------
Parties and has been negotiated by the Parties and their respective
counsel and shall be fairly interpreted in accordance with its
terms and, in the event of any ambiguities, no inferences shall be
drawn against either Party.
21.12. No Third Party Beneficiaries: Disclaimer of Agency. This Agreement
--------------------------------------------------
is for the sole benefit of the Parties and their permitted
assigns, and nothing herein express or implied shall create or be
construed to create any third-party beneficiary rights hereunder.
Except for provisions herein expressly authorizing a Party to act
for another, nothing in this Agreement shall constitute a Party as
a legal representative or agent of the other Party, nor shall a
Party have the right or authority to assume, create or incur any
liability or any obligation of any kind, express or implied,
against or in the name or on behalf of the other Party unless
otherwise expressly permitted by such other Party. Except as
otherwise expressly provided in this
25
<PAGE>
Agreement, no Party undertakes to perform any obligation of the
other Party, whether regulatory or contractual, or to assume any
responsibility for the management of the other Party's business.
21.13. No License; Affirmation of Proprietary Rights. No license under
---------------------------------------------
patents, copyrights or any other intellectual property right
(other than the limited license to use consistent with the terms,
conditions and restrictions of this Agreement) is granted by
either Party or shall be implied or arise by estoppel with respect
to any transactions contemplated under this Agreement. Ameritech
owns all right, title and interest in and to all Proprietary
Information disclosed, furnished or made available to Reseller by
Ameritech hereunder as well as all patents, copyrights, trade
secrets, proprietary rights and the applications therefor and
registrations thereof. Reseller acknowledges that it shall not
acquire, and agrees not to assert, any proprietary or intellectual
property rights in any Proprietary Information disclosed,
furnished or made available to Reseller by Ameritech hereunder or
any enhancement, improvement, revision, derivative work,
extension, update or modification to any such Proprietary
Information or any aspect thereof, whether undertaken by Reseller
individually or jointly with Ameritech.
21.14. Technology Upgrades. Nothing in this Agreement shall limit
-------------------
Ameritech's ability to upgrade its network through the
incorporation of new equipment, new software or otherwise.
Ameritech shall provide Reseller written notice and all necessary
interface specifications at least ninety (90) days prior to the
incorporation of any such upgrades in Ameritech's network which
will materially impact Reseller's provision of Service. Reseller
shall be solely responsible for the cost and effort of
accommodating such changes in its own network.
21.15. Entire Agreement. The terms contained in this Agreement and any
----------------
Schedules, Exhibits, tariffs and other documents or instruments
referred to herein, which are incorporated into this Agreement by
this reference, constitute the entire agreement between the
Parties with respect to the subject matter hereof, superseding all
prior understandings, proposals and other communications, oral or
written, other than the Nondisclosure Agreement. Notwithstanding
the Nondisclosure Agreement and except as otherwise provided
herein, the provisions of this Agreement (and not the
Nondisclosure Agreement) shall apply to the treatment, disclosure
and use following the date of this Agreement of all Proprietary
Information which is communicated to a Receiving Party on or after
the date of this Agreement. Neither Party shall be bound by any
pre-printed terms additional to or different from those in this
Agreement that may appear subsequently in the other Party's form
documents, purchase orders, quotations, acknowledgements, invoices
or other
26
CONFIDENTIAL
<PAGE>
communications. This Agreement may only be modified by a writing
signed by an officer of each Party.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties set
forth below.
U.S. Network Corporation Ameritech Information Industry Services,
a division of Ameritech Services, Inc., on
behalf of Ameritech Ohio
By: /s/ J. Thomas Elliot By: /s/ Gregory J. Dunny
---------------------------- ----------------------------
Name: J. THOMAS ELLIOT Name: GREGORY J. DUNNY
-------------------------- --------------------------
Title: PRESIDENT Title: V.P. Marketing/Sales
------------------------- -------------------------
Date: May 21, 1996 Date: May 21, 1996
-------------------------- --------------------------
27
<PAGE>
SCHEDULE 2.1(A)
Service and Rates
-----------------
28
CONFIDENTIAL
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Product USOCs Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCESS BUCKET
- --------------------------------------------------------------------------------
1.1
- --------------------------------------------------------------------------------
Individual
- --------------------------------------------------------------------------------
Network Access Lines - Area B (NAL) NALDB $ 4.220
- --------------------------------------------------------------------------------
Network Access Lines - Area B (COT) NALDB $ 2.590
- --------------------------------------------------------------------------------
Network Access Lines - Area B (EUCL) NALDB $ 3.500
- --------------------------------------------------------------------------------
Sub-Total $10.310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Network Access Lines - Area C (NAL) NALDC $ 4.220
- --------------------------------------------------------------------------------
Network Access Lines - Area C (COT) NALDC $ 2.590
- --------------------------------------------------------------------------------
Network Access Lines - Area C (EUCL) NALDC $ 3.500
- --------------------------------------------------------------------------------
Sub-Total $10.310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Network Access Lines - Area D (NAL) NALDD $ 4.220
- --------------------------------------------------------------------------------
Network Access Lines - Area D (COT) NALDD $ 2.590
- --------------------------------------------------------------------------------
Network Access Lines - Area D (EUCL) NALDD $ 3.500
- --------------------------------------------------------------------------------
Sub-Total $10.310
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PBX
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area B (NAL) ALPB $17.950
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area B (COT) ALPB $ 5.760
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area B (EUCL) ALPB $ 3.500
- --------------------------------------------------------------------------------
Sub-Total $27.210
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area C (NAL) ALPC $19.870
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area C (COT) ALPC $ 5.760
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area C (EUCL) ALPC $ 3.500
- --------------------------------------------------------------------------------
Sub-Total $29.130
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area D (NAL) ALPD $19.870
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area D (COT) ALPD $ 5.760
- --------------------------------------------------------------------------------
Network Access PBX Lines - Area D (EUCL) ALPD $ 3.500
- --------------------------------------------------------------------------------
Sub-Total $29.130
- --------------------------------------------------------------------------------
2.1.A.1
- --------------------------------------------------------------------------------
NON-RECURRING CHARGES FOR:
- --------------------------------------------------------------------------------
LOCAL EXCHANGE SERVICES -ESTBL
- --------------------------------------------------------------------------------
Service Order Charge/loc/occ - complex NSN $13.570
- --------------------------------------------------------------------------------
CO Conn Charge - complex $ 6.340
- --------------------------------------------------------------------------------
Line conn Charge/term - complex $ 8.150
- --------------------------------------------------------------------------------
Service Order Charge/loc/occ - simple ALR $13.570
- --------------------------------------------------------------------------------
CO Conn Charge - simple ALR $ 6,340
- --------------------------------------------------------------------------------
Line conn Charge/term - simple ALR $ 8,150
- --------------------------------------------------------------------------------
PBX TRUNKS
- --------------------------------------------------------------------------------
Service Order Charge/loc/occ - complex ALP $18.840
- --------------------------------------------------------------------------------
CO Conn Charge - complex ALP $11.150
- --------------------------------------------------------------------------------
Line conn Charge/term - complex ALP $ 7.950
- --------------------------------------------------------------------------------
FCO SERVICE FCO $353.530
- --------------------------------------------------------------------------------
FX SERVICE FXE $427.850
- --------------------------------------------------------------------------------
Misc. Service or feature/line - simple insti $ 8,140
- --------------------------------------------------------------------------------
</TABLE>
1
Confidential
<PAGE>
PRIVILEGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Product USOCs Resale Price
- ---------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
Misc. Service or feature/line - complex instl $6.990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCAL USAGE BUCKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RES MEASURED RATE LOCAL USAGE
- --------------------------------------------------------------------------------
0-10 Mi Initial IMR-0 $0.0286
- --------------------------------------------------------------------------------
0-10 Mi Additional IMR-0 $0.0069
- --------------------------------------------------------------------------------
11-22 Mi Initial IMR-0 $0.0330
- --------------------------------------------------------------------------------
11-22 Mi Additional IMR-0 $0.0107
- --------------------------------------------------------------------------------
23+ Mi Initial IMR-0 $0.0368
- --------------------------------------------------------------------------------
23+ Mi Additional IMR-0 $0.0135
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCAL CALLING PLUS
- --------------------------------------------------------------------------------
LCP 0-10 MILES INITIAL LCPRS $0.0282
- --------------------------------------------------------------------------------
LCP 0-10 MILES ADDITIONAL LCPRS $0.0066
- --------------------------------------------------------------------------------
LCP 11-22 MILES INITIAL LCPRS $0.0320
- --------------------------------------------------------------------------------
LCP 11-22 MILES ADDITIONAL LCPRS $0.0100
- --------------------------------------------------------------------------------
LCP 23+ MILES INITIAL LCPRS $0.0359
- --------------------------------------------------------------------------------
LCP 23+ MILES ADDITIONAL LCPRS $0.0134
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MINUTE LINE SERVICE
- --------------------------------------------------------------------------------
Minute Line (Blended) MINLN $0.0096
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MESSAGE RATE
- --------------------------------------------------------------------------------
Message per message AMURS $0.0660
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Econo-calling Svc (plus NAL, COT, usage)
- --------------------------------------------------------------------------------
Per message rate 1ECRES $0.2070
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operator Surcharges - Local
- --------------------------------------------------------------------------------
DIRECTORY ASSISTANCE - LOCAL DALOC $0.2400
- --------------------------------------------------------------------------------
DIRECTORY ASSIST-OPER ASSIST LCL DAOPL $0.3700
- --------------------------------------------------------------------------------
Information Call Completion DAICC $0.2400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operator Surcharges - Toll
- --------------------------------------------------------------------------------
DIRECTORY ASSIST-OPER ASSIST TOL DAOPT $0.3700
- --------------------------------------------------------------------------------
DIRECTORY ASSISTANCE - TOLL DATOL $0.2400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL LOCAL USAGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCAL RECURRING BUCKET
- --------------------------------------------------------------------------------
2.4.A.1
- --------------------------------------------------------------------------------
COMMUNITY CALLING SVC
- --------------------------------------------------------------------------------
Message rate _ Indv $12.720
- --------------------------------------------------------------------------------
Flat Rate - Indv $12.720
- --------------------------------------------------------------------------------
Flat Rate - PBX Trunk $12.720
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Confidential 2
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Product USOCs Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SEGMENT
- --------------------------------------------------------------------------------
Ohio Model - BAU
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MESSAGE RATE
- --------------------------------------------------------------------------------
Message Fixed Rate 1MR $ 2.220
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Message Rate - Mo (Akron, Dayton) TDXO1 $ 5.580
- --------------------------------------------------------------------------------
Message Rate - Mo (Kirkland, Mentor) TDXO4 $ 9.700
- --------------------------------------------------------------------------------
Message Rate - Mo (Painesville) TDXO7 $12.470
- --------------------------------------------------------------------------------
Message Rate - Mo (Xenia, Yellow Springs) TDXO8 $ 8.190
- --------------------------------------------------------------------------------
FLAT RATE
- --------------------------------------------------------------------------------
Flat Residence Individual 1FR $ 6.840
- --------------------------------------------------------------------------------
Flat Residence PBX Trunk TFK, TFR, TFT $ 7.510
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Optional Local Area Service
- --------------------------------------------------------------------------------
UPPO4
- --------------------------------------------------------------------------------
Flat Rate - Mo (Akron, Dayton) TDXO1 $ 7.720
- --------------------------------------------------------------------------------
Flat Rate - Mo (Kirkland, Mentor) TDXO4 $13.480
- --------------------------------------------------------------------------------
Flat Rate - Mo (Painesville) TDXO7 $18.270
- --------------------------------------------------------------------------------
Flat Rate - Mo (Xenia, Yellow Springs) TDXO8 $12.010
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PBX TRUNKS MO FLAT RATE
- --------------------------------------------------------------------------------
Akron $ 8.100
- --------------------------------------------------------------------------------
Dayton/Met $ 8.100
- --------------------------------------------------------------------------------
Kirkland/Mentor $14.530
- --------------------------------------------------------------------------------
Painesville $19.780
- --------------------------------------------------------------------------------
Xenia $13.020
- --------------------------------------------------------------------------------
Yellow Springs/Clifton $13.020
- --------------------------------------------------------------------------------
2.4.C.1
- --------------------------------------------------------------------------------
Econo-calling Svc (plus NAL, COT, usage)
- --------------------------------------------------------------------------------
Residence - incremental rates TBXCL $ 2.430
- --------------------------------------------------------------------------------
Per local msg (Message or Flat) ECRES $ 0.210
- --------------------------------------------------------------------------------
2.3
- --------------------------------------------------------------------------------
FCO Svc OPJXY $12.550
- --------------------------------------------------------------------------------
FCO Interoffice $ 6.880
- --------------------------------------------------------------------------------
FX Interexch Mileage (each mile or fract) 1LHB4 $ 3.480
- --------------------------------------------------------------------------------
IXC Svc Terminal P3N $35.110
- --------------------------------------------------------------------------------
Svc Area Func for Exch Lines OPKFX $12.550
- --------------------------------------------------------------------------------
Community Calling/15 min RSMIN $ 1.512
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCAL USAGE TOTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOLL USAGE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operator Surcharges, Local
- --------------------------------------------------------------------------------
AUTOMATED CALLING CARD - LOCAL ACCL $ 0.370
- --------------------------------------------------------------------------------
AUTOMATED CALL CRD OP ASST - LCL CLGCL $ 0.910
- --------------------------------------------------------------------------------
OPERATOR HANDLED LOCAL OPSTL $ 0.910
- --------------------------------------------------------------------------------
OPERATOR HANDLED PERS/PERS LOCAL PERSL $ 2.490
- --------------------------------------------------------------------------------
</TABLE>
Confidential 3
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Product USOCs Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
OPERATOR HANDLED 3RD NO BILLED LCL OP3L $1.240
- --------------------------------------------------------------------------------
Temporary Intercept TYS $7.840
- --------------------------------------------------------------------------------
Busy Line Verification VERIF $0.990
- --------------------------------------------------------------------------------
Busy Line Interrupt INTER $1.320
- --------------------------------------------------------------------------------
OP-Local Total
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operator Surcharges - Toll
- --------------------------------------------------------------------------------
AUTOMATED CALLING CARD - TOLL ACCT $0.370
- --------------------------------------------------------------------------------
AUTOMATED CALL CRD OP ASST - TOLL CLGCT $0.910
- --------------------------------------------------------------------------------
OPERATOR HANDLED TOLL OPSTA $0.910
- --------------------------------------------------------------------------------
OPERATOR HANDLED PERS/PERS TOLL PERST $2.490
- --------------------------------------------------------------------------------
OPERATOR HANDLED 3RD NO BILLED TOLL OP3T $1.240
- --------------------------------------------------------------------------------
OP-Toll Total
- --------------------------------------------------------------------------------
IntraLATA Toll (Schedule A w/in OBT terr)
- --------------------------------------------------------------------------------
1-10 Miles - Initial minute SCHA $0.1572
- --------------------------------------------------------------------------------
1-10 Miles - Additional minute SCHA $0.0767
- --------------------------------------------------------------------------------
11-22 Miles - Initial min SCHA $0.1842
- --------------------------------------------------------------------------------
11-22 Miles - Additional min SCHA $0.1034
- --------------------------------------------------------------------------------
23-55 Miles - Initial min SCHA $0.1832
- --------------------------------------------------------------------------------
23-55 Miles - Additional min SCHA $0.1005
- --------------------------------------------------------------------------------
56-124 Miles - Initial min SCHA $0.1771
- --------------------------------------------------------------------------------
56-124 Miles - Additional min SCHA $0.0951
- --------------------------------------------------------------------------------
125-End - Initial min SCHA $0.1707
- --------------------------------------------------------------------------------
125-End - Additional min SCHA $0.0921
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IntraLATA Toll (Schedule B w/in OBT terr)
- --------------------------------------------------------------------------------
1-10 Miles - Initial minute SCHB $0.1205
- --------------------------------------------------------------------------------
1-10 Miles - Additional minute SCHB $0.0744
- --------------------------------------------------------------------------------
11-22 Miles - Initial min SCHB $0.1340
- --------------------------------------------------------------------------------
11-22 Miles - Additional min SCHB $0.0987
- --------------------------------------------------------------------------------
23-55 Miles - Initial min SCHB $0.1340
- --------------------------------------------------------------------------------
23-55 Miles - Additional min SCHB $0.0961
- --------------------------------------------------------------------------------
56-124 Miles - Initial min SCHB $0.1307
- --------------------------------------------------------------------------------
56-124 Miles - Additional min SCHB $0.0894
- --------------------------------------------------------------------------------
125-End - Initial min SCHB $0.1293
- --------------------------------------------------------------------------------
125-End - Additional min SCHB $0.0886
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IntraLATA Toll (Schedule C w/in OBT terr)
- --------------------------------------------------------------------------------
1-10 Miles - Initial minute SCHC $0.0936
- --------------------------------------------------------------------------------
1-10 Miles - Additional minute SCHC $0.0916
- --------------------------------------------------------------------------------
11-22 Miles - Initial min SCHC $0.0942
- --------------------------------------------------------------------------------
11-22 Miles - Additional min SCHC $0.0939
- --------------------------------------------------------------------------------
23-55 Miles - Initial min SCHC $0.0939
- --------------------------------------------------------------------------------
23-55 Miles - Additional min SCHC $0.0889
- --------------------------------------------------------------------------------
56-124 Miles - Initial min SCHC $0.0920
- --------------------------------------------------------------------------------
56-124 Miles - Additional min SCHC $0.0863
- --------------------------------------------------------------------------------
125-End - Initial min SCHC $0.0872
- --------------------------------------------------------------------------------
125-End - Additional min SCHC $0.0812
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOLL (SCHEDULE A/OP ASSISTED - BLENDED)
- --------------------------------------------------------------------------------
</TABLE>
Confidential 4
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Product USOCs Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- -------------------------------------------------------------------------------
1-10 Miles - Initial minute $0.1643
- -------------------------------------------------------------------------------
1-10 Miles - Additional minute $0.0828
- -------------------------------------------------------------------------------
11-22 Miles - Initial min $0.1970
- -------------------------------------------------------------------------------
11-22 Miles - Additional min $0.1132
- -------------------------------------------------------------------------------
23-55 Miles - Initial min $0.1981
- -------------------------------------------------------------------------------
23-55 Miles - Additional min $0.1122
- -------------------------------------------------------------------------------
56-124 Miles - Initial min $0.1910
- -------------------------------------------------------------------------------
56-124 Miles - Additional min $0.1062
- -------------------------------------------------------------------------------
125-End - Initial min $0.1907
- --------------------------------------------------------------------------------
125-End - Additional min $0.1050
- -------------------------------------------------------------------------------
Total Blend $0.1402
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Usage Total
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FEATURES BUCKET
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Call Waiting ESX $ 3.290
- -------------------------------------------------------------------------------
Call Forwarding ESM $ 1.720
- -------------------------------------------------------------------------------
3 Way Calling ESC $ 1.420
- -------------------------------------------------------------------------------
Distinctive Ringing NSK $ 1.470
- -------------------------------------------------------------------------------
billed number Call Screening NSY $ 1.470
- -------------------------------------------------------------------------------
selective call screening SRG $ 3.640
- -------------------------------------------------------------------------------
MRS # 1 DRS1X $ 1.650
- -------------------------------------------------------------------------------
MRS #2 DRS2X $ 1.400
- -------------------------------------------------------------------------------
Caller ID NSD $ 4.240
- -------------------------------------------------------------------------------
Caller ID with Name NMP $ 1.750
- -------------------------------------------------------------------------------
Caller ID Blocking, per line NBA $ 0.700
- -------------------------------------------------------------------------------
Speed Call 8 ESL $ 1.550
- -------------------------------------------------------------------------------
Speed Call 30 ESF $ 1.550
- -------------------------------------------------------------------------------
Call Control OC4 $ 6.990
- -------------------------------------------------------------------------------
Call Trace (Pay per use) $ 3.080
- -------------------------------------------------------------------------------
Busy Line Transfer EVB $ 0.660
- --------------------------------------------------------------------------------
Busy Line Transfer - Control Option ERB $ 0.880
- -------------------------------------------------------------------------------
Alternate Answering EVD $ 0.660
- -------------------------------------------------------------------------------
Alternate Answering - Control Option ERD $ 0.880
- -------------------------------------------------------------------------------
Repeat dialing (Pay per use) Camps Billed $ 0.520
- -------------------------------------------------------------------------------
Auto Call Back (Pay per Use) Camps Billed $ 0.520
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Message Waiting Tone MWN $ 0.220
- -------------------------------------------------------------------------------
Easy Call WLS $ 1.050
- -------------------------------------------------------------------------------
Call Forward Temporary $ 0.630
- -------------------------------------------------------------------------------
Call Fwding per Activate, per line $33.250
- -------------------------------------------------------------------------------
Temporary Intercept TYS $ 6.610
- -------------------------------------------------------------------------------
Toll Restriction RTVX5 $ 4.160
- -------------------------------------------------------------------------------
International Call Blocking/line or trunk $ 2.450
- -------------------------------------------------------------------------------
Scan Alert SNK $ 8.750
- -------------------------------------------------------------------------------
5.2
- -------------------------------------------------------------------------------
Directory Svc - Non Pub NPU $ 0.770
- -------------------------------------------------------------------------------
Non-Listed Number NLT $ 0.770
- --------------------------------------------------------------------------------
</TABLE>
5
Confidential
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Product Product USOCs Resale Price
- ---------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SEGMENT
- ---------------------------------------------------------------------------------------
OHIO MODEL - BAU
- ---------------------------------------------------------------------------------------
Resisence Add'l listing RLT $0.630
- ---------------------------------------------------------------------------------------
Directory Svc - Extra Listing CLT $0.630
- ---------------------------------------------------------------------------------------
Emergency Referral Msg Svc NPER $1.260
- ---------------------------------------------------------------------------------------
Remote Call Forwarding RCFXX $12.910
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
TOTALS
- ---------------------------------------------------------------------------------------
2.2
- ---------------------------------------------------------------------------------------
NON-RECURRING CHARGES
- ---------------------------------------------------------------------------------------
NRC CO Features - simple CCS $8.140
- ---------------------------------------------------------------------------------------
Emergency Ref-prvt list svc - complex NPER $16.400
- ---------------------------------------------------------------------------------------
Emergency Ref-prvt list svc - simple $8.980
- ---------------------------------------------------------------------------------------
RCF -Complex RCF $55.270
- ---------------------------------------------------------------------------------------
Exch Svc Change - Complex NSN $22.180
- ---------------------------------------------------------------------------------------
Exch Svc Change - Simple NSN $7.150
- ---------------------------------------------------------------------------------------
Directory Svc - complex (list to prvt/semi) $16.400
- ---------------------------------------------------------------------------------------
Directory Svc - complex (disc. emer svc) $16.400
- ---------------------------------------------------------------------------------------
Directory Svc - complex (convert offprem ext loc) $16.400
- ---------------------------------------------------------------------------------------
Directory Svc - simple (list to prvt/semi) $8.980
- ---------------------------------------------------------------------------------------
Directory Svc - simple (disc.emer svc) $8.980
- ---------------------------------------------------------------------------------------
Directory Svc - simple (convert offprem ext loc) $8.980
- ---------------------------------------------------------------------------------------
Tel Number Changes - complex NCS $22.180
- ---------------------------------------------------------------------------------------
Tel Number Changes - simple NCS $23.950
- ---------------------------------------------------------------------------------------
Class of Svc change - complex $13.760
- ---------------------------------------------------------------------------------------
Class of Svc change - simple $23.950
- ---------------------------------------------------------------------------------------
Assignment of xfer of service - complex $13.760
- ---------------------------------------------------------------------------------------
Assignment of xfer of service - simple $7.530
- ---------------------------------------------------------------------------------------
Misc. Svc or feature changes - complex $5.560
- ---------------------------------------------------------------------------------------
Misc. Svc or feature changes - simple $6.470
- ---------------------------------------------------------------------------------------
Netwrk Wiring, 1st 15 min PWI $22.180
- ---------------------------------------------------------------------------------------
Netwrk Wiring, Addl 15 min PWA $8.870
- ---------------------------------------------------------------------------------------
Svc Restore - complex TD $20.410
- ---------------------------------------------------------------------------------------
Svc Restore - simple TD $24.830
- ---------------------------------------------------------------------------------------
Svc Restore after temp susp - complex NSI $47.900
- ---------------------------------------------------------------------------------------
Svc Restore after temp susp - simple NSI $25.790
- ---------------------------------------------------------------------------------------
Svc Restore after temp intercept - complex NTI $47.900
- ---------------------------------------------------------------------------------------
Svc Restore after temp intercept - simple NTI $25.790
- ---------------------------------------------------------------------------------------
Caller ID Blocker, per line, NRC NBA $8.180
- ---------------------------------------------------------------------------------------
Toll Restriction, NRC RTVX5 $9.960
- ---------------------------------------------------------------------------------------
900/976 Call Blocking- NRC $8.180
- ---------------------------------------------------------------------------------------
Custom Number Service $36.660
- ---------------------------------------------------------------------------------------
INDOOR JACKS
- ---------------------------------------------------------------------------------------
Mini Modular Jack RJ11C $4.210
- ---------------------------------------------------------------------------------------
Series Jack RJ3 $38.900
- ---------------------------------------------------------------------------------------
Mini Ribbon Connector RJ3 $38.900
- ---------------------------------------------------------------------------------------
Programmed Data RJ455 $30.690
- ---------------------------------------------------------------------------------------
Universal RJ415 $33.750
- ---------------------------------------------------------------------------------------
Multiple line common RJ26X $128.590
- ---------------------------------------------------------------------------------------
Line Circuit Card RJ265 $19.340
- ---------------------------------------------------------------------------------------
Wall Mounting w/cover RJM3X $31.400
- ---------------------------------------------------------------------------------------
Rack Mounting RJM4X $25.590
- ---------------------------------------------------------------------------------------
</TABLE>
6
CONFIDENTIAL
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1 (A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Product Product USOCs Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER SEGMENT
- -------------------------------------------------------------------------------
OHIO MODEL - BAU
- -------------------------------------------------------------------------------
OUTDOOR JACK
- -------------------------------------------------------------------------------
Outdoor Jack JKT $19.200
- -------------------------------------------------------------------------------
Movable Prem JKS $38.900
- -------------------------------------------------------------------------------
OTHER
- -------------------------------------------------------------------------------
E911 Svc Charge UXT $ 0.120
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5.3
- -------------------------------------------------------------------------------
ISDN BUCKET
- -------------------------------------------------------------------------------
National Direct CO Term PB2 $15.000
- -------------------------------------------------------------------------------
Direct Line P2L $ 6.430
- -------------------------------------------------------------------------------
ISDN Direct Line (Bus tariff) OBQD2 $11.520
- -------------------------------------------------------------------------------
Distance Extention XTN $24.960
- -------------------------------------------------------------------------------
Circuit Swtch Svc B Channel LTF1D $ 2.450
- -------------------------------------------------------------------------------
Additional call offering NCO $ 1.750
- -------------------------------------------------------------------------------
Additional Multiple Call appearance, each ACPSB $ 1.400
- -------------------------------------------------------------------------------
Intercom Calling NZV $ 1.750
- -------------------------------------------------------------------------------
Secondary TN, each DO6 $ 1.400
- -------------------------------------------------------------------------------
Station Controlled Conf - 6 port EQ6 $ 9.800
- -------------------------------------------------------------------------------
Message Waiting Ind, each MLN $ 1.750
- -------------------------------------------------------------------------------
On demand Switch data "B" LTH7X $14.000
- -------------------------------------------------------------------------------
Packet Swtch Data "B" Channel LTQ3X $59.500
- -------------------------------------------------------------------------------
Packet Swtch Data "D" Channel LTQ4X $ 2.800
- -------------------------------------------------------------------------------
NRC
- -------------------------------------------------------------------------------
National Direct CO Term - NRC PB2 $42.980
- -------------------------------------------------------------------------------
ISDN Direct Line, NRC OBQD1 $10.310
- -------------------------------------------------------------------------------
Circuit Swtch Svc B Channel - NRC LTF1D $12.890
- -------------------------------------------------------------------------------
Additional call offering - NRC NCO $ 4.290
- -------------------------------------------------------------------------------
Additional Multiple Call appearance, each ACPSB $ 4.290
- -------------------------------------------------------------------------------
Intercom Calling - NRC NZV $ 4.290
- -------------------------------------------------------------------------------
Secondary TN, each - NRC DO6 $ 4.290
- -------------------------------------------------------------------------------
Station Controlled Conf - 6 port - NRC EQ6 $12.890
- -------------------------------------------------------------------------------
Message Waiting Ind, each - NRC MLN $ 4.290
- -------------------------------------------------------------------------------
On demand Switch data "B" LTH7X $42.980
- -------------------------------------------------------------------------------
Packet Swtch Data "B" Channel LTQ3X $85.960
- -------------------------------------------------------------------------------
Packet Swtch Data "D" Channel LTQ3X $12.890
- -------------------------------------------------------------------------------
Subsequent Changes for features REA1B $12.890
- -------------------------------------------------------------------------------
</TABLE>
Confidential 7
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUSINESS SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
Product Product Usoc Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
ACCESS BUCKET
- --------------------------------------------------------------------------------
1.1
- --------------------------------------------------------------------------------
NONROTARY WITH TOUCHTONE
- --------------------------------------------------------------------------------
Area B (NAL) NALCB $ 14.9600
- --------------------------------------------------------------------------------
Area B (COT) NALCB $ 1.8400
- --------------------------------------------------------------------------------
Area B (EUCL) NALCB $ 3.5000
- --------------------------------------------------------------------------------
Sub-Total $ 20.3000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area C (NAL) NALCC $ 16.5600
- --------------------------------------------------------------------------------
Area C (COT) NALCC $ 1.8400
- --------------------------------------------------------------------------------
Area C (EUCL) NALCC $ 3.5000
- --------------------------------------------------------------------------------
Sub-Total $ 21.9000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area D (NAL) NALCD $ 16.5600
- --------------------------------------------------------------------------------
Area D (COT) NALCD $ 1.8400
- --------------------------------------------------------------------------------
Area D (EUCL) NALCD $ 3.5000
- --------------------------------------------------------------------------------
Sub-Total $ 21.9000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ROTARY/PBX TRUNK WITH TOUCH TONE
- --------------------------------------------------------------------------------
Area B (NAL) $ 14.9600
- --------------------------------------------------------------------------------
Area B (COT) $ 4.8000
- --------------------------------------------------------------------------------
Area B (EUCL) $ 5.6600
- --------------------------------------------------------------------------------
Sub-Total $ 25.4200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area C (NAL) $ 16.5600
- --------------------------------------------------------------------------------
Area C (COT) $ 4.8000
- --------------------------------------------------------------------------------
Area C (EUCL) $ 5.6600
- --------------------------------------------------------------------------------
Sub-Total $ 27.0200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area D (NAL) $ 16.5600
- --------------------------------------------------------------------------------
Area D (COT $ 4.8000
- --------------------------------------------------------------------------------
Area D (EUCL) $ 5.6600
- --------------------------------------------------------------------------------
Sub-Total $ 27.0200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PBX Trunk (Ground Start) Area D NALMA $ 21.3600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EUCL and ITAC rates are also applicable
- --------------------------------------------------------------------------------
DID T CO Trunk Termination NDT $ 24.1200
- --------------------------------------------------------------------------------
DID T CO Trunk Termination - NRC NDT $271.9200
- --------------------------------------------------------------------------------
DID Numbers/20 Assigned ND4 $ 2.7600
- --------------------------------------------------------------------------------
DID Numbers/20 Assigned - NRC ND4 $139.3600
- --------------------------------------------------------------------------------
DID Numbers - Individual NHN $ 0.2000
- --------------------------------------------------------------------------------
IOD 1st 10 trunks NDK $379.3200
- --------------------------------------------------------------------------------
IOD Additional trunk NDM $ 38.7600
- --------------------------------------------------------------------------------
2 Way DID w/call Transfer 3CW $ 18.4000
- --------------------------------------------------------------------------------
</TABLE>
Confidential 1
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
BUSINESS SEGMENT
- ---------------------------------------------------------------------------------------------------------
OHIO MODEL - BAU
- ---------------------------------------------------------------------------------------------------------
Product Product Usoc Resale Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
FlexLine (Area B,C,D) 1T4 $11.9500
- ---------------------------------------------------------------------------------------------------------
Foreign Central Office
- ---------------------------------------------------------------------------------------------------------
Area function charge per line OPJXY $11.9600
- ---------------------------------------------------------------------------------------------------------
2.3
- ---------------------------------------------------------------------------------------------------------
Foreign Exchange Service
- ---------------------------------------------------------------------------------------------------------
Interexchange cicuits, per mile 1LHB4 $3.3200
- ---------------------------------------------------------------------------------------------------------
Interexchange cicuits, svc terminals OPKFX $33.4400
- ---------------------------------------------------------------------------------------------------------
Area function charge per line P3N $11.9600
- ---------------------------------------------------------------------------------------------------------
Interoffice trunk, per mile 1LHAS,1LHBS $6.5600
- ---------------------------------------------------------------------------------------------------------
2.1.A.1
- ---------------------------------------------------------------------------------------------------------
NON-RECURRING CHARGES FOR:
- ---------------------------------------------------------------------------------------------------------
LOCAL EXCHANGE SERVICE
- ---------------------------------------------------------------------------------------------------------
Service Order Charge/loc/occ - complex ALB $12.1900
- ---------------------------------------------------------------------------------------------------------
CO Conn Charge - complex ALB $13.0800
- ---------------------------------------------------------------------------------------------------------
Line conn Charge/term - complex ALB $12.6900
- ---------------------------------------------------------------------------------------------------------
Service Order Charge/loc/occ - simple ALB $19.6200
- ---------------------------------------------------------------------------------------------------------
CO Conn Charge - simple ALB $10.0000
- ---------------------------------------------------------------------------------------------------------
Line conn Charge/term - simple ALB $18.7300
- ---------------------------------------------------------------------------------------------------------
PBX TRUNKS
- ---------------------------------------------------------------------------------------------------------
Service Order Charge/loc/occ - complex ALP $18.8500
- ---------------------------------------------------------------------------------------------------------
CO Conn Charge - complex ALP $11.1500
- ---------------------------------------------------------------------------------------------------------
Line Conn Charge/term - complex ALP $7.9600
- ---------------------------------------------------------------------------------------------------------
FCO SERVICE $377.5200
- ---------------------------------------------------------------------------------------------------------
FX SERVICE $451.9000
- ---------------------------------------------------------------------------------------------------------
Complex Misc. Svc or Feature/line $6.1100
- ---------------------------------------------------------------------------------------------------------
Simple Misc. Svc or Feature/line $7.1100
- ---------------------------------------------------------------------------------------------------------
DID
- ---------------------------------------------------------------------------------------------------------
Svc Est. w/init DID Svc. per Trk group SEPD1 $165.2800
- ---------------------------------------------------------------------------------------------------------
Subsequent to Est. DID, per Trk grp SEPD1 $165.2800
- ---------------------------------------------------------------------------------------------------------
Conversion of DID to 2Way NR9DD $283.3500
- ---------------------------------------------------------------------------------------------------------
Conversion of DID to new 2Way SEPD1 $165.2800
- ---------------------------------------------------------------------------------------------------------
Change in Outpulsing, Strt Dial, Signal REAJA $39.2400
- ---------------------------------------------------------------------------------------------------------
Change in signaling or trans interface REAJB $141.6700
- ---------------------------------------------------------------------------------------------------------
DID "In lieu of" NCR Chrg $51.1900
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
ACCESS TOTAL
- ---------------------------------------------------------------------------------------------------------
USAGE BUCKET
- ---------------------------------------------------------------------------------------------------------
MEASURED USAGE
- ---------------------------------------------------------------------------------------------------------
0-10 Mi Initial IMB-O $0.0189
- ---------------------------------------------------------------------------------------------------------
0-10 Mi Additional IMB-O $0.0046
- ---------------------------------------------------------------------------------------------------------
11-22 Mi Initial IMB-O $0.0219
- ---------------------------------------------------------------------------------------------------------
11-22 Mi Additional IMB-O $0.0071
- ---------------------------------------------------------------------------------------------------------
23+ Mi Initial IMB-O $0.0244
- ---------------------------------------------------------------------------------------------------------
23+ Mi Additional IMB-O $0.0090
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
LOCAL CALLING PLUS
- ---------------------------------------------------------------------------------------------------------
LCP-10 MILES INITIAL LCPNR $0.0187
- ---------------------------------------------------------------------------------------------------------
</TABLE>
CONFIDENTIAL 2
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUSINESS SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
Product Product Usoc Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
LCP 0-10 MILES ADDITIONAL LCPNR $0.0044
- --------------------------------------------------------------------------------
LCP 11-22 MILES INITIAL LCPNR $0.0212
- --------------------------------------------------------------------------------
LCP 11-22 MILES ADDITIONAL LCPNR $0.0066
- --------------------------------------------------------------------------------
LCP 23+ MILES INITIAL LCPNR $0.0238
- --------------------------------------------------------------------------------
LCP 23+ MILES ADDITIONAL LCPNR $0.0089
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Message Rate Service (73 calls per package)
- --------------------------------------------------------------------------------
Message rate per message $0.0440
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operator Surcharges - Local
- --------------------------------------------------------------------------------
DIRECTORY ASSISTANCE - LOCAL DALOC $0.1600
- --------------------------------------------------------------------------------
DIRECTORY ASSIST-OPER ASSIST LCL DAOPL $0.2400
- --------------------------------------------------------------------------------
Information Call Completion DAICC $0.1600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operator Surcharges - Toll
- --------------------------------------------------------------------------------
DIRECTORY ASSIST-OPER ASSIST TOL DAOPT $0.2400
- --------------------------------------------------------------------------------
DIRECTORY ASSISTANCE - TOLL DATOL $0.1600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Community Calling
- --------------------------------------------------------------------------------
Additional 15 min of use $1.9250
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Enoco Call
- --------------------------------------------------------------------------------
Per Local Message $0.1370
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCAL USAGE TOTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCAL RECURRING BUCKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Message Rate Service (73 calls per package)
- --------------------------------------------------------------------------------
Fixed mnthly non-Res line - Rot/non- 1MB/1MH $3.3800
- --------------------------------------------------------------------------------
Fixed Monthly non-Res PBX trunk $5.5000
- --------------------------------------------------------------------------------
2.4.A.1
- --------------------------------------------------------------------------------
Community Calling
- --------------------------------------------------------------------------------
Message Rate (all) $16.1700
- --------------------------------------------------------------------------------
per 15 min NRMIN $1.9250
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Optional Local Area Service
- --------------------------------------------------------------------------------
Akron $3.9800
- --------------------------------------------------------------------------------
Dayton $3.9800
- --------------------------------------------------------------------------------
Kirkland $10.4700
- --------------------------------------------------------------------------------
Painesville $13.3300
- --------------------------------------------------------------------------------
Xenia $10.4700
- --------------------------------------------------------------------------------
Yellow Springs $10.4700
- --------------------------------------------------------------------------------
2.4.C.1
- --------------------------------------------------------------------------------
Enoco Call
- --------------------------------------------------------------------------------
Per local msg (Message or Flat) ECNRS $0.1370
- --------------------------------------------------------------------------------
</TABLE>
3
Confidential
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUSINESS SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
Product Product Usoc Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Per Line $3.1620
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCAL RECURRING TOTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOLL USAGE BUCKET
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IntraLATA Toll (Schedule A)
- --------------------------------------------------------------------------------
0-10 Miles - Initial minute SCHA $0.1508
- --------------------------------------------------------------------------------
0.10 Miles - Additional minute SCHA $0.0762
- --------------------------------------------------------------------------------
11-22 Miles - Initial min SCHA $0.1752
- --------------------------------------------------------------------------------
11-22 Miles - Additonal min SCHA $0.1098
- --------------------------------------------------------------------------------
23-55 Miles - Initial min SCHA $0.1807
- --------------------------------------------------------------------------------
23-55 Miles - Additional min SCHA $0.1142
- --------------------------------------------------------------------------------
56-124 Miles - Initial min SCHA $0.1856
- --------------------------------------------------------------------------------
56-124 Miles - Additional min SCHA $0.1155
- --------------------------------------------------------------------------------
125-End - Initial min SCHA $0.1862
- --------------------------------------------------------------------------------
125-End - Additional min SCHA $0.1106
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IntraLATA Toll (Schedule B)
- --------------------------------------------------------------------------------
0-10 Miles - Initial minute SCHB $0.1052
- --------------------------------------------------------------------------------
0-10 Miles - Additional minute SCHB $0.0773
- --------------------------------------------------------------------------------
11-22 Miles - Initial min SCHB $0.1106
- --------------------------------------------------------------------------------
11-22 Miles - Additional min SCHB $0.1009
- --------------------------------------------------------------------------------
23-55 Miles - Initial min SCHB $0.1116
- --------------------------------------------------------------------------------
23-55 Miles - Additional min SCHB $0.1043
- --------------------------------------------------------------------------------
56-124 Miles - Initial min SCHB $0.1112
- --------------------------------------------------------------------------------
56-124 Miles - Additional min SCHB $0.1048
- --------------------------------------------------------------------------------
125-End - Initial min SCHB $0.1094
- --------------------------------------------------------------------------------
125-End - Additional min SCHB $0.1042
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOLL (SCHEDULE A/OP ASSISTED - BLENDED)
- --------------------------------------------------------------------------------
0-10 Mi Initial $0.1188
- --------------------------------------------------------------------------------
0-10 Mi Additional $0.0599
- --------------------------------------------------------------------------------
11-22 Mi Initial $0.1424
- --------------------------------------------------------------------------------
11-22 Mi Additional $0.0818
- --------------------------------------------------------------------------------
23-55 Mi Initial $0.1432
- --------------------------------------------------------------------------------
23-55 Mi Additional $0.0811
- --------------------------------------------------------------------------------
56-124 Mi Initial $0.1381
- --------------------------------------------------------------------------------
56-124 Mi Additional $0.0768
- --------------------------------------------------------------------------------
125 + Mi Initial $0.1378
- --------------------------------------------------------------------------------
125 + Mi Additional $0.0759
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Operator Surcharges - Local
- --------------------------------------------------------------------------------
AUTOMATED CALLING CARD - LOCAL ACCL $0.2700
- --------------------------------------------------------------------------------
AUTOMATED CALL CRD OP ASST - LCL CLGCL $0.6600
- --------------------------------------------------------------------------------
OPERATOR HANDLED LOCAL OPSTL $0.6600
- --------------------------------------------------------------------------------
OPERATOR HANDLED PERS/PERS LOCAL PERSL $1.8000
- --------------------------------------------------------------------------------
</TABLE>
4
Confidential
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUSINESS SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
Product Product Usoc Resale Price
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATOR HANDLED 3RD NO BILLED LCL OP3L $0.9000
- --------------------------------------------------------------------------------
Ameritech Intercept Referral R1HAX $3.6000
- --------------------------------------------------------------------------------
Temporary Intercept TYS $9.5100
- --------------------------------------------------------------------------------
Busy line Interupt INTER $0.9600
- --------------------------------------------------------------------------------
Busy Line Verification VERIF $0.7200
- --------------------------------------------------------------------------------
Operator Surcharges - Toll
- --------------------------------------------------------------------------------
AUTOMATED CALLING CARD - TOLL ACCT $0.2700
- --------------------------------------------------------------------------------
AUTOMATED CALL CRD OP ASST - TOLL CLGCT $0.6600
- --------------------------------------------------------------------------------
OPERATOR HANDLED TOLL OPSTA $0.6600
- --------------------------------------------------------------------------------
OPERATOR HANDLED PERS/PERS TOLL PERST $1.8000
- --------------------------------------------------------------------------------
OPERATOR HANDLED 3RD NO BILLED TOLL OP3T $0.9000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOLL USAGE TOTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEATURES BUCKET
- --------------------------------------------------------------------------------
Call Waiting ESX $5.0000
- --------------------------------------------------------------------------------
Call Forwarding ESM $1.5800
- --------------------------------------------------------------------------------
3 Way Calling ESC $1.5800
- --------------------------------------------------------------------------------
Distinctive Ringing NSK $1.5800
- --------------------------------------------------------------------------------
Call Screening NSY $1.5800
- --------------------------------------------------------------------------------
MRS #1 DRS1X $2.2000
- --------------------------------------------------------------------------------
MRS #2 DRS2X $2.1700
- --------------------------------------------------------------------------------
Caller ID NSD $3.3500
- --------------------------------------------------------------------------------
Caller ID with Name NMP $1.3700
- --------------------------------------------------------------------------------
Caller ID Blocking, per line NBA $0.5500
- --------------------------------------------------------------------------------
Speed Call 8 ESL $2.2000
- --------------------------------------------------------------------------------
Speed Call 30 ESF $2.2000
- --------------------------------------------------------------------------------
Busy Line Transfer EVB $0.6600
- --------------------------------------------------------------------------------
Alternate Answering EVD $0.6600
- --------------------------------------------------------------------------------
Call Forward/Busy Line Transfer ERB $0.8800
- --------------------------------------------------------------------------------
Call Forward/Alt Answr/Msg Waiting Indic ERD $0.8800
- --------------------------------------------------------------------------------
Message Waiting Indicator MWN $0.2200
- --------------------------------------------------------------------------------
Easy Call WLS $0.8220
- --------------------------------------------------------------------------------
Call Forward Temporary ERB $0.4900
- --------------------------------------------------------------------------------
ALTERNATE ANSWERING-CONTROL OF ERD $0.8800
- --------------------------------------------------------------------------------
call fwding - single activation MWN $26.1200
- --------------------------------------------------------------------------------
Toll Restriction KXT $38.7600
- --------------------------------------------------------------------------------
Caller ID per Line Blocking NBA $0.5500
- --------------------------------------------------------------------------------
5.2
- --------------------------------------------------------------------------------
Director Service-Non Pub NPU $0.6000
- --------------------------------------------------------------------------------
Directory Service-Non List NLT $0.6000
- --------------------------------------------------------------------------------
Director Service-Extra Listing CLT $1.0700
- --------------------------------------------------------------------------------
Remote Call Forwarding RCFXX $10.1400
- --------------------------------------------------------------------------------
Selective Call Screening SRE $2.8600
- --------------------------------------------------------------------------------
Transfer of Toll Charge ENT $10.1400
- --------------------------------------------------------------------------------
Repeat dialing (Pay per use) Camps Billed $0.4100
- --------------------------------------------------------------------------------
Auto Call Back (Pay per Use) Camps Billed $0.4100
- --------------------------------------------------------------------------------
Call Trace (Pay per Use) Camps Billed $1.9200
- --------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
</TABLE>
5
Confidential
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BUSINESS SEGMENT
- --------------------------------------------------------------------------------
OHIO MODEL - BAU
- --------------------------------------------------------------------------------
Product Product Usoc Resale Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
NON-RECURRING CHARGES
- --------------------------------------------------------------------------------
Complex - CCS, NRC CCS $6.1100
- --------------------------------------------------------------------------------
Complex - CO Features, NRC COL $6.1100
- --------------------------------------------------------------------------------
Simple - CCS, NRC CCS $7.1100
- --------------------------------------------------------------------------------
Simple - CO Features, NRC COL $7.1100
- --------------------------------------------------------------------------------
Complex - Emergency Ref-prvt list svc DS $16.4000
- --------------------------------------------------------------------------------
Simple - Emergency REf-prvt list svc $8.9800
- --------------------------------------------------------------------------------
Complex - RCF RCF $55.2700
- --------------------------------------------------------------------------------
Exch Svc Change - Complex NSN $36.8600
- --------------------------------------------------------------------------------
Exch Svc Change - Simple NSN $8.2500
- --------------------------------------------------------------------------------
Directory Svc - complex (list to prvt/semi) $16.4000
- --------------------------------------------------------------------------------
Directory Svc - complex (disc. emer svc) $16.4000
- --------------------------------------------------------------------------------
Directory Svc - complex (convert offprem ext loc) $38.0800
- --------------------------------------------------------------------------------
Directory Svc - simple (list to prvt/semi) $8.9800
- --------------------------------------------------------------------------------
Directory Svc - simple (disc. emer svc) $8.9800
- --------------------------------------------------------------------------------
Directory Svc - simple (convert offprem ext loc) $8.9800
- --------------------------------------------------------------------------------
Tel Number Changes - complex NCS $31.9600
- --------------------------------------------------------------------------------
Tel Number Changes - simple NCS $23.9600
- --------------------------------------------------------------------------------
Class of Svc change - complex $31.9600
- --------------------------------------------------------------------------------
Class of Svc change - simple $23.9600
- --------------------------------------------------------------------------------
Assignment of xfer of service - complex $31.9600
- --------------------------------------------------------------------------------
Assignment of xfer of service - simple $7.5400
- --------------------------------------------------------------------------------
Misc. Svc or feature changes - complex $6.1100
- --------------------------------------------------------------------------------
Misc. Svc or feature changes - simple $7.1100
- --------------------------------------------------------------------------------
Metwrk Wiring, 1st 15 min PWI $22.1800
- --------------------------------------------------------------------------------
Netwrk Wiring, Addl 15 min PWA $8.8700
- --------------------------------------------------------------------------------
Svc Restore - complex TD $20.4200
- --------------------------------------------------------------------------------
Svc Restore - simple TD $24.8500
- --------------------------------------------------------------------------------
Svc Restore after temp susp - complex NSI $58.3600
- --------------------------------------------------------------------------------
Svc Restore after temp susp - simple NSI $25.8100
- --------------------------------------------------------------------------------
Svc Restore after temp intercept - comple NTI $67.4700
- --------------------------------------------------------------------------------
Svc Restore after temp intercept - simple NTI $25.8100
- --------------------------------------------------------------------------------
Caller ID Blocker, per line, NRC NBA $7.1500
- --------------------------------------------------------------------------------
Toll Restriction, NRC KXT $24.6700
- --------------------------------------------------------------------------------
Emergency Ref-prvt list svc - complex NPER $16.4000
- --------------------------------------------------------------------------------
Emergency Ref-prvt list svc - simple $8.9800
- --------------------------------------------------------------------------------
900/976 Call Blocking - NRC $7.1500
- --------------------------------------------------------------------------------
Custom Number Service $36.6600
- --------------------------------------------------------------------------------
INDOOR JACKS
- --------------------------------------------------------------------------------
Mini Modular Jack RJ11C $4.2100
- --------------------------------------------------------------------------------
Series Jack RJ3 $38.9000
- --------------------------------------------------------------------------------
Mini Ribbon Connector RJ3 $38.9000
- --------------------------------------------------------------------------------
Programmed Data RJ455 $30.6900
- --------------------------------------------------------------------------------
Universal RJ415 $33.7500
- --------------------------------------------------------------------------------
Multiple line common RJ26X $128.5900
- --------------------------------------------------------------------------------
Line Circuit Card RJ265 $19.3400
- --------------------------------------------------------------------------------
Wall Mounting W/cover RJM3X $31.4000
- --------------------------------------------------------------------------------
Rack Mounting RJM4X $25.5900
- --------------------------------------------------------------------------------
OUTDOOR JACK
- --------------------------------------------------------------------------------
</TABLE>
6
Confidential
<PAGE>
PRIVILIGED AND CONFIDENTIAL U.S. NETWORK SCHEDULE 2.1(A)
<TABLE>
<CAPTION>
BUSINESS SEGMENT
- ------------------------------------------------------------------------------
Ohio Model - BAU
- ------------------------------------------------------------------------------
Product Product Usoc Resale Price
- ------------------------------------------------------------------------------
<S> <C> <C>
Outdoor Jack JKT $19.2000
- ------------------------------------------------------------------------------
Movable Prem JKS $38.9000
- ------------------------------------------------------------------------------
OTHER
- ------------------------------------------------------------------------------
E911 Svc Charge UXT $0.1200
- ------------------------------------------------------------------------------
E911 Svc Charge UXT12 $0.1200
- ------------------------------------------------------------------------------
E911 Svc Charge UXTO9 $0.1200
- ------------------------------------------------------------------------------
==============================================================================
5.3
- ------------------------------------------------------------------------------
ISDN BUCKET
- ------------------------------------------------------------------------------
Direct CO Term PB2 $5.6800
- ------------------------------------------------------------------------------
Direct Line OBQD2 $9,6000
- ------------------------------------------------------------------------------
Distance Extention XTN $20.8000
- ------------------------------------------------------------------------------
Circuit Swtch Svc B Channel - Voice LTQ5X $2.4000
- ------------------------------------------------------------------------------
Circuit Swtch Svc B Channel - Data LTQ6X $6.4000
- ------------------------------------------------------------------------------
Additional call offering NCO $1.3700
- ------------------------------------------------------------------------------
Additional Multiple Call apperance, each ACPSB $1.1000
- ------------------------------------------------------------------------------
Intercom Calling NZV $1.3700
- ------------------------------------------------------------------------------
Secondary TN, each DO6 $1.1000
- ------------------------------------------------------------------------------
Station Controlled Conf - 6 port EQ6 $7.7000
- ------------------------------------------------------------------------------
Message Waiting Ind, each MLN $1.3700
- ------------------------------------------------------------------------------
On Demand Pckt Swtch Data "B" LTH7X $16.0000
- ------------------------------------------------------------------------------
Alt Circuit Swtch V/D LTQ1X $7.2000
- ------------------------------------------------------------------------------
Packet Swtch Data "B" Channel LTQ3X $68.0000
- ------------------------------------------------------------------------------
Packet Swtch Data "D" Channel LTQ4X $5.2000
- ------------------------------------------------------------------------------
NRC
- ------------------------------------------------------------------------------
Direct Co Term PB2 $42.9800
- ------------------------------------------------------------------------------
ISDN Direct Line, NRC OBQD1 $10.3100
- ------------------------------------------------------------------------------
Circuit Swtch Svc B Channel - Voice LTQ5X $12.8900
- ------------------------------------------------------------------------------
Circuit Swtch Svc B Channel - Data LTQ6X $12.8900
- ------------------------------------------------------------------------------
Additional call offering - NRC NCO $4.2900
- ------------------------------------------------------------------------------
Additional Multiple Call appearance, each ACPSB $4.2900
- ------------------------------------------------------------------------------
Intercom Calling - NRC NZV $4.2900
- ------------------------------------------------------------------------------
Secondary TN, each - NRC DO6 $4.2900
- ------------------------------------------------------------------------------
Station Controlled Conf - 6 port - NRC EQ6 $12.8900
- ------------------------------------------------------------------------------
Message Waiting Ind, each - NRC MLN $4.2900
- ------------------------------------------------------------------------------
On Demand Pckt Swtch Data "B" LTH7X $42.9800
- ------------------------------------------------------------------------------
Alt Circuit Swtch V/D LTQ1X $12.8900
- ------------------------------------------------------------------------------
Packet Swtch Data "B" Channel LTQ3X $85.9600
- ------------------------------------------------------------------------------
Packet Swtch Data "D" Channel LTQ4X $12.8900
- ------------------------------------------------------------------------------
Subsequent Changes for features REA1B $12.8900
- ------------------------------------------------------------------------------
</TABLE>
CONFIDENTIAL 7
<PAGE>
SCHEDULE 3.1
Implementation Plan
-------------------
29
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
The following entities are corporations in which United USN, Inc. has an
ownership interest:
USN Communications Northeast, Inc. (formerly United Telemanagement
Services, Inc.)
United Telecom of America, Inc.
Quest United, Inc.
USN Communications, Inc.
USN Southwest, Inc.
U.S. Network Corporation
FoneNet/Ohio, Inc.
USN Solutions, Inc.
<PAGE>
Exhibit 23.1
[Letterhead of Deloitte & Touche LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No. 333-
16265 of United USN, Inc. of our report dated March 15, 1996, appearing in the
Prospectus, which is part of this Registration Statement, and to the reference
to us under the headings "Selected Historical Consolidated Financial and
Operating Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
January 13, 1997
Chicago, Illinois
<PAGE>
EXHIBIT 24.1
UNITED USN, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, William
P. Glasgow of Austin, Texas, as a director of United USN, Inc., a Delaware
corporation, do hereby nominate, constitute and appoint J. Thomas Elliott and
Ronald W. Gavillet, or either one or both of them, my true and lawful attorneys-
in-fact and agents to do any and all acts and things and execute any and all
instruments which said attorneys-in-fact and agents, or either of them, may deem
necessary or advisable giving and granting unto said attorneys full power and
authority to do and perform such actions as fully as I might have or could do if
personally present and executing any of the said documents to enable United USN,
Inc. to comply with the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and any requirement of the Securities and
Exchange Commission in respect thereof, in connection with the registration
under said Acts of debt securities and/or warrants and/or common stock of said
United USN, Inc. including, specifically, but without limitation thereof, full
power and authority to sign my name as director and/or officer of said United
USN, Inc. to one or more registration statements on Form S-1 and/or Form S-4
covering such debt securities and/or warrants and/or common stock and to any
amendments to said registration statements, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
December, 1996.
/s/ WILLIAM P. GLASGOW
----------------------
<PAGE>
UNITED USN, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, Richard
J. Brekka of New Canaan, Connecticut, as a director of United USN, Inc., a
Delaware corporation, do hereby nominate, constitute and appoint J. Thomas
Elliott and Ronald W. Gavillet, or either one or both of them, my true and
lawful attorneys-in-fact and agents to do any and all acts and things and
execute any and all instruments which said attorneys-in-fact and agents, or
either of them, may deem necessary or advisable giving and granting unto said
attorneys full power and authority to do and perform such actions as fully as I
might have or could do if personally present and executing any of the said
documents to enable United USN, Inc. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any
requirement of the Securities and Exchange Commission in respect thereof, in
connection with the registration under said Acts of debt securities and/or
warrants and/or common stock of said United USN, Inc. including, specifically,
but without limitation thereof, full power and authority to sign my name as
director and/or officer of said United USN, Inc. to one or more registration
statements on Form S-1 and/or Form S-4 covering such debt securities and/or
warrants and/or common stock and to any amendments to said registration
statements, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of
January, 1997.
/s/ RICHARD J. BREKKA
----------------------
<PAGE>
UNITED USN, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, Eugene A.
Sekulow of Scarsdale, New York, as a director of United USN, Inc., a Delaware
corporation, do hereby nominate, constitute and appoint J. Thomas Elliott and
Ronald W. Gavillet, or either one or both of them, my true and lawful attorneys-
in-fact and agents to do any and all acts and things and execute any and all
instruments which said attorneys-in-fact and agents, or either of them, may deem
necessary or advisable giving and granting unto said attorneys full power and
authority to do and perform such actions as fully as I might have or could do if
personally present and executing any of the said documents to enable United
USN, Inc. to comply with the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and any requirement of the Securities and
Exchange Commission in respect thereof, in connection with the registration
under said Acts of debt securities and/or warrants and/or common stock of said
United USN, Inc. including, specifically, but without limitation thereof, full
power and authority to sign my name as director and/or officer of said United
USN, Inc. to one or more registration statements on Form S-1 and/or Form S-4
covering such debt securities and/or warrants and/or common stock and to any
amendments to said registration statements, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
December, 1996.
/s/ EUGENE A. SEKULOW
----------------------
<PAGE>
UNITED USN, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, Paul S.
Lattanzio of Rye Brook, New York, as a director of United USN, Inc., a Delaware
corporation, do hereby nominate, constitute and appoint J. Thomas Elliott and
Ronald W. Gavillet, or either one or both of them, my true and lawful attorneys-
in-fact and agents to do any and all acts and things and execute any and all
instruments which said attorneys-in-fact and agents, or either of them, may deem
necessary or advisable giving and granting unto said attorneys full power and
authority to do and perform such actions as fully as I might have or could do if
personally present and executing any of the said documents to enable United
USN, Inc. to comply with the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and any requirement of the Securities and
Exchange Commission in respect thereof, in connection with the registration
under said Acts of debt securities and/or warrants and/or common stock of said
United USN, Inc. including, specifically, but without limitation thereof, full
power and authority to sign my name as director and/or officer of said United
USN, Inc. to one or more registration statements on Form S-1 and/or Form S-4
covering such debt securities and/or warrants and/or common stock and to any
amendments to said registration statements, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or either of them, shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of
December, 1996.
/s/ PAUL S. LATTANZIO
----------------------
<PAGE>
UNITED USN, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that I, the undersigned, William
A. Johnston of Winchester, Massachusetts, as a director of United USN, Inc., a
Delaware corporation, do hereby nominate, constitute and appoint J. Thomas
Elliott and Ronald W. Gavillet, or either one or both of them, my true and
lawful attorneys-in-fact and agents to do any and all acts and things and
execute any and all instruments which said attorneys-in-fact and agents, or
either of them, may deem necessary or advisable giving and granting unto said
attorneys full power and authority to do and perform such actions as fully as I
might have or could do if personally present and executing any of the said
documents to enable United USN, Inc. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any
requirement of the Securities and Exchange Commission in respect thereof, in
connection with the registration under said Acts of debt securities and/or
warrants and/or common stock of said United USN, Inc. including, specifically,
but without limitation thereof, full power and authority to sign my name as
director and/or officer of said United USN, Inc. to one or more registration
statements on Form S-1 and/or Form S-4 covering such debt securities and/or
warrants and/or common stock and to any amendments to said registration
statements, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of
December, 1997.
/s/ WILLIAM A. JOHNSTON
-----------------------
