<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LONG DISTANCE INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
------------------------
4813
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
------------------------
65-0423006
(I.R.S. EMPLOYER IDENTIFICATION NO.)
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888 SOUTH ANDREWS AVENUE
SUITE 205
FORT LAUDERDALE, FLORIDA 33316
(954) 522-3300
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CLIFFORD FRIEDLAND
LONG DISTANCE INTERNATIONAL INC.
888 SOUTH ANDREWS AVENUE
SUITE 205
FORT LAUDERDALE, FLORIDA 33316
(954) 522-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
DAVID S. SCHAEFER, ESQ.
LOEB & LOEB LLP
345 PARK AVENUE
NEW YORK, NEW YORK 10154-0037
(212) 407-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLES OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
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12 1/4% Senior Notes due 2008.... $225,000,000 100% $225,000,000 $66,375
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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.
================================================================================
<PAGE> 2
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.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED JUNE 16, 1998
LONG DISTANCE INTERNATIONAL INC.
$225,000,000 OFFER TO EXCHANGE ALL OUTSTANDING
12 1/4% SENIOR NOTES DUE 2008
FOR
12 1/4% SENIOR NOTES DUE 2008
OF
LONG DISTANCE INTERNATIONAL INC.
------------------------
INTEREST PAYABLE APRIL 15 AND OCTOBER 15
------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED.
LONG DISTANCE INTERNATIONAL INC. (THE "COMPANY") HEREBY OFFERS, UPON THE TERMS
AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS PROSPECTUS (AS THE SAME MAY BE
AMENDED OR SUPPLEMENTED FROM TIME TO TIME) AND IN THE ACCOMPANYING LETTER OF
TRANSMITTAL (THE "LETTER OF TRANSMITTAL") (WHICH TOGETHER CONSTITUTE THE
"EXCHANGE OFFER"), TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF ITS 12 1/4% SENIOR
NOTES DUE 2008 (THE "EXCHANGE NOTES") WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), FOR EACH $1,000
PRINCIPAL AMOUNT OF ITS OUTSTANDING UNREGISTERED 12 1/4% SENIOR NOTES DUE 2008,
OF WHICH $225,000,000 IN AGGREGATE PRINCIPAL AMOUNT IS OUTSTANDING AS OF THE
DATE HEREOF (THE "SENIOR NOTES" AND, TOGETHER WITH THE EXCHANGE NOTES, THE
"NOTES").
THE FORM AND TERMS OF THE EXCHANGE NOTES WILL BE IDENTICAL IN ALL MATERIAL
RESPECTS TO THE FORM AND TERMS OF THE SENIOR NOTES, EXCEPT THAT THE EXCHANGE
NOTES WILL HAVE BEEN REGISTERED UNDER THE SECURITIES ACT AND THEREFORE WILL NOT
BE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER APPLICABLE TO THE SENIOR NOTES.
THE EXCHANGE OFFER IS BEING MADE PURSUANT TO THE NOTES REGISTRATION RIGHTS
AGREEMENT DATED APRIL 7, 1998 (THE "REGISTRATION RIGHTS AGREEMENT") BETWEEN
MORGAN STANLEY & CO. INCORPORATED AND SBC WARBURG DILLON READ INC.
(COLLECTIVELY, THE "PLACEMENT AGENTS") AND THE COMPANY. THE EXCHANGE NOTES WILL
EVIDENCE THE SAME INDEBTEDNESS AS THE SENIOR NOTES (WHICH THEY WILL REPLACE) AND
WILL BE ISSUED PURSUANT TO, AND ENTITLED TO THE BENEFITS OF, AN INDENTURE DATED
AS OF APRIL 13, 1998 BETWEEN THE COMPANY AND THE BANK OF NEW YORK, AS TRUSTEE
(THE "TRUSTEE"), GOVERNING THE SENIOR NOTES AND THE EXCHANGE NOTES (THE
"INDENTURE").
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary..................................................... 6
Risk Factors................................................ 17
The Exchange Offer.......................................... 34
Use of Proceeds............................................. 41
Dividend Policy............................................. 41
Capitalization.............................................. 42
Selected Consolidated Financial Data........................ 43
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 45
Business.................................................... 54
Management.................................................. 77
Certain Transactions........................................ 84
Principal Shareholders...................................... 85
Description of the Exchange Notes........................... 87
Description of the Capital Stock............................ 115
Certain United States Federal Income Tax Considerations..... 121
Plan of Distribution........................................ 126
Legal Matters............................................... 129
Experts..................................................... 129
Additional Information...................................... 129
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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3
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The Notes will mature on April 15, 2008. Interest on the Notes will accrue
at a rate of 12 1/4% per annum and will be payable semiannually on April 15 and
October 15 of each year. See "Description of the Exchange Notes." The Notes will
be redeemable at the option of the Company, in whole or in part, at any time on
or after April 15, 2003, at the redemption prices set forth herein, plus accrued
and unpaid interest if any thereon, on and after April 15, 2003. In addition, at
any time prior to April 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes from the proceeds of one or more Public
Equity Offerings (as defined herein) at the redemption price set forth herein;
provided that after any such redemption at least $146.2 million aggregate
principal amount of the Senior Notes and the Exchange Notes remains outstanding.
See "Description of the Exchange Notes -- Certain Definitions."
The Exchange Notes will be unsubordinated indebtedness of the Company,
ranking pari passu in right of payment with the Senior Notes and all other
existing and future unsubordinated indebtedness of the Company, junior in right
of payment to all secured indebtedness of the Company and senior in right of
payment to all subordinated indebtedness of the Company. As of March 31, 1998,
on a pro forma basis after giving effect to the Offering (as defined herein),
the Company would have had $214.4 million of long-term indebtedness.
The Senior Notes, together with warrants (the "Warrants") to purchase
common stock, par value $.001 per share of the Company (the "Common Stock"),
were originally issued and sold on April 13, 1998 in a transaction not
registered under the Securities Act (the "Offering"). Accordingly, the Senior
Notes may not be offered for resale, resold or otherwise transferred unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by a holder thereof (other than any
holder that is (i) a broker-dealer that acquired Senior Notes as a result of
market-making activities or other trading activities or (ii) an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration or prospectus delivery provisions of the
Securities Act, provided that such Exchange 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 a distribution (within the
meaning of the Securities Act) of such Exchange Notes. Any holder who tenders
Senior Notes in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes or who is an
affiliate of the Company may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Failure to comply with such
requirements in such instance may result in such holder incurring liabilities
under the Securities Act for which the holder is not indemnified by the Company.
The staff of the Commission has not considered the Exchange Offer in the context
of a no-action letter, and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances.
By tendering Senior Notes in exchange for Exchange Notes, each holder will
represent to the Company, among other things, that: (i) any Exchange Notes to be
received by such holder will be acquired in the ordinary course of such holder's
business; (ii) such holder has no arrangement or understanding with any person
to participate in a distribution (within the meaning of the Securities Act) of
the Exchange Notes; and (iii) such holder is not an "affiliate" of the Company
(within the meaning of Rule 405 under the Securities Act), or if such holder is
an affiliate, that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Senior Notes, where such Senior Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
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
4
<PAGE> 5
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Senior Notes where such
Senior Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period not to exceed 180 days after the Expiration Date (as defined herein), it
will furnish additional copies of this Prospectus, as amended or supplemented,
to any broker-dealer that reasonably requests such documents for use in
connection with any such resale. See "Plan of Distribution."
The Company does not intend to apply for listing of the Exchange Notes for
trading on any securities exchange or for inclusion of the Exchange Notes in any
automated quotation system. The Senior Notes, however, have been designated for
trading in the Private Offerings, Resales and Trading through Automatic Linkages
("PORTAL") Market of the National Association of Securities Dealers, Inc. Any
Senior Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Senior Notes are not tendered and accepted in
the Exchange Offer, a holder's ability to sell such Senior Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders of
Senior Notes will continue to be subject to the existing restrictions on
transfer thereof and the Company will have no further obligation to such holders
to provide for the registration under the Securities Act of the Senior Notes.
See "Description of the Exchange Notes -- Exchange Offer; Registration Rights."
No assurance can be given as to the liquidity of either the Senior Notes or the
Exchange Notes.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF SENIOR NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER.
Senior Notes may be tendered for exchange prior to 5:00 p.m., New York City
time, on , 1998 (such time on such date being hereinafter called the
"Expiration Date"), unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). Tenders of Senior Notes may be withdrawn
at any time prior to the Expiration Date. The Exchange Offer is not conditioned
upon any minimum aggregate principal amount of Senior Notes being tendered for
exchange. Senior Notes may be tendered only in integral multiples of aggregate
principal amount of $1,000. The Company has agreed to pay all expenses of the
Exchange Offer. This Prospectus, together with the Letter of Transmittal, is
being sent to all registered holders of Senior Notes as of , 1998.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No underwriter is being used in connection with
the Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
5
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus. As
used herein, the terms "Company" and "LDI" refer to Long Distance International
Inc. and its subsidiaries, unless the context otherwise requires. Statements
contained in this Prospectus regarding LDI's expectations with respect to future
operations and other matters, which can be identified by use of forward-looking
terminology, such as "may," "will," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or variations thereon or comparable
terminology, are forward-looking statements. See "Risk Factors" for cautionary
statements identifying important factors with respect to such forward-looking
statements, including important risks and uncertainties that could cause actual
results to differ materially from results referred to in the forward-looking
statements. Industry data used throughout this Prospectus was obtained from
industry publications and has not been independently verified by LDI.
THE COMPANY
LDI is a rapidly growing multinational telecommunications company, which
provides international telecommunications services from the United States, the
United Kingdom, France, Italy and Spain to over 200 countries. LDI offers
domestic long distance calling, postpaid calling card services, prepaid services
and toll-free services in the United States and the United Kingdom. In France,
Italy and Spain, the Company primarily provides international telecommunications
services and prepaid calling card services. The Company markets primarily to
residential and small and medium-sized business enterprise ("SME") customers
with significant long distance calling needs and recently commenced marketing to
carrier customers. The Company markets its services through direct response
marketing, agent sales, telemarketing and direct sales.
LDI commenced operations in 1995 as a switchless reseller of international
and domestic long distance services in the United States and, during 1996,
expanded into the western European market. LDI recently initiated the design and
buildout of a European telecommunications network. By interconnecting its United
States and European networks, LDI seeks to expand its western European presence
and intends to leverage its existing United States operations with the objective
of lowering the cost, improving the quality and broadening the scope of services
offered to its customers across two continents. Revenues have grown from $2.6
million in 1995 to $40.1 million in 1997, 85.9% of which was derived from
services offered in the United States, consisting primarily of dial-around
services to residential and small business customers.
LDI'S NETWORK
The Company's United States network consists of one carrier grade Digital
Switch Corporation DEX600 switch ("DEX Switch") in Fort Lauderdale, Florida,
switch partitions in New York City, New York; Birmingham, Alabama; Charlotte,
North Carolina; Denver, Colorado; and Los Angeles and Oakland, California, and
interconnection agreements with local exchange carriers ("LECs") in 27 states.
LDI also leases on a per minute basis switching and network capacity in
Davenport, Iowa; Las Vegas, Nevada; Chattanooga, Tennessee; and Washington, D.C.
The Company's network enables it to originate long distance calls in areas
covering more than 50% of the total metropolitan United States population,
allowing the Company to offer its services in and around 31 of the top 50
metropolitan statistical areas in the United States.
The Company's international facilities consist of an international gateway
attached to a DEX Switch in London, which is connected to the Company's United
States network via an indefeasible right of use ("IRU") on the international
trans-Atlantic fiber optic cable CANTAT 3. The Company's London switch is
connected to various international facilities-based carriers in western Europe.
In addition, the Company has purchased IRUs on the Atlantic Crossing 1 and
UK-Germany 6 fiber optic cables, both of which are under construction and are
expected to be operational during 1998 and 1999, respectively. The Company also
has negotiated interconnection agreements with public telecommunications
operators ("PTOs") in the United Kingdom, Denmark, The Netherlands and Sweden.
6
<PAGE> 7
In 1998, LDI intends to significantly expand its United States and European
networks, and by year end expects to have switches in the markets listed below:
<TABLE>
<CAPTION>
EXPECTED COMMERCIAL
MARKET NETWORK ELEMENT OPERATION DATE
------ --------------- -------------------
<S> <C> <C>
United States
Fort Lauderdale.................... DEX Switch Installed
New York City...................... DEX Switch/International Gateway 3Q'98
Fresno............................. DEX Switch(1) 3Q'98
Chicago............................ DEX Switch(2) 3Q'98
Tulsa.............................. DEX Switch 3Q'98
Raleigh............................ DEX Switch(3) 3Q'98
Europe(4)
London............................. DEX Switch/International Gateway Installed
Hamburg............................ Ericsson ANS Translocal 2 mini-switch 3Q'98
("ANS Switch")
Ericsson AXE10 Switch 4Q'98
("AXE10 Switch")/International
Gateway(5)
Paris.............................. ANS Switch 3Q'98
AXE10 Switch/International Gateway(5) 4Q'98
Milan.............................. ANS Switch 2Q'98
Madrid............................. ANS Switch 2Q'98
Lyons.............................. ANS Switch 3Q'98
Copenhagen......................... ANS Switch (5) 4Q'98
Amsterdam.......................... ANS Switch (5) 4Q'98
</TABLE>
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(1) Replaces switch partition and leased switch capacity in Las Vegas, Nevada;
and Oakland and Los Angeles, California.
(2) Replaces leased switch capacity in Davenport, Iowa.
(3) Replaces switch partition and leased switch capacity in Chattanooga,
Tennessee; Charlotte, North Carolina; and Washington, D.C.
(4) LDI also plans to install points of presence ("POPs") in at least ten
European cities by December 31, 1998.
(5) AXE10 Switches replace ANS Switches which will be redeployed in Copenhagen
and Amsterdam, respectively.
By the end of 1998, LDI expects that its United States network will enable
it to originate services in all states except Alaska, reaching areas covering
more than 80% of the total metropolitan United States population. In Europe, LDI
is negotiating to purchase IRUs on the FLAG fiber optic cable (between the
United Kingdom, Spain and Italy), subject to obtaining backhaul from local
telecommunications companies in Italy and Spain, and the planned CIRCE fiber
optic ring (between London, Paris, Brussels, Rotterdam and Amsterdam). The
Company expects to sign interconnection agreements in 1998 with the PTOs in
Germany, France, Italy, Belgium, Switzerland, Norway, and Austria and add
additional IRUs and leased lines as demand warrants.
7
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THE INTERNATIONAL TELECOMMUNICATIONS MARKET
The international long distance public switched telecommunications market,
consisting of telephone calls between countries, generated an estimated $61
billion in revenue and 70 billion minutes of use in 1996 and is recognized as
one of the fastest growing segments of the long distance telecommunications
industry. The market for these services is highly concentrated in more developed
countries, with approximately 40% and 27% of 1996 worldwide international long
distance traffic originating in Europe and the United States, respectively. The
Company has significantly less than a 1% share of this market. According to
Analysys Ltd., a market research firm, international long distance minutes are
projected to grow by approximately 17% per annum from approximately 90 billion
in 1997 to over 160 billion minutes in 2001. This growth is expected to be
spurred by (i) the continued deregulation of telecommunications markets
throughout the world, (ii) increased capacity, improved quality and lower
operating costs attributable to technological improvements, (iii) the expansion
of telecommunications infrastructure and (iv) the globalization of the world's
economies and free trade. International settlement rates (the rates paid to
other carriers to terminate an international call) have declined over the past
five years and, in connection with a recent United States Federal Communications
Commission (the "FCC") initiative to balance the United States settlement
deficit, the Company expects such rates to continue to decline. The costs for
leased transmission capacity have also declined and are expected by the Company
to continue to decline. Furthermore, the trend towards liberalization is
expected to further reduce carriers' costs of originating and terminating calls
by allowing carriers in some jurisdictions to interconnect with the domestic
public switched telephone network ("PSTN").
The European international long distance market is the largest in the
world, with approximately 28 billion minutes of use or 40% of international
calling volume originating in Europe in 1996. The continental European PTOs have
historically had monopolies on providing telephone services to and from their
respective countries. As a result, the costs of international telephone calls
from most countries in continental Europe have been higher than comparable calls
originated from the United States or the United Kingdom. Until recently,
customers in many continental European markets had not been able to obtain from
their PTOs value-added features such as itemized billing, speed dial, redial and
voice mail. On January 1, 1998, most countries in the European Union ("EU")
liberalized the provision of telecommunications services, which the Company
believes will, together with technological advancements, lead to
telecommunications market developments similar to those which have occurred in
the United States and the United Kingdom.
STRATEGY
LDI's objective is to create a cost-competitive, facilities-based
multinational telecommunications network which provides high quality
international and domestic long distance services to residential, SME and
carrier customers. The key elements of the Company's strategy are:
- Establish Operations in Attractive European Markets. Capitalize on
large, recently liberalized European markets and establish an early
presence in less liberalized or less competitive markets.
- Expand Existing Operations. Extend the coverage of current product
offerings, both geographically and through new marketing channels, and
expand the range of products offered.
- Design, Develop and Implement a Cost-Competitive, Multinational
Network. Reduce the cost and increase control of services offered, where
feasible, by owning facilities and investing incrementally, as traffic
volumes justify ownership. Pursue the wholesale market to maximize
network utilization by selling excess capacity to other carriers.
- Employ Focused and Cost-Effective Sales and Marketing Channels; Establish
a Global Brand. Target specific groups of frequent international
long-distance callers, using established, variable-cost, low-overhead
marketing channels and programs and develop stronger brand awareness.
- Pursue Strategic Alliances and Acquisitions. Extend network reach by
swapping traffic with facilities-based telecommunications carriers.
Through business acquisitions, enter new markets, continue to expand its
customer base and acquire local management expertise, facilities and
distribution channels.
8
<PAGE> 9
- Deploy Technologically Advanced Information Systems to Facilitate Billing
and Customer Support Functions. Deploy flexible, scalable information
systems to meet growing customer care, billing, and management
information requirements.
LDI believes that its key competitive strengths are its growing network,
its sales and marketing experience in targeting customer segments with
significant long distance calling needs, its relatively early entry into large
liberalized markets in western Europe, and its experienced senior management
team, which has built and developed successful telecommunications businesses.
9
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THE EXCHANGE OFFER
The Exchange Offer......... Up to $225.0 million aggregate principal amount of
Exchange Notes are being offered in exchange for a
like aggregate principal amount of Senior Notes.
Senior Notes may be tendered for exchange in whole
or in part in integral multiples of $1,000
principal amount. The Company is making the
Exchange Offer in order to satisfy its obligations
under the Registration Rights Agreement relating to
the Senior Notes. For a description of the
procedures for tendering Senior Notes, see "The
Exchange Offer -- Procedures for Tendering Senior
Notes."
Expiration Date............ 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Conditions to the
Exchange Offer........... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Senior Notes
being tendered or any other condition, other than
that the Exchange Offer does not violate applicable
law or any applicable interpretation of the staff
of the Commission. See "The Exchange
Offer -- Conditions to the Exchange Offer."
Withdrawal Rights.......... Tenders of Senior Notes may be withdrawn at any
time prior to the Expiration Date by delivering a
written notice of such withdrawal to the Exchange
Agent (as defined herein) in conformity with
certain procedures as set forth below under "The
Exchange Offer -- Withdrawal Rights."
Procedures for Tendering
Senior Notes............. Tendering holders of Senior Notes must complete and
sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same
by mail, facsimile transmission or hand delivery,
together with any other required documents, to the
Exchange Agent, either with the Senior Notes to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Senior Notes.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Senior
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Senior Notes pursuant to the Exchange
Offer. See "The Exchange Offer -- Procedures for
Tendering Senior Notes."
Letters of Transmittal and certificates
representing Senior Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender
and requests for information should be directed to
the Exchange Agent. See "The Exchange
Offer -- Exchange Agent."
Resales of Exchange
Notes...................... Based on interpretations by the staff of the
Commission, as set forth in no-action letters
issued to third parties, the Company believes that
a holder of Senior Notes (other than any holder
that is (i) a broker-dealer that acquired Senior
Notes as a result of market-making activities or
other trading activities, or (ii) an "affiliate" of
the Company within the meaning of Rule 405 under
the Securities Act) who exchange its Senior Notes
for Exchange Notes pursuant to the Exchange Offer
may offer for resale, resell and otherwise transfer
such Exchange Notes without
10
<PAGE> 11
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange 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 a distribution (within the
meaning of the Securities Act) of such Exchange
Notes. Any holder who tenders Senior Notes in the
Exchange Offer with the intention to participate,
or for the purpose of participating, in a
distribution of the Exchange Notes or who is an
affiliate of the Company may not rely upon such
interpretations by the staff of the Commission and,
in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any secondary resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring
liabilities under the Securities Act for which the
holder is not indemnified by the Company. The staff
of the Commission has not considered the Exchange
Offer in the context of a no-action letter, and
there can be no assurance that the staff of the
Commission would make a similar determination with
respect to the Exchange Offer. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange 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. The Company has
agreed that, for a period not to exceed 180 days
after the Expiration Date, it will furnish
additional copies of this Prospectus, as amended or
supplemented, to any broker-dealer that reasonably
requests such documents for use in connection with
any such resale. See "Plan of Distribution."
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is The Bank of New York (the "Exchange
Agent"). The address, telephone number and
facsimile number of the Exchange Agent are set
forth in "The Exchange Offer -- Exchange Agent" and
in the Letter of Transmittal.
Use of Proceeds............ The Company will not receive any cash proceeds from
the issuance of the Exchange Notes offered hereby.
See "Use of Proceeds."
Certain United States
Federal Income Tax
Considerations........... The exchange of the Senior Notes for the Exchange
Notes will not be a taxable exchange for federal
income tax purposes, and holders of Senior Notes
should not recognize any taxable gain or loss or
any interest income as a result of such exchange.
See "Certain United States Federal Income Tax
Considerations."
THE EXCHANGE NOTES
Securities Offered......... $225.0 million aggregate principal amount of
12 1/4% Senior Notes due 2008. The terms of the
Exchange Notes will be identical in all material
respects to the terms of the Senior Notes, except
that the Exchange Notes will have been registered
under the Securities Act and therefore will not be
subject to certain restrictions on transfer
applicable to the Senior Notes. The Exchange Notes
will evidence the same debt as the
11
<PAGE> 12
Senior Notes and will be issued pursuant to and
entitled to the benefits of the Indenture.
Maturity................... April 15, 2008.
Interest................... Interest on the Notes is payable semiannually in
cash on April 15 and October 15 of each year,
commencing October 15, 1998. For a discussion of
the United States Federal income tax treatment of
the Notes under the original issue discount rules,
see "Certain United States Federal Income Tax
Considerations."
Optional Redemption........ On or after April 15, 2003, the Notes will be
redeemable, at the option of LDI, in whole or in
part, at any time or from time to time, at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. In addition, prior to April 15, 2001,
up to 35% of the aggregate principal amount of the
Notes may be redeemed with the proceeds of Public
Equity Offerings (as such term is defined under the
caption "Description of the Exchange
Notes -- Certain Definitions") at the redemption
price set forth herein; provided that at least
$146.2 million aggregate principal amount of Notes
remains outstanding after each such redemption. See
"Description of the Exchange Notes -- Optional
Redemption."
Security................... The Company has used approximately $75.5 million of
the net proceeds of the Offering to acquire a
portfolio of securities (the "Pledged Securities"),
consisting of U.S. government securities, that has
been pledged as security for the payment in full of
the first six scheduled interest payments due on
the Notes. Proceeds from the Pledged Securities
will be used by LDI to make the first six scheduled
interest payments on the Notes. See "Description of
the Exchange Notes -- Security." The Pledged
Securities are being held by the Trustee under the
Pledge Agreement (as defined herein) pending
disbursement.
Change of Control.......... Upon a Change of Control (as such term is defined
"Description of the Exchange Notes -- Certain
Definitions"), LDI is required to make an offer to
purchase the Notes at a purchase price equal to
101% of the aggregate principal amount thereof,
plus accrued interest, if any. See "Description of
the Exchange Notes -- Repurchase of Notes upon a
Change of Control."
Ranking.................... The Notes will be unsecured (except as described
above under "-- Security") unsubordinated
indebtedness of LDI, will rank pari passu in right
of payment with all existing and future
unsubordinated indebtedness of LDI, junior in right
of payment to all secured indebtedness of LDI and
will be senior in right of payment to all existing
and future subordinated indebtedness of LDI. At
March 31, 1998, after giving pro forma effect to
the Offering, the Company would have had $214.4
million of long-term indebtedness outstanding.
Certain Covenants.......... The Indenture contains certain covenants, which,
among other things and subject to certain
exceptions, restrict the ability of LDI and its
Restricted Subsidiaries (as defined under the
caption "Description of the Exchange
Notes -- Certain Definitions") to incur additional
indebtedness, make restricted payments, issue
guarantees, enter into transactions with
shareholders and affiliates, create liens, issue or
sell capital stock of Restricted Subsidiaries,
engage in sale-leaseback transactions, sell assets
or to consolidate, merge or sell all or
substantially all of its assets. See "Description
of the Exchange Notes -- Covenants."
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<PAGE> 13
Original Issue Discount.... The Exchange Notes should be treated as a
continuation of the Senior Notes for federal income
tax purposes. The Senior Notes were issued with
original issue discount. For federal income tax
purposes, holders of the Notes will be required to
include the amount of original issue discount in
income in advance of receipt of cash to which the
income is attributable. See "Certain United States
Federal Income Tax Considerations."
RISK FACTORS
Potential participants in the Exchange Offer should consider carefully
certain factors relating to the Company, its business and an investment in the
Exchange Notes before tendering their Senior Notes for Exchange Notes. See "Risk
Factors."
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<PAGE> 14
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data (except for certain data
under Other Data and Regional Data) for the years ended December 31, 1995, 1996
and 1997 and as of December 31, 1997 were derived from the audited consolidated
financial statements of LDI which, together with the notes thereto, are included
elsewhere in this Prospectus. The consolidated financial data for the years
ended December 31, 1993 and 1994 and the three months ended March 31, 1997 and
1998 were derived from the Company's unaudited consolidated financial
statements. The Company's unaudited consolidated financial statements for the
years ended December 31, 1993 and 1994 are not included herein. In management's
opinion, the unaudited consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of LDI (the "Consolidated
Financial Statements") and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, PER MINUTE AND RATIO
INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues, net.............. $ -- $ 5 $ 2,593 $14,362 $ 40,116 $ 8,770 $ 14,460
Costs of telecommunications
services................. -- 6 1,932 8,361 22,720 4,625 9,621
Selling, general and
administrative
expenses................. 32 219 2,299 9,887 28,066 5,354 11,829
Depreciation and
amortization............. -- 7 30 121 440 52 364
---- ----- ------- ------- -------- -------- --------
Operating loss............. (32) (227) (1,668) (4,007) (11,110) (1,261) (7,355)
Minority interest (1)...... -- -- -- 179 (132) (132) --
Interest expense, net...... -- 7 15 (193) (92) (99) (165)
---- ----- ------- ------- -------- -------- --------
Net loss................... (32) (220) (1,653) (4,021) (11,334) (1,492) (7,520)
Preferred dividends and
redemption accretion..... -- -- (18) (74) (902) (18) (4,543)
---- ----- ------- ------- -------- -------- --------
Net loss applicable to
common shareholders...... $(32) $(220) $(1,671) $(4,095) $(12,236) $ (1,510) $(12,063)
==== ===== ======= ======= ======== ======== ========
Net loss per share
applicable to common
shareholders -- basic and
dilutive (2)............. $ -- $(.03) $ (.10) $ (.21) $ (.51) $ (.06) $ (.49)
Weighted average shares
outstanding.............. -- 6,521 16,667 19,837 23,953 23,681 24,839
OTHER DATA:
Capital expenditures....... $ 1 $ 61 $ 189 $ 325 $ 3,215 $ 267 $ 904
EBITDA (3)................. (32) (220) (1,638) (3,886) (10,670) (1,209) (6,991)
Pro forma interest expense,
net(4)................... -- -- -- -- 30,328 -- 7,725
Revenue per minute......... -- .34 .34 .24 .23 .22 .21
Billable minutes of use.... -- 16 7,541 58,706 175,248 39,805 69,828
Ratio of earnings to fixed
charges (5).............. -- -- -- -- -- -- --
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, PER MINUTE AND RATIO
INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
REGIONAL DATA:
Revenues
United States............ $ -- $ 5 $ 2,544 $14,021 $ 34,459 $ 8,427 $ 11,332
Europe................... -- -- 49 341 5,657 343 3,128
Billable minutes of use
United States............ -- 16 7,461 57,765 159,602 38,727 59,788
Europe................... -- -- 80 941 15,646 1,078 10,040
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED(6)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,998 $144,620
Restricted cash............................................. 897 76,400
Total assets................................................ 26,322 250,788
Short term debt............................................. 849 849
Long term debt, net of current portion...................... 2,991 214,446
Series A Redeemable Convertible Preferred Stock............. 1,383 1,383
Series B Redeemable Preferred Stock......................... 12,834 12,834
Warrants, redeemable(5)..................................... -- 13,010
Common shareholders' capital deficiency..................... 7,486 7,486
</TABLE>
- ---------------
(1) In January 1996, the Company contributed $150,000 in respect of an 80%
equity interest in Long Distance International Ltd. ("LDI Ltd."), a United
Kingdom operating subsidiary. In January 1998, the Company purchased the
outstanding 20% minority interest for approximately $380,000. During 1997,
the minority shareholder did not fund its share of LDI Ltd.'s losses and, as
a result, during 1997 the Company absorbed LDI Ltd.'s cumulative unfunded
net losses.
(2) The Company's loss per share amounts for all periods presented are computed
in accordance with SFAS No. 128 "Earnings Per Share," which was effective
for periods ending after December 15, 1997. Loss applicable to common
shareholders has been reduced by preferred dividends and redemption
accretion.
(3) EBITDA represents net loss before interest, income tax expense (benefit),
minority interest and depreciation and amortization. LDI has included
information concerning EBITDA herein because such information is commonly
used in the telecommunications industry as one measure of an issuer's
operating performance and ability to service debt. EBITDA is not determined
in accordance with generally accepted accounting principles, is not
indicative of cash provided by operating activities, is not necessarily
comparable to similarly titled measures of other companies, should not be
used as a measure of operating income and cash flows from operations as
determined under generally accepted accounting principles and should not be
considered in isolation or as an alternative to measures of performance
determined in accordance with generally accepted accounting principles.
(4) Gives effect to the Offering as if it occurred as of the beginning of the
period presented and includes amortization of financing costs and original
issue discount of approximately $8.9 million and $13.5 million, respectively
over the term of the Notes. For purposes of calculating pro forma interest
expense, $203.1 million of the net proceeds from the Offering have been
allocated to the Notes and $13.0 million of the net proceeds from the
Offering have been allocated to the Warrants.
(5) Upon the occurrence of certain transitions, the Company will be required to
offer to repurchase the warrants. See "Description of Capital
Stock-Warrants."
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<PAGE> 16
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of net losses before fixed charges. Fixed charges consist of
interest on debt and the interest component of rent expense. For the years
ended December 31, 1995, 1996 and 1997 and the three months ended March 31,
1997 and 1998 the Company's earnings before fixed charges were insufficient
to cover its fixed charges by $1.7 million, $4.0 million, $11.3 million,
$1.5 million and $7.5 million, respectively. On a pro forma basis after
giving effect to the issuance of the Offering, for the three months ended
March 31, 1998, the Company's earnings before fixed charges would have been
insufficient to cover its fixed charges by $15.0 million.
(6) Pro forma as adjusted for the Offering as if it occurred on March 31, 1998.
Pro forma as adjusted restricted cash includes proceeds from the Offering of
an amount of approximately $75.5 million used to purchase the Pledged
Securities.
16
<PAGE> 17
RISK FACTORS
An investment in the Exchange Notes involves a significant degree of risk.
In determining whether to tender their Senior Notes for Exchange Notes,
potential investors should consider carefully all of the information set forth
in this Prospectus and, in particular, the following factors. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
such forward-looking statements.
LIMITED OPERATING HISTORY
LDI was formed in 1993, but conducted only limited operations prior to
year-end 1995, and, therefore, has a limited operating history upon which
potential investors may base an evaluation of its performance. LDI has provided
services principally in the United States and western Europe (principally in the
United Kingdom). See "Business -- Services."
LDI intends to significantly expand its operations in its current markets
and to enter into a number of markets where it currently does not have
operations. In many of its future markets, LDI also plans to offer services that
have been provided in the past to a large extent only by PTOs. Furthermore, in
certain of such markets, LDI also intends to utilize access and transmission
methods with respect to which it has limited operating experience. LDI's
prospects must, therefore, be considered in light of the risks, expenses,
problems and delays inherent in substantially expanding a business and in
establishing a new business in additional markets in an evolving industry. See
"-- Implementation of Expansion Plans," "-- Need for Local Connectivity,"
"-- Dependence on Third Party Sales Organizations," "-- Competition," "-- Risks
Associated with Rapid Growth," "-- Risks Associated with Rapidly Changing
Industry," "-- Significant Price Declines," "-- Dependence on Effective
Information Systems and Billing and Collection Agreements," "-- Dependence On
Key Personnel," "-- Dependence on Equipment Supplier" and
"Business -- Services."
IMPLEMENTATION OF EXPANSION PLANS
LDI currently operates principally as a switchless reseller. LDI's
successful implementation of its strategy will depend, in part, upon LDI's
ability to successfully effect the transition from a reseller to a
facilities-based provider of telecommunications services. This transition will
require the continued expansion and development of its network in the United
States and western Europe, as well as the related back-office capacity,
including billing systems, expansion of the Company's telemarketing operations
and the hiring and retention of management and highly productive internal sales
personnel and independent sales agents. Execution of LDI's expansion plans is
subject to a variety of risks, including, but not limited to, operating and
technical problems, regulatory uncertainties and competition.
As LDI expands its network, it will incur significant fixed costs, relating
principally to acquisition of switching equipment, IRUs and leased lines and
network management systems. As part of its expansion strategy, LDI has
purchased, and intends to purchase additional, IRUs on fiber optic cable systems
that are currently under construction or the construction of which is planned.
There can be no assurance that such fiber optic systems will be completed on a
timely basis or at all. In the event such systems are not completed, the Company
may be required to obtain transmission capacity through more expensive means.
The development and expansion of LDI's network has entailed and will continue to
entail considerable costs in advance of anticipated revenues and may cause
substantial fluctuations in LDI's operating results. There can be no assurance
that LDI will be able to expand its network as planned or that LDI will generate
traffic volumes sufficient to enjoy significant economies of scale, which LDI
believes are critical to the overall success of its strategy. Failure by LDI to
implement its expansion plans could have a material adverse effect upon LDI's
business, financial condition and results of operations and its ability to pay
principal of and interest on the Notes.
FUTURE LOSSES AND NEGATIVE CASH FLOW
LDI had negative EBITDA of $1.6 million, $3.9 million and $10.7 million and
a net loss of $1.7 million, $4.0 million and $11.3 million for the years ended
December 31, 1995, 1996 and 1997, respectively, and a
17
<PAGE> 18
negative EBITDA of $1.2 million and $7.0 million and a net loss of $1.5 million
and $7.5 million for the three months ended March 31, 1997 and 1998,
respectively. On a pro forma basis, assuming the Offering had been consummated
on January 1, 1998, LDI would have had a net loss of $15.0 million for the three
months ended March 31, 1998. Furthermore, LDI expects to incur increasing
negative EBITDA, increasing negative cash flow from operations, increasing
operating losses and increasing net losses for at least the next several years
as it expands its network. On a pro forma basis, after giving effect to the
Offering, the Company's earnings before fixed charges would have been
insufficient to cover its fixed charges by $15.0 million for the three months
ended March 31, 1998. The Company's EBITDA less capital expenditures were $(1.8
million), $(4.2 million) and $(13.9 million) for the years ended December 31,
1995, 1996 and 1997, respectively and $(1.5 million) and $(7.9 million) for the
three months ended March 31, 1997 and 1998, respectively. There can be no
assurances that LDI will ever operate at profitable levels or have positive
EBITDA. See "Capitalization," "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The ability of LDI to meet its debt service obligations will depend upon
its future performance, which, in turn, is subject to LDI's successful
implementation of its strategy, as well as to financial, competitive, business,
regulatory, technical and other factors beyond LDI's control. If LDI is unable
to generate cash flow from operations that is sufficient to meet its working
capital and debt service requirements, it may be required to refinance all or a
portion of its indebtedness. There can be no assurance that any such refinancing
would be possible on terms that would be acceptable to LDI, if at all. If such
refinancing were not possible or if additional financing were not available, LDI
could be forced to default on its obligations with respect to the Notes.
HIGH LEVERAGE; RESTRICTIVE COVENANTS
At March 31, 1998, after giving effect to the Offering, LDI would have had
total consolidated long-term indebtedness of approximately $214.4 million,
redeemable preferred stock and warrants of $25.8 million and a common
shareholders' capital deficiency of approximately $7.5 million. LDI anticipates
that it will incur additional indebtedness, primarily in connection with
equipment financings. Although the Indenture limits the incurrence of additional
indebtedness by the Company and its subsidiaries, the Indenture permits the
Company and its subsidiaries to incur an unlimited amount of indebtedness to
finance the cost of equipment, inventory and other assets. See "Description of
the Exchange Notes -- Covenants." The level of LDI's indebtedness could have
important consequences to holders of the Notes, including the following: (i) the
debt service requirements of other indebtedness could make it more difficult for
LDI to make payments on the Notes, (ii) the ability of LDI to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes may be limited; (iii) a substantial
portion of LDI's future cash flow from operations, if any, may be dedicated to
the payment of principal and interest on its indebtedness and other obligations;
(iv) flexibility in planning for, or reacting to changes in, LDI's business may
be limited; (v) LDI will be more highly leveraged than certain of its
competitors, which may place it at a competitive disadvantage; and (vi) LDI's
high degree of indebtedness could make it more vulnerable in the event of a
downturn in its business. LDI's high level of indebtedness could have a material
adverse effect upon its business, financial condition and results of operations
and its ability to pay principal of and interest on the Notes. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Indenture contains certain restrictive covenants that limit, among
other things, the ability of LDI to incur indebtedness, make prepayments of
subordinated indebtedness, pay dividends, make investments, engage in
transactions with shareholders and affiliates, issue capital stock of Restricted
Subsidiaries, create liens, sell assets and engage in mergers and
consolidations. See "Description of the Exchange Notes -- Covenants." A failure
to comply with the covenants and restrictions in the Indenture or agreements
relating to any subsequent financing could result in an event of default under
such agreements which could permit the acceleration of the related debt and the
acceleration of debt under other debt agreements that contain cross-
acceleration or cross-default provisions, and would have an adverse effect on
the Company. In addition, the terms of LDI's Series A Redeemable Convertible
Preferred Stock (the "Series A Preferred Stock") and
18
<PAGE> 19
Series B Redeemable Preferred Stock (the "Series B Preferred Stock") place
restrictions on the ability of LDI to engage in certain transactions and the
terms of the Series B Preferred Stock also restrict LDI's ability to incur
indebtedness. These restrictions could limit the ability of LDI to effect
financings or engage in other corporate activities.
COMPETITION
The provision of telecommunications services is extremely competitive and
will become increasingly so as the regulatory barriers to entry into
telecommunications markets are reduced or eliminated. LDI believes that the
non-United States and non-United Kingdom markets into which LDI intends to
expand its operations will experience increased competition and will begin to
resemble the competitive landscape in the United States and the United Kingdom,
in part as a result of regulatory initiatives. However, it appears that western
European telecommunications markets may experience price competition more
rapidly and more extensively than was experienced when deregulation occurred in
the United States and the United Kingdom.
Competition for customers is primarily on the basis of price and, to a
lesser extent, on the type and quality of services offered and customer service.
LDI has no control over the prices set by its competitors or the type or quality
of their services. LDI has a large number of competitors which may use their
substantial financial resources to cause severe price competition in the markets
in which LDI operates, which would require LDI to reduce its prices in order to
remain competitive. For example, Sprint Corporation ("Sprint") recently
announced a program offering $.10 per minute rates on certain calls to the
United Kingdom and free United States domestic long distance calls on Fridays
and MCI Communications Corporation ("MCI") has reduced the prices of certain of
its domestic off-peak calls significantly. LDI has focused on users that make
such calls. In the United Kingdom, British Telecom reduced its retail prices
pursuant to the requirements of the Office of Telecommunications ("Oftel"), the
United Kingdom telecommunications regulatory authority. In western Europe,
France Telecom and Deutsche Telekom have recently taken steps to substantially
reduce prices in an effort to protect their market share and deter competitors,
such as the Company. France Telecom has obtained approval to reduce retail
prices on domestic and international long distance services by an average of 9%
during each of 1997 and 1998 and 4.5% during each of 1999 and 2000. Deutsche
Telekom has announced that, subject to regulatory approval, it intends to reduce
retail prices on domestic and international long distance service by up to 40%.
Neither France Telecom nor Deutsche Telekom has reduced wholesale prices to the
same extent as retail prices. In the United States, the FCC, the United States
telecommunications regulatory authority, adopted rules which are designed to
bring downward pressure on international telephone rates. The FCC is requiring
United States international facilities-based carriers to negotiate lower
settlement rates with correspondent foreign carriers that deliver calls in
foreign jurisdictions. The FCC expects such lower settlement rates to become
effective on a transitional basis, commencing January 1, 1999 for major
countries, with lower settlement rates to become effective for substantially all
countries by January 1, 2003. Any resulting savings to the United States
facilities-based carriers might be passed along to their customers in the form
of reduced rates for international calls. Corresponding price reductions by LDI
could reduce LDI's revenues and margins, which could have a material adverse
effect on LDI's business, financial condition and results of operations and its
ability to pay interest on and principal of the Notes. The Company has
experienced, and expects to continue to experience, declining revenue per
billable minute in all of its markets, in part as a result of increasing
worldwide competition within the telecommunications industry. LDI also
experiences customer attrition, or "churn," as a result of the highly
competitive nature of its markets and expects current levels of churn to
continue or increase. See "-- Response Rates; Customer Attrition; Impact of
Increased Postal and Paper Costs."
LDI's success will depend upon its ability to compete with a variety of
other telecommunications providers in each of its markets. In the United States,
LDI's competitors include AT&T, MCI, Sprint, WorldCom, Inc. ("WorldCom") and
numerous other carriers for domestic and international long distance calls. In
addition, LDI faces competition from lesser known entities, including VarTec
Telecom Inc. and Excel, and lesser known brands of well known competitors such
as MCI's Telecom*USA brand. Congress has substantially amended the
Communications Act of 1934 (the "Communications Act") by enacting the
Telecommunications Act of 1996 (the "1996 Act"), making the regional Bell
operating companies (the
19
<PAGE> 20
"RBOCs") eligible, subject to FCC approval, to offer domestic long distance and
international telecommunications services in their "in region" service areas,
where they control essential facilities such as local lines connecting to the
premises of customers. The use of these facilities at reasonable and non-
discriminatory rates, and on reasonable and nondiscriminatory conditions, is
necessary to enable new market entrants, including long distance carriers, to
compete effectively with the RBOCs and other carriers. The RBOCs have the
incentive to overcharge for the use of their essential facilities for the dual
purposes of discouraging competition from new local market entrants and
cross-subsidizing their proposed new long distance services. The RBOCs also may
offer domestic long distance and international services outside of their service
areas or "out-of-region services." The United States District Court for the
Northern District of Texas recently ruled that the "in region" provisions of the
1996 Act restricting the RBOCs entry into long distance market were
unconstitutional. That decision has been stayed pending reconsideration and is
being appealed to the United States Fifth Circuit Court of Appeals. In addition,
the FCC permits foreign telecommunications entities to enter the United States
international telecommunications market, including dominant foreign entities
whose home markets are conducive to competition. The FCC also has substantially
reduced the regulatory constraints on AT&T, LDI's largest competitor, by
declaring AT&T to be "non-dominant," first in the domestic long distance market
and more recently in the international market, thus, granting AT&T more pricing
and service flexibility and permitting it to compete more effectively with
smaller inter-exchange carriers such as LDI.
In western Europe, LDI's competitors include (i) PTOs, (ii) alliances such
as AT&T's alliance with Unisource (itself a joint venture among Telecom
Netherlands, Telia AB and Swiss Telecom PTT), and Sprint's alliance with
Deutsche Telekom and France Telecom, known as "Global One," (iii) companies
offering international telecommunications services, such as Esprit Telecom,
Econophone, Inc., Primus, Viatel Global Communications ("Viatel") and RSL
Communications, Ltd., (iv) new entrants into the European telecommunications
industry which are partially owned by large European industrial or utilities
companies such as Arcor Mannesmann in Germany, Omnitel in Italy and Energis in
the United Kingdom, and (v) other companies with business plans similar in
varying degrees to LDI's. Because all of the Company's targeted European markets
(other than the United Kingdom) have only recently liberalized or are still in
the process of liberalizing the provision of telephone services, customers in
these markets are not accustomed to obtaining services from competitors to PTOs
and may be reluctant to use new providers, such as the Company. PTOs also
generally have certain competitive advantages over the Company and other
providers due to their control of local connectivity, their extensive ownership
of facilities, their ability to delay or prevent equal access to lines and the
reluctance of some regulators to adopt policies and grant regulatory approvals
that would result in increased competition for the local PTO. For example,
Deutsche Telekom recently proposed, subject to regulatory approval, a fee of
approximately 50 Deutsch Marks for any customer changing long distance
providers. In addition, in France, only six carriers plus France Telecom are
currently able to provide long distance service using a single digit prefix. The
Company is not one of those carriers.
The World Trade Organization (the "WTO") recently concluded an agreement,
known as the WTO Basic Telecommunications Service Agreement (the "WTO
Agreement"), which opens the telecommunications markets of the signatory
countries to foreign carriers on varying dates beginning February 5, 1998. The
WTO Agreement is subject to legislative ratification in many of the 70 signatory
countries. Pursuant to the WTO Agreement, United States companies would have
foreign market access for local, long distance and international services,
either on a facilities basis or through resale of existing network capacity.
United States companies also would be permitted to acquire, establish or hold a
significant stake in telecommunications companies around the world. Conversely,
foreign companies would be permitted to enter the domestic United States
telecommunications market and acquire ownership interests in United States
service providers. Although the WTO Agreement may open additional markets to LDI
or broaden the permissible services that LDI can provide in certain markets, the
WTO Agreement also may subject LDI to greater competitive pressures in its
markets, with the risk of losing customers to other carriers and reductions in
LDI's rates.
In addition, there are pending major consolidations in the
telecommunications industry which could result in even more powerful competitors
to LDI. For example, the proposed acquisition of MCI by
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WorldCom and the proposed acquisition of Teleport Communications Group by AT&T
would create powerful competitors for LDI.
LDI also may experience competition in one or more of its markets from
competitors utilizing new or alternative technologies and/or transmission
methods, including cable television companies, wireless telephone companies,
satellite owners and resellers, Internet service providers, electric and other
utilities, railways, microwave carriers and large end users that have private
networks. Existing telecommunications companies, including AT&T, are
implementing plans to offer voice telecommunications services over the Internet
at substantially reduced prices.
Many of LDI's competitors are significantly larger, have substantially
greater financial, technical and marketing resources and larger networks than
LDI, control transmission lines and have long-standing relationships with LDI's
target customers. If any of LDI's competitors were to devote additional
attention to the provision of international and/or domestic long distance voice
telecommunication services to LDI's target customer base, there could be a
material adverse effect upon LDI's business, financial condition and results of
operations and its ability to pay principal of and interest on the Notes. Many
of the Company's larger competitors have lower incremental transmission costs
than the Company due to, among other things, greater use of owned transmission
capacity, more favorable interconnection rates and volume discounts on
transmission. Furthermore, in certain European countries (including France and
Italy) telecommunications companies that make substantial investments in network
infrastructure will receive a substantial discount on interconnection rates. The
Company does not expect to qualify for such a discount initially, if at all. In
addition, certain of the Company's competitors offer customers an integrated
full service telecommunications package consisting of local and long distance
voice, data and Internet transmission. The Company does not offer all of these
services and does not presently plan to do so, which could have a material
adverse effect on the Company's ability to compete, its business, financial
condition and results of operations and its ability to pay principal of and
interest on the Notes.
Each of the markets in which LDI offers or intends to offer its services
will present unique competitive factors. There can be no assurance that LDI will
be able to effectively compete in any given market and the success of LDI's
strategy in any one market is not necessarily indicative of its ability to
succeed in any other market. See "Business -- Competition."
RESPONSE RATES; CUSTOMER ATTRITION; IMPACT OF INCREASED POSTAGE AND PAPER COSTS
To date, a significant portion of the Company's revenues have come from its
dial-around customers. Dial-around service enables a United States long distance
customer to access LDI's network from the customer's home or office by dialing a
"10xxx" prefix and then the number the customer is calling. The FCC has proposed
to expand carrier identification codes from "10xxx" to a "101xxxx" format
commencing July 1, 1998. A transition period during which both formats can be
utilized is in effect. There can be no assurance that the change in format will
not have a material adverse effect on the Company's dial-around business. For
the year ended December 31, 1997, approximately $27 million of revenues (79% of
its United States revenues and 68% of it consolidated revenues) came from
dial-around services. The Company primarily markets its dial-around services
through direct mail marketing campaigns and telemarketing and expects to
increase the use of these marketing methods in the United States as it continues
to expand its United States network. As a result, the Company's business and
results of operations will continue to be significantly affected by the customer
attrition rate and the response rate of its direct marketing initiatives. The
number of new customers who utilize the Company's service in the near term
period after a marketing campaign defines the campaign's overall response rate.
Customer attrition represents the number of customers who utilize the Company's
service after a campaign who fail to continue to use the Company's service.
The Company believes that a high level of customer attrition is inherent to
the dial-around long distance industry. Attrition is attributable to a number of
factors, including initiatives of existing and new competitors as they engage
in, among other things, national advertising campaigns, telemarketing programs
and the issuance of cash and other forms of customer "win-back" incentives and
other customer acquisition programs prevalent in the residential long distance
market as well as the termination of service for non-payment. The
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Company typically experiences higher customer attrition in the first few months
following a marketing campaign as a significant number of customers sample the
Company's dial-around service. While remailings and additional marketing efforts
in its existing markets are important components of the Company's growth
strategy, the Company may eventually reach a point in its existing markets where
it determines that its direct mail marketing strategy is no longer a
cost-effective method to acquire customers. There can be no assurance that the
Company's attrition rate will not increase or that its response rate will not
decrease. An increase in attrition rate or a decrease in response rate could
have a material adverse effect upon the Company's business and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Because the Company has used, and expects to continue to use, direct mail
marketing to advertise its dial-around and certain other of its services,
postage and paper costs have been, and will continue to be, significant expenses
in the operation of the Company's business. There can be no assurance that the
Company will be able to pass on any significant postage and paper cost price
increases to its customers. Additionally, strikes or other service interruptions
associated with the production or delivery of the Company's direct mail could
adversely affect the Company's ability to market its services on a timely basis.
Any increases in postage or paper costs or substantial service interruptions
with the production or delivery of the Company's direct mail could have an
adverse effect on the Company's operating results.
MIGRATION OF DIAL-AROUND CALLERS TO PRESUBSCRIBED SERVICES
A key element of the Company's strategy for continued growth is the
migration of its United States dial-around calling customers to its
presubscribed ("1+") long distance services. Since the Company began operating,
in the United States it has focused primarily on providing international
dial-around calling long distance services to residential customers, and its
marketing efforts have primarily relied on direct mail marketing and a
telemarketing system. No assurance can be given that the Company will be
successful in migrating a significant number of its dial-around customers to its
presubscribed long distance service. The failure to migrate customers would have
a material adverse effect on the Company's growth strategy, its business,
financial condition and results of operations.
DEPENDENCE ON THIRD PARTY SALES ORGANIZATIONS
LDI intends to continue to sell its services through indirect channels of
distribution, including independent sales agents and resellers. Approximately
11% of the Company's revenues for the year ended December 31, 1997 was derived
from these channels. A key element of the Company's growth strategy will be the
continued expansion into the SME market primarily using third party sales
organizations. The ability of the Company to successfully compete in the SME
market in the United States will depend on its ability to attract and retain
effective third party sales organizations. Although LDI believes that it offers
its independent sales agents and resellers sufficient incentives to market and
sell its services, LDI does not have direct control over such persons and there
can be no assurance that they will perform in a satisfactory manner. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Sales and Marketing."
LDI believes that its relationships with its current independent sales
agents and resellers are good. However, there can be no assurance that LDI will
not in the future experience material disputes with any such person or that LDI
and/or any such person will not decide to terminate their business relationship.
In addition, regulations pertaining to commercial agents introduced by the EU
have given sales agents far greater protection than before, resulting in the
potential for increased termination payments in the event of a dispute. Such
disputes or terminations could adversely affect the number of customers obtained
and/or retained by LDI, which could have a material adverse effect upon LDI's
business, financial condition and results of operations and its ability to pay
principal of and interest on the Notes.
In addition, in the United States both federal and state officials are
tightening the rules governing the telemarketing of telecommunications services
and the requirements imposed on carriers acquiring customers in that manner.
Customer complaints of unauthorized conversion or "slamming" are widespread in
the long
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distance industry. LDI is subject to a risk of federal or state enforcement
actions with respect to these activities. Provisions in the Company's agreements
with its third party sales organizations mandate compliance by such parties with
applicable state and federal regulations. However, because these third party
sales organizations are independent marketing companies, LDI does not have
direct control over such persons and there can be no assurance that they will
perform in a satisfactory manner.
RISKS ASSOCIATED WITH RAPIDLY CHANGING INDUSTRY
The international telecommunications industry is changing rapidly due to,
among other things, regulatory liberalization, upon which much of LDI's planned
expansion into western Europe is predicated, privatization of PTOs, the
expansion of telecommunications infrastructure and the globalization of the
world's economies. The telecommunications industry also is in a period of rapid
technological evolution, marked by the introduction of new product and service
offerings and increased satellite and fiber optic cable transmission capacity
for services similar to those provided by LDI, including utilization of the
Internet for voice and data communications. Recently Lucent Technologies Inc.
announced that it has developed a system that would significantly increase the
transmission capacity of certain fiber optic systems. See "-- Competition."
There can be no assurance that one or more of the foregoing factors will
not vary unpredictably, which could have a material adverse effect on LDI, its
ability to pay principal of and interest on the Notes and the value of the
Warrants and the Warrant Shares. There also can be no assurance, even if such
factors turn out as anticipated by LDI, that LDI will be able to implement its
strategy or that its strategy will be successful in the rapidly evolving
telecommunications market. In addition, there can be no assurance that LDI will
be able to compete effectively or adjust its contemplated plan of development to
meet changing market conditions. Furthermore, LDI is unable to predict which of
the many possible future service offerings will be important to establish and
maintain a competitive position or what expenditures will be required to develop
and provide such services. LDI's success will depend, in part, on its ability to
anticipate and adapt to rapid technological changes occurring in the
telecommunications industry and on its ability to offer, on a timely basis,
services that satisfy evolving industry standards. The failure by LDI to respond
to new technologies on a timely basis, penetrate new markets in a timely manner
in response to changing market conditions or customer requirements or achieve a
significant degree of market acceptance of new or enhanced services could have a
material adverse effect upon LDI's business, financial condition and results of
operations and its ability to pay principal of and interest on the Notes.
SIGNIFICANT PRICE DECLINES
Prices for international long distance calls historically have been
determined by international settlement rates. Because these rates historically
have been negotiated between national telephone monopolies, they have been
artificially high and have allowed carriers to enjoy artificially high gross
margins on international calls. However, many industry observers believe that,
given the negligible marginal cost to a facilities-based carrier of carrying an
international call and given the emergence of competition in many countries
(particularly in western Europe, where LDI currently intends to expand), the
international settlement rate system is in the process of breaking down. In
addition, EC Directive 97/33/EC, which became effective on January 1, 1998,
requires EU operators with significant market power to impose charges for call
termination for cross border traffic that are cost-based and non-discriminatory,
which will have an effect on settlement rates with countries and territories
outside the EU. This has begun to be reflected in international rates,
particularly the rates charged for calls between countries where competition
exists. For example, Sprint recently reduced its rates on certain calls between
the United States and the United Kingdom to $.10 per minute. This represents a
steep decline from rates charged for such calls as recently as several years ago
and LDI expects rates on international calls, particularly between the United
States and the United Kingdom, to continue to decline significantly.
Furthermore, the FCC has adopted rules, designed to bring downward pressure on
international telephone rates, that require United States international
facilities-based carriers to negotiate lower settlement rates with their
correspondent foreign carriers. Historically, LDI's transmission costs have
fallen at a faster rate than its retail prices, resulting in higher gross
margins. However, in the future, LDI could experience a substantial reduction in
its gross margins on international calls as retail prices are reduced, which,
absent a
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substantial increase in billable minutes of traffic carried or charges for
additional services, would have a material adverse effect upon LDI's business,
financial condition and results of operations and its ability to pay principal
of and interest on the Notes.
RISKS ASSOCIATED WITH RAPID GROWTH
LDI has experienced rapid growth. LDI's revenues were $2.6 million for
1995, and increased to $14.4 million for 1996, and $40.1 million for 1997. LDI's
strategy contemplates continued growth primarily through further expansion of
its existing operations and the establishment of new operations. LDI's ability
to manage its anticipated future growth will depend on its ability to evaluate
new markets, secure, retain and motivate independent sales agents and its
internal sales forces, monitor operations, control costs, maintain effective
quality controls, provide customer service, obtain satisfactory and
cost-effective lease rights from, and interconnection with, competitors that own
transmission lines (in many cases, intra-national transmission lines may be
available only from PTOs), and significantly expand its internal management,
technical, accounting and customer billing systems. LDI's rapid growth has
placed, and its planned future growth will continue to place, a significant and
increasing strain on its financial, management and operational resources. There
can be no assurance that LDI's financial, management and operational systems and
infrastructure will be adequate to maintain and effectively monitor future
growth or that LDI will be able to successfully attract, train and manage
additional employees and/or independent sales agents. The failure to continue to
upgrade LDI's financial, management and operational control systems and
infrastructure or the occurrence of unexpected expansion difficulties could have
a material adverse effect upon LDI's business, financial condition and results
of operations and its ability to pay principal of and interest on the Notes. See
"-- Dependence on Effective Information Systems and Billing and Collection
Agreements" and "-- Dependence on Key Personnel."
ACQUISITION RELATED RISKS
The Company may, as part of its expansion strategy, acquire other
businesses that will complement its existing business. Management is unable to
predict whether or when any prospective acquisitions will occur or the
likelihood of a material transaction being completed on favorable terms and
conditions. The Company's ability to finance acquisitions may be constrained by,
among other things, its high degree of leverage following the Offering. Such
transactions commonly involve certain risks, including, among others: the
difficulty of assimilating the acquired operations and personnel; the potential
disruption of the Company's ongoing business and diversion of resources and
management time; the possible inability of management to maintain uniform
standards, controls, procedures and policies; the risks of entering markets in
which the Company has little or no direct prior experience; and the potential
impairment of relationships with employees or customers as a result of changes
in management. There can be no assurance that any acquisition will be made, that
the Company will be able to obtain additional financing needed to finance such
acquisitions and, if any acquisitions are so made, that the acquired business
will be successfully integrated into the Company's operations or that the
acquired business will perform as expected. The Company has no definitive
agreement with respect to any acquisition, although from time to time it has
discussions with other companies and assesses opportunities on an ongoing basis.
See "Business -- Strategy."
The Company may also enter into joint venture transactions. These
transactions present many of the same risks involved in acquisitions and may
also involve the risk that other joint venture partners may have economic,
business or legal interests or objectives that are inconsistent with those of
the Company. Joint venture partners may also be unable to meet their economic or
other obligations, thereby forcing the Company to fulfill these obligations.
SUBSTANTIAL CAPITAL REQUIREMENTS
LDI will require substantial capital expenditures significantly in excess
of historical levels to implement its business strategy. The net proceeds from
the Offering are expected to be sufficient to fund LDI's planned expansion of
its operations and operating losses until LDI begins to generate positive cash
flow (which is not expected to occur prior to the year 2000). Actual capital
expenditures and cash requirements may vary significantly from LDI's estimates
depending on a number of factors, including the pace, extent and cost of
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network expansion, sales levels, competitive pressures and regulatory actions.
If LDI's plans or assumptions change, its assumptions prove to be inaccurate, it
experiences unanticipated costs or competitive pressures, it consummates
acquisitions or the net proceeds from the Offering otherwise prove to be
insufficient, LDI may be required to seek additional capital (or seek additional
capital sooner than expected). LDI may seek to raise additional equity or debt
capital from public or private sources. There can be no assurance that LDI will
be able to raise such capital on satisfactory terms or at all. Furthermore, the
restrictive covenants contained in the Indenture and the terms of LDI's Series B
Preferred Stock limit LDI's ability to incur additional indebtedness. If LDI
raises additional funds through the incurrence of indebtedness, LDI may become
subject to additional or more restrictive covenants. In the event that LDI is
unable to obtain such additional capital or is unable to obtain such additional
capital on acceptable terms, LDI may be required to reduce the scope of its
expansion, which could have a material adverse effect upon LDI's business,
financial condition and results of operations and its ability to pay principal
of and interest on the Notes.
DEVALUATION AND CURRENCY RISKS
A portion of LDI's revenues and expenses are denominated in non-United
States currencies. Furthermore, LDI's business strategy contemplates that,
although an increasing portion of its revenues and expenses will be denominated
in non-United States currencies, a disproportionate portion of LDI's expenses,
including interest and principal on the Notes, will be denominated in dollars.
LDI has not hedged against foreign currency exchange transaction risks. Because
of LDI's constantly changing currency exposure and the fact that all foreign
currencies do not fluctuate in the same manner against the dollar, LDI cannot
quantify the effect of exchange rate fluctuations on its future financial
condition or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
REGULATORY RESTRICTIONS
National and local laws and regulations governing the provision of
telecommunications services differ significantly among the countries in which
LDI currently operates and intends to operate. The interpretation and
enforcement of such laws and regulations varies and could limit LDI's ability to
provide certain telecommunications services in certain markets. There can be no
assurance that future regulatory, judicial and legislative changes will not have
a material adverse effect on LDI, that domestic or international regulators or
third parties will not raise material issues with regard to LDI's compliance or
noncompliance with applicable laws and regulations or that other regulatory
activities will not have a material adverse effect on LDI. See
"Business -- Regulation."
In the United States, LDI's authority to engage in the resale of
international private lines to provide international telephone service is
pursuant to an authorization (the "Section 214 Private Line Authorization")
granted under Section 214 of the Communications Act. Certain rules of the FCC
restrict LDI from (i) transmitting calls routed over leased lines between New
York and London onward over a leased line to western Europe (other than to a
country which the FCC deems to provide equivalent resale opportunities to those
provided under United States laws, which, in Europe, includes only Sweden and
The Netherlands) or (ii) transmitting calls from western European countries
(other than those deemed to provide equivalent resale opportunities) over leased
lines to London and then onward over a leased line between London and New York.
FCC restrictions thus may materially limit the optimal and most profitable use
of LDI's leased lines between New York and London and result in increased
transmission costs on certain calls, which LDI may not be able to pass on to its
customers.
In the United States, the FCC and relevant state public service commissions
("PSCs") have the authority to regulate interstate and intrastate telephone
rates, respectively, ownership of transmission facilities and the terms and
conditions under which certain of LDI's services are provided. Federal and state
regulations and regulatory trends have had, and in the future are likely to
have, both positive and negative effects on LDI and its ability to compete. The
recent trend in both federal and state regulation of telecommunications service
providers has been in the direction of reduced regulation. There can be no
assurance that changes in current or future federal or state regulations or
future judicial changes would not have a material adverse effect on LDI. See
"Business -- Regulation."
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In order to provide their services, inter-exchange carriers, including LDI,
must generally purchase "access" from LECs to originate calls from and terminate
calls in the local exchange telephone networks. In the United States, access
charges generally are regulated by the FCC and the relevant state PSCs. Under
the terms of the AT&T divestiture decree, a court order entered in 1982 which,
among other things, required AT&T to divest its 22 Bell operating companies from
its long distance division (the "AT&T Divestiture Decree"), the RBOCs were
required to price the "local transport" portion of such access charges on an
"equal price per unit of traffic" basis. The FCC has adopted, subject to
reconsideration, a change in the access charge structure, which reduces per
minute access charges, but applies additional per line charges for business
users. This change in access charge structure may disproportionately
disadvantage smaller carriers such as LDI. Under alternative access charge rate
structures proposed to the FCC, LECs would be permitted to allow volume
discounts in the pricing of access charges. If these rate structures are
adopted, access charges for AT&T and other large inter-exchange carriers would
decrease and access charges for small inter-exchange carriers would increase.
While the outcome of these proceedings is uncertain, should the FCC adopt
permanent access charge rules along the lines of the proposed structures, LDI
would be at a cost disadvantage with regard to access charges in comparison to
AT&T and other large inter-exchange carrier competitors. The FCC also has,
subject to reconsideration, announced that it will impose charges on
inter-exchange carriers, including LDI, to support subsidies for
telecommunications services for schools, libraries, rural health care centers
and low income persons. LDI expects to pass these charges on to its customers,
provided, however, if LDI were unable to pass on these charges, such could have
a material adverse effect on LDI's business, financial condition and results of
operations and its ability to pay principal of and interest on the Notes.
The FCC requires long distance carriers to pay access charges to payphone
providers for calls made from payphones to toll-free numbers or "10xxx" numbers
administered by long distance carriers. Prior to October 7, 1997, this
obligation applied only to long distance carriers with toll revenues of $100
million or more per annum. As of October 7, 1997, all long distance carriers,
irrespective of their annual toll revenues, must pay to each payphone operator
$.284 for each access or toll-free call made from the operator's payphones
unless the payphone operator and the long distance carrier agree upon a
different rate of compensation. LDI's card-based services in the United States
are accessed by customers through a toll-free number, often from payphones. LDI
has marketed its services at a discount to prices charged by larger carriers
which recently have begun charging this $.284 access charge. There can be no
assurance that LDI will be able to fully pass this cost on to its customers or
that doing so will not result in a loss of customers. Furthermore, larger
carriers are likely to be able to negotiate lower payphone access charges than
LDI, which could result in such carriers offering lower pricing on services in
the United States accessed from payphones than that offered by LDI.
In addition to regulation by the FCC, the majority of the states require
the Company to register or apply for certification prior to initiating
intrastate interexchange telecommunications service. To date, the Company is
certified to provide intrastate interexchange telecommunications services in 41
states and the District of Columbia. The laws of certain states, including the
rules, regulations and policies of certain state regulatory authorities, require
entities such as the Company to obtain prior approval or to file ratifications
of certain securities issuances, including, in certain cases, the Offering. The
Company has filed notifications with state regulatory authorities and is seeking
approval of the Offering, where required. While many of such authorities have
granted approval, no assurances can be given that the Company will receive such
approvals from all of the states in which it is certified. State issued
certificates of authority to provide intrastate interexchange telecommunications
services can generally be conditioned, modified, canceled, terminated or revoked
by state regulatory authorities for failure to comply with state law and/or the
rules, regulations and policies of the state regulatory authorities. Fines and
other penalties also may be imposed for such violations.
A substantial portion of LDI's expansion strategy is based upon the
expected regulatory liberalization of certain EU markets that commenced on
January 1, 1998. In response to such liberalization, LDI has been and is
continuing to establish operations and making capital expenditures in certain EU
countries. Although liberalization is a legal obligation required by EU
directives, certain of the more detailed EU regulatory framework to apply in the
liberalized environment after January 1, 1998, including further directives,
still requires adoption by the Council of the European Communities. Certain EU
member states have been granted a derogation from liberalizing their
telecommunication markets on January 1, 1998. Luxembourg has
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been granted a six month derogation. Ireland and Portugal have been granted a
derogation until January 1, 2000, although Ireland has indicated that it will
liberalize on January 1, 1999. Spain has been granted a derogation entitling it
to delay liberalization until December 1, 1998. Greece has been granted a
derogation entitling it to delay full liberalization until January 1, 2001.
There can be no assurance that each EU member state will proceed with the
expected liberalization on schedule, if at all, that the trend towards
liberalization will not be stopped or reversed or that any steps taken by EU
member states toward liberalization will actually result in an open or
competitive telecommunications market. Accordingly, LDI faces the risk that it
will establish operations and make capital expenditures in a given country in
anticipation of regulatory liberalization which does not subsequently occur, is
delayed or does not result in the market environment anticipated by LDI.
The national governments of EU member states must pass legislation to
liberalize the markets within their countries to give effect to EU directives.
This applies not only to the liberalization requirements set out in EU
directives that already have been adopted, but also requirements to be contained
in those directives which still remain to be adopted by the Council of the
European Communities. LDI's provision of services in Europe may be materially
adversely affected if any EU member state imposes greater restrictions on non-EU
international services than on international services within the EU, although EU
members have signed the WTO Agreement which allows access to their markets by
other signatories. Some EU member states have inconsistently and, in some
instances, unclearly implemented EU telecommunications directives, which could
limit, constrain or otherwise adversely affect LDI's ability to provide certain
services. Furthermore, national governments may not necessarily pass legislation
enacting an EU directive in the form required, if at all, or may pass such
legislation only after a significant delay. In November 1997, the European
Commission commenced proceedings against seven EU member states, including
Belgium, Denmark, Germany, Greece, Italy, Luxembourg and Portugal for failure to
implement certain EU telecommunications directives fully. Even if a national
legislature enacts appropriate regulations within the time frame established by
the EU, there may be significant resistance to the implementation of such
legislation from PTOs, regulators, trade unions and other sources. For example,
in the United Kingdom, Mercury Communications, now Cable & Wireless
Communications ("Mercury"), resorted to legal action against the Post Office
Engineering Union because the union refused to connect customers to Mercury's
switches. In France, the telecommunications union has stated its objection to
the current move towards liberalization. In Germany, competitors of Deutsche
Telekom have had to resort to court proceedings to attempt to obtain unbundled
access to the local loop and the interconnection prices set by the relevant
ministry have been challenged. In addition, in both France and Germany, the
interconnection prices currently in effect would make it difficult for
competitors such as the Company to generate positive gross margins in those
countries without substantial infrastructure investment. For instance in France,
infrastructure licensees are entitled to lower rates for interconnection with
France Telecom, currently about 20% lower than voice licensees. The France
Telecom interconnect contract and draft license for voice licensees are not yet
finalized. In Italy, the government has, in the past, failed to adopt requisite
legislation liberalizing its telecommunications markets on a timely basis. These
and other potential obstacles to liberalization could have a material adverse
effect on LDI's operations by preventing LDI from expanding its operations as
currently intended, as well as a material adverse effect on LDI's business,
financial condition and results of operations and its ability to pay principal
of and interest on the Notes.
If LDI's interpretation of applicable laws and regulations proves
incorrect, it could lose, or be unable to obtain, regulatory approvals necessary
to provide certain of its services or to use certain of its transmission
methods. LDI also could have substantial monetary fines and penalties imposed
against it. There can be no assurance that LDI has accurately interpreted or
will accurately interpret applicable laws and regulations in particular
jurisdictions, or that regulators or third parties will not raise material
issues with regard to LDI's compliance with applicable laws or regulations.
If LDI is unable to provide the services it is presently providing or
intends to provide or to use its existing or contemplated access or transmission
methods due to its inability to receive or retain formal or informal approvals
for such services or access or transmission methods, or for any other reason
related to regulatory compliance or the lack thereof, LDI's business, financial
condition and results of operations and its ability to
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pay principal of and interest on the Notes would be materially and adversely
affected. See "Business -- Regulation."
INABILITY TO PREDICT TRAFFIC VOLUME
The Company may purchase IRUs or enter into long-term agreements for leased
capacity in anticipation of traffic volumes which do not reach expected levels
and therefore, be obligated to pay for transmission capacity without adequate
corresponding revenues. In addition, in the event the Company leases capacity
with minimum volume commitments and such minimum volumes are not obtained, the
Company may be required to pay under-utilization charges. Conversely, the
Company may underestimate its need for capacity and, therefore, be required to
obtain transmission capacity through more expensive means. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." If
the Company is unable to accurately project its needs for capacity in the
future, such inability may have a material adverse effect on the Company's
business, financial condition and results of operations and its ability to pay
principal of and interest on the Notes.
NEED FOR LOCAL CONNECTIVITY
To originate and terminate calls, LDI requires "local connectivity," which
is the right to use the PSTN. Although LDI has been successful to date in
obtaining local connectivity in each of its existing network cities in the
United States, there can be no assurance that LDI will be able to maintain local
connectivity, obtain additional local connectivity in such cities to the extent
necessary or desirable, or obtain local connectivity in additional cities, in
each case either on acceptable terms or at all. In the United States, LDI
obtains local connectivity from LECs, which also are competitors of LDI.
Furthermore, in the United States, access and termination costs charged by LECs
to long distance providers constitute a significant portion of the total cost of
domestic long distance calls. LDI is interconnected with British Telecom in the
United Kingdom and at present obtains its local connectivity in other European
countries from other reseller carriers. LDI is negotiating interconnection
agreements with the PTOs in such other western European countries for local
connectivity. There can be no assurance that any of the foregoing competitors
will make local connectivity available to LDI at commercially reasonable rates
or on a timely basis. For instance, in France, voice license interconnect
tariffs are currently only available in respect of those transit zones in which
carriers such as LDI install and connect a POP to France Telecom by means of
three 2Mb circuits. The Company has entered into interconnection agreements with
the PTOs in the United Kingdom, Denmark, The Netherlands and Sweden. The Company
expects to enter into interconnection agreements with the PTOs in France, Italy,
Germany, Belgium, Norway, Switzerland and Austria in 1998. There can be no
assurances that the Company will be able to negotiate interconnection agreements
with such PTOs on favorable terms or at all, or that LDI will be able to
implement interconnection in any country where it enters into interconnection
agreements. The failure to obtain local connectivity on commercially acceptable
terms could have a material adverse effect upon LDI's business, financial
condition and results of operations and its ability to pay principal of and
interest on the Notes.
DEPENDENCE ON LEASED LINES AND CARRIERS
LDI will not own most of the telecommunications transmission lines that it
uses. The telephone calls made by LDI's customers will be connected, at least in
part, through transmission lines that LDI will lease. Many of the lessors of
such lines are competitors of LDI. In many countries, the only provider of
transmission facilities is the PTO. Accordingly, prior to full liberalization,
there may be only one source of intra-national transmission lines in these
countries, and LDI may be required to lease transmission capacity at
artificially high rates from a provider that occupies a monopoly or near
monopoly position on the portion of a call transmitted in that provider's
country. Such rates may be too high to allow LDI to generate gross profit on
international calls routed to an LDI switch or node by means of such
intra-national lines. In addition, PTOs will not necessarily be required by law
to allow LDI to lease transmission lines. Even where applicable law requires
PTOs to lease transmission lines to LDI, delays may nevertheless be encountered
with respect to the
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commencement of operations, and extensive delays may occur with respect to the
negotiation of leases and interconnection agreements. In addition, disputes may
occur with respect to pricing terms and billing.
LDI will be vulnerable to changes in its lease arrangements, such as price
increases and service cancellations, where LDI leases capacity for
point-to-point circuits on a monthly or longer-term fixed cost basis. The
negotiation of lease agreements will involve estimates regarding future supply
and demand for transmission capacity as well as estimates of the calling
patterns and traffic levels of LDI's existing and future customers. LDI's
success will depend, in part, on its ability to obtain and utilize leased
capacity on a cost-effective basis. Depending upon the rate, LDI could suffer
competitive disadvantages if it entered or enters into leases with inappropriate
durations or leases based on per minute charges for high volume routes (or
leases with fixed monthly rates for low volume routes), or if it fails to meet
any minimum volume requirements thereunder. LDI also will be vulnerable to
service interruptions and poor transmission quality from leased lines. The
deterioration or termination of LDI's relationships with one or more of its
carrier vendors could have a material adverse effect upon LDI's business,
financial condition and results of operations and its ability to pay principal
of and interest on the Notes.
The Company intends to provide transmission capacity to carriers and
believes that the revenue it will earn from its carrier customers will represent
a significant portion of its future revenues. Carrier customers are price
sensitive and therefore any increase by LDI in the price of its carrier customer
services relative to its competitors or any relative decrease in the price of
such services offered by such competitors would impact adversely on the
Company's carrier customer base and on its business, financial condition and
results of operations. In addition, certain of the Company's carrier customers
may be unprofitable or only marginally profitable, resulting in a risk of
delinquency or non-payment.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS AND BILLING AND COLLECTION
AGREEMENTS
To complete its billing, LDI must record and process large amounts of data
quickly and accurately. LDI is in the process of upgrading existing in-house
billing and customer information systems in the United States and is installing
a new billing and rating platform in Europe. LDI believes that the successful
implementation and integration of these enhanced and new information systems is
important to its continued growth and its ability to monitor costs, bill
customers and achieve operating efficiencies, but there can be no assurance that
LDI will not encounter delays or cost-overruns or suffer adverse consequences in
implementing such systems. In addition, as LDI's information systems suppliers
revise and upgrade their hardware, software and equipment technology, there can
be no assurance that LDI will not encounter difficulties in integrating such new
technology into its business or that the new systems will be appropriate for
LDI's business. The failure of the Company's systems to meet its needs would
have a material adverse effect on the Company's business, financial condition
and results of operations and its ability to pay principal of and interest on
the Notes. See "Business -- Information Technology." The Company bills
substantially all of its United States customers, including all of its
dial-around customers, through LEC billing and collection agreements, pursuant
to which the Company's charges are placed on the customers' monthly local
telephone bills. In addition, the Company benefits from the LECs' extensive
collections infrastructure. The Company believes that LEC billing and collection
is the most effective mechanism for billing and collecting charges from most of
its United States customers, and the loss of agreements covering a significant
number of customers could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL
The success of LDI is dependent, in large part, upon its senior management.
The loss of services of any of the members of LDI's senior management team,
particularly Clifford Friedland, the Chairman, Co-Chief Executive Officer and
European Managing Director, or David Glassman, the President and Co-Chief
Executive Officer, could have a material adverse effect on LDI, its business,
financial condition and results of operations and its ability to pay principal
of and interest on the Notes. Mr. Glassman and Mr. Friedland are parties to
employment agreements with LDI, both with initial terms expiring on June 30,
1998. Such agreements automatically renew for successive one-year periods unless
notice of termination is given. See "Management -- Executive
Compensation -- Employment Agreements." LDI maintains "key person" life
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insurance policies on the lives of each of Messrs. Glassman and Friedland that
provide for payment of $1 million to LDI in the event of death or long-term
disability.
LDI's success also will depend on its ability to attract, retain and
motivate additional qualified management, marketing, technical, sales and other
personnel who are in high demand and are often subject to competing employment
opportunities, including qualified independent sales agents. LDI recently hired
a chief financial officer and various technical and marketing employees and will
be required to hire additional management, as well as marketing, technical,
sales and other personnel as LDI effectuates its expansion strategy. In
addition, LDI is in the process of assembling a European management team and
establishing arrangements with sales agents and resellers in Europe to support
the expansion of its network into western Europe. There can be no assurance that
LDI will be successful in attracting, retaining or motivating such personnel.
The loss of the services of key personnel or the inability to attract additional
qualified personnel, could have a material adverse effect upon LDI's business,
financial condition and results of operations and its ability to pay principal
of and interest on the Notes. See "-- Dependence on Third Party Sales
Organizations."
DEPENDENCE ON EQUIPMENT SUPPLIER
LDI leases or intends to lease a significant portion of its switch
equipment from Digital Switch Corp. and Ericsson AB. Any inability of LDI to
lease such switches on a timely basis or at competitive prices, or any failure
by LDI to successfully integrate such switches into its network, could result in
delays, operational problems or increased expenses. If LDI were required to
obtain switch equipment from other suppliers, such would adversely impact LDI's
strategy to configure its sites as identically as practicable in order to reduce
its personnel and training requirements. Any of the foregoing could have a
material adverse effect upon LDI's business, financial conditions and results of
operations and its ability to pay principal of and interest on the Notes. See
"Business -- The LDI Network."
PRINCIPAL SHAREHOLDERS; CONFLICTS OF INTEREST
Clifford Friedland, the Chairman, Co-Chief Executive Officer and European
Managing Director of LDI, and David Glassman, the President and Co-Chief
Executive Officer of LDI, own, in the aggregate, approximately 42% of the
outstanding shares of Common Stock prior to the Offering (giving effect to the
options under LDI's 1997 Stock Incentive Plan (the "Incentive Plan"), held by
Mr. Friedland and Mr. Glassman which are currently exercisable). Such
shareholders will continue to have significant influence over the election of
members of LDI's Board of Directors, other than the two directors who may be
elected by the holders of the Series B Preferred Stock, the outcome of matters
submitted to a vote of the holders of Common Stock and generally will be able to
direct the affairs of LDI. Pursuant to the shareholders' agreements among the
Company and certain of its shareholders dated July 22, 1994 and September 1994
(the "1994 Shareholders' Agreements"), each shareholder party to the 1994
Shareholders' Agreements is required to vote all of its shares of stock and take
all such other actions as may be necessary to elect and maintain each of Messrs.
Friedland and Glassman as members of the Board of Directors of the Company so
long as he owns at least 5% of the issued and outstanding capital stock of the
Company. In addition, certain entities affiliated with Advent International
Corporation (the "Advent Entities"), own Series B Preferred Stock and warrants
to purchase Common Stock (collectively, with warrants issued to certain other
persons in connection with the sale of securities to the Advent Entities, the
"ADV Warrants"). The ADV Warrants entitle the Advent Entities to purchase
10,802,505 shares of Common Stock. The Company has agreed to issue additional
warrants to the Advent Entities to purchase 1,000,000 shares of Common Stock in
consideration of their consent to amend certain terms of the Series B Preferred
Stock. See "Certain Transactions." The approval of the holders of a majority of
the shares of Series B Preferred Stock is required for LDI to take certain
actions, including the sale of certain of LDI's assets, a merger, consolidation,
recapitalization or liquidation of LDI, the declaration or payment of certain
dividends or the acquisition or redemption of any class of capital stock. In
addition, the holders of the Series B Preferred Stock are entitled to elect two
directors to the Company's Board of Directors. See "Description of the Capital
Stock -- Preferred Stock -- Series B Preferred Stock."
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Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the holders of the Company's
capital stock and the holders of the Notes. For example, if the Company
encounters financial difficulties or is unable to pay its debts as they mature,
the interest of these investors may conflict with those of the holders of the
Notes. In addition, the holders of the Company's capital stock may have an
interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity investment in
the Company even though such transactions might involve increased risk to the
holders of the Notes. See "Principal Shareholders."
ANTI-TAKEOVER EFFECTS
The Florida Business Corporation Act, as amended (the "Florida Act"),
prohibits certain Florida corporations from engaging in a broad range of
business combinations or extraordinary transactions with shareholders which own
10% or more of the corporation's voting securities unless certain shareholder or
disinterested director consents have been obtained. This provision of the
Florida Act will be applicable to LDI at such time as it has more than a
specified number of shareholders. The Florida Act also contains a provision
which could prohibit the voting of shares in certain Florida corporations which
are acquired in an acquisition that immediately thereafter entitles the
acquiring party to vote more than one-fifth of the corporation's voting power in
the election of directors. The Company is subject to this provision of the
Florida Act. In addition, upon a change of control of LDI, LDI is required to
redeem the Series A Preferred Stock and holders of the Series B Preferred Stock
may require LDI to redeem its Series B Preferred Stock. Any of the foregoing, as
well as the concentrated ownership of LDI, could have the effect of delaying or
precluding transactions involving a change of control of LDI, including
transactions in which shareholders might otherwise receive a substantial premium
for their shares over then current market prices. See "Description of the
Capital Stock -- Anti-Takeover Provisions of Florida Law" and "Principal
Shareholders."
LACK OF PUBLIC MARKETS
The Senior Notes have been designated for trading by qualified buyers in
the PORTAL Market. The Senior Notes have not been registered under the
Securities Act, however, and will continue to be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes.
Furthermore, the Exchange Offer will not be conditioned upon any minimum or
maximum aggregate principal amount of Senior Notes being tendered for exchange.
No assurance can be given as to the liquidity of the trading market of the
Senior Notes following the Exchange Offer.
Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by the holders thereof (other than any holder that is (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) a broker-dealer that acquired Senior Notes as a result of
market-making activities or other trading activities) without compliance with
the registration requirements under the Securities Act, the Exchange Notes will
constitute a new issue of securities for which there is currently no established
trading market. If a trading market does not develop or is not maintained,
holders of the Exchange Notes may experience difficulty in reselling the
Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may cease at any time. If a public
trading market develops for the Exchange Notes, future trading prices of the
Exchange Notes will depend on many factors, including, among other things,
prevailing interest rates, the market for similar securities, the financial
conditions and results of operations of the Company and other factors beyond the
control of the Company, including general economic conditions. The Company does
not intend to list the Exchange Notes on any national securities exchange or to
seek approval for quotation through any automated quotation system. The Company
has been advised by the Placement Agents that following completion of the
Exchange Offer, the Placement Agents intend to make a market in the Exchange
Notes. However, the Placement Agents are not obligated to do so and any
market-making activities with respect to the Exchange Notes may be discontinued
at any time without notice. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of or the trading market for the Exchange Notes.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" of the Company (within the meaning of Rule
405 under the Securities Act) may publicly offer for
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sale or resell the Exchange Notes only in compliance with the provisions of Rule
144 under the Securities Act or any other available exemptions under the
Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Exchange Notes should be treated as a continuation of the Senior Notes
for federal income tax purposes. The Senior Notes were treated as having been
issued at a discount for United States federal income tax purposes. Prospective
investors should consult their tax advisors about the application of federal
income tax law, as well as any applicable state, local or foreign tax laws. This
Prospectus contains no information regarding taxation other than under certain
laws of the United States.
If a bankruptcy case is commenced by or against LDI under the United States
Bankruptcy Code, the claim of a holder of Notes may be limited to an amount
equal to the sum of the issue price as determined by the bankruptcy court and
that portion of the original issue discount which is deemed to accrue from the
issue date to the date of any bankruptcy filing.
CONSEQUENCES OF A FAILURE TO EXCHANGE SENIOR NOTES
The Senior Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Senior Notes that
remain outstanding after consummation of the Exchange Offer will continue to
bear a legend reflecting such restrictions on transfer. In addition, upon
consummation of the Exchange Offer, holders of Senior Notes that remain
outstanding will not be entitled to any rights to have such Senior Notes
registered under the Securities Act. The Company does not intend to register
under the Securities Act any Senior Notes that remain outstanding after
consummation of the Exchange Offer. See "The Exchange Offer." To the extent that
Senior Notes are not tendered and accepted in the Exchange Offer, a holder's
ability to sell such Senior Notes could be adversely affected.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for Senior Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
(i) such Senior Notes or a book-entry confirmation of a book-entry transfer of
the Senior Notes into the Exchange Agent's account at The Depository Trust
Company ("DTC"); (ii) the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees;
and (iii) any other documents required by the Letter of Transmittal. Holders of
the Senior Notes desiring to tender such Senior Notes in exchange for Exchange
Notes should allow sufficient time to ensure timely delivery. The Company and
the Exchange Agent are under no duty to give notification of defects or
irregularities with respect to the tenders of Senior Notes for exchange. See
"The Exchange Offer."
SHARES ELIGIBLE FOR FUTURE SALE
LDI has 100,000,000 shares of Common Stock, 2,600,000 shares of Series A
Preferred Stock and 5,000,000 shares of Series B Preferred Stock authorized. As
of June 1, 1998, there were 25,815,489 shares of Common Stock outstanding,
2,456,556 shares of Series A Preferred Stock outstanding and 2,500,000 shares of
Series B Preferred Stock outstanding, all of which are restricted securities
under Rule 144 under the Securities Act and may not be sold other than pursuant
to an effective registration statement under the Securities Act or pursuant to
an exemption from such registration requirements. In connection with the
Offering, the Company
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issued 225,000 Warrants to purchase an aggregate of 3,394,655 shares of Common
Stock (representing approximately 6.5% of the outstanding Common Stock on a
fully-diluted basis as of the closing date of the Offering). The holders of the
Warrants will be entitled to "piggy-back" registration rights for the shares of
Common Stock purchasable upon exercise of the Warrants in connection with any
public offering of Common Stock (subject to certain exceptions). See
"Description of the Warrants." As of June 1, 1998, options and warrants to
purchase an additional 19,246,453 shares of Common Stock were outstanding. The
Company has granted certain registration rights with respect to substantially
all of the outstanding shares of Common Stock. In addition, the Company has
granted certain registration rights with respect to the shares of Common Stock
issuable upon exercise of the ADV Warrants. See "Description of the Capital
Stock -- Registration Rights." Following an initial public offering of the
Common Stock, sales of a substantial number of shares of Common Stock in the
public market under Rule 144 or otherwise, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock. See
"Description of the Capital Stock."
RISKS REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains "forward-looking statements" (as such term is
defined in the Private Securities Litigation Reform Act of 1995), which
generally can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by discussion
of strategy that involves risks and uncertainties. Management wishes to caution
the reader that these forward-looking statements, such as the Company's plans
and strategies, its anticipation of increases in long distance call traffic and
of revenues from designated markets, and statements regarding the development of
the Company's business, the markets for the Company's services and products, the
Company's anticipated capital expenditures, possible changes in regulatory
requirements and other statements contained herein regarding matters that are
not historical facts, are only predictions and estimates regarding future events
and circumstances. Cautionary Statements are disclosed in this Prospectus,
including, without limitation, in connection with the forward-looking statements
included in this Prospectus and under "Risk Factors." No assurance can be given
that the future results will be achieved; actual events or results may differ
materially as a result of risks facing the Company. Such risks include, but are
not limited to, the Company's ability to successfully implement its expansion
plans and market its services to current and new customers; access markets;
identify, finance and complete suitable acquisitions; obtain IRUs and leased
transmission capacity and any required governmental authorizations and licenses,
all in a timely manner, at reasonable costs and on satisfactory terms and
conditions, as well as regulatory, legislative and judicial developments that
could cause actual results to differ materially from the future results
indicated, expressed or implied, in such forward-looking statements. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligations to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Senior Notes, the Company entered into
the Registration Rights Agreement with the Placement Agents, pursuant to which
the Company agreed to file and to use its best efforts to cause to become
effective with the Commission a registration statement with respect to the
exchange of the Senior Notes for Exchange Notes having terms identical in all
material respects to the terms of the Senior Notes. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part (the "Registration Statement"). The Exchange
Offer is being made to satisfy the contractual obligations of the Company under
the Registration Rights Agreement. All Senior Notes validly tendered will be
accepted for exchange.
By tendering Senior Notes in exchange for Exchange Notes, each holder will
represent to the Company that: (i) any Exchange Notes to be received by such
holder will be acquired in the ordinary course of such holder's business; (ii)
such holder has no arrangement or understanding with any person to participate
in a distribution (within the meaning of the Securities Act) of the Exchange
Notes; (iii) such holder is not an "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act), or if such holder is an
affiliate, that such holder will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable; (iv) such
holder has full power and authority to tender, exchange, sell, assign and
transfer the tendered Senior Notes; (v) the Company will acquire good,
marketable and unencumbered title to the tendered Senior Notes, free and clear
of all liens, restrictions, charges and encumbrances; and (vi) the Senior Notes
tendered for exchange are not subject to any adverse claims or proxies. Each
tendering holder also will warrant and agree that such holder will, upon
request, execute and deliver any additional documents deemed by the Company or
the Exchange Agent to be necessary or desirable to complete the exchange, sale,
assignment, and transfer of the Senior Notes tendered pursuant to the Exchange
Offer. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Senior Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Senior 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, or any participant in
DTC whose name appears on a security position listing as a holder of Senior
Notes (which, for purposes of the Exchange Offer, include beneficial interests
in the Senior Notes held by direct or indirect participants in DTC and Senior
Notes held in definitive form).
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange $1,000 principal amount of Exchange Notes for each $1,000 principal
amount of Senior Notes properly tendered prior to the Expiration Date and not
properly withdrawn in accordance with the procedures described below. Holders
may tender their Senior Notes in whole or in part in integral multiples of
$1,000 principal amount.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Senior Notes, except that the Exchange Notes will have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Senior Notes. The Exchange Notes will
evidence the same indebtedness as the Senior Notes (which they will replace) and
will be issued pursuant to, and entitled to the benefits of, the Indenture.
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The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered for exchange. The Company reserves the
right in its sole discretion to purchase or make offers for any Senior Notes
that remain outstanding after the Expiration Date or, as set forth under
"-- Conditions to the Exchange Offer," to terminate the Exchange Offer and, to
the extent permitted by applicable law, purchase Senior Notes in the open
market, in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer. As of the
date of this Prospectus, $225.0 million aggregate principal amount of Senior
Notes is outstanding.
Holders of Senior Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Senior Notes that are not tendered, or are
tendered but not accepted, in connection with the Exchange Offer will remain
outstanding and will continue to accrue interest in accordance with their terms.
Following consummation of the Exchange Offer, the holders of Senior Notes will
continue to be subject to the existing restrictions on transfer thereof and will
not retain any rights under the Registration Rights Agreement. The Company does
not intend to register under the Securities Act any Senior Notes that remain
outstanding after consummation of the Exchange Offer. See "Risk
Factors -- Consequences of a Failure to Exchange Senior Notes."
If any tendered Senior 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 Senior Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Senior Notes in connection with 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 Senior Notes in connection with the Exchange Offer. The Company will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "-- Fees and Expenses."
THE BOARD OF DIRECTORS OF THE COMPANY MAKES NO RECOMMENDATION TO HOLDERS OF
SENIOR NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY
PORTION OF THEIR SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. EACH HOLDER OF SENIOR
NOTES MUST MAKE ITS OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE
OFFER AND, IF IT DECIDES TO DO SO, AS TO THE AGGREGATE AMOUNT OF SENIOR NOTES TO
TENDER, AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH ITS ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS, AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, or if the Company waives a material condition of
the Exchange Offer, the Company will promptly disclose such amendment by means
of a prospectus supplement that will be distributed to the
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registered holders of the Senior Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such extension or amendment will be followed promptly by oral or
written notice thereof to the Exchange Agent (any such oral notice to be
promptly confirmed in writing) and by making a public announcement thereof, and
such announcement in the case of an extension will be made no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Company may
choose to make any public announcement, and subject to applicable laws, the
Company shall have no obligation to publish, advertise or otherwise communicate
any such public announcement other than by issuing a release to an appropriate
news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes for
Senior Notes validly tendered and not withdrawn (pursuant to the withdrawal
rights described under "-- Withdrawal Rights") promptly after the Expiration
Date.
In all cases, delivery of Exchange Notes in exchange for Senior Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) Senior Notes or a
book-entry confirmation of a book-entry transfer of Senior Notes into the
Exchange Agent's account at DTC; (ii) the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees; and (iii) any other documents required by the Letter of Transmittal.
Accordingly, the delivery of Exchange Notes might not be made to all tendering
holders at the same time, and will depend upon when Senior Notes, book-entry
confirmations with respect to Senior Notes and other required documents are
received by the Exchange Agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Senior Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Senior Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent (any such oral notice to be promptly
confirmed in writing) of the Company's acceptance of such Senior Notes for
exchange pursuant to the Exchange Offer. The Company's acceptance for exchange
of Senior Notes tendered pursuant to any of the procedures described above will
constitute a binding agreement between the tendering holder and the Company upon
the terms and subject to the conditions of the Exchange Offer. The Exchange
Agent will act as agent for the Company for the purpose of receiving tenders of
Senior Notes, Letters of Transmittal and related documents, and as agent for
tendering holders for the purpose of receiving Senior Notes, Letters of
Transmittal and related documents and transmitting Exchange Notes to holders who
validly tendered Senior Notes. Such exchange will be made promptly after the
Expiration Date. If for any reason whatsoever the acceptance for exchange or the
exchange of any Senior Notes tendered pursuant to the Exchange Offer is delayed
(whether before or after the Company's acceptance for exchange of Senior Notes),
or the Company extends the Exchange Offer or is unable to accept for exchange or
exchange Senior Notes tendered pursuant to the Exchange Offer, then, without
prejudice to the Company's rights set forth herein, the Exchange Agent may,
nevertheless, on behalf of the Company and subject to Rule 14e-1(c) under the
Exchange Act, retain tendered Senior Notes and such Senior Notes may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "-- Withdrawal Rights."
PROCEDURES FOR TENDERING SENIOR NOTES
Valid Tender. Except as set forth below, in order for Senior Notes to be
validly tendered pursuant to the Exchange Offer, either (i) (a) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof), with
any required signature guarantees and any other required documents, must be
received by the Exchange Agent at the address set forth under "-- Exchange
Agent" prior to the Expiration Date and
36
<PAGE> 37
(b) tendered Senior Notes must be received by the Exchange Agent, or such Senior
Notes must be tendered pursuant to the procedures for book-entry transfer set
forth below and a book-entry confirmation must be received by the Exchange
Agent, in each case prior to the Expiration Date, or (ii) the guaranteed
delivery procedures set forth below must be complied with.
If less than all of the Senior Notes held by a holder are tendered by such
holder, such holder should fill in the amount of Senior Notes being tendered in
the appropriate box on the Letter of Transmittal. The entire amount of Senior
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company, in its sole discretion, of such person's
authority to so act must be submitted.
Any beneficial owner of Senior Notes that are held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
THE METHOD OF DELIVERY OF SENIOR NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. 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 TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE OBTAINED. NO
LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Book-Entry Transfer. The Exchange Agent will make a request to establish
an account with respect to the Senior Notes at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any financial
institution that is a participant in DTC's book-entry transfer facility system
may make a book-entry delivery of the Senior Notes by causing DTC to transfer
such Senior Notes into the Exchange Agent's account at DTC in accordance with
DTC's procedures for transfers. However, although delivery of Senior Notes may
be effected through book-entry transfer into the Exchange Agent's account at
DTC, the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees and any other required
documents, must in any case be delivered to and received by the Exchange Agent
at its address set forth under "-- Exchange Agent" prior to the Expiration Date,
or the guaranteed delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for Senior Notes need not be endorsed
and signature guarantees on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are unnecessary unless (a) a certificate for Senior Notes is
registered in a name other than that of the person surrendering the certificate
or (b) a registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (a) or (b) above, such certificates for Senior Notes must be duly
endorsed or accompanied by a properly executed bond power, with the endorsement
or signature on the bond power and on the Letter of Transmittal or the notice of
withdrawal, as the case may be, guaranteed by a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association
37
<PAGE> 38
that is a participant in a Securities Transfer Association (each an "Eligible
Institution"), unless surrendered on behalf of such Eligible Institution. See
Instructions 2 and 5 to the Letter of Transmittal.
Guaranteed Delivery. If a holder desires to tender Senior Notes pursuant
to the Exchange Offer and the certificates for such Senior Notes are not
immediately available or time will not permit all required documents to reach
the Exchange Agent before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such Senior Notes may
nevertheless be tendered, provided that all of the following guaranteed delivery
procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form accompanying the Letter of
Transmittal, setting forth the name and address of the holder of Senior
Notes and the amount of Senior Notes tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Senior
Notes, in proper form for transfer, or a book-entry confirmation, as the
case may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent. The
Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery; and
(iii) the certificates (or book-entry confirmation) representing all
tendered Senior Notes, in proper form for transfer, together with a
properly completed and duly executed Letter of Transmittal, with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent within three New
York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Senior Notes will be determined by the Company, in its sole
discretion, which determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance for exchange of which may, in the view of counsel to the Company, be
unlawful. The Company also reserves the absolute right, subject to applicable
law, to waive any of the conditions of the Exchange Offer as set forth under
"-- Conditions to the Exchange Offer" or any defect or irregularity in any
tender of Senior Notes of any particular holder whether or not similar defects
or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding on all parties. No tender of Senior Notes will be deemed to
have been validly made until all defects or irregularities with respect to such
tender have been cured or waived. Neither the Company, any affiliates or assigns
of the Company, the Exchange Agent or any other person shall be under any duty
to give any notification of any defects or irregularities in tenders or incur
any liability for failure to give any such notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that a holder of Senior Notes (other than any holder that is (i) a
broker-dealer that acquired Senior Notes as a result of market-making activities
or other trading activities or (ii) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act), who exchanges such holder's
Senior Notes for Exchange Notes pursuant to the Exchange Offer may offer for
resale, resell and otherwise transfer such Exchange Notes without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement or understanding with any
38
<PAGE> 39
person to participate in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. Any holder who tenders Senior Notes in the Exchange
Offer with the intention to participate, or for the purpose of participating, in
a distribution of the Exchange Notes or who is an affiliate of the Company may
not rely upon such interpretations by the staff of the Commission and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction. Failure to comply with such requirements in such
instance may result in such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the Company. The staff of the
Commission has not considered the Exchange Offer in the context of a no-action
letter, and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Senior Notes, where such Senior Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
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. The Company has
agreed that, for a period not to exceed 180 days after the Expiration Date, it
will furnish additional copies of this Prospectus, as amended or supplemented,
to any broker-dealer that reasonably requests such documents for use in
connection with any such resale. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Senior Notes may be
withdrawn at any time prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "-- Exchange Agent" prior to
the Expiration Date. Any such notice of withdrawal must specify the name of the
person who tendered the Senior Notes to be withdrawn, the aggregate principal
amount of Senior Notes to be withdrawn, and (if certificates for such Senior
Notes have been tendered) the name of the registered holder of the Senior Notes
as set forth on the Senior Notes, if different from that of the person who
tendered such Senior Notes. If certificates for Senior Notes have been delivered
or otherwise identified to the Exchange Agent, the notice of withdrawal must
specify the certificate number on the particular Senior Notes to be withdrawn
and the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Senior Notes tendered for the account of an
Eligible Institution. If Senior Notes have been tendered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for Tendering
Senior Notes," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Senior Notes and must
otherwise comply with the procedures of DTC. Withdrawals of tenders of Senior
Notes may not be rescinded. Senior Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time prior to the Expiration Date by following any of the
procedures described above under "-- Procedures for Tendering Senior Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all parties.
Neither the Company, any affiliates of the Company, the Exchange Agent or any
other person shall be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Senior Notes which have been tendered but which
are withdrawn will be returned to the holder thereof promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest, which will be payable in cash, at a
rate of 12 1/4% per annum on each April 15 and October 15, the first such
payment to be made on October 15, 1998.
39
<PAGE> 40
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer or any extension
of the Exchange Offer, the Company may terminate the Exchange Offer if the
Exchange Offer violates applicable law or any applicable interpretation of the
staff of the Commission.
EXCHANGE AGENT
The Bank 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 of or Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
BY REGISTERED OR CERTIFIED MAIL, BY OVERNIGHT COURIER OR BY HAND:
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attention: Reorganization Area
or
BY FACSIMILE:
The Bank of New York
Attention: Reorganization Area
Facsimile Number (212) 815-6339
In addition, Letters of Transmittal and any other required documentation
should be sent to the Exchange Agent at the address set forth above, except
where facsimile transmission is specifically authorized (e.g., withdrawals and
Notices of Guaranteed Delivery). DELIVERY OF THE LETTER OF TRANSMITTAL TO AN
ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail. Additional solicitation may be
made personally or by telephone or other means by officers, directors or
employees of the Company.
The Company has not retained any dealer-manager or similar agent 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 has
agreed to 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 Company will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus and related documents to the beneficial
owners of Senior Notes, and in handling or tendering for their customers.
Holders who tender their Senior Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that if Exchange Notes
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Senior Notes tendered, or if a transfer tax is
imposed for any reason other than the exchange of Senior Notes in connection
with the Exchange Offer, then the amount of any such transfer tax (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.
40
<PAGE> 41
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive, in exchange, an equal number of Senior Notes in like
principal amount. The form and terms of the Exchange Notes will be identical in
all material respects to the form and terms of the Senior Notes, except as
otherwise described under "The Exchange Offer -- Terms of the Exchange Offer."
The net proceeds to the Company from the sale of the Senior Notes were
approximately $216.1 million, after deducting the estimated discount and
commissions and other expenses payable by the Company. Approximately $75.5
million of the net proceeds were used to purchase the Pledged Securities, which
will be used to make the first six scheduled interest payments on the Notes.
The Company has also used a portion of the net proceeds and plans to
continue to use the net proceeds (i) to expand the Company's network
infrastructure, including the acquisition of telecommunications equipment and
IRUs and other interests in fiber optic cables, (ii) to develop, acquire and
integrate network management, billing and customer care information systems,
(iii) to expand its sales and marketing programs and (iv) for working capital
and other general corporate purposes. The actual allocation of funds among these
uses will depend on future developments in or affecting the Company's business,
the competitive climate in which it operates and the emergence of future
opportunities. Total estimated capital expenditures for 1998 and 1999 are
approximately $30.0 million and $50.0 million, respectively. In addition, as
part of its business strategy, the Company will continue to evaluate potential
acquisitions, joint ventures and strategic alliances and a portion of the net
proceeds may be used to fund such investments. Although LDI is evaluating
certain potential investment opportunities, it does not have any present
commitments or agreements with respect to any such investment, acquisition or
strategic alliance. Prior to the application of the net proceeds from the
Offering as described above, such funds will be invested in short-term,
investment grade securities.
DIVIDEND POLICY
The Company intends to retain future earnings to finance its growth and
development and therefore does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. The declaration and payment in the
future of any cash dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the earnings, capital
requirements and financial position of the Company, existing and future
covenants and general economic conditions. The holders of Series A Preferred
Stock are entitled to receive cumulative cash dividends at the annual rate of
$.03 per share of Series A Preferred Stock, subject to certain restrictions and
limitations. The holders of Series B Preferred Stock are entitled to receive
cash dividends at the annual rate of $1.20 per share of Series B Preferred
Stock, if and when declared by the Company Board of Directors certain
restrictions and limitations. Unless dividends are paid on both the Series A
Preferred Stock and the Series B Preferred Stock, no dividend is payable on the
Common Stock. The Company's ability to pay dividends on its capital stock
(including the Series A and Series B Preferred Stock) is limited by the terms of
the Indenture. See "Descriptions of the Exchange Notes -- Covenants" and
"Description of the Capital Stock -- Preferred Stock."
41
<PAGE> 42
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of LDI at March 31, 1998, and pro forma as adjusted to give
effect to the Offering. This information should be read in conjunction with "Use
of Proceeds," "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 3,998 $144,620
======== ========
Restricted cash(1).......................................... $ 897 $ 76,400
======== ========
Current portion of long-term debt and capital lease
obligations............................................... $ 849 $ 849
======== ========
Long-term debt and capital lease obligations, net of current
portion:
Capital lease obligations................................. $ 2,854 $ 2,854
Installment loans......................................... 137 137
Senior Notes(2)........................................... -- 211,455
-------- --------
Total long-term debt and capital lease obligations, net
of current portion.................................... 2,991 214,446
Series A Redeemable Preferred Stock:
2,600,000 shares authorized; 2,456,556 shares issued and
outstanding; liquidation value of $1,412,032........... 1,383 1,383
Series B Redeemable Preferred Stock:
5,000,000 shares authorized; 2,500,000 shares issued and
outstanding; liquidation value of $25,000,000.......... 12,834 12,834
Warrants, Redeemable(2)..................................... -- 13,010
Common shareholders' capital deficiency:
Common stock, $.001 par value, 100,000,000 shares
authorized, 25,543,541 shares issued and outstanding... 26 26
Additional paid-in capital................................ 17,248 17,248
Accumulated deficit....................................... (24,780) (24,780)
Accumulated other comprehensive income.................... 20 20
-------- --------
Total common shareholders' capital deficiency.......... (7,486) (7,486)
-------- --------
Total capitalization.............................. $ 9,722 $234,187
======== ========
</TABLE>
- ---------------
(1) Pro forma as adjusted restricted cash includes proceeds from the Offering of
an amount of approximately $75.5 million that were used to purchase Pledged
Securities.
(2) Of the $216.1 million net proceeds from the Offering, $203.1 million has
been allocated to the Notes and $13.0 million has been allocated to the
issuance of the Warrants as determined by the Company's Board of Directors.
42
<PAGE> 43
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data (except for certain data
under Other Data and data under Regional Data) for the years ended December 31,
1995, 1996 and 1997 and as of December 31, 1996 and 1997 were derived from the
audited consolidated financial statements of LDI which, together with the notes
thereto and the related report of Ernst & Young LLP, independent public
accountants, are included elsewhere in this Prospectus. The consolidated
financial data as of December 31, 1993 and 1994 and for the years ended December
31, 1993 and 1994 and the three months ended March 31, 1997 and 1998 were
derived from the Company's unaudited consolidated financial statements. The
Company's unaudited consolidated financial statements for the years ended
December 31, 1993 and 1994 are not included herein. In management's opinion, the
unaudited consolidated financial statements reflect all adjustments (consisting
of only normal recurring adjustments) necessary for a fair presentation of the
Company's financial position and results of operations for such periods. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and the notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, PER MINUTE AND RATIO INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues, net............... $ -- $ 5 $ 2,593 $ 14,362 $ 40,116 $ 8,770 $ 14,460
Costs of telecommunications
services.................. -- 6 1,932 8,361 22,720 4,625 9,621
Selling, general and
administrative expenses... 32 219 2,299 9,887 28,066 5,354 11,829
Depreciation and
amortization.............. -- 7 30 121 440 52 364
---- ----- ------- -------- -------- -------- --------
Operating loss.............. (32) (227) (1,668) (4,007) (11,110) (1,261) (7,355)
Minority interest(1)........ -- -- -- 179 (132) (132) --
Interest expense, net....... -- 7 15 (193) (92) (99) (165)
---- ----- ------- -------- -------- -------- --------
Net loss.................... (32) (220) (1,653) (4,021) (11,334) (1,492) (7,520)
Preferred dividends and
redemption accretion...... -- -- (18) (74) (902) (18) (4,543)
---- ----- ------- -------- -------- -------- --------
Net loss applicable to
common shareholders....... $(32) $(220) $(1,671) $ (4,095) $(12,236) $ (1,510) $(12,063)
==== ===== ======= ======== ======== ======== ========
Net loss per share
applicable to common
shareholders -- basic and
dilutive(2)............... $ -- $(.03) $ (.10) $ (.21) $ (.51) $ (.06) $ (.49)
Weighted average shares
outstanding............... -- 6,521 16,667 19,837 23,953 23,681 24,839
OTHER DATA:
Capital expenditures........ $ 1 $ 61 $ 189 $ 325 $ 3,215 $ 267 $ 904
EBITDA(3)................... (32) (220) (1,638) (3,886) (10,670) (1,209) (6,991)
Revenue per minute.......... -- .34 .34 .24 .23 .22 .21
Billable minutes of use..... -- 16 7,541 58,706 175,248 39,805 69,828
Ratio of earnings to fixed
charges(4)................ -- -- -- -- -- -- --
REGIONAL DATA:
Revenues
United States............. $ -- $ 5 $ 2,544 $ 14,021 $ 34,459 $ 8,427 $ 11,332
Europe.................... -- -- 49 341 5,657 343 3,128
Billable minutes of use
United States............. -- 16 7,461 57,765 159,602 38,727 59,788
Europe.................... -- -- 80 941 15,646 1,078 10,040
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------ MARCH 31,
1993 1994 1995 1996 1997 1998
----------- ----------- ------ ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ -- $606 $ 545 $ 255 $12,173 $ 3,998
Total assets................................. -- 845 1,667 3,894 27,807 26,322
Short term debt.............................. -- -- -- -- 551 849
Long term debt, net of current portion....... -- -- -- -- 2,600 2,991
Series A Redeemable Convertible Preferred
Stock...................................... -- -- 1,185 1,291 1,365 1,383
Series B Redeemable Preferred Stock.......... -- -- -- -- 12,350 12,834
Common shareholders' capital deficiency...... (32) 616 1,132 (1,368) (239) 7,486
</TABLE>
- ---------------
(1) In January 1996, the Company contributed $150,000 in respect of an 80%
equity interest in LDI Ltd. In January 1998, the Company purchased the
outstanding 20% minority interest for approximately $380,000. During 1997,
the minority shareholder did not fund its share of LDI Ltd.'s losses and, as
a result, during 1997 the Company absorbed LDI Ltd.'s cumulative unfunded
net losses.
(2) The Company's loss per share amounts for all periods presented are computed
in accordance with SFAS No. 128 "Earnings Per Share", which was effective
for periods ending after December 15, 1997. Loss applicable to common
shareholders has been reduced by preferred dividends and redemption
accretion.
(3) EBITDA represents net loss before interest, income tax expenses (benefit),
minority interest and depreciation and amortization. LDI has included
information concerning EBITDA herein because such information is commonly
used in the telecommunications industry as one measure of an issuer's
operating performance and ability to service debt. EBITDA is not determined
in accordance with generally accepted accounting principles, is not
indicative of cash provided by operating activities, is not necessarily
comparable to similarly titled measures of other companies, should not be
used as a measure of operating income and cash flows from operations as
determined under generally accepted accounting principles and should not be
considered in isolation or as an alternative to measures of performance
determined in accordance with generally accepted accounting principles.
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of net losses before fixed charges. Fixed charges consist of
interest on debt and the interest component of rent expense. For the years
ended December 31, 1995, 1996 and 1997 and the three months ended March 31,
1997 and 1998 the Company's earnings before fixed charges were insufficient
to cover its fixed charges by $1.7 million, $4.0 million, $11.3 million,
$1.5 million and $7.5 million, respectively.
44
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements, the notes thereto and the other financial
data included elsewhere in this Prospectus. The following discussion includes
certain forward-looking statements. For a discussion of important factors,
including, but not limited to, the continued development of LDI's business,
actions of regulatory authorities and competitors, price declines and other
factors that could cause actual results to differ materially from the
forward-looking statements, see "Risk Factors."
OVERVIEW
GENERAL
LDI is a rapidly growing multinational telecommunications company, which
provides international telecommunications services from the United States, the
United Kingdom, France, Italy and Spain to over 200 countries. LDI offers
domestic long distance calling, postpaid calling card services, prepaid services
and toll-free services in the United States and the United Kingdom. In France,
Italy and Spain, the Company primarily provides international telecommunications
services and prepaid calling card services. The Company markets primarily to
residential and SME customers with significant long distance calling needs and
recently commenced marketing to carrier customers. The Company markets its
services through direct response marketing, agent sales, telemarketing and
direct sales.
LDI commenced operations in 1995 as a switchless reseller of international
and domestic long distance services in the United States and, during 1996,
expanded into the western European market. LDI recently initiated the design and
buildout of a European telecommunications network. By interconnecting its United
States and European networks, LDI seeks to expand its western European presence
and intends to leverage its existing United States operations with the objective
of lowering the cost, improving the quality and broadening the scope of services
offered to its customers across two continents.
REVENUES
The Company derives its revenues principally from the provision of long
distance voice telecommunications services. Revenues are derived from the
numbers of minutes of use (or fractions thereof) billed by the Company
("billable minutes") and are recorded upon completion of calls. The following
table shows the total revenue and billable minutes attributable to LDI's United
States and European operations for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- --------------------
1995 1996 1997 1997 1998
------ ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES, NET
United States........................ $2,544 $14,021 $ 34,459 $ 8,427 $ 11,332
Europe............................... 49 341 5,657 343 3,128
------ ------- -------- -------- --------
Total...................... $2,593 $14,362 $ 40,116 $ 8,770 $ 14,460
====== ======= ======== ======== ========
BILLABLE MINUTES
United States........................ 7,461 57,765 159,602 38,727 59,788
Europe............................... 80 941 15,646 1,078 10,040
------ ------- -------- -------- --------
Total...................... 7,541 58,706 175,248 39,805 69,828
====== ======= ======== ======== ========
</TABLE>
LDI maintains local market pricing structures and generally prices its
services to customers at a discount to the dominant service providers in each
area. LDI has experienced and continues to experience declining average revenue
per minute as a result of competition, although due to technological innovation
and significant available transmission capacity, transmission costs in the
telecommunications industry have historically
45
<PAGE> 46
declined at a more rapid rate than prices. There can be no assurance that this
trend will continue. The Company believes that, as prices decline, calling
volume of its customers will increase and offset, at least in part, the effect
on revenues of price declines.
To date, a significant portion of the Company's revenues have come from its
dial-around calling customers. For the year ended December 31, 1997,
approximately $27 million of revenues (79% of its United States revenues and 68%
of its consolidated revenues) came from dial-around services. The Company
primarily markets its dial-around services through direct mail marketing
campaigns and telemarketing and expects to increase the use of these marketing
methods in the United States as it continues to expand its United States
network. Revenue from dial-around service is higher margin than revenue from
equal access service. The Company typically experiences declining customer
utilization in the first few months following a marketing campaign after a
significant number of customers sample the Company's dial-around service. See
"Risk Factors -- Response Rates; Customer Attrition; Impact of Increased Postage
and Paper Costs." Therefore, the Company continues to engage in direct mail
marketing campaigns and telemarketing to maintain and increase its dial-around
customer base. The Company expects revenues from dial-around services to
increase generally but to decline as a percentage of overall revenues as the
Company expands its other services.
LDI expects that an increasing portion of its United States revenue will be
derived from services to equal access customers, due to planned increased
marketing activities. The Company recently commenced marketing services to
carriers and expects that an increasing portion of its United States revenues
will also be derived from sales to carrier customers. Revenue from carrier
customers generally produces lower gross margins than revenues from equal access
or dial-around services and carrier customers are generally more price
sensitive; however, associated selling, general and administrative expenses are
also generally lower. As LDI builds its European telecommunications network, it
expects to derive a greater portion of its revenues from European SME and
residential customers acquired primarily through agent sales and direct response
marketing.
COSTS OF TELECOMMUNICATIONS SERVICES
The Company's costs of telecommunications services is composed of costs
associated with gaining local access, the transport and termination of calls and
the amortization of installation expenses associated with the network trunk
groups. The majority of the Company's cost of telecommunications services have
been variable, including local access charges and transmission capacity leased
on a per-minute of use basis. LDI expects that an increasing amount of its total
operating costs will be fixed in the future, as the Company expands its network
of owned switches, IRUs and leased circuits. The depreciation expense with
respect to the Company's switches, ancillary equipment and IRUs is not accounted
for in cost of services. Currently all calls carried by LDI are originated on
its own or other carrier's network and substantially all calls carried by LDI
must be terminated using another carrier's facilities. Origination and
termination charges on calls generally are paid by LDI, with the exception of
Europe, where local access is often paid by the subscriber. As LDI's minutes of
traffic carried have grown, LDI has obtained better pricing on switched
transmission capacity. The marginal cost of services has also decreased,
independent of volume discounts, due to technological innovation and substantial
third-party transmission capacity. LDI expects that the unit cost of
telecommunications services will decline as the Company expands its network and
more calls are routed through the Company's switches, IRUs and leased circuits.
See "Business -- The LDI Network."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses are composed of marketing and
selling expenses, billing and bad debt expenses, customer service expenses and
general overhead. LDI has historically sold its services primarily through
direct response advertising. Selling expenses have consisted of the cost of
preparing and sending color inserts through the mail or local newspapers. Due to
the decreased customer utilization in the Company's dial-around services
following a marketing campaign, the Company must continue to engage in direct
marketing campaigns and telemarketing to maintain and to continue to increase
its dial-around customer base. The Company expects to significantly increase its
direct mailings as it expands into new
46
<PAGE> 47
markets and remails in existing markets. During 1997, LDI commenced selling
services through independent sales channels, and the costs associated therewith
are included in selling expenses. In Europe, LDI markets its services through a
combination of direct and agent sales to the commercial market and through print
advertising and in-house telemarketing to residential customers. The Company
believes its selling expenses are primarily variable and will decline as a
percentage of sales as the Company expands its wholesale services and its agent
programs.
Billing service expense consists of payments made to the LECs under billing
and collection agreements which enable the Company to include its charges on its
customers' monthly telephone bills from the LECs and take advantage of the LECs'
extensive collections infrastructure. Billing service expense also includes
service fees due to a LEC clearing house which provides billing support and
receivable financing. Provisions for bad debts are withheld by the LECs as part
of the regular billing cycle. Periodically, at least once a year, the actual bad
debt experience is reconciled with the reserve and payment is made by either the
LEC or the Company.
General and administrative expenses primarily relate to salaries,
professional and consultant fees and licensing and other organizational expenses
associated with entering new markets. During 1997, LDI significantly increased
the size of its management team at existing locations, and established new
offices in France, Italy and Spain, all of which resulted in an increase in
general and administrative expenses. LDI expects to continue to establish new
offices in the future and expects to continue to incur increasing general and
administrative expenses in advance of anticipated related revenues. As a result,
LDI expects that its general and administrative expenses will increase as a
percentage of revenues as it builds its customer base.
DEPRECIATION AND AMORTIZATION
The Company has historically experienced low depreciation and amortization
expense because it has acted primarily as a switchless reseller; however, as the
Company expands its network, it expects its depreciation and amortization
expense to increase significantly.
RESULTS OF OPERATIONS
The following table represents certain data concerning LDI's results of
operations for the years ended December 31, 1995, 1996 and 1997 and the three
months ended March 31, 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------
1995 1996 1997 1997 1998
------ ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues, net.............................. $2,593 $14,362 $40,116 $ 8,770 $ 14,460
Costs of telecommunications services....... 1,932 8,361 22,720 4,625 9,621
Selling, general and administrative
expenses................................. 2,299 9,887 28,066 5,354 11,829
Depreciation and amortization.............. 30 121 440 52 364
Net loss................................... (1,653) (4,021) (11,334) (1,492) (7,520)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1997
Revenues, Net. Total revenues, net increased 65%, to $14.5 million for the
three months ended March 31, 1998 from $8.8 million for the three months ended
March 31, 1997. Revenues increased in both the United States and Europe,
resulting from growth in billable minutes. Revenues and billable minutes for the
Company's European operations increased at a greater rate than for the Company's
United States operations. Total billable minutes of use increased by 75%, to
69.8 million minutes for the three months ended March 31, 1998 from 39.8 million
minutes for the three months ended March 31, 1997. Growth in billable minutes
was offset by a decline in average revenue per minute, with revenue per minute
averaging $.21 for the three months ended March 31, 1998, compared with $.22 for
the three months ended March 31, 1997. This decline in average revenue per
minute was due to competition in Europe and the United States.
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<PAGE> 48
In the United States, revenues for the three months ended March 31, 1998
increased by 34%, to $11.3 million from $8.4 million for the three months ended
March 31, 1997. Billable minutes increased by 54% to 59.8 million minutes for
the three months ended March 31, 1998, from 38.7 million for the three months
ended March 31, 1997. Growth in both dial around and "1+" services contributed
to the increase, which resulted from increased sales and marketing activity. For
the three months ended March 31, 1998, the Company mailed 45.1 million inserts
as compared with 33.9 million inserts for the three months ended March 31, 1997.
During the first quarter of 1998, the Company also used an independent sales
channel, to address the "1+" market and to broaden the distribution channels for
its products. Offsetting the growth in billable minutes was a decline in average
revenue per minute which, due to competitive pressures, fell to $.19 for the
first quarter of 1998 from $.22 for the first quarter of 1997.
In Europe, revenues increased to $3.1 million for the three months ended
March 31, 1998, compared with $300,000 for the three months ended March 31,
1997. This revenue gain resulted primarily from an increase in billable minutes
from 1.1 million in the first quarter of 1997 to 10.0 million in the first
quarter of 1998. The increase in billable minutes, was due to accelerated
marketing programs and the inclusion of the results of Speedial International,
UK ("Speedial"), acquired in October 1997. Speedial, which markets prepaid long
distance services to primarily residential customers in the United Kingdom,
contributed approximately 32% of European revenues in the first quarter of 1998.
Due to competitive factors, average revenue per minute dropped from $.32 in the
first quarter of 1997 to $.31 in the first quarter of 1998.
Cost of Telecommunications Services. Costs of telecommunications services
rose by 108% to $9.6 million for the three months ended March 31, 1998, from
$4.6 million for the three months ended March 31, 1997, due to the increase in
billable minutes. Average cost per minute increased from $.12 in the first
quarter of 1997 to $.14 for the first quarter of 1998, reflecting a change in
the mix of billable minutes, as the growth rate in billable minutes in Europe
exceeded that in the United States. Cost of telecommunication services in Europe
per billable minute generally are higher than cost of telecommunication services
in the United States. Contributing to this increase in average cost per minute
was a restructuring of the Company's relationship with Esprit Telecom UK Ltd.
("Esprit"), LDI's provider of telecommunication services in the United Kingdom.
In conjunction with LDI's purchase of Esprit's 20% ownership of LDI Ltd., LDI
renegotiated its network telecommunications agreement with Esprit and agreed to
a 10% increase in transmission rates. LDI has installed its own switch in the
United Kingdom and has commenced migrating its traffic onto its own network. As
a result, LDI expects its transmission costs in the United Kingdom to decline.
As a percentage of revenues, costs of telecommunications services increased from
53% in the first quarter of 1997 to 66% in the first quarter of 1998. The gross
margin for the first quarter of 1998 totaled $4.8 million, representing 33% of
revenues, compared with a gross margin of $4.1 million, representing 47% of
revenues, for the first quarter of 1997. The change in gross margin reflects the
aforementioned decline in revenue per minute coupled with higher average cost
per minute as described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $11.8 million for the three months ended March 31,
1998, compared with $5.4 million for the three months ended March 31, 1997. The
increase resulted primarily from increased marketing expenditures in conjunction
with the direct mail campaign and the independent distribution channel, coupled
with increased salaries, professional, consulting and licensing fees related to
the Company's expansion into Europe. During the first quarter of 1998, LDI
commenced upgrading its billing platform in the United States, which contributed
to higher selling, general and administrative expenses. In the United States,
the Company mailed significantly more inserts in the first quarter of 1998,
increasing the number of inserts mailed by 33%, as described above. As a
percentage of revenues, selling, general and administrative expenses increased
from 61% in the first three months of 1997 to 82% for the first three months of
1998.
Depreciation and Amortization. Depreciation and amortization increased to
$364,000 for the three months ended March 31, 1998, from $52,000 for the three
months ended March 31, 1997. The increase was due to the general increase in
fixed assets, including network and office equipment.
Net Loss. Net loss increased from $1.5 million in the three months ended
March 31, 1997 to $7.5 million for the three months ended March 31, 1998 as a
result of the above factors.
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<PAGE> 49
1997 COMPARED TO 1996
Revenues, Net. Total revenues for 1997 increased by 179%, to $40.1 million
from $14.4 million in 1996. This increase reflected growth in both the United
States and Europe. Billable minutes increased by 197% to 175 million billable
minutes in 1997 from 59 million billable minutes in 1996. Growth in billable
minutes was offset by declines in prices, as the average rate per minute
declined to $.23 in 1997 from $.24 in 1996.
In the United States, revenues in 1997 increased 146%, to $34.4 million in
1997 from $14.0 million in 1996. Billable minutes increased by 176% from 58
million billable minutes in 1996 to 160 million billable minutes in 1997. Growth
in both dial-around and "1+" services principally contributed to the increase,
which growth resulted primarily from increased sales and marketing activity. The
Company accelerated its direct mail marketing program targeted to dial-around
customers, mailing 114.4 million inserts in 1997, compared with 43.9 million
inserts in 1996. LDI also commenced using an independent sales channel,
addressing the "1+" market and broadening the distribution channels for its
products. Offsetting the growth in billable minutes was a decline in revenue per
minute which fell to $.22 in 1997 from $.24 in 1996. United States revenues
represented 98% and 86% of total revenues in 1996 and 1997, respectively.
In Europe, revenues increased to $5.7 million in 1997 from $341,000 in
1996. This was due primarily to an increase in billable minutes, from
approximately 1 million billable minutes in 1996 to approximately 16 million
billable minutes in 1997. The Company accelerated its marketing programs in
Europe, increasing both its direct marketing channels and its agent sales
network. In addition, the Company acquired Speedial in September 1997. Speedial
contributed approximately 19% of LDI's total European revenues in 1997. Average
revenue per minute remained stable at $.36 in 1996 and 1997.
Costs of Telecommunications Services. Costs of telecommunications services
increased by 170%, to $22.7 million in 1997 from $8.4 million in 1996, due to
the increase in billable minutes, offset in part by a decline in average cost
per minute. Average cost per minute declined from $.14 in 1996 to $.13 in 1997,
reflecting volume discounts and generally lower transmission costs available in
the market. Somewhat offsetting this lower cost was the 10% increase in
transmission rates paid to Esprit, commencing November 1, 1997. As a percentage
of revenues, costs of telecommunications services declined from 58% in 1996 to
57% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $28.1 million in 1997 from $9.9 million in
1996, primarily as a result of increased direct mail campaigns in the United
States and salaries, professional consulting fees and licensing and other
organization expenses relating to the establishment of new offices in France,
Italy and Spain. The selling, general and administrative expenses in 1997
reflect a significant increase in infrastructure spending, particularly the cost
of entry into several new markets, including France and Spain, and a
significantly expanded presence in the United Kingdom. This cost increase was
offset by a decrease in the per unit cost of the direct mail inserts. In the
United States the Company mailed significantly more inserts in 1997; inserts
mailed increased by 160%, as described above. The number of employees based in
the United States at year-end increased from 60 in 1996 to 171 in 1997. As a
percentage of revenues, selling, general and administrative expenses increased
to 70% in 1997 from 69% in 1996.
Depreciation and Amortization. Depreciation and amortization increased to
$440,000 in 1997 from $121,000 in 1996. This increase was due to the general
increase in fixed assets, primarily office equipment, over the period. During
the fourth quarter of 1997, the Company also acquired switching equipment for
its London, New York and Fort Lauderdale sites.
Net Loss. Net loss increased from $4.0 million in 1996 to $11.3 million in
1997, primarily as a result of the above factors.
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<PAGE> 50
1996 COMPARED TO 1995
Revenues, Net. Total revenues for 1996 increased by 454% to $14.4 million
from $2.6 million in 1995. This increase was primarily due to growth in billable
minutes from dial-around customers and reflected the progress of the
implementation of the Company's United States business plan from the start-up of
the direct mail marketing program in December 1995. Direct response insert
mailings increased from 1.0 million inserts in 1995 to 43.9 million inserts in
1996. Billable minutes increased approximately 638% from 8 million billable
minutes in 1995 to 59 million billable minutes in 1996. Growth in billable
minutes was offset somewhat by an approximate 29% decline in prices reflecting
price declines in the industry generally, as average revenue per minute declined
from $.34 in 1995 to $.24 in 1996. United States revenues represented 98% of
total revenues in each of 1996 and 1995.
Costs of Telecommunications Services. Costs of telecommunications services
increased by 342% to $8.4 million in 1996 from $1.9 million in 1995 due to the
increase in billable minutes offset in part by a decline in average cost per
minute. Cost of telecommunications services per minute declined by 44% from $.26
in 1995 to $.14 in 1996, reflecting economies of scale in buying transmission
capacity and lower transmission costs available in the market. As a percentage
of revenues, costs of telecommunications services declined from 75% in 1995 to
58% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $9.9 million in 1996 from $2.3 million in
1995. The increase in selling, general and administrative expenses reflects the
costs of mailing significantly more inserts, mentioned above. Also included in
the increase in selling, general and administrative expenses are the costs to
build the Company's infrastructure, including additions to the management team,
improvements in management information systems and "back office" operations, and
costs for licensing. The number of employees at year-end increased from 18 in
1995 to 60 in 1996. As a percentage of revenues, selling, general and
administrative expenses declined from 89% in 1995 to 69% in 1996.
Depreciation and Amortization. Depreciation and amortization increased to
$121,000 in 1996 from $30,000 in 1995, reflecting the general increase in fixed
assets, primarily office equipment over the period.
Net Loss. Net loss increased from $1.7 million in 1995 to $4.0 million in
1996 primarily as a result of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred net losses and negative cash flows from operating
activities from inception through March 31, 1998. These losses and negative cash
flows result primarily from start-up costs, marketing expenses and capital
expenditures required for construction and deployment of the Company's network.
The Company expects to incur increasing losses and negative cash flows as it
continues to buildout and expand its network. Historically, funds necessary to
finance the Company's activities have been provided from sales of preferred
stock, Common Stock, and warrants. In addition, to provide short-term liquidity,
the Company sold receivables due from LECs, subject to full recourse provisions,
to the Company's billing provider during 1995, 1996, 1997 and the first quarter
of 1998. Under the terms of the agreement with the billing provider, certain
assets are pledged as security and the billing provider holds back 20% of the
receivables as additional security. At March 31, 1998, LDI had approximately
$4.0 million in cash and cash equivalents, excluding restricted cash related to
collaterized letters of credit.
THREE MONTHS ENDED MARCH 31, 1998
Cash used in operating activities totaled approximately $6.4 million, with
$7.5 million used to fund net losses offset by a decrease in working capital of
approximately $527,000.
LDI's investing activities totaling $2.1 million consisted primarily of
purchases of equipment and the repurchase of a minority equity interest in LDI
Ltd. Equipment purchases, principally comprised of network and computing
equipment used in the telecommunications network and billing and MIS platforms,
totaled approximately $900,000. On January 22, 1998, LDI purchased a 20%
interest in LDI Ltd. which had
50
<PAGE> 51
formerly been owned by Esprit for L231,250 (or approximately $380,000). The
Company also repaid a loan of approximately L108,000 (or approximately $177,000)
including interest and posted a letter of credit with a major United Kingdom
bank to secure payment for transmission services provided by Esprit. An increase
in restricted cash of $800,000 represents collateral securing letters of credit.
Cash provided by financing activities totaled $304,000 representing the
proceeds of issuances of common stock on exercises of outstanding warrants
offset by capital lease payments.
YEARS ENDED 1995, 1996 AND 1997
Net cash used in operating activities was $1.9 million, $2.8 million and
$7.1 million in 1995, 1996 and 1997, respectively. Net cash used in investing
activities was $189,000 in 1995 and $353,000 in 1996. The Company financed these
activities principally through the periodic sale of preferred stock, Common
Stock and warrants totaling $2.0 million in 1995 and $1.5 million in 1996.
During 1996, LDI obtained $1.2 million in bridge financing which was repaid
later that year by the issuance of approximately 2.1 million shares of Common
Stock. The Company's net cash used in operating activities in 1997 was primarily
composed of a net loss of $11.3 million offset by $4.2 million of non-cash
charges and changes in working capital. Cash used for investing activities
totaled $4.3 million in 1997, which was composed of $3.2 million for capital
expenditures and $1.0 million for the acquisition of Speedial. The capital
expenditures primarily consisted of network equipment purchases such as switches
for Fort Lauderdale, New York and London and other network related items,
computers and general office equipment. Cash provided by financing activities
totaled $23.4 million for 1997, net of approximately $600,000 of payments on
capital lease obligations and approximately $130,000 of principal payments on
installment loans.
On July 28, 1997, the Advent Entities purchased 2,400,000 shares of Series
B Preferred Stock and 9,908,367 ADV Warrants for $24.0 million. In addition, the
Company sold 7,000 shares of Series B Preferred Stock and 28,898 ADV Warrants to
certain employees and investment bankers involved in the transaction for
$70,000. In August 1997, the Advent Entities purchased 75,000 shares of Series B
Preferred Stock and 309,636 ADV Warrants for $750,000. In addition, the Company
sold 18,000 shares of Series B Preferred Stock and 74,314 ADV Warrants to an
investment banker involved in the transaction for $180,000. Total proceeds to
the Company were $22.8 million, net of offering costs. Approximately $330,000 of
the proceeds were used to repay a line of credit which had been previously
borrowed in 1997. In addition, LDI issued $600,000 of Common Stock pursuant to
an agreement with a vendor whereby the vendor accepted Common Stock in lieu of
payment of invoices for printing services related to the direct mail program.
On January 22, 1998, LDI purchased Esprit's 20% interest in LDI Ltd. for
L231,250 (or approximately $380,000). The Company also repaid a loan of
approximately L108,000 (or approximately $177,000) including interest and posted
a letter of credit with a major United Kingdom bank to secure payment for
transmission services provided by Esprit. In addition, on April 21, 1998, LDI
made a tender offer for all of the outstanding shares of stock of Newgate
Communications Limited ("Newgate"), a reseller of wireless services in the
United Kingdom, for aggregate consideration of approximately L1.9 million. The
tender offer expired on May 15, 1998. The shareholders of Newgate may elect to
receive their portion of the purchase price all in cash or half in cash and half
in Common Stock.
OTHER
On April 13, 1998, LDI consummated the Offering. In connection with the
Offering, LDI issued $225.0 million in aggregate principal amount of Senior
Notes and Warrants to purchase in the aggregate 3,394,655 shares of Common
Stock. Approximately $75.5 million of the Offering proceeds was used to purchase
the Pledged Securities, which will fund the first six scheduled interest
payments on the Notes. The net proceeds of the Offering have been, and are
expected to continue to be, used as set forth under "Use of Proceeds."
LDI expects capital expenditures during 1998 to total approximately $30
million, of which $904,000 was expended in the first three months of the year.
Capital expenditures for the first three months of 1998, relate primarily to
equipment required to build the Company's telecommunications network in the
United States and Europe as well as to upgrade its billing and MIS platforms in
Europe and the United States. In addition, the
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<PAGE> 52
Company expects to continue to incur operating losses as it develops its
operations in Europe and expands its marketing initiatives in the United States.
LDI intends to fund its capital expenditures and operating losses for the
foreseeable future with the proceeds of the Offering. To the extent the Company
considers appropriate, LDI will also utilize vendor and other equipment
financing. LDI expects to continue to make significant capital expenditures as
it continues to expand its geographic scope and to increase its network
capabilities and network infrastructure. Actual capital expenditures and cash
requirements will depend upon numerous factors, including the nature of future
expansion, economic conditions, competition, regulatory developments and the
ability to incur debt and make capital expenditures under the Indenture relating
to the Notes.
The net proceeds from the Offering are expected to fund LDI's planned
expansion and operating losses over the next two years. The ability of LDI to
generate positive cash flow, which is not expected to occur prior to the year
2000, and to meet its working capital requirements and debt service requirements
will be subject to LDI's successful implementation of its operating strategy, as
well as to financial, competitive, business, regulatory and other factors beyond
LDI's control. If LDI is unable to generate cash flow from operations that is
sufficient to meet its working capital and debt service requirements, it may be
required to refinance all or a portion of its indebtedness or raise additional
capital. Additionally, if LDI's plans or assumptions change, its assumptions
prove to be inaccurate, it experiences unanticipated costs or competitive
pressures, it consummates acquisitions or the net proceeds from the Offering
prove to be insufficient, LDI may be required to refinance a portion of its
indebtedness or seek additional capital. LDI may seek to raise additional equity
or debt capital from public or private sources. The Company has financed certain
of its network equipment using vendor financing and expects that it may continue
to do so in the future. There can be no assurance that LDI will be able to raise
such capital on satisfactory terms or at all. There can be no assurance that any
such refinancing would be possible on terms that would be acceptable to LDI or
that any additional financing could be obtained. See "Risk Factors -- Future
Losses and Negative Cash Flow."
FOREIGN CURRENCY EXPOSURE
LDI is exposed to fluctuations in foreign currencies relative to the United
States dollar because LDI generally bills in local currency, while transmission
and other costs are paid in a mix of United States dollars and local currency,
and interest expense on the Notes will be in United States dollars. For the
years ended 1995, 1996, and 1997, approximately 0%, 1%, and 9%, respectively of
LDI's revenues were billed in currencies other than the United States dollar. As
LDI expands its operations, a higher percentage of revenues is expected to be
billed in foreign currencies. The relative contribution of the Company's
European operations will fluctuate based upon the relative value of the United
States dollar versus the currencies in the countries in which the Company
operates. LDI periodically evaluates the use of foreign exchange contracts to
hedge foreign currency exposure and to control risks relating to foreign
currency fluctuations. LDI does not use derivative financial instruments for
speculative purposes. As of March 31, 1998, the Company had no open foreign
currency positions.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted SFAS No. 128, "Earnings Per Share." This statement
establishes standards for computing and presenting earnings per share ("EPS").
For entities with complex capital structures, the statement requires the dual
presentation of basic EPS and diluted EPS on the face of the statement of
operations. Under this new standard, basic EPS is computed based on weighted
average shares outstanding and excludes any potential dilution. Diluted EPS
reflects potential dilution from the exercise or conversion of securities into
common stock or from other contracts to issue common stock and is similar to the
currently-required fully-diluted EPS.
The Company has adopted SFAS Statement No. 130, "Comprehensive Income:
Financial Statement Presentation" which requires that all items that are
required to be recognized under the accounting standards as components of
comprehensive income be reported in a financial statement that is displayed as
prominently as other financial statements. The adoption of Statement No. 130 has
not had a material effect on the Company's financial statements.
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<PAGE> 53
During 1998, the Company is required to adopt SFAS Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information" which
requires a company to disclose segment profit or loss and segment assets. The
adoption of Statement No. 131 is not expected to have a material effect on the
Company's financial statements and disclosures.
IMPACT OF YEAR 2000
The Company has evaluated the potential impact of the situation commonly
referred to as "Year 2000 Compliance." Year 2000 Compliance, which affects many
corporations, concerns the inability of information systems, primarily computer
software programs, to properly recognize and process date sensitive information
relating to the year 2000 and beyond. Because the Company's existing information
systems were recently acquired, such systems were designed to be Year 2000
compliant. The Company anticipates that any costs and expenditures associated
with the Year 2000 Compliance should not be material.
The Company is currently evaluating the potential impact of Year 2000
Compliance of the PTOs, other carriers and others on whose services the Company
depends or with whom the Company's systems interface. If such systems are not
Year 2000 compliant, there could be a material adverse effect on the Company's
operations.
INFLATION
The Company does not expect inflation to have any significant impact on its
business, financial condition or results of operations.
SEASONALITY
The Company believes its business is not subject to significant seasonality
based on historical trends.
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<PAGE> 54
BUSINESS
LDI is a rapidly growing multinational telecommunications company, which
provides international telecommunications services from the United States, the
United Kingdom, France, Italy and Spain to over 200 countries. LDI offers
domestic long distance calling, postpaid calling card services, prepaid services
and toll-free services in the United States and the United Kingdom. In France,
Italy and Spain, the Company primarily provides international telecommunications
services and prepaid calling card services. The Company markets primarily to
residential and SME customers with significant long distance calling needs and
recently commenced marketing to carrier customers. The Company markets its
services through direct response marketing, agent sales, telemarketing and
direct sales.
LDI commenced operations in 1995 as a switchless reseller of international
and domestic long distance services in the United States and, during 1996,
expanded into the western European market. LDI recently initiated the design and
buildout of a European telecommunications network. By interconnecting United
States and European networks, LDI seeks to expand its western European presence
and intends to leverage its existing United States operations with the objective
of lowering the cost, improving the quality and broadening the scope of services
offered to its customers across two continents. Revenues have grown from $2.6
million in 1995 to $40.1 million in 1997, 85.9% of which was derived from
services offered in the United States, consisting primarily of dial-around
services to residential and small business customers.
LDI is a Florida corporation. Its principal executive offices are located
at 888 South Andrews Avenue, Suite 205, Fort Lauderdale, Florida 33316. Its
telephone number is (954) 522-3300.
INDUSTRY OVERVIEW
LONG DISTANCE TRANSMISSION
A long distance telephone call consists of three parts: origination,
transport and termination. Generally, a national long distance call originates
on a local exchange network or a leased line and is transported to the network
of a long distance carrier. The call is then carried along the long distance
network to another local exchange network where the call is terminated. An
international long distance call is similar to a national long distance call,
but typically involves at least two traditional long distance carriers: the
first carrier transports the call from the country of origination and the second
carrier terminates the call in the country of termination. The two companies may
be operating companies within a group or under common ownership.
International long distance calls are transported by land-based or undersea
cable, by microwave or via satellites. A carrier can obtain circuits on cable
systems either through ownership or leases. Ownership in cables and control of
the network infrastructure is generally acquired through IRUs, minimum
investment units ("MIUs"), managed bandwidth or through the purchase of dark
fiber optic cables and purchase of associated electronics. The fundamental
difference between an IRU holder and an owner of an MIU is that the IRU holder
is not entitled to participate in management decisions relating to the cable
systems.
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The following diagram illustrates the pattern of a typical international
long distance call:
INTERNATIONAL LONG DISTANCE CALL CHART
CLASSIFICATION OF SERVICE PROVIDERS
International long distance carriers generally can be categorized according
to ownership and use of transmission facilities and switches. Although no
carrier utilizes exclusively owned facilities for the transmission of all of its
international long distance traffic, carriers vary from being primarily
facilities-based (i.e., they own and operate their own land based or undersea
cable and switches) to those that are purely resellers of another carrier's
transmission network. Generally, the first-tier long distance companies (e.g.,
AT&T, MCI, Sprint and WorldCom in the United States and British Telecom and
Mercury in the United Kingdom) are transmission facilities-based carriers that
own and operate a large domestic fiber-based network. In addition, a number of
such large United States telecommunications service providers and European PTOs
have formed alliances to compete in offering seamless services to large
customers globally (e.g., Global One, Concert and WorldPartners). Second-tier
long distance companies (e.g., Excel and TelSave Holdings Inc. in the United
States; RSL Communications and Viatel in the United Kingdom) own switching
facilities but generally own far less cable or transmission facilities than
first-tier carriers. The third-tier of the market consists of long distance
companies that are generally switchless resellers that rely on the transmission
facilities of other carriers. See "-- Regulation" and "-- Competition."
INTERNATIONAL TELECOMMUNICATIONS MARKET
The international long distance public switched telecommunications market,
consisting of telephone calls between countries, generated an estimated $61
billion in revenue and 70 billion minutes of use in 1996 and is recognized as
one of the fastest growing segments of the long distance telecommunications
industry. The market for these services is highly concentrated in more developed
countries, with approximately 40% and 27% of 1996 worldwide international long
distance traffic originating in Europe and the United States,
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respectively. The Company has significantly less than a 1% share of this market.
According to Analysys Ltd., international long distance minutes are projected to
grow by approximately 17% per annum from approximately 90 billion in 1997 to
over 160 billion minutes in 2001. This growth is expected to be spurred by (i)
the continued deregulation of telecommunications markets throughout the world,
(ii) increased capacity, improved quality and lower operating costs attributable
to technological improvements, (iii) the expansion of telecommunications
infrastructure and (iv) the globalization of the world's economies and free
trade. International settlement rates (the rates paid to other carriers to
terminate an international call) have declined over the past five years and, in
connection with a recent FCC initiative to balance the United States settlement
deficit, the Company expects such rates to continue to decline. The costs for
leased transmission capacity have also declined and are expected by the Company
to continue to decline. Furthermore, the trend towards liberalization is
expected to further reduce carriers' costs of originating and terminating calls
by allowing carriers in some jurisdictions to interconnect with the domestic
PSTN.
PROJECTED GROWTH OF INTERNATIONAL LONG DISTANCE VOICE TRAFFIC
[COMPOUND ANNUAL GROWTH RATE]
- ---------------
Source: Analysys Ltd.
* Prices have declined and are expected to continue to decline. Accordingly,
growth in revenues is expected to be substantially less than growth in
minutes. See "Risk Factors -- Risks Associated with Rapidly Changing Industry"
and "-- Regulation."
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UNITED STATES LONG DISTANCE MARKET
According to estimates by the FCC, United States-originated international
long distance telephone traffic has grown from approximately 7 billion minutes
in 1989 to approximately 19 billion minutes in 1996, a compound annual growth
rate of approximately 15%. The growth of the United States-originated
international long distance market was initially attributable to regulatory
liberalization and the decrease in prices that accompanied the onset of
competition. Regulatory liberalization and the resulting competition also have
led to improvements in service offerings and customer service.
The profitability of the United States originated international long
distance market is in large part driven by the difference between billed
revenues and settlement rates (i.e., the rates paid to other carriers to
terminate an international call), although an increasing proportion of traffic
is terminated other than through the international settlement process. Increased
competition arising from regulatory liberalization and pressure arising from
increased global trade have brought about reductions in settlement rates and
end-user prices, reducing termination costs for United States based carriers.
Based on FCC data for the period 1989 through 1996, per minute settlement
payments by United States based carriers to foreign PTOs fell 39%, whereas per
minute international billed revenues fell only 27%. As a result, gross profit
margin for outbound international calls increased. LDI believes that
transmission costs will decline to more closely reflect the underlying cost of
facilities rather than historic settlement rates. See "Risk
Factors -- Significant Price Declines."
Although LDI focuses on the international telecommunications market, it
also provides domestic long distance services to many of its customers and, as
part of its strategy, will seek to increase its United States domestic long
distance business. Although the United States domestic long distance market is
much larger than the United States-originated international long distance
market, the profit per minute of use for international traffic has generally
been higher than for domestic traffic.
UNITED KINGDOM LONG DISTANCE MARKET
Since 1991, the United Kingdom government has sought to encourage increased
competition in telecommunications services, including international
telecommunications services. As a consequence of these actions, the United
Kingdom now has a dynamic telecommunications market, with over 200
telecommunications operators individually licensed to operate in the United
Kingdom market. The price of international calls made from the United Kingdom
has decreased significantly since 1991 due to increased competition after the
award of ISR licenses and the downward pressure exerted on British Telecom's
prices by Oftel.
The interconnection regime in the United Kingdom provides operators with
the ability to obtain cost based, non-discriminatory charges for interconnection
services. Oftel regulates the interconnection rates charged by British Telecom
to other individually licensed operators. Oftel also has the power to intervene
and determine charges and other terms if an operator believes that it is not
being offered fair pricing. Oftel has stated that the category of companies that
qualify for interconnection services consist of those network operators that are
making a significant contribution to infrastructure competition by installing
transmission capacity or any international simple resale operator making a
significant contribution to competition in the international market. A recent EU
Interconnection Directive provides that PTOs with significant market power (over
25%) are obliged to interconnect with individually licensed operators on
transparent, objective and non-discriminatory cost-based terms.
On December 19, 1996, the United Kingdom government opened to competition
the provision of international facilities-based services, which until then only
British Telecom and Mercury had been authorized to provide. LDI was awarded an
ISR license in March 1995, which allows LDI to lease international transmission
lines from other carriers while utilizing the public local network to originate
and terminate calls at each end, and an international facilities based license
(an "IFL") on December 19, 1996 which enables LDI to provide international
services over and run its own international facilities. See "-- The LDI
Network."
The United Kingdom is the favored hub for international traffic originating
in continental Europe due to the availability of relatively inexpensive
transmission capacity to and from the United Kingdom. This
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preference is expected to continue as rates for international services are
further reduced as a result of additional competition.
EUROPEAN INTERNATIONAL LONG DISTANCE MARKET
The European international long distance market is the largest in the
world, generating approximately 28 billion minutes, over 40% of total
international calling volume in 1996 according to Telegeography, Inc., a market
research firm. The European PTOs generally have had monopolies on providing
telephone services from their respective countries, making the price of
international telephone calls from continental Europe much higher than
comparable calls initiated from the United States or the United Kingdom.
Furthermore, customers in many European markets have generally not been able to
obtain value-added features that are readily available in the United States,
such as itemized billing, touch tone dialing, voicemail and other enhanced
services. Regulatory liberalization, together with significant advances in
technology that have decreased the cost of providing services and allowed the
provision of sophisticated value-added features, is facilitating competition
with European PTOs by emerging telecommunications service providers.
LDI believes that the regulatory liberalization currently underway in many
countries in continental Europe could lead to market developments similar to
those that occurred in the United States and the United Kingdom upon regulatory
liberalization of long distance telecommunications services in those countries.
Regulatory liberalization in the United States and the United Kingdom has
resulted in an increase in call traffic and the emergence of multiple new
telecommunications services providers of varying sizes. In addition, significant
reductions in prices, as well as improvements in both the breadth and quality of
services offered and the level of overall responsiveness to customers, have
occurred. Although pricing has become competitive in both the United States and
the United Kingdom, marginal costs have declined significantly. There can be no
assurance, however, that the continental European experience will mirror those
in the United States or the United Kingdom or that competitive and other factors
will not adversely impact profitability of companies in the industry. See "Risk
Factors -- Competition."
STRATEGY
The Company's objective is to create a cost-competitive, facilities-based,
multinational telecommunications network which provides high quality
international and domestic long distance services to residential, SME and
carrier customers. The key elements of the Company's strategy are:
ESTABLISH OPERATIONS IN ATTRACTIVE EUROPEAN MARKETS
LDI plans to establish operations in markets with high international
calling volume which recently liberalized their telecommunications markets or
are in the process of regulatory liberalization. In 1997, the Company
established operations in France, Italy and Spain and, in 1998, expects to
establish operations in Germany and Sweden. The Company believes there is a
significant advantage to being an early entrant in such markets because there is
often a significant divergence between the cost of domestic and international
calls in markets that have not commenced, or are just commencing,
liberalization. In addition, LDI intends to concentrate on smaller regional
markets where there is often less competition. Particularly in smaller markets,
prior to installing facilities, LDI will generally establish a presence by
reselling traffic on other carriers' networks. In countries where
interconnection with the PTO is currently not available, LDI may provide dial-in
services to establish an early market presence prior to further liberalization
of the market.
EXPAND EXISTING OPERATIONS
In the United States, LDI plans to complete its expansion of operations to
all states except Alaska during the second half of 1998. Further, it plans to
expand its marketing channels by commencing a master agent program and to target
its sales efforts at certain selected market segments. In the United Kingdom,
LDI plans to expand its agent program and increase direct response advertising
to residential customers. In France, LDI plans to extend its services to
residential customers in 1998.
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LDI intends to further penetrate the domestic and international long
distance telecommunications markets in the United States and United Kingdom by
offering a broader range of value-added services at competitive prices. LDI is
one of two companies selected by British Telecom to resell, on a trial basis,
local loop services to residential and small business customers. Further, LDI
recently acquired a British reseller of cellular communications services by
making a tender offer which expired on May 15, 1998. This acquisition provides
the Company with an expanded product range and the opportunity to further
penetrate the United Kingdom market by cross-selling its services to subscribers
of this company. Where appropriate, LDI also intends to resell minutes of
traffic capacity to other telecommunications providers.
DESIGN, DEVELOP AND IMPLEMENT A COST-COMPETITIVE, MULTINATIONAL NETWORK
By designing, developing and implementing a multinational network, LDI
believes that it will be able to reduce the cost and expand the scope of
services offered in its targeted markets. As the cost of owning and operating
the network upon completion of its buildout will be relatively fixed, the
marginal cost of additional minutes of traffic will decline. LDI intends to
install only carrier grade switches with enhanced service platforms, which will
allow it to offer a broad range of services such as calling card and prepaid
services. The Company plans to have each switch connected to at least two other
switches to ensure network quality and full redundancy, and to enhance least
cost routing.
The Company will seek to manage the investment of capital within its
network on an incremental basis in order to maximize the efficiency of its
capital expenditures program. In general, the Company transmits traffic by
leasing capacity on a variable cost per minute basis until it believes that a
direct investment in facilities or a fixed cost lease arrangement between
countries or on a particular route is warranted. When the cost of owning
facilities is justified relative to leasing facilities or reselling other
carriers' networks, the Company plans to invest in facilities and thereby
expects to increase its gross margins and lower its overall transmission costs.
See "Risk Factors -- Limited Operating History," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "-- The LDI
Network." The Company believes that ownership of its network will allow it to
lower its unit cost, broaden the range of its available services, and better
control fraud.
The Company intends to pursue the wholesale market in order to maximize
utilization of its network by selling or trading excess capacity to other
carriers.
EMPLOY FOCUSED AND COST-EFFECTIVE SALES AND MARKETING CHANNELS; ESTABLISH A
GLOBAL BRAND
The Company is focusing on providing telecommunications services to
residential and SME customers, who are frequent users of international long
distance telecommunications but are typically underserved by larger
telecommunications companies. In 1997, approximately 35% of LDI's United States
long distance revenues was from international calls made by United States
customers compared with approximately 10% for the United States market and
approximately 47% of LDI's United Kingdom long distance minutes and 78% of
revenue was from international calls made by United Kingdom customers. LDI
primarily uses direct response and agent telemarketing programs to attract
customers onto its network. Many of its programs are carefully designed to
attract new customers from certain market segments, such as the ethnic and
expatriate communities and internationally focused industry sectors. To market
its services more effectively to both residential and business customers, the
Company is building a network of agents who will sell LDI's products and
services in each market in which it provides services. The Company intends to
minimize the fixed overhead cost of its sales and marketing channels. Through
its sales and marketing and public relations activities, LDI seeks to develop
stronger brand awareness and to establish a global brand. See "-- Sales and
Marketing."
PURSUE STRATEGIC ALLIANCES AND ACQUISITIONS
The Company has used and expects to continue using strategic alliances and
acquisitions to expand its business. LDI may make an acquisition, enter into a
joint venture or form a strategic alliance with another carrier to swap traffic
and interconnect its network thereby enhancing the efficiency of its network and
the
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network of its strategic partner. The Company continuously reviews potential
acquisitions which it believes will expand or enhance its current operations by
providing the Company with the opportunity to enter additional strategic markets
or to strengthen its operations in an existing market. In particular, LDI seeks
to acquire businesses with an established customer base, compatible operations,
telecommunications licenses, or experienced management. For example, LDI
recently acquired the assets of Speedial, a prepaid residential service provider
in the United Kingdom, and made a tender offer to acquire Newgate, a reseller of
wireless services in the United Kingdom, which tender offer expired on May 15,
1998. These acquisitions allowed the Company to expand its product range, to
enter the ethnic residential market sector in the United Kingdom and to acquire
a new direct marketing channel.
DEPLOY TECHNOLOGICALLY ADVANCED INFORMATION SYSTEMS TO FACILITATE BILLING
AND CUSTOMER SUPPORT FUNCTIONS
The Company believes that advanced effective and flexible billing and
customer care information systems are vital to support its anticipated growth.
In the United States, LDI plans to upgrade its information systems, as well as
to purchase off-the-shelf platforms to be customized to suit the Company's
needs. The Company has retained a management information systems consultant (see
"Certain Transactions") to assist it in selecting a cost-effective system
designed to have the following key features:
- flexibility with respect to billing for various telecommunications
services and billing formats;
- ability to support LEC, direct and wholesale/carrier billing;
- scalability for increases in number of customers and calling volume; and
- ability to support detailed management information with respect to
customer care and business performance.
The Company has commenced upgrading its information systems in the United
States. In Europe, the Company has purchased an Oracle-based billing and rating
engine that supports billing in local currencies and currently expects such
system to be operational in June 1998. This platform is being used by other
telecommunications providers in Europe.
SERVICES
By the end of 1998, the Company anticipates that it will offer
telecommunications services in markets that originate over 50% of the world's
international telecommunications traffic. The size of each market in which the
Company currently offers or intends to offer services during 1998 is set forth
below:
<TABLE>
<CAPTION>
1996 VOLUME PERCENTAGE
OF OUTGOING OF 1996 OUTGOING
COUNTRY MINUTES(1) INTERNATIONAL TRAFFIC
------- ------------- ---------------------
(IN MILLIONS)
<S> <C> <C>
United States............................................... 18,830 26.9%
Germany..................................................... 5,100 7.3
United Kingdom.............................................. 4,569 6.5
France...................................................... 3,116 4.4
Italy....................................................... 2,124 3.0
Spain....................................................... 1,189 1.7
Sweden...................................................... 1,026 1.5
------ ----
Total............................................. 35,954 51.3%
====== ====
</TABLE>
- ---------------
(1) All data were taken from Telegeography 1997/1998, which is published by
Telegeography, Inc.
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The following tables summarize LDI's service offerings by principal
geographic and target market as of June 1, 1998 and as projected by December 31,
1998:
<TABLE>
<CAPTION>
SERVICES
----------------------------------------------------------------------------
DIAL-AROUND EQUAL ACCESS POSTPAID WHOLESALE PREPAID
TARGET MARKETS "10XXX" "1+" CALLING CARD TOLL-FREE SERVICES WIRELESS
-------------- ----------- ------------ ------------ --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
United States
Residential............ -- -- -- -- L
SME.................... -- -- -- --
Carrier................ L
</TABLE>
<TABLE>
<CAPTION>
PREPAID
POSTPAID RESIDENTIAL
EASY ACCESS CLOSED USER CALLING OR PREPAID WHOLESALE
"1XXX"(1) GROUP(2) CALLBACK(2) LOCAL(3) CARD CALLING CARD TOLL-FREE SERVICES
-------------- ----------- ----------- -------- -------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom
Residential............ L L -- --
SME.................... -- L -- --
Carrier................ L
Italy
Residential............
SME.................... L -- -- L
Carrier................
France
Residential............ L L K
SME.................... L -- -- K L
Carrier................ L
Spain
Residential............
SME.................... -- K -- K
Carrier................
Sweden
Residential............
SME.................... L K
Carrier................
Germany
Residential............ L L L
SME.................... L K K
Carrier................ L
</TABLE>
Key: -- Available June 1, 1998
L Expected to be available by December 31, 1998
- ---------------
(1) Subject to obtaining interconnection with the local PTO. See "-- The LDI
Network -- Interconnection Agreements."
(2) The Company anticipates that these services will be upgraded to "1xxx"
service in France and Italy before December 31, 1998.
(3) Pursuant to trial program with British Telecom. See "-- Local Services."
INTERNATIONAL AND DOMESTIC LONG DISTANCE SERVICES
LDI's international and domestic long distance services can be accessed
from the customer's billing location using equal access, easy access,
dial-around, closed user groups or callback access. LDI's international and
domestic long distance service generally enables customers to call to any long
distance destination within the country and to over 200 countries worldwide.
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Equal Access. In jurisdictions allowing equal access, a customer that
selects LDI as the customer's long distance carrier can make long distance calls
on LDI's network without dialing any special access number or code (e.g., in the
United States, equal access customers simply dial "1" plus the number being
called). LDI can offer equal access where LDI has a switch or POP and is
interconnected to the PSTN. LDI currently offers equal access in 27 states of
the United States and expects by year-end 1998 to offer equal access service in
additional states and, if regulatory conditions allow and interconnection is
available, in Germany.
Easy Access. "1xxx" or easy access enables a long distance customer to
access LDI's network from the customer's home or office by dialing LDI's four
digit access code for the applicable country and then the number the customer is
calling. The customer does not need to dial a further personal identification
number ("PIN") or code. This access method is available to customers with an LDI
account who are connected to the PSTN by means of a digital exchange. LDI can
offer easy access where LDI has a switch or POP if regulatory conditions allow
for such (but do not permit equal access) and interconnection is available. LDI
currently offers easy access in the United Kingdom and expects to offer easy
access in Sweden, France, Germany and Italy by year-end 1998. Depending on a
customer's spending volume, LDI may install call routing equipment (i.e.,
auto-dialers) or reprogram the customer's private automatic branch exchange to
automatically dial the "1xxx" code on long distance calls. In certain countries,
the access code may be more than four digits.
Dial-Around. LDI's dial-around service enables a United States long
distance customer to access LDI's network from the customer's home or office by
dialing a "10xxx" prefix ("10799" for LDI in the United States) and then the
number the customer is calling. The FCC has proposed to expand carrier
identification codes from "10xxx" to a "101xxxx" format commencing July 1, 1998.
A transition period during which both formats can be utilized is in effect.
There can be no assurance that the change in format will not have a material
adverse effect on the Company's dial-around business. The customer can access
LDI's network even if LDI has not been selected as the customer's presubscribed
long distance carrier. The customer can thereby "dial around" their
presubscribed long distance carrier to take advantage of LDI's long distance
rates. LDI currently offers dial-around services in 27 states of the United
States and expects to offer such in additional states and, if regulatory
conditions allow and interconnection is available, in Germany by year-end 1998.
Closed User Group. LDI offers international long distance service in
certain western European markets where it does not have a carrier-to-carrier
interconnection with the PTO by providing a local telephone number that enables
a long distance customer to access LDI's network from the customer's home or
office. Upon accessing LDI's network through such local call, the customer dials
the number the customer is calling. In most countries, customers must prefix
this number with a PIN authorization code. This access method can be available
wherever LDI has a switch or POP or an agreement with a carrier that has such.
LDI may offer this service to establish its presence in a new market prior to
full interconnection with the local PTO. LDI currently offers closed user group
services in Italy, France and Spain but intends to transition to easy access
("1xxx") service in Italy and France by year-end 1998.
Callback. Callback access enables a long distance customer to access LDI's
network from markets where LDI does not have in-country facilities or a resale
agreement. The customer accesses LDI's network from the customer's home or
office by dialing a long distance telephone number. The customer will receive a
"call back" from such number and can then use such telephone line to dial the
number the customer is calling. LDI may offer this service to establish a
presence in a new market prior to full inter-connection with the local PTO. LDI
currently offers callback services in Italy but intends to transition to easy
access service there by year-end 1998.
LOCAL SERVICES
Local telecommunications service is service within a customer's local
calling area. The Company is currently one of two companies participating in a
trial of a new program with British Telecom to offer local service in London
which commenced on March 1, 1998. Under this program called "Calls and Access,"
LDI markets local services by reselling the British Telecom line rentals and
local calls, with certain of British Telecom's value-added services, to
residential and small business customers billed under the LDI brand name.
British Telecom passes on the call records to LDI for billing; the customers
then receive only one bill from
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LDI. This allows LDI to offer postpaid long distance services to residential and
small business customers in the United Kingdom using either LDI's network or by
reselling British Telecom's network under the LDI brand name. The Company does
not currently plan to provide local services in any other of its markets.
CALLING CARD SERVICES
LDI offers calling card services as an additional service for its
presubscribed long distance customers in the United States and United Kingdom.
LDI's calling cards allow customers to avoid using higher cost hotel or pay
telephones when travelling in the country of issue and in over 40 countries.
LDI's calling card service is accessed from a country by dialing an
international freephone number for that country followed by the caller's account
number and PIN. LDI has been allocated a group of universal international
freephone numbers ("UIFNs"). One of these will be used for the calling card so
that the same toll-free number will be available to access the LDI network from
16 European countries. In Europe, LDI's calling cards provide value-added
services such as voice mail and message delivery. Calling cards are billed on a
postpaid basis.
PREPAID SERVICES
Calling Card. LDI's prepaid card service is a prepaid version of its
calling card. Customers purchase cards with a PIN code and a credit balance
which allows them to access the service via a toll-free number until the credit
balance has been used up or the PIN expires. LDI's prepaid card has similar
value-added features to its postpaid card and offers competitive rates to
international destinations. LDI's prepaid card is available in the United
Kingdom and France and is distributed through agents and retailers.
Residential. LDI also offers a prepaid residential service in the United
Kingdom. This service is accessed by dialing a toll-free access number or "1xxx"
code. The customer then receives a second dialtone and dials the destination
number. No PIN code is required when calling from a home number that is
presubscribed to LDI's service and is connected to the PSTN by means of a
digital exchange.
TOLL-FREE SERVICES
LDI provides domestic toll-free service to customers in the United States
and the United Kingdom (i.e., "800" or "888" service in the United States and
"0800" in the United Kingdom). This service is targeted at customers who have a
substantial number of incoming domestic long distance calls. Customers of LDI's
toll-free service are assigned a toll-free number. Calls to the toll-free number
are routed to the LDI network. From there, the call is transmitted to the
customer's location in the same manner as other calls routed through the LDI
network.
WHOLESALE SERVICES
In both the United States and in Europe, LDI anticipates that it will sell
capacity to carrier customers.
Carrier services are sold at substantially lower margins than LDI's other
services. However, because carrier customers purchase transmission capacity in
bulk, these services will allow LDI to increase the amount of transmission
capacity that it purchases, enabling it to obtain volume discounts on
transmission capacity from its vendors and, therefore, realize lower unit costs.
In addition, the sale of transmission capacity on LDI's IRUs and leased lines
will allow LDI to generate additional revenues on transmission lines operating
at less than full capacity without incurring significant marginal costs. Carrier
customers frequently change vendors based on small differences in price and
certain carrier customers could subject LDI to credit risks.
By maintaining a constantly updated database of carriers, rates and
routings, LDI believes it will be able to compete effectively in this market.
WIRELESS SERVICES
LDI is currently test marketing prepaid wireless service for hand-held
mobile phones in the United States through a resale agreement with a United
States cellular network provider. In addition, LDI recently acquired a British
reseller of cellular communications services through a tender offer which
expired on May 15, 1998.
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This acquisition also provides the Company with an expanded product range and
the opportunity to further penetrate the United Kingdom market by cross-selling
its services to subscribers of this company.
SALES AND MARKETING
The Company markets its services to residential and SME customers with
significant long distance calling needs and recently commenced marketing to
carrier customers. LDI will rely on a combination of direct response marketing,
indirect sales, outbound telemarketing, direct sales and affinity programs in
marketing its services to its customers. Residential customers will be solicited
through direct mail and telemarketing and SME customers through direct and agent
sales. In each metropolitan area in Europe, LDI will hire a dealer manager to
manage relationships with local agents. Wholesale services will be marketed to
carriers by LDI's in-house direct sales force.
LDI'S TARGET MARKETS
Residential. LDI's services are marketed primarily to residential
customers with significant international calling needs such as expatriate and
ethnic communities. The Company believes that approximately 60% of the 100
million households in the United States have not enrolled in a discount long
distance calling program. In the United States, the Company has targeted the
Asian and Hispanic communities. In Europe, the Company targets and plans to
target the various large ethnic communities, such as the Indian, Pakistani,
Caribbean and African communities in the United Kingdom and the Turkish and
eastern European communities in Germany.
SME. The Company targets small and medium-sized businesses that originate
in excess of $500 in international telephone calls per month. The Company
believes that this market segment offers significant opportunities because it
has traditionally been underserved by the major global telecommunications
carriers and the PTOs, which offer their lowest rates and best services
primarily to higher volume multinational business customers.
Carrier. The Company recently began offering international termination and
transit traffic services to other carriers, including resellers, on a wholesale
basis. The Company anticipates that significant levels of traffic volume
generated by such carrier customers will enable the Company to obtain volume
discounts on transmission capacity from its vendors. The Company believes that
revenues from its carrier customers will represent a significant portion of the
Company's overall revenues in the future. See "Risk Factors -- Inability to
Predict Traffic Volume" and "-- Services -- Wholesale Services."
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DISTRIBUTION CHANNELS
The following table summarizes LDI's current and planned distribution
channels as of June 1, 1998 and as projected by December 31, 1998:
<TABLE>
<CAPTION>
DISTRIBUTION CHANNELS
-----------------------------------------------------------------------------------
DIRECT RESPONSE
TARGET MARKETS MARKETING INDIRECT SALES TELEMARKETING DIRECT SALES AFFINITY PROGRAMS
-------------- --------------- -------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
United States
Residential...................... K K K
SME.............................. K L K L K
Carrier.......................... K
United Kingdom
Residential...................... K L L
SME.............................. K K K K
Carrier.......................... L
Italy
Residential......................
SME.............................. K
Carrier..........................
France
Residential...................... L L L L
SME.............................. K K K L
Carrier.......................... L
Spain
Residential......................
SME.............................. K
Carrier..........................
Sweden
Residential......................
SME.............................. L
Carrier..........................
Germany
Residential...................... L L L L
SME.............................. L L L
Carrier.......................... L
</TABLE>
Key: K Available June 1, 1998
L Expected to be available by December 31, 1998
Direct Response Marketing. The Company markets its services to the
residential market and, to a lesser extent, to the SME market through direct
response marketing. Direct response marketing includes direct mailings,
newspaper advertisements, inserts in newspapers, television and radio
commercials and advertising in various other media. In the United States, direct
response marketing programs generate dial-around revenue as well as in-bound
calls to the Company's telemarketing center. In 1997, LDI mailed 114.4 million
direct mail inserts compared to 43.9 million inserts in 1996.
The Company plans to enhance the targeting of its direct response marketing
through market analysis utilizing LDI's residential database and external data.
Such market analysis uses advanced socio-demographic profiling of customers
based on geographic area, customer lifestyle, usage patterns and other
information. The Company anticipates that this socio-demographic profiling will
also be used in Europe for residential marketing.
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Indirect Sales. The Company primarily markets its services to the SME
market by means of indirect sales through generally nonexclusive arrangements
with agents to sell services under the LDI brand name. This channel is also used
to sell to residential markets and to sell prepaid cards through retail
channels. Agents generally sign a letter of authority with the Company which
allows the agents to sell the Company's services; however, the Company is
entitled to reject any sales order or contract introduced by an agent. LDI's
dealer managers currently have relationships with 260 master agents and the
Company intends to significantly expand its agent program. LDI typically pays an
agent between 6% and 15% of ongoing collected revenues. Agents are recruited and
managed by LDI-employed dealer managers. LDI anticipates that its incentive
programs, training programs and back office and marketing support for dealers
and agents will be a competitive strength in recruiting and managing agents.
Telemarketing. The Company has established in-house call centers in the
United States and the United Kingdom to engage in telemarketing. The Company
generates call lists of lapsed or low spending customers and potential new
customers from both billing and external data. The Company also uses the
telemarketing call center to set appointments between prospective SME customers
and LDI salespersons or agents. In the United States, the Company also uses the
services of independent telemarketing sales organizations.
Direct Sales. The Company markets its services to the larger SMEs by means
of direct sales by a small sales staff. In the United Kingdom, the Company
employs six direct sales people. In Paris, the Company employs two direct sales
people. The Company deploys direct sales people to specialize in specific
customer niches or industry sectors. The Company will market its wholesale
services exclusively through direct sales and has retained one sales person in
the United States.
Affinity Programs. The Company also participates in various affinity
programs to market its services. Affinity programs are programs whereby two or
more companies market their respective products or services by promoting a
co-branded product or service to the affinity group members. For example, a
company with a strong brand or customer base will pass on LDI benefits (e.g.,
free or discounted calls) to its customers as a method for marketing both LDI's
and such company's respective products or services.
Retail. The Company intends to use retail outlets to distribute its
prepaid card and prepaid wireless products to end-users. Relationships with
retail outlets will be managed either by LDI agents or, in some instances,
relationships with chains will be managed directly by LDI.
OTHER MARKETING CONSIDERATIONS
Customer Care. The Company will continue to use proactive customer care
teams to manage existing residential and SME customers' accounts in order to
retain customers and to sell additional services. The Company anticipates that
it will continue to utilize this sales channel in local offices in new markets.
Billing. LDI regards its billing as an important feature of its service
offerings because it provides information and customized billing formats that
may not be available from other carriers. The Company plans to upgrade its
billing systems in 1998 to provide additional flexibility, capacity and
scalability for growth. See "-- Information Technology." For all directly billed
postpaid products, customers receive an LDI bill in addition to a bill from
their local telephone company for local lines and services, other than with
respect to the "Calls and Access" program with British Telecom. See "-- Local
Services." In the United States, all dial-around customers and most
presubscribed customers receive their LDI long distance bill on their LEC bill
through a billing arrangement between LDI and the LEC or LEC clearing house.
Carrier customers will be directly billed by the Company.
Competitive Advantages. The Company believes that its competitive
advantages against dominant incumbent carriers will be its pricing, its flexible
and innovative marketing and packaging and its customer care; against larger
facilities-based independent carriers, the Company believes its principal
competitive advantages will be its focus on smaller businesses and residential
customers, its lower overhead and its early participation in underserved
markets; against smaller entrants, the Company believes its broad range of
products, its enhanced billing formats and its multinational facilities-based
network will be its principal competitive advantages. The Company believes that
the dominant incumbents (i.e., PTOs in Europe) will initially be its biggest
competitors.
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Brand Development. The Company will continue to coordinate its marketing
activities, including monitoring the performance of its sales channels to
increase brand awareness. The Company markets its telecommunications services
under its "LDI" brand name as well as several additional brand names. LDI also
markets its services through other carriers licensed for such purpose on a
nonbranded basis. LDI uses the brand name "Speedial" for marketing its prepaid
services to ethnic residential customers in the United Kingdom and the brand
name "Dynamic Telecom International" for its closed user group services in
southern Europe. The Company utilizes public relations services to promote its
brands.
PRICING POLICY
Residential. The Company monitors the retail prices of other carriers and
prices its long distance services to residential customers accordingly. Programs
offered to residential customers from time to time include special promotional
rates for limited periods, special offers, as well as prepaid programs with
incentives to prepay larger amounts. In both the United States and Europe, the
Company's marketing materials generally contain price comparisons against the
dominant incumbent carriers only.
SME. In Europe, the Company generally prices at least 15% below the
incumbent carriers. LDI also offers a "price promise" in some markets whereby
LDI agrees to match or beat rates offered by certain approved competitors. In
addition to price, however, the Company emphasizes non-price differentiators
such as product range, customer service quality and channel effectiveness in
marketing and selling to SMEs.
Carrier. The Company intends to price its wholesale services based on a
margin over underlying variable cost. The wholesale division will maintain an
automated "rate vault" database of other carriers' rates and routings to all
destinations on a day-by-day basis.
THE LDI NETWORK
NETWORK ECONOMICS
By designing, developing and implementing a multinational network and
migrating from a switchless resale or hybrid resale environment to a
facilities-based environment, LDI believes that it will be able to reduce the
cost and expand the scope of its services offered in its targeted markets. As
the cost of owning and operating the network upon completion of its buildout
will be relatively fixed, the unit cost of additional minutes of traffic will
decline. At or above certain volume levels, the fixed cost of capital investment
in network infrastructure (even when amortized over only five years) will be
lower than the variable per minute settlement rate or rates in the international
wholesale market. As the Company's cost structure becomes facilities-based, the
Company expects that the majority of its transmission cost will be for
interconnection with the PSTN.
CURRENT NETWORK
In the United States, LDI owns and operates a DEX Switch located in Fort
Lauderdale, Florida and currently leases switch partitions in New York City, New
York; Birmingham, Alabama; Charlotte, North Carolina; Denver, Colorado; and Los
Angeles and Oakland, California. The partition leases are on a flat-fee
month-to-month basis. LDI also leases on a per minute basis switching and
network capacity in Davenport, Iowa; Las Vegas, Nevada; Chattanooga, Tennessee;
and Washington, D.C. In other markets in which LDI operates, it acts as a
switchless reseller, buying minutes of traffic capacity from other providers.
Typically, the service provider posts the Company's billing records on an
electronic bulletin board on a daily basis for retrieval by LDI.
In western Europe, LDI owns and operates a DEX Switch with an international
gateway in London, which is connected to the Company's United States network and
various international facilities-based carriers in Europe. LDI operates mostly
as a switchless reseller in Europe, except with respect to the United Kingdom
residential market. Accordingly, in Europe, LDI purchases minutes of traffic
from other facilities-based carriers.
In the United States, the Company's switching facilities are interconnected
through leased long distance transmission lines. Outside the United States, LDI
uses a combination of leased facilities and acquired IRUs on international fiber
facilities.
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NETWORK UPGRADE AND EXPANSION
By the end of 1998, LDI plans to install switches in New York City, New
York; Chicago, Illinois; Fresno, California; Raleigh, North Carolina; and Tulsa,
Oklahoma, which switches will replace the Company's switch partition and leased
switch capacity in Las Vegas, Nevada; Oakland and Los Angeles, California;
Davenport, Iowa; Chattanooga, Tennessee; Charlotte, North Carolina; and
Washington, D.C. LDI will continue to lease switch partitions in Birmingham,
Alabama and Denver, Colorado and will commence leasing an additional switch
partition in Seattle, Washington. The Company intends to connect each switch to
at least two other switches by DS-3 (45 Mb) leased lines, and connections to
local telephone service will be through DS-1 (1.54 Mb) leased lines. The New
York switch will also act as an international gateway between the Company's
network in the United States and Europe, when it is placed in service in the
third quarter of 1998. The Fort Lauderdale and Fresno switches will also be
upgraded to act as international gateways between South America and the Pacific
Rim, respectively, when traffic justifies.
In Europe, LDI plans to have installed main hub switches in Paris and
Hamburg by year-end 1998. In addition, the Company intends to add remote
switches in secondary markets including Amsterdam, The Netherlands; Copenhagen,
Denmark; Lyons, France; Madrid, Spain; and Milan, Italy, during the course of
1998.
The following table sets forth the switches the Company's plans to have
installed by year-end 1998:
<TABLE>
<CAPTION>
EXPECTED COMMERCIAL
MARKET NETWORK ELEMENT OPERATION DATE
------ --------------- -------------------
<S> <C> <C>
United States
Fort Lauderdale............. DEX Switch Installed
New York City............... DEX Switch/International Gateway 3Q'98
Fresno...................... DEX Switch(1) 3Q'98
Chicago..................... DEX Switch(2) 3Q'98
Tulsa....................... DEX Switch 3Q'98
Raleigh..................... DEX Switch(3) 3Q'98
Europe(4)
London...................... DEX Switch/International Gateway Installed
Hamburg..................... ANS Switch 3Q'98
AXE10 Switch/International 4Q'98
Gateway(5)
Paris....................... ANS Switch 3Q'98
AXE10 Switch/International 4Q'98
Gateway(5)
Milan....................... ANS Switch 2Q'98
Madrid...................... ANS Switch 2Q'98
Lyons....................... ANS Switch 3Q'98
Copenhagen.................. ANS Switch(5) 4Q'98
Amsterdam................... ANS Switch(5) 4Q'98
</TABLE>
- ---------------
(1) Replaces switch partition and leased switch capacity in Las Vegas, Nevada;
and Oakland and Los Angeles, California.
(2) Replaces leased switch capacity in Davenport, Iowa.
(3) Replaces switch partition and leased switch capacity in Chattanooga,
Tennessee; Charlotte, North Carolina; and Washington, D.C.
(4) LDI also plans to install POPs in at least ten European cities in Europe by
December 31, 1998.
(5) AXE10 Switches replace ANS Switches which will be redeployed in Copenhagen
and Amsterdam, respectively.
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To interconnect its European switching installations, LDI plans to use a
combination of leased lines and purchased fiber optic facilities. The Company
owns or has committed to buy the following fiber optic transmission facilities:
- CANTAT 3 -- United States to United Kingdom (one E-1)
- CANTAT 3 -- United Kingdom to Denmark (one E-1)
- UK - Germany 6 -- United Kingdom to Germany (four E-1s) (currently under
construction)
- Atlantic Crossing 1 -- New York to London (one STM-1) (currently under
construction)
In addition, LDI has entered into a letter of intent to purchase five
STM-1s from Viatel on CIRCE, the planned fiber optic ring between London, Paris,
Brussels, Rotterdam and Amsterdam, which is expected to be operational by the
second quarter of 1999. LDI is also negotiating to purchase an IRU on the FLAG
fiber optic cable between the United Kingdom, Spain and Italy, subject to
obtaining local backhaul from local telecommunications companies in Italy and
Spain.
The Company is continuing to explore opportunities for acquiring facilities
in Europe and Asia, in furtherance of its strategy to develop a cost-competitive
multinational network.
NETWORK INFRASTRUCTURE
LDI's network construction policies require that all site configurations be
as identical to each other as possible, so that all of LDI's site technicians
may be able to readily service any site and to reduce training costs. In
furtherance thereof, LDI intends to minimize the number of vendors from whom it
purchases equipment. Each site must have an electric generator; access to at
least two fiber optic cable carriers; 24 hours a day, seven days a week building
security; automatic fire protection systems; and secure 24 hour parking for two
to three personnel.
In the United States and Europe each owned switch site will be connected to
at least two other switches, and all primary switches will be connected to each
other, thereby providing redundancy and increasing the reliability of the
network.
LDI uses or plans to use carrier grade Digital Switch Corp. and Ericsson AB
switches, Newbridge Network, Inc. bandwidth management systems, Coherent echo
cancelers, and Tadiran digital cross-connect systems.
LDI intends to employ remote monitoring, maintenance, and management to
reduce service costs and response times. The entire system will be managed with
SS-7 "out-of-band" signaling, which, among other things, will enable rapid call
set-up and real time system monitoring and remediation. All traffic on LDI's
network will be analyzed real-time by an automated fraud management system to be
located in LDI's network management center, which is under construction in Fort
Lauderdale. A mirror (fully redundant) network management center is planned to
be located in London, during the first quarter of 1999.
INTERCONNECTION AGREEMENTS
The Company currently has interconnection agreements with all the RBOCs and
other major LECs in the United States as well as the PTOs in the United Kingdom,
Sweden, The Netherlands and Denmark. During 1998, the Company intends to enter
into interconnection agreements with the PTOs in France, Germany, Italy,
Belgium, Norway, Switzerland and Austria.
INFORMATION TECHNOLOGY
CURRENT BILLING PLATFORM
In the United States, the Company bills substantially all of its customers,
including all of its dial-around customers, through LEC billing and collection
agreements. LDI downloads call records daily from its carriers. The Company's
data systems track and rate the call records. The information is transmitted to
a billing service bureau, which transmits the data to the appropriate LEC. The
LEC then includes LDI's charges in its customers' bills and performs collection.
LDI invoices a limited number of large SME customers directly on a monthly
basis. In Europe, LDI relies on in-house PC-based billing systems. LDI collects
data from carriers, rates the call records and bills its carrier customers
directly.
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BILLING PLATFORM UPGRADE
The Company believes that advanced, effective and flexible billing and
customer care information systems are vital to support its anticipated growth.
In the United States, LDI has commenced upgrading existing systems and
plans to purchase new platforms. The Company will buy off-the-shelf software,
which will be customized to suit the Company's needs. The Company has retained a
management information systems consultant (see "Certain Transactions") to assist
it in selecting a cost-effective system designed to have the following key
features:
- flexibility with respect to billing for various services and billing
formats;
- ability to support LEC, direct and wholesale/carrier billing;
- scalability for increases in number of customers and calling volume; and
- ability to support detailed management information with respect to
customer care and business performance.
In Europe, the Company has purchased an Oracle-based billing and rating
engine that supports billing in local currencies (GENEVA), from Generic
Technology in Cambridge, England. The Company expects the GENEVA system to be
operational in June 1998. The software will handle retail business and
residential billing, as well as wholesale requirements. The GENEVA software is
currently being used by other European telecommunications providers.
LDI employs its own programming staff to meet ongoing country and product
development/marketing requirements. Outsourcing is used for non-recurring
programming in Oracle and Helpdesk applications. LDI anticipates that the
processing of monthly billing will be outsourced to third parties. The Company
believes that this will lead to reductions in headcount, mailing systems and
postal costs.
COMPETITION
The provision of telecommunications services is extremely competitive and
will become increasingly so as the regulatory barriers to entry into
telecommunications markets are reduced or eliminated. LDI believes that the
non-United States and non-United Kingdom markets into which LDI intends to
expand its operations will experience increased competition and will begin to
resemble the competitive landscape in the United States, in part as a result of
regulatory initiatives. However, it appears that continental European
telecommunications markets may experience price competition more rapidly and
more extensively than was experienced when deregulation occurred in the United
States and the United Kingdom.
Competition for customers is primarily on the basis of price and, to a
lesser extent, on the type and quality of services offered and customer service.
LDI has a large number of competitors which may use their substantial financial
resources to cause severe price competition in the markets in which LDI
operates, which would require LDI to reduce its prices in order to remain
competitive. Many of the Company's larger competitors have lower incremental
transmission costs than the Company due to, among other things, greater use of
owned transmission capacity, more favorable interconnection rates and volume
discounts on transmission. Furthermore, in certain European countries (including
France and Italy), telecommunications companies that make substantial
investments in network infrastructure will receive a substantial discount on
interconnection rates. The Company does not expect to qualify for such a
discount in the foreseeable future. In addition, certain of the Company's
competitors offer customers an integrated full service telecommunications
package consisting of local and long distance voice, data and Internet
transmission. The Company does not offer all of these services and does not
presently plan to do so, which could have a material adverse effect on the
Company's ability to compete.
In the United Kingdom, British Telecom reduced its retail prices pursuant
to the requirements of Oftel. In continental Europe, France Telecom and Deutsche
Telekom have recently taken steps to substantially reduce prices in an effort to
protect their market share and deter competitors, such as the Company. France
Telecom has obtained approval to reduce retail prices on domestic and
international long distance services by an average of 9% during each of 1997 and
1998 and 4.5% during each of 1999 and 2000. Deutsche Telekom has announced that,
subject to regulatory approval, it intends to reduce retail prices on domestic
and
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international long distance service by up to 40%. In the United States, the FCC
adopted rules which are designed to bring downward pressure on international
telephone rates. The FCC is requiring United States international
facilities-based carriers to negotiate lower settlement rates with correspondent
foreign carriers that deliver calls in foreign jurisdictions. The FCC expects
such lower settlement rates to become effective on a transitional basis,
commencing January 1, 1999 for major countries, with lower settlement rates to
become effective for substantially all countries by January 1, 2003.
Corresponding price reductions by LDI could reduce LDI's revenues and margins,
which could have a material adverse effect on LDI's business. The Company has
experienced, and expects to continue to experience, declining revenue per
billable minute in all of its markets, in part as a result of increasing
worldwide competition within the telecommunications industry. LDI also
experiences customer attrition, or "churn," as a result of the highly
competitive nature of its markets and expects current levels of churn to
continue or increase.
LDI's success will depend upon its ability to compete with a variety of
other telecommunications providers in each of its markets. In the United States,
the long distance business is dominated by AT&T, MCI, Sprint and WorldCom and
includes numerous other carriers for domestic and international long distance
calls. Congress has substantially amended the Communications Act by enacting the
1996 Act, making RBOCs eligible, subject to FCC approval, to offer domestic long
distance and international telecommunications services in their "in region"
service areas, where they control essential facilities such as local lines
connecting to the premises of customers. The FCC also has substantially reduced
the regulatory constraints on AT&T, LDI's largest competitor, by declaring AT&T
to be "non-dominant," first in the domestic long distance market and more
recently in the international market, thus, granting AT&T more pricing and
service flexibility and permitting it to compete more effectively with smaller
inter-exchange carriers such as LDI.
In Europe, LDI's competitors include (i) PTOs, (ii) alliances such as
AT&T's alliance with Unisource (itself a joint venture among Telecom
Netherlands, Telia AB and Swiss Telecom PTT), and Sprint's alliance with
Deutsche Telekom and France Telecom, known as "Global One," (iii) companies
offering international telecommunications services, such as Esprit, Econophone,
Inc., Primus, Viatel and RSL Communications, Ltd., (iv) new entrants into the
European telecommunications industry which are partially owned by large European
industrial or utilities companies such as Arcor Mannesmann in Germany, Omnitel
in Italy and Energis in the United Kingdom, and (v) other companies with
business plans similar in varying degrees to LDI's.
Because all of the Company's targeted European markets (other than the
United Kingdom) have only recently liberalized or are still in the process of
liberalizing the provision of telephone services, customers in these markets are
not accustomed to obtaining services from competitors to PTOs and may be
reluctant to use new providers, such as the Company. PTOs also generally have
certain competitive advantages over the Company and other providers due to their
control of local connectivity, their extensive ownership of facilities, their
ability to delay or prevent equal access to lines and the reluctance of some
regulators to adopt policies and grant regulatory approvals that would result in
increased competition for the local PTO. PTOs are able to threaten and implement
disconnection if an invoice is unpaid, while LDI cannot threaten or arrange for
disconnection of a customer where LDI is not the local service provider.
The WTO recently concluded an agreement, known as the WTO Agreement, which
opens the telecommunications markets of the signatory countries to foreign
carriers on varying dates beginning February 5, 1998. The WTO Agreement is
subject to legislative ratification in many of the 70 signatory countries.
Although the WTO Agreement may open additional markets to LDI or broaden the
permissible services that LDI can provide in certain markets, the WTO Agreement
also may subject LDI to greater competitive pressures in its markets, with the
risk of losing customers to other carriers and reductions in LDI's rates. See
"-- Regulation -- World Trade Organization Initiatives."
LDI also may experience competition in one or more of its markets from
competitors utilizing new or alternative technologies and/or transmission
methods, including cable television companies, wireless telephone companies,
satellite owners and resellers, Internet service providers, electric and other
utilities, railways, microwave carriers and large end users that have private
networks. Existing telecommunications
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companies, including AT&T, are implementing plans to offer voice
telecommunications services over the Internet at substantially reduced prices.
Each of the markets in which LDI offers or intends to offer its services
will present unique competitive factors. There can be no assurance that LDI will
be able to effectively compete in any given market and the success of LDI's
strategy in any one market is not necessarily indicative of its ability to
succeed in any other market. See "Risk Factors -- Competition."
REGULATION
A summary discussion of the regulatory frameworks in certain geographic
regions in which LDI operates or has targeted for penetration is set forth
below. This discussion is intended to provide a general outline of the more
relevant regulations and current regulatory posture of the various jurisdictions
and is not intended as a comprehensive discussion of such regulations or
regulatory posture. There can be no assurance that future regulatory, judicial
or legislative changes will not have a material adverse effect on LDI, that
domestic or international regulators or third parties will not raise material
issues with regard to LDI's compliance or noncompliance with applicable laws and
regulations or that other regulatory activities will not have a material adverse
effect on LDI. See "Risk Factors -- Regulatory Restrictions."
UNITED STATES
LDI's United States operations are subject to extensive federal and state
regulation. Federal laws and FCC regulations apply to interstate
telecommunications (including international telecommunications that originate or
terminate in the United States), while particular state regulatory authorities
have jurisdiction over telecommunications originating and terminating within the
state.
Federal. The FCC currently regulates LDI as a non-dominant carrier with
respect to both its international and domestic long distance services. In the
domestic, as distinguished from the international sector, the FCC abstains from
closely regulating the services and charges of non-dominant carriers.
Nevertheless, the FCC acts upon complaints against such carriers for failure to
comply with statutory obligations or with the FCC's rules, regulations and
policies. The FCC also has the power to impose more stringent regulatory
requirements on LDI and to change its regulatory classification. In the current
regulatory atmosphere, LDI believes that the FCC is unlikely to do so with
respect to LDI's international or domestic service offerings.
FCC policy and rules authorize (without the need to obtain specific service
authorizations) a non-dominant carrier to provide domestic interstate
telecommunications services, and generally to resell international private
leased lines connected to the PSTN in Canada, Sweden, the United Kingdom,
Australia, The Netherlands or New Zealand. In the international sector, specific
FCC authorizations, which LDI has acquired, are required for the resale of
switched and private line services of United States facilities-based carriers,
and to provide telecommunications services, both switched and private line, as a
facilities-based carrier by acquiring circuits on various undersea cables or
leasing satellite facilities. The FCC reserves the right to condition, modify or
revoke such domestic and international authority for violations of the
Communications Act or the FCC's regulations, rules or policies promulgated
thereunder. Although LDI believes the probability to be remote, a rescission by
the FCC of LDI's domestic or international authority or a refusal by the FCC to
grant additional international authority would have a material adverse effect on
LDI.
LDI, as a non-dominant carrier, is required to file with the FCC domestic
and international tariffs containing charges and related practices, regulations
and classifications. The FCC presumes the tariffs of non-dominant carriers to be
lawful. The FCC could, however, investigate LDI's tariffs, upon its own motion
or upon complaint by a member of the public. As a result of any such
investigation, the FCC could order LDI to revise its tariffs, or the FCC could
prescribe revised tariffs.
LDI holds global facilities-based authorization under Section 214 of the
Communications Act for international resale carriers which permits LDI to
provide services or use facilities between the United States and all other
countries and authorization under Section 214 for resale of private lines
connected to the PSTN between the United States and the United Kingdom. LDI
holds all necessary Section 214 authorizations for conducting its present
business but may need additional authority in the future. LDI is authorized to
resell
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international private lines to Canada, Sweden, the United Kingdom, Australia,
The Netherlands and New Zealand, for the provision of voice and data services.
The FCC has proposed to expand carrier identification codes from "10xxx" to
a "101xxxx" format commencing July 1, 1998. A transition period during which
both formats can be utilized is in effect. There can be no assurance that the
change in format will not have a material adverse effect on the Company's
dial-around business.
The FCC also has proposed rules (which may or may not be adopted in their
proposed form) which are designed to bring downward pressure on international
telephone rates. The FCC is proposing to require United States international
facilities-based carriers to pay lower settlement rates to their correspondent
foreign carriers. Any resulting savings to the United States facilities-based
carriers might be passed along to their customers in the form of reduced rates
for international calls.
The FCC requires long distance carriers to pay access charges to payphone
providers for calls made from payphones to toll-free numbers administered by
long distance carriers. As of October 7, 1997, all long distance carriers,
irrespective of their annual toll revenues, must pay to each payphone operator
$.284 for each access or toll-free call made from the operator's payphones
unless the payphone operator and the long distance carrier agree upon a
different rate of compensation. There can be no assurance that LDI will be able
to fully pass this cost on to its customers or that doing so will not result in
a loss of customers.
State. The intrastate long distance operations of LDI are subject to
various state laws and regulations. In addition, the majority of the states
require the Company to register or apply for certification prior to initiating
intrastate interexchange telecommunications service. Most states also require
LDI to file and maintain detailed tariffs listing their rates for intrastate
service. To date, the Company is certified to provide intrastate interexchange
telecommunications services in 41 states and the District of Columbia. LDI
anticipates receiving approval from all states, except Alaska, by year end 1998.
The laws of certain states, including the rules, regulations and policies of
certain state regulatory authorities, require entities such as the Company to
obtain prior approval or to file ratifications of certain securities issuances,
including, in certain cases, the Offering. The Company has filed notifications
with state regulatory authorities and is seeking approval of the Offering, where
required. While many of such authorities have granted approval, no assurances
can be given that the Company will receive such approvals from all of the states
in which it is certified. State issued certificates of authority to provide
intrastate interexchange telecommunications services can generally be
conditioned, modified, canceled, terminated or revoked by state regulatory
authorities for failure to comply with state law and/or the rules, regulations
and policies of the state regulatory authorities. Fines and other penalties also
may be imposed for such violations.
UNITED KINGDOM
The telecommunications services provided by LDI in the United Kingdom are
regulated by Oftel, an independent regulatory body. Since the break-up of the
United Kingdom telecommunications duopoly consisting of British Telecom and
Mercury in 1991, it has been the stated goal of Oftel to create a competitive
marketplace from which detailed regulation could eventually be withdrawn.
In 1991, a "multi-operator" policy was established to introduce increased
competition in the market for telecommunication services and infrastructure.
Under the multi-operator policy, the United Kingdom Department of Trade and
Industry (the "DTI") will recommend the grant of a license to operate a
telecommunications network to any applicant that the DTI believes has a
reasonable business plan and where there are no other overriding considerations
not to grant such license. All public telecommunications operators and
international simple resellers operate under individual licenses granted by the
Secretary of State for Trade and Industry pursuant to the Telecommunications Act
1984. Most telecommunications systems with compatible equipment that are
authorized to be run under an individual license granted under the
Telecommunications Act 1984 are permitted to interconnect to British Telecom's
network, although the United Kingdom government has indicated that entitlement
to interconnection with British Telecom's network may depend on types of
services provided by an operator rather than compatibility of equipment in the
future. Under the terms of British Telecom's license, it is required to allow
any such licensed operator to interconnect its system to British Telecom's
system, unless it is not reasonably practicable to do so (e.g., due
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<PAGE> 74
to incompatible equipment). Oftel has stated that the categories of companies
that qualify for interconnection services consist of those network operators
that are making significant contributions to infrastructure competition by
installing transmission capacity or international simple resale operators making
significant contributions to competition in their respective international
market.
Since 1992, the United Kingdom government has permitted competition in the
provision of "any to any" international services over leased lines where calls
originate and terminate on the PSTN. LDI, through its subsidiary, LDI Ltd.,
holds an ISR license in the United Kingdom. An ISR license entitles LDI to
resell international message, telephone and private line services. Provided that
Oftel is satisfied that the licensee is making a significant contribution to
competition in the market for international telephony services, the ISR license
also enables the licensee to interconnect with, and lease capacity at wholesale
rates from, British Telecom, Mercury and other public telecommunications
operators. LDI Ltd. has an interconnection agreement with British Telecom in the
United Kingdom and implementation was completed in May 1998. As of January 1,
1998, ISR was replaced by ISVR (international simple voice resale) which license
permits operators who lease international private leased circuits to conduct all
activities previously permitted by an ISR license. LDI Ltd. was granted an ISVR
as of December 31, 1997.
In the United Kingdom, there was until recently a duopoly on ownership of
international cable and satellite facilities vested with British Telecom and
Mercury. All other operators were required to buy leased capacity from British
Telecom or Mercury, rather than acquiring IRUs on existing cable routes. This
constraint was removed in December 1996 when the United Kingdom government began
to issue IFLs. An IFL authorizes its holder to provide international
telecommunication services over and run its own international infrastructure and
systems. There is no limit on the number of these licenses that may be issued.
LDI was awarded an IFL on December 19, 1996. The provision of international
services by means of the IFL to countries not signatories to the WTO Agreement
is subject to proportionate return and parallel accounting conditions. Those
conditions exist in all IFL licenses; however, they are not applied to WTO
signatory countries. In addition, United Kingdom regulations specify that equal
access be available in the United Kingdom by January 1, 2000, although there can
be no assurance that equal access will actually be implemented by such date.
EUROPEAN UNION
Most EU member states (except for countries such as the United Kingdom,
Sweden and Finland, which are already substantially liberalized) are in the
initial stages of regulatory liberalization. Regulatory liberalization in these
countries may occur either because the EU member state decides to open its own
market (e.g., the United Kingdom, Sweden and Finland) or because it is required
to do so by one or more regulations or directives issued by the institutions of
the European Communities. National governments must pass legislation within
their countries to give effect to EU directives. See "Risk Factors -- Regulatory
Restrictions."
In 1990, the European Commission issued a Directive on Competition in the
Markets for Telecommunications Services (the "Services Directive") requiring
each EU member state to abolish its existing monopolies in the provision of all
telecommunications services other than voice telephony to the public. The
Services Directive did not require the liberalization of telecommunications
infrastructure, nor did it apply to telex, mobile telephony, paging or satellite
services. The effect of the Services Directive was to direct EU member states to
permit the competitive provision of all services other than voice telephony to
the public, including value-added services and voice services within closed user
groups. However, as a consequence of inconsistent local implementation of the
Services Directive through the adoption of national legislation, there are
differing interpretations as to the definition of voice telephony, which can be
reserved to the PTOs in those countries which have a derogation from the
implementation of the Services Directive, and permitted value-added and closed
user group services, which can be provided by competitors. The European
Commission generally has taken a narrow view of the definition of voice
telephony, declaring that voice services may not be reserved to the PTOs if (i)
dedicated customer access is used to provide the service, (ii) the service
confers new value-added benefits on users (such as alternative billing methods)
or (iii) calling is limited by a service provider to a group having legal,
economic or professional ties, namely a closed user group.
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In March 1996, the Services Directive was amended by the adoption of the
Full Competition Directive, which required all EU member states, with the
exception of Greece, Ireland, Luxembourg, Portugal and Spain, (i) to allow those
operators which already have licenses to operate telecommunications
infrastructure for specific purposes (such as utility companies or railroad
companies authorized to operate telecommunications networks only for their own
purposes) to supply liberalized services over such "alternative infrastructure"
by July 1, 1996 and (ii) to fully liberalize the supply of all
telecommunications services and the provision of telecommunications
infrastructure by January 1, 1998. The Full Competition Directive encourages EU
member states to accelerate liberalization of voice telephony. Luxembourg has
been granted six months derogation. Ireland and Portugal have been granted a
derogation until January 1, 2000, although Ireland has indicated that it will
liberalize on January 1, 1999. Spain has been granted a derogation entitling it
to delay liberalization until November 30, 1998. Greece has been granted a
derogation entitling it to delay full liberalization until January 1, 2001. Some
EU member states, such as the United Kingdom, Sweden, Finland, The Netherlands
and Denmark, implemented liberalization in advance of the January 1, 1998 EU
deadline.
The Full Competition Directive provides for the abolishment, as of January
1, 1998, of all special or exclusive rights that restrict the provision of
telecommunications services by companies established in the EU without regard to
the destination or origin of the communications involved. However, neither that
directive nor the original Services Directive prevent EU member states from
maintaining restrictions on companies which are not established in the EU in
order to ensure that EU companies are afforded comparable and effective
treatment in third countries. Thus, the United Kingdom has in the past limited
certain international services on routes to countries that do not have open
markets comparable to the United Kingdom's liberalized market. However, in 1994,
the United Kingdom ruled that the United States (in addition to certain other
countries) provides an equivalent open market and since that date has had no
restrictions (subject to operators obtaining the necessary license) on services
provided over leased lines between the United States and the United Kingdom.
During the second half of 1996, the United Kingdom liberalized all international
facilities-based services and international simple resale services between the
United Kingdom and other countries subject to certain conditions. The ability of
EU member states to in the future enact restrictions in respect of companies
which are not established in the EU is expected to be limited to the extent that
the WTO Agreement becomes effective within the EU. See "-- World Trade
Organization Initiatives."
The recently adopted Interconnect Directive requires PTOs and operators
with significant market power (over 25%) to interconnect on non-discriminatory,
transparent, objective cost-based terms with individually licensed operators in
the EU. Operators such as LDI that are entitled to benefit from such
interconnection rights may also be required to provide interconnection, although
not on a cost basis unless the operator has significant market power.
In addition to the abolition of special and exclusive rights, the Council
of the European Communities has stated that it intends to adopt more detailed
regulatory measures in order to harmonize the rules applying in the liberalized
environment which commenced on January 1, 1998. In this respect, a directive
relating to licensing in general and a decision relating to the licensing of
satellite PCS services already have been adopted. However, additional directives
are expected to be adopted by the Council of the European Communities, although
their final content and timing of implementation cannot be predicted at this
time.
Each EU member state in which LDI currently conducts its business has a
different regulatory regime and such differences are expected to continue. The
requirements for LDI to obtain necessary approvals vary considerably from
country to country and are expected to continue to vary. LDI Ltd., and/or its
French and Danish subsidiaries have operator authority in Denmark, The
Netherlands, Finland and Sweden. Applications have been filed or are in the
process of being filed in Germany, France, Italy, Belgium, Switzerland, Norway
and Austria. Applications have been filed for closed user group licenses in
Portugal, Ireland and Spain. In addition, LDI Ltd. has interconnection
agreements with the PTOs in Denmark, The Netherlands and Sweden. Implementation
of these agreements is expected to be completed by the end of 1998.
The Company anticipates that equal access will be available in all western
European countries excluding Spain, Portugal, Ireland and Greece by 2001.
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WORLD TRADE ORGANIZATION INITIATIVES
The WTO recently concluded the WTO Agreement, which opens the
telecommunications markets of the signatory countries to entry by foreign
carriers on varying dates beginning February 5, 1998. The WTO Agreement is
subject to legislative ratification in many of the 70 signatory countries.
Pursuant to the WTO Agreement, United States companies would have foreign market
access for local, long distance and international services, either on a
facilities basis or through resale of existing network capacity. United States
companies also would be permitted to acquire, establish or hold a significant
stake in foreign telecommunications companies. Conversely, foreign companies
would be permitted to enter the domestic United States telecommunications
markets and acquire ownership interests in United States service providers.
Although the WTO Agreement might open additional markets to LDI or broaden the
permissible services that LDI now provides in certain markets, the WTO Agreement
also might subject LDI to greater competitive pressures in its existing markets,
with the risk of customer diversions to competitive carriers and reductions in
LDI's rates.
EMPLOYEES
As of June 1, 1998, LDI had 253 full-time employees worldwide. Of this
total, 156 were based in the United States, 84 in the United Kingdom, 10 in
France, 2 in Italy, and 1 in Germany. LDI's United States employees are based
principally in its offices in Fort Lauderdale, Florida. In the United Kingdom,
LDI's employees are based principally in its offices in London.
LDI's employees are not represented by a labor union or a collective
bargaining agreement. LDI considers its employee relations to be good.
LITIGATION
LDI is from time to time a party to litigation that arises in the ordinary
course of its business operations or otherwise. LDI is not presently a party to
any litigation that it believes would have a material adverse effect on its
business or operations.
PROPERTIES
The Company leases approximately 8,300 square feet for its executive
offices in Fort Lauderdale, Florida, pursuant to leases which expire October 31,
1998 and for which the Company pays monthly rent of approximately $11,200. LDI
plans to relocate its executive offices to approximately 38,000 square feet in
Fort Lauderdale, Florida and, in connection therewith, has entered into a lease,
to commence upon completion of buildout of the space (currently expected to be
in the third quarter of 1998). The lease provides for annual rent of
approximately $368,000 in the first year with annual increases and expires in
January 2008. In addition, LDI has entered into leases with respect to
approximately 13,000 square feet of space in Fort Lauderdale, Florida to serve
as the Company's world wide network management center which provide for a
monthly rent of approximately $13,000 and expire with respect to approximately
4,500 square feet on July 31, 2000 and approximately 8,500 square feet on
October 5, 2001. The Company leases approximately 10,000 square feet in London
for its European headquarters and London switch site. The lease provides for
monthly rent of approximately $12,600 and expires in 2022. The Company also
rents spaces for its smaller sales and marketing offices and its switches in New
York and Florida. The Company believes that suitable additional space will be
available to it at commercially reasonable rates in all the locations in which
it operates or plans to operate.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SENIOR MANAGEMENT
The following table sets forth certain information with respect to the
directors, executive officers and other senior management of LDI.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Clifford Friedland................... 46 Chairman of the Board, Co-Chief Executive Officer and
European Managing Director
David Glassman....................... 47 President, Co-Chief Executive Officer and Director
Richard Blume........................ 50 Chief Operating Officer and Executive Vice President
John Castellano...................... 44 President of Dynamic Telecom International, Inc.
Elizabeth Tuttle..................... 41 Chief Financial Officer
Marilyn Felos........................ 40 Treasurer and Vice President of Finance
Mark Neptune......................... 50 Vice President of Network and Regulatory Affairs
Ian Adam............................. 51 European Managing Director
Tim Parsonson........................ 29 Director of European Strategy and Acquisitions
Michael Sisselman.................... 38 Vice President of International Carrier Sales
Barry Brooks......................... 41 Non-Voting Director
Lawrence Mestel...................... 35 Director
Olaf N. Krohg........................ 36 Director
Richard Nespola...................... 53 Director
</TABLE>
Directors of LDI each serve for a term of one year or until their
successors are elected. Holders of the Series B Preferred Stock are entitled to
elect two directors and have elected Mr. Krohg as one of such directors. Seruus
Capital Partners LLC ("Seruus"), a consultant to the Company, and First Equity
Capital Securities, Inc. ("FECS"), placement agent for the Company's 1996
private placement, each have the right to require the Company to use its best
efforts to cause a nominee of Seruus or FECS, as the case may be, to be elected
as a non-voting director upon its request. To date, neither Seruus nor FECS has
made such a request.
Clifford Friedland co-founded LDI in May 1993, has been Chairman of the
Board and Co-Chief Executive Officer of LDI since its inception and acting
European Managing Director since March 16, 1998. Mr. Friedland relocated to
London in June 1998 where he is responsible for developing and expanding LDI's
European operations. Prior to forming the Company, Mr. Friedland co-founded
Action Pay-Per-View ("Action PPV"), a 24 hour a day national cable television
programmer that transmitted programming via satellite to over 5 million homes in
the United States. Mr. Friedland served as a Director of Action PPV from 1989 to
1993. Mr. Friedland also co-founded Long Distance America ("LDA"), a long
distance telecommunications reseller, in 1984 and served as its Chairman and a
Director until 1989. Mr. Friedland also co-founded United Satellite
Communications, Inc. ("United Satellite"), a direct to home satellite service
(i.e., DBS or direct broadcast satellite), and served as a Vice President and
Director of United Satellite from 1980 to 1984. In 1981, Mr. Friedland
co-founded United States Satellite Systems, Inc. ("US Satellite"), a Ku-band
satellite system company. Mr. Friedland also co-founded POP Network Inc. ("POP
Network"), a satellite delivered music video channel, and served as its Chairman
from 1978 to 1980.
David Glassman co-founded LDI in May 1993 and has been President, Co-Chief
Executive Officer and a Director of LDI since its inception. From 1989 to 1993,
Mr. Glassman served as consultant to Action PPV. Mr. Glassman co-founded LDA in
1984 and served as its President and a Director until 1989. In 1980, Mr.
Glassman co-founded United Satellite. Mr. Glassman co-founded POP Network and
served as its President from 1978 to 1980.
Richard Blume has been Chief Operating Officer and Executive Vice President
of LDI since March 16, 1998 and has served as President of LDI Wireless, a
division of LDI, since April 1997. From September 1994 to March 1997, Mr. Blume
served as President of Digitable Communications, a communications satellite
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transponder brokerage company. Mr. Blume co-founded Action PPV and served as its
President and Chief Operating Officer from 1987 to 1994. From 1984 to 1987, Mr.
Blume was President of his own telecommunications consulting firm. Mr. Blume
co-founded United Satellite and served as its Executive Vice President and a
Director from 1980 to 1984. Mr. Blume co-founded POP Network and served as its
Vice President from 1978 to 1980.
John Castellano has been President of Dynamic Telecom International, Inc.
("Dynamic Telecom"), a wholly-owned subsidiary of LDI, since LDI's acquisition
of Dynamic Telecom in May 1993. Mr. Castellano also served as President of
Dynamic Telecom prior to the LDI acquisition (at which time Dynamic Telecom was
operating under the name International Telecom Services).
Elizabeth Tuttle has been Chief Financial Officer of LDI since January
1998. From July 1991 to December 1997, Ms. Tuttle served in various capacities
at ITT Corporation, including as its Senior Vice President and Treasurer from
December 1995 to December 1997. From January 1990 to July 1991, Ms. Tuttle was a
Director of Investment Banking of Salomon Brothers Inc ("Salomon Brothers") and
from May 1986 to December 1989 she served as a Vice President of Investment
Banking of Salomon Brothers.
Marilyn Felos has been Treasurer and Vice President of Finance of LDI since
July 1995. From January 1994 to July 1995, Ms. Felos served as Audit Manager to
Mutnick and Associates. From January 1991 to July 1993, Ms. Felos served as
Special Projects Manager of Eagle National Bank of Miami. From 1984 to 1989, Ms.
Felos served in various capacities, including Controller and Assistant Vice
President of Finance, for Telus Communications (formerly Teltec Savings
Communications), a telecommunications company. From 1982 to 1984, Ms. Felos
served as Audit Senior for Peat Marwick Mitchell. Ms. Felos has been certified
as a Public Accountant in the State of Florida since 1982.
Mark Neptune has been Vice President of Network and Regulatory Affairs of
LDI since May 1995. From February 1994 to May 1995, Mr. Neptune served as Vice
President of International and Regulatory Affairs for Trescom Incorporated
("Trescom"), a telecommunications company. From February 1993 to February 1994,
Mr. Neptune served as Vice President of Operations for STSJ Telephone, a switch
based interexchange carrier in St. Thomas, United States Virgin Islands, which
was acquired by Trescom. From September 1991 to February 1993, Mr. Neptune
worked for MCI's carrier relations group and managed MCI's business relationship
with GTE. Prior to September 1991, Mr. Neptune worked at MCI for its Operator
Services Product Planning and Project.
Ian Adam is a consultant to the Company and has served as European Managing
Director of LDI since May 1998. From 1994 to January 1998, Mr. Adam served as
General Manager, Business Development in Paris, France for British Telecom and
from 1991 to 1994, Mr. Adam served as British Telecom's General Manager, Country
Operations, Paris, France. From 1985 to 1991, Mr. Adam served in various
marketing capacities at Wang Laboratories Inc., a computer services company.
From 1979 to 1985, Mr. Adam served in various marketing capacities at General
Electric Information Services Co., a computer services company.
Tim Parsonson has been Director of European Strategy and Acquisitions of
LDI since June 1997. From January 1996 to June 1997, Mr. Parsonson served as
Managing Director of LDI Ltd. From March 1994 to January 1996, Mr. Parsonson was
responsible for Group Planning and Strategic Finance for Tarmac plc, an
international construction conglomerate. From October 1990 to March 1994, Mr.
Parsonson worked for The COBA Group, a strategy consultant to the
telecommunications industry.
Michael Sisselman has been Vice President of International Carrier Sales of
LDI since September 1997. From 1993 to September 1997, Mr. Sisselman served as
Director of Carrier Sales of US Fibercom International. From 1987 to 1993, Mr.
Sisselman served as Vice President of MenuFax, an interactive telecommunications
service bureau.
Barry Brooks has been a Non-Voting Director of LDI since 1995. Mr. Brooks
is a partner, and Chairman of the New York office, of the law firm of Paul,
Hastings, Janofsky & Walker, LLP, New York, New York, corporate counsel to
Island Trading Co. ("Island"), an entertainment holding company, and a principal
shareholder of the Company. See "Principal Shareholders."
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Lawrence Mestel has been a Director of LDI since 1995. Since December 1997,
Mr. Mestel has been the Chief Operating Officer of Island and Island Life, an
entertainment and hospitality company. From 1994 to December 1997, Mr. Mestel
served as Chief Operating Officer for Island Entertainment Group, an
entertainment holding company composed of Island Records, Island Pictures,
Island Music Publishing and Island. From 1990 to 1993, Mr. Mestel served as
Chief Financial Officer to Island Records. See "Principal Shareholders."
Olaf N. Krohg has been a Director of LDI since July 1997. Since 1995 Mr.
Krohg has been a Partner of Advent International Corporation, a principal
shareholder of the Company, and is one of the two directors who may be elected
by the holders of Series B Preferred Stock. See "Principal Shareholders." From
1992 to 1994 Mr. Krohg was an investment manager for Advent International plc.
Richard Nespola has been a Director of LDI since December 1997. Mr. Nespola
founded and has been the President and Chief Executive Officer of The Management
Network Group, Inc. ("TNMG"), a global telecommunications consulting firm, since
1990. Prior to founding TNMG, Mr. Nespola held senior positions with MCI,
Sprint, and Telesphere Communications.
EXECUTIVE COMPENSATION
The following table discloses compensation for fiscal year 1997 received by
the Company's Co-Chief Executive Officers and the Company's other most highly
compensated executive officers whose total salary and bonus for 1997 exceeded
$100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) OPTIONS (#) COMPENSATION($)
--------------------------- ----------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C>
Clifford Friedland..................... 1997 127,000 1,000,000 23,000(1)
Chairman of the Board and Co-Chief
Executive Officer
David Glassman......................... 1997 127,000 1,000,000 11,000(2)
President and Co-Chief Executive
Officer
Richard Blume.......................... 1997(4) 75,000 250,000 --
Chief Operating Officer and Executive
Vice President(3)
John Castellano........................ 1997 71,961 -- --
President of Dynamic Telecom
Elizabeth Tuttle....................... 1997(5) -- -- --
Chief Financial Officer
</TABLE>
- ---------------
(1) Represents rent paid on apartment used by the Company which is owned by a
corporation owned by Mr. Friedland.
(2) Represents reimbursement of expenses incurred by Mr. Glassman.
(3) Mr. Blume commenced service as Chief Operating Officer and Executive Vice
President on March 16, 1998. Mr. Blume has served as President of LDI
Wireless since April 1997.
(4) Mr. Blume commenced employment with the Company in April 1997.
(5) Ms. Tuttle commenced employment with the Company in January 1998.
The following table sets forth information regarding individual grants of
stock options to purchase Common Stock made by the Company to the named
executive officers pursuant to the Company's stock option plans during 1997.
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<PAGE> 80
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF SHARES VALUE AT ASSUMED
SECURITIES SUBJECT TO ANNUAL RATES OF
UNDERLYING OPTIONS STOCK PRICE APPRECIATION
OPTIONS GRANTED TO FOR OPTION TERM
GRANTED EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------------
EXECUTIVE OFFICER (# OF SHARES) FISCAL YEAR ($ PER SHARE) DATE 5% ($) 10% ($)
----------------- ------------- ------------ -------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Clifford Friedland.............. 1,000,000 36% $1.25 6/30/02 $1,600,000 $2,040,000
David Glassman.................. 1,000,000 36 $1.25 6/30/02 1,600,000 2,040,000
Richard Blume................... 250,000 9 $1.25 (1) 535,000 914,625
John Castellano................. -- -- -- -- -- --
Elizabeth Tuttle(2)............. -- -- -- -- -- --
</TABLE>
- ---------------
(1) Options vest over a period of approximately three years and expire with
respect to the underlying shares of Common Stock seven years from each
applicable vesting date.
(2) Ms. Tuttle commenced employment with the Company in January 1998.
1997 STOCK INCENTIVE PLAN
The Board of Directors and the shareholders of the Company have adopted and
approved the 1997 stock incentive plan (the "Stock Incentive Plan"). The Stock
Incentive Plan allows the Company to grant incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options ("NSOs"), stock appreciation rights ("SARs")
performance shares and restricted stock (collectively the "Awards"). All of the
Company's executive officers are eligible participants in the Stock Incentive
Plan. The purpose of the Stock Incentive Plan is to advance the interests of the
Company by enhancing its ability to attract, retain and offer an incentive to
key executive officers who are crucial to the future growth and success of the
Company and its subsidiaries. The total number of shares authorized for grant of
Awards under the Stock Incentive Plan is 4,000,000, subject to adjustment in
certain circumstances. The Stock Incentive Plan is administered by the Board of
Directors, which has the authority to, among other things, make Awards.
The Stock Incentive Plan contains certain limitations applicable only to
ISOs granted thereunder. The price of the shares subject to each ISO shall not
be less than the fair market value of such shares at the time such ISO is
granted. In addition, if an ISO is granted to any individual who, at the time of
such option, owns more than 10% of the total combined voting power of all
classes of capital stock of the Company, subsidiaries and affiliates, the
exercise price per share subject to such ISO shall not be less than 110% of the
fair market value per share at the time of the grant, and the term of the ISO
cannot exceed five years. The exercise price payable by the optionee at the time
of exercise is payable in cash, by check and, in certain instances, by the
delivery of an assignment of shares valued at their fair market value, a
promissory note with terms determined by the Board of Directors, an irrevocable
undertaking by a broker to deliver funds sufficient to pay the exercise price,
or irrevocable instructions to a broker to deliver cash or a check sufficient to
pay the exercise price, or any combination of the foregoing.
As of June 1, 1998, options to purchase 2,000,000 shares of Common Stock
were outstanding under the Stock Incentive Plan, all of which were exercisable
as of such date.
1994 STOCK OPTION PLAN
The Board of Directors and the shareholders of the Company have adopted and
approved the 1994 Employee Stock Option Plan (the "Stock Option Plan"). The
Stock Option Plan allows the Company to grant ISOs, NSOs, SARs and stock
depreciation rights ("SDRs" and collectively, the "Options"). The Stock Option
Plan further provides for the grant of Options, other than ISOs, to officers,
members of the Board of Directors, independent contractors and consultants,
whether or not employees of the Company. The purpose of the Stock Option Plan is
to provide the employees, directors, independent contractors and consultants of
the Company with an added incentive to continue their services to the Company
and to induce them to exert their maximum efforts toward the Company's success.
Options granted under the Stock Option Plan may not be exercisable for terms in
excess of ten years from the date of the grant. In addition, no options may be
granted
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under the Stock Option Plan later than ten years after the Stock Option Plan's
effective date. The total number of shares with respect to which Options may be
granted under the Stock Option Plan is 5,000,000, subject to adjustment in
certain circumstances. If any Option granted under the Stock Option Plan expires
or terminates for any reason without having been exercised or shall cease for
any reason to be exercisable, the unpurchased shares subject thereto shall again
be available for grant under the Stock Option Plan.
The Stock Option Plan is administered by the Board of Directors of the
Company which may determine, in its discretion, among other things, the
individuals to whom, and the time or times at which, Options shall be granted,
the terms of such Options (whether ISO, NSO and/or SAR or SDR in tandem with a
NSO) and the number of shares to be subject to each Option.
The Stock Option plan contains certain limitations applicable only to ISOs
granted thereunder. The price of the shares subject to each ISO shall not be
less than the fair market value of such shares at the time such ISO is granted.
In addition, if an ISO is granted to any individual who, immediately before the
ISO is to be granted, owns (directly or through attrition) more than 10% of the
total combined voting power of all classes of capital stock of the Company or a
subsidiary or parent of the Company, the exercise price per share subject to
such ISO shall not be less than 110% of the fair market value per share at the
time such ISO is granted and the term of the option cannot exceed five years.
The exercise price payable by the optionee at the time of exercise is payable in
cash, by check and, in certain instances, by the delivery of an assignment of
shares having a value equal to the exercise price or by the delivery of an
interest-bearing promissory note having an original principal balance equal to
the exercise price and an interest rate not below the rate which would result in
imputed interest under the Code, or any combination of the foregoing. The
exercise price may also be paid in full by a broker-dealer to whom the optionee
has submitted an exercise notice consisting of a fully endorsed Option, or
through any other medium of payment so authorized.
As of June 1, 1998, options to purchase 3,257,000 shares of Common Stock
were outstanding under the Stock Option Plan, 1,297,636 of which were
exercisable as of such date.
401(K) PLAN
In January 1997, the Company adopted the Long Distance International Inc.
401(k) Employee Savings Plan with an effective date of January 1, 1997. The plan
is available to all employees who were employed on January 1, 1997, and any
employee who has completed six months of service and has attained the age of 21.
An employee may contribute, on a pretax basis, up to 15% of the employee's total
annual wages. Employee contributions are fully vested and non-forfeitable.
EMPLOYMENT AGREEMENTS
On July 1, 1995, LDI entered into a three-year employment agreement with
Clifford Friedland as Chairman and Co-Chief Executive Officer, which agreement
automatically renews for successive one-year periods unless either Mr. Friedland
or the Company gives written notice of termination at least 120 days before the
end of such one-year renewal term. The employment agreement provides that as of
June 1997, Mr. Friedland will receive an annual salary of $150,000. In addition,
if Mr. Friedland is terminated for "cause," as defined in the employment
agreement, then he is entitled to receive severance pay equal to his base salary
and other compensation, and all benefits provided for in the employment
agreement for a period of 60 days from the time notice of termination is given.
If Mr. Friedland is terminated for "good reason," as defined in the employment
agreement, or because of his death or disability, then the Company is obligated
to pay Mr. Friedland, his heirs, administrators or estate, twice the amount of
all base salary that would have been payable through the end of the term during
which such termination occurs. Additionally, should Mr. Friedland terminate the
employment agreement because of a "change of control" of LDI, as defined in the
employment agreement, then he is entitled to receive either (A) two and
nine-tenths times his base salary payable within 30 days of receipt of his
notice of termination if a majority of the Company's Board of Directors opposed
the change of control, or (B) two and one-half times such base salary within 30
days of receipt of his notice of termination if a majority of the Board of
Directors voted in favor of the change of control; provided that such severance
pay does not apply to a change in control for which Mr. Friedland, either as a
director or shareholder
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of LDI, votes in favor. If Mr. Friedland is terminated by the Company without
cause and without good reason or otherwise in breach of the employment
agreement, then the Company is obligated to pay Mr. Friedland an amount equal to
ten times the compensation that would have been payable to him through the end
of the term of the employment agreement.
On July 1, 1995, LDI entered into a three-year employment agreement with
David Glassman as President and Co-Chief Executive Officer, which agreement
automatically renews for successive one-year periods unless either Mr. Glassman
or the Company gives the other written notice of termination at least 120 days
before the end of such one-year renewal term. The employment agreement provides
that as of June 1997, Mr. Glassman will receive an annual salary of $150,000. In
addition, if Mr. Glassman is terminated for "cause," as defined in the
employment agreement, then he is entitled to receive severance pay equal to his
base salary and other compensation, and all benefits provided for in the
employment agreement for a period of 60 days from the time notice of termination
is given. If Mr. Glassman is terminated for "good reason," as defined in the
employment agreement, or because of his death or disability, then the Company is
obligated to pay Mr. Glassman, his heirs, administrators or estate, twice the
amount of all base salary that would have been payable through the end of the
term during which such termination occurs. Additionally, should Mr. Glassman
terminate the employment agreement because of a "change of control" of LDI, as
defined in the employment agreement, then he is entitled to receive either (A)
two and nine-tenths times his current base salary payable within 30 days of
receipt of his notice of termination if a majority of the Company's Board of
Directors opposed the change of control, or (B) two and one-half times such base
salary within 30 days of receipt of his notice of termination if a majority of
the Board of Directors voted in favor of the change of control; provided that
such severance pay does not apply to a change in control for which Mr. Glassman,
either as a director or shareholder of LDI, votes in favor. If Mr. Glassman is
terminated by the Company without cause and without good reason or otherwise in
breach of the employment agreement, then the Company is obligated to pay Mr.
Glassman an amount equal to ten times the compensation that would have been
payable to him through the end of the term of the employment agreement.
On April 1, 1998, LDI entered into a three-year employment agreement with
Richard Blume as Chief Operating Officer and Executive Vice President of the
Company and as President of LDI Wireless Division. The employment agreement
provides that Mr. Blume will receive an annual base salary of $120,000 as of May
1, 1998, which will be adjusted on the first and second anniversary of the
commencement date of the employment agreement by an amount equal to the annual
increase, if any, in the Consumer Price Index for the New York City metropolitan
area. If Mr. Blume is employed as President of LDI Wireless Division or as an
officer of the Company who has primary responsibility for and oversight of LDI
Wireless on March 31, 2000, then he is entitled to receive a bonus payable in
shares of Common Stock in an amount equal to the quotient of (A) the product of
(i) five percent, multiplied by (ii) the net income of LDI Wireless Division
during the twelfth quarter of the employment period, multiplied by (iii) four,
divided by (B) the then current market price of the Common Stock. Pursuant to
his employment agreement, Mr. Blume received stock options to purchase 250,000
shares of Common Stock at an exercise price of $3.00 per share. All such options
have seven year terms and vest over the term of the employment agreement. The
Company may terminate the employment agreement if Mr. Blume becomes physically
or mentally incapacitated or otherwise unable fully to discharge his duties
under his employment agreement, is convicted of a felony or breaches a material
term of the employment agreement and Mr. Blume shall be entitled to his base
salary through the date on which the termination takes effect. If Mr. Blume is
terminated "without cause," as defined in the employment agreement, he will be
entitled to severance pay equal to his base salary until March 30, 2001 and his
stock options will continue to vest. Mr. Blume is subject to a confidentiality
provision, a six-month non-compete provision and a two-year non-solicitation of
employees of LDI provision.
On July 1, 1997, LDI entered into a three-year employment agreement with
John Castellano as President of Dynamic Telecom, a wholly-owned subsidiary of
LDI. The employment agreement provides that Mr. Castellano will receive an
annual base salary of $90,000, which will be adjusted on the first and second
anniversary of the commencement date of the employment agreement by an amount
equal to the annual increase, if any, in the Consumer Price Index for the Miami,
Florida metropolitan area. The Company may terminate the employment agreement if
Mr. Castellano becomes physically or mentally incapacitated or
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<PAGE> 83
otherwise unable fully to discharge his duties under his employment agreement,
is convicted of a felony or breaches a material term of the employment agreement
and Mr. Castellano shall be entitled to his base salary through the date on
which the termination takes effect. If Mr. Castellano is terminated "without
cause," as defined in the employment agreement, he is entitled to receive
$22,500 in severance pay. Mr. Castellano is subject to a confidentiality
provision, a six-month non-compete provision, and a two-year non-solicitation of
employees of LDI provision.
LDI entered into an employment agreement with Elizabeth Tuttle as Chief
Financial Officer of LDI which expires in January 2001. The employment agreement
provides that Ms. Tuttle will receive an annual salary of $100,000. Ms. Tuttle
also received stock options to purchase 120,000 shares of Common Stock at an
exercise price of $2.10 per share. Such options vest over the term of the
employment agreement. The Company may terminate the employment agreement if Ms.
Tuttle becomes physically or mentally incapacitated or otherwise unable fully to
discharge her duties under her employment agreement, is convicted of a felony or
breaches a material term of the employment agreement and Ms. Tuttle shall be
entitled to her base salary through the date on which such termination takes
effect. If Ms. Tuttle is terminated "without cause," as defined in the
employment agreement, she is entitled to receive $25,000 in severance pay and
her stock options will continue to vest for a three-month period from the date
of termination. Ms. Tuttle is subject to a confidentiality provision, a
six-month non-compete provision, and a two-year non-solicitation of employees of
LDI provision.
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<PAGE> 84
CERTAIN TRANSACTIONS
LDI is party to a shareholders' agreement among Clifford Friedland and
David Glassman, Co-Chief Executive Officers of LDI and beneficial owners of
20.3% and 21.4%, respectively, of the Common Stock, and the Advent Entities,
beneficial owners of substantially all of the issued and outstanding Series B
Preferred Stock and the ADV Warrants, pursuant to which, if (i) either of
Messrs. Friedland or Glassman intends to sell his shares of Common Stock, as a
condition to such sale, the Advent Entities shall be entitled to participate
proportionately in such sale (thereby reducing the number of shares to be sold
by Mr. Friedland or Mr. Glassman), or (ii) holders of 51% or more of the voting
power of LDI, excluding the Advent Entities, approve the sale of LDI, and the
Advent Entities also approve such sale, then each party to the shareholders'
agreement will take all action necessary to consummate such sale.
In connection with the purchase by the Advent Entities of Series B
Preferred Stock and the ADV Warrants, the Company granted the Advent Entities
certain preemptive and registration rights. See "Description of the Capital
Stock -- Preemptive Rights" and "-- Registration Rights." On March 20, 1998, the
Company agreed to issue to the Advent Entities warrants to purchase an
additional 1,000,000 shares of Common Stock on substantially the same terms and
conditions, other than with respect to anti-dilution protection, as the ADV
Warrants. See "Description of the Capital Stock -- Warrants." These warrants are
issuable in consideration of the Advent Entities' consent to amendment of the
terms of the Series B Preferred Stock to, among other things, eliminate
adjustment to the redemption price of the Series B Preferred Stock from $10 to
$15 per share, or from $25 million to $37.5 million in the aggregate, plus any
accrued, but unpaid dividends, in the event the Company does not attain at least
$100 million in gross revenues or has a loss before interest, taxes,
depreciation and amortization in excess of $10 million for the fiscal year ended
December 31, 1998.
LDI provides telecommunications services to a hotel owned by Island, which
beneficially owns 12.1% of the Common Stock, on a basis no more favorable to
Island than LDI charges to other of its customers for like services. LDI
received approximately $19,600, $105,100, $137,500, and $30,000 in 1995, 1996,
1997, and during the first quarter of 1998, respectively, in consideration for
such services.
LDI provides telecommunications services to a corporation majority owned by
Frederick DeLuca, beneficial owner of 5.7% of the Common Stock, on a basis no
more favorable to such corporation than LDI charges to other of its customers
for like services. LDI received approximately $77,600, $131,100, $387,000, and
$164,000 in 1995, 1996, 1997, and during the first quarter of 1998,
respectively, in consideration for such services. The Company leases certain
equipment and machinery pursuant to a five-year capital lease agreement with Mr.
DeLuca. The lease payment of approximately $101,000 was prepaid at the inception
of the lease in September 1995 by the issuance of Common Stock. The Company may
purchase the equipment at the end of the lease term for nominal consideration.
TNMG, a telecommunications consulting firm, has rendered consulting
services to the Company in the past and currently has been retained by the
Company to assist it in selecting and implementing a new billing and customer
care information system in the United States. See "Business -- Information
Technology." Richard Nespola, a Director of the Company, is the President, Chief
Executive Officer and a shareholder of TNMG. Pursuant to a letter agreement
between LDI and TNMG, TNMG will charge LDI for its services on the basis of time
and materials devoted to the project, which were estimated to be approximately
$600,000. LDI may terminate or suspend the project at any time. The Company
believes that the terms of its arrangements with TNMG are no less favorable to
the Company than those that would be available from an unaffiliated third party.
LDI paid approximately $324,000 in 1997 and $451,000 during the first quarter of
1998, respectively, in consideration for such services.
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<PAGE> 85
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of LDI as of June 1, 1998 by (i) each person known by LDI to own
beneficially more than 5% of the outstanding stock of each class of voting
securities of LDI, (ii) each of LDI's Directors, (iii) each of the named
executive officers and (iv) the directors and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------------------
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK(2) COMMON STOCK(2)
------------------------------------ ------------------ ---------------
<S> <C> <C>
Clifford Friedland (3)...................................... 5,950,000 20.3%
David Glassman (3).......................................... 6,250,000 21.4
Richard Blume (4)........................................... 415,825 1.5
John Castellano (5)......................................... 1,244,500 4.3
Elizabeth Tuttle (6)........................................ 20,000 *
Barry Brooks (7)............................................ 82,500 *
Lawrence Mestel (8)......................................... 225,000 *
Olaf N. Krohg (9)........................................... -- --
Richard Nespola............................................. -- --
Advent International Corporation (10)
101 Federal Street
Boston, MA 02110.......................................... 10,802,505 27.8
Island Trading Co. (11)
4 Columbus Circle
5th Floor
New York, NY 10019........................................ 3,386,112 12.0
Frederick DeLuca (12)
3000 N.E. 30th Place
Suite 207
Fort Lauderdale, FL 33306................................. 1,600,000 5.7
All Directors and Executive Officers as a Group (10 persons)
(13)...................................................... 14,277,825 46.2
</TABLE>
- ---------------
*Less than 1%.
(1) Except where otherwise indicated, LDI believes that all persons listed in
the table, based on information provided by such persons, have sole voting
and dispositive power over the securities beneficially owned by them,
subject to community property laws, where applicable. For purposes of this
table, a person is deemed to be the "beneficial owner" of any shares that
are "currently exercisable" i.e., with respect to which such person has the
right to acquire within 60 days from the date of June 1, 1998. For purposes
of computing the percentage of outstanding shares held by each person named
above, any security that is currently exercisable is deemed to be
outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Except where
otherwise indicated, the address of each person listed in the table is c/o
Long Distance International, Inc., 888 South Andrews Avenue, Suite 205, Fort
Lauderdale, Florida 33316.
(2) The number of shares beneficially owned includes both shares of Common Stock
and shares of Series A Preferred Stock held by such persons (the Series A
Preferred Stock is convertible into Common Stock at a conversion rate of
one-to-one). The percentage of ownership is based upon 28,272,045 shares,
comprised of 25,815,489 shares and 2,456,556 shares of Common Stock and
Series A Preferred Stock, respectively, outstanding as of June 1, 1998. See
"Description of the Capital Stock -- Preferred Stock -- Series A Preferred
Stock -- Conversion."
(3) Includes options to purchase 1,000,000 shares of Common Stock under the
Stock Incentive Plan which are currently exercisable.
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<PAGE> 86
(4) Includes options to purchase 95,825 shares of Common Stock which are
currently exercisable. Excludes options to purchase 404,175 shares of
Common Stock under the Stock Option Plan which are not currently
exercisable.
(5) Includes options to purchase 444,500 shares of Common Stock under the Stock
Option Plan which are currently exercisable.
(6) Includes options to purchase 20,000 shares of Common Stock under the Stock
Option Plan which are currently exercisable. Excludes options to purchase
180,000 shares of Common Stock under the Stock Option Plan which are not
currently exercisable.
(7) Includes options to purchase 7,500 shares of Common Stock under the Stock
Option Plan which are currently exercisable.
(8) Excludes securities held by Island, an affiliate of Mr. Mestel, as to which
Mr. Mestel disclaims beneficial ownership.
(9) Excludes the ADV Warrants to purchase 10,802,505 shares of Common Stock
which are currently exercisable held on behalf of certain investment funds
affiliated with Advent International Corporation, an affiliate of Mr.
Krohg, and warrants to purchase 1,000,000 shares of Common Stock that the
Company has agreed to issue to the Advent Entities, as to which Mr. Krohg
disclaims beneficial ownership.
(10) Includes the ADV Warrants to purchase 10,802,505 shares of Common Stock
which are currently exercisable held on behalf of certain investment funds
affiliated with Advent International Corporation. See "Description of the
Capital Stock -- Warrants." Excludes warrants to purchase 1,000,000 shares
of Common Stock that the Company has agreed to issue to the Advent
Entities. See "Certain Transactions."
(11) Excludes securities held by Mr. Mestel, an affiliate of Island, over which
Island disclaims beneficial ownership.
(12) Includes shares of Common Stock issued to a trust for the benefit of Mr.
DeLuca.
(13) Includes options to purchase an aggregate of 2,657,825 shares of Common
Stock under the Stock Incentive Plan and Stock Option Plan which are
currently exercisable. Excludes options to purchase 614,175 shares of
Common Stock under the Stock Option Plan which are not currently
exercisable.
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<PAGE> 87
DESCRIPTION OF THE EXCHANGE NOTES
The Senior Notes were, and the Exchange Notes are to be, issued under an
Indenture, dated as of April 13, 1998 (the "Indenture"), between the Company, as
issuer, and The Bank of New York, as Trustee. A copy of the Indenture is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part thereof by reference to the
Trust Indenture Act of 1939, as amended. Whenever particular defined terms of
the Indenture not otherwise defined herein are referred to, such defined terms
are incorporated herein by reference. For definitions of certain capitalized
terms used in the following summary, see "-- Certain Definitions."
GENERAL
The terms of the Exchange Notes will be identical in all material respects
to the Senior Notes, except that the Exchange Notes will have been registered
under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Senior Notes.
The Notes will be unsecured (except to the extent described under
"-- Security" below) unsubordinated obligations of the Company, initially
limited to $225.0 million aggregate principal amount, and will mature on April
15, 2008. Each Note will bear interest at the rate shown on the front cover of
this Prospectus from the Closing Date or from the most recent Interest Payment
Date to which interest has been paid or provided for, payable semiannually (to
Holders of record at the close of business on the April 1 or October 1
immediately preceding the Interest Payment Date) on April 15 and October 15 of
each year, commencing October 15, 1998. See "-- Registration Rights" for a
description of the circumstances under which the interest rate on the Notes may
be increased by .5% per annum until the consummation of a registered exchange
offer or the effectiveness of a shelf registration statement. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York (which initially will
be the principal corporate trust office of the Trustee at 101 Barclay Street,
Floor 21 West, New York, New York 10286); provided that, at the option of the
Company, payment of interest may be made by check mailed to the Holders at their
addresses as they appear in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "Description of the Units -- Book-Entry; Delivery and Form." No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
The Company may, subject to the covenants described below under "Covenants"
and applicable law, issue additional Notes under the Indenture. The Notes
offered hereby and any additional Notes subsequently issued would be treated as
a single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after April 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is
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<PAGE> 88
on or prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing April 15 of the
years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2003............................................ 106.125%
2004............................................ 104.083%
2005............................................ 102.042%
2006 and thereafter............................. 100.000%
</TABLE>
In addition, at any time prior to April 15, 2001, the Company may redeem up
to 35% of the aggregate principal amount of the Notes originally issued with the
proceeds of one or more Public Equity Offerings following which a Public Market
occurs, at any time as a whole, or from time to time in part, at a Redemption
Price (expressed as a percentage of principal amount) of 112.250%; provided that
(1) at least $146,250,000 aggregate principal amount of Notes remains
outstanding after each such redemption and (2) notice of any such redemption is
mailed within 60 days after the related Public Equity Offering.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, on a
pro rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount or less shall be redeemed in part. If any Note is to
be redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
SECURITY
In accordance with the Indenture, the Company has purchased and pledged to
the Trustee as security for the benefit of the holders of the Notes the Pledged
Securities in such amount as will be sufficient upon receipt of scheduled
interest and principal payment of such securities to provide for payment in full
of the first six scheduled interest payments due on the Notes. The Company used
approximately $75.5 million of the net proceeds of the Offering to acquire the
Pledged Securities.
The Pledged Securities have been pledged by the Company to the Trustee for
the benefit of the holders of the Notes pursuant to the Pledge Agreement and
will be held by the Trustee in the Pledge Account. Pursuant to the Pledge
Agreement, immediately prior to an Interest Payment Date, the Company may either
deposit with the Trustee from funds otherwise available to the Company cash
sufficient to pay the interest scheduled to be paid on such date or the Company
may direct the Trustee to release from the Pledge Account proceeds sufficient to
pay interest then due on the Notes. In the event the Company exercises the
former option, the Company may direct the Trustee to release a like amount of
proceeds from the Pledge Account. A failure to pay interest on the Notes in a
timely manner through the first six scheduled interest payment dates will
constitute an immediate Event of Default under the Indenture, with no grace or
cure period. The Pledged Securities and Pledge Account will also secure the
repayment of the principal amount and premium on the Notes.
Under the Pledge Agreement, once the Company makes the first six scheduled
interest payments on the Notes, all of the remaining Pledged Securities, if any,
will be released from the Pledge Account and thereafter the Notes will be
unsecured.
REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with the
Placement Agents, for the benefit of the Holders, pursuant to which the Company
has agreed to file the Registration Statement of which this Prospectus forms a
part with the Commission. The Registration Rights Agreement provides that the
Company will use its best efforts, at its cost, to file and cause to become
effective the Registration Statement
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<PAGE> 89
with respect to the Exchange Offer. Upon the effectiveness of the Registration
Statement, the Company will offer the Exchange Notes in return for surrender of
the Senior Notes. The Company has agreed to keep the Exchange Offer open for not
less than 20 business days after the date notice of the Exchange Offer is mailed
to Holders. For each Senior Note surrendered to the Company under the Exchange
Offer, the Holder will receive an Exchange Note of equal principal amount.
Interest on each Exchange Note shall accrue from the last Interest Payment Date
on which interest was paid on the Senior Notes so surrendered or, if no interest
has been paid on such Senior Notes, the Closing Date. Under existing Commission
interpretations, the Exchange Notes would be freely transferable by holders
other than affiliates of the Company after the Exchange Offer without further
registration under the Securities Act if the holder of the Exchange Notes
represents that it is acquiring the Exchange Notes in the ordinary course of its
business, that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and that it is not an
affiliate of the Company, as such terms are interpreted by the Commission;
provided that broker-dealers ("Participating Broker-Dealers") receiving Exchange
Notes in the Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to Exchange Notes with this Prospectus under certain
circumstances. Under the Registration Rights Agreement, the Company is required
to allow Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Exchange Notes.
A holder of Senior Notes who wishes to exchange such Senior Notes for
Exchange Notes in the Exchange Offer will be required to represent that, among
other things, any Exchange Notes to be received by it will be acquired in the
ordinary course of its business and that at the time of the commencement of the
Exchange Offer it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of the
Exchange Notes and that it is not an "affiliate" of the Company, as defined in
Rule 405 of the Securities Act, or if it is an affiliate, that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
The Company has filed the Registration Statement (of which this Prospectus
is a part) and by delivery of this Prospectus, the Letter of Transmittal, etc.
has commenced the Exchange Offer pursuant to the Registration Rights Agreement.
In the event that applicable interpretations of the staff of the Securities
and Exchange Commission do not permit the Company to effect the Exchange Offer,
or under certain other circumstances, the Company shall, at its cost, use its
best efforts to cause to become effective a shelf registration statement (the
"Shelf Registration Statement") with respect to resales of the Notes and to keep
such registration statement effective until the expiration of the time period
referred to in Rule 144(k) under the Securities Act after the Closing Date, or
such shorter period that will terminate when all Senior Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company shall, in the event of such a shelf registration, provide
to each Holder copies of the prospectus, notify each Holder when the Shelf
Registration Statement for the Notes has become effective and take certain other
actions as are required to permit resales of the Notes. A Holder that sells its
Senior Notes pursuant to the 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 purchasers, 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 that are
applicable to such a Holder (including certain indemnification obligations).
In the event that the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to the date that is
six months after the Closing Date the interest rate on the Notes shall be
increased by .5% per annum until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective.
The Company is entitled to close the Exchange Offer 20 business days after
the commencement thereof, provided that it has accepted all Senior Notes
theretofore validly surrendered in accordance with the terms of the Exchange
Offer. Senior Notes not tendered in the Exchange Offer shall be subject to all
of the terms and conditions specified in the Indenture and to the transfer
restrictions described in "Transfer Restrictions."
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<PAGE> 90
This summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part.
RANKING
The indebtedness evidenced by the Notes will rank pari passu in right of
payment with all existing and future unsubordinated indebtedness of the Company
and senior in right of payment to all existing and future subordinated
indebtedness of the Company. As of March 31, 1998 after giving pro forma effect
to the Offering, LDI would have had $214.4 million of long-term indebtedness
outstanding.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or is merged into or consolidated
with a Restricted Subsidiary or assumed in connection with an Asset Acquisition
by a Restricted Subsidiary, whether or not Incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or such Asset
Acquisition; provided that Indebtedness of such Person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a Restricted Subsidiary,
except (x) with respect to net income, to the extent of the amount of dividends
or other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period and (y) with respect to net
losses, to the extent of the amount of Investments made by the Company or any of
its Restricted Subsidiaries in such Person during such period; (ii) solely for
the purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below (and in such case, except to the extent
includable pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or is merged into
or consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by the
Company or any of its Restricted Subsidiaries; (iii) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of such net income is not
at the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary; (iv) any gains or losses
(on an after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on Restricted Payments"
covenant described below, any amount paid or accrued as dividends on Preferred
Stock of the Company or any Restricted Subsidiary owned by Persons other than
the Company and any of its Restricted Subsidiaries; (vi) all extraordinary gains
and extraordinary losses; and (vii) any compensation expense paid or payable
solely with Capital Stock (other than Disqualified Stock) of the Company or any
options, warrants or other rights to acquire Capital Stock (other than
Disqualified Stock) of the Company.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
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extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP), after
deducting therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all goodwill,
trade names, trademarks, patents, unamortized debt discount and expense and
other like intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction but excluding any
Lien granted in compliance with the "Limitation on Liens" covenant) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock of, or
other Investment in, an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not (A) a Restricted
Payment permitted under the "Limitation on Restricted Payments" covenant, (B) a
Permitted Investment under clause (vii) or (viii) of the definition thereof or
(C) governed by the provisions of the Indenture applicable to mergers,
consolidations and sales of all or substantially all of the assets of the
Company; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables and other current assets, (b) sales or
other dispositions of assets or the issuance of any Capital Stock of any
Restricted Subsidiary or Permitted Joint Venture for consideration at least
equal to the fair market value of the assets sold or disposed of, provided that
the consideration received would constitute property or assets of the kind
described in clause (B) of the "Limitation on Asset Sales" covenant, including
consideration that consists of technology, licenses or expertise useful in the
business of the Company and its Restricted Subsidiaries, (c) sales or other
dispositions of obsolete or outdated equipment; provided that each such sale or
other disposition or series of such sales or such other dispositions shall not
involve assets that are material to the business of the Company and its
Restricted Subsidiaries, taken as a whole, and (d) sales or other dispositions
during any 12-month period of assets with an aggregate fair market value not in
excess of $1 million.
"Attributable Indebtedness" means when used in connection with a
sale-leaseback transaction referred to in the "Limitation on Sale-Leaseback
Transactions" covenant described below, at any date of determination,
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the product of (i) the net proceeds from such sale-leaseback transaction and
(ii) a fraction, the numerator of which is the number of full years of the term
of the lease relating to the property involved in such sale-leaseback
transaction (without regard to any options to renew or extend such term)
remaining at the date of the making of such computation and the denominator of
which is the number of full years of the term of such lease (without regard to
any options to renew or extend such term) measured from the first day of such
term.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of a
Public Market, a "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) under the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders and their
Affiliates on such date and (b) after the occurrence of a Public Market, a
"person" or "group" (within the meaning of Section 13(d) or 14(d)(2) under the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of the Company on a fully diluted basis and such ownership represents a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders and their
Affiliates on such date; or (ii) individuals who on the Closing Date constitute
the Board of Directors (together with any new directors whose election by the
Board of Directors or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the members of the
Board of Directors then in office who either were members of the Board of
Directors on the Closing Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under the Indenture.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary gains or losses or sales of assets),
(iii) depreciation expense, (iv) amortization expense, and (v) all other
non-cash items reducing Adjusted Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the
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Adjusted Consolidated Net Income attributable to such Restricted Subsidiary
multiplied by (B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period by the Company or
any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and the interest component of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Company and its Restricted Subsidiaries during such period; excluding, however:
(i) any amount of such interest of any Restricted Subsidiary if the net income
of such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses
(and any amortization thereof) payable in connection with the offering of the
Notes, all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company have been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant described below, or, with respect to
quarters for which no reports are required to be filed, for which such financial
statements are then available, as determined by the Company (such four fiscal
quarter period being the "Four Quarter Period"); provided that (A) pro forma
effect shall be given to any Indebtedness to be Incurred or repaid on the
Transaction Date; (B) pro forma effect shall be given to Asset Dispositions and
Asset Acquisitions (including giving pro forma effect to the application of
proceeds of any Asset Disposition) that occur during the period beginning on the
first day of such Four Quarter Period and ending on the Transaction Date (the
"Reference Period"), as if they had occurred and such proceeds had been applied
on the first day of such Reference Period; and (C) pro forma effect shall be
given to asset dispositions and asset acquisitions (including giving pro forma
effect to the application of proceeds of any asset disposition) that have been
made by any Person that has become a Restricted Subsidiary or has been merged
with or into, or consolidated with, the Company or any Restricted Subsidiary
during such Reference Period and that would have constituted Asset Dispositions
or Asset Acquisitions had such transactions occurred when such Person was a
Restricted Subsidiary as if such asset dispositions or asset acquisitions were
Asset Dispositions or Asset Acquisitions that occurred on the first day of such
Reference Period; provided that to the extent that clause (B) or (C) of this
sentence requires that pro forma effect be given to an Asset Acquisition or
Asset Disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired or disposed for
which financial information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity (plus, to the extent not otherwise included, Preferred Stock of the
Company) as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"Existing Stockholders" means Clifford Friedland and David Glassman.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of clause (viii) of
the second paragraph of the "Limitation on Indebtedness" covenant, (x) the fair
market value of any security registered under the Exchange Act shall be the
average of the closing prices, regular way, of such security for the 20
consecutive trading days immediately preceding the sale of Capital Stock and (y)
in the event the aggregate fair market value of any other property (other than
cash or cash equivalents) received by the Company exceeds $10 million, the fair
market value of such property shall be determined by a nationally recognized
investment banking firm and set forth in their written opinion which shall be
delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession; provided, however, that all reports and other financial
information provided by the Company to the Holders of the Notes or the Trustee
shall be prepared in accordance with GAAP as in effect on the date of such
report or other financial information. All ratios and computations contained or
referred to in the Indenture shall be computed in conformity with GAAP applied
on a consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization or
write-off of any expenses incurred in connection with the offering of the Notes
and (ii) except as otherwise provided, the amortization of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered
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into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all Capitalized
Lease Obligations of such Person, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise included in
this definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at the
time of its issuance as determined in conformity with GAAP, (B) that money
borrowed and set aside at the time of the Incurrence of any Indebtedness in
order to prefund the payment of the interest on such Indebtedness shall not be
deemed to be "Indebtedness" so long as such money is held to secure the payment
of such interest and (C) that "Indebtedness" shall not include any liability for
federal, state, local or other taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable, prepaid expenses or deposits on the balance sheet of the
Company or its Restricted Subsidiaries) or capital contribution to (by means of
any transfer of cash or other property), or any payment for property or services
for the account or use of, or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such Person and
shall include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary, including, without
limitation, by reason of any transaction permitted by clause (iii) of the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant; provided that the fair market value of the Investment
remaining in any person that has ceased to be
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a Restricted Subsidiary shall not exceed the aggregate amount of Investments
previously made in such person valued at the time such Investments were made
less the net reduction in such Investments. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, (i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding Investments and (iii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) any relocation expenses and severance or
shut-down costs incurred as a result of such Asset Sale, (iv) payments made to
repay Indebtedness or any other obligation outstanding at the time of such Asset
Sale that either (A) is secured by a Lien on the property or assets sold or (B)
is required to be paid as a result of such sale and (v) reserves against
adjustments in the sale price of the asset or assets subject to such Asset Sale
and reserves against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorney's fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a facsimile transmission or
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letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) 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 Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. On the Payment Date, the Company shall (i) accept
for payment on a pro rata basis Notes or portions thereof tendered pursuant to
an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay
the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all Notes or portions thereof
so accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an amount equal to
the purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into, or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP and reasonable advances to sales representatives; (iv)
Investments received in satisfaction of judgments, bankruptcy, insolvency,
workouts or similar arrangements; (v) loans or advances to employees of the
Company or any Restricted Subsidiary evidenced by unsubordinated promissory
notes that do not in the aggregate exceed at any one time outstanding $3
million; (vi) Interest Rate Agreements and Currency Agreements designed solely
to protect the Company or its Restricted Subsidiaries against fluctuations in
interest rates or foreign currency exchange rates; (vii) Investments in debt
securities or other evidences of Indebtedness (A) that are issued by companies
engaged in the telecommunications business and (B) for which no public market
exists; provided that when each Investment pursuant to this clause (vii) is
made, the aggregate amount of Investments outstanding under this clause (vii)
does not exceed the greater of (I) $2 million and (II) 1% of Consolidated EBITDA
(if positive) for the then most recent four fiscal quarters for which financial
statements of the Company have been filed with the Commission; (viii) Strategic
Investments not to exceed $15 million at any one time outstanding; and (ix)
Investments in Permitted Joint Ventures not to exceed $15 million at any one
time outstanding.
"Permitted Joint Venture" means any Person (other than a Restricted
Subsidiary) whose primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries at the time of
determination.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made, (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids,
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leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (v)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof)
upon real or personal property (including leases on an indefeasible right to use
basis) acquired after the Closing Date; provided that (a) such Lien is created
solely for the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described below, to finance the cost
(including the cost of design, development, acquisition, improvement,
construction, installation or integration) of the item of property or assets
subject thereto and such Lien is created prior to, at the time of or within six
months after the later of the acquisition, the completion of construction or the
commencement of full operation of such property, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any
such Lien shall not extend to or cover any property or assets other than such
item of property or assets and any improvements on such item; (vii) leases or
subleases granted to others that do not materially interfere with the ordinary
course of business of the Company and its Restricted Subsidiaries, taken as a
whole; (viii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets; (ix) any interest or title of
a lessor in the property subject to any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property, assets, Capital Stock or Indebtedness of the Person so
acquired; (xii) Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order against the
Company or any Restricted Subsidiary of the Company that does not give rise to
an Event of Default; (xiv) 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; (xv) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (xvi) Liens
encumbering customary initial deposits and margin deposits, and other Liens that
are within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed solely
to protect the Company or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities; (xvii) Liens arising
out of conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company and its Restricted Subsidiaries prior to the Closing
Date; (xviii) Liens on or sales of receivables and (xix) Liens that secure
Indebtedness (or letters of credit entered into in the ordinary course of
business) with an aggregate principal amount not in excess of $5 million at any
time outstanding.
"Pledge Account" means an account established with the Trustee pursuant to
the terms of the Pledge Agreement for the deposit of the Pledged Securities to
be purchased by the Company with the net proceeds from the sale of the Notes.
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the Closing Date, made by the Company in favor of the Trustee,
governing the disbursement of funds from the Pledge Account, as such agreement
may be amended, restated, supplemented or otherwise modified from time to time.
"Pledged Securities" means the U.S. government securities to be purchased
by the Company and held in the Pledge Account in accordance with the Pledge
Agreement.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference
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equity, whether now outstanding or issued after the Closing Date, including,
without limitation, all series and classes of such preferred stock or preference
stock.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Released Indebtedness" means, with respect to any Asset Sale, Indebtedness
(i) which is owed by the Company or any Restricted Subsidiary (the "Obligors")
prior to such Asset Sale, (ii) which is assumed by the purchaser or any
affiliate thereof in connection with such Asset Sale and (iii) with respect to
which the Obligors receive written, unconditional, valid and enforceable
releases from each creditor, no later than the closing date of such Asset Sale.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw
Hill Companies, and its successors.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Investments" means (A) Investments that the Board of Directors
has determined in good faith will enable the Company or any of its Restricted
Subsidiaries to obtain additional business that it might not be able to obtain
without making such Investment and (B) Investments in entities the principal
function of which is to perform research and development with respect to
products and services that may be used or useful in the telecommunications
business; provided that the Company or one of its Restricted Subsidiaries are
entitled or otherwise reasonably expected to obtain rights to such products or
services as a result of such Investment.
"Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance the acquisition of a Person engaged in a business that is
related, ancillary or complementary to the business conducted by the Company or
any of its Restricted Subsidiaries, which Indebtedness by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred, (i) is expressly made subordinate in right of payment to the Notes and
(ii) provides that no payment of principal, premium or interest on, or any other
payment with respect to, such Indebtedness may be made prior to the payment in
full of all of the Company's obligations under the Notes; provided that such
Indebtedness may provide for and be repaid at any time from the proceeds of a
capital contribution or the sale of Capital Stock (other than Disqualified
Stock) of the Company after the Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of
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America or any agency thereof, (ii) bankers' acceptances, time deposit accounts,
certificates of deposit and money market deposits maturing within one year of
the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America, any state thereof or
any foreign country recognized by the United States, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess of $50
million (or the foreign currency equivalent thereof) and has outstanding debt
which is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor, (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) commercial paper, maturing not more than
one year after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, (v) securities with maturities of nine months or
less from the date of acquisition issued or fully and unconditionally guaranteed
by any state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated at least "A" by
S&P or Moody's, (vi) direct obligations of the British, Belgian, Dutch, French,
German or Swiss governments or obligations fully and unconditionally guaranteed
by any of such governments and (vii) certificates of deposit, bank promissory
notes and bankers' acceptances denominated in the currency of any country of the
European Union maturing not more than 365 days after the acquisition thereof and
issued or guaranteed by any one of the 20 largest banks (based on assets as of
the immediately preceding December 31) organized under the laws of any country
in the European Union; provided such bank is not under intervention,
receivership or any similar arrangement at the time of acquisition of such
certificates of deposit, bank promissory notes or bankers' acceptances; provided
that the aggregate principal amount of all obligations and Indebtedness included
in clauses (vi) and (vii) above shall not exceed at any one time outstanding $10
million.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that immediately after giving effect to such designation (x) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture
and (y) no Default or Event of Default shall have occurred and be continuing.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a
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copy of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
The Indenture contains, among others, the following covenants.
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that the Company and any Restricted
Subsidiary may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
Consolidated Leverage Ratio would be greater than zero and (i) less than 5 to 1,
for Indebtedness Incurred by the Company, or (ii) less than 2 to 1, for
Indebtedness Incurred by any Restricted Subsidiary.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness outstanding at any time in an aggregate principal amount not to
exceed $100 million, less any amount of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below; (ii)
Indebtedness owed (A) to the Company evidenced by a promissory note or (B) to
any of its Restricted Subsidiaries; provided that any event which results in any
such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or another
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
renew, extend, defease, refinance or refund, then outstanding Indebtedness,
other than Indebtedness Incurred under clause (i), (ii), (iv), (vi), (viii) or
(xii) of this paragraph, and any refinancings thereof in an amount not to exceed
the amount so renewed, extended, defeased, refinanced or refunded (plus
premiums, accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to renew, extend, defease, refinance or refund the
Notes in part or Indebtedness that is pari passu with, or subordinated in right
of payment to, the Notes shall only be permitted under this clause (iii) if (A)
in case the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes; and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be renewed, extended,
defeased, refinanced or refunded, and the Average Life of such new Indebtedness
is at least equal to the remaining Average Life of the Indebtedness to be
renewed, extended, defeased, refinanced or refunded; and provided further that
in no event may Indebtedness of the Company be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii); (iv)
Indebtedness (A) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, (B) under Currency Agreements and Interest Rate
Agreements; provided that such agreements (a) are designed solely to protect the
Company or its Restricted Subsidiaries against fluctuations in foreign currency
exchange rates
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or interest rates and (b) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary of the Company (other than Guarantees
of Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary of the Company for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company, to the extent
the net proceeds thereof are promptly (A) used to purchase Notes tendered in an
Offer to Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes as described below under "Defeasance"; (vi) Guarantees of the
Notes and Guarantees of Indebtedness of the Company by any Restricted Subsidiary
provided the Guarantee of such Indebtedness is permitted by and made in
accordance with the "Limitation on Issuance of Guarantees by Restricted
Subsidiaries" covenant described below; (vii) Indebtedness (including
Guarantees) Incurred to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) to acquire equipment, inventory or other tangible
assets (including leases on an indefeasible right to use basis) used or useful
in the telecommunications business of the Company and its Restricted
Subsidiaries (including acquisitions by way of Capitalized Lease and
acquisitions of the Capital Stock of a Person that becomes a Restricted
Subsidiary to the extent of the fair market value of the equipment, inventory or
network assets so acquired) by the Company or a Restricted Subsidiary after the
Closing Date; (viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the sum of (A) the Net Cash Proceeds received by the
Company after the Closing Date from the issuance and sale of its Capital Stock
(other than Disqualified Stock) to a Person that is not a Subsidiary of the
Company, to the extent (I) such Net Cash Proceeds have not been used pursuant to
clause (C)(2) of the first paragraph or clause (iii), (iv), (vii) or (ix) of the
second paragraph of the "Limitation on Restricted Payments" covenant described
below to make a Restricted Payment and (II) if such Net Cash Proceeds are used
to consummate a transaction pursuant to which the Company Incurs Acquired
Indebtedness, the amount of such Net Cash Proceeds exceeds one-half of the
amount of Acquired Indebtedness so Incurred and (B) 80% of the fair market value
of property (other than cash and cash equivalents) received by the Company after
the Closing Date from the sale of its Capital Stock (other than Disqualified
Stock) to a Person that is not a Subsidiary of the Company, to the extent (I)
such sale of Capital Stock has not been used pursuant to clause (iii), (iv) or
(x) of the second paragraph of the "Limitation on Restricted Payments" covenant
described below to make a Restricted Payment and (II) if such Capital Stock is
used to consummate a transaction pursuant to which the Company Incurs Acquired
Indebtedness, 80% of the fair market value of the property received exceeds
one-half of the amount of Acquired Indebtedness so Incurred; provided in each
case that such Indebtedness does not mature prior to the Stated Maturity of the
Notes and has an Average Life longer than the Notes; (ix) Acquired Indebtedness;
(x) Strategic Subordinated Indebtedness; (xi) subordinated Indebtedness of the
Company (in addition to Indebtedness permitted under clauses (i) through (x)
above and clause (xii) below) in an aggregate principal amount outstanding at
any time not to exceed $100 million, less any amount of such Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales" covenant
described below; and (xii) Indebtedness of the Company and any Restricted
Subsidiary; provided that at the time of the Incurrence of any Indebtedness
under this clause (xii) the amount of Indebtedness under this clause (xii) does
not exceed in aggregate 80% of the accounts receivable (net of accounts more
than 60 days past due and reserves and allowances for doubtful accounts,
determined in accordance with GAAP) of the Company and its Restricted
Subsidiaries on a consolidated basis as set forth on the balance sheet of the
Company most recently filed with the Commission or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders" covenant.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness, due solely to the result of fluctuations in the exchange rates of
currencies.
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(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens, letters of
credit or other obligations supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (x) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person other than
the Company or any Wholly Owned Restricted Subsidiary or (y) a Restricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Affiliate of the Company (other than a Wholly
Owned Restricted Subsidiary) or any holder (or any Affiliate of such holder) of
5% or more of the Capital Stock of the Company, (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value, of Indebtedness of the
Company that is subordinated in right of payment to the Notes (other than the
purchase, repurchase or the acquisition of Indebtedness in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in any case due within one year of the date of acquisition) or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) a Default or Event of Default shall have
occurred and be continuing, (B) the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or (C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated
Net Income is a loss, minus 100% of the amount of such loss) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to the "Commission Reports and
Reports to Holders" covenant plus (2)(A) the aggregate Net Cash Proceeds
received by the Company after the Closing Date from the issuance and sale
permitted by the Indenture of its Capital Stock (other than Disqualified Stock)
to a Person who is not a Subsidiary of the Company, or from the issuance to a
Person who is not a Subsidiary of the Company of any options, warrants or other
rights to acquire Capital Stock of the Company (in each case, exclusive of any
convertible Indebtedness, Disqualified Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes) and (B) the aggregate Net
Cash Proceeds received after the Closing Date by the Company from the issuance
or sale (other than to a Subsidiary of the Company) of debt securities or shares
of Disqualified Stock that have been converted into or exchanged for Common
Stock (other than Disqualified Stock) of the Company, together with the
aggregate cash received by the Company at the time of such conversion or
exchange, in each case except to the extent such Net Cash Proceeds are used to
Incur Indebtedness pursuant to clause (viii) of the second paragraph of the
"Limitation on Indebtedness" covenant plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments) in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the
sale of any such Investment
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(except, in each case, to the extent any such payment or proceeds are included
in the calculation of Adjusted Consolidated Net Income), or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed, in each case, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company (or
options, warrants or other rights to acquire such Capital Stock) or an
Unrestricted Subsidiary in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights to
acquire such Capital Stock); (iv) the making of any principal payment or the
repurchase, redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to the
Notes in exchange for, or out of the proceeds of, a substantially concurrent
offering of, shares of the Capital Stock of the Company (other than Disqualified
Stock); (v) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company; (vi) the purchase, redemption, acquisition,
cancellation or other retirement for value of shares of Capital Stock of the
Company to the extent necessary, in the good faith judgment of the Board of
Directors of the Company, to prevent the loss or secure the renewal or
reinstatement of any license or franchise held by the Company or any Restricted
Subsidiary for any governmental agency; (vii) the declaration or payment of
dividends on the Common Stock of the Company following a Public Equity Offering
of such Common Stock, of up to 6% per annum of the Net Cash Proceeds received by
the Company in all Public Equity Offerings; (viii) prior to the occurrence of a
Public Market, the purchase, redemption, retirement or other acquisition for
value of Capital Stock of the Company, or options to purchase such shares, held
by directors, employees or former directors or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their estates)
upon death, disability, retirement, termination of employment or pursuant to the
terms of any agreement under which such shares of Capital Stock or options were
issued; provided that the aggregate consideration paid for such purchase,
redemption, acquisition, cancellation or other retirement of such shares of
Capital Stock or options after the Closing Date does not exceed $500,000 in any
calendar year, or $2 million in the aggregate after the Closing Date; (ix)
Investments in any Person the primary business of which is related, ancillary or
complementary to the business of the Company and its Restricted Subsidiaries on
the date of such Investments; provided that the aggregate amount of Investments
made pursuant to this clause (ix) does not exceed the sum of (a) $20 million and
(b) the amount of Net Cash Proceeds received by the Company after the Closing
Date from the sale of its Capital Stock (other than Disqualified Stock) to a
Person who is not a Subsidiary of the Company, except to the extent such Net
Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii) under the
"Limitation on Indebtedness" covenant or to make Restricted Payments pursuant to
clause (C)(2) of the first paragraph, or clause (iii) or (iv) of this paragraph,
of this "Limitation on Restricted Payments" covenant, plus (c) the net reduction
in Investments made pursuant to this clause (ix) resulting from distributions on
or repayments of such Investments or from the Net Cash Proceeds from the sale of
any such Investment (except in each case to the extent any such payment or
proceeds is included in the calculation of Adjusted Consolidated Net Income) or
from such Person becoming a Restricted Subsidiary (valued in each case as
provided in the definition of "Investments"), provided that the net reduction in
any Investment shall not exceed the amount of such Investment; (x) Investments
acquired in exchange for Capital Stock (other than Disqualified Stock) of the
Company; (xi) repurchases of Warrants pursuant to a Repurchase Offer; or (xii)
other Restricted Payments in an aggregate amount not to exceed $2 million;
provided that, except in the case of clauses (i) and (iii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
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Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (x)
thereof) and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii), (iv) and (ix) thereof shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this "Limitation
on Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than those encumbrances
or restrictions that are then in effect and that are being extended, refinanced,
renewed or replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any Restricted Subsidiary, existing at the time of
such acquisition and not incurred in contemplation thereof, which encumbrances
or restrictions are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired, and any extensions, refinancings, renewals or replacements of the
agreement containing such encumbrance or restriction; provided that the
encumbrances and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the Holders than
those encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (iv) in the case of clause (iv) of
the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company, or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; (vi)
contained in the terms of any Indebtedness or any agreement pursuant to which
such Indebtedness was issued if (A) the encumbrance or restriction applies only
in the event of a payment default or a default with respect to a financial
covenant contained in such Indebtedness or agreement, (B) the encumbrance or
restriction is not materially more disadvantageous to the Holders of the Notes
than is customary in comparable financings (as determined by the Company) and
(C) the Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest payments
on the Notes; and (vii) provisions contained in agreements or instruments which
prohibit the payment of dividends or the making of other distributions with
respect to any particular class of Capital Stock of a Person other than on a pro
rata basis.
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Nothing contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary, provided any Investment in such
Person remaining after giving effect to such issuance or sale would have been
permitted to be made under the "Limitation on Restricted Payments" covenant, if
made on the date of such issuance or sale; (iv) issuances or sales of Common
Stock of a Restricted Subsidiary, provided that the Company or such Restricted
Subsidiary applies the Net Cash Proceeds, if any, of any such sale in accordance
with clause (A) or (B) of the "Limitation on Asset Sales" covenant and (v)
issuances and sales of up to 6% of the Common Stock of each Restricted
Subsidiary in connection with employee benefit plans or arrangements.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the 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 as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; provided that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a
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written agreement, at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view, (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries, (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company, (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes, (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant, (vi) employment
agreements with, and loans and advances to, officers and employees of the
Company and its Restricted Subsidiaries, in each case in the ordinary course of
business or (vii) customary indemnification arrangements in favor of directors
and officers of the Company and its Restricted Subsidiaries. Notwithstanding the
foregoing, any transaction or series of related transactions covered by the
first paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (ii) through (vii) of this
paragraph, the aggregate amount of which exceeds $3 million in value, must be
approved or determined to be fair in the manner provided for in clause (i)(A) or
(B) above.
LIMITATION ON LIENS
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character (including, without limitation, licenses), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
the Indenture to be directly secured equally and ratably with (or, if the
obligation or liability to be secured by such Lien is subordinated in right of
payment to the Notes, prior to) the obligation or liability secured by such Lien
unless, after giving effect thereto, the aggregate amount of any Indebtedness so
secured, plus the Attributable Indebtedness for all sale-leaseback transactions
permitted under the "Limitation on Sale-Leaseback Transactions" covenant, does
not exceed 10% of Adjusted Consolidated Net Tangible Assets.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
Holders; (iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; (v) Liens on the Capital Stock of, or any
property or assets of, a Restricted Subsidiary securing Indebtedness of such
Restricted Subsidiary permitted under the "Limitation on Indebtedness" covenant;
or (vi) Permitted Liens.
In the event that the Lien the existence of which gives rise to a Lien
securing the Notes pursuant to the provisions of this covenant ceases to exist,
the Lien securing the Notes required by the first paragraph of this covenant
shall automatically be released and the Trustee shall execute appropriate
documentation.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such
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Restricted Subsidiary, as the case may be, intends to use for substantially the
same purpose or purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within twelve
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
LIMITATION ON ASSET SALES
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale unless (i) the consideration received by the Company
or such Restricted Subsidiary (including any Released Indebtedness) is at least
equal to the fair market value of the assets sold or disposed of and (ii) at
least 75% of the consideration received (including any Released Indebtedness)
consists of (1) cash, Temporary Cash Investments or Released Indebtedness and
(2) Indebtedness of any Person which is either repaid in cash or sold for cash
within 90 days of such Asset Sale (for purposes of calculating the amount of
such Indebtedness, such Indebtedness shall be valued at its principal amount, if
it matures within 180 days of the consummation of such Asset Sale, or its fair
market value, in all other cases), provided, however, that this clause (ii)
shall not apply to any long-term assignments in capacity in a telecommunications
network. In the event and to the extent that the Net Cash Proceeds received by
the Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within twelve months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to the "Limitation on Issuances of
Guarantees by Restricted Subsidiaries" covenant described above or Indebtedness
of any other Restricted Subsidiary, in each case owing to a Person other than
the Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within twelve months after the date of such
agreement), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) and (ii) apply (no later than the end of
the twelve-month period referred to in clause (i)) such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such twelve-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $5 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes on the relevant Payment Date equal to the
Excess Proceeds on such date, at a purchase price equal to 100% of the principal
amount of the Notes, plus accrued interest (if any) to the Payment Date. Upon
the consummation of an Offer to Purchase pursuant to this covenant, the amount
of Excess Proceeds shall be
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deemed to be equal to zero, plus the amount of any Excess Proceeds not
theretofore subject to an Offer to Purchase.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times from and after the earlier of (i) the date of the commencement
of an Exchange Offer or the effectiveness of a Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date, in
either case, whether or not the Company is then required to file reports with
the Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by Section
13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject
thereto. The Company shall supply the Trustee and each Holder or shall supply to
the Trustee for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information. In addition, at all times prior to
the earlier of the date of the Registration and the date that is six months
after the Closing Date, the Company shall, at its cost, deliver to each Holder
of the Notes quarterly and annual reports substantially equivalent to those
which would be required by the Exchange Act. In addition, at all times prior to
the Registration, upon the request of any Holder or any prospective purchaser of
the Notes designated by a Holder, the Company shall supply to such Holder or
such prospective purchaser the information required under Rule 144A under the
Securities Act.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the Indenture:
(a) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration, redemption
or otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days;
provided that a failure to make any of the first six scheduled interest payments
on the Notes on the applicable Interest Payment Date will constitute an Event of
Default with no grace or cure period; (c) default in the performance or breach
of the provisions of the Indenture applicable to mergers, consolidations and
transfers of all or substantially all of the assets of the Company or the
failure to make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" or "Repurchase of Notes upon a Change of Control"
covenant; (d) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in the Indenture or under the Notes (other
than a default specified in clause (a), (b) or (c) above) and such default or
breach continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Significant Subsidiary having an outstanding principal amount
of $5 million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $5 million in
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the aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $5 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; (g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) the
winding up or liquidation of the affairs of the Company or any Significant
Subsidiary and, in each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days; (h) the Company or any Significant
Subsidiary (A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company,
or any Significant Subsidiary or for all or substantially all of the property
and assets of the Company or any Significant Subsidiary or (C) effects any
general assignment for the benefit of creditors; or (i) the Pledge Agreement
shall cease to be in full force and effect or enforceable in accordance with its
terms, other than in accordance with its terms.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding Notes, by written notice to the
Company (and to the Trustee if such notice is given by the Holders), may, and
the Trustee at the request of such Holders shall, declare the principal amount
of, premium, if any, and accrued interest, if any, on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
amount, premium, if any, and accrued interest, if any, shall be immediately due
and payable. 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 by the Company or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (g) or (h) above occurs with respect to the Company, the
principal amount of, premium, if any, and accrued interest, if any, on the 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.
The Holders of at least a majority in principal amount of the outstanding Notes,
by written notice to the Company and to the Trustee, may waive all past defaults
and rescind and annul a declaration of acceleration and its consequences if (i)
all existing Events of Default, other than the nonpayment of the principal
amount of, premium, if any, and interest on the Notes that have become due
solely by such declaration of acceleration, have been cured or waived and (ii)
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. For information as to the waiver of defaults, see
"-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60
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days after receipt of the request and the offer of indemnity; and (v) during
such 60-day period, the Holders of a majority in aggregate principal amount of
the outstanding Notes do not give the Trustee a direction that is inconsistent
with the request. However, such limitations do not apply to the right of any
Holder of a Note to receive payment of the principal of, premium, if any, or
interest on, such Note or to bring suit for the enforcement of any such payment,
on or after the due date expressed in the Notes, which right shall not be
impaired or affected without the consent of the Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to any Person or permit any Person to merge with
or into the Company unless: (i) the Company shall be the continuing Person, or
the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company,
immediately prior to such transaction; (iv) immediately after giving effect to
such transaction on a pro forma basis the Company, or any Person becoming the
successor obligor on the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; provided that this clause (iv) shall not apply to (x) a consolidation,
merger or sale of all (but not less than all) of the assets of the Company if
all Liens and Indebtedness of the Company or any Person becoming the successor
obligor of the Notes, as the case may be, and its Restricted Subsidiaries
outstanding immediately after such transaction would, if Incurred at such time,
have been permitted to be Incurred (and all such Liens and Indebtedness, other
than Liens and Indebtedness of the Company and its Restricted Subsidiaries
outstanding immediately prior to the transaction, shall be deemed to have been
Incurred) for all purposes of the Indenture or (y) a consolidation, merger or
sale of all or substantially all of the assets of the Company if immediately
after giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor on the Notes shall have a Consolidated
Leverage Ratio equal to or less than the Consolidated Leverage Ratio of the
Company immediately prior to such transaction; and (v) the Company delivers to
the Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv) above) and Opinion of
Counsel, in each case stating that such consolidation, merger or transfer and
such supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company and any
such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company will be
deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes
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(except for, among other matters, certain obligations to register the transfer
or exchange of the Notes, to replace stolen, lost or mutilated Notes, to
maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit 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 of its Subsidiaries is a party or by which the
Company, or any of its Subsidiaries is bound, and (D) if at such time the Notes
are listed on a national securities exchange, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further provides that the provisions of the Indenture will no longer
be in effect with respect to clauses (iii) and (iv) under "Consolidation, Merger
and Sale of Assets" and all the covenants described herein under "Covenants,"
clauses (c) and (d) under "Events of Default" with respect to such clauses (iii)
and (iv) under "Consolidation, Merger and Sale of Assets" and such covenants and
clauses (e) and (f) under "Events of Default" shall be deemed not to be Events
of Default, upon, among other things, the deposit with the Trustee, in trust, of
money and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such payments in
accordance with the terms of the Indenture and the Notes, the satisfaction of
the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by the Company to the Trustee of an Opinion of
Counsel to the effect that, among other things, the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
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MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes
the consent of whose Holders is necessary to modify or amend the Indenture, (vi)
waive a default in the payment of principal of, premium, if any, or interest on
the Notes or (vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Exchange Notes will initially be
represented by one or more permanent global Notes in definitive, fully
registered form (each a "Global Note") and will be deposited with the Trustee as
custodian for, and registered in the name of, a nominee of DTC. Except in the
limited circumstances described below under "Certificated Notes," owners of
beneficial interests in a Global Note will not be entitled to receive physical
delivery of Certificated Notes (as defined below).
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and the Exchange Notes. No beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof. None
of the Company, the Trustee, or any Paying Agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Exchange Notes (including the presentation of Exchange Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in a Global Note is credited and only in
respect of such portion of the aggregate principal amount of Exchange Notes as
to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Exchange
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Notes, DTC will exchange the applicable Global Note for Certificated Exchange
Notes, which it will distribute to its participants.
The Company understands that DTC is a limited-purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in a Global Note may receive a Certificated
Note in accordance with DTC's rules and procedures in addition to those provided
for under the Indenture.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that, if it acquires any
conflicting interest, it must eliminate such conflict or resign.
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DESCRIPTION OF THE CAPITAL STOCK
LDI's authorized capital stock consists of 100,000,000 shares of Common
Stock, and 7,600,000 shares of preferred stock, of which 2,600,000 shares have
been designated Series A Preferred Stock and 5,000,000 have been designated
Series B Preferred Stock. As of June 1, 1998, 25,815,489, 2,456,556 and
2,500,000 shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock, respectively, were issued and outstanding.
COMMON STOCK
The holders of Common Stock generally vote as a class with the holders of
Series A Preferred Stock and each share of Common Stock is entitled to one vote
for each share held on all matters submitted to a vote of shareholders. Holders
of the Common Stock are entitled to receive ratably such dividends, if any, as
may be declared by the Board of Directors out of funds legally available
therefor subject to the rights of holders of the Series A Preferred Stock and
the Series B Preferred Stock. See "Dividend Policy" and "--Preferred Stock."
Upon the liquidation, dissolution or winding up of LDI, the holders of Common
Stock are entitled to receive ratably the net assets of LDI available after the
payment of all debts and other liabilities and all preferential amounts to which
the holders of the Series A Preferred Stock and the Series B Preferred Stock are
entitled. The holders of Common Stock have no subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of Common
Stock are subject to, and are adversely affected by, the rights of the holders
of shares of the Series A Preferred Stock and the Series B Preferred Stock (and
will be subject to, and may be adversely affected by, the rights of the holders
of any other series of preferred stock which LDI may designate and issue in the
future).
WARRANTS
In 1996, LDI completed a private placement of units consisting of Common
Stock, Series A Warrants, Series B Warrants and Series C Warrants. The Series A
Warrants and the Series B Warrants have expired. The Series C Warrants are each
exercisable for one share of Common Stock at an exercise price of $1.25 and
expire at 24 months from their date of issue. As of June 1, 1998, 863,976 Series
C Warrants were outstanding. Dealers participating in the private placement were
issued warrants exercisable for an aggregate of 462,566 shares of Common Stock
at an exercise price of $.60 per share, which expire five years from their date
of issue. In addition, warrants exercisable for a maximum of 231,291 shares of
Common Stock (the actual number determinable in accordance with a formula set
forth in the warrants) were issued to such dealers. Such warrants become
exercisable at various times based on a formula set forth in the warrants, have
exercise prices of $.75, $1.00 or $1.25, and expire 12, 18 or 24 months from the
date of exercise of warrants placed by such dealers.
In 1997, warrants to purchase 1,000,000 shares of Common Stock at an
exercise price of $.75 per share, which expire in January and February 2002,
were granted to Seruus in connection with a consulting agreement between Seruus
and the Company and Seruus's providing a credit enhancement to a creditor of the
Company in order to induce such creditor to provide loans to the Company.
Also in 1997, in connection with the stock purchase agreement between the
Advent Entities, certain employees and investment bankers involved in the
transaction (the "Other ADV Warrantholders") and the Company dated July 28, 1997
(the "Advent Purchase Agreement"), the Advent Entities and the Other ADV
Warrantholders were issued the ADV Warrants which are currently exercisable to
purchase an aggregate of 10,911,620 shares of Common Stock at an exercise price
of $.001 per share at any time after July 28, 1997. In addition, the Company
issued warrants to the placement agents in connection with such transaction to
purchase an aggregate of 500,000 shares of Common Stock at an exercise price of
$2.00 per share, which expire on July 28, 2002. On March 20, 1998, the Company
agreed to issue additional warrants to the Advent Entities and the Other ADV
Warrantholders to purchase 1,010,101 shares of Common Stock at an exercise price
of $.001 per share at any time after their issuance. The warrants are issuable
to the Advent Entities and the Other ADV Warrantholders in consideration of
their consent to amend the terms of the Series B Preferred Stock. See "Certain
Transactions."
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In connection with the Offering, the Company issued 225,000 Warrants to
purchase an aggregate of 3,394,655 shares of Common Stock (representing
approximately 6.5% of the outstanding Common Stock on a fully-diluted basis as
of the closing date of the Offering). The Warrants were issued pursuant to the
Warrant Agreement between LDI and The Bank of New York (the "Warrant Agent"). A
copy of the Warrant Agreement is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Each Warrant is evidenced by a
Warrant Certificate which entitles the holder thereof to purchase 15.0874 shares
of Common Stock of LDI at a price (the "Exercise Price") of $.01 per share,
subject to adjustment as provided in the Warrant Agreement. The Warrants may be
exercised at any time beginning one year after their date of issue and prior to
the close of business on the tenth anniversary thereof. Warrants that are not
exercised by such date will expire. The Warrants will become separately
transferable from the Senior Notes on the earliest to occur of (i) the date that
is six months following their date of issue, (ii) the commencement of the
Exchange Offer and (iii) the effective date of a shelf registration statement
with respect to the Notes. See "Description of the Exchange
Notes -- Registration Rights." Upon the occurrence of a merger, or a sale of
substantially all of its assets, with a person that does not have a class of
equity securities registered under the Exchange Act or a wholly owned subsidiary
of such a person in connection with which the consideration to shareholders of
LDI is not all cash, LDI or its successor by merger will be required, upon the
expiration of the time periods set forth in the Warrant Agreement, to offer to
repurchase the Warrants for cash.
All of the warrants issued by the Company contain customary anti-dilution
adjustments for certain issuances of stock, stock splits, combinations,
dividends, distributions, reclassification, exchanges, substitution,
reorganizations, mergers, consolidations, and sales of assets, except that the
ADV Warrants also provide for adjustment upon the exercise of all issued and
outstanding options and warrants as of July 28, 1997 and options issued or
issuable under the Stock Incentive Plan and the Stock Option Plan.
PREFERRED STOCK
SERIES A PREFERRED STOCK
Ranking. The Series A Preferred Stock is senior to the Common Stock of
LDI, whether such Common Stock is outstanding as of the date of issuance of the
Series A Preferred Stock or thereafter issued, as to distributions upon
liquidation, dissolution or the winding up of LDI. Without the consent of the
holders of a majority of the Series A Preferred Stock, LDI may not issue
additional shares of Series A Preferred Stock or any other equity security
senior to or on a parity with the Series A Preferred Stock, including senior
equity securities convertible into or exchangeable for, or issued with warrants
for, capital stock of the Company,
Voting Rights. The holders of Series A Preferred Stock are entitled to the
number of votes equal to the number of shares of Common Stock into which the
shares of Series A Preferred Stock are convertible. With respect to any matters
presented to the shareholders for their action or consideration, except for
matters relating to certain issuances and redemptions of capital stock and
amendments or modification of certain terms of the Series A Preferred Stock (as
to which matters the consent of holders of a majority of the Series A Preferred
Stock must be obtained) or as otherwise required by law, the holders of the
Series A Preferred Stock and Common Stock shall vote together as a single class.
Dividends. The holders of Series A Preferred Stock are entitled to receive
cumulative dividends, payable at the option of the Company in either cash or
Common Stock, at the annual rate of $.03 per share. The holders of Series A
Preferred Stock are entitled to receive an additional dividend per share of
Common Stock into which it is convertible equal to the amount by which any
dividend on the Common Stock exceeds $.03 per share. On December 31, 1998, all
accrued and unpaid dividends must be paid, and thereafter, all accrued and
unpaid dividends shall be paid on each December 31 of each year; provided,
however, that all accrued and unpaid dividends shall become payable immediately
in the event of the occurrence of a Specified Event (as defined herein) and
shall thereafter be paid on each December 31 of each year. A "Specified Event"
includes the closing of an offering and sale of Common Stock or other equity
securities for the account of the Company with gross proceeds in excess of
$7,500,000. Notwithstanding the foregoing and subject to certain conditions,
dividends on the Series A Preferred Stock shall cease to accrue and the payment
of all
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previously accrued and unpaid dividends shall be waived if the Common Stock is
quoted on Nasdaq or listed on a national securities exchange and has an average
trading price equal to or in excess of $2.00 per share.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of Series A
Preferred Stock are entitled to receive, prior to the holders of Common Stock,
but subject to the right of holders of Series B Preferred Stock to receive
certain payments, an amount equal to $.50 per share plus any accrued, but
unpaid, dividends on the Series A Preferred Stock.
Conversion. The holders of Series A Preferred Stock may convert all or any
portion of their shares of Series A Preferred Stock into Common Stock of LDI at
any time. LDI may convert all of the shares of Series A Preferred Stock into
Common Stock upon (i) the closing of an underwritten public offering of Common
Stock with aggregate gross proceeds of at least $7,500,000 and a per share
public offering price of at least $2.00 or (ii) the election of a majority of
the Series A Preferred Stock to so convert their shares of Series A Preferred
Stock. Each share of Series A Preferred Stock is convertible into one share of
Common Stock, subject to adjustment for certain future share issuances and other
dilutive events.
Redemption. In the event of (i) any consolidation or merger of LDI, or any
other corporate reorganization or transaction or series of related transactions
by the Company (other than an initial public offering) immediately after which
the persons and entities (exclusive of the surviving or transferee entity or any
affiliate thereof) who were the beneficial owners of the outstanding voting
power of the Company immediately prior to such transaction or transactions are
not the beneficial owners, directly or indirectly, of more than 50% of the total
voting power of the Company or the surviving or transferee entity, or (ii) a
sale or other disposition of all or substantially all of the assets of the
Company, the holders of a majority of the Series A Preferred Stock may require
LDI to redeem all of the Series A Preferred Stock at an amount per share equal
to $.50 plus any accrued, but unpaid, dividends on the Series A Preferred Stock;
provided, however, that the Company shall have no authority or obligation to
redeem any shares of Series A Preferred Stock in the event that there remain
outstanding any shares of Series B Preferred Stock.
The holders of the Series A Preferred Stock have agreed not to exercise
such redemption right unless permitted under the Indenture and to subordinate
any claims to the claims of the holders of the Notes.
SERIES B PREFERRED STOCK
Ranking. The Series B Preferred Stock is senior to all other capital stock
of LDI, whether such capital stock is outstanding as of the date of issuance of
the Series B Preferred Stock or thereafter issued, as to distributions upon
liquidation, dissolution or the winding up of LDI.
Voting Rights. Other than certain consent rights and the right to elect
certain members of LDI's Board of Directors, and except as otherwise provided by
applicable law, holders of the Series B Preferred Stock have no voting rights.
Board Representation. The holders of Series B Preferred Stock have the
right to vote as a separate class to elect two directors to LDI's Board of
Directors. Additionally, in the event the Company fails to redeem the Series B
Preferred Stock at any time that the Company is required to do so pursuant to
the terms of the Series B Preferred Stock, the holders of Series B Preferred
Stock are entitled to elect two additional directors to LDI's Board of
Directors.
Dividends. The holders of Series B Preferred Stock are entitled to receive
when and as declared by the Board of Directors, non-cumulative cash dividends at
an annual rate of $1.20 per share commencing on the earlier of July 28, 2002 and
the date upon which the Company closes an underwritten public offering of its
Common Stock.
Liquidation. Upon the liquidation, distribution of assets, dissolution or
winding up of LDI, holders of Series B Preferred Stock are entitled to receive,
prior to the holders of Series A Preferred Stock and Common Stock, an amount
equal to $10 per share, plus any declared, but unpaid, dividends on the Series B
Preferred Stock.
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Redemption. Provided that an Exchange Event (as defined below) has not
occurred, the holders of a majority of the Series B Preferred Stock may require
the Company to redeem the Series B Preferred Stock at any time following the
earlier of (i) July 28, 2004, which may be extended as provided below and (ii) a
Redemption Event. A Redemption Event is defined as the occurrence of (i) a sale
or other disposition of all or substantially all of the assets of the Company,
(ii) any consolidation or merger of LDI, or any other corporate reorganization
or transaction or series of related transactions by the Company (other than an
initial public offering) immediately after which the persons and entities
(exclusive of the surviving or transferee entity or any affiliate thereof) who
were the beneficial owners of the outstanding voting power of the Company
immediately prior to such transaction or transactions are not the beneficial
owners, directly or indirectly, of more than 50% of the total voting power of
the Company or the surviving or transferee entity, (iii) the completion of both
of (a) an initial public offering and (b) issuance of high yield debt (i.e.,
debt securities rated Baa 3 or lower by Moody's Investor Service Inc. or BBB- or
lower by Standard & Poor's Corporation or the Notes) ("High Yield Debt") by the
Company, (iv) holders of 50% of the Common Stock, other than the Advent
Entities, Clifford Friedland and David Glassman, dispose of their shares of
Common Stock, or (v) the date when both Clifford Friedland and David Glassman
have terminated their employment with the Company without good reason. The
redemption price of the Series B Preferred Stock will be $10 per share plus all
accrued and unpaid dividends thereon (the "Series B Redemption Price").
If the Company issues High Yield Debt prior to the earliest of (i) an
initial public offering, (ii) a Redemption Event and (iii) July 28, 2002, then
the Company may extend the redemption date of the Series B Preferred Stock to a
date no later than the day immediately following the maturity date of the High
Yield Debt. The Company has extended the redemption date to the day after the
maturity of the Notes.
Upon the occurrence of an Exchange Event, and provided that a Redemption
Event (that is not also an Exchange Event) has not occurred, the Company shall
redeem the Series B Preferred Stock at a redemption price of $.001 per share. An
Exchange Event is defined as the earlier to occur of (i) a Redemption Event that
generates a value of at least $98 million for the warrants initially issued to
the Advent Entities and (ii) the date that the closing price per share of the
Common Stock, as listed on a public stock exchange, equals or exceeds a price
for each of 20 consecutive trading days that, when multiplied by the number of
shares of Common Stock for which the warrants initially issued to the Advent
Entities are exercisable, exceeds $98 million. See "-- Warrants."
In addition, the Company may redeem all, but not less than all, of the
outstanding Series B Preferred Stock at any time at the Series B Redemption
Price.
The holders of the Series B Preferred Stock have agreed not to exercise
such redemption right unless permitted under the Indenture and to subordinate
any claims to the claims of the holders of the Notes.
Limitation on Indebtedness. So long as any shares of Series B Preferred
Stock remain outstanding, LDI and its subsidiaries are not permitted, without
the vote or written consent of the holders of a majority of the Series B
Preferred Stock, to incur third party debt, whether or not secured, including
without limitation off-balance sheet financing, capital leases and operating
leases, but specifically excluding accounts receivable financing, if as a result
thereof, the aggregate outstanding principal balance of all third party debt
owed by LDI, not including trade credit extended to the Company in the normal
course of business, would exceed $30,000,000.
Other Matters Requiring the Consent of the Holders of Series B Preferred
Stock. So long as any shares of Series B Preferred Stock remain outstanding,
LDI is not permitted, without the vote or written consent of the holders of a
majority of the Series B Preferred Stock, to (among other things and subject to
certain exceptions) (i) issue Common Stock for less than certain threshold
amounts unless the aggregate number of such shares sold is less than 10% of all
outstanding shares of Common Stock, (ii) amend or otherwise modify the Articles
of Incorporation in any manner which materially adversely affects the rights of
the holders of Series B Preferred Stock, (iii) issue additional shares of Series
B Preferred Stock or any other equity security senior to or on a parity with the
Series B Preferred Stock, including senior equity securities convertible into or
exchangeable for, or issued with warrants for, capital stock of the Company,
(iv) spend in excess of the annual budget approved by the Board of Directors,
(v) consummate certain changes of control of the Company,
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(vi) purchase or redeem, or declare dividends or other distributions on, capital
stock of the Company or (vii) effect a fundamental change in the business of
LDI.
PREEMPTIVE RIGHTS
Pursuant to the 1994 Shareholders' Agreements, certain holders of the
Common Stock and the Series A Preferred Stock have preemptive rights. If the
Company issues or sells any voting stock, or any warrants, options or rights
convertible into or exchangeable for, or that carry any rights to subscribe for
or acquire, voting stock of the Company, which would adversely affect the
proportionate or relative voting or dividend rights of any such holder of Common
Stock or Series A Preferred Stock, then the Company is required to offer such
holders an opportunity to subscribe for and acquire shares in the proposed
issuance to maintain such holder's proportionate and relative voting and
dividend rights. The preemptive rights do not apply to (i) treasury shares, (ii)
shares of capital stock or warrants, options, securities or rights convertible
into shares of capital stock issued to employees, directors, officers,
consultants or independent contractors of the Company, or (iii) capital stock or
warrants, options, securities or rights convertible into shares of capital stock
issued in connection with the effectuation of a merger, consolidation or other
business combination.
In connection with the Advent Purchase Agreement, the Company, Mr.
Friedland and Mr. Glassman entered into a preemptive rights agreement with the
Advent Entities (the "Advent Preemptive Rights Agreement"). If the Company
issues or sells any rights, options or warrants to purchase any Common Stock or
securities of any type that are, or may become, convertible into Common Stock,
then the other parties to the agreement have a right to purchase their pro rata
share of such securities. These preemptive rights will not apply in the case of
(i) securities issued in connection with the acquisition by LDI of another
business entity or business segment of such an entity if after the acquisition,
LDI will own more than 50% of the voting power of such business entity or
business segment, (ii) securities issued to employees, consultants, officers or
directors of LDI pursuant to any stock option plan, (iii) securities issued in
connection with any stock split, stock dividend, recapitalization or other
reorganization of LDI, (iv) securities issued upon the exchange, exercise or
conversion of any security that is the subject of the Advent Preemptive Rights
Agreement, (v) securities sold in an initial public offering, (vi) treasury
shares, (vii) any right, option or warrant to acquire any security convertible
into or exchangeable for the securities described in any of subsections (i)
through (vi) of this sentence, and (viii) any Common Stock, or any rights,
options, warrants or shares convertible into or exchangeable for Common Stock,
which the Company was required to issue before July 28, 1997. The Advent
Preemptive Rights Agreement terminates upon the consummation of an underwritten
public offering of Common Stock by the Company.
REGISTRATION RIGHTS
Holders of substantially all of the issued and outstanding shares of Common
Stock, the warrants to purchase Common Stock issued in connection with the
private placement consummated by the Company in 1996 and the holders of the
Series A Preferred Stock (with respect to the shares of Common Stock into which
the Series A Preferred Stock is convertible) are entitled to certain piggy-back
registration rights pursuant to the 1994 Shareholders' Agreements. The 1994
Shareholders' Agreements provide for registration rights any time the Company
proposes to register any of its Common Stock under the Securities Act in
connection with the public offering of such securities solely for cash. In
addition, such securityholders are entitled to certain demand registration
rights under the terms of the respective purchase agreements pursuant to which
such securities were acquired. In connection with the Advent Purchase Agreement,
the Company entered into the Advent Registration Rights Agreement pursuant to
which, the Advent Entities have certain rights in respect of the registration of
the shares of Common Stock underlying the ADV Warrants held by the Advent
Entities and the additional warrants to purchase 1,000,000 shares of Common
Stock that the Company has agreed to issue to the Advent Entities (collectively,
the "Advent Common Shares") including demand registration rights, subsequent to
the first to occur of a qualified public offering of Common Stock or July 28,
2002 with respect to all or any part of not less than 25% of the Advent Common
Shares. No more than two demand registrations may be requested by the Advent
Entities. The Advent Entities also have piggy-back registration rights. The
Advent Registration Rights Agreement terminates upon the earlier to occur of
such date as the Advent Entities cease to own any Advent Common Shares and July
28, 2009. See "Certain Transactions."
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The holders of the Warrants will be entitled to "piggy-back" registration
rights for the shares of Common Stock purchasable upon exercise of the Warrants
in connection with any public offering of Common Stock (subject to certain
exceptions).
SHAREHOLDER AGREEMENTS
Pursuant to the 1994 Shareholders' Agreements, each shareholder party to
the 1994 Shareholders' Agreements is required to vote all of its shares of stock
and take all such other actions as may be necessary to elect and maintain
Messrs. Friedland and Glassman as members of the Board of Directors of the
Company; provided however, that the right of each of Messrs. Friedland and
Glassman to be a member of the Board of Directors and the obligations of the
shareholders party to the Shareholders' Agreements to vote to elect either as
director shall terminate as to Messrs. Friedland or Glassman when such director
owns less than 5% of the issued and outstanding capital stock of the Company.
Additionally, the 1994 Shareholders' Agreements places certain restrictions on
the transfer of stock by the shareholders party to the 1994 Shareholders'
Agreements, including a requirement that the Company and the shareholders party
to the 1994 Shareholders' Agreements first be given a right of first refusal
before any transfer is made.
INDEMNIFICATION AND LIMITATIONS ON DIRECTORS' LIABILITY
The Florida Act authorizes Florida corporations to indemnify any person who
is or was a party to any proceeding (other than an action by or on behalf of the
corporation), by reason of the fact that he or she 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 other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she 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 or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
not be made if the person seeking indemnification is held liable, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification. The indemnification authorized under
Florida law is not exclusive and is in addition to any other rights granted to
officers and directors under the articles of incorporation or bylaws of the
corporation or any agreement between officers and directors and the corporation.
The Company's Articles of Incorporation provide for indemnification to the
maximum extent permitted by Florida law.
Under the Florida Act, a director is not personally liable for monetary
damages to a corporation or any other person for acts or omissions in his or her
capacity as a director except in certain limited circumstances such as certain
violations of criminal law and transactions in which the director derived an
improper personal benefit. As a result, shareholders may be unable to recover
monetary damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although injunctive or other equitable relief may be available.
The foregoing provisions of the Florida Act and the Company's Articles of
Incorporation could have the effect of preventing or delaying a person from
acquiring or seeking to acquire a substantial equity interest in, or control of,
the Company.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Several anti-takeover provisions under Florida law apply to corporations
organized under Florida law unless the corporation has elected to opt out of
such provisions in its articles of incorporation or (depending on the provision
in questions) its bylaws. The Company has not elected to opt out of these
provisions. The Florida Act contains a provision that prohibits the voting of
shares in certain Florida corporations which are acquired in a "control share
acquisition" unless the board of directors approves the control share
acquisition or the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors or
the acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition. A control share acquisition is
defined as an acquisition that immediately thereafter
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entitles the acquiring party to vote in the election of directors with respect
to one-fifth or more of such voting power. This statutory voting restriction is
not applicable in certain circumstances set forth in the Florida Act. The
Company is subject to this statutory provision.
The Florida Act contains an "affiliated transaction" provision that
prohibits certain Florida corporations from engaging in a broad range of
business combinations or other corporate transactions with an "interested
shareholder" unless (i) the transaction is approved by the holders of two-thirds
of the corporation's voting shares other than those owned by the interested
shareholder, (ii) the transaction is approved by a majority of disinterested
directors, (iii) the interested shareholder owns 90% of the corporation's
outstanding voting shares or has owned at least 80% of the corporation's
outstanding voting shares for at least five years, or (iv) certain conditions
with respect to the consideration to be paid in the affiliated transaction and
certain additional conditions set forth in the Florida Act are met. An
interested shareholder is defined as a person who, together with affiliates and
associates, beneficially owns more than 10% of a corporation's outstanding
voting shares. The Company is not currently subject to this statutory provision
but will become subject thereto at such time as the Company has more than 300
shareholders.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. See "Risk Factors -- Anti-Takeover Effects."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences of an investment associated with the exchange of the Senior
Notes for the Exchange Notes and with the ownership and disposition of the
Notes. This summary is based on current provisions of the United States Internal
Revenue Code of 1986, as amended (the "Code"), applicable final, temporary and
proposed Treasury Regulations ("Treasury Regulations"), judicial authority, and
current administrative rulings and pronouncements of the Internal Revenue
Service (the "Service") and upon the facts concerning the Company as of the date
hereof. There can be no assurance that the Service will not take a contrary
view, and no ruling from the Service has been or will be sought by the Company.
Legislative, judicial, or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders.
This summary does not purport to deal with all aspects of taxation that may
be relevant to particular holders of the Notes in light of their personal
investment or tax circumstances, or to certain types of investors (including
individual retirement accounts and other tax deferred accounts, insurance
companies, financial institutions, broker-dealers or tax-exempt organizations)
subject to special treatment under the United States federal income tax laws.
This discussion does not deal with special tax situations, such as the holding
of the Notes as part of a straddle with other investments, or situations in
which the functional currency of a holder is not the United States dollar. In
addition, this discussion deals only with Notes held by initial purchasers that
hold such Notes as capital assets within the meaning of Section 1221 of the
Code. Except as otherwise described herein, this discussion applies only to a
person who is a holder who purchased Senior Notes pursuant to the Offering at
the "issue price" (as defined below).
For purposes of this discussion, the term "U.S. Holder" means a citizen or
resident of the United States, a corporation, limited liability company,
partnership or other entity created or organized in the United States or under
the law of the United States or any state thereof (including the District of
Columbia), an estate the income of which is includible in gross income for
United States federal income tax purposes regardless of its source, or a trust
if a court within the United States is able to exercise primary supervision over
the administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust (or, under certain
circumstances, a trust the income of which is includible in gross income for
United States federal income tax purposes regardless of its source). The term
also includes certain former citizens of the United States. The term "Non-U.S.
Holder" means any person other than a U.S. Holder. This summary of United States
federal income tax considerations is based upon the advice of Loeb & Loeb LLP,
counsel to LDI.
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THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT
MAY VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
EXCHANGING THE SENIOR NOTES FOR THE EXCHANGE NOTES AND HOLDING AND DISPOSING OF
THE NOTES INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS.
THE EXCHANGE
In the opinion of Loeb & Loeb LLP, tax counsel to the Company, the exchange
of Senior Notes for Exchange Notes will not be treated as an exchange for
federal income tax purposes because the Exchange Notes will not differ
materially in kind or extent from the Senior Notes and because the exchange will
occur by operation of the original terms of the Senior Notes. As a result, U.S.
Holders who exchange their Senior Notes for Exchange Notes will not recognize
any income, gain or loss for federal income tax purposes. A U.S. Holder will
have the same adjusted issue price, adjusted basis and holding period in the
Exchange Notes immediately after the exchange as it had in the Senior Notes
immediately before the exchange.
ALLOCATION OF PURCHASE PRICE BETWEEN NOTES AND WARRANTS
For United States federal income tax purposes, the Senior Notes were
originally issued and sold as part of a Unit comprised of one Senior Note and
one Warrant to purchase 15.0874 shares of Common Stock. The issue price of a
Unit for United States federal income tax purposes was the first price at which
a substantial amount of Units were sold to the public (excluding sales to bond
houses, brokers or similar persons acting as underwriters, placement agents or
wholesalers). The issue price of a Unit was allocated between the Notes and the
Warrants based on the Company's best judgment of the relative fair market values
of each such component of the Unit on the issue date. The Company allocated
$939.81 to each Note and $60.19 to each Warrant. Pursuant to Treasury
Regulations issued under provisions of the Code relating to original issue
discount (the "OID Regulations"), each holder will be bound by such allocation
for United States federal income tax purposes unless such holder discloses on a
statement attached to its tax return for the taxable year that includes the
acquisition date of such Unit that its allocation differs from that of the
Company. No assurance can be given that the Service will accept the Company's
allocation. If the Company's allocation were successfully challenged by the
Service, the issue price, original issue discount accrual on the Note and gain
or loss on the sale or disposition of a Note or Warrant would be different from
that resulting under the allocation determined by the Company.
THE NOTES
Under applicable authorities, the Notes should be treated as indebtedness
for United States federal income tax purposes. In the unlikely event the Notes
are treated as equity, the amount of any actual or constructive distributions on
any such Note would first be taxable to the holder as dividend income to the
extent of the issuer's current and accumulated earnings and profits, and next
would be treated as a return of capital to the extent of the holder's tax basis
in the Note, with any remaining amount treated as gain from the sale of a Note.
Further, payments on the Notes treated as equity to Non-U.S. Holders would not
be eligible for the portfolio interest exception from United States withholding
tax, and dividends thereon would be subject to United States withholding tax at
a flat rate of 30% (or lower applicable treaty rate) and gain from their sale or
other taxable disposition might also be subject to United States tax. See
"-- Non-U.S. Holders." In addition, in the event of equity treatment, the
Company would not be entitled to deduct interest on the Notes for United States
federal income tax purposes. The remainder of this discussion assumes that the
Notes will constitute indebtedness of the Company for such tax purposes.
TAXATION OF STATED INTEREST
Stated interest paid or accrued on the Notes will be taxable to a U.S.
Holder as ordinary interest income in accordance with such U.S. Holder's method
of accounting for U.S. federal income tax purposes.
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The interest rate on the Notes will be increased if the Company fails to
either consummate the Exchange Offer or cause resales of the Notes to be
registered under the Securities Act prior to applicable deadlines. See
"Description of the Notes -- Exchange Offer, Registration Rights." According to
the OID Regulations, the possibility of a change in the interest rate will not
affect the yield of the Notes (and accordingly, will not affect the inclusion of
interest in income) if, based on all the facts and circumstances as of the issue
date, the possibility that such a change will occur is remote. The Company does
not intend to treat the possibility of a change in the interest rate as
affecting the yield to maturity of any Note. If, however, the interest rate were
increased because of such a failure, a U.S. Holder would be required to include
in gross income any increased amount of interest over the remaining term of the
Notes, possibly in advance of the receipt of cash relating thereto.
ORIGINAL ISSUE DISCOUNT
General. As a result of the allocation of a portion of the issue price of
the Units to the Warrants, the Notes will be treated as issued with OID, and
each U.S. Holder will be required to include in income (regardless of whether
such U.S. Holder is a cash or accrual basis taxpayer) in each taxable year, in
advance of the receipt of corresponding cash payments on such Notes, that
portion of the OID, computed on a constant yield basis, attributable to each day
during such year on which the U.S. Holder held the Notes. See "-- Taxation of
Original Issue Discount."
The amount of OID with respect to each Note will be equal to the excess of
(i) its "stated redemption price at maturity" over (ii) its issue price. Under
the OID Regulations, the "stated redemption price at maturity" of each Note will
include all payments to be made in respect thereof, including any stated
interest payments, other than "qualified stated interest." Payments of qualified
stated interest are payments of interest which are unconditionally payable in
cash or property (other than debt instruments of the issuer) at least annually
at a qualifying rate, including a single fixed rate. The "issue price" of a Note
is determined in the manner described under "--Allocation of Purchase Price
Between Notes and Warrants."
Taxation of Original Issue Discount. A U.S. Holder of a debt instrument
issued with OID is required to include in gross income for United States federal
income tax purposes an amount equal to the sum of the "daily portions" of such
OID for all days during the taxable year on which the holder holds the debt
instrument. The daily portions of OID required to be included in a holder's
gross income in a taxable year will be determined upon a constant-yield basis by
allocating to each day during the taxable year on which the holder holds the
debt instrument a pro-rata portion of the OID on such debt instrument which is
attributable to the "accrual period" in which such day is included. Accrual
periods with respect to a Note may be of any length and may vary in length over
the term of the Note as long as (i) no accrual period is longer than one year
and (ii) each scheduled payment of interest or principal on the Note occurs on
either the final or first day of an accrual period. The amount of the OID
attributable to each "accrual period" will be the product of the "adjusted issue
price" at the beginning of such accrual period and the "yield to maturity" of
the debt instrument (stated in a manner appropriately taking into account the
length of the accrual period). The "yield to maturity" is the discount rate
that, when used in computing the present value of all payments to be made under
the Notes, produces an amount equal to the issue price of the Notes. The
"adjusted issue price" of a debt instrument at the beginning of an accrual
period is defined generally as the issue price of the debt instrument plus the
aggregate amount of OID that accrued in all prior accrual periods, less any cash
payments on the debt instrument (except for payments of "qualified stated
interest," as defined above). Accordingly, a U.S. Holder of a Note will be
required to include OID in gross income for United States federal income tax
purposes in advance of the receipt of cash in respect of such income. The amount
of OID allocable to an initial short accrual period may be computed using any
reasonable method if all other accrual periods, other than a final short accrual
period, are of equal length. The amount of OID allocable to the final accrual
period at maturity of the Note is the difference between (x) the amount payable
at the maturity of the Note, and (y) the Note's adjusted issue price as of the
beginning of the final accrual period.
Effect of Mandatory and Optional Redemptions on OID. In the event of a
Change of Control, the Company will be required to offer to redeem all of the
Notes at redemption prices specified elsewhere herein. In the event that the
Company receives net proceeds from one or more Equity Offerings, the Company
may,
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at any time prior to April 15, 2001, use all or a portion of such net proceeds
to redeem the Notes in amounts and at redemption prices specified elsewhere
herein. Under the OID Regulations, computation of yield and maturity of the
Notes is not affected by such redemption rights and obligations if, based on all
the facts and circumstances as of the issue date, the potential occurrence of
such contingencies is remote. The Company has determined that, based on all of
the facts and circumstances that are expected to exist as of the issue date, the
possibility that a Change of Control or an optional redemption by the Company
will occur is remote and, as a result, the stated payment schedule of the Notes
must not be adjusted for such contingencies.
The Company may redeem the Notes, in whole or in part, at any time on or
after April 15, 2003, at redemption prices specified elsewhere herein, plus
accrued and unpaid interest to the date of redemption. The OID Regulations
contain rules for determining the "maturity date" and the stated redemption
price at maturity of an instrument that may be redeemed prior to its stated
maturity date at the option of the issuer. Under the OID Regulations, solely for
purposes of the accrual of OID, it is assumed that the issuer will exercise any
option to redeem a debt instrument if such exercise will lower the
yield-to-maturity of the debt instrument. The Company anticipates that it will
not be presumed to redeem the Notes prior to their stated maturity under the
foregoing rules because the exercise of such option would not lower the
yield-to-maturity of the Notes.
MARKET DISCOUNT, ACQUISITION PREMIUM
If a U.S. Holder acquires a Note for an amount that is less than its
revised issue price (generally, adjusted issue price at the time of
acquisition), the amount of the difference will be treated as "market discount,"
unless such difference is less than a specified de minimis amount. Under the
market discount rules of the Code, a U.S. Holder will be required to treat any
principal payment on, or any gain on the sale, exchange, retirement or other
disposition (including a gift) of, a Note as ordinary income to the extent of
any accrued market discount that has not previously been included in income.
Market discount generally accrues on a straight-line basis over the remaining
term of the Note, unless the U.S. Holder elects to accrue market discount on a
constant interest method. A U.S. Holder may not be allowed to deduct immediately
all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or to carry such Note.
A U.S. Holder may elect to include market discount in income currently as
it accrues (either on a straight-line basis or, if the U.S. Holder so elects, on
a constant-yield basis), in which case the interest deferral rule set forth in
the preceding paragraph will not apply. Such an election will apply to all bonds
acquired by the U.S. Holder on or after the first day of the first taxable year
to which such election applies and may be revoked only with the consent of the
Service.
A U.S. Holder that acquires a Note for an amount that is greater than the
adjusted issue price of such Note but equal to or less than the sum of all
amounts payable on such Note after the purchase date will be considered to have
purchased such Note at an "acquisition premium." Under the acquisition premium
rules of the Code and the OID Regulations, the daily portion of OID which such
holder must include in its gross income with respect to such Note for any
taxable year will be reduced by an amount equal to the OID multiplied by a
fraction, the numerator of which is the amount of such acquisition premium and
the denominator of which is the OID remaining from the date the Note was
purchased to its maturity date.
SALE OR OTHER DISPOSITION
In general, upon the sale, exchange or redemption of a Note, a U.S. Holder
will recognize taxable gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property received on
the sale, exchange or redemption (not including any amount attributable to
accrued but unpaid interest) and (ii) the U.S. Holder's adjusted tax basis in
the Note. A U.S. Holder's adjusted tax basis in a Note generally will be equal
to the portion of the Unit purchase price allocable to such Note, increased by
the amount of any market discount or OID previously taken into income by the
U.S. Holder and reduced by the amount of any payments made on such Note (other
than payments of "qualified stated interest," as defined above) that are
received by the U.S. Holder.
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<PAGE> 125
Subject to the discussion of market discount above, gain or loss realized
on the sale, exchange or redemption of a Note will be capital gain or loss.
Capital gain recognized by individual U.S. Holders generally will be subject to
a maximum federal income tax rate of (i) 39.6% if the U.S. Holder held the Note
for not more than one year, (ii) 28% if the U.S. Holder held the Note for more
than one year but not more than eighteen months, and (iii) 20% if the U.S.
Holder held the Note for more than eighteen months. The distinction between
capital gain or loss and ordinary income or loss is also relevant for purposes
of, among other things, limitations with respect to the deductibility of capital
losses.
An exchange of Notes pursuant to the Exchange Offer and the associated
redemption of the Notes by the Company in exchange for the Exchange Notes should
not be considered a taxable event.
NON-U.S. HOLDERS
In general, subject to the discussion below concerning backup withholding:
(a) payments of principal or interest (including OID) on the Notes by
the Company or any paying agent to a beneficial owner of a Note that is a
Non-U.S. Holder will not be subject to United States withholding tax,
provided that, in the case of interest or accrued OID, (i) such Non-U.S.
Holder does not own, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote, within the meaning of Section 871(h)(3) of the Code, (ii) such
Non-U.S. Holder is not a "controlled foreign corporation" (within the
meaning of the Code) that is related, directly or indirectly, to the
Company through stock ownership, (iii) such Non-U.S. Holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code, and (iv)
the certification requirements under Section 871(h) or Section 881(c) of
the Code and Treasury Regulations thereunder (summarized below) are
satisfied;
(b) A Non-U.S. Holder of a Note will not be subject to United States
income tax on gains realized on the sale, exchange or other disposition of
such Note, unless (i) such Non-U.S. Holder is an individual who is present
in the United States for 183 days or more in the taxable year of sale,
exchange or other disposition, and certain other conditions are met, (ii)
such gain is effectively connected with the conduct by the Non-U.S. Holder
of a trade or business in the United States and, if certain tax treaties
apply, is attributable to a United States permanent establishment
maintained by the Non-U.S. Holder, or (iii) the Non-U.S. Holder is subject
to Code provisions applicable to certain United States expatriates; and
(c) a Note held by an individual who is not a citizen or resident of
the United States at the time of his death will not be subject to United
States estate tax as a result of such individual's death, provided that, at
the time of such individual's death, the individual does not own, actually
or constructively, 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and payments with respect
to such Note would not have been effectively connected with the conduct by
such individual of a trade or business in the United States.
To satisfy the certification requirements referred to in (a)(iv) above,
Sections 871(h) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that either (i) the beneficial owner of a Note
must certify, under penalties of perjury, to the Company or its paying agent, as
the case may be, that such owner is a Non-U.S. Holder and must provide such
owner's name and address, and United States taxpayer identification number
("TIN"), if any, or (ii) a securities clearing organization, bank or other
financial institution that holds customers securities in the ordinary course of
its trade or business (a "Financial Institution") and holds the Note on behalf
of the beneficial owner thereof must certify, under penalties of perjury, to the
Company or its paying agent, as the case may be, that such certificate has been
received from the beneficial owner and must furnish the payor with a copy
thereof. A certificate described in this paragraph is effective only with
respect to payments of interest made to the certifying Non-U.S. Holder after
delivery of the certificate in the calendar year of its delivery and the two
immediately succeeding calendar years. Under temporary Treasury Regulations,
such requirement will be fulfilled if the beneficial owner of a Note certifies
on IRS Form W-8, under penalties of perjury, that it is a Non-U.S. Holder and
provides its name and address, and any Financial Institution holding the Note on
behalf of the beneficial owner files a statement with the
125
<PAGE> 126
withholding agent to the effect that it has received such a statement from the
beneficial owner (and furnishes the withholding agent with a copy thereof).
Treasury Regulations released on October 6, 1997 (the "New Regulations")
and effective for payments made after December 31, 1999, subject to certain
transition rules, provide alternative methods for satisfying the certification
requirements described above. The New Regulations require, in the case of Notes
held by a foreign partnership, that (i) the certification be provided by the
partners rather than by the foreign partnership and (ii) the partnership provide
certain information, including a United States taxpayer identification number. A
look-through rule would apply in the case of tiered partnerships.
If a Non-U.S. Holder of a Note is engaged in a trade or business in the
United States and if interest (including OID) on the Note, or gain realized on
the sale, exchange or other disposition of the Note, is effectively connected
with the conduct of such trade or business and, if certain tax treaties apply,
is attributable to a United States permanent establishment maintained by the
Non-U.S. Holder in the United States, the Non-U.S. Holder, although exempt from
United States withholding tax (provided that the certification requirements
discussed in the next sentence are met), will generally be subject to regular
United States income tax on such interest or gain in the same manner as if it
were a U.S. Holder. In lieu of the certificate described above, such a Non-U.S.
Holder will be required, under currently effective Treasury Regulations, to
provide the Company with a properly executed IRS Form 4224 in order to claim an
exemption from withholding tax. In addition, if such Non-U.S. Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
such lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest (including OID) on a Note and any
gain recognized on the sale, exchange or other disposition of a Note will be
included in the earnings and profits of such Non-U.S. Holder if such interest or
gain is effectively connected with the conduct by a Non-U.S. Holder of a trade
or business in the United States. The New Regulations alter certain of the
withholding reporting and certification requirements described above, effective
for payments made after December 31, 1999, subject to certain transition rules.
In general, for payments made after December 31, 1999, a Non-U.S. Holder with
effectively connected income must provide to the Company, either directly or
through an intermediary, a valid IRS Form W-8 to claim an exemption from
withholding.
In the unlikely event the Notes were treated as equity, the periodic
distributions received by a Non-U.S. Holder on the Notes would not qualify for
the portfolio interest exemption from United States federal income tax and would
instead be treated as dividends as described above.
Non-U.S. Holders should consult with their tax advisors regarding United
States and foreign tax consequences with respect to the Notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of United States federal income tax at a rate of 31% may
apply to payments made in respect of a Note to a holder that is not an "exempt
recipient" and that fails to provide certain identifying information (such as
the holder's TIN) in the manner required. Generally, individuals are not exempt
recipients, whereas corporations and certain other entities are exempt
recipients. Payments made in respect of a Note must be reported to the Service,
unless the holder is an exempt recipient or otherwise establishes an exemption.
In the case of payments of interest on a Note to a Non-U.S. Holder,
Treasury Regulations provide that backup withholding and information reporting
will not apply to payments with respect to which either requisite certification
has been received or an exemption has otherwise been established (provided that
neither the Company nor a paying agent has actual knowledge that the holder is a
U.S. Holder or that the conditions of any other exemption are not in fact
satisfied).
Payments of the proceeds of the sale of a Note to or through a foreign
office of a broker that is a United States person, a "controlled foreign
corporation" (within the meaning of the Code), or a foreign person, 50% or more
of whose gross income from all sources for the three-year period ending with the
close of its taxable
126
<PAGE> 127
year preceding the payment was effectively connected with the conduct of a trade
or business within the United States, or (pursuant to the New Regulations, for
payments made after December 31, 1999) a foreign partnership with certain United
States connections, are currently subject to certain information reporting
requirements, unless the payee is an exempt recipient or such broker has
evidence in its records that the payee is a Non-U.S. Holder and has no actual
knowledge that such evidence is false and certain other conditions are met.
Temporary Treasury Regulations indicate that such payments are not currently
subject to backup withholding. Under current Treasury Regulations, payments of
the proceeds of a sale of a Note to or through the United States office of a
broker will be subject to information reporting and backup withholding unless
the payee certifies under penalties of perjury as to his or her status as a
Non-U.S. Holder and satisfies certain other qualifications (and no agent or
broker who is responsible for receiving or reviewing such statement has actual
knowledge that it is incorrect) and provides his or her name and address or the
payee otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
holder of a Note generally will be allowed as a refund or credit against such
holder's United States federal income tax, provided that the required
information is timely furnished to the Service.
In general, the New Regulations do not significantly alter the current
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. Under the New
Regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. A holder of a Note should consult with its tax
advisor regarding the application of the backup withholding rules to its
particular situation, the availability of an exemption therefrom, the procedure
for obtaining such an exemption, if available, and the impact of the New
Regulations on payments made with respect to Notes after December 31, 1999.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF
ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. PROSPECTIVE HOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM
OF THE EXCHANGE OF SENIOR NOTES FOR EXCHANGE NOTES AND THE OWNERSHIP AND
DISPOSITION OF NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
OR OTHER TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange 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 Exchange Notes. 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 Exchange Notes received in
exchange for Senior Notes where such Senior Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period not to exceed 180 days after the Expiration Date, it will
furnish additional copies of this Prospectus, as amended or supplemented, to any
broker-dealer that reasonably requests such documents for use in connection with
any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange 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 Exchange 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 Exchange Notes. Any
broker-dealer that resells Exchange 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
127
<PAGE> 128
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit of any such resale of Exchange 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, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list the Exchange
Notes on any national securities exchange or to seek approval for quotation
through any automated quotation system. The Company has been advised by the
Placement Agents that following completion of the Exchange Offer, the Placement
Agents intend to make a market in the Exchange Notes. However, the Placement
Agents are not obligated to do so and any market-marking activities with respect
to the Exchange Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of the Exchange Notes may experience difficulty in reselling
the Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market may cease at any time. If a public
trading market develops for the Exchange Notes, future trading prices of the
Exchange Notes will depend on many factors, including, among other things,
prevailing interest rates, the market for similar securities, the financial
conditions and results of operations of the Company and other factors beyond the
control of the Company, including general economic conditions. Notwithstanding
the registration of the Exchange Notes in the Exchange Offer, holders who are
"affiliates" of the Company (within the meaning of Rule 405 under the Securities
Act) may publicly offer for sale or resell the Exchange Notes only in compliance
with the provisions of Rule 144 under the Securities Act or any other available
exemptions under the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than commissions or concessions of any brokers or dealers, and will
indemnify the holders of the Senior Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
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<PAGE> 129
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered hereby
will be passed upon for the Company by Loeb & Loeb LLP, New York, New York
10154-0037.
EXPERTS
The consolidated financial statements of Long Distance International Inc.
and subsidiaries at December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not currently subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon effectiveness of the Registration Statement of which this Prospectus
forms a part, the Company will become subject to the informational requirements
of the Exchange Act. In addition, the Indenture provides that, regardless of
whether the Company is then required to file reports with the Commission, the
Company shall file with the Commission all such reports and other information as
would be required to be filed with the Commission if the Company were subject to
the reporting requirements of the Exchange Act. The Company will supply, or
cause the Trustee to supply, to each holder of Exchange Notes, without cost,
copies of such reports or other information.
The Company has filed the Registration Statement of which this Prospectus
forms a part under the Securities Act with respect to the Exchange Offer. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement. For
further information about the Company and the Exchange Offer, reference is made
to the Registration Statement and to the financial statements, exhibits and
schedules filed therewith. The statements contained in this Prospectus about the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to a copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Copies of each such
document may be obtained from the Commission at its principal office in
Washington D.C. upon payment of the charges prescribed by the Commission or, in
the case of certain such documents, by accessing the Commission's World Wide Web
site at http://www.sec.gov.
The Company is required by the terms of the Indenture to furnish the
Trustee with annual reports containing consolidated financial statements audited
by its independent public accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
129
<PAGE> 130
(This page intentionally left blank)
<PAGE> 131
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997... F-3
Consolidated Statements of Operations for years ended
December 31, 1995, 1996 and 1997.......................... F-4
Consolidated Statements of Common Shareholders' Equity
(Capital Deficiency) for years ended December 31, 1995,
1996 and 1997............................................. F-5
Consolidated Statements of Cash Flows for years ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Condensed Consolidated Financial Statements........ F-7
Condensed Consolidated Balance Sheets at December 31, 1997
and March 31, 1998 (unaudited)............................ F-21
Condensed Consolidated Statements of Operations for three
months ended March 31, 1997 and 1998 (unaudited).......... F-22
Condensed Consolidated Statements of Cash Flows for three
months ended March 31, 1997 and 1998 (unaudited).......... F-23
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-24
</TABLE>
F-1
<PAGE> 132
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Long Distance International Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Long
Distance International Inc. and subsidiaries (the Company) as of December 31,
1996 and 1997, and the related consolidated statements of operations, common
shareholders' equity (capital deficiency) and cash flows for each of the three
years in the period ended December 31, 1997. Our audit also included the
financial statement schedule listed in the Index at Item 21(b). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Long Distance International Inc. and subsidiaries at December 31, 1996 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
February 17, 1998, except for
Note 15, as to which the date is March 20, 1998.
F-2
<PAGE> 133
LONG DISTANCE INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1997
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 254,728 $ 12,172,779
Restricted cash........................................... 28,000 104,970
Accounts receivable, net of allowance for doubtful
accounts of $371,000 in 1996 and $956,000 in 1997...... 2,443,136 5,981,978
Other current assets...................................... 240,060 458,363
---------- ------------
Total current assets........................................ 2,965,924 18,718,090
Property and equipment, net................................. 542,216 7,514,008
Goodwill, net of accumulated amortization of $3,690 in 1996
and $26,428 in 1997....................................... 19,301 450,087
Other assets, net........................................... 366,269 1,124,938
---------- ------------
Total assets................................................ $3,893,710 $ 27,807,123
========== ============
LIABILITIES AND COMMON SHAREHOLDERS' CAPITAL DEFICIENCY
Current liabilities:
Accounts payable.......................................... $1,427,653 $ 4,277,443
Accrued telecommunication costs........................... 1,356,802 3,341,975
Other accrued liabilities................................. 1,186,000 3,561,363
Current portion of capital lease obligations.............. -- 500,113
Current portion of installment loans...................... -- 50,717
---------- ------------
Total current liabilities................................... 3,970,455 11,731,611
Installment loans........................................... -- 148,836
Capital lease obligations................................... -- 2,450,781
Commitments
Redeemable convertible, preferred stock, Series A,
cumulative $.001 par value -- 2,600,000 shares authorized
and 2,456,556 shares issued and outstanding -- liquidation
value of $1,324,410 and $1,393,608 in 1996 and 1997,
respectively.............................................. 1,290,910 1,364,607
Redeemable preferred stock, Series B, $.001 par
value -- 5,000,000 shares authorized, 2,500,000 shares
issued and outstanding -- liquidation value of
$25,000,000............................................... -- 12,350,478
Common shareholders' capital deficiency:
Common stock, $.001 par value -- 100,000,000 shares
authorized, 22,382,171 and 24,754,354 shares issued and
outstanding in 1996 and 1997, respectively............. 22,382 24,754
Additional paid-in capital................................ 4,535,389 16,995,486
Accumulated deficit....................................... (5,925,426) (17,259,430)
---------- ------------
Total common shareholders' capital deficiency............... (1,367,655) (239,190)
---------- ------------
Total liabilities and common shareholders' capital
deficiency................................................ $3,893,710 $ 27,807,123
========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 134
LONG DISTANCE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenues, net...................................... $ 2,592,633 $14,361,835 $ 40,115,910
Costs of telecommunications services............... 1,931,504 8,361,323 22,719,511
----------- ----------- ------------
Gross margin....................................... 661,129 6,000,512 17,396,399
Selling, general and administrative expenses....... 2,299,452 9,886,808 28,065,918
Depreciation and amortization...................... 30,231 121,356 440,116
----------- ----------- ------------
Operating loss..................................... (1,668,554) (4,007,652) (11,109,635)
Other expense (income):
Minority interest................................ -- (179,259) 132,384
Interest income.................................. (33,363) (19,063) (430,656)
Interest expense................................. 17,681 211,713 522,641
----------- ----------- ------------
(15,682) 13,391 (224,369)
----------- ----------- ------------
Net loss........................................... (1,652,872) (4,021,043) (11,334,004)
Preferred dividends and redemption accretion....... (17,937) (73,695) (901,876)
----------- ----------- ------------
Net loss applicable to common shareholders......... $(1,670,809) $(4,094,738) $(12,235,880)
=========== =========== ============
Net loss per share applicable to common
shareholders -- basic and dilutive............... $ (0.10) $ (0.21) $ (0.51)
=========== =========== ============
Weighted average shares outstanding................ 16,667,092 19,836,912 23,953,434
=========== =========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 135
LONG DISTANCE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
(CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL COMMON
SHAREHOLDERS'
COMMON STOCK ADDITIONAL EQUITY
-------------------- PAID-IN ACCUMULATED SUBSCRIPTIONS (CAPITAL
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE DEFICIENCY)
---------- ------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995..... 14,339,000 $14,339 $ 1,043,861 $ (251,511) $(102,500) $ 704,189
Stock subscriptions
received................... -- -- -- -- 102,500 102,500
Issuance of common stock, net
of issuance costs of
$47,000.................... 2,520,761 2,520 983,679 -- (280,000) 706,199
Issuance of common stock for
subsidiary................. 50,000 50 22,450 -- -- 22,500
Issuance of common stock for
equipment.................. 288,571 289 100,711 -- -- 101,000
Accrued dividends on
preferred stock............ -- -- (17,937) -- -- (17,937)
Net loss..................... -- -- -- (1,652,872) -- (1,652,872)
---------- ------- ----------- ------------ --------- -----------
Balance at December 31, 1995... 17,198,332 17,198 2,132,764 (1,904,383) (280,000) (34,421)
Stock subscriptions
received................... -- -- -- -- 280,000 280,000
Issuance of common stock, net
of issuance costs of
$628,800................... 3,043,171 3,043 1,194,062 -- -- 1,197,105
Issuance of common stock on
conversion of bridge
loan....................... 2,140,668 2,141 1,282,258 -- -- 1,284,399
Accrued dividends on Series A
preferred stock............ -- -- (73,695) -- -- --
Net loss..................... -- -- -- (4,021,043) (4,021,043)
---------- ------- ----------- ------------ --------- -----------
Balance at December 31, 1996... 22,382,171 22,382 4,535,389 (5,925,426) -- (1,367,655)
Issuance of common stock from
exercise of warrants, net
of issuance costs of
$45,740.................... 1,615,233 1,615 1,283,619 -- -- 1,285,234
Issuance of common stock for
advertising costs.......... 606,950 607 615,454 -- -- 616,061
Issuance of common stock to
investment advisor......... 150,000 150 89,850 -- -- 90,000
Issuance of Series B
warrants, net of issuance
costs of $1,092,244........ -- -- 11,313,050 -- -- 11,313,050
Issuance of warrants for line
of credit.................. -- -- 60,000 -- -- 60,000
Accrued dividends on Series A
preferred stock............ -- -- (73,695) -- -- (73,695)
Accretion to redemption value
of Series B preferred
stock...................... -- -- (828,181) -- -- (828,181)
Net loss..................... -- -- -- (11,334,004) -- (11,334,004)
---------- ------- ----------- ------------ --------- -----------
Balance at December 31, 1997... 24,754,354 $24,754 $16,995,486 $(17,259,430) $ -- $ (239,190)
========== ======= =========== ============ ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 136
LONG DISTANCE INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(1,652,872) $(4,021,043) $(11,334,004)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 30,231 121,356 440,116
Minority partner's equity in losses (income) of
subsidiary.............................................. -- (179,259) 132,384
Common stock issued for advertising services.............. -- -- 217,467
Provision for bad debts................................... 60,000 651,741 2,580,125
Changes in operating assets and liabilities, net of
effects of acquisition of Speedial International:
Accounts receivable..................................... (665,324) (2,491,407) (6,118,967)
Other current assets.................................... (14,489) (215,627) (224,745)
Other assets............................................ (84,851) (99,547) (447,318)
Accounts payable........................................ 44,338 1,324,365 2,849,790
Accrued telecommunication costs......................... 295,998 1,060,805 1,985,173
Other accrued liabilities............................... 134,942 1,074,993 2,785,505
----------- ----------- ------------
Net cash used in operating activities....................... (1,852,027) (2,773,623) (7,134,474)
INVESTING ACTIVITIES:
Increase in restricted cash................................. -- (28,000) (76,970)
Acquisition of Speedial International....................... -- -- (1,047,605)
Purchases of property and equipment......................... (189,228) (324,586) (3,214,869)
----------- ----------- ------------
Net cash used in investing activities....................... (189,228) (352,586) (4,339,444)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise of
warrants, net of offering costs........................... 813,292 1,472,268 1,285,234
Proceeds from issuance of preferred stock and warrants, net
of offering costs......................................... 1,166,778 32,500 22,835,348
Proceeds from line of credit................................ -- -- 1,480,000
Repayment of line of credit................................. -- -- (1,480,000)
Principal payments on capital lease obligations............. -- -- (598,166)
Principal payments on installment loans..................... -- -- (130,447)
Proceeds from contributions by minority partner............. -- 46,875 --
Proceeds from bridge financing.............................. -- 1,284,399 --
----------- ----------- ------------
Net cash provided by financing activities................... 1,980,070 2,836,042 23,391,969
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents............ (61,185) (290,167) 11,918,051
Cash at beginning of year................................... 606,080 544,895 254,728
----------- ----------- ------------
Cash and cash equivalents at end of year.................... $ 544,895 $ 254,728 $ 12,172,779
=========== =========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued in repayment of bridge loan............. $ -- $ 1,284,399 $ --
=========== =========== ============
Common stock issued for subscriptions receivable............ $ 280,000 $ -- $ --
=========== =========== ============
Common stock issued for equipment........................... $ 101,000 $ -- $ --
=========== =========== ============
Common stock issued for acquisition......................... $ 22,500 $ -- $ --
=========== =========== ============
Common stock issued for accrued advertising costs........... $ -- $ -- $ 398,595
=========== =========== ============
Common stock issued to investment advisor................... $ -- $ -- $ 90,000
=========== =========== ============
Property and equipment acquired under capital leases........ $ -- $ -- $ 3,549,060
=========== =========== ============
Property and equipment purchased under installment loans.... $ -- $ -- $ 330,000
=========== =========== ============
Accrued dividends on Series A preferred stock............... $ 17,937 $ 73,695 $ 73,695
=========== =========== ============
Accretion on Series B preferred stock....................... $ -- $ -- $ 828,181
=========== =========== ============
Warrants issued in connection with the line of credit....... $ -- $ -- $ 60,000
=========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 137
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Long Distance International Inc. (the Company) was incorporated in the
State of Florida in May 1993. The Company is a provider of domestic and
international long distance services to residential and small and medium
business customers primarily in the United States and Europe. The Company offers
a full range of telecommunication services including calling card, dial-around,
easy access, prepaid and postpaid calling card, and toll free services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary, Dynamic Telecom International Inc. (DTI) and its
majority-owned subsidiaries, LDI, Ltd. and Long Distance International (U.K.)
Ltd. (formerly Speedial Incorporated). All significant intercompany balances and
transactions have been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives (from two to seven
years) of the related assets. Property and equipment under capital leases is
recorded at the present value of the future minimum lease payments and amortized
over the lesser of the related lease term or useful life of the related assets.
Included in property and equipment are indefeasible rights of use (IRU) on
certain international telecommunications networks. The IRUs are amortized over
an estimated five year life.
REVENUES AND COSTS OF TELECOMMUNICATION SERVICES
Revenues from telecommunications services are recognized when the services
are provided and costs of telecommunications services are recognized as
incurred. Costs of telecommunications services primarily represent transmission
and switching costs charged by carriers and access charges assessed by local
telephone operating companies which permit the Company's customers to originate
and terminate long distance calls.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. Actual results could differ from these estimates.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, defines a fair value method of accounting for issuance
of stock options and other equity investments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period.
Pursuant to SFAS No. 123, companies are encouraged, but not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, but are required to disclose in a note to the financial statements
pro forma net income amounts as if the Company had applied the new method of
accounting. Additionally, SFAS No. 123 requires increased disclosure for
stock-based compensation for stock-based arrangements.
F-7
<PAGE> 138
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for stock-based compensation under APB No. 25, under
which the Company's employee and director stock option plans qualify as
noncompensatory plans. Consequently, no compensation expense is recognized (see
Note 10).
LOSS PER SHARE
The Company computes loss per share pursuant to SFAS No. 128, Earnings Per
Share. Weighted average shares outstanding do not include any contingently
issued shares. The dilutive effect of options, warrants and Series A convertible
preferred stock have not been considered as their effect would be antidilutive
for all periods presented. See Notes 10 and 11.
LONG-LIVED ASSETS
The Company accounts for long-lived assets pursuant to SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Management reviews
long-lived assets and the related intangible assets for impairment whenever
events or changes in circumstances indicate the assets may be impaired. The
Company, based on current circumstances, does not believe that any long-lived
assets are impaired at December 31, 1997.
GOODWILL
Goodwill represents the excess of the consideration paid over the fair
value of assets acquired from acquisitions and is amortized on a straight-line
basis over five to ten years. The carrying value of goodwill will be reviewed if
the facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of the goodwill will be reduced by the
estimated shortfall of cash flows.
During October 1997, the Company acquired the assets of Speedial
International, a United Kingdom (U.K.) company. Amounts paid in excess of the
fair value of assets acquired were $452,000 which is being amortized on a
straight line basis over ten years.
CUSTOMER LISTS
Included in other assets at December 31, 1997 is a customer list in the
amount of approximately $434,000 (see Note 3). As determined by management, the
customer list is being amortized over two years, which is the expected period to
be benefited from the customers acquired. At December 31, 1997, accumulated
amortization was $55,000.
MINORITY INTEREST
In January 1996, the Company contributed $150,000 to establish an 80%
ownership interest in LDI, Ltd., a newly formed U.K. company that provides
telecommunications services to U.K. customers. In January 1998, the Company
repurchased the outstanding minority interest for approximately $380,000.
The Company generally allocates to the minority shareholder of LDI, Ltd.
its share of any profits or losses. During 1997, the minority interest
shareholder did not fund its share of the losses and, as a result, the Company
absorbed 100% of the cumulative unfunded net losses through December 31, 1997.
F-8
<PAGE> 139
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING EXPENSE
The Company expenses advertising costs as incurred. The Company incurred
advertising expenses of approximately $178,000, $4,400,000 and $9,200,000,
during the years ended December 31, 1995, 1996 and 1997, respectively.
Advertising expenses consist primarily of direct mail programs.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with an initial
maturity of less than three months to be cash equivalents. Management believes
the use of credit quality financial institutions minimizes the risk of loss
associated with cash and cash equivalents.
RESTRICTED CASH
Restricted cash on the accompanying consolidated balance sheets consist of
certificates of deposit that are collateral for the Company's performance under
a telecommunications services agreement and certain letters of credit.
CONCENTRATION OF CREDIT RISK
The Company has an agreement with a national service bureau to coordinate
billing and collection services from a majority of the Company's customers
through local exchange carriers (LECs). At December 31, 1996 and 1997,
approximately 88% and 60% of the Company's accounts receivable were due from
LEC's, respectively.
A majority of the Company's transmission and switching facilities are
provided by three telecommunications carriers. Under the terms of the supplier
agreements, the Company purchases long distance service at certain per-minute
rates, which vary based on the time, distance and type of call. Although
management believes that alternative carriers could be found in a timely manner,
disruption of these services for more than a brief period of time would have a
negative effect on the Company's operating results.
REGULATION
The Company is subject to regulation by the Federal Communications
Commission and by various state public service and public utility commissions.
FOREIGN CURRENCY TRANSLATION
For the Company's foreign operations, where the functional currency is
other than the U.S. dollar, balance sheet amounts are generally translated using
the exchange rate in effect at the balance sheet date. Statement of operations
amounts are translated at the average exchange rate for the period. At December
31, 1996 and 1997, the gains and losses resulting from the changes in exchange
rates from period to period were not material.
RECLASSIFICATION
Certain amounts in prior year's financial statements have been reclassified
to conform with the current year's presentation.
3. ACQUISITION
In October 1997, the Company acquired the net assets of Speedial
International, a U.K. Company that previously provided prepaid long distance
services to U.K. customers. The acquisition is being accounted for under the
purchase method and the purchase price was approximately $1,040,000. The fair
value of the net
F-9
<PAGE> 140
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets acquired was approximately $674,000 based upon the preliminary purchase
price allocation. Revenue generated from the customer base acquired from
Speedial International is included in the accompanying 1997 statement of
operations from the purchase date.
4. ACCOUNTS RECEIVABLE FINANCING
The Company accounts for its accounts receivable financing pursuant to SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which provides accounting and reporting
standards for sales, securitizations and servicing of receivables and other
financial assets. The adoption of SFAS No. 125, which was effective for all
transactions occurring after December 31, 1996, did not have a material effect
on the Company.
The Company's U.S. and U.K. factoring agreements qualify for sales
treatment under SFAS No. 125. Under the U.S. agreements, primarily all customer
accounts receivable are assigned to a billing and collection service, who in
turn sells its ownership in the receivables to a commercial paper conduit. Under
the U.K. agreement, primarily all customer accounts receivable are assigned to a
financial institution. The financial institutions advance 80% and 70% of the
customer accounts in the U.S. and U.K., respectively, in anticipation of
customer collections, to the Company at the prime rate plus 2% in the U.S. and
the Bank of Scotland rate plus 2.5% in the U.K. Advances received are net of
interest amounts accrued on prior advances for which customer payment has not
been processed.
At December 31, 1996 and 1997, the outstanding balance of such receivables
for which the Company was contingently liable was approximately $2,275,000 and
$3,646,000, respectively. During the years ended December 31, 1996 and 1997, the
Company received proceeds of approximately $10,757,000 and $26,513,000,
respectively, pursuant to these agreements and incurred approximately $154,000
and $425,000, respectively, in interest charges upon the sale of such accounts.
Interest paid to the purchaser of such receivables was approximately $395,000
and $109,000 for the years ended December 31, 1996 and 1997, respectively.
Included in accrued liabilities at December 31, 1997 is an accrual for service
fees and for contingently liable amounts of approximately $521,000 and $778,000,
respectively, principally related to trade receivables sold.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment, both owned and pursuant to capital
lease obligations, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
-------- ----------
<S> <C> <C>
Furniture and fixtures............................... $ 51,948 $ 167,490
Machinery and equipment.............................. 275,960 1,254,931
Network equipment.................................... -- 4,525,775
Computer equipment................................... 334,198 1,964,538
Leasehold improvements............................... 19,947 120,374
-------- ----------
682,053 8,033,108
Less accumulated depreciation........................ (139,837) (519,100)
-------- ----------
$542,216 $7,514,008
======== ==========
</TABLE>
Included in machinery and equipment is approximately $101,000 for equipment
under a five-year capital lease agreement with a major shareholder. The lease
payments were prepaid at the inception of the lease in September 1995 by the
issuance of common stock with an estimated fair value of $101,000. At the end of
the lease term, the Company may purchase the equipment for a nominal amount.
F-10
<PAGE> 141
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Installment loans at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Installment loan, collateralized by equipment, interest at
Libor + 3% per annum, payable in quarterly installments of
$1,105 through 2001....................................... $ 17,680
Installment loan, collateralized by equipment, interest at
Libor + 5.5% per annum, payable in quarterly installments
of $11,298 through 2001................................... 181,873
--------
199,553
Less current maturities..................................... (50,717)
--------
Long-term debt.............................................. $148,836
========
</TABLE>
Future annual principal payments on installment loans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
-----------------------
<S> <C>
1998.............................................. $ 50,717
1999.............................................. 49,612
2000.............................................. 49,612
2001.............................................. 49,612
--------
$199,553
========
</TABLE>
Interest paid on installment loans during the year ended December 31, 1997
was approximately $21,000.
On January 31, 1997, the Company entered into an agreement (the Agreement)
with an unrelated party under which the Company was provided access to a
$1,800,000 line of credit (the Line) with a bank. The Line matures in January
1999 and is guaranteed by the unrelated party. Pursuant to the Agreement, the
Company will pay interest monthly to the bank at 8.25% per annum and will pay a
fee monthly to the unrelated party at a rate equal to 2% per annum. Under the
Agreement, the Company issued to the unrelated party warrants to purchase
1,000,000 shares of common stock at an exercise price of $0.75 per share. The
warrants expire January 31, 2003. There were no amounts outstanding under the
Line at December 31, 1997. During the year ended December 31, 1997, the Company
paid nominal fees to the unrelated party associated with amounts borrowed under
the Line which are included in interest expense in the accompanying consolidated
statement of operations. Interest paid on amounts outstanding on the Line during
the year ended December 31, 1997 was approximately $8,000.
In March 1996, the Company obtained $1,200,000 in bridge financing in the
form of an unsecured note payable. In September 1996, the Company repaid the
outstanding principal and accrued interest with the issuance of common stock
(see Note 11).
7. LEASES
The Company leases its premises under noncancelable operating leases
expiring at various dates through 2000. Rental expense was approximately
$61,000, $166,834 and $391,215 for the years ended December 31, 1995, 1996 and
1997, respectively. In addition, the Company leases certain computer and
telecommunications equipment under noncancelable capital leases. Interest paid
on capital leases during the year ended December 31, 1997 was approximately
$50,000.
F-11
<PAGE> 142
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997, the scheduled future minimum lease payments
required under capital and operating leases that have initial or remaining
noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31: LEASES LEASES
----------------------- ---------- ----------
<S> <C> <C>
1998.............................................. $ 831,048 $ 328,439
1999.............................................. 831,048 234,720
2000.............................................. 796,447 212,640
2001.............................................. 724,896 154,872
2002.............................................. 692,634 145,920
Thereafter........................................ -- 1,490,564
---------- ----------
Total minimum lease payments........................ 3,876,073 $2,567,155
==========
Less amounts representing interest (12% to 20%)..... (925,179)
----------
Present value of obligations under capital leases... 2,950,894
Less current maturities............................. (500,113)
----------
Long-term obligations under capital leases.......... $2,450,781
==========
</TABLE>
8. COMMITMENTS
In October 1997, the Company entered into a purchase agreement for an IRU
on a sub-marine telecommunications cable. The Company will pay an aggregate of
$5 million plus 12% interest per annum payable through 2001. Included in fixed
assets as of December 31, 1997 is a $500,000 initial payment under this
agreement. In accordance with the agreement, the initial payment is refundable
only in the event that the capacity is not available at the October 1998
effective date, as defined. Upon completion of the cable, the IRU will be
capitalized and classified as a fixed asset and amortized over the estimated
useful life of the IRU.
In January 1998, the Company entered into a purchase agreement for an IRU
on a land-based telecommunication cable. The Company will pay an aggregate of
$750,000 plus 12% interest per annum payable through 2001. Upon completion of
the cable, the IRU will be capitalized and classified as a fixed asset and
amortized over the estimated useful life of the IRU.
Future annual principal and interest required under these agreements are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
-----------------------
<S> <C>
1998........................................... $1,727,864
1999........................................... 1,714,610
2000........................................... 1,818,360
2001........................................... 906,993
----------
Total payments................................... $6,167,827
==========
</TABLE>
At December 31, 1996 and 1997, the Company is contingently liable under
certain letters of credit provided to telecommunications carriers to ensure
payment of telecommunications costs incurred by the Company.
9. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes. Deferred income tax assets and liabilities are determined based
upon differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when
F-12
<PAGE> 143
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the differences are expected to reverse. Significant components of the Company's
net deferred income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1996 1997
----------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts....................... $ 317,000 $ 480,000
Accrued expenses...................................... -- 45,000
Net operating loss carryforwards...................... 1,641,000 5,800,000
----------- -------------
1,958,000 6,325,000
Valuation allowance..................................... (1,939,000) (6,245,000)
----------- -------------
Total deferred tax assets............................... 19,000 80,000
Deferred tax liabilities:
Fixed assets.......................................... (19,000) (80,000)
----------- -------------
Total deferred tax liabilities.......................... (19,000) (80,000)
----------- -------------
Total net deferred taxes................................ $ -- $ --
=========== =============
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Management has determined that a $6,245,000 valuation allowance at December 31,
1997 is necessary to reduce the deferred tax assets to the amount that will more
likely than not be realized. The change in the valuation allowance for the years
ended December 31, 1996 and 1997 was $1,232,000 and $4,306,000, respectively.
The Company has incurred net operating losses since inception. At December
31, 1997, the Company had approximately $12,000,000 and $4,000,000 in operating
loss carryforwards for U.S. and foreign income tax purposes, respectively, that
expire in various amounts from 2008 through 2012. The Company may have had a
change of ownership as defined by the Internal Revenue Code Section 382. As a
result, a substantial annual limitation may be imposed upon the future
utilization of its net operating loss carryforwards. At this point in time, the
Company has not completed a change in ownership study and the exact amount of
any such limitations are not known.
The federal statutory tax rate reconciled to the effective rate is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate (benefit)....................... (34.00)% (34.00)% (34.00)%
State tax rate, net of federal benefit................. (3.63) (3.63) (3.63)
Nondeductible items.................................... 1.20 0.92 0.65
Change in valuation allowance.......................... 36.43 36.51 37.99
Other.................................................. 0.00 0.20 (1.01)
------ ------ ------
0.00% 0.00% 0.00%
====== ====== ======
</TABLE>
10. EMPLOYEE BENEFITS
STOCK OPTIONS
During 1994, the Board of Directors approved the 1994 Employee Stock Option
Plan (the 1994 Plan) covering substantially all full time employees of the
Company. The 1994 Plan is administered by the Board of Directors who have
authority to grant up to 5,000,000 awards of any combination of incentive stock
options
F-13
<PAGE> 144
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ISO), nonqualified stock options (NSO), stock appreciation rights (SAR) or
stock depreciation rights. The term of the options (limited to ten years),
vesting schedule and exercise price are at the discretion of the Board of
Directors. At December 31, 1997, there were 1,977,500 shares awarded under the
1994 Plan.
In July 1997, the Board of Directors approved the 1997 Stock Incentive Plan
(the 1997 Plan) covering the Company's executive officers, as defined. The 1997
Plan is administered by the Board of Directors who have authority to grant up to
4,000,000 awards of any combination of ISO's, NSO's, SAR's or restricted stock.
The term of the options, vesting schedule and exercise price are at the
discretion of the Board of Directors. At December 31, 1997, there were 2,000,000
shares awarded under the 1997 Plan.
The Company has granted options to certain employees and directors which
are issuable at the discretion of the Company's Board of Directors and generally
vest ratably over a two to four year period. Remaining option terms range from
one to five years. As determined by the Company's Board of Directors, the
exercise price of all options exceeded the fair market value of the underlying
common stock at the grant date. Therefore, no compensation expense was
recognized.
Pro forma information regarding net loss is required by SFAS No. 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value of
outstanding options was estimated at the date of grant using the minimum value
method with the following assumptions: risk-free interest rate of 5.5% and 6.5%
for 1996 and 1997, respectively; no expected dividends; and weighted average
expected life of the options from three to five years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
applying the fair value method prescribed by SFAS No. 123 to the Company's
options results in pro forma net loss applicable to common shareholders of
$13,051,000 for the year ended December 31, 1997. The pro forma effect for the
years ended December 31, 1996 and 1995 was not material.
F-14
<PAGE> 145
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No options were exercised, expired or forfeited during the years ended
December 31, 1996 and 1997. A summary of the Company's stock option activity and
related information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Options outstanding at January 1............ 619,000 646,500 1,229,500
Issued.................................... 27,500 583,000 2,748,000
----------- ----------- -----------
Options outstanding December 31............. 646,500 1,229,500 3,977,500
=========== =========== ===========
Exercisable at December 31.................. 300,000 654,000 3,015,500
=========== =========== ===========
Options with exercise prices equal to or
less than $1.25 per share:
Number of options at December 31.......... 646,500 1,229,500 3,754,500
=========== =========== ===========
Weighted average contractual life
remaining (in years)................... 4 3.0 3.6
=========== =========== ===========
Range in exercise prices.................. $0.05-$0.45 $0.05-$0.60 $0.05-$1.25
=========== =========== ===========
Weighted average exercise price of
currently exercisable options.......... $0.06 $0.11 $0.94
=========== =========== ===========
Weighted average exercise price of
outstanding options.................... $0.07 $0.12 $0.93
=========== =========== ===========
Options with exercise prices greater than
$1.25 per share:
Number of options at December 31.......... -- -- 223,000
=========== =========== ===========
Weighted average contractual life
remaining (in years)................... -- -- 4.8
=========== =========== ===========
Range in exercise prices.................. $-- $-- $2.00-$2.10
=========== =========== ===========
Weighted average exercise price of
currently exercisable options.......... $-- $-- $2.10
=========== =========== ===========
Weighted average exercise price of
outstanding options.................... $-- $-- $2.07
=========== =========== ===========
</TABLE>
EMPLOYEE SAVINGS PLAN
On January 1, 1997, the Company adopted a 401(k) savings plan (the Plan)
pursuant to which all employees that have completed six months of active service
or were employed on the date of adoption are eligible. The Plan provides for
matching contributions from the Company at the discretion of the Company's Board
of Directors. No matching contributions were made for the year ended December
31, 1997.
11. CAPITAL STOCK
SERIES A PREFERRED STOCK
The Company has outstanding 2,456,556 shares of its Series A Cumulative
Convertible Preferred Stock (Series A Preferred). Cumulative dividends are
payable at a fixed annual rate of $.03 per share ($96,132 and $165,330 accrued
at December 31, 1996 and 1997, respectively). Each share of Series A Preferred
has voting rights equal to common stock and are convertible into shares of
common stock at any time at a conversion price equal to $.50 per share. In the
event of any liquidation, dissolution or winding up of the Company, the
F-15
<PAGE> 146
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
holders of the Series A Preferred shall be entitled to receive an amount equal
to $.50 per share plus all cumulative accrued and unpaid dividends. In addition,
if a change in control of the Company occurs, as defined, the holders of the
outstanding Series A Preferred can require the Company to redeem the shares for
$.50 per share plus all cumulative accrued and unpaid dividends. The terms of
the Series A Preferred restrict the Company's ability to pay dividends on common
stock and grant the holders of the Series A Preferred participation in dividends
declared on common shares in excess of certain defined levels.
SERIES B PREFERRED STOCK
On July 28, 1997, the Company executed an agreement with a group of
investors under common control (Investor Group) wherein the Investor Group
agreed to provide a maximum of $25,000,000 for up to 2,500,000 shares of Series
B Preferred Stock, par value $.001 per share (Series B Preferred) plus
detachable stock warrants (Series B Warrants) to purchase up to 10,321,215
shares of the Company's common stock at an exercise price of $.001 per warrant.
On July 28, 1997, the Investor Group purchased 2,400,000 shares of Series B
Preferred and 9,908,367 Series B Warrants for $24,000,000. In addition, the
Company sold 7,000 shares of Series B Preferred and 28,898 Series B Warrants to
certain employees and investment bankers involved in the transaction for
$70,000.
In August 1997, the Investor Group purchased 75,000 shares of Series B
Preferred and 309,636 Series B Warrants for $750,000. In addition, the Company
sold 18,000 shares of Series B Preferred and 74,314 Series B Warrants to an
investment banker involved in the transaction for $180,000.
Total proceeds to the Company were $22,832,847, net of offering costs. A
portion of the net proceeds were used to pay the $330,000 outstanding balance
under the Line (see Note 6).
Dividends on the Series B Preferred are payable at a fixed annual rate of
$1.20 per share if and when declared by the Board of Directors. The holders of
the Series B Preferred have the right to elect two members to the Board of
Directors. The Series B Preferred and its accrued and unpaid dividends are
redeemable at the option of the Company any time or at the option of the holder
at anytime after the seventh anniversary of their issuance. In the event of any
liquidation, dissolution or winding up of the Company, the holders of
outstanding Series B Preferred shall be entitled to receive an amount equal to
$10 per share plus all declared and unpaid dividends, or $15 per share plus all
declared and unpaid dividends in the event that the Company experiences an
operating shortfall in 1998, as defined. For the year ended December 31, 1997,
the accretion to redemption value was recorded assuming a redemption value of
$10 per share. The Company, based upon its results during 1998, will change the
recorded redemption value assuming a redemption value of $15 per share if it
becomes apparent that a 1998 operating shortfall will be experienced.
As determined by the Company's Board of Directors, the Series B Preferred
was recorded at $11,522,298 which represents the estimated fair value at the
date of issuance, net of issuance costs of $1,092,244, and the Series B Warrants
were recorded at $11,313,049, which represents the estimated fair value at the
date of issuance, net of issuance costs of $1,072,409. The Series B Preferred
will accrete up to the ultimate redemption value through periodic charges to
retained earnings, or in the case of an accumulated deficit, additional paid-in
capital. For the year ended December 31, 1997, the Company recorded accretion of
$828,181.
The terms of the Series A Preferred and Series B Preferred restrict, among
other things, the Company's ability to authorize or issue equity securities,
enter into new commitments or borrowings over specified amounts or make certain
expenditures over specified amounts not provided for in the Company's financial
operating budget.
F-16
<PAGE> 147
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMON STOCK
In March 1996, the Company obtained $1,200,000 in bridge financing in the
form of an unsecured note payable (the Note) from an investment banker. Interest
on the Note was payable at maturity at 8%. The Company incurred $60,000 in
financing costs related to the bridge loan which is included in interest expense
in the 1996 statement of operations. In September 1996, the Note and all accrued
and unpaid interest thereon aggregating $1,285,000 was converted into 2,140,668
shares of the Company's common stock based upon the estimated fair value of the
common stock as determined by the Company's Board of Directors.
During the year ended December 31, 1996, the Company issued 3,043,171
shares of its common stock in a private placement. Proceeds were approximately
$1,197,000, net of issuance costs of approximately $628,800.
During the year ended December 31, 1997, the Company issued 1,615,233
shares of its common stock from the exercise of warrants. Proceeds were
approximately $1,285,234, net of issuance costs of approximately $45,740.
During 1996, the Company entered into an agreement with its primary
advertising printer whereby the printer may receive shares of the Company's
common stock in payment for printing services. The agreement provided the option
to receive cash or common stock for each invoice, limited to 20% of the amount
of each invoice. Included in accrued expenses at December 31, 1996 was
approximately $399,000 payable to the printer for which the printer elected to
receive common stock in lieu of cash. During the year ended December 31, 1997,
the Company issued 305,264 shares of common stock in settlement of amounts
accrued at December 31, 1996. During the year ended December 31, 1997, invoice
amounts for printing services incurred in 1997 totaling $217,000 were settled
with the issuance of 301,686 shares of common stock. The agreement expired in
1997.
During 1996, the Company entered into an agreement with an investment
advisor whereby the advisor would receive shares of the Company's common stock
in payment for consulting services. Included in accrued expenses at December 31,
1996 was $90,000 payable to the advisor. In January 1997, the Company issued
150,000 shares of common stock in settlement of the amounts accrued at December
31, 1996.
WARRANTS
During 1995, a representative of a major shareholder was appointed to the
Company's Board of Directors and the Company issued warrants to the shareholder
to purchase up to 2,000,000 shares of common stock at exercise prices ranging
from $0.60 to $1.00. The warrants expire at various dates through March 1998. On
March 31, 1997, warrants were exercised by the holder to purchase 650,000 shares
of common stock. The Company received proceeds of $487,500.
During 1996, the Company issued common stock with detachable warrants to
purchase up to 2,591,919 shares of common stock at exercise prices ranging from
$0.75 to $1.25. The warrants expire at various dates through December 1998.
Using the minimum value options pricing model, the Company determined that the
fair value of the warrants was not material.
In connection with the issuance of the Series B Preferred, described above,
the Company issued 10,321,215 Series B Warrants.
In January 1997, and in connection with the issuance of the Line (see Note
6), the Company issued warrants to purchase up to 1,000,000 shares of common
stock at an exercise price of $0.75 per warrant. The Company determined that the
fair value of the warrants was $60,000. Accordingly, the Company recorded the
value as deferred financing costs and is amortizing the amount to interest
expense over the term of the Line.
F-17
<PAGE> 148
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, and in connection with the issuance of the Series B Preferred
and associated warrants described above, the Company issued warrants to purchase
up to 500,000 shares of common stock at an exercise price of $2.00 per warrant.
The warrants were issued to an investment advisor for assistance with this
transaction. The Company determined that the fair value of the warrants was not
material.
A summary of the Company's warrants is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Warrants outstanding at January 1....... -- 2,000,000 4,591,919
Issued................................ 2,000,000 2,591,919 11,822,583
Exercised............................. -- -- (1,615,233)
Forfeited............................. -- -- (527,719)
------------- ------------- --------------
Warrants outstanding and exercisable at
December 31........................... 2,000,000 4,591,919 14,271,550
============= ============= ==============
Range in exercise prices................ $0.60 - $1.00 $0.60 - $1.25 $0.001 - $1.25
============= ============= ==============
</TABLE>
As of December 31, 1997, common shares reserved for issuance are as
follows:
<TABLE>
<S> <C>
Series A Preferred.......................................... 2,456,556
Series B Preferred.......................................... 2,500,000
Employee stock options...................................... 3,977,500
Warrants.................................................... 14,271,550
----------
Total....................................................... 23,205,606
==========
</TABLE>
12. RELATED PARTY TRANSACTIONS
The Company provides telecommunication services to certain major
shareholders. In the opinion of management, rates charged to these shareholders
are comparable to rates charged to similar commercial customers. During the
years ended December 31, 1996 and 1997, revenue from these shareholders was
approximately $254,788 and $523,920, respectively.
During 1997, the Company issued shares of common stock to their primary
advertising printer (see Note 11).
During 1997, the Company paid $324,000 to a network consulting company. In
December 1997, the owner of the consulting company accepted an offer to become a
member of the Company's Board of Directors.
13. GEOGRAPHIC DATA
The Company is engaged in one major line of business which involves
providing long distance service to residential and small and medium business
customers. The Company's services are provided primarily in the United States
and Western Europe (beginning in 1995). Substantially all European results are
derived from services provided in the U.K.
The Company's results have been partially dependent on operations located
in Europe. These operations are subject to the risks that are inherent in
operating in such locations, including government regulations and currency
fluctuations.
Revenues by geographic area consist only of services provided to customers,
as reported in the accompanying consolidated statements of operations. Operating
loss by geographic area represents net revenues less applicable costs and
expenses related to those revenues. Unallocated expenses are primarily comprised
of general and administrative expenses of a corporate nature. Identifiable
assets by geographic area represent those assets used in the operation of each
geographic area. Corporate assets consist of an allocation of property and
equipment.
F-18
<PAGE> 149
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents selected financial information pertaining to
the Company's geographic operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1995 1996 1997
----------- ----------- ------------
(U.S. DOLLARS)
<S> <C> <C> <C>
Revenues, net:
United States............................ $ 2,544,055 $14,020,394 $ 34,459,013
Europe................................... 48,578 341,441 5,656,897
----------- ----------- ------------
Consolidated revenues, net................. $ 2,592,633 $14,361,835 $ 40,115,910
=========== =========== ============
Operating (loss) income:
United States............................ $(1,700,355) $(2,834,356) $ (6,656,064)
Europe................................... 31,801 (869,832) (3,560,410)
Unallocated expenses..................... -- (303,464) (893,161)
----------- ----------- ------------
Consolidated operating loss................ $(1,668,554) $(4,007,652) $(11,109,635)
=========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1996 1997
----------- -----------
(U.S. DOLLARS)
<S> <C> <C>
Identifiable assets:
United States........................................... $ 3,344,835 $21,264,427
Europe.................................................. 505,717 5,886,543
Corporate............................................... 43,158 656,153
----------- -----------
Consolidated identifiable assets.......................... $ 1,666,585 $ 3,893,710
=========== ===========
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, restricted cash, accounts receivable,
accounts payable and accrued expenses on the accompanying consolidated balance
sheets approximate fair value due to the short maturity of these items.
Installment loans bear interest at Libor plus 3.0% and Libor plus 5.5%. The
carrying amounts reported in the accompanying December 31, 1997 consolidated
balance sheet approximate fair value because the interest rates are tied to a
quoted variable rate.
Series A Preferred provides for cumulative dividends at a rate of 3% per
annum. Series B Preferred does not provide for cumulative dividends. It is not
practicable to estimate the fair value of the Series A and Series B Preferred at
December 31, 1996 and 1997 due to the specific voting rights and Board of
Director representations that inure to the holders of such securities.
15. SUBSEQUENT EVENT
On March 20, 1998, the Company agreed to issue to the holders of Series B
Preferred Stock (Series B Holders) warrants to purchase an additional 1,010,101
shares of Common Stock. These warrants are issuable in consideration of the
Series B Holders' consent to amend the terms of the Series B Preferred Stock to,
among other things, eliminate the provisions of the Series B Preferred Stock
that provided for potential redemption at $15 per share. The warrants provide
for the purchase of one share of the Company's common stock at an exercise price
of $0.001. The warrants have no expiration date. The warrants were accounted for
as a dividend to the Series B Holders based upon the estimated fair value of
$4.00 per warrant as determined by the Company's Board of Directors.
F-19
<PAGE> 150
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUBSEQUENT EVENT (UNAUDITED)
On April 1, 1998, as amended, the Company entered into a non-binding letter
of intent to purchase a U.K. company that provides cellular communications
services to U.K. customers. The proposed purchase is approximately $2.3 million
of which 50% will be paid in cash and 50% will be paid through the issuance of
the Company's common stock.
F-20
<PAGE> 151
LONG DISTANCE INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA
DECEMBER 31, 1998 MARCH 31,
1997 (SEE NOTE 9) 1998
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................ $12,172,779 $ 3,997,564 $144,619,561
Restricted cash...................................... 104,970 897,304 27,323,355
Accounts receivable, net of allowance for doubtful
accounts of $956,000 at December 31, 1997 and
$1,556,180 at March 31, 1998...................... 5,981,978 8,950,121 8,950,121
Other current assets................................. 458,363 1,173,206 1,173,206
----------- ----------- ------------
Total current assets................................... 18,718,090 15,018,195 182,066,243
Restricted cash........................................ -- -- 49,076,952
Property and equipment, net............................ 7,514,008 9,254,435 9,254,435
Goodwill, net of accumulated amortization of $26,428 at
December 31, 1997 and $34,014 at March 31, 1998...... 450,087 442,500 442,500
Other assets, net...................................... 1,124,938 1,606,562 9,947,562
----------- ----------- ------------
Total assets........................................... $27,807,123 $26,321,692 $250,787,692
=========== =========== ============
LIABILITIES AND COMMON SHAREHOLDERS' CAPITAL
DEFICIENCY:
Current liabilities:
Accounts payable..................................... $ 4,277,443 $ 8,221,861 $ 8,221,861
Accrued telecommunication costs...................... 3,341,975 2,583,138 2,583,138
Other accrued liabilities............................ 3,561,363 4,945,984 4,945,984
Current portion of capital lease obligations......... 500,113 798,909 798,909
Current portion of installment loans................. 50,717 49,612 49,612
----------- ----------- ------------
Total current liabilities.............................. 11,731,611 16,599,504 16,599,504
Installment loans...................................... 148,836 136,432 136,432
Capital lease obligations.............................. 2,450,781 2,854,252 2,854,252
Notes offered hereby................................... -- -- 211,456,000
Commitments
Redeemable convertible, preferred stock, Series A,
cumulative $.001 par value -- 2,600,000 shares
authorized and 2,456,556 shares issued and
outstanding -- liquidation value of $1,393,608 and
$1,412,032 at December 31, 1997 and March 31, 1998,
respectively......................................... 1,364,607 1,383,032 1,383,032
Redeemable preferred stock, Series B, $.001 par
value -- 5,000,000 shares authorized, 2,500,000
shares issued and outstanding -- liquidation value of
$25,000,000.......................................... 12,350,478 12,834,342 12,834,342
Redeemable warrants, 3,394,655 authorized, issued and
outstanding.......................................... -- -- 13,010,000
Common shareholders' capital deficiency:
Common stock, $.001 par value -- 100,000,000 shares
authorized, 24,754,354 and 25,543,541 shares
issued and outstanding at December 31, 1997 and
March 31, 1998, respectively...................... 24,754 25,544 25,544
Additional paid-in capital........................... 16,995,486 17,247,862 17,247,862
Accumulated deficit.................................. (17,259,430) (24,779,417) (24,779,417)
Accumulated other comprehensive income............... -- 20,141 20,141
----------- ----------- ------------
Capital deficiency..................................... (239,190) (7,485,870) (7,485,870)
----------- ----------- ------------
Total liabilities and common shareholders' capital
deficiency........................................... $27,807,123 $26,321,692 $250,787,692
=========== =========== ============
</TABLE>
See accompanying notes.
F-21
<PAGE> 152
LONG DISTANCE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1997 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Revenues, net............................................... $ 8,769,977 $14,459,864
Costs of telecommunications services........................ 4,625,384 9,620,883
----------- -----------
Gross margin................................................ 4,144,593 4,838,981
Selling, general and administrative expenses................ 5,353,591 11,829,291
Depreciation and amortization............................... 51,725 364,249
----------- -----------
Operating loss.............................................. (1,260,723) (7,354,559)
Other expense (income):
Minority Interest......................................... 132,084 --
Interest income........................................... (1,794) (107,944)
Interest expense.......................................... 101,037 273,372
----------- -----------
99,243 165,428
----------- -----------
Net loss.................................................... (1,492,050) 7,519,987
Preferred dividends and redemption accretion................ (18,424) (4,542,692)
----------- -----------
Net loss applicable to common shareholders.................. $(1,510,474) $12,062,679
=========== ===========
Net loss per share applicable to common shareholders --
basic and dilutive........................................ $ (0.06) $ (0.49)
=========== ===========
Weighted average shares outstanding......................... 23,680,788 24,839,443
=========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE> 153
LONG DISTANCE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(1,492,050) $(7,519,987)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 51,725 364,249
Minority partner's equity in losses of subsidiary......... 132,384 --
Foreign currency translation adjustment................... -- 20,141
Provision for bad debts................................... 284,759 1,107,259
Changes in operating assets and liabilities:
Accounts receivable.................................... (301,667) (4,075,402)
Other current assets................................... (798,880) (327,129)
Other assets........................................... 46,401 (534,861)
Accounts payable....................................... 2,759,176 3,944,418
Accrued telecommunication costs........................ (561,402) (758,837)
Other accrued liabilities.............................. 68,025 1,384,620
----------- -----------
Net cash provided by (used in) operating activities......... 188,471 (6,395,529)
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash...................... 222 (792,334)
Purchases of property and equipment......................... (266,532) (903,941)
Purchase of minority interest in subsidiary................. -- (387,714)
----------- -----------
Net cash used in investing activities....................... (266,310) (2,083,989)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock and exercise of
warrants, net of offering costs........................... 1,257,312 755,455
Principal payments on capital lease obligations............. -- (438,749)
Principal payments on installment loans..................... -- (12,403)
----------- -----------
Net cash provided by financing activities................... 1,257,312 304,303
----------- -----------
Increase (decrease) in cash and cash equivalents............ 1,179,473 (8,175,215)
Cash and cash equivalents at beginning of period............ 254,728 12,172,779
----------- -----------
Cash and cash equivalents at end of period.................. $ 1,434,201 $ 3,997,564
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Property and equipment acquired under capital leases........ $ 100,922 $ 1,141,016
=========== ===========
Property and equipment purchased under installment loans.... $ 330,000 $ --
=========== ===========
Accrued dividends on Series A preferred stock............... $ 18,426 $ 18,425
=========== ===========
Accretion on Series B preferred stock....................... $ -- $ 483,864
=========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE> 154
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements for the
three-month periods ended March 31, 1997 and 1998 and as of March 31, 1998 have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, any adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the unaudited information shown have been included. The results
of operations for such interim periods are not necessarily indicative of the
results expected for the full year ending December 31, 1998.
2. DEBT OFFERING
On April 13, 1998, the Company completed the issuance of $225 million in
subordinated debentures with detachable warrants. See Note 9.
3. ACCOUNTS RECEIVABLE FINANCING
The Company accounts for its accounts receivable financing pursuant to SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which provides accounting and reporting
standards for sales, securitizations and servicing of receivables and other
financial assets. The adoption of SFAS No. 125, which was effective for all
transactions occurring after December 31, 1996, did not have a material effect
on the Company.
The Company's U.S. agreement qualify for sales treatment under SFAS No.
125. Under the U.S. agreements, primarily all customer accounts receivable are
assigned to a billing and collection service, who in turn sells its ownership in
the receivables to a commercial paper conduit. The financial institutions
advance 80% of the customer accounts in the U.S. in anticipation of customer
collections, to the Company at the prime rate plus 2% in the U.S.
At December 31, 1997 and the three months ended March 31, 1998, the
outstanding balance of such receivables for which the Company is contingently
liable was approximately $3,646,000 and $4,082,387, respectively. During the
three months ended March 31, 1997 and 1998, the Company received proceeds of
approximately $7,297,051 and $6,776,694, respectively, pursuant to these
agreements and incurred approximately $95,956 and $110,674, respectively, in
interest charges upon the sale of such accounts. Interest paid to the purchaser
of such receivables was approximately $82,832 and $102,170 for the three months
ended March 31, 1997 and 1998, respectively. Included in accrued liabilities at
March 31, 1998 is an accrual for service fees and for contingently liable
amounts of approximately $1,026,818 and $631,302, respectively, principally
related to trade receivables sold.
F-24
<PAGE> 155
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment, both owned and pursuant to capital
lease obligations, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Furniture and fixtures............................. $ 167,490 $ 214,899
Machinery and equipment............................ 1,254,931 1,404,567
Network equipment.................................. 4,525,775 5,725,944
Computer equipment................................. 1,964,538 2,458,482
Leasehold improvements............................. 120,374 259,625
---------- ----------
8,033,108 10,063,517
Less accumulated depreciation...................... (519,100) (809,082)
---------- ----------
$7,514,008 $9,254,435
========== ==========
</TABLE>
5. LEASES
The Company leases its premises under noncancelable operating leases
expiring at various dates through 2000. Rental expense was approximately $82,855
and $50,356 for the three months ended March 31, 1997 and 1998, respectively. In
addition, the Company leases certain computer and telecommunications equipment
under noncancelable capital leases. Interest paid on capital leases during the
three months ended March 31, 1998 was approximately $40,000.
As of March 31, 1998, the scheduled future minimum lease payments required
under capital and operating leases that have initial or remaining noncancelable
lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
First Quarter Ended March 31:
Remaining 1998............................................ $ 858,275 $ 323,931
1999...................................................... 1,144,417 442,481
2000...................................................... 1,108,426 442,481
2001...................................................... 994,330 394,133
2002...................................................... 620,382 249,088
Thereafter................................................ -- 2,650,011
---------- ----------
Total minimum lease payments................................ 4,726,830 $4,502,125
==========
Less amounts representing interest (12% to 20%)............. (1,073,669)
----------
Present value of obligations under capital leases........... 3,653,161
Less current maturities..................................... (798,909)
----------
Long-term obligations under capital leases.................. $2,854,252
==========
</TABLE>
6. INCOME TAXES
For the three months ended March 31, 1997 and 1998, the benefit for income
taxes was computed using an estimated annual effective tax rate of 37% for both
periods. The Company recorded a 100% valuation allowance against net deferred
tax assets.
F-25
<PAGE> 156
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
7. CAPITAL
On March 20, 1998, the Company agreed to issue to the holders of Series B
Preferred Stock (Series B Holders) warrants to purchase an additional 1,010,101
shares of Common Stock. These warrants are issuable in consideration of the
Series B Holders' consent to amend the terms of the Series B Preferred Stock to,
among other things, eliminate adjustment to the redemption price of the Series B
Preferred Stock from $10 to $15 per share, or from $25 million to $37.5 million
in the aggregate, plus any accrued, but unpaid dividends, in the event the
Company does not attain at least $100 million in gross revenues or has a loss
before interest, taxes, depreciation and amortization in excess of $10 million
for the fiscal year ended December 31, 1998. The warrants provide for the
purchase of one share of the Company's common stock at an exercise price of
$0.001. The warrants have no expiration date. The warrants were accounted for as
a dividend to the Series B Holders based upon the estimated fair value of $4.00
per warrant as determined by the Company's Board of Directors, and accordingly,
$4,040,404 related to such dividend is included in preferred dividends and
redemption accretion in the accompanying condensed consolidated statement of
operations for March 31, 1998.
8. NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted SFAS Statement No. 130, "Comprehensive Income:
Financial Statement Presentation" which requires that all items that are
required to be recognized under the accounting standards as components of
comprehensive income be reported in a financial statement that is displayed as
prominently as other financial statements. The adoption of Statement No. 130 has
not had a material effect on the Company's financial statements.
During 1998, the Company is required to adopt SFAS Statement No. 131,
"Disclosure About Segments of an Enterprise and Related Information" which
requires a company to disclose segment profit or loss and segment assets. The
adoption of Statement No. 131 is not expected to have a material effect on the
Company's financial statements and disclosures.
9. SUBSEQUENT EVENTS
On April 13, 1998, the Company consummated an offering of 225,000 units,
each unit consisting of one 12.25% Senior Note (the "Notes") due 2008 and one
warrant (the "Warrants") to purchase common stock for $225 million.
Approximately $75.5 million of the proceeds was placed in an escrow account and
pledged as security for the first six scheduled interest payments on the Notes.
The net proceeds to the Company were approximately $216.1 million. Of the
proceeds, approximately $203.1 million has been allocated to the Notes and $13.0
million has been allocated to the issuance of Warrants as determined by the
Company's Board of Directors. The warrants are redeemable at fair value at the
option of the holder upon the occurence of certain transactions, as defined. The
accompanying pro forma condensed consolidated balance sheet as of March 31, 1998
includes this offering as if it occurred on March 31, 1998.
On April 21, 1998, the Company acquired Newgate Communications Limited, a
UK company providing cellular communication services to UK customers through a
tender offer which expired May 15, 1998. Total consideration paid was
approximately $923,000 cash and 213,600 shares of the Company's common shares.
F-26
<PAGE> 157
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act, as amended, authorizes Florida
corporations to indemnify any person who is or was a party to any proceeding
(other than an action by or on behalf of the corporation), by reason of the fact
that he or she 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 other entity,
against liability incurred in connection with such proceeding, including any
appeal thereof, if he or she acted in good faith and in a manner he or she
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 or her conduct was unlawful. In the case of an
action by or on behalf of a corporation, indemnification may not be made if the
person seeking indemnification is held liable, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification. The indemnification authorized under Florida law is not
exclusive and is in addition to any other rights granted to officers and
directors under the articles of incorporation or bylaws of the corporation or
any agreement between officers and directors and the corporation. The Company's
Articles of Incorporation provide for indemnification to the maximum extent
permitted by Florida law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
1.1 Purchase Agreement, dated April 7, 1998, between Long
Distance International Inc. and Morgan Stanley & Co.
Incorporated and SBC Warburg Dillon Read Inc. (the
"Placement Agents").
3.1 Amended and Restated Articles of Incorporation of Long
Distance International Inc., as amended.
3.2 Bylaws of Long Distance International Inc.
4.1 Indenture dated as of April 13, 1998 between Long Distance
International Inc. and The Bank of New York, as Trustee,
relating to the 12 1/4% Senior Notes Due 2008 of Long
Distance International Inc.
4.2 Notes Registration Rights Agreement, dated April 7, 1998,
between Long Distance International Inc. and the Placement
Agents.
4.3 Form of Senior Note (contained in Indenture filed as Exhibit
4.1).
4.4 Form of Exchange Note (contained in Indenture filed as
Exhibit 4.1).
4.5 Collateral Pledge and Security Agreement, dated as of April
13, 1998, between Long Distance International Inc. and The
Bank of New York, as Trustee.
4.6 Notification and Control Agreement, dated as of April 13,
1998, between Long Distance International Inc. and The Bank
of New York, as Trustee and Bank.
5.1 Opinion of Loeb & Loeb LLP.*
8.1 Tax Opinion of Loeb & Loeb LLP.*
10.1 Warrant Agreement, dated as of April 13, 1998, between Long
Distance International Inc. and The Bank of New York
(including form of Warrant Certificate).
10.2 Warrant Registration Rights Agreement, dated as of April 13,
1998, between Long Distance International Inc. and The Bank
of New York.
10.3 Stock Purchase Agreement with certain Advent Entities, dated
July 28, 1997.
10.4 Shareholders Agreement with certain shareholders and certain
Advent Entities, dated July 28, 1997.
10.5 Registration Rights Agreement with certain Advent Entities,
dated July 28, 1997.
10.6 Preemptive Rights Agreement with certain shareholders and
certain Advent Entities, dated July 28, 1997.
10.7 Employment agreement between LDI and Clifford Friedland
dated July 1, 1995.
</TABLE>
II-1
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
10.8 Employment agreement between LDI and David Glassman dated
July 1, 1995.
10.9 Employment agreement between LDI and Richard Blume dated
April 1, 1998.
10.10 Employment agreement between LDI and Elizabeth Tuttle dated
February 1, 1998.
10.11 Employment agreement between LDI and John Castellano dated
July 1, 1997.
10.12 September 1994 Shareholders' Agreement.
10.13 July 22, 1994 Shareholders' Agreement.
12.1 Statement regarding Computation of Ratio of Earnings to
Fixed Charges.
21.1 Subsidiaries of Long Distance International Inc.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Loeb & Loeb LLP (included in Exhibit 5.1).*
24.1 Power of attorney (included on signature page).
25.1 Statement on Form T-1 of Eligibility of Trustee.
27.1 Financial Data Schedule for the years ended December 31,
1997.
27.2 Financial Data Schedule for the three month period ended
March 31, 1998.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Brokers, et al.
99.4 Form of Letter to Clients.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are inapplicable
or the information required to be set forth therein is provided in the Combined
Financial Statements of the Company or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") 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 Securities 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-2
<PAGE> 159
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECURITIES ACT, THE COMPANY HAS DULY CAUSED
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF FORT LAUDERDALE, FLORIDA, ON THIS 16th
DAY OF JUNE, 1998.
LONG DISTANCE INTERNATIONAL INC.
By /s/ CLIFFORD FRIEDLAND
------------------------------------
Clifford Friedland
Chairman and Co-Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Clifford Friedland, David Glassman and
Elizabeth Tuttle, jointly and severally, each in his or her own capacity, his or
her true and lawful attorneys-in-fact, with full power of substitution, for him
or her and his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents with full power and
authority to do so and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Securities Act, this Registration Statement
has been signed below by the following persons, in the capacities indicated
below, on this day of June, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ CLIFFORD FRIEDLAND Chairman of the Board and Co-Chief Executive Officer
- ----------------------------------------------------- (Principal executive officer)
Clifford Friedland
/s/ DAVID GLASSMAN President, Co-Chief Executive Officer and Director
- -----------------------------------------------------
David Glassman
/s/ ELIZABETH TUTTLE Chief Financial Officer (Principal financial officer
- ----------------------------------------------------- and principal accounting officer)
Elizabeth Tuttle
/s/ BARRY BROOKS Non-Voting Director
- -----------------------------------------------------
Barry Brooks
/s/ LAWRENCE MESTEL Director
- -----------------------------------------------------
Lawrence Mestel
/s/ OLAF N. KROHG Director
- -----------------------------------------------------
Olaf N. Krohg
/s/ RICHARD NESPOLA Director
- -----------------------------------------------------
Richard Nespola
</TABLE>
II-3
<PAGE> 160
LONG DISTANCE INTERNATIONAL INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING OF COSTS AND TO OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Deducted from asset
accounts Allowance for
doubtful accounts.......... $ 371,000 $2,580,000 $ 1,995,000 $ 956,000
---------- ---------- ----------- ----------
Valuation allowance.......... $1,939,000 $4,306,000 -- $6,245,000
---------- ---------- ----------- ----------
$2,310,000 $6,886,000 $ 1,995,000 $7,201,000
Year ended December 31, 1996
Deducted from asset
accounts Allowance for
doubtful accounts.......... $ 130,000 $ 652,000 $ 409,000 $ 371,000
Valuation allowance.......... $ 707,000 $1,232,000 -- $1,939,000
---------- ---------- ----------- ----------
$ 837,000 $1,884,000 $ 409,000 $2,310,000
Year ended December 31, 1995
Deducted from asset
accounts Allowance for
doubtful accounts.......... $ 70,000 $ 60,000 $ 130,000
Valuation allowance.......... $ 707,000 -- $ 707,000
---------- ---------- ----------
$ 777,000 $ 60,000 $ 837,000
</TABLE>
S-1
<PAGE> 161
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION DATE
- ------- ------------------- ----
<C> <S> <C>
1.1 Purchase Agreement, dated April 7, 1998, between Long
Distance International Inc. and Morgan Stanley & Co.
Incorporated and SBC Warburg Dillon Read Inc. (the
"Placement Agents"). .......................................
3.1 Amended and Restated Articles of Incorporation of Long
Distance International Inc., as amended. ...................
3.2 Bylaws of Long Distance International Inc. .................
4.1 Indenture dated as of April 13, 1998 between Long Distance
International Inc. and The Bank of New York, as Trustee,
relating to the 12 1/4% Senior Notes Due 2008 of Long
Distance International Inc. ................................
4.2 Notes Registration Rights Agreement, dated April 7, 1998,
between Long Distance International Inc. and the Placement
Agents. ....................................................
4.3 Form of Senior Note (contained in Indenture filed as Exhibit
4.1). ......................................................
4.4 Form of Exchange Note (contained in Indenture filed as
Exhibit 4.1). ..............................................
4.5 Collateral Pledge and Security Agreement, dated as of April
13, 1998, between Long Distance International Inc. and The
Bank of New York, as Trustee. ..............................
4.6 Notification and Control Agreement, dated as of April 13,
1998, between Long Distance International Inc. and The Bank
of New York, as Trustee and Bank. ..........................
5.1 Opinion of Loeb & Loeb LLP.*................................
8.1 Tax Opinion of Loeb & Loeb LLP.*............................
10.1 Warrant Agreement, dated as of April 13, 1998, between Long
Distance International Inc. and The Bank of New York
(including form of Warrant Certificate). ...................
10.2 Warrant Registration Rights Agreement, dated as of April 13,
1998, between Long Distance International Inc. and The Bank
of New York. ...............................................
10.3 Stock Purchase Agreement with certain Advent Entities, dated
July 28, 1997. .............................................
10.4 Shareholders Agreement with certain shareholders and certain
Advent Entities, dated July 28, 1997. ......................
10.5 Registration Rights Agreement with certain Advent Entities,
dated July 28, 1997. .......................................
10.6 Preemptive Rights Agreement with certain shareholders and
certain Advent Entities, dated July 28, 1997. ..............
10.7 Employment agreement between LDI and Clifford Friedland
dated July 1, 1995. ........................................
10.8 Employment agreement between LDI and David Glassman dated
July 1, 1995. ..............................................
10.9 Employment agreement between LDI and Richard Blume dated
April 1, 1998. .............................................
10.10 Employment agreement between LDI and Elizabeth Tuttle dated
February 1, 1998. ..........................................
10.11 Employment agreement between LDI and John Castellano dated
July 1, 1997. ..............................................
10.12 September 1994 Shareholders' Agreement. ....................
10.13 July 22, 1994 Shareholders' Agreement. .....................
12.1 Statement regarding Computation of Ratio of Earnings to
Fixed Charges. .............................................
21.1 Subsidiaries of Long Distance International Inc. ...........
23.1 Consent of Ernst & Young LLP. ..............................
23.2 Consent of Loeb & Loeb LLP (included in Exhibit 5.1).*......
24.1 Power of attorney (included on signature page). ............
25.1 Statement on Form T-1 of Eligibility of Trustee. ...........
27.1 Financial Data Schedule for the years ended December 31,
1997. ......................................................
27.2 Financial Data Schedule for the three month period ended
March 31, 1998. ............................................
99.1 Form of Letter of Transmittal. .............................
99.2 Form of Notice of Guaranteed Delivery. .....................
99.3 Form of Letter to Brokers, et al. ..........................
99.4 Form of Letter to Clients. .................................
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 1.1
LONG DISTANCE INTERNATIONAL INC.
PURCHASE AGREEMENT
April 7, 1998
Morgan Stanley & Co. Incorporated
SBC Warburg Dillon Read Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Long Distance International Inc., a Florida corporation (the
"Company"), proposes to issue and sell to Morgan Stanley & Co. Incorporated and
SBC Warburg Dillon Read Inc. (together, the "Initial Purchasers") 225,000 Units
(the "Units"). Each Unit consists of (i) $1,000 principal amount of 12 1/4%
Senior Notes due 2008 (collectively, the "Notes") of the Company to be issued
pursuant to the provisions of an Indenture (the "Indenture") dated as of the
Closing Date (as defined in Section 4 below) between the Company and The Bank of
New York (in such capacity, the "Trustee") and (ii) one Warrant (collectively,
the "Warrants"), entitling the holder thereof to purchase 15.0874 shares
(collectively, the "Warrant Shares") of Common Stock, par value $0.001 per
share, of the Company ("Common Stock") at an exercise price of $.01 per share,
subject to adjustment as provided in the Warrant Agreement (as defined below).
The Warrants will be issued pursuant to the provisions of a warrant agreement
(the "Warrant Agreement") dated as of the Closing Date between the Company and
The Bank of New York (in such capacity, the "Warrant Agent"). The Company will
pledge pursuant to a Collateral Pledge and Security Agreement (the "Pledge
Agreement") to be dated as of the Closing Date in favor of the Trustee a portion
of the net proceeds of the issuance and sale of the Units as security for
payment of the first six scheduled interest payments due on the Notes.
The Units will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act, in offshore transactions in reliance on
Regulation S under the Securities Act ("Regulation S") and to institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
<PAGE> 2
2
Securities Act) that deliver a letter in the form annexed to the Final
Memorandum (as defined below).
The Initial Purchasers and their direct and indirect transferees
will be entitled to the benefits of (i) a registration rights agreement relating
to the Notes (the "Notes Registration Rights Agreement"), dated the date hereof
between the Company and the Initial Purchasers and (ii) a registration rights
agreement relating to the Warrants (the "Warrants Registration Rights
Agreement"), dated the date hereof between the Company and the Warrant Agent.
In connection with the sale of the Units, the Company has prepared a
preliminary offering memorandum (the "Preliminary Memorandum") and will prepare
a final offering memorandum (the "Final Memorandum" and, with the Preliminary
Memorandum, each a "Memorandum") including a description of the terms of the
Units, the Notes, the Warrants and the Common Stock, the terms of the offering
and a description of the Company.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, you that:
(a) The Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Initial Purchasers to confirm sales and on
the Closing Date, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph do not apply
to statements or omissions in either Memorandum based upon information relating
to any Initial Purchaser furnished to the Company in writing by such Initial
Purchaser through you expressly for use therein.
(b) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Florida, has the
corporate power and authority to own its property and to conduct its business as
described in each Memorandum and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(c) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in each Memorandum and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or
<PAGE> 3
3
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the Company have been duly
and validly authorized and issued, are fully paid and non-assessable and are
owned directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(d) The shares of Common Stock outstanding on the date hereof have
been duly authorized and are validly issued, fully paid and non-assessable and
the authorized capital stock of the Company conforms in all material respects as
to legal matters to the description thereof contained in the Final Memorandum.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchasers in accordance with the terms of this
Agreement, will be valid and binding obligations of the Company enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and general principles of
equity, and will be entitled to the benefits of the Indenture, the Pledge
Agreement and the Notes Registration Rights Agreement.
(g) The Warrants have been duly authorized and, when executed,
countersigned by the Warrant Agent in accordance with the terms of the Warrant
Agreement and delivered to and paid for by the Initial Purchasers in accordance
with the terms of this Agreement, will be valid and binding obligations of the
Company enforceable in accordance with their terms subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
general principles of equity and will be entitled to the benefits of the Warrant
Agreement and the Warrants Registration Rights Agreement.
(h) The Warrant Shares have been duly authorized and reserved for
issuance upon the exercise of the Warrants and, when issued and delivered upon
exercise of the Warrants in accordance with the terms of the Warrant Agreement,
will be validly issued, fully paid and non-assessable and will not be subject to
any preemptive or similar rights or taxes, liens, charges and security
interests.
(i) Each of the Indenture, the Pledge Agreement and the Warrant
Agreement has been duly authorized and, when executed and delivered by the
Company, will be a valid and binding agreement of the Company, enforceable in
accordance with its terms,
<PAGE> 4
4
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity.
(j) Each of the Notes Registration Rights Agreement and the Warrants
Registration Rights Agreement has been duly authorized, executed and delivered
by the Company, and is a valid and binding agreement of the Company, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and general principles of
equity.
(k) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing the Pledged Securities (as defined in the
Final Memorandum) and the filing of financing statements, if any, required by
the Uniform Commercial Code in the appropriate offices in the State of Florida,
the pledge of and grant of a security interest in the Pledged Securities for the
benefit of the Trustee and the holders of the Notes will constitute a first
priority security interest in the Pledged Securities, enforceable as against all
creditors of the Company (and any persons purporting to purchase any of the
Pledged Securities from the Company).
(l) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, the
Indenture, the Pledge Agreement, the Notes Registration Rights Agreement, the
Notes, the Warrant Agreement, the Warrants Registration Rights Agreement and the
Warrants and the issuance by the Company of the Warrant Shares upon exercise of
the Warrants will not contravene any provision of applicable law or the articles
of incorporation or by-laws of the Company or any agreement or other instrument
binding upon the Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the Company
or any subsidiary, and no permit, license, consent, approval, authorization or
order of, or filing, declaration or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations under
this Agreement, the Indenture, the Notes Registration Rights Agreement, the
Pledge Agreement, the Notes, the Warrant Agreement, the Warrants Registration
Rights Agreement and the Warrants, (i) except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Units, the Notes or the Warrants and by Federal and state
securities laws with respect to the Company's obligations under the Notes
Registration Rights Agreement and the Warrants Registration Rights Agreement or
(ii) any such license, consent, approval, authorization, order, filing,
declaration or qualification, the failure of which to make or obtain would not
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(m) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in
<PAGE> 5
5
the earnings, business or operations of the Company and its subsidiaries, taken
as a whole, from that set forth in the Final Memorandum.
(n) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject other than proceedings accurately described in
all material respects in each Memorandum and proceedings that would not have a
material adverse effect on the Company and its subsidiaries, taken as a whole,
or on the power or ability of the Company to perform its obligations under this
Agreement, the Indenture, the Notes Registration Rights Agreement, the Pledge
Agreement, the Notes, the Warrant Agreement, the Warrants Registration Rights
Agreement and the Warrants or to consummate the transactions contemplated by the
Final Memorandum.
(o) Neither the Company nor any affiliate (as defined in Rule 501(b)
of Regulation D under the Securities Act, an "Affiliate") of the Company has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Units, the
Notes or the Warrants in a manner that would require the registration under the
Securities Act of the Units, the Notes or the Warrants or (ii) engaged in any
form of general solicitation or general advertising in connection with the
offering of the Units, the Notes or the Warrants (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
(p) The Company is not, and after giving effect to the offering and
sale of the Units and the application of the proceeds thereof as described in
the Final Memorandum, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(q) It is not necessary in connection with the offer, sale and
delivery of the Units to the Initial Purchasers in the manner contemplated by
this Agreement to register the Units, the Notes or the Warrants under the
Securities Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended.
(r) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants, including
all such laws and regulations concerning electromagnetic radio frequency
emissions ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws,
<PAGE> 6
6
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(s) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(t) None of the Company, its Affiliates or any person acting on its
or their behalf has engaged or will engage in any directed selling efforts
(within the meaning of Regulation S) with respect to the Units, the Notes or the
Warrants and the Company and its Affiliates and any person acting on its or
their behalf have complied with and will comply with the offering restrictions
requirement of Regulation S.
(u) The Company and each of its subsidiaries (i) have all necessary
licenses, consents, authorizations, approvals, orders, certificates and permits
of and from, and have made all declarations and filings with, all federal,
state, local, foreign, supranational, regional and other governmental
authorities, all self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in each Memorandum, and (ii)
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to revocation or modification of any such license, consent,
authorization, approval, order, certificate or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the Company and its subsidiaries, taken as a
whole, except as described in each Memorandum.
(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(w) Subsequent to the respective dates as of which information is
given in the Final Memorandum, (1) the Company and its subsidiaries have not
incurred any material
<PAGE> 7
7
liability or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company has not
purchased any of its outstanding capital stock, nor declared, paid or otherwise
made any dividend or distribution of any kind on its capital stock; and (3)
there has not been any material change in the capital stock, short-term debt or
long-term debt of the Company and its subsidiaries, taken as a whole, except as
contemplated by the Final Memorandum.
(x) The financial statements included in each Memorandum present
fairly the consolidated financial position of the Company as of the dates
indicated and the results of operations and cash flows of the Company for the
periods specified. Such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The selected financial data included in each
Memorandum present fairly the information shown therein and have been compiled
from data contained in the audited financial statements of the Company, except
as indicated in each Memorandum.
(y) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and
defects, except such as are described in each Memorandum and such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries, in each case except as
described in each Memorandum.
(z) The Company and its subsidiaries own or have the right to use
all material patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business now
operated by them, and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
(aa) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in each Memorandum, or, to
the knowledge of the Company, is imminent; and the Company is not aware of any
existing, threatened or imminent
<PAGE> 8
8
labor disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(ab) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged; neither
the Company nor any of its subsidiaries has been refused any insurance coverage
sought or applied for; and neither the Company nor any of its subsidiaries has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a material and adverse effect on the Company and its
subsidiaries, taken as a whole, except as described in each Memorandum.
(ac) The Company and its subsidiaries have filed all foreign and
U.S. federal and state income and franchise tax returns required to be filed and
have paid all taxes shown thereon as due, and there is no material tax
deficiency which has been asserted against the Company or any of its
subsidiaries; all material tax liabilities of the Company and its subsidiaries
are adequately provided for on the consolidated financial statements of the
Company or its subsidiaries, as the case may be.
(ad) The Units, the Notes, the Warrants, the Common Stock, the
Indenture and the Warrant Agreement conform in all material respects to the
descriptions thereof contained in the Final Memorandum under the headings
"Description of the Units," "Description of the Notes," "Description of the
Warrants," and "Description of the Capital Stock," as applicable.
(ae) The Units, the Notes and the Warrants satisfy the requirements
set forth in Rule 144A(d)(3) under the Securities Act.
(af) Schedule II sets forth all agreements or other instruments
binding upon the Company or any of its subsidiaries that are material to the
Company and its subsidiaries, taken as a whole.
2. Agreement to Sell and Purchase. The Company hereby agrees to sell
to the several Initial Purchasers, and each Initial Purchaser, upon the basis of
the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Company the respective number of Units set forth in Schedule I hereto
opposite its name at a purchase price of $965 per Unit, for an aggregate
purchase price of $217,125,000 (the "Purchase Price").
<PAGE> 9
9
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Initial Purchasers, it will
not, during the period beginning on the date hereof and continuing to and
including the Closing Date, offer, sell, contract to sell or otherwise dispose
of (a) any debt of the Company or warrants to purchase debt of the Company
substantially similar to the Notes (other than the sale of the Units, the Notes
and the Warrants under this Agreement and the issuance of commercial paper in
the ordinary course of business) or (b) Common Stock of the Company, other than
upon the exercise of outstanding options and warrants, or warrants to purchase
Common Stock of the Company.
3. Terms of Offering. You have advised the Company that the Initial
Purchasers will make an offering of the Units purchased by the Initial
Purchasers hereunder on the terms to be set forth in the Final Memorandum, as
soon as practicable after this Agreement is entered into as in your judgment is
advisable.
4. Payment and Delivery. Payment for the Units shall be made to the
Company (which will immediately deposit a portion of the proceeds sufficient to
purchase the Pledged Securities with the Trustee pursuant to the Pledge
Agreement) in Federal or other funds immediately available in New York City
against delivery of such Units for the respective accounts of the several
Initial Purchasers at the office of Shearman & Sterling, 599 Lexington Avenue,
New York, New York, at 10:00 a.m., New York City time, on April 13, 1998 or at
such other time on the same or such other date, not later than April 27, 1998,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date."
Certificates for the Notes and the Warrants shall be in definitive
form or global form, as specified by you, and registered in such names and in
such denominations as you shall request in writing not later than one full
business day prior to the Closing Date. The certificates evidencing the Notes
and the Warrants shall be delivered to you on the Closing Date for the
respective accounts of the Initial Purchasers, with any transfer taxes payable
in connection with the transfer of the Units, the Notes and the Warrants to the
Initial Purchasers duly paid, against payment of the Purchase Price therefor.
5. Conditions to the Initial Purchasers' Obligations. The several
obligations of the Initial Purchasers to purchase and pay for the Units on the
Closing Date are subject to the following conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
<PAGE> 10
10
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company and its
subsidiaries, taken as a whole, from that set forth in the Final
Memorandum (exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement) that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to market the
Units on the terms and in the manner contemplated in the Final Memorandum.
(b) The representations and warranties of the Company contained in
this Agreement shall be true and correct as of the Closing Date and the Company
shall have complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before the
Closing Date. The Initial Purchasers shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect above and to the effect of Section 5(a)(i) above.
The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to proceedings threatened.
(c) The Initial Purchasers shall have received on the Closing Date
an opinion of Loeb & Loeb LLP and Greene, Donnelly & Schermer, outside counsel
and Florida counsel for the Company, respectively, dated the Closing Date, to
the effect set forth in Exhibit A and Exhibit B, respectively.
(d) The Initial Purchasers shall have received on the Closing Date
an opinion of Piper & Marbury, U.S. regulatory counsel for the Company, dated
the Closing Date, to the effect set forth in Exhibit C.
(e) The Initial Purchasers shall have received on the Closing Date
opinions of Rakisons Solicitors and Studio Legale Tonucci, UK and EU counsel,
and Italian counsel, respectively, for the Company, dated the Closing Date, to
the effect set forth in Exhibits D and E, respectively.
<PAGE> 11
11
The opinions of Loeb & Loeb LLP, Greene, Donnelly & Schermer and
each counsel referred to in clauses 5(d) and 5(e) above shall be rendered to you
at the request of the Company and shall so state therein.
(f) The Initial Purchasers shall have received on the Closing Date
an opinion of Shearman & Sterling, counsel for the Initial Purchasers, dated the
Closing Date, in form and substance reasonably satisfactory to you.
(g) The Initial Purchasers shall have received on each of the date
hereof and the Closing Date a letter, dated the date hereof or the Closing Date,
as the case may be, in form and substance reasonably satisfactory to the Initial
Purchasers, from Ernst & Young, the Company's independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in or incorporated by
reference into each Memorandum; provided that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date hereof.
(h) Waivers of the rights of shareholders subject to the
Shareholders Agreement dated as of July 22, 1994, the Shareholders Agreement
dated as of September 1994 and the Preemptive Rights Agreement dated as of July
28, 1997, with respect to the exercise by any of such shareholders of any
preemptive rights provided therein shall have been obtained and be in full force
and effect.
(i) The articles of incorporation of the Company shall have been
amended in form and substance reasonably satisfactory to the Initial Purchasers
and such amendment (the "Amendment"), shall have been filed with the Secretary
of State of the State of Florida and be in full force and effect.
(j) Waivers of the registration rights by (1) a majority of the
holders of the Series A Preferred Stock, (2) the Advent Entities (as such term
is defined in the Final Memorandum) and (3) Messrs. Friedland and Glassman,
shall have been obtained and be in full force and effect.
(k) Consent to the offering of Units from the requisite number of
holders of Series A Preferred Stock and Series B Preferred Stock shall have been
obtained and be in full force and effect.
(l) Each of the Notes Registration Rights Agreement, the Pledge
Agreement and the Warrants Registration Rights Agreement shall be executed and
in full force and effect.
<PAGE> 12
12
(m) The Initial Purchasers shall have received such other
certificates and documents as they or their counsel may reasonably request.
6. Covenants of the Company. In further consideration of the
agreements of the Initial Purchasers contained in this Agreement, the Company
covenants with each Initial Purchaser as follows:
(a) To furnish to you in New York City, without charge, prior to
10:00 a.m. New York City time on the business day next succeeding the date
of this Agreement and during the period mentioned in Section 6(c), as many
copies of the Final Memorandum and any supplements or amendments thereto
as you may reasonably request.
(b) Before amending or supplementing either Memorandum, to furnish
to you a copy of each such proposed amendment or supplement and not to use
any such proposed amendment or supplement to which you reasonably object.
(c) If, during such period after the date hereof and prior to the
date on which all of the Units shall have been sold by the Initial
Purchasers, any event shall occur or condition exist as a result of which
it is necessary to amend or supplement the Final Memorandum in order to
make the statements therein, in the light of the circumstances when the
Final Memorandum is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Initial Purchasers, it is necessary to
amend or supplement the Final Memorandum to comply with applicable law,
forthwith to prepare and furnish, at its own expense, to the Initial
Purchasers, either amendments or supplements to the Final Memorandum so
that the statements in the Final Memorandum as so amended or supplemented
will not, in the light of the circumstances when the Final Memorandum is
delivered to a purchaser, be misleading or so that the Final Memorandum,
as amended or supplemented, will comply with applicable law.
(d) To endeavor to qualify the Units, the Notes and the Warrants for
offer and sale under the securities or Blue Sky laws of such jurisdictions
as you shall reasonably request.
(e) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses incident to the performance of its obligations under
this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
issuance and sale of the Units and all other fees or expenses in
connection with the preparation of each Memorandum and all amendments and
supplements thereto, including all printing costs associated therewith,
and the
<PAGE> 13
13
delivering of copies thereof to the Initial Purchasers, in the quantities
herein above specified, (ii) all costs and expenses related to the
transfer and delivery of the Units, the Notes and the Warrants to the
Initial Purchasers, including any transfer or other taxes payable thereon,
(iii) the cost of printing or producing any Blue Sky or legal investment
memorandum in connection with the offer and sale of the Units, the Notes
and the Warrants under state securities laws and all expenses in
connection with the qualification of the Units, the Notes and the Warrants
for offer and sale under state securities laws as provided in Section 6(d)
hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Initial Purchasers in connection with such qualification
and in connection with the Blue Sky or legal investment memorandum, (iv)
any fees charged by rating agencies for the rating of the Units and the
Notes, (v) the fees and expenses, if any, incurred in connection with the
admission of the Units, the Notes, the Warrants and the Warrant Shares for
trading in PORTAL or any appropriate market system, (vi) the costs and
charges of the Trustee, the Warrant Agent and any transfer agent,
registrar or depositary, (vii) the cost of the preparation, issuance and
delivery of the Units, the Notes and the Warrants (viii) the costs and
expenses of the Company relating to investor presentations on any "road
show" undertaken in connection with the marketing of the offering of the
Units, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with
the prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, and
(ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section. It is understood, however, that except as provided
in this Section, Section 8, and the last paragraph of Section 10, the
Initial Purchasers will pay all of their costs and expenses, including
fees and disbursements of their counsel, transfer taxes payable on resale
of any of the Units, the Notes and the Warrants by them and any
advertising expenses connected with any offers they may make.
(f) Neither the Company nor any Affiliate will sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in the Securities Act) which could be integrated with the sale
of the Units, the Notes or the Warrants in a manner which would require
the registration under the Securities Act of the Units, the Notes or the
Warrants.
(g) Not to solicit any offer to buy or offer or sell the Units, the
Notes or the Warrants by means of any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
<PAGE> 14
14
(h) While any of the Units, the Notes or the Warrants remain
"restricted securities" within the meaning of the Securities Act, to make
available, upon request, to any seller of such Units, Notes or Warrants
the information specified in Rule 144A(d)(4) under the Securities Act,
unless the Company is then subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(i) None of the Company, its Affiliates or any person acting on its
or their behalf (other than the Initial Purchasers) will engage in any
directed selling efforts (as that term is defined in Regulation S) with
respect to the Units, the Notes or the Warrants, and the Company and its
Affiliates and each person acting on its or their behalf (other than the
Initial Purchasers) will comply with the offering restrictions requirement
of Regulation S.
(j) During the period of two years after the Closing Date, the
Company will not, and will not permit any of its affiliates (as defined in
Rule 144 under the Securities Act) to resell any of the Units, the Notes
or the Warrants which constitute "restricted securities" under Rule 144
that have been reacquired by any of them.
(k) The Company will, and will cause the Trustee to, refuse to
register any transfer of the Notes sold pursuant to Regulation S if such
transfer is not made in accordance with the provisions of Regulation S.
(l) The Company will, and will cause the Warrant Agent with respect
to the Warrants and cause the transfer agent with respect to the Warrant
Shares to, refuse to register any transfer of Warrants or Warrant Shares,
as applicable, sold pursuant to Regulation S if such transfer is not made
in accordance with the provisions of Regulation S.
(m) To use the proceeds from the sale of the Units in the manner set
forth in the Final Memorandum.
(n) To use its best efforts to permit the Units, the Notes and the
Warrants to be designated PORTAL securities in accordance with the rules
and regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market.
7. Offering of Units; Restrictions on Transfer. (a) Each Initial
Purchaser, severally and not jointly, represents and warrants that such Initial
Purchaser is a qualified institutional buyer as defined in Rule 144A under the
Securities Act (a "QIB"). Each Initial Purchaser, severally and not jointly,
agrees with the Company that (i) it will not solicit offers
<PAGE> 15
15
for, or offer or sell, the Units, Notes or Warrants by any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act and (ii) it will solicit
offers for such Units, Notes and Warrants only from, and will offer such Units,
Notes and Warrants only to, persons that it reasonably believes to be (A) in the
case of offers inside the United States, (1) QIBs or (2) other institutional
accredited investors (as defined in Rule 501(a) (1), (2), (3) or (7) under the
Securities Act) ("institutional accredited investors") that, prior to their
purchase of the Units, the Notes or the Warrants deliver to such Initial
Purchaser a letter containing the representations and agreements set forth in
Appendix A to the Memorandum and (B) in the case of offers outside the United
States, to persons other than U.S. persons ("foreign purchasers," which term
shall include dealers or other professional fiduciaries in the United States
acting on a discretionary basis for foreign beneficial owners (other than an
estate or trust)) in reliance upon Regulation S under the Securities Act that,
in each case, in purchasing such Units, Notes or Warrants are deemed to have
represented and agreed as provided in the Final Memorandum under the caption
"Transfer Restrictions."
(b) Each Initial Purchaser, severally and not jointly, represents,
warrants, and agrees with respect to offers and sales outside the United States
that:
(i) such Initial Purchaser understands that no action has been or
will be taken in any jurisdiction by the Company that would permit a
public offering of the Units, the Notes or the Warrants, or possession or
distribution of either Memorandum or any other offering or publicity
material relating to the Units, the Notes or the Warrants, in any country
or jurisdiction where action for that purpose is required;
(ii) such Initial Purchaser will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or
delivers Units, Notes or Warrants or has in its possession or distributes
either Memorandum or any such other material, in all cases at its own
expense;
(iii) the Units, the Notes and the Warrants have not been registered
under the Securities Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons, except in
accordance with Rule 144A or Regulation S under the Securities Act or
pursuant to another exemption from the registration requirements of the
Securities Act;
(iv) such Initial Purchaser has offered the Units, the Notes and the
Warrants and will offer and sell the Units, the Notes and the Warrants (A)
as part of their distribution at any time and (B) otherwise (i) until 40
days after the later of the commencement of the offering of the Units and
the Closing Date with respect to the Notes and (ii) until one year after
the later of the commencement of the offering of the
<PAGE> 16
16
Units and the Closing Date with respect to the Units and the Warrants,
only in accordance with Rule 903 of Regulation S or as otherwise permitted
in Section 7(a); accordingly, neither such Initial Purchaser, its
Affiliates nor any persons acting on its or their behalf have engaged or
will engage in any directed selling efforts (within the meaning of
Regulation S) with respect to the Units, the Notes or the Warrants, and
any such Initial Purchaser, its Affiliates and any such persons have
complied and will comply with the offering restrictions requirement of
Regulation S;
(v) such Initial Purchaser has (A) not offered or sold and, prior to
the date six months after the Closing Date, will not offer or sell any
Units, Notes or Warrants to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations
1995; (B) complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Units, Notes or Warrants in, from or otherwise involving
the United Kingdom; and (C) only issued or passed on and will only issue
or pass on in the United Kingdom any document received by it in connection
with the issue of the Units, the Notes or the Warrants to a person who is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on;
(vi) such Initial Purchaser understands that the Units, the Notes and
the Warrants have not been and will not be registered under the Securities
and Exchange Law of Japan, and represents that it has not offered or sold,
and agrees not to offer or sell, directly or indirectly, any Units, Notes
or Warrants in Japan or for the account of any resident thereof except
pursuant to any exemption from the registration requirements of the
Securities and Exchange Law of Japan and otherwise in compliance with
applicable provisions of Japanese law; and
(vii) such Initial Purchaser agrees that, at or prior to confirmation
of sales of the Units, the Notes or the Warrants, it will have sent to
each distributor, dealer or person receiving a selling concession, fee or
other remuneration that purchases Units, Notes or Warrants from it during
the restricted period a confirmation or notice to substantially the
following effect:
"The Units, the Notes and the Warrants covered hereby have not been
registered under the U.S. Securities Act of 1933 (the "Securities Act")
and may not be offered and sold within the United States or to, or for the
account or benefit of, U.S. persons (i) as part
<PAGE> 17
17
of their distribution at any time or (ii) otherwise until 40 days after
the later of the commencement of the offering and the closing date with
respect to the Notes and one year after the later of the commencement of
the offering and the closing date with respect to the Units and the
Warrants, except in either case in accordance with Regulation S (or Rule
144A, if available) under the Securities Act. Terms used above have the
meaning given to them by Regulation S."
Terms used in this Section 7(b) have the meanings given to them by Regulation S.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, and each person, if any, who
controls any Initial Purchaser within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Initial Purchaser, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in either Memorandum (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 the light of
the circumstances under which they were made not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Initial Purchaser furnished to the Company in
writing by such Initial Purchaser through Morgan Stanley & Co. Incorporated
expressly for use therein; provided, however, that the foregoing indemnity shall
not inure to the benefit of any Initial Purchaser to the extent that any such
losses, claims, damages or liabilities result from the fact that such Initial
Purchaser sold securities to a person to whom there was not sent or given by or
on behalf of such Initial Purchaser a copy of the Final Memorandum at or prior
to the written confirmation of the sale of the securities to such person, and if
the losses, claims, damages or liabilities result from an untrue statement or
alleged untrue statement or an omission or alleged omission contained in the
Preliminary Memorandum that was corrected in the Final Memorandum.
(b) Each Initial Purchaser agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Initial Purchaser, but only
with reference to information relating to such Initial Purchaser furnished to
the Company in writing by such Initial Purchaser through Morgan Stanley & Co.
Incorporated expressly for use in either Memorandum or any amendments or
supplements thereto.
<PAGE> 18
18
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 8(a) above, and by the Company, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened 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 proceeding.
(d) To the extent the indemnification provided for in Section 8(a)
or 8(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of
<PAGE> 19
19
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Initial
Purchasers on the other hand from the offering of the Units or (ii) if the
allocation provided by clause 8(d)(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
on the one hand and of the Initial Purchasers on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Initial
Purchasers on the other hand in connection with the offering of the Units shall
be deemed to be in the same respective proportions as the net proceeds from the
offering of the Units (before deducting expenses) received by the Company and
the total discounts and commissions received by the Initial Purchasers in
respect thereof bear to the aggregate offering price of the Units. The relative
fault of the Company on the one hand and of the Initial Purchasers on the other
hand 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 by the Initial Purchasers and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Initial Purchasers' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the respective number of Units they have
purchased hereunder, and not joint.
(e) The Company and the Initial Purchasers agree that it would not
be just or equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in Section 8(d) shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Initial Purchaser shall be required to contribute any amount in
excess of the amount by which the total price at which the Units resold by it in
the initial placement of such Units were offered to investors exceeds the amount
of any damages that such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 8 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
<PAGE> 20
20
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Initial Purchasers or any person
controlling any Initial Purchasers or by or on behalf of the Company, its
officers or directors or any person controlling the Company and (iii) acceptance
of and payment for any of the Units.
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event singly or
together with any other such event makes it, in your judgment, impracticable to
market the Units on the terms and in the manner contemplated in the Final
Memorandum.
10. Effectiveness; Defaulting Initial Purchasers. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date, any one or more of the Initial Purchasers
shall fail or refuse to purchase Units that it or they have agreed to purchase
hereunder on such date, and the number of Units which such defaulting Initial
Purchaser or Initial Purchasers agreed but failed or refused to purchase is not
more than one-tenth of the aggregate number of Units to be purchased on such
date, the other Initial Purchasers shall be obligated severally in the
proportions that the number of Units set forth opposite their respective names
in Schedule I bears to the aggregate number of Units set forth opposite the
names of all such non-defaulting Initial Purchasers, or in such other
proportions as you may specify, to purchase the Units which such defaulting
Initial Purchaser or Initial Purchasers agreed but failed or refused to purchase
on such date; provided that in no event shall the number of Units that any
Initial Purchaser has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 10 by an amount in excess of one-ninth of such number
of Units without the written consent of such Initial Purchaser. If on the
Closing Date any Initial Purchaser or Initial Purchasers shall fail or refuse to
purchase Units which it or they have agreed to purchase hereunder on such date
and the aggregate number of Units with respect to which such default
<PAGE> 21
21
occurs is more than one-tenth of the aggregate number of Units to be purchased
on such date and arrangements satisfactory to you and the Company for the
purchase of such Units are not made within 36 hours after such default, this
Agreement shall terminate without liability on the part of any non-defaulting
Initial Purchaser or of the Company. In any such case either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Final
Memorandum or in any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Initial Purchaser
from liability in respect of any default of such Initial Purchaser under this
Agreement.
If this Agreement shall be terminated by the Initial Purchasers, or
any of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement, the Company will reimburse the Initial Purchasers or such
Initial Purchasers as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Initial Purchasers
in connection with this Agreement or the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
13. Notice. All notices and other communications under this
Agreement shall be in writing, and, if sent to the Initial Purchasers, be
mailed, delivered or sent by facsimile transmission to:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attention: High Yield New Issues Group
Facsimile Number: (212) 761-0587
<PAGE> 22
22
or, if sent to the Company, be mailed, delivered or sent by facsimile
transmission to the Company at:
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Clifford Friedland
Facsimile Number: (954) 523-1872
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
<PAGE> 23
Very truly yours,
LONG DISTANCE INTERNATIONAL INC.
By
-----------------------------------
Name:
Title:
Agreed, as of the date hereof
Morgan Stanley & Co. Incorporated
SBC Warburg Dillon Read Inc.
By Morgan Stanley & Co.
Incorporated
By
--------------------------------
Name:
Title:
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
Number of Units
Initial Purchaser To Be Purchased
- ----------------- -----------------
<S> <C>
Morgan Stanley & Co. Incorporated 168,750
SBC Warburg Dillon Read Inc. 56,250
-------
Total..................... 225,000
=======
</TABLE>
<PAGE> 25
25
SCHEDULE II
[Company to provide -- list of material agreements]
<PAGE> 26
EXHIBIT A
Opinion of Outside Counsel
for the Company
Opinion of the counsel for the Company to be delivered pursuant to
Section 5(c) of the Purchase Agreement shall be to the effect that:
(A) the Notes, when executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by the
Initial Purchasers in accordance with the terms of the Purchase Agreement,
will be valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency
or similar laws affecting creditors' rights generally and general
principles of equity, and will be entitled to the benefits of the
Indenture and the Notes Registration Rights Agreement;
(B) the Indenture is a valid and binding agreement of the Company,
enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity;
(C) the Notes Registration Rights Agreement and is a valid and
binding agreement of, the Company enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity and
except as rights to indemnification and contribution may be limited under
applicable law;
(D) the Warrants when countersigned by the Warrant Agent as provided
in the Warrant Agreement, and delivered to and paid for by the Initial
Purchasers in accordance with the terms of the Purchase Agreement, will be
valid and binding obligations of the Company, enforceable in accordance
with their terms subject to applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally and general principles of
equity and will be entitled to the benefits of the Warrant Agreement and
the Warrants Registration Rights Agreement;
(E) the Warrant Agreement is a valid and binding agreement of the
Company enforceable in accordance with its terms subject to applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity;
A-1
<PAGE> 27
(F) the Warrants Registration Rights Agreement is a valid and
binding agreement of the Company enforceable in accordance with its terms
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity and except as
rights to indemnification and contribution may be limited under applicable
law;
(G) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Purchase
Agreement, the Indenture, the Notes Registration Rights Agreement, the
Warrant Agreement, the Warrants Registration Rights Agreement, the Notes
and the Warrants and the issuance by the Company of the Warrant Shares
upon exercise of the Warrants will not contravene (i) any provision of law
applicable to the Company, (ii) any of the agreements lised on Schedule II
to the Purchase Agreement, or (iii) to the best of our knowledge, any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary;
(H) no permit, license, consent, approval, authorization or order
of, or filing, declaration or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under the Purchase Agreement, the Indenture, the Notes Registration Rights
Agreement, the Warrant Agreement, the Warrants Registration Rights
Agreement, the Notes or the Warrants, except such as may be required by
the securities or Blue Sky laws of the various states in connection with
the offer and sale of the Units, the Notes and the Warrants and by Federal
and state securities laws with respect to the Company's obligations under
the Notes Registration Rights Agreement and the Warrants Registration
Rights Agreement;
(I) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company
or any of its subsidiaries is subject other than proceedings which such
counsel believes are not likely to have a material adverse effect on the
Company and its subsidiaries, taken as a whole, or on the power or ability
of the Company to perform its obligations under the Purchase Agreement,
the Indenture, the Notes Registration Rights Agreement, the Warrant
Agreement, the Warrants Registration Rights Agreement, the Notes or the
Warrants or to consummate the transactions contemplated by the Final
Memorandum;
(J) the Company is not, and after giving effect to the offering and
sale of the Units and the application of the proceeds thereof as described
in the Final Memorandum, will not be an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended;
A-2
<PAGE> 28
(K) the statements in the Final Memorandum under the captions
"Certain Transactions," "Description of Certain Indebtedness,"
"Description of the Units," "Description of the Notes," "Description of
the Warrants,""Private Placement" and "Transfer Restrictions," insofar as
such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly summarize the matters referred to
therein;
(L) the statements in the Final Memorandum under the caption
"Certain United States Federal Tax Considerations," insofar as such
statements constitute a summary of the United States federal tax laws
referred to therein, are accurate and fairly summarize in all material
respects the United States federal tax laws referred to therein;
(M) based upon the representations, warranties, and agreements of
the Company and the Initial Purchasers in the Purchase Agreement, it is
not necessary in connection with the offer, sale and delivery of the Notes
to the Initial Purchasers under the Purchase Agreement or in connection
with the initial resale of such Units by the Initial Purchasers in
accordance with the Purchase Agreement to register the Units, the Notes or
the Warrants under the Securities Act of 1933 or to qualify the Indenture
under the Trust Indenture Act of 1939, it being understood that no opinion
is expressed as to any subsequent resale of any Unit, Note or Warrant; and
(N) such counsel has no reason to believe that (except for financial
statements and schedules and other financial and statistical data included
therein as to which such counsel need not express any belief) the Final
Memorandum when issued contained, or as of the date such opinion is
delivered contains, any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
With respect to paragraph (N) above, counsel may state that their
opinion and belief are based upon their participation in the preparation of the
Final Memorandum (and any amendments or supplements thereto) and review and
discussion of the contents thereof, but are without independent check or
verification except with respect to paragraphs (K) and (L) above.
A-3
<PAGE> 29
EXHIBIT B
Opinion of Florida Counsel
for the Company
(A) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Florida, has
the corporate power and authority under Florida law to own its property
and to conduct its business as described in the Final Memorandum, and is
duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole;
(B) each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own its property and to conduct its business as described in the Final
Memorandum and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital stock
of each subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned directly by
the Company, free and clear of all liens, encumbrances, equities or
claims.
(C) the Purchase Agreement has been duly authorized, executed and
delivered by the Company;
(D) the shares of Common Stock outstanding on the Closing Date have
been duly authorized and are validly issued, fully paid and
non-assessable;
(E) the Notes have been duly authorized by the Company and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of the Purchase Agreement, will be valid and
binding obligations of the Company, enforceable in accordance with their
terms, subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity,
and will be entitled to the benefits of the Indenture and the Notes
Registration Rights Agreement;
A-4
<PAGE> 30
(F) the Indenture has been duly authorized, executed and delivered
by, and is a valid and binding agreement of, the Company, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally and general principles
of equity;
(G) the Notes Registration Rights Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity and except as
rights to indemnification and contribution may be limited under applicable
law;
(H) the Warrants have been duly authorized and executed by the
Company, and when countersigned by the Warrant Agent as provided in the
Warrant Agreement, and delivered to and paid for by the Initial Purchasers
in accordance with the terms of the Purchase Agreement, will be valid and
binding obligations of the Company, enforceable in accordance with their
terms subject to applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally and general principles of equity and
will be entitled to the benefits of the Warrant Agreement and the Warrants
Registration Rights Agreement;
(I) the Warrant Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms subject to applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
general principles of equity;
(J) the Warrants Registration Rights Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity and except as
rights to indemnification and contribution may be limited under applicable
law;
(K) the Warrant Shares have been duly authorized and reserved by the
Company and, when issued and delivered upon exercise of the Warrants in
accordance with the terms of the Warrants, will be validly issued, fully
paid and non-assessable and will not be subject to any preemptive or
similar rights;
(L) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Purchase
Agreement, the Indenture, the Notes Registration Rights Agreement, the
Warrant Agreement, the Warrants Registration Rights Agreement, the Notes
and the Warrants and the issuance by the
A-5
<PAGE> 31
Company of the Warrant Shares upon exercise of the Warrants will not
contravene (i) any provision of applicable Florida law, (ii) the
certificate of incorporation or by-laws of the Company, (iii) to the best
of such counsel's knowledge, any agreement or other instrument binding
upon the Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or (iv) to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary;
(M) the statements in the Final Memorandum under the captions
"Description of the Units," "Description of the Notes," "Description of
the Warrants" and "Description of Capital Stock," insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly summarize the matters referred to
therein;
(N) the Amendment has been filed with the Secretary of State of the
State of Florida and is in full force and effect.
A-6
<PAGE> 32
EXHIBIT C
Opinion of U.S. Regulatory Counsel
for the Company
(i) (A) the execution and delivery by the Company of, and performance of
its obligations under, the Placement Agreement, the Indenture, the Notes
Registration Rights Agreement, the Notes, the Warrant Agreement, the Warrants
Registration Rights Agreement and the Warrants do not violate (1) the Federal
Communications Act of 1934, as amended, and the rules, regulations and published
opinions of the Federal Communications Commission ("FCC") thereunder
(collectively, the "Act") and (2) to the best of such counsel's knowledge after
due inquiry, any decree from any court or tribunal, and (B) no authorization of
or filing with the FCC is necessary for the execution and delivery by the
Company of, and the performance of its obligations under, the Placement
Agreement, the Indenture, the Notes Registration Rights Agreement, the Notes,
the Warrant Agreement, the Warrants Registration Rights Agreement or the
Warrants;
(ii) the Company and its subsidiaries are nondominant carriers authorized
by the FCC to provide interstate interexchange telecommunications services. The
Company and its subsidiaries have been granted Section 214 authority by the FCC
to provide international message telecommunications services through the resale
of international switched voice and, in certain instances, private line services
and each of the Company and such subsidiaries has on file with the FCC tariffs
applicable to its domestic interstate and international services. No further FCC
authority is required by the Company or any of such subsidiaries to conduct its
business as described in the Final Memorandum;
(iii) the Company and its subsidiaries are certified and/or registered to
resell intrastate interexchange telecommunications service in __________, and
are not required to be certified or registered to resell intrastate
interexchange telecommunications services in _____________. Each of the Company
and its subsidiaries has a tariff on file in each state and the federal district
in which it resells telecommunications services. No further authority is
required from any of the state or District of Columbia governmental authorities
that regulate telecommunications services ("State Authorities") by the Company
or any of its subsidiaries to conduct its business as described in the Final
Memorandum;
(iv) (A) each of the Company and its subsidiaries (1) has made all reports
and filings, and paid all fees, required by the FCC and the State Authorities;
and (2) has all certificates, orders, permits, licenses, authorizations,
consents and approvals of and from, and has made all filings and registrations,
with the FCC necessary to own, lease, license and use its properties and assets
and to conduct its business in the manner described in the Final Memorandum; and
(B) neither the Company nor any of its subsidiaries has received any notice
B-1
<PAGE> 33
of proceedings relating to the revocation, modification or non-renewal of any
such certificates, orders, permits, licenses, authorizations, consents or
approvals, or the qualification or rejection of any such filing or registration,
the effect of which, singly or in the aggregate, would have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(v) to the best of such counsel's knowledge after due inquiry (A) no
decree or order of the FCC or any State Authority has been issued against the
Company or any of its subsidiaries and (B) no litigation, proceeding, inquiry or
investigation has been commenced or threatened, and no notice of violation or
order to show cause has been issued, against the Company or any of its
subsidiaries before or by the FCC; and
(vi) the statements in the Offering Memorandum under the captions "Risk
Factors -- Regulatory Restrictions" and "Business -- Regulation -- United
States," insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, are accurate in all material
respects and fairly summarize all matters referred to therein.
B-2
<PAGE> 34
EXHIBIT D
Opinion of UK and EU Counsel
for the Company
With respect to UK matters, the opinion of regulatory counsel for
the Company to be delivered pursuant to Section 5(e) of the Purchase Agreement
shall be to the effect that:
1. each of Long Distance International Limited ("LDI UK"), LDI
Communications Limited ("LDI Comm") and Dynamic Telecom International
Limited ("DTI") (collectively, the "UK Subsidiaries") has been duly
incorporated and validly exists as a corporation under the laws of England
and Wales, ahs corporate power and authority to own its own property and
to conduct its business as described in the Final Memorandum and is duly
qualified to transact business in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified
would not have a material adverse effect on the Company and its
subsidiaries taken as a whole;
2. the descriptions in the Final Memorandum of current statutes of
the United Kingdom ("UK") relating to telecommunications, and the
respective rules and regulations promulgated thereunder (collectively, the
"UK Communications Law"), including, without limitation, the
Telecommunications Act of 1984 (the "1984 Act"), and the statements in the
Final Memorandum discussing matters related to the UK Communications Law,
including, without limitation, those under the captions "Risk Factors --
Regulatory Restrictions," "Risk Factors -- Competition,""Business --
Competition" and Business -- Regulation -- United Kingdom," are accurate
in all material respects and fairly summarize all matters described
therein insofar as they relate to UK Communications Law;
3. (A) LDI UK is the holder of a license issued by or on behalf of
the Secretary of State for Trade and Industry (the "Department"), dated 31
December 1997 issued under Section 7 of the 1984 Act, relating to the
provision of international simple resale services (the "ISVR License");
(B) LDI Comm is the holder of a license issued by or on behalf of the
Secretary of State for Trade and Industry dated 18 December 1996 issued
under Section 7 of the 1984 Act relating to the provision of international
facilities-based services (the "IFL License"); and (C) to the best of our
knowledge after due inquiry, each of the ISVR License and IFL License are
in full force and effect and there is no pending or existing notice of
proceedings relating to revocation or modification of either of the ISVR
License or the IFL License;
4. (A) the execution and delivery of the Purchase Agreement by the
Company, and the consummation of the transactions (including, without
limitation,
C-1
<PAGE> 35
issuance of the Units and the related Notes and Warrants and execution of
the Indenture, the Warrant Agreement, the Notes Registration Rights
Agreement and the Warrants Registration Rights Agreement) contemplated
thereby do not violate (1) the UK Communications Law, (2) any
determinations or orders of the Director-General of Telecommunications
("DG-OFTEL") applicable to the Company and the UK Subsidiaries; and (3)
and direction of the Department applicable to the Company and the UK
Subsidiaries; (B) no authorization of or filing with the Office of
Telecommunications ("OFTEL") or the Department is necessary for the
execution and delivery of the Purchase Agreement by the Company and the
consummation of the transactions (including, without limitation, the
issuance of the Units and the related Notes and Warrants and execution of
the Indenture, the Warrant Agreement, the Notes Registration Rights
Agreement and the Warrants Registration Rights Agreement) contemplated
thereby in accordance with the terms thereof;
5. (A) the UK Subsidiaries have all certificates, orders, permits,
licenses, authorizations, consents and approvals of and from OFTEL and the
Department necessary to own, lease, license and use its properties and
assets and to conduct its business in the UK in the manner described in
the Final Memorandum; and (B) to the best of our knowledge, neither the
Company nor any of the UK Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
certificates, orders, permits, licenses, authorizations, consents or
approvals, or the qualification or rejection of any such filing or
registration, the effect of which, singly or in the aggregate, would have
a material adverse effect on the prospects, condition, financial or
otherwise, or in the earnings, business or operations of the Company and
the UK Subsidiaries, taken as a whole;
6. to the best of our knowledge, (A) each of the Company and the UK
Subsidiaries is conducting its business in accordance with the
authorizations listed in Paragraph 5 above and (B) neither the Company nor
any of the UK Subsidiaries is in breach of UK Communications Law or any
determination or order of DG-OFTEL or any direction of the Department, the
effect of which, singly or in the aggregate, would have a material adverse
effect on the Company and the UK Subsidiaries, taken as a whole; and
7. to the best of our knowledge, (A) no decree or order of the
Department or DG-OFTEL has been issued against the Company or any of the
UK Subsidiaries; (B) no litigation, proceeding, inquiry or investigation
has been commenced or threatened, and no notice of violation or order to
show cause has been issued, against the Company or any of its subsidiaries
before or by the Department or OFTEL and (C) there are no administrative
proceedings pending before the Department or OFTEL, (i) which are
generally applicable to telecommunications services or the resale thereof
and (ii) which, if decided adversely to the interest of the Company or any
of the UK Subsidiaries,
C-2
<PAGE> 36
would have a material adverse effect on the Company and the UK
Subsidiaries, taken as a whole.
With respect to EU matters, opinion of regulatory counsel for the
Company to be delivered pursuant to Section 5(e) of the Purchase Agreement shall
be to the effect that:
We are of the opinion that:
1. the descriptions in the Final Memorandum of current law of the
European Union ("EU") relating to telecommunications, in the form of
Directives promulgated by European Commission (the "Commission") and the
Council of Ministers of the European Union (the "Council") (collectively,
the "EC Directives"), including, without limitation, the European
Commission Directive 90/388/EC of 29 June 1990 (the "1990 EC Directive"),
and the statements in the Final Memorandum discussing matters related to
the EC Directives, including, without limitation, those under the captions
"Risk Factors -- Regulatory Restrictions," Risk Factors -- Competition,"
"Risk Factors -- Substantial Price Declines," "Business -- Regulation
-- European Union," Business -- Competition" and "Business -- Regulations
-- World Trade Organization" are accurate in all material respects and
fairly summarize all matters described therein insofar as they relate to
the EC Directives; and
2. to the best of our knowledge, (A) no litigation or proceeding has
been commenced or threatened against the Company or any of the UK
Subsidiaries before the Commission or the Court of Justice of the European
Union and (B) there are no proceedings pending before the Commission, (i)
which are genearlly applicable to telecommunications services or the
resale thereof; and (ii) which, if decided adversely to the interest of
the Company or the UK Subsidiaries, would have a material adverse effect
on the Company and the UK Subsidiaries, taken as a whole.
* Unless otherwise defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Purchase Agreement.
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<PAGE> 37
EXHIBIT E
Opinion of Italian Counsel
for the Company
Opinion of regulatory counsel for the Company to be delivered
pursuant to Section 5(e) of the Purchase Agreement shall be to the effect that:
We are of the opinion that:
1. Pursuant to the declaration filed before the Italian
Communications Ministry on November 17, 1997, DTI is the holder of an
authorization to offer non real time voice telephony services in Italy
under Article 3 of Legislatvie Deree March 17, 1995 no. 103. Long Distance
International Ltd. is in the process of finalizing and submitting a
request for an individual license for fixed public voice telephony
services in Italy before the Italian Communications Ministry. To the best
of our knowledge nothing has come to our attention that caused us to
believe that the information to be filed for the public fixed voice
telephony services in Italy is not in conformity with the Italian
government requirements;
2. (A) the execution and delivery of the Purchase Agreement by the
Company, and the consummation of the transactions (including, without
limitation, issuance of the Units and the related Notes and Warrants and
execution of the Indenture, the Warrant Agreement, the Notes Registration
Rights Agreement and the Warrants Registration Rights Agreement)
contemplated thereby do not violate (1) the Italian Communications Law no.
189 of July 1, 1997, (2) any rules or regulations of the Communications
Ministry applicable to the Company and its subsidiaries and (3) to the
best of our knowledge any telecommunications related decree from any
Italian court, and (B) no authorization of or filing with the
Communications Ministry is necessary for the execution and delivery of the
Purchase Agreement by the Company and the consummation of the transactions
(including, without limitation, issuance of the Units and the related
Notes and Warrants and execution of the Indenture, the Warrant Agreement,
the Notes Registration Rights Agreement and the Warrants Registration
Rights Agreement) contemplated thereby in accordance with the terms
thereof;
3. (A) each of the Company and its subsidiaries has all
certificates, orders, permits, licenses, authorizations, consents and
approvals of and from the Communications Ministry necessary to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Final Memorandum; and (B) to the best of our
knowledge after due inquiry, neither the Company nor any of
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<PAGE> 38
its subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificates, orders, permits,
licenses, authorizations, consents or approvals, or the qualification or
rejection of any such filing or registration, the effect of which, singly
or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings, business
or operations of the Company and its subsidiaries, taken as a whole;
4. to the best of our knowledge after due inquiry, (A) each of the
Company and its subsidiaries is conducting its business in accordance with
the Italian Communications Misintry authorization listed in Paragraph 1
above and(B) neither the Company nor any of its subsidiaries is in
violation of or in default under the Italian Communications Law no 189 of
July 1, 1997 or the rules or regulations of the Communications Ministry
the effect of which, singly or in the aggregate, would have a material
adverse effect on the Company and its subsidiaries, taken as a whole; and
5. to the best of our knowledge after due inquiry, (A) no decree or
order of the Italian Communications Ministry has been issued against the
Company or any of its subsidiaries; (B) no litigation, proceeding, inquiry
or investigation has been commenced or threatened by the Italian
Communications Ministry and no notice of violation or order to show cause
has been issued, against the Company or any of its subsidiaries before or
by the Italian Communications Ministry and (C) there are no rulemakings or
other administrative proceedings pending before the Italian Communications
Ministry (i) which are generally applicable to telecommunications services
or the resale thereof and (ii) which, if decided adversely to the interest
of the Company or its subsidiaries, would have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
* Unless otherwise defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Purchase Agreement.
D-2
<PAGE> 1
Exhibit 3.1
SECOND RESTATED ARTICLES OF INCORPORATION
OF
LONG DISTANCE INTERNATIONAL INC.
The undersigned, being an individual, hereby certifies that the
following have been adopted as the amended and Second Restated Articles of
Incorporation of Long Distance International Inc. (formerly Telecard
International, Inc.), pursuant to the provisions of the Florida Business
Corporation Act.
Article I
The corporate name of the corporation (hereinafter called the
"corporation") is LONG DISTANCE INTERNATIONAL INC.
Article II
The purposes for which the corporation is organized are to engage in
any lawful business for which corporations may be organized under the Florida
Business Corporation Act and to have all of the general powers granted to
corporations organized under such Act, whether granted by specified statutory
authority or by construction of law.
Article III
The corporation is authorized to issue two classes of shares
designated "Common Stock" and "Series A Preferred Stock," respectively, each
with a par value of $0.001. The number of shares of Common Stock authorized to
be issued is 40,000,000, and the number of shares of Series A Preferred Stock
authorized to be issued is 2,600,000. The rights, preferences, privileges and
restrictions granted to and imposed upon the two classes of shares are set forth
below in this Article III.
Section 1. Definitions. For purposes of this Article III the
following definitions shall apply:
"Average Trading Price" shall have the meaning set forth therefor in
Section 2(a).
"Board" shall mean the Board of Directors of the Company.
<PAGE> 2
"Commitment Date" shall mean the date immediately prior to the date
of original issuance of the Series A Preferred Stock.
"Company" shall mean this corporation.
"Common Stock" shall mean the Common Stock of the Company.
"Common Stock's Fair Market Value" shall mean, if the Common Stock
is traded on the NASDAQ National Market or a national securities exchange, the
average last sale price in such market over the ten (10) trading days on which
the Common Stock was traded immediately preceding the date of determination, or
if not so traded, the fair market value of a share of Common Stock, as
determined in good faith by the Board for the purpose of granting incentive
stock options or issuing shares to employees of the Company or any Subsidiary
and determined as of the most recent date that such determination has been made
within one year of the applicable date or, if no such determination has been
made during such period, the fair market value of such stock, as determined in
good faith by the Board as of the applicable date.
"Junior Stock" shall mean the Common Stock and all other shares of
the Company, whether presently outstanding or hereafter issued, other than
Series A Preferred Stock.
"Majority of the Series A Preferred Stock" shall mean more than 50%
of the outstanding Series A Preferred Stock.
"Qualified Public Offering" shall mean an underwritten public
offering pursuant to an effective registration statement under the Securities
Act covering the offering and sale of Common Stock for the account of the
Company in which the aggregate gross proceeds received by the Company at the
public offering price equals or exceeds $7,500,000, the public offering price
per share of which equals or exceeds $2.00 per share of Common Stock
(appropriately adjusted for subdivisions and combinations of shares of Common
Stock and dividends on Common Stock payable in shares of Common Stock) and the
obligation of the underwriters with respect to which is that if any of the
securities being offered are purchased, all such securities must be purchased.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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<PAGE> 3
"Series A Preferred Stock" shall mean the Series A Preferred Stock
of the Company.
"Shareholders Agreements" shall have the meaning set forth therefor
in Section 2(b).
"Specified Event" shall have the meaning set forth therefor in
Section 2(a).
"Subsidiary" shall mean any corporation a majority of the Voting
Stock of which is, at the time as of which any determination is being made,
owned by the Company either directly or through one or more Subsidiaries.
"Valuation Objective" shall have the meaning set forth therefor in
Section 2(a).
"Voting Stock" shall mean any shares having general voting power in
electing the Board of Directors (irrespective of whether or not at the time
stock of any other class or classes has or might have voting power by reason of
the happening of any contingency). The Common Stock and Series A Preferred Stock
are Voting Stock.
Section 2. Dividends.
(a) Right to Dividends. The holders of the then outstanding Series A
Preferred Stock shall be entitled to receive, when and as declared by the Board,
and out of any funds legally available therefor, cumulative cash dividends at
the annual rate of three cents ($0.03) per share. Except as provided below,
dividends on the Series A Preferred Stock shall accumulate and accrue on each
such share from the date of its original issue and shall accrue from day to day
thereafter, whether or not earned or declared. Dividends shall be payable, when
and as declared by the Board, at any time or date chosen by the Board; provided,
however, except as provided below, all accrued and unpaid dividends as of
December 31, 1998 shall be paid on such date, and thereafter, all accrued and
unpaid dividends shall be paid on each December 31 (or, if such day is not a
Business Day, on the next following Business Day) of each year, whether or not
declared by the Board; provided further however that except as provided below,
all accrued dividends, the payment of which has not otherwise been required
pursuant to this sentence, shall become payable immediately in the event of the
occurrence of a Specified Event (as hereinafter defined) and shall thereafter be
paid on each December 31 (or if such day is not a Business Day, on the next
following Business Day) of each year, whether or not declared by the Board. For
the purposes hereof, a "Specified Event" shall include the closing of an
offering and sale of Common Stock or other
3
<PAGE> 4
equity securities for the account of the Company in which the aggregate gross
proceeds received by the Company at the offering price exceeds $5,000,000, or,
if the offering is an underwritten public offering pursuant to an effective
registration statement under the Securities Act, in which the aggregate gross
proceeds received by the Company at the offering price exceeds $7,500,000.
Notwithstanding any provision herein to the contrary, dividends shall cease to
accrue, and the payment of any and all previously accrued and unpaid dividends
shall be waived, if the Common Stock achieves its "Valuation Objective", which
shall mean at any time the Average Trading Price (as hereinafter defined) equals
or exceeds $2.00 per share, as adjusted for stock splits, stock dividends,
combinations of shares and the like following the date hereof; provided,
however, that the Valuation Objective shall only be deemed to be achieved if the
Average Trading Price specified in this sentence is achieved for a period of
time which the Common Stock was traded, throughout the relevant period of time,
on the NASDAQ National Market, a national securities exchange registered under
the Securities Exchange Act of 1934 or the NASDAQ SmallCap Market. For the
purposes hereof, the "Average Trading Price" shall mean, (x) if the Common Stock
is traded on a national securities exchange or the NASDAQ National Market, the
average of the last sales price of the Common Stock in such market for thirty
(30) consecutive trading days (skipping any trading days on which no shares of
Common Stock are traded), or (y) if the Common Stock is traded on the NASDAQ
SmallCap Market, the average of the high bid and low ask price in such market at
the end of the trading day for thirty (30) consecutive trading days. "Business
Day" shall mean any day excluding Saturday, Sunday and any day which shall be in
the State of Florida a legal holiday or a day on which banking institutions are
authorized by law to close. The Company at its option may make any dividend
payment on the Series A Preferred Stock in shares of Common Stock or cash, or
both, with each share of Common Stock being valued for this purpose at the
Common Stock's Fair Market Value on the date such dividend is declared or, if
the Common Stock is not issued within ten (10) days after the date of
declaration, on the date such Common Stock is issued. Such dividends shall be
cumulative so that if such dividends in respect of any previous or current
quarterly dividend period, at the rate specified above, shall not have been paid
or declared and a sum sufficient for the payment thereof set apart, the
deficiency shall first be fully paid before any dividend or other distribution
shall be paid or declared and set apart for the Common Stock. Any accumulation
of dividends on the Series A Preferred Stock shall not bear interest.
4
<PAGE> 5
(b) Priority. Unless full dividends on the Series A Preferred Stock
accrued for all past dividend periods and the then current dividend period
(i.e., the period ending on December 31 in any particular year) shall have been
paid or declared and a sum sufficient for the payment thereof set apart, or the
Common Stock shall have achieved the Valuation Objective, (1) no dividend
whatsoever (other than a dividend payable solely in Common Stock) shall be paid
or declared, and no distribution shall be made, on any Junior Stock, and (2) no
shares of Junior Stock shall be purchased, redeemed or acquired by the Company
and no monies shall be paid into or set aside or made available for a sinking
fund for the purchase, redemption or acquisition thereof; provided, however,
that this restriction shall not apply to (x) the repurchase of shares of Common
Stock from directors or employees of or consultants or advisers to the Company
or any Subsidiary pursuant to agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including
without limitation the termination of employment by or service to the Company or
any Subsidiary or (y) the repurchase of shares of Common Stock pursuant to the
right of first refusal of the Company set forth in that certain Shareholders
Agreement, dated as of July 22, 1994, and that certain Shareholders Agreement,
dated as of September ___, 1994, in each case as may be amended from time to
time thereafter (collectively, the "Shareholders Agreements"), among the Company
and the Shareholders identified therein, if and to the extent such repurchase is
authorized and approved in advance by action of the Board of Directors; and
provided further, however, that without the approval, by vote or written
consent, of the holders of a Majority of the Series A Preferred Stock the total
amount applied to the repurchase of shares of Common Stock shall not exceed
$50,000 during any twelve-month period.
(c) Additional Dividends. After cumulative dividends on the Series A
Preferred Stock for all past dividend periods and the then current dividend
period (i.e., the period ending on December 31 in any particular year) shall
have been declared and paid or set apart, if the Board shall elect to declare
any cash dividends payable to holders of Junior Stock in any amount in excess of
three cents ($0.03) per share, then the Board shall declare, and the Company
shall pay to the holders of Series A Preferred Stock, an additional dividend per
share equal to the amount by which the dividend payable to Junior Stock holders
exceeds three cents ($0.03) per share. Each share of Series A Preferred Stock
shall be entitled to receive such additional dividend amount for each share of
Common Stock into which such share of Series A Preferred Stock could be
converted, pursuant to Section 6 hereof, at the record date
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<PAGE> 6
for the determination of shareholders entitled to receive the Junior Stock
dividend or, if no such record date is established, on the date such Junior
Stock dividend is declared.
Section 3. Liquidation Rights of Series A Preferred Stock.
(a) Preference. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
Series A Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Company available for distribution to its shareholders,
whether such assets are capital, surplus, or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of the Junior Stock, an amount equal to $0.50 per share plus an amount equal to
all accrued and unpaid dividends thereon, whether or not earned or declared, to
and including the date full payment shall be tendered to the holders of the
Series A Preferred Stock with respect to such liquidation, dissolution or
winding up. If upon any liquidation, dissolution, or winding up of the Company,
whether voluntary or involuntary, the assets to be distributed to the holders of
the Series A Preferred Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts aforesaid, then all of the assets
of the Company to be distributed shall be distributed ratably to the holders of
the Series A Preferred Stock on the basis of the number of shares of Series A
Preferred Stock held.
(b) Remaining Assets. After the payment or distribution to the
holders of the Series A Preferred Stock of the full preferential amounts
aforesaid, the holders of the Series A Preferred Stock and Junior Stock then
outstanding shall be entitled to receive ratably, with all Series A Preferred
Stock treated as if it had been converted into Common Stock pursuant to Section
6 hereof, all remaining assets of the Company to be distributed.
(c) Consent to Certain Transactions. Each holder of shares of Series
A Preferred Stock shall, by virtue of its acceptance of a stock certificate
evidencing Series A Preferred Stock, be treated as having consented to
distributions made by the Company by the repurchase of shares of Common Stock
from directors, employees or shareholders of or consultants or advisers to the
Company or any Subsidiary upon the termination of employment by or service to
the Company or any Subsidiary or otherwise if such repurchase is made in
accordance with the repurchase agreements referred to in Sections 2(b) and 7(b)
hereof and such repurchases are not prohibited by Florida law.
6
<PAGE> 7
Section 4. Merger, Consolidation.
(a) Right to Elect Redemption. At any time, in the event of:
(1) any consolidation or merger of the Company with or into
any other corporation or other entity or person, or any other corporate
reorganization or transaction or series of related transactions by the Company
in which in excess of 50% of the Company's voting power is transferred, other
than in connection with the initial public offering for cash by the Company of
its Common Stock pursuant to a registration statement declared effective under
the Securities Act, or
(2) a sale or other disposition of all or substantially all of
the assets of the Company,
then the holders of a Majority of the Series A Preferred Stock shall have the
right to cause the Company to redeem on the date of the closing of the proposed
transaction (the "Scheduled Redemption Date"), at the Redemption Price
hereinafter specified, all outstanding shares of Series A Preferred Stock by
delivering to the Company, at any time within thirty (30) days of the date of
the First Notice (as hereinafter defined) (or, if later, within ten (10) days of
any notice of material changes to the transaction required pursuant to Section
4(b) hereof), written notice of such election (the "Notice of Election"),
executed by the holders of a Majority of the Series A Preferred Stock. The
Notice of Election may provide that the redemption of the Series A Preferred
Stock shall be contingent upon the closing of the proposed transaction described
in the First Notice.
(b) Notice. The Company shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
thirty (30) days prior to the shareholders' meeting called to approve such
transaction, or thirty (30) days prior to the closing of such transaction,
whichever is earlier (the "First Notice"), and shall also notify such holders in
writing of the final approval of such transaction. The First Notice shall set
forth the provisions of this Section 4, and shall describe in relevant detail
the material terms and conditions of the impending transaction, including,
without limitation, the identity of the parties to the transaction, the amount
and type of consideration to be paid and received (including any contingent
consideration which may be payable in the future), the structure of the
transaction, the mechanics and the closing date of the transaction, and any
other agreements or arrangements for compensation (whether in connection with
employment, consulting services or
7
<PAGE> 8
otherwise) of any director, officer, employee or shareholder of the Company. The
Company shall thereafter give such holders prompt notice of any material changes
in the terms and conditions described in the First Notice. The transaction shall
in no event take place sooner than thirty (30) days after the Company has given
the First Notice or sooner than ten (10) days after the Company has given notice
of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of a Majority
of the Series A Preferred Stock.
(c) Legally Available Funds. If the funds of the Company legally
available for redemption of Series A Preferred Stock on the Scheduled Redemption
Date are insufficient to redeem all outstanding shares, the Company shall
forthwith either:
(1) Cause such closing to be postponed until such time as the
requirements of this Section 4 have been complied with; or
(2) Cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock shall
revert to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the First Notice.
(d) Redemption Price. The Redemption Price of the Series A Preferred
Stock (the "Redemption Price") shall be an amount per share equal to $0.50 plus
all accrued and unpaid dividends thereon, whether or not earned or declared, to
and including the Scheduled Redemption Date.
(e) Redemption Notice. The Company shall, not less than three (3)
days prior to the Scheduled Redemption Date, give written notice (the
"Redemption Notice"), to each holder of record of Series A Preferred Stock to be
redeemed. The Redemption Notice shall state:
(1) That the outstanding shares of Series A Preferred Stock
are to be redeemed and the total number of shares being redeemed;
(2) The number of shares of Series A Preferred Stock held by
the holder which the Company intends to redeem;
(3) The Scheduled Redemption Date and Redemption Price;
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<PAGE> 9
(4) That the holder's right to convert the Series A Preferred
Stock will terminate on the Scheduled Redemption Date; and
(5) The time, place and manner in which the holder is to
surrender to the Company the certificate or certificates representing the shares
of Series A Preferred Stock to be redeemed.
(f) Payment of Redemption Price and Surrender of Stock. On the
Scheduled Redemption Date, the Redemption Price of the Series A Preferred Stock
scheduled to be redeemed shall be payable to the holders of the Series A
Preferred Stock. On or before the Scheduled Redemption Date, each holder of
Series A Preferred Stock to be redeemed, unless the holder has exercised his
right to convert the shares as provided in Section 6 hereof, shall surrender the
certificate or certificates representing such shares to the Company, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be cancelled and retired, in each case
subject to the closing of the transaction described in the First Notice.
(g) Termination of Rights. If the Redemption Notice is duly given,
then notwithstanding that the certificates evidencing any of the shares of
Series A Preferred Stock so called or scheduled for redemption have not been
surrendered, all rights with respect to such shares shall forthwith after the
Scheduled Redemption Date cease and determine, except only (i) the right of the
holders to receive the Redemption Price without interest upon surrender of their
certificates therefor or (ii) the right to receive Common Stock plus dividends
upon exercise of the conversion rights provided in Section 6 hereof on or before
the Scheduled Redemption Date.
(h) The provisions of this Section 4 are in addition to the
protective provisions of Section 7 hereof.
Section 5. Voting Rights.
(a) Series A Preferred Stock. Each holder of shares of Series A
Preferred Stock shall be entitled to vote on all matters and shall be entitled
to the number of votes equal to the largest number of full shares of Common
Stock into which such shares of Series A Preferred Stock could be converted,
pursuant to the provisions of Section 6 hereof, at the record date for the
determination of the shareholders
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<PAGE> 10
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken.
(b) Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held. Except as otherwise expressly
provided by law, the holders of Series A Preferred Stock and the holders of
Common Stock shall vote together and not as separate classes.
Section 6. Conversion. The holders of Series A Preferred Stock shall
have the following conversion rights:
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at any time at the option of the holder thereof, into fully paid
and non-assessable shares of Common Stock.
(b) Conversion Price. The Series A Preferred Stock shall be
convertible into the number of shares of Common Stock which results from
dividing the Conversion Price (as hereinafter defined) in effect at the time of
conversion into $0.50 for each share of Series A Preferred Stock being
converted. The Conversion Price shall be $0.50, subject to adjustment from time
to time as provided below (the "Conversion Price").
(c) Mechanics of Conversion. Each holder of Series A Preferred Stock
who desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or of any transfer agent for the Series A Preferred Stock or Common
Stock, and shall give written notice to the Company at such office that such
holder elects to convert the same and shall state therein the number of shares
of Series A Preferred Stock being converted. Thereupon the Company shall
promptly issue and deliver to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and (except if
the Common Stock has previously achieved the Valuation Objective) shall promptly
pay in cash or, if the Company so elects or is legally or financially unable to
pay such dividends in cash, Common Stock (valued at the Common Stock's Fair
Market Value at the time of surrender), all accrued and unpaid dividends on the
shares of Series A Preferred Stock being converted, whether or not earned or
declared, to and including the time of conversion. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the certificate representing the shares of Series A
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such
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conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
(d) Adjustment for Stock Splits and Combinations. If the Company at
any time or from time to time after the Commitment Date effects a subdivision of
the outstanding Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased, and conversely, if
the Company at any time or from time to time after the Commitment Date combines
the outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection (d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the
Company at any time or from time to time after the Commitment Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this
subsection (e) as of the time of actual payment of such dividends or
distributions.
(f) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Commitment Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, then and in each such event provision shall
be made so that the holders of Series A Preferred Stock shall
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receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Company which they
would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section 6 with respect to the rights of the holders of the Series A Preferred
Stock.
(g) Adjustment for Reclassification, Exchange and Substitution. In
the event that at any time or from time to time after the Commitment Date, the
Common Stock issuable upon the conversion of the Series A Preferred Stock is
changed into the same or a different number of shares of any class or classes of
stock whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this Section
6), then and in any such event each holder of Series A Preferred Stock shall
have the right thereafter to convert such stock into the kind and amount of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change, by holders of the maximum number of shares of
Common Stock into which such shares of Series A Preferred Stock could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time after the Commitment Date there is a capital
reorganization of the Common Stock (other than a recapitalization, subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section 6) or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's properties
and assets to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of the Series
A Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 6 with respect to the
rights of the holders of the Series A Preferred Stock
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<PAGE> 13
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section 6 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as may be practicable.
(i) Sale of Shares Below Conversion Price.
(1) If at any time or from time to time after the Commitment
Date, the Company issues or sells, or is deemed by the express provisions of
this subsection (i) to have issued or sold, Additional Shares of Common Stock
(as hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in subsection (e) or subsection (f) above and other
than upon a subdivision or combination of shares of Common Stock as provided in
subsection (d) above, for an Effective Price (as hereinafter defined) less than
the then existing Conversion Price, then and in each such case the then existing
Conversion Price shall be reduced, as of the opening of business on the date of
such issue or sale, to a price determined by multiplying that Conversion Price
by a fraction (i) the numerator of which shall be (A) the number of shares of
Common Stock outstanding at the close of business on the day next preceding the
date of such issue or sale, plus (B) the number of shares of Common Stock which
the aggregate consideration received (or by the express provisions hereof deemed
to have been received) by the Company for the total number of Additional Shares
of Common Stock so issued would purchase at such Conversion Price, plus (C) the
number of shares of Common Stock into which the outstanding shares of all Series
A Preferred Stock are convertible at the close of business on the date next
preceding the date of such issue or sale, plus (D) the number of shares of
Common Stock underlying all other Securities (as hereinafter defined) at the
close of business on the date next preceding the date of such issue or sale, and
(ii) the denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the date of such issue or sale after
giving effect to such issue of Additional Shares of Common Stock, plus (B) the
number of shares of Common Stock into which the outstanding shares of all Series
A Preferred Stock are convertible at the close of business on the date next
preceding the date of such issue or sale, plus (C) the number of shares of
Common Stock underlying the other Securities at the close of business on the
date next preceding the date of such issue or sale.
(2) For the purpose of making any adjustment required under
this subsection (i), the consideration
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<PAGE> 14
received by the Company for any issue or sale of securities shall (A) to the
extent it consists of cash be computed at the amount of cash received by the
Company, (B) to the extent it consists of property other than cash, be computed
at the fair value of that property as determined in good faith by the Board, (C)
if Additional Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or options,
and (D) be computed after reduction for all commissions and underwriting,
broker's or finder's fees (not including accounting or legal fees) payable by
the Company in connection with such issue or sale.
(3) For the purpose of the adjustment required under this
subsection (i), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into or exchangeable for,
Additional Shares of Common Stock (such convertible or exchangeable stock or
securities being hereinafter referred to as "Convertible Securities") and if the
Effective Price of such Additional Shares of Common Stock is less than the
conversion Price then in effect, then in each case the Company shall be deemed
to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise, conversion or exchange thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such rights or options or Convertible Securities, plus, in the case of such
rights or options, the minimum amounts of consideration, if any, payable to the
Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion or exchange thereof. No
further adjustment of the Conversion Price, adjusted upon the issuance of such
rights, options or Convertible Securities, shall be made as a result of the
actual issuance of Additional Shares of Common Stock on the exercise of any such
rights or options or the conversion or exchange of any such Convertible
Securities. If any such rights or options or the conversion or exchange
privilege represented by any such Convertible Securities shall expire
14
<PAGE> 15
without having been exercised, the Conversion Price adjusted upon the issuance
of such rights, options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion or exchange of such
Convertible Securities and such Additional Shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received by the Company for
the granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted or exchanged, plus the consideration, if any, actually
received by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion or
exchange of such Convertible Securities.
(4) For the purpose of the adjustment required under this
subsection (i), if the Company issues or sells, or is deemed by the express
provisions of this subsection to have issued or sold, any rights or options for
the purchase of Convertible Securities and if the Effective Price of the
Additional Shares of Common Stock underlying such Convertible Securities is less
than the Conversion Price then in effect, then in each such case the Company
shall be deemed to have issued at the time of the issuance of such rights or
options the maximum number of Additional Shares of Common Stock issuable upon
conversion or exchange of the total amount of Convertible Securities covered by
such rights or options and to have received as consideration for the issuance of
such Additional Shares of Common Stock an amount equal to the amount of
consideration, if any, received by the Company for the issuance of such rights
or options, plus the minimum amounts of consideration, if any, payable to the
Company upon the exercise of such rights or options and plus the minimum amount
of consideration, if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon the
conversion or exchange of such Convertible Securities. No further adjustment of
the Conversion Price, adjusted upon the issuance of such rights or options,
shall be made as a result of the actual issuance of the Convertible Securities
upon the exercise of such rights or options or upon the actual issuance of
Additional Shares of Common Stock upon the conversion or exchange of such
Convertible Securities. The provisions of paragraph (3) above for the
readjustment of the Conversion Price upon the expiration of rights or options or
the rights of conversion or exchange of Convertible Securities shall apply
15
<PAGE> 16
mutatis mutandis to the rights, options and Convertible securities referred to
in this paragraph (4).
(5) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Company after the Commitment Date, whether or not
subsequently reacquired or retired by the Company, other than (i) shares of
Common Stock issued upon conversion of the Series A Preferred Stock and (ii) the
first 2,000,000 shares of Common Stock (as adjusted to reflect stock splits,
stock dividends and combinations of shares, and the like) issued to employees or
directors of or consultants and advisers to the Company or any Subsidiary
pursuant to stock purchase or stock option plans or other arrangements, that are
approved by the Board. The "Effective Price" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Company under this subsection (i), into the aggregate
consideration received, or deemed to have ' been received, by the Company for
such issue under this subsection (i), for such Additional Shares of Common
Stock. "Other Securities" with respect to an issue or sale of Additional Shares
of Common Stock shall mean (i) stock and other securities convertible into or
exchangeable for Common Stock, and (ii) options or warrants to purchase Common
Stock at a price that is no greater than 95% of the Effective Price of such
issue or sale of Additional Shares of Common Stock; "the number of shares of
Common Stock underlying other Securities" on a particular date shall mean the
number of shares of Common Stock issuable upon the exercise, conversion or
exchange, as the case may be, of such other Securities at the close of business
on such date but only to the extent that the holders thereof have the fully
vested legal right to exercise, convert or exchange such other Securities on
such date and to retain the Common Stock issued upon such exercise, conversion
or exchange.
(j) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Conversion Price or the number of shares of
Common Stock or other securities issuable upon conversion of the Series A
Preferred Stock, the Company, at its expense, shall cause independent public
accountants of recognized standing selected by the Company (who may be the
independent public accountants then auditing the books of the Company) to
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to each registered
holder of the Series A Preferred Stock at the holder's
16
<PAGE> 17
address as shown in the Company's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based including a statement of (1) the
consideration received or deemed to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Conversion Price at the time in effect, (3) the number of
Additional Shares of Common Stock and (4) the type and amount, if any, of other
property which at the time would be received upon conversion of the Series A
Preferred Stock.
(k) Notices of Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any transfer of all or substantially all of the assets of the Company to any
other person or any voluntary or involuntary dissolution, liquidation or winding
up of the Company, the Company shall mail to each holder of Series A Preferred
Stock at least thirty (30) days prior to the record date specified therein, a
notice specifying (1) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (3) the date, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
(l) Automatic Conversion.
(1) At the election of the Company pursuant to the conditions
of paragraph (2) below, each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock based on the then
effective Conversion Price (A) immediately upon the closing of a Qualified
Public Offering or (B) upon the receipt by the Company of a written notice from
the holders of a Majority of the Series A Preferred Stock electing
unconditionally to convert their shares of Series A Preferred Stock; provided,
however, in each of (A) and (B) above, that, unless the Company shall have
previously achieved its Valuation
17
<PAGE> 18
Objective pursuant to Section 2(a) of this Article III or the conversion shall
be required in connection with a Qualified Public Offering, such conversion
shall be conditioned upon payment by the Company of all accrued and unpaid
dividends on the outstanding Series A Preferred Stock, whether or not earned or
declared, to and including the date of such conversion, payable either in cash
or Common Stock (valued at the Common Stock's Fair Market Value), or both.
(2) Following the occurrence of either of the events specified
in paragraph (1) above, the Company shall have the right to elect the automatic
conversion of the Series A Preferred Stock by giving written notice, not less
than ten (10) days prior to the date on which such conversion shall occur, to
each holder of record of Series A Preferred Stock, stating the date of the event
giving rise to the Company's right to elect automatic conversion and the date on
which such conversion shall occur. The holders of a Majority of the Series A
Preferred Stock may waive such 10-day period and consent in writing to an
earlier date on which the automatic conversion shall occur. On the date
specified for the automatic conversion, the outstanding shares of Series A
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent; provided, however,
that the Company shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Series A Preferred Stock are either delivered to the
Company or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates. Upon
the occurrence of such automatic conversion of the Series A Preferred Stock, the
holders of Series A Preferred Stock shall surrender the certificates
representing such shares at the office of the Company or any transfer agent for
the Series A Preferred Stock or Common Stock. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series A Preferred
Stock surrendered were convertible on the date on which such automatic
conversion occurred, and the Company shall promptly pay in cash or Common Stock
(taken at the Common Stock's Fair Market Value as of the date of such
conversion), or both, all accrued and unpaid dividends on the shares of Series A
Preferred Stock
18
<PAGE> 19
being converted, whether or not earned or declared, to and including the date of
such conversion. Notwithstanding any provision in paragraph (1) above or this
paragraph (2), the Company shall not be required to pay dividends upon the
conversion of the Series A Preferred Stock if the Common Stock has achieved the
Valuation Objective or the conversion shall be required in connection with a
Qualified Public Offering.
(m) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of Common Stock on the date of conversion, as determined in good
faith by the Board.
(n) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(o) Notices. Any notice required or permitted by this Section 6 or
any other provision of this Article III to be given to a holder of Series A
Preferred Stock or to the Company shall be in writing and be deemed given upon
the earlier of actual receipt or three (3) days after the same has been
deposited in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, and addressed (i) to each holder of record
at the address of such holder appearing on the books of the Company, or (ii) to
the Company at 888 South Andrews Avenue, Suite 205, Ft. Lauderdale, Florida
33316, or (iii) to the Company or any holder, at any other address specified in
a written notice given to the other for the giving of notice.
(p) Payment of Taxes. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the
19
<PAGE> 20
issue or delivery of shares of Common Stock upon conversion of shares of Series
A Preferred Stock, including without limitation any tax or other charge imposed
in connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series A Preferred
Stock so converted were registered.
(q) No Dilution or Impairment. The Company shall not amend its
Articles of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in carrying
out all such action as may be reasonably necessary or appropriate in order to
protect the conversion rights of the holders of the Series A Preferred Stock
against dilution or other impairment generally in the manner herein set forth.
Section 7. Restrictions and Limitations. So long as any shares of
Series A Preferred Stock remain outstanding, the Company shall not, and shall
not permit any Subsidiary to, without the vote or written consent by the holders
of a Majority of the Series A Preferred Stock:
(a) Redeem, purchase or otherwise acquire for value, any share or
shares of Series A Preferred Stock, or any warrant, option or right to purchase
any Series A Preferred Stock;
(b) Purchase, redeem or otherwise acquire for value (or pay into or
set aside as a sinking fund for such purpose) any Junior Stock or any warrant,
option or right to purchase any Junior Stock; provided, however, that this
restriction shall not apply to (x) the repurchase of shares of Common Stock from
directors or employees of or consultants or advisers to the Company or any
Subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares upon the occurrence of certain events, including without
limitation the termination of employment by or service to the Company or any
Subsidiary or (y) the repurchase of shares of Common Stock pursuant to the right
of first refusal of the Company set forth in the Shareholders Agreement, if and
to the extent such repurchase is authorized and approved in advance by action of
the Board of Directors; and provided further, however, that without the
approval, by vote or written consent, of the holders of a Majority of the Series
A Preferred Stock, the total amount applied to the repurchase of shares of
Common Stock shall not exceed $50,000 during any twelve-month period;
20
<PAGE> 21
(c) Authorize or issue, or obligate itself to issue, any other
equity security senior to or on a parity with the Series A Preferred Stock as to
dividend or redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise; for purposes of this subsection, a senior equity
security shall include any indebtedness convertible into or exchangeable for
shares of capital stock of the Company or issued with (i) shares of capital
stock of the Company or (ii) warrants or other rights to purchase capital stock
of the Company or Convertible Securities; or
(d) Increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Series A Preferred Stock.
Section 8. No Reissuance of Series A Preferred Stock. No share or
shares of Series A Preferred Stock acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be cancelled, retired and eliminated from the shares which the
Company shall be authorized to issue.
Article IV
The duration of the corporation shall be perpetual.
Article V
The street address of the registered office of the corporation in
the State of Florida is c/o The Prentice-Hall Corporation System, Inc., 1201
Hays Street, Suite 105, Tallahassee, Florida 32301.
The name of the registered agent of the corporation at the said
registered office is The Prentice-Hall Corporation System, Inc.
The written acceptance of the said registered agent, as required by
the provisions of Section 607.0501(3) of the Florida Business Corporation Act,
is set forth following the signature of the undersigned and is made a part of
these Second Restated Articles of Incorporation.
21
<PAGE> 22
Article VI
The street and mailing address of the principal office of the
corporation is 888 South Andrews Avenue, Suite 205, Ft. Lauderdale, Florida
33316.
Article VII
The name and address of the incorporator of the corporation
are:
NAME ADDRESS
- ---------------- -------------------------------------
Elsie Sanchez 343 Almeria Avenue
Coral Gables, Florida 33134
Article VIII
If any issuance or sale of stock by the corporation would adversely
affect the proportionate voting or dividend rights of the shareholders that are
parties to a Shareholders Agreement with the corporation that grants preemptive
rights, then such shareholders shall have the preemptive right to acquire
proportional amounts of shares to be issued and sold by the corporation on the
terms and conditions set forth in such Shareholders Agreement. Shares subject to
such preemptive rights that are not acquired by such shareholders may be issued
to any person, for a period of 180 days after being offered to such shareholders
or for any other period specified in such Shareholders Agreement, at a
consideration that is not lower than the consideration set for the exercise of
such preemptive rights, as provided in the Shareholders Agreement. Such
preemptive rights shall terminate as to any shareholder upon the termination of
the rights of the shareholder under such Shareholders Agreement, including any
such termination upon the sale of common stock of the corporation pursuant to a
registration statement filed and declared effective pursuant to the Securities
Act.
Article IX
The corporation shall, to the fullest extent permitted by the
provisions of the Florida Business Corporation Act, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said provisions from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said provisions, and
22
<PAGE> 23
the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
IN WITNESS WHEREOF, this instrument is subscribed by the
undersigned.
Dated: __________, 1995
--------------------------------------
Clifford Friedland
Chairman
[Acceptance of Appointment as Registered Agent
on following page]
23
<PAGE> 24
ARTICLES OF AMENDMENT TO
SECOND RESTATED ARTICLES OF INCORPORATION
OF
LONG DISTANCE INTERNATIONAL INC.
To the Department of State
State of Florida
Long Distance International Inc., a Florida corporation (the
"Corporation"), pursuant to Section 607.1006 of the Florida Business Corporation
Act,
Does Hereby Certify:
First: By unanimous written consent in lieu of a meeting, dated July 17,
1997, the Board of Directors of the Corporation duly adopted resolutions setting
forth a proposed amendment to the Second Restated Articles of Incorporation of
Long Distance International Inc., and declaring said amendment to be advisable
and directing that the amendment be submitted to the vote of the shareholders of
the Corporation at a meeting of the shareholders of the Corporation.
Second: That all of the holders of record of the Corporation's Common
Stock and Series A Preferred Stock voting as separate classes were authorized to
vote on the amendment and a majority of the holders of the outstanding shares of
Common Stock and a majority of the outstanding shares of Series A Preferred
Stock by written consent in lieu of a meeting voted in favor of the amendment
with such votes being sufficient to approve the amendment.
Third: That Article VIII of the Second Restated Articles of Incorporation
is hereby deleted in its entirety and Article IX is renumbered Article VIII.
Fourth: That Article III of the Second Restated Articles of Incorporation
of the Corporation is hereby deleted in its entirety and the following new
Article III is substituted in lieu thereof:
Article III
The corporation is authorized to issue three classes of shares: (i) "Common
Stock," (ii) "Series A Preferred Stock," and (iii) "Series B Preferred Stock,"
respectively, each with a par value of $0.001 per share. The number of shares of
Common Stock authorized to
<PAGE> 25
be issued is 100,000,000, the number of shares of Series A Preferred Stock
authorized to be issued is 2,600,000, and the number of shares of Series B
Preferred Stock authorized to be issued is 5,000,000. The rights, preferences,
privileges and restrictions granted to and imposed upon the classes of shares
are set forth below in this Article III.
Section 1. Definitions. For purposes of this Article III the following
definitions shall apply:
"Additional Shares of Common Stock" shall have the meaning set forth
therefor in Section 7(i).
"Advent Entity" shall mean, any of Global Private Equity III L.P., a
Delaware limited partnership; Global Private Equity III-A L.P., a Delaware
limited partnership; Global Private Equity III-B L.P., a Delaware limited
partnership; Global Private Equity III-C L.P., a Delaware limited partnership;
Advent PGGM Global L.P., a Delaware limited partnership; Advent Euro-Italian
Direct Investment Program L.P., a Delaware limited partnership; Advent Partners
(NA) GPE III L.P., a Delaware limited partnership; Advent Partners GPE III L.P.,
a Delaware limited partnership; Advent Partners L.P., a Delaware limited
partnership; Advent Global GECC III L.P., a Delaware limited partnership; and
Four Seasons Venture II AS, a Norwegian limited company.
"Advent Warrant Number" shall mean the number that, as of the date such
determination is made, is the sum of (i) the total number of shares of Common
Stock owned of record by any Advent Entity and purchased from the Corporation
pursuant to one or more warrant certificates originally issued to the Advent
Entities pursuant to that certain Stock Purchase Agreement among the Corporation
and certain Advent Entities, dated the Issue Date, and (ii) the total number of
shares of Common Stock which all Advent Entities are entitled to purchase from
the Corporation pursuant to any warrant certificate held by any Advent Entity
originally issued to any Advent Entity pursuant to that certain Stock Purchase
Agreement among the Corporation and the Advent Entities dated the Issue Date.
"Advent Warrant Ratio" shall mean, as of the date such determination is
made: (a) if no Advent Entity has sold or otherwise transferred any warrant
certificate (or replacement for such certificate pursuant to the terms thereof)
originally issued to the Advent Entities pursuant to that certain Stock Purchase
Agreement among the Corporation and the Advent Entities, dated the Issue Date,
or any Common Stock obtained by any Advent Entity upon exercise of such warrant
certificates, one (1); and (b) otherwise, the quotient, the numerator of which
is the Advent Warrant Number and the denominator of which is the number that
would have been the Advent Warrant Number if no Advent Entity had sold or
otherwise transferred any warrant certificate (or replacement for such
certificate pursuant to the terms thereof) originally issued to any Advent
Entity pursuant to that certain Stock Purchase Agreement among the Corporation
2
<PAGE> 26
and the Advent Entities, dated the Issue Date, or any Common Stock obtained by
any Advent Entity upon exercise of such warrant certificates.
"Average Trading Price" shall have the meaning set forth therefor in
Section 2(a).
"Board" shall mean the Board of Directors of the Corporation.
"Business" shall mean the provision of telecommunication products and
services throughout the world.
"Business Day" shall have the meaning set forth therefor in Section 2(a).
"Certificate of Incorporation" shall mean the Second Restated Articles of
Incorporation as amended from time to time.
"Change in Control" shall mean the occurrence of an event described in
clause (a) or (b) in the definition of "Redemption Event".
"Commitment Date" shall mean the date immediately prior to the date of
original issuance of the Series A Preferred Stock.
"Corporation" shall mean this corporation.
"Common Stock" shall mean the Common Stock of the Corporation.
"Common Stock Equivalent Price Per Share" shall refer to the value for
each share of Common Stock of the Corporation determined in connection with (a)
the sale by the Corporation of any equity or debt securities, or securities
exercisable for or convertible into equity securities of the Corporation or (b)
a Change in Control, and calculated by dividing the Fair Market Value of the
Corporation as of the date of such sale or Change in Control by the sum of the
number of shares of Common Stock outstanding immediately prior to the closing of
any such sale or Change in Control determined on a fully diluted basis, and
assuming the conversion of all convertible securities and the exercise of all
vested options and warrants to purchase Common Stock.
"Common Stock's Fair Market Value" shall mean, if the Common Stock is
traded on the NASDAQ National Market or a national securities exchange, the
average last sale price in such market over the ten (10) trading days on which
the Common Stock was traded immediately preceding the date of determination, or
if not so traded, the fair market value of a share of Common Stock, as
determined in good faith by the Board for the purpose of granting incentive
stock options or issuing shares to employees of the Corporation or any
Subsidiary and determined as of the most recent date that such determination has
been made within one year of the applicable date or, if no such
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determination has been made during such period, the fair market value of such
stock, as determined in good faith by the Board as of the applicable date.
"Conversion Price" shall have the meaning set forth therefor in Section
7(b).
"Convertible Securities" shall have the meaning set forth therefor in
Section 7(i).
"Current Market Value" shall mean with respect to (a) Liquid Consideration
which is cash, the face amount thereof and (b) Liquid Consideration which is
equity or debt securities registered under the Securities Exchange Act of 1934,
as amended, as of the relevant date of determination, if applicable, the
reported last sales price, regular way (and if no such sales take place on a
day, such day shall not be a trading day), as reported on the New York Stock
Exchange Composite Tape or, if such security is not listed or admitted to
trading on the New York Stock Exchange at such time, in the principal
consolidated or composite transaction reporting system on the principal national
securities exchange on which such security is 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 security is not quoted on the NASDAQ National
Market, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by NASDAQ or, if bid and asked prices for
the security on each such day shall not have been reported through NASDAQ, the
average of the bid and asked prices for such date as furnished by any New York
Stock Exchange member firm regularly making a market in such security.
"Current Threshold Price" shall mean $6.05 per share as adjusted by the
Board in good faith in the event of stock splits, stock dividends, stock
combinations, reorganizations, or reclassifications.
"Default Directors" shall have the meaning set forth therefor in Section
6(b).
"Dispose of" when used with reference to any Common Stock, shall mean to
directly or indirectly, voluntarily or involuntarily, sell, assign, make a gift
of, exchange, or otherwise transfer (whether by merger or otherwise), any Common
Stock, including any redemption, purchase or other acquisition in any manner
(whether or not for any consideration) by the Corporation or any Subsidiary of
any Common Stock or option, warrants or rights with respect to any Common Stock.
The terms "Disposition," "Disposing of" and similar variants shall have
correlative meanings.
"Effective Price" shall have the meaning set forth therefor in Section
7(i).
"Election Period" shall have the meaning set forth therefor in Section
5(j).
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"Exchange Event" shall mean the earlier to occur of (a) a Redemption Event
(as hereinafter defined) in which the Common Stock Equivalent Price Per Share
determined in connection with the transaction(s) constituting such event,
multiplied by the Advent Warrant Number, equals or exceeds the Exchange Event
Threshold, or (b) the date on which the Last Sale Price of the Common Stock on
the NASDAQ National Market or a national securities exchange on which the Common
Stock is traded, multiplied by the Advent Warrant Number, exceeds the Exchange
Event Threshold for each of the twenty (20) trading days preceding the date of
determination; provided, however, that an Exchange Event shall not occur at any
time following the occurrence of the 1998 Operating Shortfall.
"Exchange Event Threshold" shall mean the product obtained by multiplying
$98,000,000 by the Advent Warrant Ratio.
"Exempt Transfer" shall mean, with respect to shares of Common Stock held
by Clifford Friedland or David Glassman, (i) a gift or assignment of shares of
Common Stock by such shareholder, whether on death or inter vivos, to (A) a
spouse, (B) any other member of his immediate family (i.e., parents, children,
including those adopted, children's direct descendants, brothers, sisters, and
the spouses of the foregoing), (C) a trust the beneficiaries of which consist
solely of one or more members of his immediate family or (D) a custodian under
the Uniform Gifts to Minors Act or similar fiduciary for the exclusive benefit
of his children; or (ii) a transfer of shares of Common Stock to the legal
representatives of a shareholder upon his death or adjudication of incompetency
or by any such legal representatives to any person to whom such shareholder
could have transferred such shares pursuant to subclause (A), (B), (C) or (D) of
clause (i) of this definition.
"Fair Market Value of the Corporation" shall mean the value of all of the
equity securities of the Corporation used for purposes of determining the
issuance price of any equity or debt securities of the Corporation, or the
equity value of the Corporation which is derived in good faith by the Board of
Directors of the Corporation from the consideration received by the Corporation
in connection with the sale of any securities or a Change in Control at any time
following the Issue Date.
"Family Donee" shall mean a person to whom an Exempt Transfer is made.
"First Notice" shall have the meaning set forth therefor in Section 4(b).
"Fixed Dividend Date" shall mean the first to occur of (a) the fifth
anniversary of the Issue Date and (b) the date as of which the Corporation
closes an Initial Public Offering.
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"GAAP" shall mean generally accepted accounting principles as in effect
from time to time and consistently applied.
"High Yield Debt Securities" shall mean debt securities issued by the
Corporation and/or one or more of its subsidiaries which are rated Baa 3 or
lower by Moody's Investor Service Inc. ("Moody's") or BBB- or lower by Standard
& Poor's Corporation ("Standard & Poor's"), or their successors, and which may
not be converted upon the election of the Corporation, without the payment of a
premium or penalty, into shares of Common Stock. If neither Standard & Poor's
nor Moody's has issued a rating with respect to any debt securities to be issued
by the Corporation, or if the rating system employed by either such organization
is changed from that which is currently employed, then the Corporation shall
designate a nationally recognized statistical rating organization to rate such
debt securities or adjust the rating limitations set forth above.
"Initial Public Offering" shall mean an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock for the account of the
Corporation.
"Issue Date" shall mean the first date of issuance of any of the Series B
Preferred Stock.
"Junior Stock" shall mean the Common Stock and all other shares of the
Corporation, whether presently outstanding or hereafter issued, other than the
Series A Preferred Stock and the Series B Preferred Stock.
"Last Sale Price" shall mean, in respect of any class of capital stock of
the Corporation that is then publicly traded, and in respect of any day, the
reported last sales price, regular way (and if no such sales take place on a
day, such day shall not be a trading day), as reported on the New York Stock
Exchange Composite Tape or, if such class of capital stock of the Corporation is
not listed or admitted to trading on the New York Stock Exchange at such time,
in the principal consolidated or composite transaction reporting system on the
principal national securities exchange on which such security is 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 security is not
quoted on the NASDAQ National Market, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by NASDAQ or, if
bid and asked prices for the security on each such day shall not have been
reported through NASDAQ, the average of the bid and asked prices for such date
as furnished by any New York Stock Exchange member firm regularly making a
market in such security selected for such purpose by the Board.
"Liquid Consideration" shall mean cash in U.S. dollars, or publicly traded
equity or debt securities, registered under the Securities Exchange Act of 1934,
as amended,
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listed for trading on the New York Stock Exchange, American Stock Exchange,
NASDAQ Small Cap or National Market System, and registered for sale in their
entirety under the Securities Act and other applicable state "blue sky" laws or
available for sale in their entirety pursuant to exemptions from registration
under all such applicable laws.
"Liquidation Event" shall mean a Redemption Event (a) in which the holders
of the Common Stock receive Liquid Consideration and (b) in which the Current
Market Value of Liquid Consideration payable for each share of Common Stock
multiplied by the Advent Warrant Number equals or exceeds the Liquidation Event
Threshold.
"Liquidation Event Threshold" shall mean the product obtained by
multiplying $50,000,000 by the Advent Warrant Ratio.
"Majority" shall mean more than 50% of the outstanding shares of the
referenced series of Preferred Stock.
"New Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities or obligations which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for any Common Stock, either immediately or upon the occurrence of a
specified date or a specified event or the satisfaction or happening of any
other condition or contingency, that are issued, granted or sold after the Issue
Date.
"New Shares of Common Stock" shall mean any shares of Common Stock issued,
granted or sold by the Corporation on or after the Issue Date other than shares
issued upon exercise of options, warrants or any other rights outstanding on
such date or upon conversion of convertible securities outstanding on such date.
"1998 Operating Shortfall" shall be deemed to occur in the event that
either (a) the Corporation recognizes $100 million or less in gross revenues for
the fiscal year ending December 31, 1998 as determined on a consolidated basis
and in accordance with GAAP or (b) the Corporation realizes a loss before
interest, taxes, depreciation and amortization, as determined on a consolidated
basis and in accordance with GAAP, in excess of $10 million for the fiscal year
ending December 31, 1998.
"Notice of Election" shall have the meaning set forth therefor in Section
4(a).
"Other Securities" shall have the meaning set forth therefor in Section
7(i).
"Preferred Directors" shall have the meaning set forth in Section 6(b).
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"Preferred Stock" shall mean the Series A Preferred Stock and the Series B
Preferred Stock, either individually or collectively as the context requires.
"Qualified Public Offering" shall mean an underwritten public offering
pursuant to an effective registration statement under the Securities Act
covering the offering and sale of Common Stock for the account of the
Corporation in which the aggregate gross proceeds received by the Corporation at
the public offering price equals or exceeds $7,500,000, the public offering
price per share of which equals or exceeds $2.00 per share of Common Stock
(appropriately adjusted for subdivisions and combinations of shares of Common
Stock and dividends on Common Stock payable in shares of Common Stock) and the
obligation of the underwriters with respect to which is that if any of the
securities being offered are purchased, all such securities must be purchased.
"Redemption Default" shall have the meaning set forth therefor in Section
5(j).
"Redemption Event" shall mean (a) the occurrence of a sale of all or
substantially all of the assets of the Corporation, (b) the consolidation or
merger of the Corporation with or into another entity or the effectuation by the
Corporation of a transaction or a series of related transactions (other than an
Initial Public Offering) immediately after which such consolidation, merger,
transaction or transactions the persons and entities (not including the
surviving or transferee entity, including any affiliate thereof) who were the
beneficial owners of the outstanding voting power of the Corporation immediately
prior to such consolidation, merger, transaction or transactions are not the
beneficial owners, directly or indirectly, of more than 50% of the total voting
power of the Corporation or the surviving or transferee entity, (c) the
completion of both (x) an Initial Public Offering and (y) the issuance by the
Corporation of High Yield Debt Securities, (d) the occurrence of a Restricted
Disposition or (e) the first date on which both Clifford Friedland and David
Glassman (each, an "Executive") are no longer employed by the Corporation and
their respective employment was terminated by them for a reason or reasons other
than Good Reason. Termination by the Executive for "Good Reason" shall mean (i)
the Corporation shall have failed to substantially comply with or perform a
material condition or covenant of a written employment agreement or, (ii)
without Executive's consent, if (a) Executive's duties or title are materially
altered or (b) in the performance of Executive's duties and obligations
Executive shall be required to report exclusively to any person other than the
Board or (iii) at the expiration of any employment agreement with Executive the
Corporation shall fail to offer Executive a new employment agreement on terms
and conditions, taken as a whole, no less favorable to Executive than those
contained in the expired employment agreement.
"Redemption Notice" shall have the meaning set forth therefor in Section
4(e).
"Redemption Price" shall have the meaning set forth therefor in Section
4(d).
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"Required Redemption Date" shall have the meaning set forth therefor in
Section 5(l).
"Restricted Disposition" shall mean (a) any Disposition or series of
related Dispositions by one or more holders of Common Stock of amounts of Common
Stock that in the aggregate constitute more than 50% of the issued and
outstanding shares of Common Stock, provided that, in calculating such aggregate
amount, Dispositions by the Advent Entities, Clifford Friedland and his Family
Donees (the "Friedland Group") and David Glassman and his Family Donees (the
"Glassman Group") shall not be considered, (b) any Disposition of any Common
Stock by any member of the Friedland Group or by any member of the Glassman
Group which results or would result in each of the Friedland Group and the
Glassman Group beneficially owning less than 50% of the amount (adjusted as
appropriate to reflect stock splits, stock dividends, combinations,
reorganizations and reclassifications) of Common Stock beneficially owned by
each such Group as of the Issue Date, or (c) any Disposition or series of
related Dispositions by one or more holders of Common Stock of amounts of Common
Stock that in the aggregate constitute more than 50% of the issued and
outstanding shares of Common Stock, and which results in either the Friedland
Group or the Glassman Group beneficially owning less than 50% of the amount
(adjusted as appropriate to reflect stock splits, stock dividends, combinations,
reorganizations and reclassifications) of Common Stock owned by the Friedland
Group or the Glassman Group, as the case may be, as of the Issue Date.
"Scheduled Redemption Date" shall have the meaning set forth therefor in
Section 4(a).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Stock" shall mean the Series A Preferred Stock of the
Corporation.
"Series B Notice of Election" shall have the meaning set forth therefor in
Section 5(a).
"Series B Preferred Stock" shall mean the Series B Preferred Stock of the
Corporation.
"Series B Redemption Date" shall have the meaning set forth therefor in
Section 5(a).
"Series B Redemption Notice" shall have the meaning set forth therefor in
Section 5(e).
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"Series B Redemption Price" shall have the meaning set forth therefor in
Section 5(d).
"Series B Required Redemption Price" shall have the meaning set forth
therefor in Section 5(l).
"Shareholders Agreements" shall mean, collectively, the shareholders
agreement among the Corporation and certain of its shareholders dated as of July
22, 1994, the shareholders agreement among the Corporation and certain of its
shareholders dated as of September 1994, and the preemptive rights agreement
among the Corporation and certain of its shareholders dated the Issue Date, as
each such agreement may be amended, supplemented, modified, or restated from
time to time.
"Specified Event" shall have the meaning set forth therefor in Section
2(a).
"Subsidiary" shall mean any corporation controlled by the Corporation,
directly or indirectly.
"Valuation Objective" shall have the meaning set forth therefor in Section
2(a).
Section 2. Dividends.
(a) Series A Preferred Stock.
(1) Right to Dividends. The holders of the then outstanding Series A
Preferred Stock shall be entitled to receive, when and as declared by the Board,
and out of any funds legally available therefor, cumulative cash dividends at
the annual rate of three cents ($0.03) per share. Except as provided below,
dividends on the Series A Preferred Stock shall accumulate and accrue on each
such share from the date of its original issue and shall accrue from day to day
thereafter, whether or not earned or declared. Subject to the limitations and
restrictions hereinafter set forth, dividends shall be payable, when and as
declared by the Board, at any time or date chosen by the Board; provided,
however, except as provided below, all accrued and unpaid dividends as of
December 31, 1998 shall be paid on such date, and thereafter, all accrued and
unpaid dividends shall be paid on each December 31 (or, if such day is not a
Business Day, on the next following Business Day) of each year, whether or not
declared by the Board; provided further, however, that, except as provided
below, all accrued dividends, the payment of which has not otherwise been
required pursuant to this sentence, shall become payable immediately in the
event of the occurrence of a Specified Event (as hereinafter defined) and shall
thereafter be paid on each December 31 (or it such day is not a Business Day, on
the next following Business Day) of each year, whether or not declared by the
Board. For the purposes hereof, a "Specified Event" shall include the closing of
an offering and sale of Common Stock or other equity securities for the
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account of the Corporation in which the aggregate gross proceeds received by the
Corporation at the offering price exceeds $5,000,000 (other than the offer and
sale of equity securities to the Advent Entities pursuant to the Stock Purchase
Agreement among the Corporation and the Advent Entities dated the Issue Date and
to the other shareholders of the Corporation pursuant to the Preemptive Rights
Notice, dated July 7, 1997), or, if the offering is an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, in which the aggregate gross proceeds received by the Corporation at the
offering price exceeds $7,500,000. Notwithstanding any provision herein to the
contrary, dividends shall cease to accrue, and the payment of any and all
previously accrued and unpaid dividends shall be waived, if the Common Stock
achieves its "Valuation Objective", which shall mean at any time the Average
Trading Price (as hereinafter defined) equals or exceeds $2.00 per share, as
adjusted for stock splits, stock dividends, combinations of shares and the like;
provided, however, that the Valuation Objective shall only be deemed to be
achieved if the Average Trading Price specified in this sentence is achieved for
a period of time which the Common Stock was traded, throughout the relevant
period of time, on the NASDAQ National Market, a national securities exchange
registered under the Securities Exchange Act of 1934 or the NASDAQ Small Cap
Market. For the purposes hereof, the "Average Trading Price" shall mean, (x) if
the Common Stock is traded on a national securities exchange or the NASDAQ
National Market, the average of the last sales price of the Common Stock in such
market for thirty (30) consecutive trading days (skipping any trading days on
which no shares of Common Stock are traded), or (y) if the Common Stock is
traded on the NASDAQ Small Cap Market, the average of the high bid and low ask
price in such market at the end of the trading day for thirty (30) consecutive
trading days. "Business Day" shall mean any day excluding Saturday, Sunday and
any day which shall be in the State of Florida a legal holiday or a day on which
banking institutions are authorized by law to close. The Corporation at its
option may make any dividend payment on the Series A Preferred Stock in shares
of Common Stock or cash, or both, with each share of Common Stock being valued
for this purpose at the Common Stock's Fair Market Value on the date such
dividend is declared or, if the Common Stock is not issued within ten (10) days
after the date of declaration, on the date such Common Stock is issued. Such
dividends shall be cumulative so that if such dividends in respect of any
previous or current quarterly dividend period, at the rate specified above,
shall not have been paid or declared and a sum sufficient for the payment
thereof set apart, the deficiency shall first be fully paid before any dividend
or other distribution shall be paid or declared and set apart for the Common
Stock. Any accumulation of dividends on the Series A Preferred Stock shall not
bear interest.
(2) Priority. Unless dividends on the Series A Preferred Stock
accrued for all past dividend periods and the then current dividend period
(i.e., the period ending on December 31 in any particular year) shall have been
paid or declared and a sum sufficient for the payment thereof set apart, or the
Common Stock shall have achieved the Valuation Objective, (i) no dividend
whatsoever (other than a dividend payable solely
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in Common Stock) shall be paid or declared, and no distribution shall be made,
on any Junior Stock, and (ii) no shares of Junior Stock shall be purchased,
redeemed or acquired by the Corporation and no monies shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption or
acquisition thereof; provided, however, that this restriction shall not apply to
(x) the repurchase of shares of Common Stock from directors or employees of or
consultants or advisers to the Corporation or any Subsidiary pursuant to
agreements under which the Corporation has the option to repurchase such shares
upon the occurrence of certain events, including without limitation the
termination of employment by or service to the Corporation or any Subsidiary or
(y) the repurchase of shares of Common Stock pursuant to the right of first
refusal of the Corporation set forth in that certain Shareholders Agreement,
dated as of July 22, 1994, and that certain Shareholders Agreement, dated as of
September 1994, in each case as may be amended from time to time thereafter
among the Corporation and the Shareholders identified therein, if and to the
extent such repurchase is authorized and approved in advance by action of the
Board; and provided further, however, that without the approval, by vote or
written consent, of the holders of a Majority of the Series A Preferred Stock
the total amount applied to the repurchase of shares of Common Stock shall not
exceed $50,000 during any twelve-month period.
(3) Additional Dividends. After cumulative dividends on the Series A
Preferred Stock for all past dividend periods and the then current dividend
period (i.e., the period ending on December 31 in any particular year) shall
have been declared and paid or set apart, if the Board shall elect to declare
any cash dividends payable to holders of Junior Stock in any amount in excess of
three cents ($0.03) per share, then the Board shall declare, and the Corporation
shall pay to the holders of Series A Preferred Stock, an additional dividend per
share equal to the amount by which the dividend payable to Junior Stock holders
exceeds three cents ($0.03) per share. Each share of Series A Preferred Stock
shall be entitled to receive such additional dividend amount for each share of
Common Stock into which such share of Series A Preferred Stock could be
converted, pursuant to Section 7 hereof, at the record date for the
determination of shareholders entitled to receive the Junior Stock dividend or,
if no such record date is established, on the date such Junior Stock dividend is
declared.
(b) Series B Preferred Stock
(1) Right to Dividends. The holders of the then outstanding Series B
Preferred Stock shall be entitled to receive, when and as declared by the Board,
and out of any funds legally available therefor, cash dividends at the annual
rate of $1.20 per share commencing on the Fixed Dividend Date until such time as
the Series B Preferred Stock shall have been redeemed, converted or retired;
provided, however, that in the event that the 1998 Operating Shortfall shall
have occurred, dividends on the Series B Preferred Stock shall be payable when
and as declared by the Board from and after such event at the annual rate of
$1.80 per share. Dividends on the Series B Preferred Stock
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shall not be cumulative and shall be payable when and as declared by the Board,
at any time or date chosen by the Board.
(2) Priority. Unless dividends on the Series B Preferred Stock for
the then current dividend period (i.e., the year ending December 31 for the year
ended immediately preceding the year in which any such dividend payment may be
made or declared) shall have been paid or declared and a sum sufficient for the
payment thereof set apart, (i) no dividend whatsoever (other than a dividend
payable solely in Common Stock) shall be paid or declared effective on any
Junior Stock, and (ii) no distribution shall be made on any any Junior Stock.
Section 3. Liquidation Rights.
(a) Series A Preferred Stock. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of the Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
shareholders, whether such assets are capital, surplus, or earnings, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of the Junior Stock but only following the payment in full of the
amounts required by paragraph (b) below to the holders of Series B Preferred
Stock, an amount equal to $0.50 per share plus an amount equal to all accrued
and unpaid dividends thereon, whether or not earned or declared, to and
including the date full payment shall be tendered to the holders of the Series A
Preferred Stock with respect to such liquidation, dissolution or winding up. If
upon any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed to the holders of the
Series A Preferred Stock following the payment in full of the amounts required
by paragraph (b) below to the holders of Series B Preferred Stock shall be
insufficient to permit the payment to holders of the Series A Preferred Stock of
the full preferential amounts aforesaid, then all of the remaining assets of the
Corporation to be distributed shall be distributed ratably to the holders of the
Series A Preferred Stock on the basis of the number of shares of Series A
Preferred Stock held.
(b) Series B Preferred Stock. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the holders
of Series B Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its shareholders,
whether such assets are capital, surplus or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of Series A Preferred Stock or Junior Stock, an amount equal to $10 for each
share of Series B Preferred Stock plus any declared but unpaid dividends
thereon. If upon any liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary, the assets to be distributed to the holders of
the Series B Preferred Stock shall be insufficient to permit the payment to such
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shareholders of the full preferential amounts aforesaid, then all of the assets
of the Corporation to be distributed shall be distributed ratably to the holders
of the Series B Preferred Stock on the basis of the number of shares of Series B
Preferred Stock held.
(c) Remaining Assets. After the payment or distribution to the holders of
the Series A Preferred Stock and Series B Preferred Stock of the full
preferential amounts aforesaid, the holders of the Series A Preferred Stock and
Junior Stock then outstanding shall be entitled to receive ratably, with all
Series A Preferred Stock treated as if it had been converted into Common Stock
pursuant to Section 7 hereof, all remaining assets of the Corporation to be
distributed.
(d) Consent to Certain Transactions. Each holder of shares of Preferred
Stock by virtue of its acceptance of a stock certificate evidencing Preferred
Stock shall be treated as having consented to distributions made by the
Corporation by the repurchase of shares of Common Stock from directors,
employees or shareholders of or consultants or advisers to the Corporation or
any Subsidiary upon the termination of employment by or service to the
Corporation or any Subsidiary or otherwise if such repurchase is made in
accordance with the repurchase agreements referred to in clause (y) of Section
8(b) hereof and such repurchases are not prohibited by Florida law.
Section 4. Redemption Rights of Series A Preferred Stock.
(a) Right to Elect Redemption. At any time, in the event of:
(1) any consolidation or merger of the Corporation with or into any
other corporation or other entity or person, or any other corporate
reorganization or transaction or series of related transactions by the
Corporation (other than an Initial Public Offering) immediately after which
consolidation, merger, transaction or transactions the persons and entities
(exclusive of the surviving or transferee entity, including any affiliate
thereof) who were the beneficial owners of the outstanding voting power of the
Corporation immediately prior to such transaction or transactions are not the
beneficial owners, directly or indirectly, of more than 50% of the total voting
power of the Corporation or the surviving or transferee entity, or
(2) a sale or other disposition of all or substantially all of the
assets of the Corporation, then the holders of a Majority of the Series A
Preferred Stock shall have the right to cause the Corporation to redeem on the
date of the closing of the proposed transaction (the "Scheduled Redemption
Date"), at the Redemption Price hereinafter specified, all outstanding shares of
Series A Preferred Stock by delivering to the Corporation, at any time within
thirty (30) days of the date of the First Notice (as hereinafter defined) (or,
if later, within ten (10) days of any notice of material changes to the
transaction required pursuant to Section 4(b) hereof), written notice of such
election (the "Notice of Election"), executed by the holders of a Majority of
the Series
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A Preferred Stock; provided, however, that the Corporation shall have no
authority or obligation to redeem any shares of Series A Preferred Stock in the
event that there remain outstanding any shares of Series B Preferred Stock. The
Notice of Election may provide that the redemption of the Series A Preferred
Stock shall be contingent upon the closing of the proposed transaction described
in the First Notice.
(b) Notice. The Corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
thirty (30) days prior to the shareholders' meeting called to approve such
transaction, or thirty (30) days prior to the closing of such transaction,
whichever is earlier (the "First Notice"), and shall also notify such holders in
writing of the final approval of such transaction. The First Notice shall set
forth the provisions of this Section 4, and shall describe in relevant detail
the material terms and conditions of the impending transaction, including,
without limitation, the identity of the parties to the transaction, the amount
and type of consideration to be paid and received (including any contingent
consideration which may be payable in the future), the structure of the
transaction, the mechanics and the closing date of the transaction, and any
other agreements or arrangements for compensation (whether in connection with
employment, consulting services or otherwise) of any director, officer, employee
or shareholder of the Corporation. The Corporation shall thereafter give such
holders prompt notice of any material changes in the terms and conditions
described in the First Notice. The transaction shall in no event take place
sooner than thirty (30) days after the Corporation has given the First Notice or
sooner than ten (10) days after the Corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of a Majority of the Series A
Preferred Stock.
(c) Legally Available Funds. If the funds of the Corporation legally
available for redemption of Series A Preferred Stock on the Scheduled Redemption
Date are insufficient to redeem all outstanding shares, the Corporation shall
forthwith either:
(1) Cause such closing to be postponed until such time as the
requirements of this Section 4 have been complied with; or
(2) Cancel such transaction, in which event the rights, preferences
and privileges of the holders of the Series A Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the First Notice.
(d) Redemption Price. The Redemption Price of the Series A Preferred Stock
(the "Redemption Price") shall be an amount per share equal to $0.50 plus all
accrued and unpaid dividends thereon, whether or not earned or declared, to and
including the Scheduled Redemption Date.
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(e) Redemption Notice. The Corporation shall, not less than three (3) days
prior to the Scheduled Redemption Date, give written notice (the "Redemption
Notice"), to each holder of record of Series A Preferred Stock to be redeemed.
The Redemption Notice shall state:
(1) That the outstanding shares of Series A Preferred Stock are to
be redeemed and the total number of shares being redeemed;
(2) The number of shares of Series A Preferred Stock held by the
holder which the Corporation intends to redeem;
(3) The Scheduled Redemption Date and Redemption Price;
(4) That the holder's right to convert the Series A Preferred Stock
will terminate on the Scheduled Redemption Date; and
(5) The time, place and manner in which the holder is to surrender
to the Corporation the certificate or certificates representing the shares of
Series A Preferred Stock to be redeemed.
(f) Payment of Redemption Price and Surrender of Stock. On the Scheduled
Redemption Date, the Redemption Price of the Series A Preferred Stock scheduled
to be redeemed shall be payable to the holders of the Series A Preferred Stock.
On or before the Scheduled Redemption Date, each holder of Series A Preferred
Stock to be redeemed, unless the holder has exercised his right to convert the
shares as provided in Section 7 hereof, shall surrender the certificate or
certificates representing such shares to the Corporation, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price for such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired, in each case subject to
the closing of the transaction described in the First Notice.
(g) Termination of Rights. If the Redemption Notice is duly given, then
notwithstanding that the certificates evidencing any of the shares of Series A
Preferred Stock so called or scheduled for redemption have not been surrendered,
all rights with respect to such shares shall forthwith after the Scheduled
Redemption Date cease and determine, except only (i) the right of the holders to
receive the Redemption Price without interest upon surrender of their
certificates therefor or (ii) the right to receive Common Stock plus dividends
upon exercise of the conversion rights provided in Section 7 hereof on or before
the Scheduled Redemption Date.
(h) The provisions of this Section 4 are in addition to the protective
provisions of Section 8 hereof.
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Section 5. Redemption Rights of Series B Preferred Stock
(a) Right to Elect Redemption. At any time following the earlier of (1)
the seventh anniversary of the Issue Date and (2) the occurrence of a Redemption
Event, and provided an Exchange Event shall not have occurred, the then holders
of a Majority of the Series B Preferred Stock shall have the right to cause the
Corporation to redeem at the Series B Redemption Price hereinafter specified,
all outstanding shares of the Series B Preferred Stock by delivering to the
Corporation written notice of such election (the "Series B Notice of Election"),
executed by the holders of a Majority of Series B Preferred Stock, which notice
shall set forth the date on which such majority determined to exercise such
right of redemption, and the Corporation shall redeem all of the outstanding
shares of the Series B Preferred Stock at the Series B Preferred Redemption
Price within 60 days of the Series B Notice of Election (the "Series B
Redemption Date").
(b) Notice. The Corporation shall give each holder of record of Series B
Preferred Stock written notice of a Redemption Event not later than 30 days
prior to the occurrence of such event.
(c) Legally Available Funds. If the funds of the Corporation legally
available for redemption of Series B Preferred Stock are insufficient to redeem
all outstanding shares, the Corporation shall forthwith cause such closing to be
postponed until such time as the requirements of this Section 5 have been
complied with.
(d) Redemption Price. The redemption price of the Series B Preferred Stock
(the "Series B Redemption Price") shall be an amount per share equal to $10 plus
all accrued and unpaid dividends thereon, whether or not earned or declared, to
and including the Series B Redemption Date; provided, however, that if the 1998
Operating Shortfall shall have occurred (unless an Exchange Event shall have
occurred prior to the 1998 Operating Shortfall), the Series B Redemption Price
shall be $15 per share plus all accrued and unpaid dividends thereof.
(e) Series B Redemption Notice. The Corporation shall, not less than ten
(10) days prior to the Series B Redemption Date, give written notice (the
"Series B Redemption Notice"), to each holder of record of Series B Preferred
Stock to be redeemed. The Redemption Notice shall state:
(1) That the outstanding shares of Series B Preferred Stock are to
be redeemed and the total number of shares being redeemed;
(2) The number of shares of Series B Preferred Stock held by the
holder which the Corporation intends to redeem;
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(3) The Series B Redemption Date and Series B Redemption Price; and
(4) The time, place and manner in which the holder is to surrender
to the Corporation the certificate or certificates representing the shares of
Series B Preferred Stock to be redeemed.
(f) Payment of Series B Redemption Price and Surrender of Stock. On the
Series B Redemption Date, the Series B Redemption Price for the Series B
Preferred Stock scheduled to be redeemed shall be payable to the holders of the
Series B Preferred Stock. On or before the Series B Redemption Date, each holder
of Series B Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares to the Corporation, in the manner and at
the place designated in the Series B Redemption Notice, and thereupon the Series
B Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired.
(g) Termination of Rights. If the Series B Redemption Notice is duly
given, then notwithstanding that the certificates evidencing any of the shares
of Series B Preferred Stock so called or scheduled for redemption have not been
surrendered, all rights with respect to such shares shall forthwith after the
Series B Redemption Date cease and terminate, except only the right of the
holders to receive the Series B Redemption Price without interest upon surrender
of their certificates therefor.
(i) Extension of Series B Redemption. Notwithstanding the foregoing, in
the event that the Corporation issues a High Yield Debt Security prior to the
Series B Redemption Date, the Corporation may extend the Series B Redemption
Date to a date which shall be no later than the Business Day immediately
following the maturity date of the High Yield Debt Security as determined in
accordance with the terms of such security, provided that (i) as of the date of
issuance of such High Yield Debt Security the Corporation shall not have closed
an Initial Public Offering; (ii) there shall not have occurred a Redemption
Event prior to such issue date and (iii) such High Yield Debt Securities shall
have been issued prior to the fifth anniversary of the Issue Date.
(j) Failure to Redeem. In the event that the Corporation fails to redeem
the Series B Preferred Stock on the Series B Redemption Date (a "Redemption
Default"), the holders of the Series B Preferred Stock shall, from the Series B
Redemption Date until such time as the Series B Redemption Price for all of the
outstanding Series B Preferred Stock shall have been paid in full (the "Election
Period"), be entitled to elect an additional two persons to the Board as
provided further in Section 6(b) below.
(k) Optional Redemption. The Corporation shall be entitled to redeem all,
but not less than all, of the outstanding Series B Preferred Stock at the Series
B Redemption
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Price at any time. The Corporation shall give each holder of record of Series B
Preferred Stock written notice of such redemption not less than five (5) days
prior to the date scheduled by the Corporation for such redemption (the
"Optional Redemption Date"). On the Optional Redemption Date, the Series B
Redemption Price for the Series B Preferred Stock shall be payable to the
holders of Series B Preferred Stock. On or before the Optional Redemption Date,
each holder of Series B Preferred Stock shall surrender the certificate or
certificates representing such shares to the Corporation, in the manner and at
the place designated in the notice provided by the Corporation, and thereupon
the Series B Redemption Price for such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof, and each surrendered certificate shall be canceled and retired.
(l) Exchange Event. Upon the occurrence of an Exchange Event and provided
that neither a Redemption Event that is not also an Exchange Event nor the 1998
Operating Shortfall shall have occurred, the outstanding shares of the Series B
Preferred Stock shall be redeemed by the Corporation. The Corporation shall give
each holder of record of Series B Preferred Stock written notice of such
redemption not less than five (5) days prior to the date scheduled by the
Corporation for such redemption (the "Required Redemption Date"), which in the
case of an Exchange Event described in clause (a) of the definition of such term
shall be the consummation of the transaction constituting such event, or such
other date as the Corporation in good faith shall determine. The redemption
price for such a redemption shall be $0.001 per share (the "Series B Required
Redemption Price"). On the Required Redemption Date, the Series B Required
Redemption Price for the Series B Preferred Stock to be so redeemed shall be
payable to the holders of Series B Preferred Stock. On or before the Required
Redemption Date, each holder of Series B Preferred Stock shall surrender the
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the notice provided by the Corporation,
and thereupon the Series B Required Redemption Price for such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof, each certificate shall be canceled and
retired as of the date of such redemption.
Section 6. Voting Rights.
(a) Series A Preferred Stock. Each holder of shares of Series A Preferred
Stock shall be entitled to vote on all matters and shall be entitled to the
number of votes equal to the largest number of full shares of Common Stock into
which such shares of Series A Preferred Stock could be converted, pursuant to
the provisions of Section 7 hereof, at the record date for the determination of
the shareholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken.
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(b) Series B Preferred Stock.
(1) The holders of Series B Preferred Stock, voting as a separate
class, shall have the right by the vote of a Majority of the Series B Preferred
Stock, whether by written action or special meeting of such holders or at an
annual meeting of shareholders, to the exclusion of the holders of any other
series of Preferred Stock and any class of Junior Stock, to elect two directors
(the "Preferred Directors") to the Board.
(2) Upon the occurrence of a Redemption Default and during the
Election Period, the holders of a Majority of Series B Preferred Stock, voting
as a separate class, shall have the right, whether by written action or special
meeting of such holders or at an annual meeting, to the exclusion of the holders
of any other series of Preferred Stock and any class of Junior Stock, to elect
two additional directors ("Default Directors") to the Board, for a total of four
directors. Upon the occurrence of a Redemption Default (i) if there are five (5)
or fewer directors on the Board, then the Preferred Directors shall elect two
(2) Default Directors to the Board or (ii) if there are more than five (5)
directors on the Board, the holders of a Majority of Series B Preferred Stock
shall have the power to call a special meeting of the shareholders for the
purpose of electing no fewer than two (2) directors and no more than five (5)
directors and thereupon the terms of those directors who are not Preferred
Directors, other than Clifford Friedland and David Glassman (if either or both
are then serving as directors), shall be deemed to be completed and the Majority
of the Series B Preferred Stock shall elect two (2) Default Directors and the
majority of the holders of the voting stock other than the Series B Preferred
Stock shall elect up to three (3) directors in the event that neither Clifford
Friedland nor David Glassman are then serving on the Board, or up to two (2)
directors in the event that only one of Clifford Friedland or David Glassman is
then serving on the Board, or up to one (1) director in the event that both of
Clifford Friedland and David Glassman are then serving on the Board. Each
Default Director shall continue to serve until the Series B Redemption Price for
all of the outstanding Series B Preferred Stock shall have been paid in full.
Any Preferred Director or Default Director may be removed by, and shall not be
removed except by, the vote of a Majority of the Series B Preferred Stock voting
together as a single class, at a meeting of the shareholders or of the holders
of the Series B Preferred Stock called for such purpose or by the written
consent of a Majority of the Series B Preferred Stock.
(3) Any vacancy in the office of the Preferred Directors and, during
the Election Period, any vacancy in the office of the Default Directors may be
filled (except as provided in the following clause (ii)) by an instrument in
writing signed by the remaining Preferred Directors and, if in office, Default
Directors and (ii) in the case of the removal of any Preferred Director or
Default Director, the vacancy may be filled by the vote of a Majority of Series
B Preferred Stock, voting together as a single class. Each director appointed or
elected as aforesaid shall be deemed for all purposes hereof, to be a Preferred
Director or a Default Director, as the case may be as designated by the
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director or directors appointing such substitute or by the Majority of Series B
Preferred Stock.
(4) No adjustment in the voting rights of shares of Series B
Preferred Stock shall be made by reason of the declaration of a dividend or
distribution on any class or series of Preferred Stock or Junior Stock payable
in shares of Common Stock, or the reclassification, subdivision or combination
of shares of Common Stock into a greater or lesser-number of shares or upon the
issuance of any shares of any other class of capital stock of the Corporation
(regardless of the nature of the voting rights of the holders of shares of any
such other class of capital stock), or upon any other change in the capital
stock of the Corporation.
(5) Each holder of shares of Series B Preferred Stock shall be
entitled to one vote for each share of Series B Preferred Stock with respect to
the exercise of the voting rights specified herein.
(c) Common Stock. Each holder of shares of Common Stock shall be entitled
to one vote for each share thereof held. Except as otherwise expressly provided
by law, the holders of Series A Preferred Stock and the holders of Common Stock
shall vote together and not as separate classes.
Section 7. Conversion. The holders of Series A Preferred Stock shall have
the following conversion rights:
(a) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, at any time at the option of the holder thereof, into fully paid
and non-assessable shares of Common Stock.
(b) Conversion Price. The Series A Preferred Stock shall be convertible
into the number of shares or Common Stock which results from dividing the
Conversion Price (as hereinafter defined) in effect at the time of conversion
into $0.50 for each share of Series A Preferred Stock being converted. The
Conversion Price shall be $0.50, subject to adjustment from time to time as
provided below (the "Conversion Price").
(c) Mechanics of Conversion. Each holder of Series A Preferred Stock who
desires to convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock or Common
Stock, and shall give written notice to the Corporation at such office that such
holder elects to convert the same and shall state therein the number of shares
of Series A Preferred Stock being converted. Thereupon the Corporation shall
promptly issue and deliver to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and (except if
the Common Stock has previously achieved the Valuation Objective) shall
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promptly pay in cash or, if the Corporation so elects or is legally or
financially unable to pay such dividends in cash, Common Stock (valued at the
Common Stock's Fair Market Value at the time of surrender), all accrued and
unpaid dividends on the shares of Series A Preferred Stock being converted,
whether or not earned or declared, to and including the time of conversion. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the certificate representing the
shares of Series A Preferred Stock to be converted, and the person entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Common Stock on
such date.
(d) Adjustment for Stock Splits and Combinations. If the Corporation at
any time or from time to time after the Commitment Date effects a subdivision of
the outstanding Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately, decreased, and conversely, if
the Corporation at any time or from time to time after the Commitment Date
combines the outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection (d) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the Corporation
at any time or from time to time after the Commitment Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price shall be adjusted pursuant to this
subsection (e) as of the time of actual payment of such dividends or
distributions.
(f) Adjustments for Other Dividends and Distributions. In the event the
Corporation at any time or from time after the Commitment Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a
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dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock, then and in each such event provision shall be made
so that the holders of Series A Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation which they would have
received had their Series A Preferred Stock been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 7 with respect to
the rights of the holders of the Series A Preferred Stock.
(g) Adjustment for Reclassification, Exchange and Substitution. In the
event that at any time or from time to time after the Commitment Date, the
Common Stock issuable upon the conversion of the Series A Preferred Stock is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this Section
7), then and in any such event each holder of Series A Preferred Stock shall
have the right thereafter to convert such stock into the kind and amount of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change, by holders of the maximum number of shares of
Common Stock into which such shares of Series A Preferred Stock could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any
time or from time to time after the Commitment Date there is a capital
reorganization of the Common Stock (other than a recapitalization, subdivision,
combination reclassification or exchange of shares provided in this Section 7)
or a merger or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the Corporation's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Preferred Stock the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock deliverable upon conversion would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 7 with respect to the rights of the holders of the Series A
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 7 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be applicable after that event
and be as nearly equivalent as may be practicable.
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(i) Sale of Shares Below Conversion Price.
(1) If at any time or from time to time after the Commitment Date,
the Corporation issues or sells, or is deemed by the express provisions of this
subsection (i) to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in subsection (e) or subsection (f) above and other
than upon a subdivision or combination of shares of Common Stock as provided in
subsection (d) above, for an Effective Price (as hereinafter defined) less than
the then existing Conversion Price, then and in each such case the then existing
Conversion Price shall be reduced, as of the opening of business on the date of
such issue or sale, to a price determined by multiplying that Conversion Price
by a fraction (i) the numerator of which shall be (A) the number of shares of
Common Stock outstanding at the close of business on the day next preceding the
date of such issue or sale, plus (B) the number of shares of Common Stock which
the aggregate consideration received (or by the express provisions hereof deemed
to have been received) by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price, plus
(C) the number of shares of Common Stock into which the outstanding shares of
all Series A Preferred Stock are convertible at the close of business on the
date next preceding the date of such issue or sale, plus (D) the number of
shares of Common Stock underlying all Other Securities (as hereinafter defined)
at the close of business on the date next preceding the date of such issue or
sale, and (ii) the denominator of which shall be (A) the number of shares of
Common Stock outstanding at the close of business on the date of such issue or
sale after giving effect to such issue of Additional Shares of Common Stock,
plus (B) the number of shares of Common Stock into which the outstanding shares
of all Series A Preferred Stock are convertible at the close of business on the
date next preceding the date of such issue or sale, plus (C), the number of
shares of Common Stock underlying the Other Securities at the close of business
on the date next preceding the date of such issue or sale.
(2) For the purpose of making any adjustment required under this
subsection (i), the consideration received by the Corporation for any issue or
sale of securities shall (A) to the extent it consists of cash be computed at
the amount of cash received by the Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property as
determined in good faith by the Board, (C) if Additional Shares of Common Stock,
Convertible Securities (as hereinafter defined) or rights or options to purchase
either Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets the Corporation for
a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options, and (D) be computed after reduction for all
commissions and
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underwriting, broker's or finder's fees (not including accounting or legal fees)
payable by the Corporation in connection with such issue or sale.
(3) For the purpose of the adjustment required under this subsection
(i), if the Corporation issues or sells any rights or options for the purchase
of, or stock or other securities convertible into or exchangeable for,
Additional Shares of Common Stock (such convertible or exchangeable stock or
securities being hereinafter referred to as "Convertible Securities") and if the
Effective Price of such Additional Shares of Common Stock is less than the
Conversion Price then in effect, then in each case the Corporation shall be
deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise, conversion or exchange thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion or
exchange thereof. No further adjustment of the Conversion Price, adjusted upon
the issuance of such rights, options or Convertible Securities, shall be made as
a result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion or exchange of any such
Convertible Securities. If any such rights or options or the conversion or
exchange privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Price adjusted upon the issuance
of such rights, options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion or exchange of such
Convertible Securities, and such Additional Shares or Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation upon
such exercise, plus the consideration, if any, actually received by the
Corporation for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted or exchanged, plus the consideration,
if any, actually received by the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) on the
conversion or exchange of such Convertible Securities.
(4) For the purpose of the adjustment required under this subsection
(i), if the Corporation issues or sells, or is deemed by the express provisions
of this subsection to have issued or sold, any rights or options for the
purchase of Convertible Securities and if the Effective Price of the Additional
Shares of Common Stock
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underlying such Convertible Securities is less than the Conversion Price then,
in effect, then in each such case the Corporation shall be deemed to have issued
at the time of the issuance of such rights or options the maximum number of
Additional Shares of Common Stock issuable upon conversion or exchange of the
total amount of Convertible Securities covered by such rights or options and to
have received as consideration for the issuance of such Additional Shares of
Common Stock an amount equal to the amount of consideration, it any, received by
the Corporation for the issuance of such rights or options, plus the minimum
amounts of consideration, if any, payable to the Corporation upon the exercise
of such rights or options and plus the minimum amount of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion or
exchange of such Convertible Securities. No further adjustment of the Conversion
Price, adjusted upon the issuance of such rights or options, shall be made as a
result of the actual issuance of the Convertible Securities upon the exercise of
such rights or options or upon the actual issuance of Additional Shares of
Common Stock upon the conversion or exchange of such Convertible Securities. The
provisions of paragraph (3) above for the readjustment of the Conversion Price
upon the expiration of rights or options or the rights of conversion or exchange
of Convertible Securities shall apply mutatis mutandis to the rights, options
and Convertible Securities referred to in this paragraph (4).
(5) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after the Commitment Date, whether or not
subsequently reacquired or retired by the Corporation, other than (i) shares of
Common Stock issued upon conversion of the Series A Preferred Stock; (ii) the
first 2,000,000 shares of Common Stock (as adjusted to reflect stock splits,
stock dividends and combinations of shares, and the like) issued to employees or
directors of or consultants and advisers to the Corporation or any Subsidiary
pursuant to stock purchase or stock option plans or other arrangements, that are
approved by the Board; and (iii) shares of Common Stock issued upon exercise of
a warrant issued to holders of Series B Preferred Stock in connection with the
issuance of the Series B Preferred Stock. The "Effective Price" of Additional
Shares of Common Stock shall mean the quotient determined by dividing the total
number of Additional Shares of Common Stock issued or sold, or deemed to have
been issued or sold by the Corporation under this subsection (i), into the
aggregate consideration received, or deemed to have been received, by the
Corporation for such issue under this subsection (i), for such Additional Shares
of Common Stock. "Other Securities" with respect to an issue or sale of
Additional Shares of Common Stock Shall mean (i) stock and other securities
convertible into or exchangeable for Common Stock, and (ii) options or warrants
to purchase Common Stock at a price that is no greater than 95% of the Effective
Price of such issue or sale of Additional Shares of Common Stock; "the number of
shares of Common Stock underlying Other Securities" on a particular date shall
mean the number of shares of Common Stock issuable upon the exercise, conversion
or exchange, as the case may be, of such Other Securities at the close of
business on such date but only to the extent that the holders thereof have the
26
<PAGE> 50
fully vested legal right to exercise, convert or exchange such Other Securities
on such date and to retain the Common Stock issued upon such exercise,
conversion or exchange.
(j) Accountants' Certificate of Adjustment. In each case of an adjustment
or readjustment of the Conversion Price or the number of shares of Common Stock
or other securities issuable upon conversion of the Series A Preferred Stock,
the Corporation, at its expense, shall cause independent public accountants of
recognized standing selected by the Corporation (who may be the independent
public accountants then auditing the books of the Corporation) to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series A Preferred Stock at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (1) the consideration received
or deemed to be received by the Corporation for any Additional Shares of Common
Stock issued or sold or deemed to have been issued or sold, (2) the Conversion
Price at the time in effect, (3) the number of Additional Shares of Common Stock
and (4) the type and amount, if any, of other property which at the time would
be received upon conversion of the Series A Preferred Stock.
(k) Notices of Record Date. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, any merger or consolidation of the Corporation with or into any
other corporation, or any transfer of all or substantially all of the assets of
the Corporation to any other person or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, the Corporation shall mail to each
holder of Series A Preferred Stock at least thirty (30) days prior to the record
date specified therein, a notice specifying (1) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is expected to become effective, and (3) the date, if
any, that is to be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
reorganization, reclassi- fication, transfer, consolidation, merger,
dissolution, liquidation or winding up.
(1) Automatic Conversion.
(1) At the election of the Corporation pursuant to the conditions of
paragraph (2) below, each share of Series A Preferred Stock shall automatically
be
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<PAGE> 51
converted into shares of Common Stock based on the then effective Conversion
Price (A) immediately upon the closing of a Qualified Public Offering or (B)
upon the receipt by the Corporation of a written notice from the holders of a
Majority of the Series A Preferred Stock electing unconditionally to convert
their shares of Series A Preferred Stock; provided, however, in each of (A) and
(B) above, that, unless the Corporation shall have previously achieved its
Valuation Objective pursuant to Section 2(a) of this Article III or the
conversion shall be required in connection with a Qualified Public Offering,
such conversion shall be conditioned upon payment by the Corporation of all
accrued and unpaid dividends on the outstanding Series A Preferred Stock,
whether or not earned or declared, to and including the date of such conversion,
payable either in cash or Common Stock (valued at the Common Stock's Fair Market
Value), or both.
(2) Following the occurrence of either of the events specified in
paragraph (1) above, the Corporation shall have the right to elect the automatic
conversion of the Series A Preferred Stock by giving written notice, not less
than ten (10) days prior to the date on which such conversion shall occur, to
each holder of record of Series A Preferred Stock, stating the date of the event
giving rise to the Corporation's right to elect automatic conversion and the
date on which such conversion shall occur. The holders of a Majority of the
Series A Preferred Stock may waive such 10-day period and consent in writing to
an earlier date on which the automatic conversion shall occur. On the date
specified for the automatic conversion, the outstanding shares of Series A
Preferred Stock shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series A Preferred Stock are either
delivered to the Corporation or its transfer agent as provided below, or the
holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon the occurrence of such automatic
conversion of the Series A Preferred Stock, the holders of Series A Preferred
Stock shall surrender the certificates representing such shares at the office of
the Corporation or any transfer agent for the Series A Preferred Stock or Common
Stock. Thereupon, there shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series A Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred, and the
Corporation shall promptly pay in cash or Common Stock (taken at the Common
Stock's Fair Market Value as of the date of such conversion), or both, all
accrued and unpaid dividends on the shares of Series A Preferred Stock being
converted, whether or not earned or declared, to and including the date of such
conversion. Notwithstanding any provision in paragraph (1) above or this
paragraph (2), the Corporation shall not be
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<PAGE> 52
required to pay dividends upon the conversion of the Series A Preferred Stock if
the Common Stock has achieved the Valuation Objective or the conversion shall be
required in connection with a Qualified Public Offering.
(m) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of Common Stock on the date of conversion, as determined in good
faith by the Board.
(n) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(o) Notices. Any notice required or permitted by this Section 7 or any
other provision of this Article III to be given to a holder of Preferred Stock
or to the Corporation shall be in writing and be deemed given upon the earlier
of actual receipt or three (3) days after the same has been deposited in the
United States mail, by certified or registered mail, return receipt requested,
postage prepaid, and addressed (i) to each holder of record at the address of
such holder appearing on the books of the Corporation, or (ii) to the
Corporation at 888 South Andrews Avenue, Suite 205, Ft. Lauderdale, Florida
33316, or (iii) to the Corporation or any holder, at any other address specified
in a written notice given to the other for the giving of notice.
(p) Payment of Taxes. The Corporation will pay all taxes (other than taxes
based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series A Preferred Stock, including without limitation any tax or
other charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered.
(q) No Dilution or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance
29
<PAGE> 53
of any of the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in carrying out all such action as
may be reasonably necessary or appropriate in order to protect the conversion
rights of the holders of the Series A Preferred Stock against dilution or other
impairment generally in the manner herein set forth.
Section 8. Series A Preferred Stock Restrictions and Limitations. So long
as any shares of Series A Preferred Stock remain outstanding, the Corporation
shall not, and shall not permit any Subsidiary to, without the vote or written
consent by the holders of a Majority of the Series A Preferred Stock:
(a) Redeem, purchase or otherwise acquire for value, any share or shares
of Series A Preferred Stock, or any warrant, option or right to purchase any
Series A Preferred Stock;
(b) Purchase, redeem or otherwise acquire for value (or pay into or set
aside as a sinking fund for such purpose) any Junior Stock or any warrant,
option or right to purchase any Junior Stock; provided, however, that this
restriction shall not apply to (x) the repurchase of shares of Common Stock from
directors or employees of or consultants or advisers to the Corporation or any
Subsidiary pursuant to agreements under which the Corporation has the option to
repurchase such shares upon the occurrence of certain events, including without
limitation the termination of employment by or service to the Corporation or any
Subsidiary or (y) the repurchase of shares of Common Stock pursuant to the right
of first refusal of the Corporation set forth in the Shareholders Agreement, if
and to the extent such repurchase is authorized and approved in advance by
action of the Board of Directors; and provided further, however, that without
the approval, by vote or written consent, of the holders of a Majority of the
Series A Preferred Stock, the total amount applied to the repurchase of shares
of Common Stock shall not exceed $50,000 during any twelve-month period;
(c) Authorize or issue, or obligate itself to issue, any other equity
security senior to or on a parity with the Series A Preferred Stock as to
dividend or redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise; for purposes of this subsection, a senior equity
security shall include any indebtedness convertible into or exchangeable for
shares of capital stock of the Corporation or issued with (i) shares of capital
stock of the Corporation or (ii) warrants or other rights to purchase capital
stock of the Corporation or Convertible Securities; or
(d) Increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Series A Preferred Stock.
Section 9. Series B Preferred Stock Restrictions and Limitations. So long
as any shares of Series B Preferred Stock remain outstanding, the Corporation
shall not, and
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<PAGE> 54
shall not permit any Subsidiary to, without the vote or written consent by the
holders of a Majority of the Series B Preferred Stock:
(a) (i) Issue, grant or sell, or obligate itself to issue, grant or sell,
or pursuant to clause (iii) below, be deemed to issue, grant or sell, or
obligate itself to be deemed to issue, grant or sell, any New Shares of Common
Stock, unless the consideration therefor is in an amount (determined in
accordance with clause (iv)) at least equal to the Current Threshold Price at
the time such New Shares of Common Stock are issued or deemed to be issued.
(ii) The provisions of Section 9(a)(i) shall not apply to any
issuance, grant or sale of New Shares of Common Stock, if immediately following
such issuance, grant or sale, the aggregate number of New Shares of Common Stock
that have been issued, granted or sold by the Corporation after the Issue Date,
(x) for consideration less than the Current Threshold Price at the time such New
Shares of Common Stock are issued, granted or sold and (y) without the vote or
written consent by the holders of a Majority of the Series B Preferred Stock, is
not greater than ten percent (10%) of the number of shares of Common Stock
issued and outstanding on the Issue Date; provided, however, that such
percentage shall be subject to adjustment by the Board acting in good faith in
the event that after the Issue Date there has been a reverse stock split, stock
dividend, redemption, or other combination with respect to, or reduction in the
number of, the Common Stock;
(iii) The Corporation shall be deemed to have issued New Shares of
Common Stock pursuant to Section 9(a)(i) if the Corporation shall in any manner
(whether directly or indirectly, by assumption in a consolidation or in a merger
in which the Corporation is the surviving corporation, or otherwise) grant,
issue or sell (any of them "Initial Issuance"), any rights to subscribe for,
purchase or otherwise acquire any New Shares of Common Stock or any New
Convertible Securities, in any case whether or not such rights or the right to
exchange or convert such New Convertible Securities are immediately exercisable,
and the consideration per share for which Common Stock is issuable upon the
exercise of such rights or upon conversion or exchange of such New Convertible
Securities (determined pursuant to clause (iv)) shall be less than the Current
Threshold Price in effect immediately prior to the time of such Initial
Issuance; provided, however, that the Corporation shall not be deemed to have
issued any New Shares of Common Stock if the Corporation shall grant, issue or
sell any employee stock options or other rights issued, granted or sold to
officers, employees or consultants of the Corporation or any Subsidiary if the
issuance, grant or sale thereof has been approved by the compensation committee
of the Board.
(iv) The following provisions shall be applicable to determining the
consideration for New Shares of Common Stock for purposes of this Section 9(a):
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<PAGE> 55
(A) To the extent that such issuance or deemed issuance shall
be for a consideration other than cash (which shall be valued at face value),
then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair market value of such consideration
at the time of such issuance or deemed issuance as determined in good faith by
the Board;
(B) In case any New Shares of Common Stock, any New
Convertible Securities or any rights to subscribe for, purchase or otherwise
acquire New Shares of Common Stock or New Convertible Securities shall be issued
in connection with any merger, consolidation, share exchange or similar
transaction, the amount of consideration therefor shall be deemed to be the fair
market value, as determined in good faith by the Board, of such portion of the
assets and business of the nonsurviving corporation as the Board in good faith
shall determine to be attributable to such New Shares of Common Stock, New
Convertible Securities, or rights, as the case may be;
(C) In case any New Shares of Common Stock, any New
Convertible Securities or any rights to subscribe for, purchase or otherwise
acquire New Shares of Common Stock or New Convertible Securities are issued in
combination with each other or with any other securities or property in
connection with any transaction in which the Corporation receives cash,
securities, property or other consideration, or any combination of the
foregoing, then the amount of consideration therefor shall be deemed to be such
portion of the cash, securities, property and other consideration received by
the Corporation as the Board in good faith shall determine to be attributable to
such New Shares of Common Stock, New Convertible Securities or rights, as the
case may be, with any noncash consideration being valued at its fair market
value as determined by the Board in good faith.
(D) The consideration for any New Shares of Common Stock
issuable or deemed to be issuable pursuant to any rights to subscribe for,
purchase or otherwise acquire the same shall be the consideration received or
deemed to be received by the Corporation for issuing such rights plus the
minimum additional consideration, if any, paid or payable to the Corporation
upon the exercise or deemed exercise of such rights.
(E) The consideration for any New Shares of Common Stock
issued or issuable pursuant to the terms of any New Convertible Securities
covered by any rights to subscribe for, purchase or otherwise acquire such New
Convertible Securities shall be the consideration received or deemed to be
received by the Corporation for issuing such rights, plus the minimum additional
consideration, if any, paid or payable to the Corporation in respect of the
subscription for, purchase or other acquisition of such New Convertible
Securities, plus the minimum additional consideration, if any, paid or payable
to the Corporation upon the exercise or deemed exercise of the right of
conversion or exchange in such New Convertible Securities.
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<PAGE> 56
(F) The consideration for any New Shares of Common Stock
issuable or deemed to be issuable pursuant to the terms of any New Convertible
Securities, other than any covered by any rights to subscribe for, purchase or
acquire the same, shall be the consideration received or deemed to be received
by the Corporation for issuing such New Convertible Securities plus the minimum
additional consideration, if any, paid or paid or payable to the Corporation
upon the exercise or deemed exercise of the right of conversion or exchange in
such New Convertible Securities.
(b) Alter, modify, amend or repeal any of the provisions of this
Certificate of Incorporation or of the Bylaws of the Corporation in any manner
which materially adversely affects the preferences, privileges, restrictions or
other rights of holders of Series B Preferred Stock;
(c) Issue any shares of the Series B Preferred Stock except as
contemplated by that certain Stock Purchase Agreement dated the Issue Date, by
and among the Corporation and the Advent Entities;
(d) Authorize or issue, or obligate itself to issue, any other equity
security senior to or on a parity with the Series B Preferred Stock as to
dividend or redemption rights, liquidation preferences, conversion rights,
voting rights or otherwise; for purposes of this subsection, a senior equity
security shall include any indebtedness convertible into or exchangeable for
shares of capital stock of the Corporation or issued with (i) shares of capital
stock of the Corporation or (ii) warrants or other rights to purchase capital
stock of the Corporation or Convertible Securities;
(e) Increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Series A Preferred Stock or Series B
Preferred Stock;
(f) Change the number of persons constituting the Board to a number
greater than seven;
(g) Effect a fundamental change in the Business of the Corporation or any
wholly owned or partially owned, direct or indirect Subsidiary;
(h) Expend during any fiscal year of the Corporation, whether by purchase,
lease or otherwise, for securities, other capital assets or in connection with
entering into any joint venture, partnership or consortium arrangement, of an
amount in excess of amounts approved in the annual budget adopted by the Board;
(i) Enter into one or a series of transactions which would result in
Change in Control (other than a Change in Control which would be an Exchange
Event or a Liquidation Event) or the sale, lease, transfer or other disposition
of: any Subsidiary;
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<PAGE> 57
any customer list; any billing or operating systems; use or ownership rights to
any switch, IRU, gateway, or similar asset;
(j) Except for (1) payment or provision of salaries and other employee
compensation to officers or directors of the Corporation or any Subsidiary in an
aggregate amount per person of less than $125,000 per year (other than such
salaries or compensation approved by a compensation committee of the Board), and
(2) any transaction which is (A) in the ordinary course of business of the
Corporation or such Subsidiary, (B) evidenced by a writing, and (C) is on terms
no less favorable to the Corporation or such Subsidiary than could be obtained
from an unaffiliated third party, enter into one or more transactions with (i) a
shareholder of the Corporation or of any Subsidiary, (ii) a member of the
immediate family of any such shareholder, or (iii) any entity controlled by,
controlling or under common control with any such shareholder (the persons and
entities in (i)-(iii) being referred to herein as "Related Parties") and any
action permitting any Subsidiary to enter into a transaction with any one or
more Related Parties;
(k) Issue third party debt, whether or not secured, including without
limitation off-balance sheet financing, capital leases and operating leases, but
specifically excluding accounts receivable financing, if as a result thereof,
the aggregate outstanding principal balance of all third party debt owed by the
Corporation, not including trade credit extended to the Corporation in the
normal course of business, would exceed U.S. $30,000,000;
(l) Declare dividends or other distributions on outstanding capital stock
of the Corporation, other than as provided in Section 2(a);
(m) Repurchase or redeem any capital stock of the Corporation;
(n) Dissolve or liquidate the Corporation;
(o) Give any guarantee or indemnity, other than (i) in connection with
indebtedness permitted under subsection (k) of this Section 9 and (ii) in the
normal course of business in relation to the purchase or supply of goods or
services;
(p) Elect or remove the Chairman and co-Chief Executive Officer or the
President and co-Chief Executive Officer; or
(q) Take any steps to have the Corporation wound up, or voluntarily take
advantage of any provisions of any applicable bankruptcy laws.
(r) Authorize or issue, or obligate itself to issue any Junior Stock other
than Common Stock or securities exercisable for or convertible into Common
Stock.
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Section 10. No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
Section 11. Preemptive Rights. Each holder of capital stock of the
Corporation shall have such preemptive rights as are provided for in any of the
Shareholders Agreements, with all amendments, supplements, and modifications
thereto or restatements thereof, to which such holder is a party.
35
<PAGE> 59
IN WITNESS WHEREOF, this instrument is subscribed by the undersigned.
Dated: _____________, 1997
--------------------------------------
Clifford Friedland
Chairman
36
<PAGE> 60
ARTICLES OF AMENDMENT TO
SECOND RESTATED ARTICLES OF INCORPORATION
OF
LONG DISTANCE INTERNATIONAL INC.
To the Department of State
State of Florida
Long Distance International Inc., a Florida corporation (the
"Corporation"), pursuant to Section 607.1006 of the Florida Business Corporation
Act,
Does Hereby Certify:
First: At a meeting of the Board of Directors of the Corporation on March
20, 1998, the Board of Directors duly adopted resolutions setting forth a
proposed amendment of the Second Restated Articles of Incorporation of Long
Distance International Inc., and declaring said amendment to be advisable and
directing that the amendment be submitted to the vote of the shareholders of the
Corporation by written consent in lieu of a meeting of the shareholders of the
Corporation.
Second: That all of the holders of record of the Corporation's Common
Stock, Series A Preferred Stock, and the Series B Preferred Stock voting as
separate classes were authorized to vote on the amendment and a majority of the
holders of the outstanding shares of Common Stock, a majority of the outstanding
shares of Series A Preferred Stock and a majority of the outstanding shares of
Series B Preferred Stock by written consent in lieu of a meeting voted in favor
of the amendment with such votes being sufficient to approve the amendment.
Third: That Article III, Section 2(b), be amended by inserting the
following as subsection (3):
(3) Waiver; Subordination. The right of holders of Series B
Preferred Stock to receive any dividend, distribution or other payment on
or with respect to such Series B Preferred Stock shall be subject to such
dividend, distribution or other payment being permitted by the terms of
the Indenture and any claim of any such holder with respect to any
payments in respect of such Series B Preferred Stock shall be subordinated
in right of payment to the Notes and so long as any Notes are outstanding,
no holder of Series B
<PAGE> 61
Preferred Stock shall be entitled to receive any payments from the
Corporation in respect of such securities except to the extent such
payment would be permitted under the Indenture.
Fourth: That Article III, Section 5, be amended by inserting the following
as subsection (m):
(m) Waiver; Subordination. The right of holders of Series B
Preferred Stock to receive payment of the Series B Redemption Price or the
Series B Required Redemption Price shall be subject to the payment of such
Series B Redemption Price or Series B Required Redemption Price, as the
case may be, being permitted by the terms of the Indenture and any claim
of any such holder with respect to any payments in respect of such Series
B Preferred Stock shall be subordinated in right of payment to the Notes
and so long as any Notes are outstanding, no holder of Series B Preferred
Stock shall be entitled to receive any payments from the Corporation in
respect of such securities (or to request the Company to take any action)
except to the extent such payment would be permitted under the Indenture.
Fifth: That Article III, Section 9, be amended by inserting the following
immediately prior to the first colon in the first clause of the section:
"(provided that no such vote, written consent or other authorization or
approval of the holders of the Series B Preferred Stock is required for
the issuance and sale of the Units or any other actions taken by the
Corporation in connection therewith)"
Sixth: That Article III, Section 1, be amended by adding the following at
the end of the definition of "High Yield Debt Securities":
"Notwithstanding the foregoing, the Notes shall constitute High Yield Debt
Securities."
Seventh: (a) That Article III, Section 1, be amended by deleting the
definition of "1998 Operating Shortfall";
(b) That Article III, Section 1, be amended by deleting from the
definition of "Exchange Event" the semicolon and all words thereafter.
(c) That Article III, Section 2(b)(1), be amended by deleting from
the first sentence the semicolon and all words thereafter to the end of such
sentence.
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<PAGE> 62
(d) That Article III, Section 5(d), be amended by deleting therefrom
the semicolon and all words thereafter.
(e) That Article III, Section 5(l), be amended by deleting the first
sentence and substituting therefor the following:
"Upon the occurrence of an Exchange Event that is not also a
Redemption Event, the outstanding shares of the Series B Preferred Stock shall
be redeemed by the Corporation."
Eighth: (a) That Article III, Section 1, be amended by adding the
following:
"Indenture" shall mean the indenture relating to the Notes.
"Notes" shall mean the Senior Notes due 2008 contemplated by the
Corporation's preliminary Offering Memorandum dated March 20, 1998.
(b) That Article III, Section 1, be amended by adding the following:
"Units" shall mean the Units, consisting of Notes and Warrants,
contemplated by the Corporation's preliminary Offering Memorandum dated
March 20, 1998.
(c) That Article III, Section 1, be amended by adding the following:
"Warrants" shall mean the Warrants to purchase Common Stock
contemplated by the Corporation's preliminary Offering Memorandum dated
March 20, 1998.
Ninth: That Article III, Section 2(a), be amended by adding the following
at the end of the definition of "Specified Event" contained therein:
"provided however, that the issuance and sale of the Units shall not
constitute a Specified Event.:
Tenth: That Article III be amended by adding the following section:
"Section 12. Miscellaneous. Notwithstanding any terms or provisions
of this Certificate of Incorporation, there shall be no limitations or
prohibitions on the authority and power of the Corporation to issue and
sell the Units.
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<PAGE> 63
Eleventh: That Article III be amended by adding the following section:
"Section 13. Amendments. The provisions of the Certificate of
Incorporation amended by these Articles of Amendment may not be amended in
a manner adverse to the holders of the Notes without the consent of the
holders of a majority of the outstanding Notes. The holders of the Notes
shall have the right to enforce this Section 13 directly.
4
<PAGE> 64
IN WITNESS WHEREOF, this instrument is subscribed by the undersigned.
Dated: March 20, 1998
--------------------------------------
David Glassman
President
<PAGE> 1
Exhibit 3.2
BYLAWS
LONG DISTANCE INTERNATIONAL INC.
(a Florida corporation)
ARTICLE I
SHAREHOLDERS
1. SHARE CERTIFICATES. Certificates evidencing fully-paid shares of the
corporation shall set forth thereon the statements prescribed by the Florida
Business Corporation Act ("Business Corporation Act") and by any other
applicable provision of law, must be signed, either manually or in facsimile, by
any one of the following officers: the President, a Vice President, the
Secretary, an Assistant Secretary, the Treasurer, an Assistant Treasurer, or by
any officer designated by the Board of Directors, and may bear the corporate
seal or its facsimile. If the person who signed, either manually or in
facsimile, a share certificate no longer holds office when the certificate is
issued, the certificate is nevertheless valid.
2. FRACTIONAL SHARES OR SCRIP. The corporation may: issue fractions of a
share or pay in money the fair value of fractions of a share; make arrangements,
or provide reasonable opportunity, for any person entitled to or holding a
fractional interest in a share to sell such fractional interest or to purchase
such additional fractional interests as may be necessary to acquire a full
share; and issue scrip in registered or bearer form, over the manual or
facsimile signature of an officer of the corporation or its agent, entitling the
holder to receive a full share upon surrendering enough scrip to equal a full
share. Each certificate representing scrip must be conspicuously labeled "scrip"
and must contain the information required by of Section 607.0625 of the Business
Corporation Act. The holder of a fractional share is entitled to exercise the
rights of a shareholder, including the right to vote, to receive dividends, and
to participate in the assets of the corporation upon liquidation. The holder of
scrip is not entitled to any of these rights unless the scrip provides for them.
The Board of Directors may authorize the issuance of scrip subject to any
condition considered desirable, including (a) that the scrip will become void if
not exchanged for full shares before a specified date; and (b) that the shares
for which the scrip is exchangeable may be sold and the proceeds paid to the
scripholders.
<PAGE> 2
3. SHARE TRANSFERS. Upon compliance with any provisions restricting the
transferability of shares that may be set forth in the articles of
incorporation, these Bylaws, or any written agreement in respect thereof,
transfers of shares of the corporation shall be made only on the books of the
corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, or with a transfer agent or a registrar and on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon, if any. Except as may be otherwise provided by law or these
Bylaws, the person in whose name shares stand on the books of the corporation
shall be deemed the owner thereof for all purposes as regards the corporation;
provided that whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact, if known to the Secretary of the
corporation, shall be so expressed in the entry of transfer.
4. RECORD DATE FOR SHAREHOLDERS. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders to
demand a special meeting, or to take any other action, the Board of Directors of
the corporation may fix a date as the record date for any such determination of
shareholders, such date in any case to be not more than the maximum period
permitted by law before the meeting or action requiring such determination of
shareholders. A determination of shareholders entitled to notice of or to vote
at a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date, which it must do if the
meeting is adjourned to a date more than one hundred twenty days after the date
fixed for the original meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of shareholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "shareholder" or "shareholders"
refers to an outstanding share or shares and to a holder or holders of record of
outstanding shares when the corporation is authorized to issue only one class of
shares, and said reference is also intended to include any outstanding share or
shares and any holder or holders of record of outstanding shares of any class
upon which or upon whom the articles of incorporation confer such rights where
there are two or more classes or series of shares or upon which or upon whom the
Business Corporation Act confers such rights notwithstanding that the articles
of incorporation may provide for more than one class or series of shares, one
2
<PAGE> 3
or more of which are limited or denied such rights thereunder.
6. SHAREHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date fixed from time to
time by the directors. A special meeting shall be held on the date fixed from
time to time by the directors except when the Business Corporation Act confers
the right to call a special meeting upon the shareholders.
- PLACE. Annual meetings and special meetings shall be held at such place
in or out of the State of Florida as the directors shall from time to time fix.
- CALL. Annual meetings may be called by the directors or the Chairman of
the Board of Directors, the Vice Chairman of the Board of Directors, the
President, or the Secretary or by any officer instructed by the directors or the
President to call the meeting. Special meetings may be called in like manner.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. The corporation shall
notify shareholders of the date, time, and place of each annual and special
shareholders' meeting. Such notice shall be no fewer than ten nor more than
sixty days before the meeting date. Unless the Business Corporation Act or the
articles of incorporation require otherwise, notice of an annual meeting need
not include a description of the purpose or purposes for which the meeting is
called. Notice shall be given in the manner provided in Section 607.0141 of the
Business Corporation Act, by or at the direction of the President, the
Secretary, or the officer or persons calling the meeting. Notice of a special
meeting must include a description of the purpose or purposes for which the
meeting is called. Unless the Business Corporation Act or the articles of
incorporation require otherwise, the corporation is required to give notice only
to shareholders entitled to vote at the meeting. A shareholder may waive any
notice required by the Business Corporation Act, the articles of incorporation,
or the Bylaws before or after the date and time stated in the notice. The waiver
must be in writing, be signed by the shareholder entitled to the notice, and be
delivered to the corporation for inclusion in the minutes or filing with the
corporate records. A shareholder's attendance at a meeting waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; or waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
3
<PAGE> 4
notice, unless the shareholder objects to considering the matter when it is
presented.
- VOTING LIST FOR MEETING. After fixing a record date for a meeting, the
corporation shall prepare an alphabetical list of the names of all its
shareholders who are entitled to notice of a shareholders' meeting, arranged by
voting group, with the address of and number and class and series, if any, of
shares held by each shareholder. The shareholders' list must be available for
inspection by any shareholder, for a period of ten days prior to the meeting or
such shorter time as exists between the record date and the meeting and
continuing through the meeting at the corporation's principal office, or at a
place identified in the meeting notice in the city where the meeting will be
held, or at the office of the corporation's transfer agent or registrar. A
shareholder, his agent or attorney is entitled on written demand to inspect the
list subject to the requirements of Section 607.1602(3) of the Business
Corporation Act, to copy the list, during regular business hours and, at his
expense, during the period it is available for inspection. The corporation shall
make the shareholders' list available at the meeting, and any shareholder, or
his agent or attorney is entitled to inspect the list at any time during the
meeting or any adjournment.
- CONDUCT OF MEETING. Meetings of the shareholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice Chairman of the Board, if
any, the President, a Vice President, if any, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the shareholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but, if neither the Secretary nor an
Assistant Secretary is present, the chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. A shareholder may appoint a proxy to vote or
otherwise act for him by signing an appointment form, either personally or by
his attorney-in-fact. An appointment of a proxy is effective when received by
the Secretary or other officer or agent authorized to tabulate votes. An
appointment is valid for up to eleven months, unless a longer period is
expressly provided in the appointment form. An appointment of a proxy is
revocable by the shareholder unless the appointment form conspicuously states
that it is irrevocable and the appointment is coupled with an interest.
4
<PAGE> 5
- SHARES HELD BY NOMINEES. The corporation may establish a procedure by
which the beneficial owner of shares that are registered in the name of a
nominee is recognized by the corporation as the shareholder. The extent of this
recognition may be determined in the procedure.
- QUORUM. Unless the articles of incorporation or the Business Corporation
Act provides otherwise, a majority of the votes entitled to be cast on a matter
by a voting group constitutes a quorum of that voting group for action on that
matter. Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to that
matter. Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
- VOTING. Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Business Corporation Act requires a greater
number of affirmative votes.
7. ACTION WITHOUT MEETING. Unless otherwise provided in the articles of
incorporation, action required or permitted by the provisions of the Business
Corporation Act to be taken at an annual or special meeting of shareholders may
be taken without a meeting, without prior notice, and without a vote if the
action is taken by the holders of outstanding stock of each voting group
entitled to vote thereon having not less than the minimum number of votes with
respect to each voting group that would be necessary to authorize or take such
action at a meeting at which all voting groups and shares entitled to vote
thereon were present and voted. In order to be effective the action must be
evidenced by one or more written consents describing the action taken, dated and
signed by approving shareholders having the requisite number of each voting
group entitled to vote thereon, and delivered to the corporation by delivery to
its principal office in the State of Florida, its principal place of business,
the corporate Secretary, or another officer or agent of the corporation having
custody of the book in which proceedings of meetings of shareholders are
recorded. No written consent shall be effective to take the corporate action
referred to therein, unless within sixty days of the date of the earliest dated
consent delivered in the manner required by Section 607.0704 of the
5
<PAGE> 6
Business Corporation Act, written consents signed by holders of shares having
the number of votes required to take action are delivered to the corporation by
delivery as set forth in Section 607.0704 of the Florida Business Corporation
Act. Action under this paragraph be subject to the requirements of Section
607.0704 of the Business Corporation Act.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS GENERALLY - COMPENSATION. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation managed under the direction of, a Board of Directors. The Board may
fix the compensation of directors.
2. QUALIFICATIONS AND NUMBER. A director need not be a shareholder, a
citizen of the United States, or a resident of the State of Florida. The initial
Board of Directors shall consist of [five] Persons, which shall be the number of
directors until changed. Thereafter, the number of directors shall not be less
than one nor more than thirty. The number of directors may be fixed or changed
from time to time by the shareholders. If not so fixed, the number shall be as
provided in resolutions adopted by the Board of Directors. The number of
directors shall never be less than one.
3. TERMS AND VACANCIES. The terms of the initial directors of the
corporation expire at the first shareholders' meeting at which directors are
elected. The terms of all other directors expire at the next annual
shareholders' meeting following their election. A decrease in the number of
directors does not shorten an incumbent director's term. The term of a director
elected to fill a vacancy expires at the next shareholders' meeting at which
directors are elected. Despite the expiration of a director's term, the director
continues to serve until his successor is elected and qualifies or until there
is a decrease in the number of directors. Whenever a vacancy occurs on the Board
of Directors, including a vacancy resulting from an increase in the number of
directors, it may be filled by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors, or by
the shareholders, unless the articles of incorporation provide otherwise.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly
6
<PAGE> 7
elected Board shall be held as soon after its election as the directors may
conveniently assemble.
- PLACE. The Board of Directors may hold regular or special meetings in or
out of the State of Florida at such place as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice Chairman of the Board, if any, of
the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. Regular meetings of the Board
of Directors may be held without notice of the date, time, place, or purpose of
the meeting. Written, or oral, notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. The notice of a special meeting need not describe the purpose of the
meeting. Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objection to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting or promptly upon
arrival at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
- QUORUM AND ACTION. A quorum of the Board of Directors consists of a
majority of the number of directors prescribed in or fixed in accordance with
these Bylaws. If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the Board of Directors. The
Board of Directors may permit any or all directors to participate in a regular
or special meeting by, or conduct the meeting through use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
- CHAIRMAN OF THE MEETING. Meetings of the Board of Directors shall be
presided over by the following directors in the order of seniority and if
present and acting the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, or any other director chosen by the Board.
7
<PAGE> 8
5. REMOVAL OF DIRECTORS. The shareholders may remove one or more directors
with or without cause pursuant to the provisions of Section 607.0808 of the
Business Corporation Act.
6. COMMITTEES. The Board of Directors by resolution adopted by a majority
of the full Board of Directors, may designate from among its members an
executive committee and one or more other committees each of which, to the
extent provided in such resolution or in the articles of incorporation or the
Bylaws, shall have and may exercise all the authority of the Board of Directors,
except such authority as may not be delegated under the Business Corporation
Act. Each committee may have two or more members, who serve at the pleasure of
the Board of Directors. The provisions of Sections 607.0822, 607.0823, and
607.0824 of the Business Corporation Act, which govern meetings, notice and
waiver of notice, and quorum and voting requirements, apply to committees and
their members as well.
7. ACTION WITHOUT MEETING. Action required or permitted by the Business
Corporation Act to be taken at a Board of Directors' meeting or committee
meeting may be taken without a meeting if the action is taken by all members of
the Board or of the committee. The action must be evidenced by one or more
written consents describing the action taken, signed by each director or
committee member.
ARTICLE III
OFFICERS
The corporation shall have a President, and a Secretary, and such other
officers as may be deemed necessary, who may be appointed by the directors. The
same individual may simultaneously hold more than one office in the corporation.
A duly appointed officer may appoint one or more officers or assistant
officers if authorized by the Board of Directors.
Each officer of the corporation has the authority and shall perform the
duties prescribed by the Board of Directors or by direction of an officer
authorized by the Board of Directors to prescribe the duties of other officers;
provided, that the Secretary shall have the responsibility for preparation and
custody of minutes of the directors' and shareholders' meetings and for
authenticating records of the corporation.
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<PAGE> 9
The Board of Directors may remove any officer at any time with or without
cause.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The address of the initial registered office of the corporation and the
name of the initial registered agent of the corporation are set forth in the
original articles of incorporation. Such office, agent and address may be
changed by action of the Board of Directors.
ARTICLE V
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and shall be in such form and contain such other words and/or
figures as the Board of Directors shall determine or the law require.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BYLAWS
The Board of Directors may amend or repeal these Bylaws unless the
articles of incorporation or the Business Corporation Act reserves this power
exclusively to the shareholders in whole or in part, or the shareholders in
amending or repealing the Bylaws generally or a particular Bylaw provision
provide expressly that the Board of Directors may not amend or repeal the
Bylaws, generally or that Bylaw provision. The shareholders may amend or repeal
these Bylaws even though the Bylaws may also be amended or repealed by the Board
of Directors. No provision of this Article shall be construed as purporting to
negate the requirements of Section 607.1201 of the Business Corporation Act.
9
<PAGE> 1
EXHIBIT 4.1
EXECUTION COPY
================================================================================
LONG DISTANCE INTERNATIONAL INC.,
as Issuer
and
THE BANK OF NEW YORK
------------------
Indenture
Dated as of April 13, 1998
------------------
12 1/4% Senior Notes due 2008
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Sections Indenture Sections
- ------------ ------------------
ss. 310(a)(1) ............................................... 7.10
(a)(2) ............................................... 7.10
(b) .................................................. 7.08
ss. 313(c) .................................................. 7.06; 10.02
ss. 314(a) .................................................. 4.18; 10.02
(a)(4) ............................................... 4.17; 10.02
(c)(1) ............................................... 10.03
(c)(2) ............................................... 10.03
(e) .................................................. 10.04
ss. 315(b) .................................................. 7.05; 10.02
ss. 316(a)(1)(A) ............................................ 6.05
(a)(1)(B) ............................................ 6.04
(b) .................................................. 6.07
ss. 317(a)(1) ............................................... 6.08
(a)(2) ............................................... 6.09
ss. 318(a) .................................................. 10.01
(c) .................................................. 10.01
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part
of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
Page
----
RECITALS OF THE COMPANY.....................................................1
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions..................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act...........23
SECTION 1.03. Rules of Construction.......................................24
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.............................................24
SECTION 2.02. Restrictive Legends.........................................26
SECTION 2.03. Execution, Authentication and Denominations.................28
SECTION 2.04. Registrar and Paying Agent..................................29
SECTION 2.05. Paying Agent to Hold Money in Trust.........................30
SECTION 2.06. Transfer and Exchange.......................................30
SECTION 2.07. Book-Entry Provisions for Global Notes......................31
SECTION 2.08. Special Transfer Provisions.................................33
SECTION 2.09. Replacement Notes...........................................36
SECTION 2.10. Outstanding Notes...........................................37
SECTION 2.11. Temporary Notes.............................................37
SECTION 2.12. Cancellation................................................38
SECTION 2.13. CUSIP Numbers...............................................38
SECTION 2.14. Defaulted Interest..........................................38
SECTION 2.15. Issuance of Additional Notes................................38
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption.........................................38
SECTION 3.02. Notices to Trustee..........................................39
SECTION 3.03. Selection of Notes to Be Redeemed...........................39
SECTION 3.04. Notice of Redemption........................................40
SECTION 3.05. Effect of Notice of Redemption..............................41
SECTION 3.06. Deposit of Redemption Price.................................41
SECTION 3.07. Payment of Notes Called for Redemption......................41
SECTION 3.08. Notes Redeemed in Part......................................42
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes............................................42
SECTION 4.02. Maintenance of Office or Agency.............................42
- --------
Note: The Table of Contents shall not for any purposes be deemed to be a part of
the Indenture.
<PAGE> 4
SECTION 4.03. Limitation on Indebtedness..................................43
SECTION 4.04. Limitation on Restricted Payments...........................46
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted.......................................49
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
Restricted.................................................51
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Subsidiaries...............................................51
SECTION 4.08. Limitation on Transactions with Shareholders and
Affiliates.................................................52
SECTION 4.09. Limitation on Liens.........................................53
SECTION 4.10. Limitation on Sale-Leaseback Transactions...................54
SECTION 4.11. Limitation on Asset Sales...................................54
SECTION 4.12. Repurchase of Notes upon a Change of Control................56
SECTION 4.13. Existence...................................................56
SECTION 4.14. Payment of Taxes and Other Claims...........................56
SECTION 4.15. Maintenance of Properties and Insurance.....................56
SECTION 4.16. Notice of Defaults..........................................57
SECTION 4.17. Compliance Certificates.....................................57
SECTION 4.18. Commission Reports and Reports to Holders...................58
SECTION 4.19. Waiver of Stay, Extension or Usury Laws.....................58
SECTION 4.20. Calculation of Original Issue Discount......................58
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc.................................59
SECTION 5.02. Successor Substituted.......................................60
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default...........................................60
SECTION 6.02. Acceleration................................................62
SECTION 6.03. Other Remedies..............................................63
SECTION 6.04. Waiver of Past Defaults.....................................63
SECTION 6.05. Control by Majority.........................................63
SECTION 6.06. Limitation on Suits.........................................63
SECTION 6.07. Rights of Holders to Receive Payment........................64
SECTION 6.08. Collection Suit by Trustee..................................64
SECTION 6.09. Trustee May File Proofs of Claim............................64
SECTION 6.10. Priorities..................................................65
SECTION 6.11. Undertaking for Costs.......................................65
SECTION 6.12. Restoration of Rights and Remedies..........................65
SECTION 6.13. Rights and Remedies Cumulative..............................66
SECTION 6.14. Delay or Omission Not Waiver................................66
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General.....................................................66
<PAGE> 5
SECTION 7.02. Certain Rights of Trustee...................................66
SECTION 7.03. Individual Rights of Trustee................................68
SECTION 7.04. Trustee's Disclaimer........................................68
SECTION 7.05. Notice of Default...........................................68
SECTION 7.06. Reports by Trustee to Holders...............................68
SECTION 7.07. Compensation and Indemnity..................................68
SECTION 7.08. Replacement of Trustee......................................69
SECTION 7.09. Successor Trustee by Merger, Etc............................70
SECTION 7.10. Eligibility.................................................70
SECTION 7.11. Money Held in Trust.........................................70
SECTION 7.12. Withholding Taxes...........................................70
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations........................71
SECTION 8.02. Defeasance and Discharge of Indenture.......................72
SECTION 8.03. Defeasance of Certain Obligations...........................74
SECTION 8.04. Application of Trust Money..................................76
SECTION 8.05. Repayment to Company........................................76
SECTION 8.06. Reinstatement...............................................76
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders..................................77
SECTION 9.02. With Consent of Holders.....................................77
SECTION 9.03. Revocation and Effect of Consent............................78
SECTION 9.04. Notation on or Exchange of Notes............................79
SECTION 9.05. Trustee to Sign Amendments, Etc.............................79
SECTION 9.06. Conformity with Trust Indenture Act.........................79
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939................................80
SECTION 10.02. Notices....................................................80
SECTION 10.03. Certificate and Opinion as to Conditions Precedent.........81
SECTION 10.04. Statements Required in Certificate.........................81
SECTION 10.05. Rules by Trustee, Paying Agent or Registrar................82
SECTION 10.06. Payment Date Other Than a Business Day.....................82
SECTION 10.07. Governing Law..............................................82
SECTION 10.08. No Adverse Interpretation of Other Agreements..............82
SECTION 10.09. No Recourse Against Others.................................82
SECTION 10.10. Successors.................................................82
SECTION 10.11. Duplicate Originals........................................83
SECTION 10.12. Separability...............................................83
SECTION 10.13. Table of Contents, Headings, Etc...........................83
<PAGE> 6
INDENTURE, dated as of April 13, 1998, between LONG DISTANCE
INTERNATIONAL INC., a Florida corporation, (the "Company"), and THE BANK OF NEW
YORK, a New York banking corporation (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $225,000,000 aggregate
principal amount of the Company's 12 1/4% Senior Notes due 2008 (the "Notes")
issuable as provided in this Indenture. The Company has agreed to issue and sell
a total of 225,000 Units (the "Units"), each of which consists of one Note and
one warrant (each a "Warrant"), each Warrant entitling the holder thereof to
purchase 15.0874 shares of Common Stock, par value $.001 per share, of the
Company. The Notes will be partially secured pursuant to the terms of a Pledge
Agreement (as defined herein) by Pledged Securities as provided by Article Ten
of this Indenture. The Notes and Warrants included in each Unit will become
separately transferable upon the earliest to occur of (i) the date that is six
months following the Closing Date, (ii) the commencement of the Exchange Offer
pursuant to the Notes Registration Rights Agreement and (iii) the date the Shelf
Registration Statement (as defined herein) is declared effective (the
"Separation Date"). All things necessary to make this Indenture a valid
agreement of the Company, in accordance with its terms, have been done, and the
Company has done all things necessary to make the 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 as hereinafter provided.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act of 1939, as amended, that are required to
be a part of and to govern indentures qualified under the Trust Indenture Act of
1939, as amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary or is merged into or
consolidated with a Restricted Subsidiary or assumed in connection with an Asset
Acquisition by a Restricted Subsidiary, whether or not
<PAGE> 7
2
Incurred in connection with, or in anticipation of, such Person becoming a
Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
such Person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a Restricted Subsidiary,
except (x) with respect to net income, to the extent of the amount of dividends
or other distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period and (y) with respect to net
losses, to the extent of the amount of Investments made by the Company or any of
its Restricted Subsidiaries in such Person during such period; (ii) solely for
the purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.04 (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of Section 4.04, any amount paid or accrued as dividends on Preferred
Stock of the Company or any Restricted Subsidiary owned by Persons other than
the Company and any of its Restricted Subsidiaries; (vi) all extraordinary gains
and extraordinary losses; and (vii) any compensation expense paid or payable
solely with Capital Stock (other than Disqualified Stock) of the Company or any
options, warrants or other rights to acquire Capital Stock (other than
Disqualified Stock) of the Company.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted
<PAGE> 8
3
Subsidiaries, prepared in conformity with GAAP and filed with the Commission or
provided to the Trustee pursuant to Section 4.18.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means any Registrar, Paying Agent, authenticating agent or
co-Registrar.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or line
of business of such Person; provided that the property and assets acquired are
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction but excluding any
Lien granted in compliance with Section 4.09) in one transaction or a series of
related transactions by the Company or any of its Restricted Subsidiaries to any
Person other than the Company or any of its Restricted Subsidiaries of (i) all
or any of the Capital Stock of any Restricted Subsidiary, (ii) all or
substantially all of the property and assets of an operating unit or business of
the Company or any of its Restricted Subsidiaries or (iii) any other property
and assets (other than the Capital Stock of, or other Investment in, an
Unrestricted Subsidiary) of the Company or any of its Restricted Subsidiaries
outside the ordinary course of business of the Company or such
<PAGE> 9
4
Restricted Subsidiary and, in each case, that is not (A) a Restricted Payment
permitted under Section 4.04, (B) a Permitted Investment under clause (vii) or
(viii) of the definition thereof or (C) governed by Article Five; provided that
"Asset Sale" shall not include (a) sales or other dispositions of inventory,
receivables and other current assets, (b) sales or other dispositions of assets
or the issuance of any Capital Stock of any Restricted Subsidiary or Permitted
Joint Venture for consideration at least equal to the fair market value of the
assets sold or disposed of, provided that the consideration received would
constitute property or assets of the kind described in clause (B) of Section
4.11, including consideration that consists of technology, licenses or expertise
useful in the business of the Company and its Restricted Subsidiaries, (c) sales
or other dispositions of obsolete or outdated equipment; provided that each such
sale or other disposition or series of such sales or such other dispositions
shall not involve assets that are material to the business of the Company and
its Restricted Subsidiaries, taken as a whole, and (d) sales or other
dispositions during any 12-month period of assets with an aggregate fair market
value not in excess of $1 million.
"Attributable Indebtedness" means when used in connection with a
sale-leaseback transaction referred to in Section 4.10, at any date of
determination, the product of (i) the net proceeds from such sale-leaseback
transaction and (ii) a fraction, the numerator of which is the number of full
years of the term of the lease relating to the property involved in such
sale-leaseback transaction (without regard to any options to renew or extend
such term) remaining at the date of the making of such computation and the
denominator of which is the number of full years of the term of such lease
(without regard to any options to renew or extend such term) measured from the
first day of such term.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution, certified by the
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
<PAGE> 10
5
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) prior to the occurrence of
a Public Market, a "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) under the Exchange Act) becomes the ultimate "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders and their
Affiliates on such date and (b) after the occurrence of a Public Market, a
"person" or "group" (within the meaning of Section 13(d) or 14(d)(2) under the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35% of the total voting power of the Voting
Stock of the Company on a fully diluted basis and such ownership represents a
greater percentage of the total voting power of the Voting Stock of the Company,
on a fully diluted basis, than is held by the Existing Stockholders and their
Affiliates on such date; or (ii) individuals who on the Closing Date constitute
the Board of Directors (together with any new directors whose election by the
Board of Directors or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the members of the
Board of Directors then in office who either were members of the Board of
Directors on the Closing Date or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally issued
under this Indenture.
"Commission" means the 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 instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.
<PAGE> 11
6
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation all series and classes of such common stock.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.
"Company Order" means a written request or order signed in the name of the
Company (i) by its Chairman, a Vice Chairman, its President or a Vice President
and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee; provided, however, that such written
request or order may be signed by any two of the officers listed in clause (i)
above in lieu of being signed by one of such officers listed in such clause (i)
and one of the officers listed in clause (ii) above.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary gains or losses or sales of assets),
(iii) depreciation expense, (iv) amortization expense, and (v) all other
non-cash items reducing Adjusted Consolidated Net Income (other than items that
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and the interest component of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
<PAGE> 12
7
Company and its Restricted Subsidiaries during such period; excluding, however:
(i) any amount of such interest of any Restricted Subsidiary if the net income
of such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses
(and any amortization thereof) payable in connection with the offering of the
Notes, all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company have been filed
with the Commission or provided to the Trustee pursuant to Section 4.18, or,
with respect to quarters for which no reports are required to be filed, for
which such financial statements are then available, as determined by the Company
(such four fiscal quarter period being the "Four Quarter Period"); provided that
(A) pro forma effect shall be given to any Indebtedness to be Incurred or repaid
on the Transaction Date; (B) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro forma effect to the
application of proceeds of any Asset Disposition) that occur during the period
beginning on the first day of such Four Quarter Period and ending on the
Transaction Date (the "Reference Period"), as if they had occurred and such
proceeds had been applied on the first day of such Reference Period; and (C) pro
forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into, or consolidated with, the Company or
any Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that to the
extent that clause (B) or (C) of this sentence requires that pro forma effect be
given to an Asset Acquisition or Asset Disposition, such pro forma calculation
shall be based upon the four full fiscal quarters immediately preceding the
Transaction Date of the Person, or division or line of business of the Person,
that is acquired or disposed for which financial information is available.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity (plus, to the extent not otherwise included, Preferred
Stock of the Company) as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any
<PAGE> 13
8
amounts attributable to Disqualified Stock or any equity security convertible
into or exchangeable for Indebtedness, the cost of treasury stock and the
principal amount of any promissory notes receivable from the sale of the Capital
Stock of the Company or any of its Restricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 101 Barclay Street, 21 West, New York, New York 10286, Attention:
Corporate Trust Trustee Administration.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and their
respective successors.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Sections 4.11 and 4.12 and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to Sections
4.11 and 4.12.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE> 14
9
"Exchange Notes" means any securities of the Company containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act) that are issued and exchanged for the Notes pursuant
to the Notes Registration Rights Agreement and this Indenture.
"Exchange Offer" means the "Exchange Offer" as defined in the Notes
Registration Rights Agreement.
"Existing Stockholders" means Clifford Friedland and David Glassman.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of clause (viii) of
the second paragraph of Section 4.03, (x) the fair market value of any security
registered under the Exchange Act shall be the average of the closing prices,
regular way, of such security for the 20 consecutive trading days immediately
preceding the sale of Capital Stock and (y) in the event the aggregate fair
market value of any other property (other than cash or cash equivalents)
received by the Company exceeds $10 million, the fair market value of such
property shall be determined by a nationally recognized investment banking firm
and set forth in their written opinion which shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession; provided, however, that all reports and other financial
information provided by the Company to the Holders of the Notes or the Trustee
shall be prepared in accordance with GAAP as in effect on the date of such
report or other financial information. All ratios and computations contained or
referred to in this Indenture shall be computed in conformity with GAAP applied
on a consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of this
Indenture shall be made without giving effect to (i) the amortization or
write-off of any expenses incurred in connection with the offering of the Notes
and (ii) except as otherwise provided, the amortization of any amounts required
or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
<PAGE> 15
10
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guaranteed Indebtedness" has the meaning provided in Section 4.07.
"Holder" or "Noteholder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all Capitalized
Lease Obligations of such Person, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not
<PAGE> 16
11
otherwise included in this definition, obligations under Currency Agreements and
Interest Rate Agreements. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided (A) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity with GAAP,
(B) that money borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" so long as such money is
held to secure the payment of such interest and (C) that "Indebtedness" shall
not include any liability for federal, state, local or other taxes.
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
April 15 and October 15, of each year, commencing October 15, 1998.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable, prepaid expenses or deposits on the balance sheet of the
Company or its Restricted Subsidiaries) or capital contribution to (by means of
any transfer of cash or other property), or any payment for property or services
for the account or use of, or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such Person and
shall include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary, including, without
limitation, by reason of any transaction permitted by clause (iii) of Section
4.06; provided that the fair market value of the Investment remaining in any
person that has ceased to be a Restricted Subsidiary shall not
<PAGE> 17
12
exceed the aggregate amount of Investments previously made in such person valued
at the time such Investments were made less the net reduction in such
Investments. For purposes of the definition of "Unrestricted Subsidiary" and
Section 4.04, (i) "Investment" shall include the fair market value of the assets
(net of liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary shall be considered a reduction in outstanding Investments and (iii)
any property transferred to or from an Unrestricted Subsidiary shall be valued
at its fair market value at the time of such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) any relocation expenses and severance or
shut-down costs incurred as a result of such Asset Sale, (iv) payments made to
repay Indebtedness or any other obligation outstanding at the time of such Asset
Sale that either (A) is secured by a Lien on the property or assets sold or (B)
is required to be paid as a result of such sale and (v) reserves against
adjustments in the sale price of the asset or assets subject to such Asset Sale
and reserves against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
<PAGE> 18
13
Restricted Subsidiary) and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Non-U.S. Person" means a person who is not a U.S. person, as defined in
Regulation S.
"Notes" means any of the securities, as defined in the first paragraph of
the recitals hereof, that are authenticated and delivered under this Indenture.
For all purposes of this Indenture, the term "Notes" shall include the Notes
initially issued on the Closing Date, any Exchange Notes to be issued and
exchanged for any Notes pursuant to the Notes Registration Rights Agreement and
this Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.
"Notes Registration Rights Agreement" means the Notes Registration Rights
Agreement, dated April 7, 1998, among the Company and Morgan Stanley & Co.
Incorporated and SBC Warburg Dillon Read Inc. and certain permitted assigns
specified therein.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) 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 Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. On the Payment Date, the Company shall (i) accept
for payment on a pro rata basis Notes or portions
<PAGE> 19
14
thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee
all Notes or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, and (ii)
the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by one Officer listed
in clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof. Each Officers' Certificate (other than certificates
provided pursuant to TIA Section 314(a)(4)) shall include the statements
provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Offshore Notes Exchange Date" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion signed by legal counsel who
may be an employee of or counsel to the Company. Each such Opinion of Counsel
shall include the statements provided for in TIA Section 314(e) to the extent
required by law.
"Paying Agent" has the meaning provided in Section 2.04, except that, for
the purposes of Article Eight, the Paying Agent shall not be the Company or a
Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Payment Date" has the meaning specified in the definition of "Offer to
Purchase."
"Permanent Offshore Global Note" has the meaning provided in Section 2.01.
<PAGE> 20
15
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into, or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP and reasonable advances to sales representatives; (iv)
Investments received in satisfaction of judgments, bankruptcy, insolvency,
workouts or similar arrangements; (v) loans or advances to employees of the
Company or any Restricted Subsidiary evidenced by unsubordinated promissory
notes that do not in the aggregate exceed at any one time outstanding $3
million; (vi) Interest Rate Agreements and Currency Agreements designed solely
to protect the Company or its Restricted Subsidiaries against fluctuations in
interest rates or foreign currency exchange rates; (vii) Investments in debt
securities or other evidences of Indebtedness (A) that are issued by companies
engaged in the telecommunications business and (B) for which no public market
exists; provided that when each Investment pursuant to this clause (vii) is
made, the aggregate amount of Investments outstanding under this clause (vii)
does not exceed the greater of (I) $2 million and (II) 1% of Consolidated EBITDA
(if positive) for the then most recent four fiscal quarters for which financial
statements of the Company have been filed with the Commission; (viii) Strategic
Investments not to exceed $15 million at any one time outstanding; and (ix)
Investments in Permitted Joint Ventures not to exceed $15 million at any one
time outstanding.
"Permitted Joint Venture" means any Person (other than a Restricted
Subsidiary) whose primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries at the time of
determination.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made, (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money
<PAGE> 21
16
bonds and other obligations of a similar nature incurred in the ordinary course
of business (exclusive of obligations for the payment of borrowed money); (v)
easements, rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof)
upon real or personal property (including leases on an indefeasible right to use
basis) acquired after the Closing Date; provided that (a) such Lien is created
solely for the purpose of securing Indebtedness Incurred, in accordance with
Section 4.03, to finance the cost (including the cost of design, development,
acquisition, improvement, construction, installation or integration) of the item
of property or assets subject thereto and such Lien is created prior to, at the
time of or within six months after the later of the acquisition, the completion
of construction or the commencement of full operation of such property, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost and (c) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets and any improvements on such
item; (vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its Restricted
Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xi) Liens on property
of, or on shares of Capital Stock or Indebtedness of, any Person existing at the
time such Person becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property, assets, Capital
Stock or Indebtedness of the Person so acquired; (xii) Liens in favor of the
Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering of
a final judgment or order against the Company or any Restricted Subsidiary of
the Company that does not give rise to an Event of Default; (xiv) 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; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are within the general
parameters customary in the industry and incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed solely to protect the
Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens
on or sales of receivables and (xix) Liens that secure
<PAGE> 22
17
Indebtedness (or letters of credit entered into in the ordinary course of
business) with an aggregate principal amount not in excess of $5 million at any
time outstanding.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
now outstanding or issued after the Closing Date, including, without limitation,
all series and classes of such preferred stock or preference stock.
"Pledge Account" means an account established with the Trustee pursuant to
the terms of the Pledge Agreement for the deposit of the Pledge Securities to be
purchased by the Company with the net proceeds from the sale of the Notes.
"Pledge Agreement" means the Collateral Pledge and Security Agreement,
dated as of the Closing Date, made by the Company in favor of the Trustee,
governing the disbursement of funds from the Pledge Account, as such agreement
may be amended, restated, supplemented or otherwise modified from time to time.
"Pledged Securities" means the U.S. Government Obligations to be purchased
by the Company and held in the Pledge Account in accordance with the Pledge
Agreement.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
<PAGE> 23
18
"Redemption Date", when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be redeemed,
means the price at which such Note is to be redeemed pursuant to this Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration" has the meaning provided in Section 4.18.
"Registration Statement" means the Registration Statement as defined and
described in the Notes Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the April 1 or October 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Released Indebtedness" means, with respect to any Asset Sale,
Indebtedness (i) which is owed by the Company or any Restricted Subsidiary (the
"Obligors") prior to such Asset Sale, (ii) which is assumed by the purchaser or
any affiliate thereof in connection with such Asset Sale and (iii) with respect
to which the Obligors receive written, unconditional, valid and enforceable
releases from each creditor, no later than the closing date of such Asset Sale.
"Repurchase Offer" has the meaning provided in the Warrant Agreement dated
as of the Closing Date between the Company and The Bank of New York relating to
the Warrants.
"Responsible Officer", when used with respect to the Trustee, means any
vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any trust officer or assistant trust officer, or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
<PAGE> 24
19
"Security Register" has the meaning provided in Section 2.04.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" has the meaning provided in the recitals to this
Indenture.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Notes Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"Specified Date" means any Redemption Date, any Payment Date for an Offer
to Purchase or any date on which the Notes first become due and payable after an
Event of Default.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Investments" means (A) Investments that the Board of Directors
has determined in good faith will enable the Company or any of its Restricted
Subsidiaries to obtain additional business that it might not be able to obtain
without making such Investment and (B) Investments in entities the principal
function of which is to perform research and development with respect to
products and services that may be used or useful in the telecommunications
business; provided that the Company or one of its Restricted Subsidiaries are
entitled or otherwise reasonably expected to obtain rights to such products or
services as a result of such Investment.
"Strategic Subordinated Indebtedness" means Indebtedness of the Company
Incurred to finance the acquisition of a Person engaged in a business that is
related, ancillary or complementary to the business conducted by the Company or
any of its Restricted Subsidiaries,
<PAGE> 25
20
which Indebtedness by its terms, or by the terms of any agreement or instrument
pursuant to which such Indebtedness is Incurred, (i) is expressly made
subordinate in right of payment to the Notes and (ii) provides that no payment
of principal, premium or interest on, or any other payment with respect to, such
Indebtedness may be made prior to the payment in full of all of the Company's
obligations under the Notes; provided that such Indebtedness may provide for and
be repaid at any time from the proceeds of a capital contribution or the sale of
Capital Stock (other than Disqualified Stock) of the Company after the
Incurrence of such Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) bankers' acceptances, time deposit accounts, certificates
of deposit and money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50 million (or
the foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P, (v) securities with maturities of nine months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by S&P or
Moody's, (vi) direct obligations of the British, Belgian, Dutch, French, German
or Swiss governments or obligations fully and unconditionally guaranteed by any
of such governments and (vii) certificates of deposit, bank promissory notes and
bankers' acceptances denominated in the currency of any country of the European
Union maturing not more than 365 days after the acquisition thereof and issued
or guaranteed by any one of the 20 largest banks (based on assets as of the
immediately preceding December 31) organized under the laws of any country in
the European Union; provided such bank is not under intervention, receivership
or any similar arrangement at the time of acquisition of such
<PAGE> 26
21
certificates of deposit, bank promissory notes or bankers' acceptances; provided
that the aggregate principal amount of all obligations and Indebtedness included
in clauses (vi) and (vii) above shall not exceed at any one time outstanding $10
million.
"Temporary Offshore Global Note" has the meaning provided in Section 2.01.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06.
"Trade Payables" means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"Unit" has the meaning provided in the recitals to this Indenture.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978,
as amended and as codified in Title 11 of the United States Code, as amended
from time to time hereafter, or any successor federal bankruptcy law.
"U.S. Global Note" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit 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 at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not
<PAGE> 27
22
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 interest on or principal
of the U.S. Government Obligation evidenced by such depository receipt.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under Section 4.04 and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Sections 4.03 and 4.04. The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that immediately after giving effect to such designation
(x) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if Incurred at such time, have been
permitted to be Incurred (and shall be deemed to have been Incurred) for all
purposes of this Indenture and (y) no Default or Event of Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Warrant" has the meaning provided in the recitals to this Indenture.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
<PAGE> 28
23
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture notes" means the Notes;
"indenture note holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.01; and
<PAGE> 29
24
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture. The Notes may
have notations, legends or endorsements required by law, stock exchange
agreements to which the Company is subject or usage. The Company shall approve
the form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (collectively, the "U.S. Global
Notes"), deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the U.S. Global Notes may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit A
(the "Temporary Offshore Global Notes") deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. On or after the later of (i) May 24, 1998 and
(ii) the Separation Date (the "Offshore Notes Exchange Date"), upon receipt by
the Trustee and the Company of a certificate substantially in the form of
Exhibit B hereto, one or more permanent global Notes in registered form
substantially in the form set forth in Exhibit A (the "Permanent Offshore Global
Notes"; and together with the Temporary Offshore Global Notes, the "Offshore
Global Notes") duly executed by the Company and authenticated by the Trustee as
hereinafter provided shall be deposited with the Trustee, as custodian for the
Depositary, and the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of
<PAGE> 30
25
the Temporary Offshore Global Notes in an amount equal to the principal amount
of the beneficial interest in the Temporary Offshore Global Notes transferred.
Notes offered and sold in reliance on Regulation D under the
Securities Act shall be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A (the "U.S.
Physical Notes"). Notes issued pursuant to Section 2.07 in exchange for
interests in the Offshore Global Note shall be in the form of permanent
certificated Notes in registered form substantially in the form set forth in
Exhibit A (the "Offshore Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes". The U.S. Global Notes
and the Offshore Global Notes are sometimes referred to herein as the "Global
Notes".
The definitive Notes shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the Officers executing such Notes, as
evidenced by their execution of such Notes.
SECTION 2.02. Restrictive Legends. Unless and until a Note is
exchanged for an Exchange Note or sold in connection with an effective
Registration pursuant to the Notes Registration Rights Agreement, the U.S.
Global Notes, Temporary Offshore Global Notes and each U.S. Physical Note shall
bear the following legend on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT),
OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN
THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS
IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO LONG DISTANCE INTERNATIONAL INC. (THE
"COMPANY") OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
<PAGE> 31
26
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED
STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER
MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO
THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF
THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO EACH OF THE TRUSTEE AND
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 IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear
the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE
<PAGE> 32
27
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT 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 INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE 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 NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
Prior to the Separation Date, each Note shall bear the following
legend on the face thereof:
THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF
WHICH CONSISTS OF ONE NOTE AND ONE WARRANT INITIALLY ENTITLING THE HOLDER
THEREOF TO PURCHASE 15.0874 SHARES OF COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF LONG DISTANCE INTERNATIONAL INC. (A "WARRANT"). PRIOR TO THE
CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) OCTOBER 13, 1998, (ii)
THE COMMENCEMENT OF AN EXCHANGE OFFER WITH RESPECT TO THE NOTES, AND (iii)
THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE
NOTES, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY
TOGETHER WITH, THE WARRANTS.
SECTION 2.03. Execution, Authentication and Denominations. Subject
to Article Four, the aggregate principal amount of Notes which may be
authenticated and delivered under this Indenture is unlimited. The Notes shall
be executed by one or more Officers of the Company. The signature of any of
these Officers on the Notes may be by facsimile or manual signature in the name
and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee or authenticating agent authenticates the Note,
the Note shall be valid nevertheless.
<PAGE> 33
28
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; provided that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company in connection with such authentication of Notes. Such Company Order
shall specify the amount of Notes to be authenticated and the date on which the
original issue of Notes is to be authenticated and in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate
Notes. An authenticating agent may authenticate Notes whenever the Trustee may
do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such authenticating agent. An authenticating agent
has the same rights as an Agent to deal with the Company or an Affiliate of the
Company.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 in principal amount and any integral
multiple of $1,000 in excess thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
an office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
for payment (the "Paying Agent") and an office or agency where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York. The
Company shall cause the Registrar to keep a register of the Notes and of their
transfer and exchange (the "Security Register"). The Company may have one or
more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an
<PAGE> 34
29
appointment by a successor Agent to such Agent as evidenced by an appropriate
agency agreement entered into by the Company and such successor Agent and
delivered to the Trustee or (ii) notification to the Trustee that the Trustee
shall serve as such Agent until the appointment of a successor Agent in
accordance with clause (i) of this proviso. The Company, any Subsidiary of the
Company, or any Affiliate of any of them may act as Paying Agent, Registrar or
co-Registrar, and/or agent for service of notice and demands.
The Company initially appoints the Trustee as Registrar, Paying
Agent, authenticating agent and agent for service of notice and demands. If, at
any time, the Trustee is not the Registrar, the Registrar shall make available
to the Trustee on or before each Interest Payment Date and at such other times
as the Trustee may reasonably request, the names and addresses of the Holders as
they appear in the Security Register.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than
each due date of the principal, premium, if any, and interest on any Notes, the
Company shall deposit with the Paying Agent money in immediately available funds
sufficient to pay such principal, premium, if any, and interest 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 the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, and interest on the Notes (whether such money has
been paid to it by the Company or any other obligor on the Notes), and such
Paying Agent shall promptly notify the Trustee of any default by the Company (or
any other obligor on the Notes) in making any such payment. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee and
account for any funds disbursed, and the Trustee may at any time during the
continuance of any payment default, upon written request to a Paying Agent,
require such Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed. Upon doing so, the Paying Agent shall have no
further liability for the money so paid over to the Trustee. If the Company or
any Subsidiary of the Company or any Affiliate of any of them acts as Paying
Agent, it will, on or before each due date of any principal of, premium, if any,
or interest on the Notes, segregate and hold in a separate trust fund for the
benefit of the Holders a sum of money sufficient to pay such principal, premium,
if any, or interest so becoming due until such sum of money shall be paid to
such Holders or otherwise disposed of as provided in this Indenture, and will
promptly notify the Trustee of its action or failure to act.
SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
registered form. The Notes shall initially be issued as part of an issue of
Units, each of which consists of one Note and one Warrant. Prior to the
Separation Date, the Notes may not be transferred or exchanged separately from,
but may be transferred or exchanged only together with, the Warrants issued in
connection with the Notes. A Holder may transfer a Note only by written
application to the Registrar stating the name of the proposed transferee and
otherwise complying with the terms of this Indenture. No such transfer shall be
effected until, and such
<PAGE> 35
30
transferee shall succeed to the rights of a Holder only upon, final acceptance
and registration of the transfer by the Registrar in the Security Register.
Prior to the registration of any transfer by a Holder as provided herein, the
Company, the Trustee, and any agent of the Company shall treat the person in
whose name the Note is registered as the owner thereof for all purposes whether
or not the Note shall be overdue, and neither the Company, the Trustee, nor any
such agent shall be affected by notice to the contrary. Furthermore, any Holder
of a Global Note shall, by acceptance of such Global Note, agree that transfers
of beneficial interests in such Global Note may be effected only through a book
entry system maintained by the Holder of such Global Note (or its agent) and
that ownership of a beneficial interest in the Note shall be required to be
reflected in a book entry. When Notes are presented to the Registrar or a
co-Registrar with a request to register the transfer or to exchange them for an
equal principal amount of Notes of other authorized denominations (including an
exchange of Notes for Exchange Notes), the Registrar shall register the transfer
or make the exchange as requested if its requirements for such transactions are
met; provided that no exchanges of Notes for Exchange Notes shall occur until a
Registration Statement shall have been declared effective by the Commission and
that any Notes that are exchanged for Exchange Notes shall be canceled by the
Trustee. To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Notes at the Registrar's request. No
service charge shall be made for any registration of transfer or exchange or
redemption of the Notes, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other similar governmental
charge payable upon exchanges pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Notes selected for redemption under Section 3.03 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The U.S.
Global Note and Offshore Global Note initially shall (i) be registered in the
name of the Depositary for such Global Notes or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, 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
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from
<PAGE> 36
31
giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the U.S. Global Note or the Offshore Global Note,
respectively, (i) if the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for the U.S. Global Note or the Offshore Global
Note, as the case may be, and a successor depositary is not appointed by the
Company within 90 days of such notice, (ii) if an Event of Default has occurred
and is continuing and the Registrar has received a request therefor from the
Depositary or (iii) in accordance with the rules and procedures of the
Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in the U.S. Global Note or Permanent Offshore Global Note to
beneficial owners pursuant to paragraph (b) of this Section 2.07, the Registrar
shall reflect on its books and records the date and a decrease in the principal
amount of the U.S. Global Note or Permanent Offshore Global Note in an amount
equal to the principal amount of the beneficial interest in the U.S. Global Note
or Permanent Offshore Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more U.S.
Physical Notes or Offshore Physical Notes, as the case may be, of like tenor and
amount.
(e) In connection with the transfer of the entire U.S. Global Note
or Offshore Global Note to beneficial owners pursuant to paragraph (b) of this
Section 2.07, the U.S. Global Note or Offshore Global Note, as the case may be,
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and make available for
delivery, to each beneficial owner identified by the Depositary in exchange for
its beneficial interest in the U.S. Global Note or Offshore Global Note, as the
case may be, an equal aggregate principal amount April 9, 1998 of U.S. Physical
Notes or Offshore Physical Notes, as the case may be, of authorized
denominations.
<PAGE> 37
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(f) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b), (d) or (e) of this Section 2.07
shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the
legend regarding transfer restrictions applicable to the U.S. Physical Note set
forth in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for an interest
in the Temporary Offshore Global Note pursuant to paragraph (b), (d) or (e) of
this Section 2.07 shall, except as otherwise provided by paragraph (f) of
Section 2.08, bear the legend regarding transfer restrictions applicable to the
Offshore Physical Note set forth in Section 2.02.
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.08. Special Transfer Provisions. Unless and until a Note
is exchanged for an Exchange Note or sold in connection with an effective
Registration Statement pursuant to the Notes Registration Rights Agreement, the
following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether
or not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule 144(k) under the
Securities Act or (y) the proposed transferee has delivered to the
Registrar (A) a certificate substantially in the form of Exhibit C hereto
and (B) if the aggregate principal amount of the Notes at the time of
transfer is less than $100,000, an opinion of counsel acceptable to the
Company that such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the U.S. Global Note in an
amount equal to the principal amount of the beneficial interest in the
U.S. Global Note to be transferred, and the Company shall execute, and the
Trustee shall authenticate and make available for delivery, one or more
U.S. Physical Certificates of like tenor and amount.
<PAGE> 38
33
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note to a QIB
(excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of (x) either Offshore
Physical Notes prior to the removal of the Private Placement Legend or
U.S. Physical Notes, the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar 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 Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Note 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 or (y) an interest in the U.S. Global Note, the transfer of
such interest may be effected only through the book entry system
maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to
be transferred consists of U.S. Physical Notes, upon receipt by the
Registrar of the documents referred to in clause (i) and instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the U.S. Global Note in an amount
equal to the principal amount of the U.S. Physical Notes, to be
transferred, and the Trustee shall cancel the U.S. Physical Note so
transferred.
(c) Transfers of Interests in the Temporary Offshore Global Note.
The following provisions shall apply with respect to registration of any
proposed transfer of interests in the Temporary Offshore Global Note:
(i) The Registrar shall register the transfer of any Note (x) if the
proposed transferee is a Non-U.S. Person and the proposed transferor has
delivered to the Registrar a certificate substantially in the form of
Exhibit D hereto or (y) if the proposed transferee is a QIB and the
proposed transferor has checked the box provided for on the form of Note
stating, or has otherwise advised the Company and the Registrar 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 Note stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Note for its
<PAGE> 39
34
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.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Registrar of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the U.S. Global Note, in an
amount equal to the principal amount of the Temporary Offshore Global Note
to be transferred, and the Trustee shall decrease the amount of the
Temporary Offshore Global Note in such an amount.
(d) Transfers of Interests in the Permanent Offshore Global Note or
Unlegended Offshore Physical Notes. The following provisions shall apply with
respect to any transfer of interests in the Permanent Offshore Global Note or
unlegended Offshore Physical Notes. The Registrar shall register the transfer of
any such Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) Prior to May 24, 1998, the Registrar shall register any proposed
transfer of a Note to a Non-U.S. Person upon receipt of a certificate
substantially in the form of Exhibit D hereto from the proposed
transferor.
(ii) On and after May 24, 1998, the Registrar shall register any
proposed transfer to any Non-U.S. Person if the Note to be transferred is
a U.S. Physical Note or an interest in the U.S. Global Note, upon receipt
of a certificate substantially in the form of Exhibit D from the proposed
transferor.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (ii) and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the U.S. Global Note in an
amount equal to the principal amount of the beneficial interest in the
U.S. Global Note to be transferred, and (b) if the proposed transferee is
an Agent Member, upon receipt by the Registrar of
<PAGE> 40
35
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the Offshore Global Note in an
amount equal to the principal amount of the U.S. Physical Notes or the
U.S. Global Note, as the case may be, to be transferred, and the Trustee
shall cancel the Physical Note, if any, so transferred or decrease the
amount of the U.S. Global Note.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by the second sentence of the
fourth paragraph of Section 2.01 or paragraphs (a)(i)(x) or (e)(ii) of this
Section 2.08 exist or (ii) there is delivered to the Registrar an Opinion of
Counsel reasonably satisfactory to the Company and the Trustee 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.
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees by
its acceptance of the Notes to furnish the Registrar 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 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 certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered
to the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, then, in the absence of notice to the Company or the Trustee
that such Note has been acquired by a bona fide purchaser, the Company shall
issue and the Trustee shall authenticate a replacement Note of like tenor and
amount and bearing a number not contemporaneously outstanding; provided that the
requirements of this Section 2.09 are met. An indemnity bond must be furnished
that is sufficient in the judgment of both the Trustee and the Company to
protect the
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36
Company, the Trustee or any Agent from any loss that any of them may suffer if a
Note is replaced. The Company may charge such Holder for its expenses and the
expenses of the Trustee in replacing a Note. In case any such mutilated, lost,
destroyed or wrongfully taken Note has become or is about to become due and
payable, the Company in its discretion may pay such Note instead of issuing a
new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are
all Notes that have been authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation, those paid pursuant to Section
2.09 and those described in this Section 2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one
of its Affiliates holds such Note, provided, however, that, in determining
whether the Holders of the requisite principal amount of the outstanding Notes
have given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Notes owned by the Company or any other obligor upon the Notes
or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which a
Responsible Officer of the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or of such other obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay.
<PAGE> 42
37
After the preparation of definitive Notes, the temporary Notes shall be
exchangeable for definitive Notes upon surrender of the temporary Notes at the
office or agency of the Company designated for such purpose pursuant to Section
4.02, without charge to the Holder. Upon surrender for cancellation of any one
or more temporary Notes the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor a like
principal amount of definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall be entitled to the same benefits under this
Indenture as definitive Notes.
SECTION 2.12. Cancellation. The Company at any time may deliver to
the Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation in accordance with its normal
procedure.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may
use "CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the
Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption shall not
be affected by any defect or omission of such numbers. The Company will promptly
notify the Trustee of any change in the "CUSIP," "CINS" or "ISIN" numbers.
SECTION 2.14. Defaulted Interest. If the Company defaults in a
payment of interest on the Notes, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.14 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to a Responsible Officer of the Trustee a
notice that states the subsequent special record date, the payment date and the
amount of defaulted interest to be paid.
SECTION 2.15. Issuance of Additional Notes. The Company may, subject
to Article Four of this Indenture and applicable law, issue additional Notes
under this Indenture. The Notes issued on the Closing Date and any additional
Notes subsequently issued shall be treated as a single class for all purposes
under this Indenture.
<PAGE> 43
38
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption. (a) The Notes may be redeemed, at
the Company's option, in whole or in part, at any time or from time to time, on
or after April 15, 2003 and prior to maturity, upon not less than 30 nor more
than 60 days' prior notice mailed by first class mail to each Holder's last
address as it appears in the Security Register, at the following Redemption
Prices (expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is on or prior to the Redemption
Date to receive interest due on an Interest Payment Date), if redeemed during
the 12-month period commencing April 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2003 106.125%
2004 104.083%
2005 102.042%
2006 and thereafter 100.0000%
</TABLE>
(b) In addition, at any time prior to April 15, 2001, the Company
may redeem up to 35% of the aggregate principal amount of the Notes originally
issued with the proceeds of one or more Public Equity Offerings following which
a Public Market occurs, at any time as a whole or from time to time in part, at
a Redemption Price (expressed as a percentage of principal amount) of 112.250%;
provided that (1) at least $146,250,000 aggregate principal amount of Notes
remains outstanding after each such redemption and (2) notice of any such
redemption is mailed within 60 days after the related Public Equity Offering.
SECTION 3.02. Notices to Trustee. If the Company elects to redeem
Notes pursuant to Section 3.01(a) or 3.01(b), it shall notify the Trustee in
writing of the Redemption Date and the principal amount of Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.02
in an Officers' Certificate at least 45 days before the Redemption Date (unless
a shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. In the case of any
partial redemption, selection of the Notes for redemption will be made by the
Trustee in compliance
<PAGE> 44
39
with the requirements of the principal national securities exchange, if any, on
which the Notes are listed or, if the Notes are not listed on a national
securities exchange, on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion shall deem to be fair and appropriate; provided
that no Note of $1,000 in principal amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and
not previously called for redemption. Notes in denominations of $1,000 in
principal amount may only be redeemed in whole. The Trustee may select for
redemption portions (equal to $1,000 in principal amount or any integral
multiple thereof) of Notes that have denominations larger than $1,000 in
principal amount. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption. The Trustee
shall notify the Company and the Registrar promptly in writing of the Notes or
portions of Notes to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption
of Notes pursuant to Section 3.01(a) or 3.01(b), at least 30 days but not more
than 60 days before a Redemption Date, the Company shall mail a notice of
redemption by first class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes (including CUSIP, CINS or ISIN
numbers) to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is
to receive payment of the Redemption Price plus accrued interest to the
Redemption Date upon surrender of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of the
principal amount (equal to $1,000 in principal amount or any integral
multiple thereof) of such Note to be redeemed and that, on and after the
Redemption Date, upon surrender of such
<PAGE> 45
40
Note, a new Note or Notes in principal amount equal to the unredeemed
portion thereof will be reissued; and
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.13, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may be
placed only on the other identification numbers printed on the Notes.
At the Company's request (which request may be revoked by the
Company at any time prior to the time at which the Trustee shall have given such
notice to the Holders), made in writing to the Trustee at least 45 days (or such
shorter period as shall be satisfactory to the Trustee) before a Redemption
Date, the Trustee shall give the notice of redemption in the name and at the
expense of the Company. If, however, the Company gives such notice to the
Holders, the Company shall concurrently deliver to the Trustee an Officers'
Certificate stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
Redemption Date and at the Redemption Price. Upon surrender of any Notes to the
Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued
interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed,
whether or not the Holder receives the notice. In any event, failure to give
such notice, or any defect therein, shall not affect the validity of the
proceedings for the redemption of Notes held by Holders to whom such notice was
properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to 10:00
a.m., New York City time on any Redemption Date, the Company shall deposit with
the Paying Agent (or, if the Company is acting as its own Paying Agent, shall
segregate and hold in trust as provided in Section 2.05) money sufficient to pay
the Redemption Price of and accrued interest on all Notes to be redeemed on that
date other than Notes or portions thereof called for redemption on that date
that have been delivered by the Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such
<PAGE> 46
41
Notes shall cease to accrue interest. Upon surrender of any Note for redemption
in accordance with a notice of redemption, such Note shall be paid and redeemed
by the Company at the Redemption Price, together with accrued interest, if any,
to the Redemption Date; provided that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
registered as such at the close of business on the relevant Regular Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note
that is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay the principal
of, premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them, acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent and
conversion agent, if any, for the Notes.
The Company shall pay interest on overdue principal, premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
the rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan, The City of New York an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company will give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. 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 address of the Trustee set forth in Section 11.02.
<PAGE> 47
42
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all 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 Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office
of the Trustee, located in the Borough of Manhattan, The City of New York, as
such office of the Company in accordance with Section 2.04.
SECTION 4.03. Limitation on Indebtedness. (a) The Company will not,
and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the Notes and Indebtedness existing on the Closing
Date); provided that the Company and any Restricted Subsidiary may Incur
Indebtedness if, after giving effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds therefrom, the Consolidated Leverage
Ratio would be greater than zero and (i) less than 5 to 1, for Indebtedness
Incurred by the Company, or (ii) less than 2 to 1, for Indebtedness Incurred by
any Restricted Subsidiary.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate principal
amount not to exceed $100 million, less any amount of Indebtedness
permanently repaid as provided under Section 4.11;
(ii) Indebtedness owed (A) to the Company evidenced by a promissory
note or (B) to any of its Restricted Subsidiaries; provided that any event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to
the Company or another Restricted Subsidiary) shall be deemed, in each
case, to constitute an Incurrence of such Indebtedness not permitted by
this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to renew, extend, defease, refinance or refund, then
outstanding Indebtedness, other than Indebtedness Incurred under clause
(i), (ii), (iv), (vi), (viii) or (xii) of this paragraph, and any
refinancings thereof in an amount not to exceed the amount so renewed,
extended, defeased, refinanced or refunded (plus premiums, accrued
interest, fees and expenses); provided that Indebtedness the proceeds of
which are used to renew, extend, defease, refinance or refund the Notes in
part or Indebtedness that is pari passu with, or subordinated in right of
payment to, the Notes shall only be permitted under this
<PAGE> 48
43
clause (iii) if (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
pari passu with, or subordinate in right of payment to, the remaining
Notes, (B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the Notes, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the Notes at least to the extent that
the Indebtedness to be refinanced is subordinated to the Notes; and (C)
such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be renewed, extended, defeased, refinanced or refunded,
and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be renewed, extended,
defeased, refinanced or refunded; and provided further that in no event
may Indebtedness of the Company be refinanced by means of any Indebtedness
of any Restricted Subsidiary pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a)
are designed solely to protect the Company or its Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or interest rates
and (b) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred
by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of the Company for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in
connection with such disposition;
(v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the Notes as set forth in Article Eight;
<PAGE> 49
44
(vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with Section 4.07;
(vii) Indebtedness (including Guarantees) Incurred to finance the
cost (including the cost of design, development, acquisition,
construction, installation, improvement, transportation or integration) to
acquire equipment, inventory or other tangible assets (including leases on
an indefeasible right to use basis) used or useful in the
telecommunications business of the Company and its Restricted Subsidiaries
(including acquisitions by way of Capitalized Lease and acquisitions of
the Capital Stock of a Person that becomes a Restricted Subsidiary to the
extent of the fair market value of the equipment, inventory or network
assets so acquired) by the Company or a Restricted Subsidiary after the
Closing Date;
(viii) Indebtedness of the Company not to exceed, at any one time
outstanding, two times the sum of (A) the Net Cash Proceeds received by
the Company after the Closing Date from the issuance and sale of its
Capital Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of the Company, to the extent (I) such Net Cash Proceeds have
not been used pursuant to clause (C)(2) of the first paragraph or clause
(iii), (iv), (vii) or (ix) of the second paragraph of Section 4.04 to make
a Restricted Payment and (II) if such Net Cash Proceeds are used to
consummate a transaction pursuant to which the Company Incurs Acquired
Indebtedness, the amount of such Net Cash Proceeds exceeds one-half of the
amount of Acquired Indebtedness so Incurred and (B) 80% of the fair market
value of property (other than cash and cash equivalents) received by the
Company after the Closing Date from the sale of its Capital Stock (other
than Disqualified Stock) to a Person that is not a Subsidiary of the
Company, to the extent (I) such sale of Capital Stock has not been used
pursuant to clause (iii), (iv) or (x) of the second paragraph of Section
4.04 to make a Restricted Payment and (II) if such Capital Stock is used
to consummate a transaction pursuant to which the Company Incurs Acquired
Indebtedness, 80% of the fair market value of the property received
exceeds one-half of the amount of Acquired Indebtedness so Incurred;
provided in each case that such Indebtedness does not mature prior to the
Stated Maturity of the Notes and has an Average Life longer than the
Notes;
(ix) Acquired Indebtedness;
(x) Strategic Subordinated Indebtedness;
(xi) subordinated Indebtedness of the Company (in addition to
Indebtedness permitted under clauses (i) through (x) above and clause
(xii) below) in an aggregate
<PAGE> 50
45
principal amount outstanding at any time not to exceed $100 million, less
any amount of such Indebtedness permanently repaid as provided under
Section 4.11; and
(xii) Indebtedness of the Company and any Restricted Subsidiary;
provided that at the time of the Incurrence of any Indebtedness under this
clause (xii) the amount of Indebtedness under this clause (xii) does not
exceed in aggregate 80% of the accounts receivable (net of accounts more
than 60 days past due and reserves and allowances for doubtful accounts,
determined in accordance with GAAP) of the Company and its Restricted
Subsidiaries on a consolidated basis as set forth on the balance sheet of
the Company most recently filed with the Commission or provided to the
Trustee pursuant to Section 4.18.
(b) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or a Restricted Subsidiary may
Incur pursuant to this Section 4.03 shall not be deemed to be exceeded, with
respect to any outstanding Indebtedness, due solely to the result of
fluctuations in the exchange rates of currencies.
(c) For purposes of determining any particular amount of
Indebtedness under this Section 4.03, (1) Guarantees, Liens, letters of credit
or other obligations supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (2) any Liens
granted pursuant to the equal and ratable provisions referred to in Section 4.09
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section 4.03, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or make any distribution on or with respect to
its Capital Stock (other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire shares of such Capital Stock and (y) pro
rata dividends or distributions on Common Stock of Restricted Subsidiaries held
by minority stockholders) held by Persons other than the Company or any of its
Restricted Subsidiaries, (ii) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (x) the Company or an Unrestricted
Subsidiary (including options, warrants or other rights to acquire such shares
of Capital Stock) held by any Person other than the Company or any Wholly Owned
Restricted Subsidiary or (y) a Restricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by any
Affiliate of the Company (other than a Wholly Owned Restricted Subsidiary) or
any holder (or any Affiliate of such holder) of 5% or more of the Capital Stock
of the Company, (iii) make any voluntary or optional principal payment, or
voluntary or optional redemption, repurchase, defeasance, or other acquisition
or
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retirement for value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes (other than the purchase, repurchase or the
acquisition of Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in any case due within one
year of the date of acquisition) or (iv) make any Investment, other than a
Permitted Investment, in any Person (such payments or any other actions
described in clauses (i) through (iv) being collectively "Restricted Payments")
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing, (B) the
Company could not Incur at least $1.00 of Indebtedness under the first paragraph
of Section 4.03(a) or (C) the aggregate amount of all Restricted Payments (the
amount, if other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date shall exceed the sum of (1) 50% of the
aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of the amount of such loss)
accrued on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter preceding the
Transaction Date for which reports have been filed pursuant to Section 4.18 plus
(2)(A) the aggregate Net Cash Proceeds received by the Company after the Closing
Date from the issuance and sale permitted by this Indenture of its Capital Stock
(other than Disqualified Stock) to a Person who is not a Subsidiary of the
Company, or from the issuance to a Person who is not a Subsidiary of the Company
of any options, warrants or other rights to acquire Capital Stock of the Company
(in each case, exclusive of any convertible Indebtedness, Disqualified Stock or
any options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes) and (B) the aggregate Net Cash Proceeds received after the Closing Date
by the Company from the issuance or sale (other than to a Subsidiary of the
Company) of debt securities or shares of Disqualified Stock that have been
converted into or exchanged for Common Stock (other than Disqualified Stock) of
the Company, together with the aggregate cash received by the Company at the
time of such conversion or exchange, in each case except to the extent such Net
Cash Proceeds are used to Incur Indebtedness pursuant to clause (viii) of the
second paragraph of Section 4.03(a) plus (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments) in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the
sale of any such Investment (except, in each case, to the extent any such
payment or proceeds are included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
<PAGE> 52
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(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of Section 4.03(a);
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company (or options, warrants or other rights to acquire such
Capital Stock) or an Unrestricted Subsidiary in exchange for, or out of
the proceeds of a substantially concurrent offering of, shares of Capital
Stock (other than Disqualified Stock) of the Company (or options, warrants
or other rights to acquire such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock of the Company (other
than Disqualified Stock);
(v) payments or distributions, to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with Article Five;
(vi) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company to the
extent necessary, in the good faith judgment of the Board of Directors of
the Company, to prevent the loss or secure the renewal or reinstatement of
any license or franchise held by the Company or any Restricted Subsidiary
for any governmental agency;
(vii) the declaration or payment of dividends on the Common Stock of
the Company following a Public Equity Offering of such Common Stock, of up
to 6% per annum of the Net Cash Proceeds received by the Company in all
Public Equity Offerings;
(viii) prior to the occurrence of a Public Market, the purchase,
redemption, retirement or other acquisition for value of Capital Stock of
the Company, or options to purchase such shares, held by directors,
employees or former directors or employees of the Company or any
Restricted Subsidiary (or their estates or beneficiaries under their
estates) upon death, disability, retirement, termination of employment or
pursuant to the terms of any agreement under which such shares of Capital
Stock or options were issued;
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48
provided that the aggregate consideration paid for such purchase,
redemption, acquisition, cancellation or other retirement of such shares
of Capital Stock or options after the Closing Date does not exceed
$500,000 in any calendar year, or $2 million in the aggregate after the
Closing Date;
(ix) Investments in any Person the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investments; provided that the
aggregate amount of Investments made pursuant to this clause (ix) does not
exceed the sum of (a) $20 million and (b) the amount of Net Cash Proceeds
received by the Company after the Closing Date from the sale of its
Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, except to the extent such Net Cash Proceeds are
used to Incur Indebtedness pursuant to clause (viii) under Section 4.03 or
to make Restricted Payments pursuant to clause (C)(2) of the first
paragraph, or clause (iii) or (iv) of this paragraph, of this Section
4.04, plus (c) the net reduction in Investments made pursuant to this
clause (ix) resulting from distributions on or repayments of such
Investments or from the Net Cash Proceeds from the sale of any such
Investment (except in each case to the extent any such payment or proceeds
is included in the calculation of Adjusted Consolidated Net Income) or
from such Person becoming a Restricted Subsidiary (valued in each case as
provided in the definition of "Investments"), provided that the net
reduction in any Investment shall not exceed the amount of such
Investment;
(x) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of the Company;
(xi) repurchases of Warrants pursuant to a Repurchase Offer; or
(xii) other Restricted Payments in an aggregate amount not to exceed
$2 million;
provided that, except in the case of clauses (i) and (iii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (x)
thereof) and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii), (iv) and (ix) thereof shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this Section 4.04
have been met with respect to any subsequent Restricted Payments. In the event
the proceeds of an issuance of Capital Stock of the
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49
Company are used for the redemption, repurchase or other acquisition of the
Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this Section 4.04 only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of Indebtedness.
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date in this Indenture or any other
agreements in effect on the Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements; provided that
the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to
the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or assets
of such Person acquired by the Company or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired, and any extensions,
refinancings, renewals or replacements of the agreement containing such
encumbrance or restriction; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the Holders
than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced;
(iv) in the case of clause (iv) of the first paragraph of this
Section 4.05, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset, (B) existing by
virtue of any transfer of, agreement to transfer, option or right with
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50
respect to, or Lien on, any property or assets of the Company, or any
Restricted Subsidiary not otherwise prohibited by this Indenture or (C)
arising or agreed to in the ordinary course of business, not relating to
any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary;
(vi) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default
with respect to a financial covenant contained in such Indebtedness or
agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined by the Company) and (C) the Company
determines that any such encumbrance or restriction will not materially
affect the Company's ability to make principal or interest payments on the
Notes; and
(vii) provisions contained in agreements or instruments which
prohibit the payment of dividends or the making of other distributions
with respect to any particular class of Capital Stock of a Person other
than on a pro rata basis.
Nothing contained in this Section 4.05 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.09 or (2) restricting the sale
or other disposition of property or assets of the Company or any of its
Restricted Subsidiaries that secure Indebtedness of the Company or any of its
Restricted Subsidiaries.
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock
of Restricted Subsidiaries. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock of foreign
Restricted Subsidiaries, to the extent required by applicable law; (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary, provided any
Investment in such Person remaining after giving effect to such issuance or sale
would have been permitted to be made under Section 4.04, if made on the date of
such issuance or sale; (iv) issuances or sales of Common Stock of a Restricted
Subsidiary,
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51
provided that the Company or such Restricted Subsidiary applies the Net Cash
Proceeds, if any, of any such sale in accordance with clause (i)(A) or (i)(B) of
the second sentence of Section 4.11 and (v) issuances and sales of up to 6% of
the Common Stock of each Restricted Subsidiary in connection with employee
benefit plans or arrangements.
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the 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 as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall
not be applicable to any Guarantee of any Restricted Subsidiary that existed at
the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
SECTION 4.08. Limitation on Transactions with Shareholders and
Affiliates. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
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52
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to
(i) transactions (A) approved by a majority of the disinterested
members of the Board of Directors or (B) for which the Company or a
Restricted Subsidiary delivers to the Trustee a written opinion of a
nationally recognized investment banking firm stating that the transaction
is fair to the Company or such Restricted Subsidiary from a financial
point of view,
(ii) any transaction solely between the Company and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries,
(iii) the payment of reasonable and customary regular fees to
directors of the Company who are not employees of the Company,
(iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company
files a consolidated tax return or with which the Company is part of a
consolidated group for tax purposes,
(v) any Restricted Payments not prohibited by Section 4.04,
(vi) employment agreements with, and loans and advances to, officers
and employees of the Company and its Restricted Subsidiaries, in each case
in the ordinary course of business or
(vii) customary indemnification arrangements in favor of directors
and officers of the Company and its Restricted Subsidiaries.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this Section 4.08 and not covered
by clauses (ii) through (vii) of this paragraph, the aggregate amount of which
exceeds $3 million in value, must be approved or determined to be fair in the
manner provided for in clause (i)(A) or (B) above.
SECTION 4.09. Limitation on Liens. The Company will not, and will
not permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien on any of its assets or properties of any character (including,
without limitation, licenses), or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under this Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien unless, after
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53
giving effect thereto, the aggregate amount of any Indebtedness so secured, plus
the Attributable Indebtedness for all sale-leaseback transactions permitted
under Section 4.10 does not exceed 10% of Adjusted Consolidated Net Tangible
Assets.
The foregoing limitation does not apply to
(i) Liens existing on the Closing Date;
(ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of
the Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (iii)
of the second paragraph of Section 4.03; provided that such Liens do not
extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets securing the Indebtedness
being refinanced;
(v) Liens on the Capital Stock of, or any property or assets of, a
Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
permitted under Section 4.03; or
(vi) Permitted Liens.
In the event that the Lien the existence of which gives rise to a Lien
securing the Notes pursuant to the provisions of this Section 4.09 ceases to
exist, the Lien securing the Notes required by the first paragraph of this
Section 4.09 shall automatically be released and the Trustee shall execute
appropriate documentation.
SECTION 4.10. Limitation on Sale-Leaseback Transactions. The Company
will not, and will not permit any Restricted Subsidiary to enter into any
sale-leaseback transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby the Company or a Restricted Subsidiary
sells or transfers such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or properties which
the Company or such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or properties sold
or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if
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54
(i) the lease is for a period, including renewal rights, of not in
excess of three years;
(ii) the lease secures or relates to industrial revenue or pollution
control bonds;
(iii) the transaction is solely between the Company and any Wholly
Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or
(iv) the Company or such Restricted Subsidiary, within twelve months
after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale
in accordance with clause (i)(A) or (i)(B) of the second sentence of
Section 4.11.
SECTION 4.11. Limitation on Asset Sales. The Company will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale unless
(i) the consideration received by the Company or such Restricted Subsidiary
(including any Released Indebtedness) is at least equal to the fair market value
of the assets sold or disposed of and (ii) at least 75% of the consideration
received (including any Released Indebtedness) consists of (1) cash, Temporary
Cash Investments or Released Indebtedness and (2) Indebtedness of any Person
which is either repaid in cash or sold for cash within 90 days of such Asset
Sale (for purposes of calculating the amount of such Indebtedness, such
Indebtedness shall be valued at its principal amount, if it matures within 180
days of the consummation of such Asset Sale, or its fair market value, in all
other cases), provided, however, that this clause (ii) shall not apply to any
long-term assignments in capacity in a telecommunications network. In the event
and to the extent that the Net Cash Proceeds received by the Company or any of
its Restricted Subsidiaries from one or more Asset Sales occurring on or after
the Closing Date in any period of 12 consecutive months exceed 10% of Adjusted
Consolidated Net Tangible Assets (determined as of the date closest to the
commencement of such 12-month period for which a consolidated balance sheet of
the Company and its Subsidiaries has been filed with the Commission or provided
to the Trustee pursuant to Section 4.18), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within twelve months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to Section 4.07 or Indebtedness of any
other Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or
the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within twelve months after the date of such
agreement), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets
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of, or the business of, the Company and its Restricted Subsidiaries existing on
the date of such investment (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) and (ii) apply (no later than the end of the twelve-month period
referred to in clause (i)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraph of this
Section 4.11. The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such twelve-month period as set forth
in clause (i) of the preceding sentence and not applied as so required by the
end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
Section 4.11 totals at least $5 million, the Company must commence, not later
than the fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes on the relevant Payment Date equal to the Excess Proceeds on such date, at
a purchase price equal to 100% of the principal amount of the Notes on the
relevant Payment Date, plus accrued interest (if any) to the Payment Date. Upon
the consummation of an Offer to Purchase pursuant to this Section 4.11, the
amount of Excess Proceeds shall be deemed to be equal to zero, plus the amount
of any Excess Proceeds not theretofore subject to an Offer to Purchase.
SECTION 4.12. Repurchase of Notes upon a Change of Control. The
Company must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all Notes then outstanding, at a
purchase price equal to 101% of the principal amount thereof on the relevant
Payment Date, plus accrued interest (if any) to the Payment Date.
SECTION 4.13. Existence. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each Restricted Subsidiary in accordance with the respective organizational
documents of the Company and each Restricted Subsidiary and the rights (whether
pursuant to charter, partnership certificate, agreement, statute or otherwise),
material licenses and franchises of the Company and each Restricted Subsidiary;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the existence of any Restricted Subsidiary, if the
maintenance or preservation thereof is no longer desirable in the conduct of the
business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.14. Payment of Taxes and Other Claims. The Company will
pay or discharge and shall cause each of its Subsidiaries to pay or discharge,
or cause to be paid or discharged, before the same shall become delinquent (i)
all material taxes, assessments and governmental charges levied or imposed upon
(a) the Company or any such Subsidiary, (b) the
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income or profits of any such Subsidiary which is a corporation or (c) the
property of the Company or any such Subsidiaries and (ii) all material lawful
claims for labor, materials and supplies that, if unpaid, might by law become a
lien upon the property of the Company or any such Subsidiary; 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 the amount, applicability
or validity of which is being contested in good faith by appropriate proceedings
and for which adequate reserves have been established.
SECTION 4.15. Maintenance of Properties and Insurance. The Company
will cause all properties 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 will 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 conducted at all times; provided that nothing in this
Section 4.15 shall prevent the Company or any such Restricted Subsidiary from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Company, desirable in the conduct of the business of the Company or such
Restricted Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, with reputable insurers or with
the government of the United States of America, or an agency or instrumentality
thereof, in such amounts, with such deductibles and by such methods as shall be
customary for corporations similarly situated in the industry in which the
Company or such Restricted Subsidiary, as the case may be, is then conducting
business.
SECTION 4.16. Notice of Defaults. In the event that the Company
becomes aware of any Default or Event of Default the Company, promptly after it
becomes aware thereof, will give written notice thereof to the Trustee.
SECTION 4.17. Compliance Certificates. (a) The Company shall deliver
to the Trustee, within 45 days after the end of each fiscal quarter (90 days
after the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days of the end of the Company's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer that a review has
been conducted of the activities of the Company and its Restricted Subsidiaries
and the Company's and its Restricted Subsidiaries' performance under this
Indenture and that, to the knowledge of such Officers, the Company has complied
with all
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conditions and covenants under this Indenture. For purposes of this Section
4.17, such compliance shall be determined without regard to any period of grace
or requirement of notice provided under this Indenture. If they do know of such
a Default or Event of Default, the certificate shall describe any such Default
or Event of Default and its status. The first certificate to be delivered
pursuant to this Section 4.17(a) shall be for the first fiscal quarter beginning
after the execution of this Indenture.
(b) So long as (and to the extent) not prohibited by the then
current recommendations of the American Institute of Certified Public
Accountants, the Company shall deliver to the Trustee, within 90 days after the
end of each of the Company's fiscal years, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this
Section 4.17 and (iii) whether, in connection with their audit examination,
anything came to their attention that caused them to believe that the Company
was not in compliance with any of the terms, covenants, provisions or conditions
of Article Four and Section 5.01 of this Indenture as they pertain to accounting
matters and, if any Default or Event of Default has come to their attention,
specifying the nature and period of existence thereof; provided that such
independent certified public accountants shall not be liable in respect of such
statement by reason of any failure to obtain knowledge of any such Default or
Event of Default that would not come to the attention of such accountants in the
course of an audit examination conducted in accordance with generally accepted
auditing standards in effect at the date of such examination.
SECTION 4.18. Commission Reports and Reports to Holders. At all
times from and after the earlier of (i) the date of the commencement of an
Exchange Offer or the effectiveness of a Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date, in
either case, whether or not the Company is then required to file reports with
the Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by Section
13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject
thereto. The Company shall supply the Trustee and each Holder or shall supply to
the Trustee for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information. In addition, at all times prior to
the earlier of the date of the Registration and the date that is six months
after the Closing Date, the Company shall, at its cost, deliver to each Holder
of the Notes quarterly and annual reports substantially equivalent to those
which would be required by the Exchange Act. In addition, at all times prior to
the Registration, upon the request of any Holder or any prospective purchaser of
the Notes designated by a Holder, the Company shall supply to such Holder or
such prospective purchaser the information required under Rule 144A under the
Securities Act. The Company also shall comply with the other provisions of TIA
Section 314(a).
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Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. The Company shall not
consolidate with, merge with or into, or sell, convey, transfer, lease or
otherwise dispose of all or substantially all of its property and assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions) to any Person or permit any Person to merge with or into the
Company unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the
Company is merged or that acquired or leased such property and assets of
the Company shall be a corporation organized and validly existing under
the laws of the United States of America or any jurisdiction thereof and
shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of the Company on all of
the Notes and under this Indenture;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
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(iii) immediately after giving effect to such transaction on a pro
forma basis, the Company or any Person becoming the successor obligor of
the Notes shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction;
(iv) immediately after giving effect to such transaction on a pro
forma basis the Company, or any Person becoming the successor obligor of
the Notes, as the case may be, could Incur at least $1.00 of Indebtedness
under the first paragraph of Section 4.03; provided that this clause (iv)
shall not apply to (x) a consolidation, merger or sale of all (but not
less than all) of the assets of the Company if all Liens and Indebtedness
of the Company or any Person becoming the successor obligor on the Notes,
as the case may be, and its Restricted Subsidiaries outstanding
immediately after such transaction would, if Incurred at such time, have
been permitted to be Incurred (and all such Liens and Indebtedness, other
than Liens and Indebtedness of the Company and its Restricted Subsidiaries
outstanding immediately prior to the transaction, shall be deemed to have
been Incurred) for all purposes of this Indenture or (y) a consolidation,
merger or sale of all or substantially all of the assets of the Company if
immediately after giving effect to such transaction on a pro forma basis,
the Company or any Person becoming the successor obligor of the Notes
shall have a Consolidated Leverage Ratio equal to or less than the
Consolidated Leverage Ratio of the Company immediately prior to such
transaction; and
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (iii) and (iv) above) and Opinion of Counsel, in each case stating
that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company and any
such transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
SECTION 5.02. Successor Substituted. Upon any consolidation or
merger, or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein and thereafter the predecessor corporation shall be
relieved of all obligations and covenants under this Indenture
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and the Notes; provided that the Company shall not be released from its
obligation to pay the principal of, premium, if any, or interest on the Notes in
the case of a lease of all or substantially all of its property and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" shall occur
with respect to the Notes if:
(a) the Company defaults in the payment of principal of (or premium,
if any, on) any Note when the same becomes due and payable upon
acceleration, redemption or otherwise;
(b) the Company defaults in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period
of 30 days; provided that a failure to make any of the first six scheduled
interest payments on the Notes on the applicable Interest Payment Date
will constitute an Event of Default with no grace or cure period;
(c) the Company defaults in the performance, or breaches the
provisions of Article Five or the Company fails to make or consummate an
Offer to Purchase in accordance with Section 4.11 or Section 4.12;
(d) the Company defaults in the performance of or breaches any other
covenant or agreement of the Company in this Indenture or under the Notes
(other than a default specified in clause (a), (b) or (c) above) and such
default or breach continues for a period of 30 consecutive days after
written notice by the Trustee or the Holders of 25% or more in aggregate
principal amount of the Notes;
(e) there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an outstanding
principal amount of $5 million or more in the aggregate for all such
issues of all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (II) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted payment
shall not have been made, waived or extended within 30 days of such
payment default;
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(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company or any Significant Subsidiary and shall not
be paid or discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $5 million
during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property and assets of
the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days;
(h) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents
to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Company or any Significant Subsidiary or for all or substantially all of
the property and assets of the Company or any Significant Subsidiary or
(C) effects any general assignment for the benefit of creditors; or
(i) the Pledge Agreement shall cease to be in full force and effect
or enforceable in accordance with its terms, other than in accordance with
its terms.
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) of Section 6.01 that occurs with
respect to the Company) occurs and is continuing under this Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Notes, then outstanding, by written notice to the Company (and to
the Trustee if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall, declare the principal of, premium, if any, and
accrued interest, if any, on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal, premium, if any, and accrued
interest, if any, shall be immediately due and payable. In
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the event of a declaration of acceleration because an Event of Default set forth
in clause (e) of Section 6.01 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 by the Company or the relevant Significant Subsidiary or
waived by the holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of Default
specified in clause (g) or (h) of Section 6.01 occurs with respect to the
Company, the principal of, premium, if any, and accrued interest, if any, on the
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.
At any time after such a declaration of acceleration, but before a
judgment or decree for the payment of the money due has been obtained by the
Trustee, the Holders of at least a majority in principal amount of the
outstanding Notes by written notice to the Company and to the Trustee, may waive
all past Defaults and rescind and annul such declaration of acceleration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on all Notes, (iii) the
principal of and premium, if any, on any Notes that have become due otherwise
than by such declaration or occurrence of acceleration and interest thereon at
the rate prescribed therefor by such Notes, and (iv) to the extent that payment
of such interest is lawful, interest upon overdue interest, if any, at the rate
prescribed therefor by such Notes, (b) all existing Events of Default, other
than the non-payment of principal of, premium, if any, and interest on the Notes
that have become due solely by such declaration of acceleration, have been cured
or waived and (c) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of, premium, if any, or interest
on the Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02,
6.07 and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the holder
of each outstanding Note
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affected. 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 Event of Default or impair any right consequent thereto.
SECTION 6.05. Control by Majority. The Holders of at least a
majority in aggregate principal amount of the outstanding Notes may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee. However,
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Notes not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from Holders of Notes.
SECTION 6.06. Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder unless:
(i) the Holder gives the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(iii) such Holder or Holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the
Trustee a direction that is inconsistent with the request.
For purposes of Section 6.05 of this Indenture and this Section
6.06, the Trustee shall comply with TIA Section 316(a) in making any
determination of whether the Holders of the required aggregate principal amount
of outstanding Notes have concurred in any request or direction of the Trustee
to pursue any remedy available to the Trustee or the Holders with respect to
this Indenture or the Notes or otherwise under the law.
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A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Note to
receive payment of the principal amount of, premium, if any, or interest on,
such Note or to bring suit for the enforcement of any such payment, on or after
the due date expressed in the Notes, shall not be impaired or affected without
the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b) or (c) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on overdue principal,
premium, if any, and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes, and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower 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 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.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
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First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for principal of,
premium, if any, and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal, premium, if any, and interest,
respectively; and
Third: to the Company or any other obligors of the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a
record date and payment date for any payment to Holders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in the suit having due regard to the merits
and good faith of the claims or defenses made by the party litigant. This
Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 of this Indenture, or a suit by Holders of more than
10% in principal amount of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or
any Holder 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, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, 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.
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SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder 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 Six 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 SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the
Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding
the foregoing, 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 or liability is
not reasonably assured to it. Whether or not therein expressly so provided,
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 Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections
315(a) through (d):
(i) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document (whether in its original or facsimile form)
believed by it to be genuine and to have been signed or presented by the
proper person. The Trustee need not investigate any fact or matter stated
in the document;
(ii) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel, which shall conform
to Section 10.03 or Section 10.04, as the case may be. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion;
(iii) the Trustee may act through attorneys and agents of its
selection and the advice of such attorneys and agents 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.
The Trustee shall not be responsible for the misconduct or negligence of
any agent appointed with due care;
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(iv) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses
and liabilities that might be incurred by it in compliance with such
request or direction;
(v) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its
rights or powers or for any action it takes or omits to take in accordance
with the direction of the Holders of a majority in principal amount of the
outstanding Notes relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; provided
that the Trustee's conduct does not constitute gross negligence or bad
faith;
(vi) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, conclusively rely upon an Officers' Certificate;
and
(vii) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company personally or by agent or attorney at the sole
cost of the Company and shall incur no liability or additional liability
of any kind by reason of such inquiry or investigation.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
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SECTION 7.05. Notice of Default. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
actually known to a Responsible Officer of the Trustee, the Trustee shall mail
to each Holder in the manner and to the extent provided in TIA Section 313(c)
notice of the Default or Event of Default within 45 days after it occurs, unless
such Default or Event of Default has been cured; provided, however, that, except
in the case of a default in the payment of the principal of, premium, if any, or
interest on any 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 Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after
each March 1, beginning with March 1, 1998, the Trustee shall mail to each
Holder as provided in TIA Section 313(c) a brief report dated as of such March
1, if required by TIA Section 313(a).
A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange, if any, upon which
the Notes are listed, with the Commission and with the Company. The Company will
promptly notify the Trustee when the Notes are listed on any stock exchange and
of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
the Trustee such compensation as shall be agreed upon in writing for its
services. The compensation of the Trustee shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses and advances
incurred or made by the Trustee. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and any predecessor
Trustee for, and hold it harmless against, any and all claim, damage, loss or
liability or expense, including taxes (other than taxes based upon, measured by
or determined by the income of the Trustee) incurred by it without negligence or
bad faith on its part in connection with the acceptance or administration of
this Indenture and its duties under this Indenture and the Notes, including the
costs and expenses of defending itself against any claim or liability and of
complying with any process served upon it or any of its officers in connection
with the exercise or performance of any of its powers or duties under this
Indenture and the Notes.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Notes on all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust pursuant to the Pledge Agreement
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and money or property held in trust to pay principal of, premium, if any, and
interest on particular Notes.
If the Trustee incurs expenses or renders services after the
occurrence of an Event of Default specified in clause (g) or (h) of Section
6.01, the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
SECTION 7.08. Replacement of Trustee. A resignation or removal of
the Trustee and appointment of a successor Trustee shall become effective only
upon the successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may remove the Trustee if:
(i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is
adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer
takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Notes may, at the expense
of the Company, petition any court of competent jurisdiction for the appointment
of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
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If the Trustee is no longer eligible under Section 7.10 or shall
fail to comply with TIA Section 310(b), any Holder who satisfies the
requirements of TIA Section 310(b) may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
The Company shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
SECTION 7.10. Eligibility. This Indenture shall always have a
Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee
shall have a combined capital and surplus of at least $25,000,000 as set forth
in its most recent published annual report of condition that is subject to the
requirements of applicable federal or state supervising or examining authority.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.10, the Trustee shall resign immediately in the
manner and with the effect specified in this Article Seven.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable
for interest on any money received by it except as the Trustee may agree in
writing with the Company. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law and except for
money held in trust under Article Eight of this Indenture.
SECTION 7.12. Withholding Taxes. The Trustee, as agent for the
Company, shall exclude and withhold from each payment of principal and interest
and other amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the holders of
the Notes, that it will file any necessary withholding tax returns or statements
when due. The Company or the Trustee shall, as promptly as possible after the
payment of the taxes described above, deliver to each holder of a
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Note appropriate documentation showing the payment thereof, together with such
additional documentary evidence as such holders may reasonably request from time
to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are
paid pursuant to Section 4.01 or Notes for whose payment money or
securities have theretofore been held in trust and thereafter repaid to
the Company, as provided in Section 8.05) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by it
hereunder; or
(ii) (A) the Notes mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (B) the Company
irrevocably deposits in trust with the Trustee during such one-year
period, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee, as trust funds solely for the
benefit of the Holders for that purpose, money or U.S. Government
Obligations sufficient (in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee), without consideration of any
reinvestment of any interest thereon, to pay principal, premium, if, any,
and interest on the Notes to maturity or redemption, as the case may be,
and to pay all other sums payable by it hereunder, (C) no Default or Event
of Default with respect to the Notes shall have occurred and be continuing
on the date of such deposit, (D) such deposit will not result in a breach
or violation of, or constitute a default under, this Indenture or any
other agreement or instrument to which the Company is a party or by which
it is bound and (E) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the satisfaction and
discharge of this Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.04, 8.05 and 8.06 shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge of
the Company's
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obligations under the Notes and this Indenture except for those surviving
obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Company
will be deemed to have paid and will be discharged from any and all obligations
in respect of the Notes on the 123rd day after the date of the deposit referred
to in clause (A) of this Section 8.02, and the provisions of this Indenture will
no longer be in effect with respect to the Notes, and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the same,
except as set forth in the following paragraph; provided that the following
conditions shall have been satisfied:
(A) with reference to this Section 8.02, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10 of this
Indenture) and conveyed all right, title and interest for the benefit of
the Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and interest,
if any, on the Notes, and dedicated solely to, the benefit of the Holders,
in and to (1) money in an amount, (2) U.S. Government Obligations that,
through the payment of interest, premium, if any, and principal in respect
thereof in accordance with their terms, will provide, not later than one
day before the due date of any payment referred to in this clause (A),
money in an amount or (3) a combination thereof in an amount 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, without consideration of the reinvestment
of such interest and after payment of all federal, state and local taxes
or other charges and assessments in respect thereof payable by the
Trustee, the principal of, premium, if any, and accrued interest on the
outstanding Notes at the Stated Maturity of such principal or interest;
provided that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to the
payment of such principal, premium, if any, and interest with respect to
the Notes;
(B) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(C) immediately after giving effect to such deposit on a pro forma
basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or during the period ending on the
123rd day after such date of deposit;
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(D) the Company shall have delivered to the Trustee (1) either (x) a
ruling directed to the Trustee received from the Internal Revenue Service
to the effect that the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of the Company's exercise of its
option under this Section 8.02 and will be subject to federal income tax
on the same amount and in the same manner and at the same times as would
have been the case if such option had not been exercised or (y) an Opinion
of Counsel to the same effect as the ruling described in clause (x) above
accompanied by a ruling to that effect published by the Internal Revenue
Service, unless there has been a change in the applicable federal income
tax law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (2) an Opinion of
Counsel to the effect that (x) the creation of the defeasance trust does
not violate the Investment Company Act of 1940 and (y) after the passage
of 123 days following the deposit (except, with respect to any trust funds
for the account of any Holder who may be deemed to be an "insider" for
purposes of the United States Bankruptcy Code, after one year following
the deposit), the trust funds will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law in a case commenced by or against the Company
under either such statute, and either (I) the trust funds will no longer
remain the property of the Company (and therefore will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (II) if a court
were to rule under any such law in any case or proceeding that the trust
funds remained property of the Company, (a) assuming such trust funds
remained in the possession of the Trustee prior to such court ruling to
the extent not paid to the Holders, the Trustee will hold, for the benefit
of the Holders, a valid and perfected security interest in such trust
funds that is not avoidable in bankruptcy or otherwise except for the
effect of Section 552(b) of the United States Bankruptcy Code on interest
on the trust funds accruing after the commencement of a case under such
statute and (b) the Holders will be entitled to receive adequate
protection of their interests in such trust funds if such trust funds are
used in such case or proceeding;
(E) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit defeasance and discharge will not cause the
Notes to be delisted; and
(F) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or
one year) period referred to in clause (D)(2)(y) of this Section 8.02, none of
the Company's obligations under this Indenture shall be discharged. Subsequent
to the end of such 123-day (or one year)
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period with respect to this Section 8.02, the Company's obligations in Sections
2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 8.04, 8.05,
8.06 and the rights, powers, trusts, duties and immunities of the Trustee
hereunder shall survive until the Notes are no longer outstanding. Thereafter,
only the Company's obligations in Sections 7.07, 8.04, 8.05 and 8.06 shall
survive. If and when a ruling from the Internal Revenue Service or an Opinion of
Counsel referred to in clause (D)(1) of this Section 8.02 is able to be provided
specifically without regard to, and not in reliance upon, the continuance of the
Company's obligations under Section 4.01, then the Company's obligations under
such Section 4.01 shall cease upon delivery to the Trustee of such ruling or
Opinion of Counsel and compliance with the other conditions precedent provided
for herein relating to the defeasance contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may
omit to comply with any term, provision or condition set forth in clauses (iii)
and (iv) under Section 5.01 and Sections 4.03 through 4.11, clauses (c) and (d)
under Section 6.01 with respect to clauses (iii) and (iv) under Section 5.01 and
Sections 4.03 through 4.11 and clauses (e) and (f) under Section 6.01 shall be
deemed not to be Events of Default, in each case with respect to the outstanding
Notes if:
(i) with reference to this Section 8.03, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10) and conveyed
all right, title and interest to the Trustee for the benefit of the
Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and interest,
if any, on the Notes, and dedicated solely to, the benefit of the Holders,
in and to (A) money in an amount, (B) U.S. Government Obligations that,
through the payment of interest and principal in respect thereof in
accordance with their terms, will provide, not later than one day before
the due date of any payment referred to in this clause (i), money in an
amount or (C) a combination thereof in an amount 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, without consideration of the reinvestment of such
interest and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and interest on the outstanding Notes on
the Stated Maturity of such principal or interest; provided that the
Trustee shall have been irrevocably instructed to apply such money or
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the proceeds of such U.S. Government Obligations to the payment of such
principal, premium, if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(iv) the Company has delivered to the Trustee an Opinion of Counsel
to the effect that (A) the creation of the defeasance trust does not
violate the Investment Company Act of 1940, (B) the Holders have a valid
first-priority security interest in the trust funds, (C) the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit and
defeasance had not occurred and (D) after the passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the United States Bankruptcy Code, after one year following the deposit),
the trust funds will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law in a case commenced by or against the Company under either
such statute, and either (1) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (2) if a court were to rule
under any such law in any case or proceeding that the trust funds remained
property of the Company, (x) assuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent not
paid to the Holders, the Trustee will hold, for the benefit of the
Holders, a valid and perfected security interest in such trust funds that
is not avoidable in bankruptcy or otherwise (except for the effect of
Section 552(b) of the United States Bankruptcy Code on interest on the
trust funds accruing after the commencement of a case under such statute),
(y) the Holders will be entitled to receive adequate protection of their
interests in such trust funds if such trust funds are used in such case or
proceeding and (z) no property, rights in property or other interests
granted to the Trustee or the Holders in exchange for, or with respect to,
such trust funds will be subject to any prior rights of holders of other
Indebtedness of the Company or any of its Subsidiaries;
(v) if the Notes are then listed on a national securities exchange,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that such deposit defeasance and discharge will not cause the
Notes to be delisted; and
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(vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.06,
the Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the
case may be, and shall apply the deposited money and the money from U.S.
Government Obligations in accordance with the Notes and this Indenture to the
payment of principal of, premium, if any, and interest on the Notes; but such
money 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 8.01, 8.02 or 8.03, 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 Notes.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years; provided that the Trustee
or such Paying Agent before being required to make any payment may cause to be
published at the expense of the Company once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money at such Holder's address (as set forth in the Security Register) notice
that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be, 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 obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or
8.03, as the case may be, 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 8.01, 8.02 or 8.03, as the case may be;
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provided that, if the Company has made any payment of principal of, premium, if
any, or interest on any Notes because of the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Notes to
receive such payment from the money or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company, when
authorized by a resolution of its Board of Directors, and the Trustee may amend
or supplement this Indenture or the Notes without notice to or the consent of
any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture; provided that such amendments or supplements shall not
adversely affect the interests of the Holders in any material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of the Board
of Directors as evidenced by a Board Resolution, does not materially and
adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Company, when authorized by
its Board of Directors (as evidenced by a Board Resolution), and the Trustee may
amend this Indenture, the Pledge Agreement and the Notes with the written
consent of the Holders of a majority in aggregate principal amount of the Notes
then outstanding, and the Holders of a majority in aggregate principal amount of
the Notes then outstanding by written notice to the Trustee may waive future
compliance by the Company with any provision of this Indenture, the Notes or the
Pledge Agreement.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
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(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note,
(ii) reduce the principal amount of, or premium, if any, or interest
on, any Note,
(iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Note or adversely affect any right of
repayment at the option of any Holder of any Note,
(iv) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any Note,
(v) reduce the above-stated percentage of outstanding Notes the
consent of whose Holders is necessary to modify or amend this Indenture,
(vi) waive a Default in the payment of principal of, premium, if
any, or interest on the Notes,
(vii) modify Article Ten or the Pledge Agreement in a manner that
adversely affects the right of any Holder in any material respect;
(viii) modify any of the provisions of this Section 9.02, except to
increase any such percentage 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
(ix) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of this Indenture or for waiver of
certain defaults.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment
or waiver becomes effective, a consent to it by a Holder is a continuing consent
by the Holder and
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every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the Note of the consenting Holder, even if notation of the consent is
not made on any Note. However, any such Holder or subsequent Holder may revoke
the consent as to its Note or portion of its Note. Such revocation shall be
effective only if the Trustee receives the notice of revocation before the date
the amendment, supplement or waiver becomes effective. An amendment, supplement
or waiver shall become effective on receipt by the Trustee of written consents
from the Holders of the requisite percentage in principal amount of the
outstanding Notes.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of 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 consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (viii) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (viii) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Note thereafter authenticated.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Subject to the preceding sentence, the Trustee shall sign such
amendment, supplement or waiver if the same does not adversely affect the rights
of the Trustee. The Trustee may, but shall not be obligated to, execute any such
amendment, supplement or waiver that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
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SECTION 9.06. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article Nine shall conform to
the requirements of the TIA as then in effect.
ARTICLE TEN
SECURITY
SECTION 10.01. Security. (a) On the Closing Date, the Company shall
(i) enter into the Pledge Agreement and comply with the terms and provisions
thereof and (ii) purchase the Pledged Securities to be pledged to the Trustee
for the benefit of the Holders in such amount as will be sufficient upon receipt
of scheduled interest and/or principal payments of such Pledged Securities, in
the opinion of a nationally recognized firm of independent public accountants
selected by the Company, to provide for payment in full of the first six
scheduled interest payments due on the Notes. The Pledged Securities shall be
pledged by the Company to the Trustee for the benefit of the Holders and shall
be held by the Trustee in the Pledge Account pending disposition pursuant to the
Pledge Agreement.
In the event the Exchange Offer is not consummated and the Shelf
Registration Statement is not declared effective on or prior to October 15,
1998, and the interest rate on the Notes is increased by .5% per annum as
required by this Indenture, the Company shall purchase and deliver to the
Trustee additional Pledged Securities in such amount as will be sufficient upon
receipt of scheduled interest and/or principal payments of all Pledged
Securities thereafter held in the Pledged Account, in the opinion of a
nationally recognized firm of independent public accountants selected by the
Company, to provide payment for the first six scheduled interest payments due on
the Notes (assuming the additional .5% per annum remains in effect for the
entire period). The additional Pledged Securities shall be pledged by the
Company to the Trustee for the benefit of the Holders and shall be held by the
Trustee in the Pledged Account.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in accordance with its terms,
and authorizes and directs the Trustee to enter into the Pledge Agreement and to
perform its respective obligations and exercise its respective rights thereunder
in accordance therewith. The Company will do or cause to be done all such acts
and things as may be necessary or proper, or as may be required by the
provisions of the Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the Pledge
Agreement or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture and of the
Notes secured hereby, according to the intent and purposes herein expressed. The
Company
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shall take, or shall cause to be taken, upon request of the Trustee, any and all
actions reasonably required to cause the Pledge Agreement to create and
maintain, as security for the obligations of the Company under this Indenture
and the Notes, valid and enforceable first priority liens in and on all the
Pledged Securities, in favor of the Trustee, superior to and prior to the rights
of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Pledge
Agreement will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Pledge Agreement. To
the extent applicable, the Company shall cause TIA Section 314(d) relating to
the release of property or securities from the Lien and security interest of the
Pledge Agreement and relating to the substitution therefor of any property or
securities to be subjected to the Lien and security interest of the Pledge
Agreement to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an officer of the Company, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected by the Company.
(d) The Company shall cause TIA Section 314(b), relating to opinions
of counsel regarding the Lien under the Pledge Agreement, to be complied with.
The Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof,
accept as conclusive evidence of compliance with the foregoing provisions the
appropriate statements contained in such instruments.
(e) The Trustee may, in its sole discretion and without the consent
of the Holders, on behalf of the Holders, take all actions it deems necessary or
appropriate in order to (i) enforce any of the terms of the Pledge Agreement and
(ii) collect and receive any and all amounts payable in respect of the
obligations of the Company thereunder. The Trustee shall have power to institute
and to maintain such suits and proceedings as the Trustee may deem expedient to
preserve or protect its interests and the interests of the Holders in the
Pledged Securities (including power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid if the enforcement of, or compliance with, such enactment,
rule or order would impair the security interest hereunder or be prejudicial to
the interests of the Holders or of the Trustee).
ARTICLE ELEVEN
MISCELLANEOUS
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SECTION 11.01. Trust Indenture Act of 1939. Prior to the
effectiveness of the Registration Statement, this Indenture shall incorporate
and be governed by the provisions of the TIA that are required to be part of and
to govern indentures qualified under the TIA. After the effectiveness of the
Registration Statement, this Indenture shall be subject to the provisions of the
TIA that are required to be a part of this Indenture and shall, to the extent
applicable, be governed by such provisions.
SECTION 11.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail addressed as follows:
if to the Company:
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
if to the Trustee:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to
him at his address as it appears on the Security Register by first class mail
and shall be sufficiently given to him if so mailed within the time prescribed.
Copies of any such communication or notice to a Holder shall also be mailed to
the Trustee and each Agent at the same time.
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. Except for
a notice to the Trustee, which is deemed given only when received, and except as
otherwise provided in this Indenture, if a notice or communication is mailed in
the manner provided in this Section 11.02, it is duly given, whether or not the
addressee receives it.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event,
<PAGE> 88
83
and such waiver shall be the equivalent of such notice. Waivers of notice by
Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 11.03. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) 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
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such Counsel,
all such conditions precedent have been complied with; provided, however,
that, with respect to matters of fact, an Opinion of Counsel may rely on
an Officers' Certificate or certificates of public officials.
SECTION 11.04. Statements Required in Certificate. Each certificate
with respect to compliance with a condition or covenant provided for in this
Indenture shall include:
(i) a statement that each person signing such certificate has read
such covenant or condition and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements contained in such certificate
are based;
(iii) a statement that, in the opinion of each such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with.
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The
Trustee may make reasonable rules for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
<PAGE> 89
84
SECTION 11.06. Payment Date Other Than a Business Day. If an
Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date of
maturity of any Note shall not be a Business Day, then payment of principal of,
premium, if any, or interest on such Note, as the case may be, need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date, Payment Date, or
Redemption Date, or at the Stated Maturity or date of maturity of such Note;
provided that no interest shall accrue for the period from and after such
Interest Payment Date, Payment Date, Redemption Date, Stated Maturity or date of
maturity, as the case may be.
SECTION 11.07. Governing Law. The laws of the State of New York
shall govern this Indenture and the Notes. The Trustee, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture or
the Notes.
SECTION 11.08. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.09. No Recourse Against Others. No recourse for the
payment of the principal of, premium, if any, or interest on any of the Notes,
or for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company contained in
this Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
SECTION 11.10. Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 11.11. Duplicate Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
<PAGE> 90
85
SECTION 11.12. Separability. In case any provision in this Indenture
or in the 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 11.13. Table of Contents, Headings, Etc. 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 to
be considered a part hereof and shall in no way modify or restrict any of the
terms and provisions hereof.
<PAGE> 91
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
LONG DISTANCE INTERNATIONAL INC.
By:
---------------------
Name:
Title:
THE BANK OF NEW YORK
By:
---------------------
Name:
Title:
<PAGE> 92
EXHIBIT A
[FACE OF NOTE]
LONG DISTANCE INTERNATIONAL INC.
12 1/4% Senior Note Due 2008
[CUSIP] [CINS] __________
No. $_________
LONG DISTANCE INTERNATIONAL INC., a Florida corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to _________, or its
registered assigns, the principal sum of _________($____) on April 15, 2008.
Interest Payment Dates: October 15 and April 15, commencing October
15, 1998.
Regular Record Dates: October 1 and April 1.
Reference is hereby made to the further provisions of this 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.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
LONG DISTANCE INTERNATIONAL INC.
By:
---------------------
Name:
Title:
By:
---------------------
Name:
Title:
<PAGE> 93
(Trustee's Certificate of Authentication)
This is one of the 12 1/4% Senior Notes due 2008 described in the
within-mentioned Indenture.
Date: April 13, 1998 THE BANK OF NEW YORK,
as Trustee
By:
------------------------------------
Authorized Signatory
<PAGE> 94
A-3
[REVERSE SIDE OF NOTE]
LONG DISTANCE INTERNATIONAL INC.
12 1/4% Senior Note due 2008
1. Principal and Interest.
The Company will pay the principal of this Note on April 15, 2008.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of
the Notes at the close of business on the April 1 or October 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
October 1, 1998.
If an exchange offer registered under the Securities Act is not
consummated and a shelf registration statement under the Securities Act with
respect to resales of the Notes is not declared effective by the Commission, on
or before October 13, 1998 in accordance with the terms of the Notes
Registration Rights Agreement dated April 7, 1998 among the Company and Morgan
Stanley & Co. Incorporated and SBC Warburg Dillon Read Inc., the annual interest
rate borne by the Notes shall be increased by 0.5% from the rate shown above
accruing from October 13, 1998, payable in cash semiannually, in arrears, on
each April 15 and October 15, commencing April 15, 1999, until the exchange
offer is consummated or the shelf registration statement is declared effective.
The Holder of this Note is entitled to the benefits of such Notes Registration
Rights Agreement.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from April 13, 1998;
provided that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
<PAGE> 95
A-4
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each April 15 and October 15
to the persons who are Holders (as reflected in the Security Register at the
close of business on such April 1 and October 1 immediately preceding the
Interest Payment Date), in each case, even if the Note is canceled on
registration of transfer or registration of exchange after such record date;
provided that, with respect to the payment of principal, the Company will make
payment to the Holder that surrenders this Note to a Paying Agent on or after
April 15, 2008.
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder's registered address (as reflected in
the Security Register). If a payment date is a date other than a Business Day at
a place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying
Agent and Registrar. The Company may change any authenticating agent, Paying
Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate
of any of them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of April
13, 1998 (the "Indenture"), between the Company and The Bank of New York (the
"Trustee"). Capitalized terms herein are used as defined in the Indenture unless
otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement of all such terms.
To the extent permitted by applicable law, in the event of any inconsistency
between the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control.
The Notes are general unsecured obligations of the Company.
The Company may, subject to Article Four of the Indenture and
applicable law, issue additional Notes under the Indenture.
<PAGE> 96
A-5
5. Redemption.
The Notes may be redeemed, at the Company's option, in whole or in
part, at any time or from time to time, on or after April 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12- month period commencing April
15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2003 106.1250%
2004 104.0830%
2005 102.0420%
2006 and thereafter 100.0000%
</TABLE>
In addition, at any time prior to April 15, 2001, the Company may
redeem up to 35% of the aggregate principal amount of the Notes originally
issued with the proceeds of one or more Public Equity Offerings following which
a Public Market occurs, at any time as a whole or from time to time in part, at
a Redemption Price (expressed in percentage of principal amount) of 112.250%;
provided that (1) at least $146,250,000 aggregate principal amount of Notes
remains outstanding after each such redemption and (2) notice of any such
redemption is mailed within 60 days after the related Public Equity Offering.
Notice of any optional redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes to
be redeemed at his last address as it appears in the Security Register. Notes in
original denominations larger than $1,000 may be redeemed in part. On and after
the Redemption Date, interest ceases to accrue on Notes or portions of Notes
called for redemption, unless the Company defaults in the payment of the
Redemption Price.
6. Repurchase upon Change in Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued interest, if any, to the date of purchase
(the "Change of Control Payment").
<PAGE> 97
A-6
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at his last address as it
appears in the Security Register. Notes in original denominations larger than
$1,000 may be sold to the Company in part. On and after the Change of Control
Payment Date, interest ceases to accrue on Notes or portions of Notes
surrendered for purchase by the Company, unless the Company defaults in the
payment of the Change of Control Payment.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the mailing of
a notice of redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its written request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Pledge Agreement
or the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in
<PAGE> 98
A-7
principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.
13. Successor Persons.
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
14. Defaults and Remedies.
<PAGE> 99
A-8
The following events constitute "Events of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable upon acceleration, redemption or
otherwise; (b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30 days;
provided that a failure to make any of the first six scheduled interest payments
on the Notes on the applicable Interest Payment Date will constitute an Event of
Default with no grace or cure period; (c) default in the performance, or breach
of the provisions of Article Five or the failure to make or consummate an Offer
to Purchase in accordance with Section 4.11 or Section 4.12; (d) default in the
performance of or breach of any other covenant or agreement of the Company in
the Indenture or under the Notes (other than a default specified in clause (a),
(b) or (c) above) and such default or breach continues for a period of 30
consecutive days after written notice by the Trustee or the Holders of 25% or
more in aggregate principal amount of the Notes, (e) there occurs with respect
to any issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $5 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (I) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $5 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
30 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $5 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in
the premises enters a decree or order for (A) relief in respect of the Company
or any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 30 consecutive days;
(h) the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company
<PAGE> 100
A-9
or any Significant Subsidiary or (C) effects any general assignment for the
benefit of creditors; or (i) the Pledge Agreement shall cease to be in full
force and effect or enforceable in accordance with its terms, other than in
accordance with its terms..
If an Event of Default (other than an Event of Default specified in
clauses (g) or (h) of Section 6.01 of the Indenture that occurs with respect to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Notes may declare all the
Notes to be due and payable. If a bankruptcy or insolvency default with respect
to the Company occurs and is continuing, the Notes automatically become due and
payable. Holders may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
at least a majority in principal amount of the Notes then outstanding may direct
the Trustee in its exercise of any trust or power.
15. Security.
The Company has entered into the Pledge Agreement and purchased and
pledged to the Trustee for the benefit of the Holders Pledged Securities in an
amount sufficient upon receipt of scheduled interest and principal payments on
such securities to provide for payment in full of the first six scheduled
interest payments due on the Notes. The Pledged Securities will be pledged by
the Company to the Trustee for the benefit of the Holders and will be held by
the Trustee in the Pledge Account pending disbursement pursuant to the Pledge
Agreement.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator or any past, present or future partner, shareholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
18. Authentication.
<PAGE> 101
A-10
This Note shall not be valid until the Trustee or authenticating agent signs the
certificate of authentication on the other side of this Note.
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Long Distance
International Inc., 888 South Andrews Avenue, Suite 205, Fort Lauderdale,
Florida 33316, Attention: Chief Financial Officer.
<PAGE> 102
A-11
[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 Note and all rights thereunder, hereby irrevocably constituting and
appointing_____________attorney to transfer said Note on the books of the
Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
UNLEGENDED OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date the shelf registration statement with
respect to resales of the Notes is declared effective or (ii) the end of the
period referred to in Rule 144(k) under the Securities Act, the undersigned
confirms that without utilizing any general solicitation or general advertising
that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[ ] (b) this Note is 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 Note and the Indenture.
<PAGE> 103
A-12
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note 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 2.08 of the Indenture 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
Note 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
<PAGE> 104
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.11 or Section 4.12 of the Indenture, check the Box: |_|
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, state the amount (in
principal amount): $-------------------.
Date:_______
Your Signature:____________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________________
<PAGE> 105
EXHIBIT B
Form of Certificate
______,___
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
Re: Long Distance International Inc. (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
Dear Sirs:
This letter relates to U.S. $ ________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.01 of
the Indenture (the "Indenture") dated as of April 13, 1998 relating to the
Notes, we hereby certify that we are (or we will hold such securities on behalf
of) a person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933, as amended. Accordingly, you are hereby requested to exchange the
legended certificate for an unlegended certificate representing an identical
principal amount of Notes, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By: ______________________
Authorized Signature
<PAGE> 106
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
______,___
The Bank of New York
101 Barclay Street
Floor 21 West
New York, NY 10286
Attention: Corporate Trust Trustee Administration
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
Re: Long Distance International Inc. (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
Dear Sirs:
In connection with our proposed purchase of $_________aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of April 13, 1998, relating to the Notes (the "Indenture") and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and conditions
and the Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell any Notes, we will do so only (A) to the Company or any
subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf
<PAGE> 107
C-2
by a U.S. broker-dealer) to you and to the Company a signed letter substantially
in the form of this letter and, if such transfer is in respect of an aggregate
principal amount of Notes at the time of transfer of less than $100,000, an
opinion of counsel acceptable to the Company that such transfer is in compliance
with the Securities Act, (D) outside the United States in accordance with Rule
904 of Regulation S under the Securities Act, (E) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act, or (F) pursuant to
an effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing any of the Notes from us a notice
advising such purchaser that resales of the Notes are restricted as stated
herein.
3. We understand that, on any proposed resale of any Notes, we will
be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:_______________
Authorized Signature
<PAGE> 108
EXHIBIT D
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
______,___
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
Re: Long Distance International Inc. (the "Company")
12 1/4% Senior Notes due 2008 (the "Notes")
Dear Sirs:
In connection with our proposed sale of U.S.$ aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to and
in accordance with Regulation S under the Securities Act of 1933, as amended,
and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
<PAGE> 109
D-2
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b)
of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ___________________
Authorized Signature
<PAGE> 1
Exhibit 4.2
EXECUTION COPY
- --------------------------------------------------------------------------------
NOTES REGISTRATION RIGHTS AGREEMENT
Dated April 7, 1998
between
LONG DISTANCE INTERNATIONAL INC.
and
MORGAN STANLEY & CO. INCORPORATED
SBC WARBURG DILLON READ INC.
- --------------------------------------------------------------------------------
<PAGE> 2
NOTES REGISTRATION RIGHTS AGREEMENT
THIS NOTES REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into April 7, 1998, between LONG DISTANCE INTERNATIONAL INC., a
Florida corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED and
SBC WARBURG DILLON READ INC. (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated
April 7, 1998, between the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of 225,000 Units (the "Units"). Each Unit consists of (i) $1,000
principal amount of 12 1/4% Senior Notes due 2008 (collectively, the "Notes")
and (ii) one Warrant, entitling the holder thereof to purchase 15.0874 shares
(collectively, the "Warrant Shares") of Common Stock, par value $0.001 per
share, of the Company ("Common Stock"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide to the Initial Purchasers and their direct and indirect transferees the
registration rights set forth in this Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Closing Date" shall mean the Closing Date as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and shall also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
<PAGE> 3
2
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Exchange Securities" shall mean securities issued by the Company
under the Indenture containing terms identical to the Notes (except that
(i) interest thereon shall accrue from the last date on which interest was
paid on the Notes or, if no such interest has been paid, from April 13,
1998 and (ii) the Exchange Securities will not contain restrictions on
transfer) and to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
"Holder" shall mean the Initial Purchasers, for so long as they own
any Registrable Securities, and each of their successors, assigns and
direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture; provided that for purposes of
Sections 4 and 5 of this Agreement, the term "Holder" shall include
Participating Broker-Dealers (as defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the Notes dated as
of April 13, 1998 between the Company and The Bank of New York and as the
same may be amended from time to time in accordance with the terms
thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble to this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities; provided
that whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term is defined in
Rule 405 under the 1933 Act) (other than the Initial Purchasers or
subsequent holders of Registrable Securities if such subsequent holders
are deemed to be such affiliates solely by reason of their holding of such
Registrable Securities) or any of its subsidiaries shall not be counted in
determining whether such consent or approval was given by the Holders of
such required percentage or amount.
"Notes" shall have the meaning set forth in the preamble to this
Agreement.
"Person" shall mean an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
<PAGE> 4
3
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Registrable Securities" shall mean the Notes; provided, however,
that the Notes shall cease to be Registrable Securities (i) when a
Registration Statement with respect to such Notes shall have been declared
effective under the 1933 Act and such Notes shall have been disposed of
pursuant to such Registration Statement, (ii) when such Notes have been
sold to the public pursuant to Rule 144 (or any similar provision then in
force, but not Rule 144A) under the 1933 Act or (iii) when such Notes
shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of
any of the Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to
the performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the qualification
of the Indenture under applicable securities laws, (vi) the fees and
disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and, in the case of a Shelf
Registration Statement, the fees and disbursements of one counsel for the
Holders (which counsel shall be selected by the Majority Holders and which
counsel may also be counsel for the Initial Purchasers) and (viii) the
fees and disbursements of the independent public accountants of the
Company, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, but
excluding fees and expenses of counsel to the underwriters (other than
fees and expenses set forth in clause (ii) above) or the Holders
<PAGE> 5
4
and underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement of
the Company that covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the Registrable Securities (but no
other securities unless approved by the Holders whose Registrable
Securities are covered by such Shelf Registration Statement) on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"TIA" shall have the meaning set forth in Section 3(l) hereof.
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
"Underwriter" shall have the meaning set forth in Section 3 hereof.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which Registrable Securities are sold to an Underwriter
for reoffering to the public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed an Exchange Offer Registration Statement covering the offer
by the Company to the Holders to exchange all of the Registrable Securities for
Exchange Securities and to have such Registration Statement remain effective
until the closing of the Exchange Offer. The Company
<PAGE> 6
5
shall commence the Exchange Offer promptly after the Exchange Offer Registration
Statement has been declared effective by the SEC and use its best efforts to
have the Exchange Offer consummated not later than 60 days after such effective
date. The Company shall commence the Exchange Offer by mailing the related
exchange offer Prospectus and accompanying documents to each Holder stating, in
addition to such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal,
to the institution and at the address (located in the Borough of
Manhattan, The City of New York) specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice a facsimile transmission or
letter setting forth the name of such Holder, the principal amount of
Registrable Securities delivered for exchange and a statement that such
Holder is withdrawing his election to have such Notes exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted
for exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, and Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
<PAGE> 7
6
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Initial Purchasers of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchasers shall have the right, subject
to applicable law, to contact such Holders and otherwise facilitate the tender
of Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the Exchange
Offer Registration provided for in Section 2(a) above is not available or may
not be consummated as soon as practicable after the last Exchange Date because
it would violate applicable law or the applicable interpretations of the Staff
of the SEC, (ii) the Exchange Offer is not for any other reason consummated by
October 13, 1998 or (iii) the Exchange Offer has been completed and in the
opinion of counsel for the Initial Purchasers a Registration Statement must be
filed and a Prospectus must be delivered by the Initial Purchasers in connection
with any offering or sale of Registrable Securities, the Company shall use its
best efforts to cause to be filed as soon as practicable after such
determination, date or notice of such opinion of counsel is given to the
Company, as the case may be, a Shelf Registration Statement providing for the
sale by the Holders of all of the Registrable Securities and to have such Shelf
Registration Statement declared effective by the SEC. In the event the Company
is required to file a Shelf Registration Statement solely as a result of the
matters referred to in clause (iii) of the preceding sentence, the Company shall
use its best efforts to file and have declared effective by the SEC both an
Exchange Offer Registration Statement pursuant to Section 2(a) with respect to
all Registrable Securities and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Securities held by the Initial
Purchasers after completion of the Exchange Offer. The Company agrees to use its
best efforts to keep the Shelf Registration Statement continuously effective
until the expiration of the period referred to in Rule 144(k) with respect to
the Registrable Securities or such shorter period that will terminate when all
of the Registrable Securities covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement. The Company further
agrees to supplement or amend the Shelf Registration Statement if required by
the rules, regulations or instructions applicable to the registration form used
by the Company for such Shelf Registration Statement or by the 1933 Act or by
any other rules and regulations thereunder for shelf registration or if
reasonably requested by a Holder with respect to information relating to such
Holder, and to use its best efforts to cause any such amendment to become
effective and such Shelf Registration Statement to become usable as soon as
thereafter practicable. The Company agrees to furnish to the Holders of
Registrable Securities copies of any such supplement or amendment promptly after
its being used or filed with the SEC.
<PAGE> 8
7
(c) The Company shall pay all Registration Expenses in connection
with the registration pursuant to Section 2(a) or Section 2(b). Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. In the event the
Exchange Offer is not consummated and the Shelf Registration Statement is not
declared effective on or prior to October 13, 1998, the interest rate on the
Notes will increase by 0.5% per annum until the Exchange Offer is consummated or
the Shelf Registration Statement is declared effective by the SEC.
(e) Without limiting the remedies available to the Initial
Purchasers and the Holders, the Company acknowledges that any failure by the
Company to comply with its obligations under Section 2(a) and Section 2(b)
hereof may result in material irreparable injury to the Initial Purchasers or
the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's obligations under
Section 2(a) and Section 2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect to
the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and (y) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling
Holders thereof and (z) shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the SEC to be filed therewith, and use its best
efforts to cause such Registration Statement to become effective and
remain effective in accordance with Section 2 hereof;
<PAGE> 9
8
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and,
as so supplemented, to be filed pursuant to Rule 424 under the 1933 Act;
to keep each Prospectus current during the period described under Section
4(3) and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Initial Purchasers, to counsel
for the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company consents to the
use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement thereto
in accordance with applicable law;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with such Holders in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder;
provided, however, that the Company shall not be required to (i) qualify
as a foreign corporation or as a dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for this Section
3(d), (ii) file any general consent to service of process or (iii) subject
itself to taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Initial Purchasers promptly and, if requested by any such Holder or
counsel, confirm such advice in writing (i) when a Registration Statement
has become effective and when any post-effective amendment thereto has
been filed and becomes effective, (ii) of any request by the SEC or any
state
<PAGE> 10
9
securities authority for amendments and supplements to a Registration
Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the
SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (v) of the happening
of any event during the period a Shelf Registration Statement is effective
which makes any statement made in such Registration Statement or the
related Prospectus untrue in any material respect or which requires the
making of any changes in such Registration Statement or Prospectus in
order to make the statements therein not misleading and (vi) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide immediate notice to each Holder of
the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of
each Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits thereto,
unless requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold
and not bearing any restrictive legends and enable such Registrable
Securities to be in such denominations (consistent with the provisions of
the Indenture) and registered in such names as the selling Holders may
reasonably request at least one business day prior to the closing of any
sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use its best efforts to
prepare and file with the SEC a supplement or post-effective amendment to
a Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or
<PAGE> 11
10
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Company agrees to notify the Holders to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and the
Holders hereby agree to suspend use of the Prospectus until the Company
has amended or supplemented the Prospectus to correct such misstatement or
omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Initial Purchasers and their counsel (and, in the case of
a Shelf Registration Statement, the Holders and their counsel) and make
such of the representatives of the Company as shall be reasonably
requested by the Initial Purchasers or their counsel (and, in the case of
a Shelf Registration Statement, the Holders or their counsel) available
for discussion of such document, and shall not at any time file or make
any amendment to the Registration Statement, any Prospectus or any
amendment of or supplement to a Registration Statement or a Prospectus or
any document which is to be incorporated by reference into a Registration
Statement or a Prospectus, of which the Initial Purchasers and their
counsel (and, in the case of a Shelf Registration Statement, the Holders
and their counsel) shall not have previously been advised and furnished a
copy or to which the Initial Purchasers or their counsel (and, in the case
of a Shelf Registration Statement, the Holders or their counsel) shall
object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration
of the Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts
to cause the Trustee to execute, all documents as may be required to
effect such changes and all other forms and documents required to be filed
with the SEC to enable the Indenture to be so qualified in a timely
manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to
such Shelf Registration Statement, and attorneys and accountants
designated by the Holders, at reasonable times and in a
<PAGE> 12
11
reasonable manner, all financial and other records, pertinent documents
and properties of the Company, and cause the respective officers,
directors and employees of the Company to supply all information
reasonably requested by any such representative, Underwriter, attorney or
accountant in connection with a Shelf Registration Statement;
(n) in the case of a Shelf Registration, use its best efforts to
cause all Registrable Securities to be listed on any securities exchange
or any automated quotation system on which similar securities issued by
the Company are then listed if requested by the Majority Holders, to the
extent such Registrable Securities satisfy applicable listing
requirements;
(o) use its best efforts to cause the Exchange Securities or
Registrable Securities, as the case may be, to be rated by two nationally
recognized statistical rating organizations (as such term is defined in
Rule 436(g)(2) under the 1933 Act);
(p) if reasonably requested by any Holder of Registrable Securities
covered by a Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such Prospectus supplement
or such post-effective amendment as soon as the Company has received
notification of the matters to be incorporated in such filing; and
(q) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such representations and warranties to the Holders and any
Underwriters of such Registrable Securities with respect to the business
of the Company and its subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed incorporated
by reference, if any, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same if and when requested, (ii) obtain opinions of counsel to
the Company (which counsel and opinions, in form, scope and substance,
shall be reasonably satisfactory to the Holders and such Underwriters and
their respective counsel) addressed to each selling Holder and Underwriter
of Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold comfort"
letters from the independent certified public accountants of the Company
(and, if necessary, any other certified public accountant of any
subsidiary of the Company, or of any business acquired by the Company for
which financial statements and financial data are or are required to be
included in the Registration Statement) addressed to each
<PAGE> 13
12
selling Holder and Underwriter of Registrable Securities, 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 documents and certificates as may be reasonably
requested by the Holders of a majority in principal amount of the
Registrable Securities being sold or the Underwriters, and which are
customarily delivered in underwritten offerings, to evidence the continued
validity of the representations and warranties of the Company made
pursuant to clause (i) above and to evidence compliance with any customary
conditions contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Registrable Securities as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e)(v) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(i) hereof, and, if so directed by
the Company, such Holder will deliver to the Company (at its expense) all copies
in its possession, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice. If the Company shall give any such notice to
suspend the disposition of Registrable Securities pursuant to a Registration
Statement, the Company shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume such dispositions.
The Company may give any such notice only twice during any 365-day period and
any such suspensions may not exceed 30 days for each suspension and there may
not be more than two suspensions in effect during any 365- day period.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an Underwritten Offering. In any such Underwritten Offering, the investment
banker or investment bankers and manager or managers (the "Underwriters") that
will administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
<PAGE> 14
13
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Notes that were acquired by such broker-dealer as
a result of market-making or other trading activities (a "Participating
Broker-Dealer"), may be deemed to be an "underwriter" within the meaning of the
1933 Act and must deliver a prospectus meeting the requirements of the 1933 Act
in connection with any resale of such Exchange Securities.
The Company understands that it is the Staff's position that if the
Prospectus contained in the Exchange Offer Registration Statement includes a
plan of distribution containing a statement to the above effect and the means by
which Participating Broker-Dealers may resell the Exchange Securities, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Securities owned by them, such Prospectus may be delivered by Participating
Broker-Dealers to satisfy their prospectus delivery obligation under the 1933
Act in connection with resales of Exchange Securities for their own accounts, so
long as the Prospectus otherwise meets the requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company agrees that the provisions of this Agreement as they
relate to a Shelf Registration shall also apply to an Exchange Offer
Registration to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Initial Purchasers or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as
would otherwise be contemplated by Section 3(i), for a period exceeding
180 days after the last Exchange Date (as such period may be extended
pursuant to the penultimate paragraph of Section 3 of this Agreement) and
Participating Broker-Dealers shall not be authorized by the Company to
deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth
in Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Company by the Initial Purchasers or with
the reasonable request in writing to the Company by one or more
broker-dealers who certify to the Initial Purchasers and the Company in
writing that they anticipate that they will be Participating
Broker-Dealers; and provided further that, in connection with such
application of the Shelf Registration procedures set forth
<PAGE> 15
14
in Section 3 to an Exchange Offer Registration, the Company shall be
obligated (x) to deal only with one entity representing the Participating
Broker-Dealers, which shall be Morgan Stanley & Co. Incorporated unless it
elects not to act as such representative, (y) to pay the fees and expenses
of only one counsel representing the Participating Broker-Dealers, which
shall be counsel to the Initial Purchasers unless such counsel elects not
to so act and (z) to cause to be delivered only one, if any, "cold
comfort" letter with respect to the Prospectus in the form existing on the
last Exchange Date and with respect to each subsequent amendment or
supplement, if any, effected during the period specified in clause (i)
above.
(c) The Initial Purchasers shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section 4(b)
above.
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder and each person, if any, who controls any Initial
Purchaser or any Holder within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act, or is under common control with, or is controlled
by, any Initial Purchaser or any Holder, from and against all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by any Initial Purchaser, any Holder or any such
controlling or affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Securities or Registrable
Securities were registered under the 1933 Act, including all documents
incorporated therein by reference, or caused by any 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 caused by 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, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Initial Purchasers or any Holder furnished to the Company in
writing through Morgan Stanley & Co. Incorporated or any selling Holder
expressly for use therein. In connection with any Underwritten Offering
permitted by Section 3, the Company will also indemnify the Underwriters, if
any, selling brokers, dealers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of the 1933 Act and the 1934 Act)
to the same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
<PAGE> 16
15
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Initial Purchasers and the other selling Holders,
and each of their respective directors, officers who sign the Registration
Statement and each Person, if any, who controls the Company, any Initial
Purchaser and any other selling Holder within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to the Initial Purchasers and the Holders,
but only with reference to information relating to such Holder furnished to the
Company in writing by such Holder expressly for use in any Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Initial Purchasers and all
persons, if any, who control any Initial Purchaser within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of either such
Section and (c) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Holders and all persons, if any, who
control any Holders within the meaning of either such Section, and that all such
fees and expenses shall be reimbursed as they are incurred. In such case
involving the Initial Purchasers and persons who control any Initial Purchaser,
such firm shall be designated in writing by Morgan Stanley & Co. Incorporated.
In such case involving the Holders and such persons who control any Holders,
such firm shall be designated in writing by the Majority Holders. In all other
cases, such firm shall be designated by the Company. The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but, if settled with such consent or if there be a final
judgment for the plaintiff, the
<PAGE> 17
16
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party for such fees and expenses of counsel in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which such
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 proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Holders 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 by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Holders' respective obligations to contribute
pursuant to this Section 5(d) are several in proportion to the respective
principal amount of Registrable Securities of such Holder that were registered
pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5, no Holder shall be
<PAGE> 18
17
required to indemnify or contribute any amount in excess of the amount by which
the total price at which Registrable Securities were sold by such Holder exceeds
the amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 5 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
The indemnity and contribution provisions contained in this Section
5 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Initial Purchasers, any Holder or any person controlling any Initial
Purchaser or any Holder, or by or on behalf of the Company, its officers or
directors or any person controlling the Company, (iii) acceptance of any of the
Exchange Securities and (iv) any sale of Registrable Securities pursuant to a
Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; provided, however, that no amendment, modification,
supplement, waiver or consent to any departure from the provisions of Section 5
hereof shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Initial
Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the
<PAGE> 19
18
Company, initially at the Company's address set forth in the Purchase Agreement
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 6(c).
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 is 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 Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Purchase Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such person shall be entitled to receive the benefits hereof. The
Initial Purchasers (in their capacity as Initial Purchasers) shall have no
liability or obligation to the Company with respect to any failure by a Holder
to comply with, or any breach by any Holder of, any of the obligations of such
Holder under this Agreement.
(e) Purchase and Sales of Securities. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405 under
the 1933 Act) not to, purchase and then resell or otherwise transfer any
Securities.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and any Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) 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.
<PAGE> 20
19
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(j) 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.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
LONG DISTANCE INTERNATIONAL INC.
By
--------------------------------
Name:
Title:
Confirmed and accepted as of
the date first written above
MORGAN STANLEY & CO.
INCORPORATED
SBC WARBURG DILLON READ INC.
By Morgan Stanley & Co.
Incorporated
By
--------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.5
EXECUTION COPY
================================================================================
COLLATERAL PLEDGE AND SECURITY AGREEMENT
Dated as of April 13, 1998
Between
LONG DISTANCE INTERNATIONAL INC.
and
THE BANK OF NEW YORK
================================================================================
<PAGE> 2
COLLATERAL PLEDGE AND SECURITY AGREEMENT
This COLLATERAL PLEDGE AND SECURITY AGREEMENT (this "Pledge
Agreement") is made and entered into as of April 13, 1998 by LONG DISTANCE
INTERNATIONAL INC., a Florida corporation (the "Pledgor"), having its principal
office at 888 South Andrews Avenue, Suite 205, Fort Lauderdale, Florida 33316,
in favor of THE BANK OF NEW YORK, a New York banking corporation, having an
office at 101 Barclay Street, 21 West, New York, New York, 10286, as trustee
(the "Trustee") for the holders (the "Holders") of the Notes (as defined herein)
issued by the Pledgor under the Indenture referred to below. Capitalized terms
used herein and not otherwise defined herein shall have the meanings given to
such terms in the Indenture.
W I T N E S S E T H
WHEREAS, the Pledgor and The Bank of New York, as Trustee, have
entered into that certain indenture dated as of the date hereof (as amended,
restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgor is issuing on the date hereof
$225,000,000 in aggregate principal amount of 12.25% Senior Notes due 2008 (the
"Notes"); and
WHEREAS, the Pledgor has agreed, pursuant to the Indenture, to (i)
purchase or cause the purchase of Pledged Securities (as defined herein) in an
amount that will be sufficient upon receipt of scheduled interest and principal
payments in respect thereof to provide for the payment of the first six
scheduled interest payments due on the Notes (assuming any interest that may be
payable if the Exchange Offer is not consummated and the Shelf Registration
Statement is not declared effective) and (ii) place such Pledged Securities (or
cause them to be placed) in an account held by the Trustee for the benefit of
Holders of the Notes; and
WHEREAS, to secure the obligations of the Pledgor under the
Indenture and the Notes to pay in full each of the first six scheduled interest
payments on the Notes and to secure repayment of the principal, premium (if any)
and interest on the Notes in the event that the Notes become due and payable
prior to such time as the first six scheduled interest payments thereon shall
have been paid in full (collectively, the "Obligations"), the Pledgor has agreed
(i) to pledge to the Trustee for its benefit and the ratable benefit of the
Holders of the Notes, a security interest in the Pledged Securities (as defined
herein) and related collateral and (ii) to execute and deliver this Pledge
Agreement in order to secure the payment and performance by the Pledgor of all
the Obligations; and
<PAGE> 3
2
WHEREAS, it is a condition precedent to the initial purchase of the
Notes by the initial Holders thereof that the Pledgor shall have granted the
security interest and made the pledge contemplated by this Pledge Agreement; and
WHEREAS, unless otherwise defined herein or in the Indenture, terms
used in Articles 8 or 9 of the Uniform Commercial Code ("UCC") as in effect in
the State of New York are used herein as therein defined.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and in order to induce the Holders of the Notes to purchase the
Notes, the Pledgor hereby agrees with the Trustee, for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. Pledge and Grant of Security Interest. The Pledgor hereby
pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, and hereby grants to the Trustee for its benefit and for
the ratable benefit of the Holders of the Notes, a continuing first priority
security interest in and to all of the Pledgor's right, title and interest in,
to and under the following (hereinafter collectively referred to as the
"Collateral"), whether characterized as investment property, general intangibles
or otherwise: (a) the United States Treasury securities identified by CUSIP No.
in Annex 1 to Exhibit A to this Pledge Agreement (the "Pledged Securities"), (b)
any and all applicable security entitlements to the Pledged Securities, (c) The
Bank of New York account in the name of "BNY, Trustee, LDI Collateral Pledge
A/C", Administrative Account No. 015175 (the "Pledge Account") established and
maintained by the Trustee pursuant to this Pledge Agreement, (d) any and all
related securities accounts in which security entitlements to the Pledged
Securities are carried, (e) all notes, certificates of deposit, deposit
accounts, checks and other instruments from time to time hereafter delivered to
or otherwise possessed by the Trustee for or on behalf of the Pledgor in
substitution for or in addition to any or all the then existing Collateral, (f)
all interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the then existing Collateral, and (g) all proceeds of any and all
of the foregoing Collateral (including, without limitation, proceeds that
constitute property of the types described in clauses (a) - (f) of this Section
1) and, to the extent not otherwise included, all cash.
SECTION 2. Security for Obligation. This Pledge Agreement and the
grant of a security interest in the Pledged Securities and the Pledge Account
hereunder secures the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of all the
Obligations, whether for principal, interest, fees or otherwise, now or
hereafter existing, under this Pledge Agreement, the Notes or the Indenture (all
such Obligations
<PAGE> 4
3
being the "Secured Obligations"). Without limiting the generality of the
foregoing, this Pledge Agreement and the grant of a security interest in the
Pledged Securities and the Pledge Account hereunder secures the payment of all
amounts that constitute part of the Secured Obligations and would be owed by the
Pledgor to the Trustee or the Holders under the Notes or the Indenture but for
the fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Pledgor.
SECTION 3. Maintaining the Pledge Account. So long as any Secured
Obligation shall remain outstanding:
(a) The Pledgor will maintain separately the Pledge Account with The
Bank of New York.
(b) It shall be a term and condition of the Pledge Account,
notwithstanding any term or condition to the contrary in any other
agreement relating to the Pledge Account, and except as otherwise provided
by the provisions of Section 5 and Section 15.9, that no amount shall be
paid or released to or for the account of, or withdrawn by or for the
account of, the Pledgor or any other Person from the Pledge Account.
The Pledge Account shall be subject to such applicable laws, and
such applicable regulations of the Board of Governors of the Federal Reserve
System and of any other appropriate banking or governmental authority, as may
now or hereafter be in effect.
SECTION 4. Delivery of Collateral; Pledge Account; Interest. (a) The
Pledged Securities shall be pledged and transferred to the Trustee and the
Trustee shall become the holder of a security entitlement to the Pledged
Securities, through action by the Federal Reserve Bank of New York ("FRBNY"),
The Bank of New York or another securities intermediary, as confirmed (in
writing or electronically or otherwise in accordance with standard industry
practice) to the Trustee by FRBNY, The Bank of New York or such other securities
intermediary (i) indicating by book-entry that the Pledged Securities or a
security entitlement thereto has been credited to the Trustee's account, or (ii)
acquiring the Pledged Securities or a security entitlement thereto for the
Trustee and accepting the same for credit to a securities account of the
Trustee.
(b) With respect to any Collateral that constitutes a security and
is not represented or evidenced by a certificate or an instrument, the
Pledgor shall cause the issuer thereof either (i) to register the Trustee
as the registered owner of such security or (ii) to agree in writing with
the Pledgor and the Trustee that such issuer will comply with instructions
with respect to such security originated by the Trustee without further
consent of the Pledgor, such agreement to be in form and substance
satisfactory to the Trustee.
<PAGE> 5
4
(c) With respect to any Collateral that constitutes a security
entitlement, the Pledgor shall cause the securities intermediary with
respect to such security entitlement either (i) to identify in its records
the Trustee as having such security entitlement against such securities
intermediary or (ii) to agree in writing with the Pledgor and the Trustee
that such securities intermediary will comply with entitlement orders
(that is, notifications communicated to such securities intermediary
directing transfer or redemption of the financial asset to which the
Pledgor has a security entitlement) originated by the Trustee without
further consent of the Pledgor, such agreement to be in form and substance
satisfactory to the Trustee.
(d) With respect to any Collateral that constitutes a securities
account, the Pledgor will comply with subsection (c) of this Section 4
with respect to all security entitlements carried in such securities
account.
(e) Prior to or concurrently with the execution and delivery hereof
and prior to the transfer to the Trustee of the Pledged Securities (or
acquisition by the Trustee of any security entitlement thereto), as
provided in subsection (a) of this Section 4, the Trustee shall establish
the Pledge Account on its books as an account segregated from all other
custodial or collateral accounts at its office at 101 Barclay Street, 21
West, New York, New York, 10286, Attention: Jason Gregory, Corporate Trust
Administration. Upon transfer of the Pledged Securities to the Trustee (or
the Trustee's acquisition of a security entitlement thereto), as confirmed
to the Trustee by FRBNY, The Bank of New York or another securities
intermediary, the Trustee shall make appropriate book entries indicating
that the Pledged Securities and/or such security entitlements have been
credited to and are held in the Pledge Account. Subject to the other terms
and conditions of this Pledge Agreement, all funds or other property held
by the Trustee pursuant to this Pledge Agreement shall be held in the
Pledge Account subject (except as expressly provided in Sections 5(a),
(b), (c), (d) and (e) hereof) to the exclusive dominion and control of the
Trustee and exclusively for the benefit of the Trustee and for the ratable
benefit of the Holders of the Notes and segregated from all other funds or
other property otherwise held by the Trustee.
(f) All Collateral shall be retained in the Pledge Account pending
disbursement pursuant to the terms hereof.
(g) Concurrently with the execution and delivery of this Pledge
Agreement, the Trustee is delivering to the Pledgor, Morgan Stanley & Co.
Incorporated and SBC Warburg Dillon Read Inc., a duly executed
Notification and Control Agreement ("Control Agreement"), in the form of
Exhibit A hereto, of an officer of the Trustee, confirming the Trustee's
establishment and separate maintenance of the Pledge Account, its receipt
and holding of the Pledged Securities or any security entitlement thereto
and the crediting of
<PAGE> 6
5
the Pledged Securities or such security entitlements to the Pledge
Account, all in accordance with this Pledge Agreement.
(h) Concurrently with the execution and delivery of this Pledge
Agreement, the Pledgor is delivering to the Trustee acknowledgment copies
or stamped receipt copies of proper financing statements, duly filed on or
before the Closing Date under the UCC of the State of Florida, covering
the Collateral described in this Pledge Agreement.
SECTION 5. Disbursements. (a) Three business days prior to the due
date of any of the first six scheduled interest payments on the Notes, the
Pledgor may, pursuant to written instructions given by the Pledgor to the
Trustee (an "Issuer Order"), direct the Trustee to release from the Pledge
Account and pay to the Holders of the Notes proceeds sufficient to provide for
payment in full of such interest then due on the Notes. Upon receipt of an
Issuer Order, the Trustee will release funds in an amount sufficient to provide
for the payment of the interest on the Notes in accordance with such Issuer
Order and the payment provisions of the Indenture to the Holders of the Notes
from (and to the extent of) proceeds of the Pledged Securities in the Pledge
Account. Nothing in this Section 5 shall affect the Trustee's rights to apply
the Collateral to the payments of amounts due on the Notes upon acceleration
thereof.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Collateral is security from a source of
funds other than the Pledge Account ("Pledgor Funds"), the Pledgor may,
after payment in full of such interest payment, direct the Trustee
pursuant to an Issuer Order to release to the Pledgor or to another party
at the direction of the Pledgor (the "Pledgor's Designee") proceeds from
the Pledge Account in an amount less than or equal to the amount of
Pledgor Funds applied to such interest payment. Upon receipt by the
Trustee of such Issuer Order and provided the Trustee has received such
interest payment, the Trustee shall pay over to the Pledgor or the
Pledgor's Designee, as the case may be, the requested amount from proceeds
in the Pledge Account as soon as practicable.
(c) If at any time the principal of and interest on the Pledged
Securities exceeds 100% of the amount sufficient, in the written opinion
of a nationally recognized firm of independent accountants selected by the
Pledgor and delivered to the Trustee, to provide for payment in full of
the remaining first six scheduled interest payments due on the Notes, the
Pledgor may direct the Trustee to release any such excess amount to the
Pledgor or to the Pledgor's Designee. Upon receipt of an Issuer Order
(which shall include a certificate from such nationally recognized firm of
independent accountants stating the amount by which the Pledged Securities
exceeds the amount required to be held in the Pledge Account) the Trustee
shall pay over to the Pledgor or the Pledgor's Designee, as the case may
be, any such excess amount.
<PAGE> 7
6
(d) Upon payment in full of the first six scheduled interest
payments on the Notes, the security interest in the Collateral evidenced
by this Pledge Agreement will automatically terminate and be of no further
force and effect and the Collateral shall promptly be paid over and
transferred to the Pledgor. Furthermore, upon the release of any
Collateral from the Pledge Account in accordance with the terms of this
Pledge Agreement, whether upon release of Collateral to Holders as payment
of interest or otherwise, the security interest evidenced by this Pledge
Agreement in such released Collateral will automatically terminate and be
of no further force and effect.
(e) At least three Business Days prior to the due date of each of
the first six scheduled interest payments on the Notes, the Pledgor shall
give the Trustee notice (by Issuer Order) as to whether such interest
payment will be made pursuant to Section 4(a) or 4(b) above and the
respective amounts of interest that will be paid from the Pledge Account
and from Pledgor Funds. Any Pledgor Funds to be used to make any interest
payment shall be delivered to the Trustee, in immediately available funds,
prior to 10:00 a.m. (New York City time) on such interest payment date. If
no such notice is given or such Pledgor Funds have not been so delivered,
the Trustee will act pursuant to Section 4(a) above as if it had received
an Issuer Order pursuant thereto for the payment in full of the interest
then due from the Pledge Account.
(f) The Trustee shall liquidate Collateral in the Pledge Account
(pursuant to written instructions from Pledgor) in order to make any
scheduled payment of interest unless there are sufficient funds in the
Pledge Account on such interest payment date.
(g) Nothing contained in this Pledge Agreement shall (i) afford the
Pledgor any right to issue entitlement orders with respect to any security
entitlement to the Pledged Securities or any securities account in which
any such security entitlement may be carried, or otherwise afford the
Pledgor control of any such security entitlement or (ii) otherwise give
rise to any rights of the Pledgor with respect to the Pledged Securities,
any security entitlement thereto or any securities account in which any
such security entitlement may be carried, other than the Pledgor's rights
under this Pledge Agreement as the beneficial owner of collateral pledged
to and subject to the exclusive dominion and control (except as expressly
provided in Sections 5(a), (b) and (c) hereof) of the Trustee in its
capacity as such (and not as a securities intermediary). The Pledgor
acknowledges, confirms and agrees that the Trustee holds a security to the
Pledged Securities solely as Trustee for the Holders of the Notes and not
as a securities intermediary.
<PAGE> 8
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SECTION 6. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Pledge Agreement
will not contravene any provision of applicable law or the Articles of
Incorporation of the Pledgor or any material agreement or other material
instrument binding upon the Pledgor or any of its subsidiaries or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Pledgor or any of its subsidiaries, or result in the
creation or imposition of any Lien on any assets of the Pledgor, except
for the security interests granted under this Pledge Agreement.
(b) No consent of any other person and no approval, authorization,
order of, action by or qualification with, any governmental authority,
regulatory body, agency or other third party is required (i) for the
execution, delivery or performance by the Pledgor of its obligations under
this Pledge Agreement, (ii) for the grant by the Pledgor of the security
interest created hereby, for the pledge by the Pledgor of the Collateral
pursuant to this Pledge Agreement or (iii) except for any such consents,
approvals, authorizations or orders required to be obtained by the Trustee
(or the Holders) for reasons other than the consummation of this
transaction, for the exercise by the Trustee of the rights provided for in
this Pledge Agreement or the remedies in respect of the Collateral
pursuant to this Pledge Agreement.
(c) The Pledgor is the beneficial owner of the Collateral, free and
clear of any Lien or claims of any person or entity (except for the
security interests created by this Pledge Agreement). No financing
statement or instrument similar in effect covering all or any part of the
Pledgor's interest in the Pledged Securities is on file in any public or
recording office, other than the financing statements filed pursuant to
this Pledge Agreement. The Pledgor has no trade names.
(d) This Pledge Agreement has been duly authorized, validly executed
and delivered by the Pledgor and constitutes a valid and binding agreement
of the Pledgor, enforceable against the Pledgor in accordance with its
terms, except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, preference, reorganization,
moratorium or similar laws now or hereafter in effect relating to or
affecting creditors' rights or remedies generally, (ii) the availability
of equitable remedies may be limited by equitable principles of general
applicability, (iii) the exculpation provisions and rights to
indemnification hereunder may be limited by U.S. federal and state
securities laws and public policy considerations and (iv) the waiver of
rights and defenses contained in Section 12(b), Section 15.11 and Section
15.15 hereof may be limited by applicable law.
<PAGE> 9
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(e) Upon the transfer to the Trustee of the Pledged Securities and
the acquisition by the Trustee of a security entitlement thereto, in
accordance with Section 3 above, the pledge and grant of a security
interest in the Collateral pursuant to this Pledge Agreement for the
benefit of the Trustee and the Holders of the Notes will constitute a
valid and perfected first priority security interest in such Collateral,
securing the payment of the Secured Obligations enforceable as such
against all creditors of the Pledgor (and any persons purporting to
purchase any of the Collateral from the Pledgor).
(f) There are no legal or governmental proceedings pending or, to
the best of the Pledgor's knowledge, threatened to which the Pledgor or
any of its subsidiaries is a party or to which any of the properties of
the Pledgor or any such subsidiary is subject that would materially
adversely affect the power or ability of the Pledgor to perform its
obligations under this Pledge Agreement or to consummate the transactions
contemplated hereby.
(g) The pledge of the Collateral pursuant to this Pledge Agreement
is not prohibited by law or governmental regulation (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System) applicable to the Pledgor.
(h) No Event of Default (as defined herein) exists.
SECTION 7. Further Assurances. The Pledgor will promptly pay all
costs incurred in connection with this Pledge Agreement within 30 days of
receipt of an invoice therefor. The Pledgor agrees to take all actions that are
necessary to perfect or continue the perfection of, or to protect the first
priority of, the Trustee's security interest in and to the Collateral, including
the filing of all necessary financing and continuation statements, and to
protect the Collateral against the rights, claims or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Trustee).
SECTION 8. Covenants. The Pledgor covenants and agrees with the
Trustee and the Holders of the Notes that from and after the date of this Pledge
Agreement until the earlier of payment in full in cash of (x) each of the first
six scheduled interest payments due on the Notes under the terms of the
Indenture or (y) all obligations due and owing under the Indenture and the Notes
in the event such obligations become due and payable prior to the payment in
full of the first six scheduled interest payments on the Notes:
(a) that (i) it will not (and will not purport to) sell or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or its beneficial interest therein, and (ii) it will not create
or permit to exist any Lien or other adverse interest in or
<PAGE> 10
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with respect to its beneficial interest in any of the Collateral (except
for the security interests granted under this Pledge Agreement); and
(b) that it will not (i) enter into any agreement or understanding
that restricts or inhibits or purports to restrict or inhibit the
Trustee's rights or remedies hereunder, including, without limitation, the
Trustee's right to sell or otherwise dispose of the Collateral or (ii)
fail to pay or discharge any tax, assessment or levy of any nature with
respect to its beneficial interest in the Collateral not later than five
days prior to the date of any proposed sale under any judgment, writ or
warrant of attachment with respect to such beneficial interest.
SECTION 9. Power of Attorney. The Pledgor hereby appoints and
constitutes the Trustee as the Pledgor's attorney-in-fact (with full power of
substitution), with full authority in the place and stead of the Pledgor and in
the name of the Pledgor or otherwise, from time to time in the Trustee's
discretion to take any action and to execute any instrument that the Trustee may
deem necessary or advisable to accomplish the purposes of this Pledge Agreement;
provided, however, that the Trustee shall have no obligation to perform any of
the foregoing actions. The Trustee's authority under this Section 9 shall
include, without limitation, the authority to execute or endorse (a) any checks
or instruments representing proceeds of Collateral in the name of the Pledgor,
(b) any receipts for any certificate of ownership or any document constituting
Collateral or transferring title to any item of Collateral, (c) any financing
statements (to the extent permitted by applicable law) or (d) any other
documents delivered to the Trustee. This power of attorney is coupled with an
interest and is irrevocable by the Pledgor.
SECTION 10. No Assumption of Duties; Reasonable Care. The rights and
powers conferred on the Trustee hereunder are solely to preserve and protect the
security interest of the Trustee and the Holders of the Notes in and to the
Collateral granted hereby and shall not be interpreted to, and shall not impose
any duties on the Trustee in connection therewith other than those expressly
provided herein or imposed under applicable law. Except as provided by
applicable law or by the Indenture, the Trustee shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which the Trustee accords similar property held by the Trustee for its own
account, it being understood that the Trustee in its capacity as such shall not
have any responsibility for (a) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities or other matters relative to any
Collateral, whether or not the Trustee has or is deemed to have knowledge of
such matters, (b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral or (c) investing or reinvesting any of
the Collateral or any loss on any investment.
SECTION 11. Indemnity; Trustee's Limitation of Liability to Pledgor.
(a) The Pledgor shall indemnify, reimburse, hold harmless and defend the Trustee
and its directors,
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officers, agents and employees, from and against any and all claims, actions,
obligations, liabilities and expenses, including reasonable defense costs,
reasonable investigative fees and costs, and reasonable legal fees and damages
arising from the Trustee's performance or lack of performance as Trustee under
this Pledge Agreement, except to the extent that such claim, action, obligation,
liability or expense is directly attributable to the bad faith, gross negligence
or wilful misconduct of such indemnified person. This indemnity shall be a
continuing obligation of the Pledgor, its respective successors and assigns,
notwithstanding the termination of this Pledge Agreement.
(b) If at any time the Trustee is served with any judicial or
administrative order, judgment, decree, writ or other form of judicial or
administrative process which in any way affects Collateral (including, but not
limited to, orders of attachment or garnishment or other forms of levies or
injunctions or stays relating to the transfer of Collateral), the Trustee is
authorized to comply therewith in any manner as it or its legal counsel of its
own choosing deems appropriate and if the Trustee complies with any such
judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process, the Trustee shall not be liable to the
Pledgor even though such order, judgment, decree, writ or process may be
subsequently modified or vacated or otherwise determined to have been without
legal force or effect.
(c) The Trustee shall not incur any liability to the Pledgor for not
performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Trustee
(including, but not limited to, any act or provision or any present or future
law or regulation or governmental authority, any act of God or war, or the
unavailability of the Federal Reserve Bank wire or telex or other wire or
communication facility).
(d) The Trustee shall not be responsible in any respect for the
form, execution, validity, value or genuineness of documents or securities
deposited hereunder, or for any description therein, or for the identity,
authority or rights of persons executing or delivering or purporting to execute
or deliver any such document, security or endorsement.
SECTION 12. Remedies Upon Event of Default. If any Event of Default
under the Indenture or default hereunder (any such Event of Default or default
being referred to in this Pledge Agreement as an "Event of Default") shall have
occurred and be continuing:
(a) The Trustee and the Holders of the Notes may exercise, in
addition to all other rights given by law or by this Pledge Agreement or
the Indenture, all of the rights and remedies with respect to the
Collateral of a secured party under the UCC in effect in the State of New
York at that time and also may (i) require the Pledgor to, and the Pledgor
hereby agrees that it will at its expense and upon request of the Trustee
<PAGE> 12
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forthwith, assemble all or part of the Collateral as directed by the
Trustee and make it available to the Trustee at a place to be designated
by the Trustee that is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at any broker's board or at public or
private sale, in one or more sales or lots, at any of the Trustee's
offices or elsewhere, for cash, on credit or for future delivery, and upon
such other terms as the Trustee may deem commercially reasonable. The
Pledgor agrees that, to the extent notice of sale shall be required by
law, at least ten days' notice to the Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Trustee shall not be obligated to
make any sale of Collateral regardless of notice of sale having been
given. The Trustee may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was
so adjourned. The purchaser of any or all Collateral so sold shall
thereafter hold the same absolutely, free from any claim, encumbrance or
right of any kind whatsoever created by or through the Pledgor. Any sale
of the Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies, commercial finance companies, or
other financial institutions disposing of property similar to the
Collateral shall be deemed to be commercially reasonable. The Trustee or
any Holder of Notes may, in its own name or in the name of a designee or
nominee, buy any of the Collateral at any public sale and, if permitted by
applicable law, at any private sale. All expenses (including court costs
and reasonable attorneys' fees, expenses and disbursements) of, or
incident to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the
Collateral.
(b) All cash proceeds received by the Trustee in respect of any sale
of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Trustee, be held by the Trustee
as collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Trustee pursuant to Section 13) in
whole or in part by the Trustee for the ratable benefit of the Holders of
the Notes against, all or any part of the Secured Obligations in such
order as the Trustee shall elect. Any surplus of such cash or cash
proceeds held by the Trustee and remaining after payment in full of all
the Secured Obligations shall be paid over to the Pledgor or to whomsoever
may be lawfully entitled to receive such surplus.
(c) The Trustee may, without notice to the Pledgor except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Secured Obligations against the
Pledge Account or any part thereof.
<PAGE> 13
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(d) The Pledgor further agrees to use its reasonable best efforts to
do or cause to be done all such other acts as may be necessary to make
such sale or sales of all or any portion of the Collateral pursuant to
this Section 12 valid and binding and in compliance with any and all other
applicable requirements of law. The Pledgor further agrees that a breach
of any of the covenants contained in this Section 12 will cause
irreparable injury to the Trustee and the Holders of the Notes, that the
Trustee and the Holders of the Notes have no adequate remedy at law in
respect of such breach and, as a consequence, that each and every covenant
contained in this Section 12 shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants
except for a defense that no Event of Default has occurred.
SECTION 13. Expenses. The Pledgor will upon demand pay to the
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee, that the Trustee may incur in
connection with (a) the review, negotiation and administration of this Pledge
Agreement, (b) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Trustee and the Holders of the Notes
hereunder or (d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
SECTION 14. Security Interest Absolute. All rights of the Trustee
and the Holders of the Notes and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or Notes
or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture;
(c) any taking, exchange, surrender, release or non-perfection of
any Liens on any other collateral for all or any of the Secured
Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Secured Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Secured Obligations or
any other assets of the Pledgor;
(e) any change, restructuring or termination of the corporate
structure or existence of the Pledgor; or
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(f) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Secured Obligations or of this
Pledge Agreement.
SECTION 15. Miscellaneous Provisions.
Section 15.1. Notices. Any notice or communication given hereunder
shall be sufficiently given if in writing and delivered in person or mailed by
first class mail, commercial courier service or telecopier communication,
addressed as follows:
if to the Pledgor:
Long Distance International Inc.
888 South Andrews Avenue
Suite 205
Fort Lauderdale, Florida 33316
Fax: (954) 524-5110
Attention: Chief Financial Officer
if to the Trustee:
The Bank of New York
101 Barclay Street
21 West
New York, New York 10286
Fax: 212) 815-5915
Attention: Jason Gregory, Corporate Trust Administration
All such notices and other communications shall be effective when received.
Section 15.2. No Adverse Interpretation of Other Agreements. This
Pledge Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge, security or
debt agreement (other than the Indenture) may be used to interpret this Pledge
Agreement.
Section 15.3. Severability. The provisions of this Pledge Agreement
are severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Pledge Agreement in any jurisdiction.
<PAGE> 15
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Section 15.4. Headings. The headings in this Pledge Agreement have
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 15.5. Counterpart Originals. This Pledge Agreement may be
signed in two or more counterparts, each of which shall be deemed an original,
but all of which shall together constitute one and the same agreement.
Section 15.6. Benefits of Pledge Agreement. Nothing in this Pledge
Agreement, express or implied, shall give to any person, other than the parties
hereto and their successors hereunder, and the Holders of the Notes, any benefit
or any legal or equitable right, remedy or claim under this Pledge Agreement.
Section 15.7. Amendments, Waivers and Consents. Any amendment or
waiver of any provision of this Pledge Agreement and any consent to any
departure by the Pledgor from any provision of this Pledge Agreement shall be
effective only if made or duly given in compliance with all of the terms and
provisions of the Indenture, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
Neither the Trustee nor any Holder of Notes shall be deemed, by any act, delay,
indulgence, omission or otherwise, to have waived any right or remedy hereunder
or to have acquiesced in any Default or Event of Default or in any breach of any
of the terms and conditions hereof. Failure of the Trustee or any Holder of
Notes to exercise, or delay in exercising, any right, power or privilege
hereunder shall not preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Trustee or any
Holder of Notes of any right or remedy hereunder on any one occasion shall not
be construed as a bar to any right or remedy that the Trustee or such Holder of
Notes would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any rights or remedies provided by law.
Section 15.8. Interpretation of Agreement. As long as the Trustee
acts in good faith to the extent a term or provision of this Pledge Agreement
conflicts with the Indenture, the Indenture shall control with respect to the
subject matter of such term or provision. Notwithstanding the foregoing and any
other provision of this Pledge Agreement or the Indenture, the Trustee shall
have no fiduciary responsibility under this Pledge Agreement.
Section 15.9. Continuing Security Interest; Termination. (a) This
Pledge Agreement shall create a continuing security interest in and to the
Collateral and shall, unless otherwise provided in this Pledge Agreement, remain
in full force and effect until the payment in full in cash of the Secured
Obligations. This Pledge Agreement shall be binding upon the Pledgor, its
transferees, successors and assigns, and shall inure, together with the rights
and
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remedies of the Trustee hereunder, to the benefit of the Trustee, the Holders of
the Notes and their respective successors, transferees and assigns.
(b) So long as no Event of Default shall have occurred and be
continuing, this Pledge Agreement (other than Pledgor's obligations under
Sections 11 and 13) shall terminate upon the earlier of (i) the payment in
full in cash of the Secured Obligations and (ii) the payment in full in
cash of the first six scheduled interest payments on all of the Notes. At
such time, the Trustee shall, pursuant to an Issuer Order, reassign and
redeliver to the Pledgor all of the Collateral hereunder that has not been
sold, disposed of, retained or applied by the Trustee in accordance with
the terms of this Pledge Agreement and the Indenture and take all actions
that are necessary to release the security interest created by this Pledge
Agreement in and to the Collateral, including the execution and delivery
of all termination statements necessary to terminate any financing or
continuation statements filed with respect to the Collateral. Such
reassignment and redelivery shall be without warranty by or recourse to
the Trustee in its capacity as such, except as to the absence of any Liens
on the Collateral created by or arising through the Trustee, and shall be
at the reasonable expense of the Pledgor.
Section 15.10. Survival of Representations and Covenants. All
representations, warranties and covenants of the Pledgor contained herein shall
survive the execution and delivery of this Pledge Agreement, and shall terminate
only upon the termination of this Pledge Agreement.
Section 15.11. Waivers. The Pledgor waives presentment and demand
for payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 15.12. Authority of the Trustee. (a) The Trustee shall have
and be entitled to exercise all powers hereunder that are specifically granted
to the Trustee by the terms hereof, together with such powers as are reasonably
incident thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Pledge Agreement or the Indenture, neither the Trustee nor any director,
officer, employee, attorney or agent of the Trustee shall be liable to the
Pledgor for any action taken or omitted to be taken by the Trustee, in its
capacity as Trustee, hereunder, except for its own bad faith, gross negligence
or willful misconduct, and the Trustee shall not be responsible for the
validity, effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Trustee and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication,
<PAGE> 17
16
instrument or document believed by it or them to be genuine and correct and to
have been signed or sent by the proper person or persons.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Trustee under this Pledge Agreement with respect to any action taken
by the Trustee or the exercise or non-exercise by the Trustee of any
option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Pledge Agreement shall, as
between the Trustee and the Holders of the Notes, be governed by the
Indenture and by such other agreements with respect thereto as may exist
from time to time among them, but, as between the Trustee and the Pledgor,
the Trustee shall be conclusively presumed to be acting as agent for the
Holders of the Notes with full and valid authority so to act or refrain
from acting, and the Pledgor shall not be obligated or entitled to make
any inquiry respecting such authority.
Section 15.13 Final Expression. This Pledge Agreement, together with
the Indenture and any other agreement executed in connection herewith, is
intended by the parties as a final expression of this Pledge Agreement and is
intended as a complete and exclusive statement of the terms and conditions
thereof.
Section 15.14. Rights of Holders of the Notes. No Holder of Notes
shall have any independent rights hereunder other than those rights granted to
individual Holders of the Notes pursuant to Section 6.07 of the Indenture;
provided that nothing in this subsection shall limit any rights granted to the
Trustee under the Notes or the Indenture.
Section 15.15. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY
AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF THE NOTES IN
CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. NOTWITHSTANDING THE FOREGOING: THE MATTERS IDENTIFIED IN 31 C.F.R.
PART 357, 61 FED. REG. 43626 AUG. 23, 1996), INCLUDING REVISED ARTICLE 8, SHALL
BE GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN.
(b) THE PLEDGOR HEREBY APPOINTS LOEB & LOEB LLP, 345 PARK AVENUE,
NEW YORK, NY 10154 AS ITS AGENT FOR SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING WITH RESPECT TO THIS PLEDGE AGREEMENT AND FOR ACTIONS BROUGHT UNDER
U.S. FEDERAL OR STATE SECURITIES LAWS
<PAGE> 18
17
BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK AND AGREES
TO SUBMIT TO THE JURISDICTION OF ANY SUCH COURT.
(c) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS
TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE
COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND
HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE COLLATERAL, AS
THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH
PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE PLEDGOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY OF NEW YORK
ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
(d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR (EXCEPT
AS OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE TRUSTEE IN
ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER ARISING
IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED
AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE AGREEMENT, OR ANY ACT, OMISSION
OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL
AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH
HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR
OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY
BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER OF NOTES
IN CONNECTION WITH ANY JUDICIAL
<PAGE> 19
18
PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER PERTAINING TO
THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF
THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE,
TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS PLEDGE
AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR ON THE ONE
HAND AND THE TRUSTEE AND/OR THE HOLDERS OF THE NOTES ON THE OTHER HAND.
[The remainder of this page left intentionally blank.]
<PAGE> 20
IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused
this Pledge Agreement to be duly executed and delivered as of the date first
above written.
Pledgor:
LONG DISTANCE INTERNATIONAL INC.
By:
--------------------------------
Name:
Title:
Trustee:
THE BANK OF NEW YORK
By:
--------------------------------
Name:
Title:
<PAGE> 21
EXHIBIT A
NOTIFICATION AND CONTROL AGREEMENT
THIS NOTIFICATION AND CONTROL AGREEMENT (the "Agreement")
dated as of April 13, 1998 by and among Long Distance International Inc. (the
"Pledgor") and The Bank of New York, a New York banking corporation, in its
capacity as trustee (the "Trustee") and in its capacity as a bank (the "Bank")
at which the Pledgor maintains the Pledge Account (as defined herein).
A. The Pledgor has granted to the Trustee a security interest in
certain U.S. Treasury securities and security entitlements related thereto (the
"Pledged Securities") maintained by the Pledgor with the Bank and carried in an
account in the name of "BNY, Trustee, LDI Collateral Pledge A/C" (the "Pledge
Account") and all additions thereto and substitutions and proceeds thereof
(collectively, the "Collateral"), pursuant to, and as more particularly
described in, a Collateral Pledge and Security Agreement dated as of April 13,
1998 among the Pledgor and the Trustee (as the same may hereafter be amended,
supplemented or otherwise modified from time to time, the "Pledge Agreement";
terms defined in the Pledge Agreement and not otherwise defined herein are used
herein as therein defined).
B. Terms defined in Articles 8 or 9 of the Uniform Commercial Code
as in effect in the State of New York (the "UCC") are used in this Agreement
(including, without limitation, paragraph A above) as defined in Articles 8 or
9, respectively, of the UCC.
C. Pursuant to the Pledge Agreement, the Trustee has required the
execution and delivery of this Agreement.
NOW, THEREFORE, for valuable consideration and intending to be
legally bound, the parties hereto agree and acknowledge as follows:
1. Notice of Security Interest. The Pledgor and Trustee are entering
into this Agreement to perfect, and confirm the first priority lien of, the
Trustee's security interest in the Collateral. The Bank agrees to promptly make
all necessary entries or notations in its books and records to reflect the
Trustee's security interest in the Collateral and to apply any value distributed
on account of any Pledged Securities as directed by the Trustee without further
consent from the Pledgor. The Bank acknowledges that the Trustee has control
over the Pledge Account and all Pledged Securities contained therein from time
to time.
2. Separate Pledge Account; Trustee Representations and Warranties.
(a) The Trustee hereby instructs the Bank, and the Bank hereby confirms and
agrees that,
<PAGE> 22
2
unless the Trustee shall otherwise direct the Bank in writing, (i) the Pledge
Account is to be maintained separately at all times and (ii) the Pledged
Securities shall be carried only in the Pledge Account.
(b) The Trustee hereby represents and warrants that it has acquired
its security interest in, and security entitlement to, the Collateral for value
and without notice of any adverse claim thereto. Without limiting the generality
of the foregoing, the Collateral is not, to the Trustee's knowledge, subject to
any Lien granted by the Trustee in favor of any securities intermediary
(including, without limitation, the Bank or the Federal Reserve Bank of New
York) and the Trustee has not knowingly or purposefully caused or permitted the
Collateral to become subject to any Lien created by or arising through the Bank.
3. Control. The Bank hereby agrees, upon written direction from the
Trustee and without further consent from the Pledgor, (a) to comply with all
instructions, entitlement orders and directions of any kind originated by the
Trustee concerning the Collateral, to liquidate or otherwise dispose of the
Collateral as and to the extent directed by the Trustee and pay over to the
Trustee all proceeds and other value therefrom or otherwise distributed with
respect thereto without any set off or deduction, and (b) except as otherwise
directed by the Trustee, not to comply with the instructions or directions of
the Pledgor or any other person.
4. Other Agreements; Termination; Successor Trustees. The Bank shall
simultaneously send to the Trustee copies of all notices given and statements
rendered pursuant to the Pledge Account. So long as the Pledge Agreement remains
in effect, neither the Pledgor nor the Bank shall terminate the Pledge Account
without thirty (30) days' prior written notice to the other party and the
Trustee. In the event of any conflict between the provisions of this Agreement
and any other agreement governing the Pledge Account, the provisions hereof
shall control. In the event the Trustee no longer serves as Trustee for the
Collateral, the Pledge Account and Pledged Securities carried therein shall be
transferred to a successor trustee satisfactory to the Trustee, provided that
prior to such transfer, such successor trustee executes an agreement that is in
all material respects the same as this Agreement or is otherwise in form and
substance satisfactory to the Trustee.
5. Indemnity. The Pledgor shall indemnify and hold the Trustee and
the Bank harmless from any and all losses, claims, damages, liabilities,
expenses and fees, including reasonable counsel fees, resulting from the
execution of or performance under this Agreement and delivery by the Trustee of
all or any part of the Collateral to the Bank pursuant to this Agreement, except
claims, losses or liabilities resulting from the Trustee's or the Bank's gross
negligence, bad faith or willful misconduct as determined by a final judgment of
a court of competent jurisdiction. This indemnification shall survive the
termination of this Agreement.
<PAGE> 23
3
6. Protection of Bank. Except as required by Paragraph 3 hereof, the
Bank shall have no duty to determine that the amount and form of assets
constituting Collateral comply with any applicable requirements. The Bank may
rely and shall be protected in acting upon any notice, instruction, or other
communication which it reasonably believes to be genuine and authorized.
7. Termination/Release of Collateral. This Agreement shall terminate
automatically upon receipt by the Bank of written notice executed by two
officers of the Trustee holding titles of Vice President or higher that (a) all
of the obligations secured by the Collateral have been satisfied, or (b) all of
the Collateral has been released, whichever is sooner, and the Bank shall
thereafter be relieved of all duties and obligations hereunder.
8. Waiver and Subordination of Rights. The Bank hereby waives its
right to set off any obligations of the Pledgor to the Bank against any or all
assets held by the Trustee as Collateral, and hereby agrees that any and all
liens, encumbrances, claims or security interests which the Bank may have
against the Collateral, either now or in the future are and shall be subordinate
and junior to the prior payment in full of all obligations of the Pledgor now or
hereafter existing under the Indenture, Notes and all other documents related
thereto whether for principal, interest (including, without limitation,
interest, as provided in the Notes, whether or not such interest accrues after
the filing of such petition for purposes of the Bankruptcy Code or is an allowed
claim in such proceeding), indemnities, fees, premiums, expenses or otherwise.
The Bank will not agree with any third party that the Bank will comply with any
instructions or directions of any kind concerning the Collateral originated by
such third party without the prior written consent of the Trustee. Except for
the claims and interests of the Trustee and the Pledgor in the Collateral, the
Bank does not know of any claim to or security interest or other interest in the
Collateral.
9. Expenses. The Pledgor shall pay upon demand all fees, costs and
expenses (including reasonable fees and expenses of counsel) of enforcing the
Bank's rights and remedies upon any breach (by the Trustee or the Pledgor) of
any of the provisions of this Agreement.
10. Notices. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder must be in writing and will
be effective upon receipt if delivered personally, or if sent by facsimile
transmission with confirmation of delivery, or by nationally recognized
overnight courier service, to the Pledgor's and the Trustee's addresses as set
forth in the Pledge Agreement, and to the Bank's address as set forth below, or
to such other address as any party may give to the others in writing for such
purpose.
<PAGE> 24
4
11. Changes in Writing. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by any party therefrom
will be effective unless made in writing signed by the parties hereto, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.
12. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
13. Counterparts. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts (including
by facsimile transmission), but all such copies shall constitute one and the
same instrument.
14. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
15. Governing Law and Jurisdiction. This Agreement has been
delivered to and accepted by the Trustee and will be deemed to be made in the
State of New York. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. Each of the parties hereby irrevocably submits for itself and
its property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction and venue of the courts of the State of New
York, the courts of the United States of America in New York, and appellate
courts from any thereof.
16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) OF ANY NATURE
RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
<PAGE> 25
5
AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. EACH PARTY
HERETO ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
PLEDGOR:
LONG DISTANCE INTERNATIONAL INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Trustee:
THE BANK OF NEW YORK, as Trustee
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Trustee:
Bank's Address for Bank:
Notices:
THE BANK OF NEW YORK
101 Barclay Street By:
21 West --------------------------------
New York, NY 10286
Name:
------------------------------
Title:
-----------------------------
Attention: Jason Gregory,
Corporate Trust Administration
Facsimile Number: (212) 815-5915
<PAGE> 26
ANNEX 1
Pledged Securities
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Security CUSIP No. Coupon (%) Maturity Amount
- -------- --------- ---------- -------- ------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States 9127945A8 0 10/15/98 10,856,000
Treasury
- --------------------------------------------------------------------------------
United States 912827E81 7 04/15/99 11,830,000
Treasury
- --------------------------------------------------------------------------------
United States 912827H21 6 10/15/99 12,245,000
Treasury
- --------------------------------------------------------------------------------
United States 912827K43 5.5 04/15/00 12,612,000
Treasury
- --------------------------------------------------------------------------------
United States 912827V41 6.125 09/30/00 12,958,000
Treasury
- --------------------------------------------------------------------------------
United States
Treasury 912827X49 6.375 03/31/01 13,356,000
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 4.6
NOTIFICATION AND CONTROL AGREEMENT
THIS NOTIFICATION AND CONTROL AGREEMENT (the "Agreement")
dated as of April 13, 1998 by and among Long Distance International Inc. (the
"Pledgor") and The Bank of New York, a New York banking corporation, in its
capacity as trustee (the "Trustee") and in its capacity as a bank (the "Bank")
at which the Pledgor maintains the Pledge Account (as defined herein).
A. The Pledgor has granted to the Trustee a security interest in
certain U.S. Treasury securities and security entitlements related thereto (the
"Pledged Securities") maintained by the Pledgor with the Bank and carried in an
account in the name of "BNY, Trustee, LDI Collateral Pledge A/C" (the "Pledge
Account") and all additions thereto and substitutions and proceeds thereof
(collectively, the "Collateral"), pursuant to, and as more particularly
described in, a Collateral Pledge and Security Agreement dated as of April 13,
1998 among the Pledgor and the Trustee (as the same may hereafter be amended,
supplemented or otherwise modified from time to time, the "Pledge Agreement";
terms defined in the Pledge Agreement and not otherwise defined herein are used
herein as therein defined).
B. Terms defined in Articles 8 or 9 of the Uniform Commercial Code
as in effect in the State of New York (the "UCC") are used in this Agreement
(including, without limitation, paragraph A above) as defined in Articles 8 or
9, respectively, of the UCC.
C. Pursuant to the Pledge Agreement, the Trustee has required the
execution and delivery of this Agreement.
NOW, THEREFORE, for valuable consideration and intending to be
legally bound, the parties hereto agree and acknowledge as follows:
1. Notice of Security Interest. The Pledgor and Trustee are entering
into this Agreement to perfect, and confirm the first priority lien of, the
Trustee's security interest in the Collateral. The Bank agrees to promptly make
all necessary entries or notations in its books and records to reflect the
Trustee's security interest in the Collateral and to apply any value distributed
on account of any Pledged Securities as directed by the Trustee without further
consent from the Pledgor. The Bank acknowledges that the Trustee has control
over the Pledge Account and all Pledged Securities contained therein from time
to time.
2. Separate Pledge Account; Trustee Representations and Warranties.
(a) The Trustee hereby instructs the Bank, and the Bank hereby confirms and
agrees that,
<PAGE> 2
2
unless the Trustee shall otherwise direct the Bank in writing, (i) the Pledge
Account is to be maintained separately at all times and (ii) the Pledged
Securities shall be carried only in the Pledge Account.
(b) The Trustee hereby represents and warrants that it has acquired
its security interest in, and security entitlement to, the Collateral for value
and without notice of any adverse claim thereto. Without limiting the generality
of the foregoing, the Collateral is not, to the Trustee's knowledge, subject to
any Lien granted by the Trustee in favor of any securities intermediary
(including, without limitation, the Bank or the Federal Reserve Bank of New
York) and the Trustee has not knowingly or purposefully caused or permitted the
Collateral to become subject to any Lien created by or arising through the Bank.
3. Control. The Bank hereby agrees, upon written direction from the
Trustee and without further consent from the Pledgor, (a) to comply with all
instructions, entitlement orders and directions of any kind originated by the
Trustee concerning the Collateral, to liquidate or otherwise dispose of the
Collateral as and to the extent directed by the Trustee and pay over to the
Trustee all proceeds and other value therefrom or otherwise distributed with
respect thereto without any set off or deduction, and (b) except as otherwise
directed by the Trustee, not to comply with the instructions or directions of
the Pledgor or any other person.
4. Other Agreements; Termination; Successor Trustees. The Bank shall
simultaneously send to the Trustee copies of all notices given and statements
rendered pursuant to the Pledge Account. So long as the Pledge Agreement remains
in effect, neither the Pledgor nor the Bank shall terminate the Pledge Account
without thirty (30) days' prior written notice to the other party and the
Trustee. In the event of any conflict between the provisions of this Agreement
and any other agreement governing the Pledge Account, the provisions hereof
shall control. In the event the Trustee no longer serves as Trustee for the
Collateral, the Pledge Account and Pledged Securities carried therein shall be
transferred to a successor trustee satisfactory to the Trustee, provided that
prior to such transfer, such successor trustee executes an agreement that is in
all material respects the same as this Agreement or is otherwise in form and
substance satisfactory to the Trustee.
5. Indemnity. The Pledgor shall indemnify and hold the Trustee and
the Bank harmless from any and all losses, claims, damages, liabilities,
expenses and fees, including reasonable counsel fees, resulting from the
execution of or performance under this Agreement and delivery by the Trustee of
all or any part of the Collateral to the Bank pursuant to this Agreement, except
claims, losses or liabilities resulting from the Trustee's or the Bank's gross
negligence, bad faith or willful misconduct as determined by a final judgment of
a court of competent jurisdiction. This indemnification shall survive the
termination of this Agreement.
<PAGE> 3
3
6. Protection of Bank. Except as required by Paragraph 3 hereof, the
Bank shall have no duty to determine that the amount and form of assets
constituting Collateral comply with any applicable requirements. The Bank may
rely and shall be protected in acting upon any notice, instruction, or other
communication which it reasonably believes to be genuine and authorized.
7. Termination/Release of Collateral. This Agreement shall terminate
automatically upon receipt by the Bank of written notice executed by two
officers of the Trustee holding titles of Vice President or higher that (a) all
of the obligations secured by the Collateral have been satisfied, or (b) all of
the Collateral has been released, whichever is sooner, and the Bank shall
thereafter be relieved of all duties and obligations hereunder.
8. Waiver and Subordination of Rights. The Bank hereby waives its
right to set off any obligations of the Pledgor to the Bank against any or all
assets held by the Trustee as Collateral, and hereby agrees that any and all
liens, encumbrances, claims or security interests which the Bank may have
against the Collateral, either now or in the future are and shall be subordinate
and junior to the prior payment in full of all obligations of the Pledgor now or
hereafter existing under the Indenture, Notes and all other documents related
thereto whether for principal, interest (including, without limitation,
interest, as provided in the Notes, whether or not such interest accrues after
the filing of such petition for purposes of the Bankruptcy Code or is an allowed
claim in such proceeding), indemnities, fees, premiums, expenses or otherwise.
The Bank will not agree with any third party that the Bank will comply with any
instructions or directions of any kind concerning the Collateral originated by
such third party without the prior written consent of the Trustee. Except for
the claims and interests of the Trustee and the Pledgor in the Collateral, the
Bank does not know of any claim to or security interest or other interest in the
Collateral.
9. Expenses. The Pledgor shall pay upon demand all fees, costs and
expenses (including reasonable fees and expenses of counsel) of enforcing the
Bank's rights and remedies upon any breach (by the Trustee or the Pledgor) of
any of the provisions of this Agreement.
10. Notices. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder must be in writing and will
be effective upon receipt if delivered personally, or if sent by facsimile
transmission with confirmation of delivery, or by nationally recognized
overnight courier service, to the Pledgor's and the Trustee's addresses as set
forth in the Pledge Agreement, and to the Bank's address as set forth below, or
to such other address as any party may give to the others in writing for such
purpose.
<PAGE> 4
4
11. Changes in Writing. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by any party therefrom
will be effective unless made in writing signed by the parties hereto, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.
12. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
13. Counterparts. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts (including
by facsimile transmission), but all such copies shall constitute one and the
same instrument.
14. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
15. Governing Law and Jurisdiction. This Agreement has been
delivered to and accepted by the Trustee and will be deemed to be made in the
State of New York. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. Each of the parties hereby irrevocably submits for itself and
its property in any legal action or proceeding relating to this Agreement, or
for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction and venue of the courts of the State of New
York, the courts of the United States of America in New York, and appellate
courts from any thereof.
16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) OF ANY NATURE
RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
<PAGE> 5
5
AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. EACH PARTY
HERETO ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
PLEDGOR:
LONG DISTANCE INTERNATIONAL INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Trustee:
THE BANK OF NEW YORK, as Trustee
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Trustee:
Bank's Address for Bank:
Notices:
THE BANK OF NEW YORK
101 Barclay Street By:
21 West --------------------------------
New York, NY 10286
Name:
------------------------------
Title:
-----------------------------
Attention: Jason Gregory,
Corporate Trust Administration
Facsimile Number: (212) 815-5915
<PAGE> 6
ANNEX 1
Pledged Securities
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Security CUSIP No. Coupon (%) Maturity Amount
- -------- --------- ---------- -------- ------
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States 9127945A8 0 10/15/98 10,856,000
Treasury
- --------------------------------------------------------------------------------
United States 912827E81 7 04/15/99 11,830,000
Treasury
- --------------------------------------------------------------------------------
United States 912827H21 6 10/15/99 12,245,000
Treasury
- --------------------------------------------------------------------------------
United States 912827K43 5.5 04/15/00 12,612,000
Treasury
- --------------------------------------------------------------------------------
United States 912827V41 6.125 09/30/00 12,958,000
Treasury
- --------------------------------------------------------------------------------
United States
Treasury 912827X49 6.375 03/31/01 13,356,000
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.1
EXECUTION COPY
- --------------------------------------------------------------------------------
WARRANT AGREEMENT
between
LONG DISTANCE INTERNATIONAL INC.
and
THE BANK OF NEW YORK
Dated as of April 13, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates..............................6
Section 2.2. Restrictive Legends.......................................8
Section 2.3. Execution and Delivery of Warrant Certificates...........10
Section 2.4. Certificated Warrants....................................11
ARTICLE III
EXERCISE PRICE, EXERCISE AND REPURCHASE OF WARRANTS
Section 3.1. Exercise Price...........................................11
Section 3.2. Exercise; Restrictions on Exercise.......................11
Section 3.3. Method of Exercise; Payment of Exercise Price............12
Section 3.4. Repurchase Offers........................................13
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments..............................................16
Section 4.2. Notice of Adjustment.....................................24
Section 4.3. Statement on Warrants....................................25
Section 4.4. Notice of Consolidation, Merger, Etc.....................25
Section 4.5. Fractional Interests.....................................25
ARTICLE V
DECREASE IN EXERCISE PRICE
ARTICLE VI
LOSS OR MUTILATION
ARTICLE VII
RESERVATION AND AUTHORIZATION OF COMMON SHARES
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 8.1. Transfer and Exchange....................................27
Section 8.2. Book-Entry Provisions for the Global Warrants............28
Section 8.3. Special Transfer Provisions..............................30
Section 8.4. Surrender of Warrant Certificates........................33
<PAGE> 3
ARTICLE IX
WARRANT HOLDERS
Section 9.1. Warrant Holder Deemed Not a Stockholder..................34
Section 9.2. Right of Action..........................................34
ARTICLE X
REMEDIES
Section 10.1. Defaults................................................34
Section 10.2. Payment Obligations.....................................35
Section 10.3. Remedies; No Waiver.....................................35
ARTICLE XI
THE WARRANT AGENT
Section 11.1. Duties and Liabilities..................................35
Section 11.2. Right to Consult Counsel................................36
Section 11.3. Compensation; Indemnification...........................37
Section 11.4. No Restrictions on Actions..............................37
Section 11.5. Discharge or Removal; Replacement Warrant Agent.........37
Section 11.6. Successor Warrant Agent.................................38
ARTICLE XII
MISCELLANEOUS
Section 12.1. Monies Deposited with the Warrant Agent.................38
Section 12.2. Payment of Taxes........................................39
Section 12.3. No Merger, Consolidation or Sale of Assets
of the Company..........................................39
Section 12.4. Reports to Holders......................................39
Section 12.5. Notices; Payment........................................40
Section 12.6. Binding Effect..........................................41
Section 12.7. Counterparts............................................41
Section 12.8. Amendments..............................................41
Section 12.9. Headings................................................41
Section 12.10. Common Shares Legend....................................41
Section 12.11. Third Party Beneficiaries...............................43
Section 12.12. Termination.............................................43
Section 12.13. Governing Law...........................................43
ii
<PAGE> 4
EXHIBIT A FORM OF WARRANT CERTIFICATE
EXHIBIT B FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATION S
EXHIBIT C-1 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEROR IN
CONNECTION WITH TRANSFERS TO INSTITUTIONAL
ACCREDITED INVESTORS
EXHIBIT C-2 FORM OF CERTIFICATE TO BE DELIVERED BY TRANSFEREES IN
CONNECTION WITH TRANSFERS TO INSTITUTIONAL
ACCREDITED INVESTORS
EXHIBIT D FORM OF CERTIFICATE
APPENDIX A LIST OF FINANCIAL EXPERTS
iii
<PAGE> 5
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of April 13, 1998 (this "Agreement"),
between LONG DISTANCE INTERNATIONAL INC., a Florida corporation (the "Company"),
and THE BANK OF NEW YORK, a New York banking corporation (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of a Purchase Agreement dated April
7, 1998 (the "Purchase Agreement"), among the Company and Morgan Stanley & Co.
Incorporated and SBC Warburg Dillon Read Inc. as initial purchasers (the
"Initial Purchasers"), the Company has agreed to issue and sell to the Initial
Purchasers an aggregate of 225,000 warrants (each, a "Warrant" and collectively,
the "Warrants"), each Warrant initially entitling the holder thereof to purchase
15.0874 shares of Common Stock (as defined below) of the Company at an exercise
price of $.01 per Common Share (as defined below) as part of 225,000 units (the
"Units"), each Unit consisting of one 12 1/4% Senior Note due 2008 of the
Company (each a "Note" and collectively, the "Notes") to be issued pursuant to
the provisions of an Indenture, dated as of the date hereof, between the Company
and The Bank of New York, as trustee (the "Indenture"), and one Warrant;
WHEREAS, the Notes and the Warrants included in each Unit will
become separately transferable at the close of business upon the earliest to
occur of (i) the date that is six months after the Closing Date (as defined
below), (ii) the commencement of an exchange offer with respect to the Notes
undertaken pursuant to the Notes Registration Rights Agreement (as defined
below) and (iii) the effectiveness of a shelf registration statement with
respect to resales of the Notes (the "Separation Date"); and
WHEREAS, the Company desires to engage the Warrant Agent to act on
the Company's behalf, and the Warrant Agent desires to act on behalf of the
Company, in connection with the issuance of the Warrant Certificates (as defined
below) and the other matters as provided herein, including, without limitation,
for the purpose of defining the terms and provisions of the Warrants and the
respective rights and obligations thereunder of the Company and the record
holders thereof (together with the holders of shares of Common Stock (or other
securities) received upon exercise thereof, the "Holders").
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements contained herein and in the Purchase Agreement, the Company and the
Warrant Agent hereby agree as follows:
<PAGE> 6
2
ARTICLE I
CERTAIN DEFINITIONS
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent Members" has the meaning specified in Section 8.2 hereof.
"Auditors" means, at any time, the independent auditors of the
Company at such time.
"Board" means the board of directors of the Company from time to
time.
"Business Day" means a day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the principal
corporate trust office of the Warrant Agent, are authorized by law to close.
"Cedel Bank" means Cedel Bank, societe anonyme.
"Certificated Warrants" has the meaning specified in Section 2.1
hereof.
"Certificate for Surrender" means the form on the reverse side of
the Warrant Certificate substantially in the form of Exhibit A hereto.
"Closing Date" means the date hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Shares" means the shares of the Common Stock of the Company.
"Common Stock" means the Common Stock, par value $0.001 per share,
of the Company.
"Company" has the meaning specified in the preamble to this
Agreement until a successor replaces it pursuant to this Agreement and
thereafter means the successor.
<PAGE> 7
3
"Current Market Value" has the meaning specified in Section 4.1(f)
hereof.
"Default" has the meaning specified in Section 10.1 hereof.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System.
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"Exercise Price" has the meaning specified in Section 3.1 hereof.
"Expiration Date" means April 12, 2008.
"Final Surrender Time" has the meaning specified in Section 3.4
hereof.
"Financial Expert" means one of the Persons listed in Appendix A
hereto.
"Global Warrants" has the meaning specified in Section 2.1 hereof.
"Holders" has the meaning specified in the recitals to this
Agreement.
"IAI Certificated Warrants" has the meaning specified in Section 2.1
hereof.
"Indenture" has the meaning specified in the recitals to this
Agreement.
"Independent Financial Expert" means a Financial Expert that does
not (and whose directors, executive officers and 5% stockholders do not) have a
direct or indirect financial interest in the Company or any of its subsidiaries
or affiliates, which has not been for at least five years and, at the time that
it is called upon to give independent financial advice to the Company, is not
(and none of its directors, executive officers or 5% stockholders is) a
promoter, director or officer of the Company or any of its subsidiaries or
Affiliates.
"Institutional Accredited Investor" shall mean an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) of Regulation D under the Securities Act.
<PAGE> 8
4
"Legended Regulation S Global Warrant" has the meaning specified in
Section 2.1 hereof.
"Non-U.S. Person" means a person who is not a U.S. person as defined
in Rule 902 of Regulation S.
"Notes" has the meaning specified in the recitals to this Agreement.
"Notes Registration Rights Agreement" means the Notes Registration
Rights Agreement with respect to the Notes dated April 7, 1998 between the
Company and the Initial Purchasers.
"Notice Date" has the meaning specified in Section 3.4(b) hereof.
"Officer" means, with respect to the Company, (i) the Chairman of
the Board, the President, any Vice President, the Chief Financial Officer or
(ii) the Treasurer or any Assistant Treasurer, the Secretary or any Assistant
Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof; provided, however, that any such certificate may
be signed by any two of the Officers listed in clause (i) of the definition
thereof in lieu of being signed by one Officer listed in clause (i) of the
definition thereof and one Officer listed in clause (ii) of the definition
thereof.
"Offshore Certificated Warrants" has the meaning specified in
Section 2.1 hereof.
"Opinion of Counsel" means a written opinion signed by legal counsel
who may be an employee of or counsel to the Company.
"Person" means an individual, a corporation, a partnership, a
limited liability company, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Private Placement Legend" means the legend set forth on the Warrant
Certificates in the form set forth in Section 2.2(a) hereof.
"Purchase Agreement" has the meaning specified in the recitals to
this Agreement.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Regulation S" means Regulation S under the Securities Act.
<PAGE> 9
5
"Regulation S Global Warrant" has the meaning specified in Section
2.1 hereof.
"Relevant Value" has the meaning specified in Section 3.4(d) hereof.
"Repurchase Event" means, and shall be deemed to occur on, any date
when the Company (i) consolidates with or merges into or with another Person
(but only where the holders of Common Stock receive consideration in exchange
for all or part of such stock), if the Common Stock (or other securities)
thereafter issuable upon exercise of the Warrants is not registered under the
Exchange Act or (ii) sells all or substantially all of its assets to another
Person, if the Common Stock (or other securities) thereafter issuable upon
exercise of the Warrants is not registered under the Exchange Act; provided that
in each case a "Repurchase Event" shall not be deemed to have occurred if the
consideration for such transaction consists solely of cash.
"Repurchase Notice" has the meaning specified in Section 3.4(a)
hereof.
"Repurchase Obligation" has the meaning specified in Section 10.2
hereof.
"Repurchase Offer" means the Company's offer to repurchase the
Warrants in accordance with Section 3.4 hereof.
"Repurchase Price" has the meaning specified in Section 3.4(d)
hereof.
"Restricted Certificated Warrants" has the meaning specified in
Section 2.1 hereof.
"Restricted Global Warrant" has the meaning specified in Section 2.1
hereof.
"Right" has the meaning specified in Section 4.1(c) hereof.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Separation Date" has the meaning specified in the recitals to this
Agreement.
"Spread" means, with respect to any Warrant, the Current Market
Value of the Common Shares subject to such Warrant, less the Exercise Price of
such Warrant, in each case as adjusted as provided herein.
"Subscription Form" means the form on the reverse side of the
Warrant Certificate substantially in the form of Exhibit A hereto.
<PAGE> 10
6
"Units" has the meaning specified in the recitals to this Agreement.
"U.S. Certificated Warrants" has the meaning specified in Section
2.1 hereof.
"Unlegended Regulation S Global Warrant" has the meaning specified
in Section 2.1 hereof.
"Valuation Date" means the date five Business Days prior to the
Notice Date.
"Value Certificate" has the meaning specified in Section 3.4 hereof.
"Value Report" has the meaning specified in Section 4.1(k) hereof.
"Warrant" has the meaning specified in the recitals to this
Agreement.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement until a successor Warrant Agent replaces it in accordance with the
provisions of Section 11.5 and thereafter means such successor.
"Warrant Certificates" has the meaning specified in Section 2.1
hereof.
"Warrant Registration Rights Agreement" means the Warrant
Registration Rights Agreement, dated April 7, 1998, between the Company and the
Warrant Agent.
"Warrant Registration Statement" has the meaning specified in
Section 3 of the Warrant Registration Rights Agreement.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
Section 2.1. Form of Warrant Certificates. Certificates representing
the Warrants (the "Warrant Certificates") shall be substantially in the form
attached hereto as Exhibit A, shall be dated the date on which such Warrant
Certificates are countersigned by the Warrant Agent and shall have such
insertions as are appropriate or required or permitted by this Agreement and may
have such letters, numbers or other marks of identification and such legends and
endorsements stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule
<PAGE> 11
7
or regulation pursuant thereto or with any rule or regulation of any securities
exchange on which the Warrants may be listed, or to conform to usage.
Warrants offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Warrant Certificates in
definitive, fully registered form, substantially in the form set forth in
Exhibit A (collectively, the "Restricted Global Warrant"), deposited with the
Warrant Agent, as custodian for, and registered in the name of the nominee for,
the Depositary, duly executed by the Company and countersigned by the Warrant
Agent as hereinafter provided. The aggregate number of Warrants represented by
the Restricted 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 provided in Section 2.4 and Section 8.3 hereof.
Warrants offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more permanent
global Warrant Certificates in definitive, fully registered form, substantially
in the form set forth in Exhibit A (the "Legended Regulation S Global Warrant"),
deposited with the Warrant Agent, as custodian for, and registered in the name
of, the Depositary or its nominee for the accounts of Euroclear and Cedel Bank,
duly executed by the Company and countersigned by the Warrant Agent as
hereinafter provided. Prior to the date one year from the Closing Date,
beneficial interests in the Legended Regulation S Global Warrant may be only
held through Euroclear and Cedel Bank. At any time on or after the date one year
from the Closing Date, upon receipt by the Warrant Agent and the Company of a
certificate substantially in the form of Exhibit D hereto, one or more global
Warrant Certificates in registered form substantially in the form set forth in
Exhibit A (the "Unlegended Regulation S Global Warrant" and together with the
Legended Regulation S Global Warrant, the "Regulation S Global Warrants") shall
be deposited with the Warrant Agent, as custodian for, and registered in the
name of the nominee for, the Depositary, duly executed by the Company and
countersigned by the Warrant Agent as hereinafter provided, and the Warrant
Agent shall reflect on its books and records the date and a decrease in the
Legended Regulation S Global Warrant in an amount equal to the beneficial
interest in number of Warrants evidenced by the Legended Regulation S Global
Warrant transferred. The aggregate number of Warrants represented by the
Regulation S 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 provided in Section 2.4 and Section 8.3 hereof.
Warrants offered and sold to Institutional Accredited Investors who
are not QIBs shall be issued initially in registered form substantially in the
form set forth in Exhibit A ("IAI Certificated Warrants").
Warrants issued pursuant to Section 2.4 and Section 8.2(b) in
exchange for interests in the Restricted Global Warrant shall be issued in the
form of permanent Warrant
<PAGE> 12
8
Certificates in registered form, substantially in the form set forth in Exhibit
A (the "Restricted Certificated Warrants" and, together with IAI Certificated
Warrants, the "U.S. Certificated Warrants"). Warrants issued pursuant to Section
2.4 and Section 8.2(b) in exchange for interests in the Regulation S Global
Warrant shall be issued in the form of permanent Warrant Certificates in
registered form, substantially in the form set forth in Exhibit A (the "Offshore
Certificated Warrants"). The Offshore Certificated Warrants and the U.S.
Certificated Warrants are sometimes collectively herein referred to as the
"Certificated Warrants". The Restricted Global Warrant and the Regulation S
Global Warrant are sometimes herein collectively referred to as the "Global
Warrants."
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Warrants may be listed, all as determined by the officers
executing such Warrant Certificates, as evidenced by their execution of such
Warrant Certificates.
Section 2.2. Restrictive Legends. (a) The Warrant Certificates,
other than the Unlegended Regulation S Global Warrants, shall bear substantially
the following legend on the face thereof:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE WARRANTS
REPRESENTED BY THIS CERTIFICATE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT,
WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES
ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THE WARRANTS REPRESENTED
BY THIS CERTIFICATE RESELL OR OTHERWISE TRANSFER THE WARRANTS REPRESENTED
BY THIS CERTIFICATE EXCEPT (A) TO LONG DISTANCE INTERNATIONAL INC. (THE
"COMPANY") OR ANY
<PAGE> 13
9
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT) AND, IF
SUCH TRANSFER IS IN RESPECT OF ANY WARRANTS SUBSEQUENT TO THE DATE ON
WHICH THE WARRANTS REPRESENTED HEREBY BECOME SEPARATELY TRANSFERABLE, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THE WARRANTS REPRESENTED BY THIS
CERTIFICATE ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE WARRANTS REPRESENTED BY
THIS CERTIFICATE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE WARRANT AGENT.
IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO EACH OF THE WARRANT AGENT
AND 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 IN A TRANSACTION NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE
WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO
REFUSE TO REGISTER ANY TRANSFER OF THE WARRANTS
<PAGE> 14
10
REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
(b) Each Global Warrant shall also bear the following legend on the
face thereof:
UNLESS THIS WARRANT CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO LONG DISTANCE
INTERNATIONAL INC. OR THE WARRANT AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER ENTITY 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 THE DEPOSITORY TRUST COMPANY 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 ARTICLE VIII OF THE WARRANT AGREEMENT.
(c) Each Warrant Certificate issued prior to the Separation Date
shall bear the following legend on the face thereof:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE WERE ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE 12 1/4% SENIOR NOTE DUE
2008 OF LONG DISTANCE INTERNATIONAL INC. (COLLECTIVELY, THE "NOTES") AND
ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 15.0874
SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF LONG DISTANCE
INTERNATIONAL INC. PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO
OCCUR OF (I) OCTOBER 13, 1998, (ii) THE COMMENCEMENT OF AN EXCHANGE OFFER
WITH RESPECT TO THE
<PAGE> 15
11
NOTES, AND (iii) THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT WITH
RESPECT TO RESALES OF THE NOTES. THE WARRANTS EVIDENCED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY
BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES.
Section 2.3. Execution and Delivery of Warrant Certificates. Warrant
Certificates evidencing 225,000 Warrants, each Warrant to purchase
initially15.0874 Common Shares, may be executed, on or after the date of this
Agreement, by the Company and delivered to the Warrant Agent for
countersignature, and the Warrant Agent shall thereupon countersign and deliver
such Warrant Certificates upon the order and at the written direction of the
Company signed by its Chief Executive Officer or other duly authorized executive
officer to the purchasers thereof on the date of issuance. The Warrant Agent is
hereby authorized to countersign and deliver Warrant Certificates as required by
this Section 2.3 or by Section 3.3, Article VI or Article VIII hereof.
The Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, Chief Executive Officer, any Vice President or
other duly authorized executive officer of the Company either manually or by
facsimile signature printed thereon. The Warrant Certificates shall be
countersigned by manual signature of the Warrant Agent and shall not be valid
for any purpose unless so countersigned. In case any officer or director of the
Company whose signature shall have been placed upon any of the Warrant
Certificates shall cease to be such officer or director of the Company before
countersignature by the Warrant Agent and the issuance and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though such person
had not ceased to be such officer or director of the Company.
Section 2.4. Certificated Warrants. Beneficial owners of interests
in a Global Warrant may receive Certificated Warrants (which, except as set
forth in Section 8.3(d), shall bear the Private Placement Legend) in accordance
with the procedures of the Warrant Agent and the Depositary; provided, however,
that beneficial owners of interests in the Regulation S Global Warrant may not
receive Offshore Certificated Warrants in exchange for such interests prior to
the date one year from the Closing Date. In connection with the execution and
delivery of such Certificated Warrants, the Warrant Agent shall reflect on its
books and records the date and a decrease in the number of Warrants represented
by the relevant Global Warrant equal to the number of such Certificated Warrants
and the Company shall execute and the Warrant Agent shall countersign and
deliver to said beneficial owners one or more Certificated Warrants in an equal
aggregate number.
<PAGE> 16
12
ARTICLE III
EXERCISE PRICE, EXERCISE AND REPURCHASE OF WARRANTS
Section 3.1. Exercise Price. Each Warrant Certificate shall, when
countersigned by the Warrant Agent, initially entitle the Holder thereof,
subject to the provisions of this Agreement, to purchase the number of Common
Shares indicated thereon at a purchase price (the "Exercise Price") of $.01 per
Common Share, subject to adjustment as provided in Section 4.1 and Article V
hereof.
Section 3.2. Exercise; Restrictions on Exercise. At any time after
one year after the Closing Date and on or before the Expiration Date, any
outstanding Warrants may be exercised on any Business Day; provided that the
Warrants will become exercisable in connection with the initial public offering
of equity securities (other than nonconvertible preferred shares or an offering
registered solely on Form S-4 or S-8 or any successor form thereto) of the
Company and provided further that the Warrant Registration Statement is, at the
time of exercise, effective and available for the exercise of the Warrants or
the exercise of such Warrants is exempt from the registration requirements of
the Securities Act. Any Warrants not exercised by 5:00 p.m., New York City time,
on the Expiration Date shall expire and all rights of the Holders of such
Warrants shall terminate. Additionally, pursuant to Section 4.1(j)(ii) hereof,
the Warrants shall expire and all rights of the Holders of such Warrants shall
terminate in the event the Company merges or consolidates with or sells all or
substantially all of its property and assets to a Person (other than an
Affiliate of the Company) if the consideration payable to holders of Common
Stock in exchange for their Common Stock in connection with such merger,
consolidation or sale consists solely of cash or in the event of the
dissolution, liquidation or winding up of the Company.
Section 3.3. Method of Exercise; Payment of Exercise Price. In order
to exercise all or any of the Warrants represented by a Warrant Certificate, the
Holder thereof must surrender for exercise the Warrant Certificate to the
Warrant Agent at its principal corporate trust office address set forth in
Section 12.5 hereof, with the Subscription Form set forth on the reverse of the
Warrant Certificate duly executed, together with payment in full of the Exercise
Price then in effect for each Common Share (or other securities) issuable upon
exercise of the Warrants as to which a Warrant is exercised; such payment may be
made in cash or by certified or official bank or bank cashier's check payable to
the order of the Company and shall be made to the Warrant Agent at its principal
corporate trust office address set forth in Section 12.5 hereof prior to the
close of business on the date the Warrant Certificate is surrendered to the
Warrant Agent for exercise. Notwithstanding the foregoing, the Exercise Price
may be paid by surrendering additional Warrants to the Warrant Agent having an
aggregate Spread equal to the aggregate Exercise Price of the Warrants being
exercised. All payments received upon exercise of Warrants shall be delivered to
the Company by the Warrant Agent as instructed in writing by
<PAGE> 17
13
the Company. If less than all the Warrants represented by a Warrant Certificate
are exercised or surrendered (in connection with a cashless exercise), such
Warrant Certificate shall be surrendered and a new Warrant Certificate of the
same tenor and for the number of Warrants which were not exercised or
surrendered shall be executed by the Company and delivered to the Warrant Agent
and the Warrant Agent shall countersign the new Warrant Certificate, registered
in such name or names as may be directed in writing by the Holder, and shall
make available for delivery the new Warrant Certificate to the Person or Persons
entitled to receive the same. Global Warrants will be exercised in accordance
with the procedures of the Warrant Agent and the Depositary. Upon the exercise
of any Warrants following the surrender of a Warrant Certificate in conformity
with the foregoing provisions, the Warrant Agent shall instruct the Company to
transfer promptly to the Holder or, upon the written order of the Holder of such
Warrant Certificate, appropriate evidence of ownership of any Common Shares or
other security or property to which it is entitled, registered or otherwise
placed in such name or names as may be directed in writing by the Holder, and to
deliver such evidence of ownership to the Person or Persons entitled to receive
the same and fractional shares, if any, or an amount in cash, in lieu of any
fractional shares, as provided in Section 4.5 hereof; provided that the Holder
of such Warrant shall be responsible for the payment of any transfer taxes
required as the result of any change in ownership of such Warrants or the
issuance of such Common Shares other than to the Holder of such Warrants and any
such transfer shall comply with applicable law. Upon the exercise of a Warrant
or Warrants, the Warrant Agent is hereby authorized and directed to requisition
from any transfer agent of the Common Shares (and all such transfer agents are
hereby irrevocably authorized to comply with all such requests) certificates
(bearing the legend set forth in Section 12.10 hereof, if applicable, unless a
registration statement with the Commission relating to such Common Shares shall
then be in effect or the Company and the Holder exercising such Warrant or
Warrants otherwise agree) for the number of Common Shares to which said Holder
may be entitled. The Company shall enter, or shall cause any transfer agent of
the Common Shares to enter, the name of the Person entitled to receive the
Common Shares upon exercise of the Warrants into the Company's register of
stockholders within 14 days of such exercise. A Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of the
surrender for exercise, as provided above, of the Warrant Certificate
representing such Warrant and, for all purposes under this Agreement, the Person
entitled to receive any Common Shares deliverable upon such exercise shall, as
between such Person and the Company, be deemed to be the Holder of such Common
Shares of record as of the close of business on such date and shall be entitled
to receive, and the Warrant Agent shall make available for delivery to such
Person, any Common Shares to which such Person would have been entitled had such
Person been the registered holder on such date.
Section 3.4. Repurchase Offers. (a) Notice of Repurchase Event.
Within five Business Days following the occurrence of a Repurchase Event, the
Company shall give notice (a "Repurchase Notice") to the Holders of the Warrants
and the Warrant Agent that such event has occurred.
<PAGE> 18
14
(b) Repurchase Offers Generally. Following the occurrence of a
Repurchase Event, the Company shall offer to repurchase for cash all outstanding
Warrants pursuant to the provisions of this Section 3.4 (a "Repurchase Offer").
The Company shall give notice of a Repurchase Offer in accordance with Section
3.4(f) hereof. Each date on which the Company gives any such notice is referred
to as the "Notice Date." The Repurchase Offer shall commence on the Notice Date
for such Repurchase Offer and shall expire at 5:00 p.m., New York City time, on
a date determined by the Company (the "Final Surrender Time") that is at least
30 but not more than 60 days after the Notice Date. Once a Repurchase Event has
occurred, there is no limit on the number of Repurchase Offers that the Company
may make.
(c) Repurchase Offers. (i) In any Repurchase Offer, the Company
shall offer to purchase for cash at the Repurchase Price all Warrants
outstanding on the Notice Date for such Repurchase Offer that are properly
tendered to the Warrant Agent on or prior to the Final Surrender Time for such
Repurchase Offer.
(ii) Each Holder may, but shall not be obligated to, accept such
Repurchase Offer by tendering to the Warrant Agent, on or prior to the Final
Surrender Time for such Repurchase Offer, the Warrant Certificates evidencing
the Warrants such Holder desires to have repurchased in such offer, together
with a completed Certificate for Surrender in substantially the form attached to
the Warrant Certificate. A Holder may withdraw all or a portion of the Warrants
tendered to the Warrant Agent at any time prior to the Final Surrender Time for
such Repurchase Offer. If less than all the Warrants represented by a Warrant
Certificate shall be tendered, such Warrant Certificate shall be surrendered and
a new Warrant Certificate of the same tenor and for the number of Warrants which
were not tendered shall be executed by the Company and delivered to the Warrant
Agent and the Warrant Agent shall countersign the new Warrant Certificate,
registered in such name or names as may be directed in writing by the Holder,
and shall make available for delivery the new Warrant Certificate to the Person
or Persons entitled to receive the same; provided that the Holder of such
Warrants shall be responsible for the payment of any transfer taxes required as
the result of any change in ownership of such Warrants and any such transfer
shall comply with applicable law.
(d) Repurchase Price. (i) The purchase price (the "Repurchase
Price") for each Warrant properly tendered to the Warrant Agent pursuant to a
Repurchase Offer shall be equal to the value (the "Relevant Value") on the
Valuation Date of the Common Shares issuable, and other securities or property
of the Company which would have been delivered, upon exercise of Warrants had
the Warrants been exercised (regardless of whether the Warrants are then
exercisable), less the Exercise Price in effect on the Notice Date for such
Repurchase Offer.
(ii) The Relevant Value of the Common Shares and other securities or
property issuable upon exercise of all the Warrants, on any Valuation Date shall
be:
<PAGE> 19
15
(1) (A) If the Common Shares (or other securities) are registered
under the Exchange Act, deemed to be the average of the daily market
prices (on the stock exchange that is the primary trading market for the
Common Shares (or other securities)) of the Common Shares (or other
securities) for the 20 consecutive trading days immediately preceding such
Valuation Date or, (B) if the Common Shares (or other securities) have
been registered under the Exchange Act for less than 20 consecutive
trading days before such date, then the average of the daily market prices
for all of the trading days before such date for which daily market prices
are available, in the case of each of (A) and (B), as certified to the
Warrant Agent by the President, any Vice President or the Chief Financial
Officer of the Company (the "Value Certificate"). The market price for
each such trading day shall be: (A) in the case of a security listed or
admitted to trading on any national securities exchange, the closing sales
price on such day, or if no sale takes place on such day, the average of
the closing bid and asked prices on such day, (B) in the case of a
security not then listed or admitted to trading on any national securities
exchange, the last reported sale price on such day, or if no sale takes
place on such day, the average of the closing bid and asked prices on such
day, as reported by a reputable quotation source designated by the
Company, (C) in the case of a security not then listed or admitted to
trading on any national securities exchange and as to which no such
reported sale price or bid and asked prices are available, the average of
the reported high bid and low asked prices on such day, as reported by a
reputable quotation service, or a newspaper of general circulation in the
Borough of Manhattan, City and State of New York customarily published on
each Business Day, designated by the Company, or, if there shall be no bid
and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than 30 days
prior to the date in question) for which prices have been so reported and
(D) if there are no bid and asked prices reported during the 30 days prior
to the date in question, the Relevant Value shall be determined as if the
Common Shares (or other securities) were not registered under the Exchange
Act; or
(2) If the Common Shares (or other securities) are not registered
under the Exchange Act or if the Relevant Value cannot be computed under
clause (1) above, deemed to be equal to the value set forth in the Value
Report (as defined below) as determined by an Independent Financial
Expert, which shall be selected by the Board in accordance with Section
3.4(e) hereof, and retained on customary terms and conditions, using one
or more valuation methods that the Independent Financial Expert, in its
best professional judgment, determines to be most appropriate but without
giving effect to any discount for lack of liquidity, the fact that the
Company has no class of equity securities registered under the Exchange
Act or the fact that the Common Shares and other securities or property
issuable upon exercise of the Warrants represent a minority interest in
the Company. The Company shall cause the Independent Financial Expert to
deliver to the Company, with a copy to the Warrant Agent, within 45 days
of the appointment of
<PAGE> 20
16
the Independent Financial Expert in accordance with Section 3.4(e) hereof,
a value report (the "Value Report") stating the Relevant Value of the
Common Shares and other securities or property of the Company, if any,
being valued as of the Valuation Date and containing a brief statement as
to the nature and scope of the methodologies upon which the determination
of Relevant Value was made. The Warrant Agent shall have no duty with
respect to the Value Report of any Independent Financial Expert, except to
keep it on file and available for inspection by the Holders. The
determination as to Relevant Value in accordance with the provisions of
this Section 3.4(d) shall be conclusive on all Persons. The Independent
Financial Expert shall consult with management of the Company in order to
allow management to comment on the proposed Relevant Value prior to
delivery to the Company of any Value Report of the Independent Financial
Expert.
(e) Selection of Independent Financial Expert. If clause (d)(ii)(2)
of this Section 3.4 is applicable, the Board of Directors of the Company shall
select an Independent Financial Expert not more than five Business Days
following a Repurchase Event. Within two Business Days following a Repurchase
Event, the Company shall deliver to the Warrant Agent a notice setting forth the
name of the Independent Financial Expert.
(f) Notice of Repurchase Offer. Each notice of a Repurchase Offer
(an "Offer Notice") given by the Company pursuant to Section 3.4(b) shall be
given by the Company directly to all Holders of the Warrants, with a copy to the
Warrant Agent, shall be given simultaneously with the Repurchase Notice (or, in
the event that the Relevant Value of the Common Shares or other securities or
property issuable upon exercise of all the Warrants cannot be determined
pursuant to Section 3.4(d)(ii)(1), then such Offer Notice shall be given within
five Business Days after the Company receives the Value Report with respect to
such offer) and shall specify (A) the Final Surrender Time for such Repurchase
Offer, (B) the manner in which Warrants may be surrendered to the Warrant Agent
for repurchase by the Company, (C) the Repurchase Price at which the Warrants
will be repurchased by the Company, (D) if applicable, the name of the
Independent Financial Expert whose valuation of the Common Shares and other
securities or property was utilized in connection with determining such
Repurchase Price and (E) that payment of the Repurchase Price will be made by
the Warrant Agent. Each such notice shall be accompanied by a Certificate for
Surrender for Repurchase Offer in substantially the form attached to the Warrant
Certificate and a copy of the Value Report, if any.
(g) Payment for Warrants. Upon surrender for repurchase of any
Warrants in conformity with the provisions of this Section 3.4, the Warrant
Agent shall thereupon promptly notify the Company of such surrender. On or
before the Final Surrender Time for any Repurchase Offer, the Company shall
deposit with the Warrant Agent funds sufficient to make payment for the Warrants
tendered to the Warrant Agent and not withdrawn. After receipt of such deposit
from the Company, the Warrant Agent shall make payment, by delivering a check
<PAGE> 21
17
in such amount as is appropriate, to such Person or Persons as it may be
directed in writing by the Holder surrendering such Warrants, net of any
transfer taxes required to be paid in the event that the check is to be
delivered to a Person other than the Holder.
(h) Compliance with Laws. Notwithstanding anything contained in this
Section 3.4, if the Company is required to comply with laws, rules, regulations
and securities exchange or clearing procedures, in connection with making any
Repurchase Offer, such laws, rules, regulations and procedures shall govern the
making of such Repurchase Offer.
ARTICLE IV
ADJUSTMENTS
Section 4.1. Adjustments. The Exercise Price and the number of
Common Shares issuable upon exercise of each Warrant shall be subject to
adjustment from time to time as follows:
(a) Divisions; Consolidations; Reclassifications. In case the
Company shall, on or before the Expiration Date, (i) issue any Common Shares in
payment of a dividend or other distribution with respect to its Common Stock,
(ii) subdivide its issued and outstanding Common Shares, (iii) consolidate its
issued and outstanding Common Shares into a smaller number of shares, or (iv)
reclassify or convert the Common Shares (other than a reclassification in
connection with a merger, consolidation or other business combination which will
be governed by Section 4.1(j)), then the number of Common Shares purchasable
upon exercise of each Warrant immediately prior to the record date for such
issue or distribution or the effective date of such subdivision, consolidation,
reclassification or conversion shall be adjusted so that the Holder of each
Warrant shall thereafter be entitled to receive the kind and number of Common
Shares which such Holder would have been entitled to receive after the happening
of any of the events described above had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this Section 4.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) Rights; Options; Warrants. In case the Company shall issue
rights, options, warrants or convertible or exchangeable securities (other than
an issuance of convertible or exchangeable securities subject to Section 4.1(a))
to all holders of its Common Shares, entitling them to subscribe for or purchase
Common Shares at a price per share which is lower (at the record date for such
issuance) than the then Current Market Value per Common Share, then the Company
shall ensure that at the time of such issuance, the same or a like offer or
invitation is made to the Holders of the Warrants as if their Warrants had been
exercised on the day immediately preceding the record date of such offer or
invitation on the terms (subject to any
<PAGE> 22
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adjustment pursuant to Section 4.1(a) for a prior event) on which such Warrants
could have been exercised on such date; provided that if the Board so resolves,
the Company shall not be required to ensure that the same offer or invitation is
made to the Holders of the Warrants, but the number of Common Shares thereafter
purchasable upon the exercise of each Warrant shall instead be adjusted and
shall be determined by multiplying the number of Common Shares theretofore
purchasable upon exercise of each Warrant by a fraction, the numerator of which
shall be the sum of (i) the number of Common Shares outstanding immediately
prior to the issuance of such rights, options, warrants or convertible or
exchangeable securities plus (ii) the number of additional Common Shares which
may be purchased or subscribed for upon exercise, exchange or conversion of such
rights, options, warrants or convertible or exchangeable securities and the
denominator of which shall be the sum of (x) the number of Common Shares
outstanding immediately prior to the issuance of such rights, options, warrants
or convertible or exchangeable securities plus (y) the number of shares which
the total consideration received by the Company for such rights, options,
warrants or convertible or exchangeable securities so offered would purchase at
the then Current Market Value per Common Share. Except as otherwise provided
above, such adjustment shall be made whenever such rights, options, warrants or
convertible or exchangeable securities are issued, and shall become effective
retroactively immediately after the record date for the determination of
stockholders entitled to receive such rights, options, warrants or convertible
or exchangeable securities.
(c) Issuance of Common Shares at Lower Values. In case the Company
shall sell and issue any Common Share or Right (as defined below) (excluding (i)
any Right issued in any of the transactions described in Section 4.1(a) or (b)
above, (ii) Common Shares issued pursuant to (x) any Rights outstanding on the
date of this Agreement or any Right issued in any transaction described in
Section 4.1(a) or (b) above and (y) a Right, if on the date such Right was
issued, the exercise, conversion or exchange price per Common Share with respect
thereto was at least equal to the then Current Market Value per Common Share and
(iii) any Common Shares or Right issued as consideration (A) when any
corporation or business is acquired, merged into or becomes part of the Company
or a subsidiary of the Company or (B) in good faith in connection with any other
business collaboration, in each case in an arm's-length transaction between the
Company and a Person other than an Affiliate of the Company) at a price per
Common Share (determined in the case of any such Right, by dividing (x) the
total consideration receivable by the Company in consideration of the sale and
issuance of such Right, plus the total consideration payable to the Company upon
exercise, conversion or exchange thereof, by (y) the total number of Common
Shares covered by such Right) that is lower than the Current Market Value per
Common Share in effect immediately prior to such sale or issuance, then the
number of Common Shares thereafter purchasable upon the exercise of each Warrant
shall be determined by multiplying the number of Common Shares theretofore
purchasable upon exercise of such Warrant by a fraction, the numerator of which
shall be the number of Common Shares outstanding immediately after such sale or
issuance and the denominator of which shall be the number of Common Shares
outstanding immediately prior to such sale or issuance plus the
<PAGE> 23
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number of Common Shares which the aggregate consideration received (determined
as provided below) for such sale or issuance would purchase at such Current
Market Value per Common Share. For purposes of this Section 4.1(c), the Common
Shares which the holder of any such Right shall be entitled to subscribe for or
purchase shall be deemed to be issued and outstanding as of the date of sale and
issuance of such Right and the consideration received by the Company therefor
shall be deemed to be the consideration received by the Company for such Right,
plus the consideration or premiums stated in such Right to be paid for the
Common Shares covered thereby. In case the Company shall sell and issue any
Right together with one or more other securities as part of a unit at a price
per unit, then in determining the "price per Common Share" and the
"consideration received by the Company" for purposes of the first sentence of
this Section 4.1(c), the Board shall determine, in good faith, the fair value of
the Right then being sold as part of such unit. For purposes of this paragraph,
a "Right" shall mean any right, option, warrant or convertible or exchangeable
security containing the Right to subscribe for or acquire one or more Common
Shares, excluding the Warrants. This Section 4.1(c) shall not apply to: (i) the
exercise of Warrants, or the conversion or exchange of other securities
convertible or exchangeable for Common Shares; or (ii) Common Shares issued upon
the exercise of Rights or warrants issued to all holders of Common Shares.
(d) Distributions of Debt, Assets, Subscription Rights or
Convertible Securities. In case the Company shall make a distribution to all
holders of its Common Shares of evidences of its indebtedness, or assets, or
other distributions (excluding any issuance of Common Shares referred to in
Section 4.1(a) above and excluding distributions in connection with the
dissolution, liquidation or winding-up of the Company which shall be governed by
Section 4.1(j) and distributions of securities referred to in Section 4.1(a),
Section 4.1(b) or Section 4.1(c)), then, in each case, the number of Common
Shares purchasable after such record date upon the exercise of each Warrant
shall be determined by multiplying the number of Common Shares purchasable upon
the exercise of such Warrant immediately prior to such record date by a
fraction, the numerator of which shall be the Current Market Value per Common
Share immediately prior to the record date for such distribution and the
denominator of which shall be the Current Market Value per Common Share
immediately prior to the record date for such distribution less the then fair
value (as determined in good faith by the Board) of the evidences of its
indebtedness, or assets or other distributions so distributed attributable to
one Common Share. Such adjustment shall be made whenever any such distribution
is made, and shall become effective on the date of distribution retroactive to
the record date for the determination of stockholders entitled to receive such
distribution.
(e) Expiration of Rights, Options and Conversion Privileges. Upon
the expiration of any rights, options, warrants or conversion or exchange
privileges (including, without limitation, any Rights) that have previously
resulted in an adjustment hereunder, if any thereof shall not have been
exercised, exchanged or converted, the Exercise Price and the number of Common
Shares issuable upon the exercise of each Warrant shall, upon such
<PAGE> 24
20
expiration, be readjusted and shall thereafter, upon any future exercise, be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
Common Shares so issued were the Common Shares, if any, actually issued or sold
upon the exercise, exchange or conversion of such rights, options, warrants or
conversion or exchange rights (including, without limitation, any Rights) and
(ii) such Common Shares, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, exchange or conversion plus
the consideration, if any, actually received by the Company for issuance, sale
or grant of all such rights, options, warrants or conversion or exchange rights
(including, without limitation, any Rights) whether or not exercised.
(f) Current Market Value. For the purposes of any computation under
this Article IV, the "Current Market Value" per Common Share or of any other
security (herein collectively referred to as a "security") at any date herein
specified shall be:
(i) if the security is not registered under the Exchange Act, the
value of the security (1) most recently determined as of a date within the
six months preceding such date by an Independent Financial Expert selected
by the Company in accordance with the criteria for such valuation set out
in Section 4.1(k), or (2) if no such determination shall have been made
within such six-month period or if the Company so chooses, determined as
of such a date by an Independent Financial Expert selected by the Company
in accordance with the criteria for such valuation set out in Section
4.1(k), or
(ii) if the security is registered under the Exchange Act, the
average of the daily market prices of the security for the 20 consecutive
trading days immediately preceding such date or, if the security has been
registered under the Exchange Act for less than 20 consecutive trading
days before such date, then the average of the daily market prices for all
of the trading days before such date for which daily market prices are
available. The market price for each such trading day shall be: (A) in the
case of a security listed or admitted to trading on any national
securities exchange, the closing sales price, regular way, on such day, or
if no sale takes place on such day, the average of the closing bid and
asked prices on such day on the principal national securities exchange on
which such security is listed or admitted, as determined by the Board, in
good faith, (B) in the case of a security not then listed or admitted to
trading on any national securities exchange, the last reported sale price
on such day, or if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reputable
quotation source designated by the Company, (C) in the case of a security
not then listed or admitted to trading on any national securities exchange
and as to which no such reported sale price or bid and asked prices are
available, the average of the reported high bid and low asked prices on
such day, as reported by a reputable quotation service, or a newspaper of
general circulation in the Borough of Manhattan, City and State of
<PAGE> 25
21
New York customarily published on each Business Day, designated by the
Company, or, if there shall be no bid and asked prices on such day, the
average of the high bid and low asked prices, as so reported, on the most
recent day (not more than 30 days prior to the date in question) for which
prices have been so reported and (D) if there are no bid and asked prices
reported during the 30 days prior to the date in question, the Current
Market Value of the security shall be determined as if the security were
not registered under the Exchange Act.
(g) Consideration Received. For purposes of any computation
respecting consideration received pursuant to this Section 4.1, the following
shall apply:
(i) in the case of the issuance of Common Shares for cash, the
consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(ii) in the case of the issuance of Common Shares for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board (irrespective of the accounting
treatment thereof), whose determination shall be conclusive and described
in reasonable detail in a board resolution which shall be provided as soon
as practicable thereafter to the Warrant Agent; and
(iii) in the case of the issuance of rights, options, warrants or
securities convertible into or exchangeable for Common Shares (including,
without limitation, any Rights), the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company
for the issuance of such rights, options, warrants or securities
convertible into or exchangeable for Common Shares, plus the additional
minimum consideration, if any, to be received by the Company upon the
exercise, conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (i) and (ii) of
this Section 4.1(g)).
(h) De Minimis Adjustments. No adjustment in the number of Common
Shares purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
Common Shares purchasable upon the exercise of each Warrant; provided, however,
that any adjustments which by reason of this Section 4.1(h) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one-thousandth of a
share.
(i) Adjustment of Exercise Price. Whenever the number of Common
Shares purchasable upon the exercise of each Warrant is adjusted, as herein
provided, the Exercise Price
<PAGE> 26
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per Common Share payable upon exercise of such Warrant shall be adjusted
(calculated to the nearest $.01) so that it shall equal the price determined by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction the numerator of which shall be the number of Common Shares purchasable
upon the exercise of each Warrant immediately prior to such adjustment and the
denominator of which shall be the number of Common Shares so purchasable
immediately thereafter. Following any adjustment to the Exercise Price pursuant
to this Article IV, the amount payable, when adjusted, shall never be less than
the par value per Common Share at the time of such adjustment.
If after an adjustment, a Holder of a Warrant upon exercise of it
may receive shares of two or more classes in the capital of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
such classes of shares in a manner that the Board deems fair and equitable to
the Holders. After such allocation, the exercise privilege and the Exercise
Price of each class of shares shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Shares in this Article IV.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(j) Consolidation, Merger, Etc. (i) Subject to the provisions of
Subsection (ii) below of this Section 4.1(j), in case of the consolidation
of the Company with, or merger of the Company with or into, or of the sale
of all or substantially all of the properties and assets of the Company
to, any Person, and in connection therewith consideration is payable to
holders of Common Shares (or other securities or property purchasable upon
exercise of Warrants) in exchange therefor, the Warrants shall remain
subject to the terms and conditions set forth in this Agreement and each
Warrant shall, after such consolidation, merger or sale, entitle the
Holder to receive upon exercise the number of shares in the capital or
other securities or property (including cash) of or from the Person
resulting from such consolidation or surviving such merger or to which
such sale shall be made or of the parent of such Person, as the case may
be, that would have been distributable or payable on account of the Common
Shares if such Holder's Warrants had been exercised immediately prior to
such merger, consolidation or sale (or, if applicable, the record date
therefor); and in any such case the provisions of this Agreement with
respect to the rights and interests thereafter of the Holders of Warrants
shall be appropriately adjusted by the Board in good faith so as to be
applicable, as nearly as may reasonably be, to any shares, other
securities or any property thereafter deliverable on the exercise of the
Warrants.
(ii) Notwithstanding the foregoing, (x) if the Company merges or
consolidates with, or sells all or substantially all of its property and
assets to, another Person (other than an Affiliate of the Company) and
consideration is payable to holders of Common
<PAGE> 27
23
Shares in exchange for their Common Shares in connection with such merger,
consolidation or sale which consists solely of cash, or (y) in the event
of the dissolution, liquidation or winding up of the Company, then the
Holders of Warrants shall be entitled to receive distributions on the date
of such event on an equal basis with holders of Common Shares (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 rights of a Holder shall
terminate and cease and such Holder's Warrants shall expire. If the
Company has made a Repurchase Offer that has not expired at the time of
such transaction, the holders of the Warrants will be entitled to receive
the higher of (i) the amount payable to the holders of the Warrants
described above and (ii) the Repurchase Price payable to the holders of
the Warrants pursuant to such Repurchase Offer. 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, if any, necessary to pay the Holders of the Warrants. After receipt
of such deposit from such Person or the Company and after receipt of
surrendered Warrant Certificates, 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, such other consideration as is appropriate)
to such Person or Persons as it may be directed in writing by the Holder
surrendering such Warrants.
(k) If required pursuant to Section 4.1(f)(i), the Current Market
Value shall be deemed to be equal to the value set forth in the Value Report (as
defined below) as determined by an Independent Financial Expert, which shall be
selected by the Board in its sole discretion, and retained on customary terms
and conditions, using one or more valuation methods that the Independent
Financial Expert, in its professional judgment, determines to be most
appropriate. The Company shall cause the Independent Financial Expert to deliver
to the Company, with a copy to the Warrant Agent, within 45 days of the
appointment of the Independent Financial Expert, a value report (the "Value
Report") stating the value of the Common Shares and other securities or property
of the Company, if any, being valued as of the Valuation Date and containing a
brief statement as to the nature and scope of the examination or investigation
upon which the determination of value was made. The Warrant Agent shall have no
duty with respect to the Value Report of any Independent Financial Expert,
except to keep it on file and available for inspection by the Holders. The
determination as to Current Market Value in accordance with the provisions of
this Section 4.1(k) shall be conclusive on all Persons. The Independent
Financial Expert shall consult with management of the Company in order to allow
management to comment on the proposed value prior to delivery to the Company of
any Value Report.
(l) When No Adjustment Required. Without limiting any other
exception contained in this Section 4.1, and in addition thereto, no adjustment
need be made for:
<PAGE> 28
24
(i) grants or exercises of Rights granted to employees of the
Company or any of its subsidiaries or Common Shares issued or
granted to such employees, whether or not upon the exercise,
exchange or conversion of any such Rights (to the extent that
all such securities do not represent an aggregate equity value
in excess of 15% of the equity value of the Company on a fully
diluted basis, as determined in good faith by the Board);
(ii) grants or exercises of options, warrants or other agreements
or rights to purchase capital stock of the Company existing on
the Closing Date;
(iii) rights to purchase Common Shares pursuant to a Company plan
for reinvestment of dividends or interest;
(iv) a change in the par value of the Common Shares (including a
change from par value to no par value or vice versa);
(v) bona fide public offerings or private placements pursuant to
Section 4(2) of the Securities Act, Regulation D thereunder or
Regulation S, involving at least one investment bank of
national reputation, if (i) in the case of any security
trading on any national securities exchange or in the over the
counter market, or of a security directly or indirectly
convertible or exchangeable for any such security (the latter
security being a "Reference Security"), such security (or the
Reference Security as applicable) is sold to investors at a
price at least equal to the closing sale, bid or ask price
(whichever is customary) of such security (or the Reference
Security as applicable) on the date of the public offering or
private placement, or (ii) the security or Reference Security
is issued as part of a public offering or a private placement
of debt securities;
(vi) grants or exercises of warrants to Advent International
Corporation to purchase up to an aggregate of 1,000,000 Common
Shares pursuant to a letter agreement between the Company and
Advent International Corporation dated March 20, 1998 and the
issuance of any Common Shares (x) resulting from the exercise
of any preemptive rights granted as a result of the grant or
exercise of warrants to Advent International Corporation
described herein and (y) upon the exercise of such warrants
provided that any such Common Shares are purchased at a price
per share of not less than $4.00; and
<PAGE> 29
25
(vii) the issuance of Common Shares in connection with acquisitions
of businesses or assets from persons that are not Affiliates
of the Company.
To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
Section 4.2. Notice of Adjustment. Whenever the number of Common
Shares purchasable upon the exercise of each Warrant or the Exercise Price is
adjusted, as herein provided, the Company shall cause, so far as it is able, the
Warrant Agent promptly to mail, at the expense of the Company, to each Holder
notice of such adjustment or adjustments and shall deliver to the Warrant Agent
a certificate of the Auditors setting forth the number of Common Shares
purchasable upon the exercise of each Warrant and the Exercise Price after such
adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Such certificate shall be conclusive evidence of the correctness of such
adjustment except in the case of manifest error. The Warrant Agent shall be
entitled to rely on such certificate and shall be under no duty or
responsibility with respect to any such certificate, except to exhibit the same,
from time to time, to any Holder desiring an inspection thereof during
reasonable business hours upon reasonable notice. The Warrant Agent shall not at
any time be under any duty or responsibility to any Holders to determine whether
any facts exist which may require any adjustment of the Exercise Price or the
number of Common Shares purchasable on exercise of the Warrants or any of the
other adjustments set forth in Section 4.1, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed
in making such adjustment, or the validity or value (or the kind or amount) of
any Common Shares which may be purchasable on exercise of the Warrants. The
Warrant Agent shall not be responsible for any failure of the Company to make
any cash payment or to issue, transfer or deliver any Common Shares or share
certificates upon the exercise of any Warrant.
Section 4.3. Statement on Warrants. Irrespective of any adjustment
in the Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants, Warrants theretofore or thereafter issued may continue
to express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Agreement.
Section 4.4. Notice of Consolidation, Merger, Etc. In case at any
time after the date hereof and prior to 5:00 p.m., New York City time, on the
Expiration Date, there shall be any (i) consolidation or merger involving the
Company or sale, transfer or other disposition of all or substantially all of
the Company's property, assets or business (except (1) a merger or other
reorganization in which the Company shall be the surviving corporation and
holders of Common Shares receive no consideration in respect of their shares and
(2) a merger of the Company into a wholly owned Subsidiary of the Company, the
principal purpose of which, in the good faith determination of the Board, is to
change the state of incorporation of the Company) or (ii) any
<PAGE> 30
26
other transaction contemplated by Section 4.1(j)(ii) above then, in any one or
more of such cases, the Company shall cause to be mailed to the Warrant Agent
and shall cause the Warrant Agent to mail, at Company's expense, to each Holder
of a Warrant, at the earliest practicable time (and, in any event, not less than
20 days before any date set for definitive action), notice of the date on which
such reorganization, sale, consolidation, merger, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also set
forth such facts as shall indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Exercise Price and the
kind and amount of the Common Shares and other securities, money and other
property deliverable upon exercise of the Warrants. Such notice shall also
specify the date as of which the holders of record of the Common Shares or other
securities or property issuable upon exercise of the Warrants shall be entitled
to exchange their shares for securities, money or other property deliverable
upon such reorganization, sale, consolidation, merger, dissolution, liquidation
or winding up, as the case may be.
Section 4.5. Fractional Interests. If more than one Warrant shall be
presented for exercise in full at the same time by the same Holder, the number
of full Common Shares which shall be issuable upon such exercise thereof shall
be computed on the basis of the aggregate number of Common Shares purchasable on
exercise of the Warrants so presented. The Company shall not be required to
issue fractional Common Shares upon the exercise of Warrants. If any fraction of
a Common Share would, except for the provisions of this Section 4.5, be issuable
on the exercise of any Warrant (or specified portion thereof), the Company may
pay an amount in cash calculated by it to be equal to the then Current Market
Value per Common Share multiplied by such fraction computed to the nearest whole
cent.
Section 4.6. When Issuance or Payment May Be Deferred. In any case
in which this Article IV shall require that an adjustment in the Exercise Price
be made effective as of a record date for a specified event, the Company may
elect to defer until the occurrence of such event (i) issuing to the holder of
any Warrant exercised after such record date the Common Shares and other shares
in the capital of the Company, if any, issuable upon such exercise over and
above the Common Shares and other shares in the capital of the Company, if any,
issuable upon such exercise and (ii) paying such holder any amount in cash in
lieu of a fractional share; provided, however, that the Company shall deliver to
such Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional Common Shares, other shares and cash upon the
occurrence of the event requiring such adjustment.
Section 4.7. Initial Public Offering. Notwithstanding anything to
the contrary herein contained, if the Company conducts an initial public
offering of equity securities (other than nonconvertible preferred shares or an
offering registered solely on S-4 or S-8 or any successor forms thereto), the
Company will give the Holders the opportunity to convert such Warrants into
warrants to purchase such equity securities (other than nonconvertible preferred
shares) and such Common Shares or such other securities that have been received
by the Holders
<PAGE> 31
27
upon the exercise of Warrants into such equity securities (other than
nonconvertible preferred shares). Such conversion opportunity will be on terms
and conditions determined to be fair and reasonable by the Board.
ARTICLE V
DECREASE IN EXERCISE PRICE
The Board, in its sole discretion, shall have the right at any time,
or from time to time, to decrease the Exercise Price of the Warrants and/or
increase the number of shares issuable upon the exercise of the Warrants.
ARTICLE VI
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership and the loss, theft, destruction or
mutilation of any Warrant Certificate and of indemnity or bond satisfactory to
them and (in the case of mutilation) upon surrender and cancellation thereof,
then, in the absence of notice to the Company or the Warrant Agent that the
Warrants represented thereby have been acquired by a bona fide purchaser, the
Company shall execute and the Warrant Agent shall countersign and make available
for delivery to the registered Holder of the lost, stolen, destroyed or
mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant
Certificate of the same tenor and for a like aggregate number of Warrants. Upon
the issuance of any new Warrant Certificate under this Article VI, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and other expenses
(including the fees and expenses of the Warrant Agent) in connection therewith.
Every new Warrant Certificate executed and delivered pursuant to this Article VI
in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a
contractual obligation of the Company whether or not the allegedly lost, stolen
or destroyed Warrant Certificates shall be at any time enforceable by anyone and
shall be entitled to the benefits of this Agreement equally and proportionately
with any and all other Warrant Certificates duly executed and delivered
hereunder. The provisions of this Article VI are exclusive and shall preclude
(to the extent lawful) all other rights or remedies with respect to the
replacement of mutilated, lost, stolen, or destroyed Warrant Certificates.
<PAGE> 32
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ARTICLE VII
RESERVATION AND AUTHORIZATION
OF COMMON SHARES
The Company shall at all times reserve and keep available such
number of its authorized but unissued Common Shares deliverable upon exercise of
the Warrants as will be sufficient to permit the exercise in full of all
outstanding Warrants and will cause appropriate evidence of ownership of such
Common Shares to be delivered to the Warrant Agent upon its request for delivery
thereof upon the exercise of the Warrants. The Company covenants that all Common
Shares of the Company that may be issued upon the exercise of the Warrants will,
upon issuance, be duly authorized, validly issued, fully paid and non-assessable
and free from pre-emptive rights and all taxes, liens, charges and security
interests with respect to the issue thereof.
ARTICLE VIII
WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER
Section 8.1. Transfer and Exchange. The Warrant Certificates shall
be issued in registered form only. The Warrant Agent shall keep at its office a
register for the registration of Warrant Certificates and transfers or exchanges
of Warrant Certificates as herein provided and other appropriate data as
determined by the Warrant Agent. The Company shall, upon reasonable notice to
the Warrant Agent, have access to such register during the Warrant Agent's
regular business hours. All Warrant Certificates issued upon any registration of
transfer or exchange of Warrant Certificates shall be the valid obligations of
the Company, evidencing the same obligations, and entitled to the same benefits
under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
The Warrants shall initially be issued as part of the issuance of
the Units. Prior to the Separation Date, the Warrants may not be transferred or
exchanged separately from, but may be transferred or exchanged only together
with, the Notes issued as part of such Units.
A Holder may transfer its Warrants only by written application to
the Warrant Agent stating the name of the proposed transferee and otherwise
complying with the terms of this Agreement. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Warrant Agent in the
register. Prior to the registration of any transfer of Warrants by a Holder as
provided herein, the Company, the Warrant Agent, and any agent of the Company
may treat the
<PAGE> 33
29
person in whose name the Warrants are registered as the owner thereof for all
purposes and as the person entitled to exercise the rights represented thereby,
any notice to the contrary notwithstanding. Furthermore, any holder of a Global
Warrant shall, by acceptance of such Global Warrant, agree that transfers of
beneficial interests in such Global Warrant may be effected only through a
book-entry system maintained by the holder of such Global Warrant (or its
agent), and that ownership of a beneficial interest in the Warrants represented
thereby shall be required to be reflected in a book-entry. When Warrant
Certificates are presented to the Warrant Agent with a request to register the
transfer or to exchange them for an equal amount of Warrants, the Warrant Agent
shall register such transfer or make such exchange as requested if its
requirements for such transactions are met. To permit registrations of transfers
and exchanges, the Company shall execute Warrant Certificates at the Warrant
Agent's request. No service charge shall be made for any registration of
transfer or exchange of Warrants, 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 Warrants.
Section 8.2. Book-Entry Provisions for the Global Warrants. (a) The
Global Warrants initially shall (i) be registered in the name of the Depositary
for such Global Warrant or the nominee of such Depositary, (ii) be delivered to
the Warrant Agent as custodian for such Depositary and (iii) bear legends as set
forth in Section 2.2 hereof.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Agreement with respect to the Global Warrants
held on their behalf by the Depositary or the Warrant Agent as its custodian,
and the Depositary may be treated by the Company, the Warrant Agent and any
agent of the Company or the Warrant Agent as the absolute owner of each such
Global Warrant for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Warrant Agent or any agent of the
Company or the Warrant Agent, from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or impair, as between
the Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Warrants.
(b) Transfers of a Global Warrant shall be limited to transfers of
such Global Warrant in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in the Global
Warrants may be transferred in accordance with the rules and procedures of the
Depositary and the provisions of Section 8.3 hereof. U.S. Certificated Warrants
and Offshore Certificated Warrants shall be transferred to beneficial owners in
exchange for their beneficial interests in the Restricted Global Warrant or the
Regulation S Global Warrant, as the case may be, (i) if the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for any
such Global Warrant and a successor depositary is not appointed by the Company
within 90 days of such notice, (ii) if there is a Default or (iii) upon the
request of the beneficial owner in accordance with the rules and
<PAGE> 34
30
procedures of the Depositary and the provisions of Section 8.3 hereof; provided
that Offshore Certificated Warrants shall not be transferred in exchange for the
Legended Regulation S Global Warrant prior to one year after the Closing Date.
(c) Any beneficial interest in one of the Global Warrants that is
transferred to a person who takes delivery in the form of an interest in any
other Global Warrant will, upon transfer, cease to be an interest in the first
Global Warrant and become an interest in the other Global Warrant and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Warrant for as long as it remains such an interest.
(d) In connection with the transfer of the entire Restricted Global
Warrant or Regulation S Global Warrant to beneficial owners pursuant to
paragraph (b) of this Section 8.2, the Restricted Global Warrant or the
Regulation S Global Warrant, as the case may be, shall 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 the Restricted Global
Warrant or the Regulation S Global Warrant, as the case may be, U.S.
Certificated Warrants or Offshore Certificated Warrants, as the case may be,
representing, in the aggregate, the number of Warrants theretofore represented
by the Restricted Global Warrant or the Regulation S Global Warrant, as the case
may be.
(e) In connection with the transfer of a portion of the beneficial
interests in the Restricted Global Warrant or the Unlegended Regulation S Global
Warrant to beneficial owners pursuant to paragraph (b) of this Section 8.2, the
Warrant Agent shall reflect on its books and records the date and a decrease in
the amount of Warrants represented by the Restricted Global Warrant or
Unlegended Regulation S Global Warrant in an amount equal to the amount of
Warrants represented by the beneficial interest in the Restricted Global Warrant
or Unlegended Regulation S Global Warrant to be transferred, 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 the Restricted Global Warrant or the Unlegended Regulation S Global
Warrant, as the case may be, U.S. Certificated Warrants or Offshore Certificated
Warrants, as the case may be, of like tenor and amount.
(f) Any Certificated Warrant delivered in exchange for an interest
in a Global Warrant pursuant to paragraph (b) or (e) of this Section shall,
except as otherwise provided by paragraph (d) of Section 8.3 hereof, bear the
legend regarding transfer restrictions set forth in Section 2.2 hereof.
(g) The registered holder of a Global Warrant may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests
<PAGE> 35
31
through Agent Members, to take any action which a Holder is entitled to take
under this Agreement or the Warrants.
Section 8.3. Special Transfer Provisions. The following provisions
shall apply:
(a) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of Warrants to a QIB
(excluding non-U.S. Persons):
(i) If the Warrants to be transferred are represented by
Certificated Warrants, the Warrant Agent shall register the transfer if
such transfer is being made by a proposed transferor who has checked the
box provided for on the form of Warrant Certificate 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 Certificate stating, or has otherwise advised the Company and the
Warrant Agent in writing, that it is purchasing the Warrants 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.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Warrant Agent of the documents referred to in clause (i) above and
instructions given in accordance with the Depositary's and the Warrant
Agent's procedures, the Warrant Agent shall reflect on its books and
records the date and an increase in the amount of Warrants represented by
the Restricted Global Warrant in an amount equal to the amount of Warrants
represented by the Certificated Warrants to be transferred, and the
Warrant Agent shall cancel the Certificated Warrants.
(b) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to the registration of any proposed transfer
of Warrants to a Non-U.S. Person:
(i) Prior to April 13, 1999, the Warrant Agent shall register any
proposed transfer of Warrants to a Non-U.S. Person only upon receipt of a
certificate substantially in the form of Exhibit B from the proposed
transferor.
(ii) On and after April 13, 1999, the Warrant Agent shall register
any proposed transfer to any Non-U.S. Person if the Warrants to be
transferred are U.S.
<PAGE> 36
32
Certificated Warrants or an interest in the Restricted Global Warrants,
upon receipt of a certificate substantially in the form of Exhibit B from
the proposed transferor.
(iii) If the proposed transferee is an Agent Member and the Warrants
to be transferred are represented by Certificated Warrants or an interest
in the Restricted Global Warrant, upon receipt by the Warrant Agent of the
documents referred to in clause (i) or (ii) above and instructions given
in accordance with the Depositary's and the Warrant Agent's procedures,
the Warrant Agent shall reflect on its books and records the date and an
increase in the number of Warrants represented by the Regulation S Global
Warrant in an amount equal to the number of Warrants represented by the
Certificated Warrants or the Restricted Global Warrant, as the case may
be, to be transferred, and the Warrant Agent shall cancel the Certificated
Warrant or decrease the amount of Warrants represented by the Restricted
Global Warrant so transferred.
(c) Transfers to Any Other Person. The following provisions shall
apply with respect to the registration of any proposed transfer of Warrants to
any Person not specified in paragraphs (a) and (b) above (including any
Institutional Accredited Investor which is not a QIB).
(i) The Warrant Agent shall register any proposed transfer of
Warrants to any such Person if (x) the transferor has delivered to the
Warrant Agent and the Company a certificate substantially in the form of
Exhibit C-1 hereto and, if required by paragraph (d) thereof, an Opinion
of Counsel to the effect set forth therein and (y) the proposed transferee
has delivered to the Warrant Agent and the Company a certificate
substantially in the form of Exhibit C-2 hereto if such transferee is an
Institutional Accredited Investor that is not a QIB.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Restricted Global Warrant or the Regulation S
Global Warrant, upon receipt by the Warrant Agent and the Company of the
documents referred to in clause (i) above and instructions given in
accordance with the Depositary's and the Warrant Agent's procedures, the
Company shall execute and the Warrant Agent shall countersign Certificated
Warrants in an amount equal to the number of Warrants represented by the
Restricted Global Warrant or the Regulation S Global Warrant, if any, as
the case may be, to be transferred and the Warrant Agent shall decrease
the number of Warrants represented by the Restricted Global Warrant or the
Regulation S Global Warrant so transferred.
(d) Private Placement Legend. Upon the transfer, exchange or
replacement of Warrant Certificates not bearing the Private Placement Legend,
the Warrant Agent shall make available for delivery Warrant Certificates that do
not bear the Private Placement Legend. Upon
<PAGE> 37
33
the transfer, exchange or replacement of Warrant Certificates bearing the
Private Placement Legend, the Warrant Agent shall make available for delivery
only Warrant Certificates that bear the Private Placement Legend unless either
(i) the circumstances contemplated by the third sentence of the third paragraph
of Section 2.1 exist or (ii) there is delivered to the Warrant Agent an opinion
of counsel reasonably satisfactory to the Company and its counsel 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.
(e) Transfers of Interests in the Legended Regulation S Global
Warrant. The following provisions shall apply with respect to registration of
any proposed transfer of interests in the Legended Regulation S Global Warrant:
(i) The Registrar shall register the transfer of any Warrant (x) if
the proposed transferee is a Non-U.S. Person and the proposed transferor
has delivered to the Registrar a certificate substantially in the form of
Exhibit B hereto or (y) if the proposed transferee is a QIB and the
proposed transferor has checked the box provided 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.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Warrant Agent of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the Warrant
Agent's procedures, the Warrant Agent shall reflect on its books and
records the date and an increase in the number of Warrants represented by
the Restricted Global Warrant, in an amount equal to the number of
Warrants represented by the Legended Regulation S Global Warrant to be
transferred, and the Warrant Agent shall decrease the number of Warrants
represented by the Legended Regulation S Global Warrant.
(f) Transfers of Interests in the Unlegended Regulation S Global
Warrant or Offshore Certificated Warrants. The following provisions shall apply
with respect to any transfer of interests in the Unlegended Regulation S Global
Warrant or Offshore Certificated
<PAGE> 38
34
Warrants: The Warrant Agent shall register the transfer of any such Warrant
without requiring any additional certification.
(g) General. (i) By its acceptance of any Warrants represented by a
Warrant Certificate bearing the Private Placement Legend, each Holder of
such Warrants acknowledges the restrictions on transfer of such Warrants
set forth in this Agreement and in the Private Placement Legend and agrees
that it will transfer such Warrants only as provided in this Agreement.
The Warrant Agent shall not register a transfer of any Warrants unless
such transfer complies with the restrictions on transfer of such Warrants
set forth in this Agreement and is in compliance with applicable laws and
applicable rules, regulations and procedures of any securities exchange or
clearing agency in effect from time to time. In connection with any
transfer of Warrants, each Holder agrees by its acceptance of Warrants 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 or any other applicable laws of any foreign jurisdiction;
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.
(ii) The Warrant Agent shall retain copies of all letters, notices
and other written communications received pursuant to Section 8.2 hereof
or this Section 8.3. The Company shall have the right to inspect and make
copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the
Warrant Agent.
Section 8.4. Surrender of Warrant Certificates. Any Warrant
Certificate surrendered for registration of transfer, exchange or exercise of
the Warrants represented thereby shall, if surrendered to the Company, be
delivered to the Warrant Agent, and all Warrant Certificates surrendered or so
delivered to the Warrant Agent shall be promptly canceled by the Warrant Agent
and shall not be reissued by the Company and, except as provided in this Article
VIII in case of an exchange, Article III hereof in case of the exercise of less
than all the Warrants represented thereby or Article VI in case of a mutilated
Warrant Certificate, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Warrant Agent shall deliver to the Company from time to time such
canceled Warrant Certificates.
<PAGE> 39
35
ARTICLE IX
WARRANT HOLDERS
Section 9.1. Warrant Holder Deemed Not a Stockholder. 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 the purpose of any
exercise thereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Accordingly, the
Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any person other
than such registered Holder, whether or not it shall have express or other
notice thereof. Prior to the valid exercise of the Warrants, no Holder of a
Warrant Certificate, as such, shall be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote or to consent
to any action of the stockholders, to receive dividends or other distributions,
to exercise any preemptive right or to receive any notice of meetings of
stockholders and, except as otherwise provided in this Agreement, shall not be
entitled to receive any notice of any proceedings of the Company.
Section 9.2. Right of Action. All rights of action with respect to
this Agreement are vested in the Holders of the Warrants, and any Holder of any
Warrant, without the consent of the Warrant Agent or the Holders of any other
Warrant, may, on such Holder's own behalf and for such Holder's own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, or otherwise in respect of, such Holder's right
to exercise such Warrants in the manner provided in the Warrant Certificate
representing such Warrants and in this Agreement.
ARTICLE X
REMEDIES
Section 10.1. Defaults. It shall be deemed to be a "Default" with
respect to the Company's (or its successor's) obligations under this Agreement
if:
(a) a Repurchase Event occurs and the Company (or its successor)
shall fail to make a Repurchase Offer pursuant to Section 3.4 hereof; or
(b) the Company (or its successor) shall fail to purchase the
Warrants pursuant to the Repurchase Offer in accordance with the
provisions of Section 3.4 hereof.
<PAGE> 40
36
Section 10.2. Payment Obligations. Upon the happening of a Default
under this Agreement, the Company shall be obligated to increase the amount
otherwise payable pursuant to Section 3.4(d) hereof in respect of the Repurchase
Offer to which such Default relates by an amount equal to interest thereon at a
rate per annum equal to 12 1/4% from the date of the Default to the date of
payment, which interest shall compound quarterly (all such payment obligations
in respect of such Repurchase Offer, together with all such increased amounts,
being the "Repurchase Obligation").
Section 10.3. Remedies; No Waiver. Notwithstanding any other
provision of this Warrant Agreement, if a Default occurs and is continuing, the
Holders of the Warrants may pursue any available remedy to collect the
Repurchase Obligation or to enforce the performance of any provision of this
Warrant Agreement. A delay or omission by any Holder of a Warrant in exercising,
or a failure to exercise, any right or remedy arising out of a Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Default. All remedies are cumulative to the extent permitted by law.
ARTICLE XI
THE WARRANT AGENT
Section 11.1. Duties and Liabilities. The Warrant Agent hereby
accepts the agency established by this Agreement and agrees to perform the same
upon the terms and conditions herein set forth, by all of which the Company and
the Holders of Warrants, by their acceptance thereof, shall be bound. The
Warrant Agent shall not, by countersigning Warrant Certificates or by any other
act hereunder, be deemed to make any representations as to the validity or
authorization of the Warrants or the Warrant Certificates (except as to its
countersignature thereon) or of any Common Shares issued upon exercise of any
Warrant, or as to the accuracy of the computation of the Exercise Price or the
number or kind or amount of Common Shares deliverable upon exercise of any
Warrant or the correctness of the representations of the Company made in the
certificates that the Warrant Agent receives. The Warrant Agent shall not be
accountable for the use or application by the Company of the proceeds of the
exercise of any Warrant. The Warrant Agent shall not have any duty to calculate
or determine any adjustments with respect to either the Exercise Price or the
kind and amount of Common Shares receivable by Holders upon the exercise of
Warrants required from time to time and the Warrant Agent shall have no duty or
responsibility in determining the accuracy or correctness of such calculation.
The Warrant Agent shall not be (a) liable for any recital or statement of fact
contained herein or in the Warrant Certificates or for any action taken,
suffered or omitted by it in good faith without gross negligence in the belief
that any Warrant Certificate or any other documents or any signatures are
genuine or properly authorized, (b) responsible for
<PAGE> 41
37
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in the Warrant Certificates or (c)
liable for any act or omission in connection with this Agreement except for its
own gross negligence, bad faith or willful misconduct. The Warrant Agent is
hereby authorized to accept instructions with respect to the performance of its
duties hereunder from the Chairman of the Board, Chief Executive Officer, any
Vice President or other executive officer of the Company and to apply to any
such officer for instructions (which instructions will be promptly given in
writing when requested) and the Warrant Agent shall not be liable for any action
taken or suffered to be taken by it in good faith without gross negligence in
accordance with the instructions of any such officer; provided, however, that,
in its discretion, the Warrant Agent may, in lieu thereof, accept other evidence
of such or may require such further or additional evidence as it may deem
reasonable. The Warrant Agent shall not be liable for any action taken with
respect to any matter in the event it requests instructions from the Company as
to that matter and does not receive such instructions within a reasonable period
of time after the request therefor.
The Warrant Agent may execute and exercise any of the rights and
powers hereby vested in it or perform any duty hereunder either itself or by or
through attorneys, agents or employees of its selection, and the Warrant Agent
shall not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys, agents or employees; provided that reasonable
care has been exercised with respect to the selection of any such attorney,
agent or employee. The Warrant Agent shall not be under any obligation or duty
to institute, appear in or defend any action, suit or legal proceeding in
respect hereof, unless first indemnified to its reasonable satisfaction. The
Warrant Agent shall promptly notify the Company in writing of any claim made or
action, suit or proceeding instituted against it arising out of or in connection
with this Agreement.
The Company will perform, execute, acknowledge and deliver or cause
to be delivered all such further acts, instruments and assurances as are
consistent with this Agreement and as may reasonably be required by the Warrant
Agent in order to enable it to carry out or perform its duties under this
Agreement.
The Warrant Agent shall act solely as agent of the Company
hereunder. The Warrant Agent shall not be liable except for the failure to
perform such duties as are specifically set forth herein, and no implied
covenants or obligations shall be read into this Agreement against the Warrant
Agent, whose duties and obligations shall be determined solely by the express
provisions hereof.
Section 11.2. Right to Consult Counsel. The Warrant Agent may at any
time consult with legal counsel of its selection (who may be legal counsel for
the Company), and the opinion or advice of such counsel shall be full and
complete authorization and protection to the Warrant Agent and the Warrant Agent
shall incur no liability or responsibility to the Company or
<PAGE> 42
38
to any Holder for any action taken, suffered or omitted by it in good faith
without gross negligence in accordance with the written opinion or advice of
such counsel.
Section 11.3. Compensation; Indemnification. The Company agrees
promptly to pay the Warrant Agent from time to time and in any case within 30
days of receipt of an invoice, compensation for its services hereunder as the
Company and the Warrant Agent may agree from time to time, and to reimburse it
upon its request upon furnishing reasonable supporting documentation for fees or
expenses and reasonable counsel fees and expenses incurred in connection with
the execution and administration of this Agreement, and further agrees to
indemnify each of the Warrant Agent and any predecessor Warrant Agent and save
it harmless against any and all losses, claims, damages, liabilities or
reasonable expenses arising out of or in connection with the acceptance and
administration of this Agreement, including, without limitation, the reasonable
costs and expenses of investigating or defending any claim of such liability,
except that the Company shall have no liability hereunder to the extent that any
such loss, liability or expense results from the Warrant Agent's own gross
negligence, bad faith or willful misconduct. The obligations of the Company
under this Section 11.3 shall survive the exercise and the expiration of the
Warrants, the termination of this Agreement and the resignation or removal of
the Warrant Agent in respect of services or expenses incurred in connection with
the Warrants or this Agreement.
Section 11.4. No Restrictions on Actions. Nothing in this Agreement
shall be deemed to prevent the Warrant Agent and any stockholder, director,
officer or employee of the Warrant Agent from buying, selling or dealing in any
of the Warrants or other securities of the Company or becoming pecuniarily
interested in transactions in which the Company may be interested, or
contracting with or lending money to the Company or otherwise acting as fully
and freely as though it were not the 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.
Section 11.5. Discharge or Removal; Replacement Warrant Agent. The
Warrant Agent may resign from its position as such and be discharged from all
further duties and liabilities hereunder (except liability arising as a result
of the Warrant Agent's own gross negligence, bad faith or willful misconduct),
after giving one month's prior written notice to the Company. The Company may at
any time remove the Warrant Agent upon one month's written notice specifying the
date when such discharge shall take effect, and the Warrant Agent shall
thereupon in like manner be discharged from all further duties and liabilities
hereunder, except as aforesaid. The Warrant Agent shall mail to each Holder of a
Warrant, at the Company's expense, a copy of said notice of resignation or
notice of removal, as the case may be. Upon such resignation or removal the
Company shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of 30 days after it has been notified
in writing of such resignation by the resigning Warrant Agent or after such
removal,
<PAGE> 43
39
then the resigning or removed Warrant Agent or the Holder of any Warrant may, at
the expense of the Company, apply to any court of competent jurisdiction for the
appointment of a new warrant agent. After 30 days from receipt of, or giving,
notice, as the case may be, and pending appointment of a successor to the
original Warrant Agent, either by the Company or by such a court, the duties of
the Warrant Agent shall be carried out by the Company. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company doing business under the laws of the United States or any state thereof,
in good standing and having a combined capital and surplus of not less than
$25,000,000. The combined capital and surplus of any such new warrant agent
shall be deemed to be the combined capital and surplus as set forth in the most
recent annual report of its condition published by such warrant agent prior to
its appointment, provided that such reports are published at least annually
pursuant to law or to the requirements of a federal or state supervising or
examining authority. After acceptance in writing of such appointment by the new
warrant agent, it shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; however, the original
Warrant Agent shall in all events deliver and transfer to the successor Warrant
Agent all property (including, without limitation, documents and recorded
information), if any, at the time held hereunder by the original Warrant Agent
and if for any reason it shall be necessary or expedient to execute and deliver
any further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning or removed Warrant Agent. Not later than the effective date of
any such appointment, the Company shall file notice thereof with the resigning
or removed Warrant Agent and shall forthwith cause a copy of such notice to be
mailed by the successor Warrant Agent to each Holder of a Warrant. Failure to
give any notice provided for in this Section 11.5, however, or any defect
therein, shall not affect the legality or validity of the resignation of the
Warrant Agent or the appointment of a new warrant agent, as the case may be. No
Warrant Agent hereunder shall be liable for any acts or omissions of any
successor Warrant Agent.
Section 11.6. Successor Warrant Agent. Any corporation into which
the Warrant Agent or any new warrant agent may be merged or converted, or any
corporation resulting from any consolidation to which the Warrant Agent or any
new warrant agent shall be a party or any corporation succeeding to all or
substantially all the corporate agency or trust business of the Warrant Agent,
shall be a successor Warrant Agent under this Agreement without any further act,
provided that such corporation would be eligible for appointment as successor to
the Warrant Agent under the provisions of Section 11.5 hereof. Any such
successor Warrant Agent shall promptly cause notice of its succession as Warrant
Agent to be mailed to each Holder of a Warrant.
<PAGE> 44
40
ARTICLE XII
MISCELLANEOUS
Section 12.1. Monies Deposited with the Warrant Agent. The Warrant
Agent shall not be required to pay interest on any monies deposited pursuant to
the provisions of this Agreement except such as it shall agree in writing with
the Company to pay thereon. Any monies, securities or other property which at
any time shall be deposited by the Company or on its behalf with the Warrant
Agent pursuant to this Agreement shall be and are hereby assigned, transferred
and set over to the Warrant Agent in trust for the purpose for which such
monies, securities or other property shall have been deposited; but such monies,
securities or other property need not be segregated from other funds, securities
or other property except to the extent required by law. Any monies, securities
or other property deposited with the Warrant Agent for payment or distribution
to the Holders that remains unclaimed for one year after the date the monies,
securities or other property was deposited with the Warrant Agent shall be
delivered to the Company upon its written request therefor.
Section 12.2. Payment of Taxes. Subject to Article VI hereof, all
Common Shares issuable upon the exercise of Warrants shall be validly issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
Section 12.3. No Merger, Consolidation or Sale of Assets of the
Company. Except as otherwise provided herein, the Company will not merge into or
consolidate with any other Person, or sell or otherwise transfer its property,
assets and business substantially as an entirety to a successor of the Company,
unless the Person resulting from such merger or consolidation, or such successor
of the Company, shall expressly assume, by supplemental agreement satisfactory
in form to the Warrant Agent and executed and delivered to the Warrant Agent,
the due and punctual performance and observance of each and every covenant and
condition of this Agreement or contained in the Warrants to be performed and
observed by the Company.
<PAGE> 45
41
Section 12.4. Reports to Holders. At all times from and after
October 13, 1998, whether or not the Company is then required to file reports
with the Commission, the Company shall file with the Commission all such reports
and other information it would be required to file with the Commission by
Section 13(a) or 15(d) under the Exchange Act if it were subject thereto. The
Company shall supply the Warrant Agent and each Holder or shall supply to the
Warrant Agent for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information. The Warrant Agent's receipt of
such reports and other information shall not constitute constructive notice of
any information contained therein or determinable from information (including
mathematical calculations) contained therein, including the Company's compliance
with any of its covenants hereunder (as to which the Warrant Agent is entitled
to rely exclusively on Officers' Certificates). In addition, at all times prior
to October 13, 1998, upon the request of any Holder or any prospective purchaser
of the Warrants designated by a Holder, the Company shall supply to such Holder
or such prospective purchaser the information required under Rule 144A.
Section 12.5. Notices; Payment. (a) Except as otherwise provided in
Section 12.5(b) hereof, any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made when mailed, if sent by first
class mail, postage prepaid, addressed to any Holder of a Warrant at such
Holder's last known address appearing on the register of the Company maintained
by the Warrant Agent and to the Company or the Warrant Agent as follows:
To the Company:
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
To the Warrant Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery. Any notice that is mailed in the manner herein
provided shall be conclusively presumed to have been duly given when mailed,
whether or not the Holder receives the notice.
<PAGE> 46
42
(b) Payment of the Exercise Price shall be made in accordance with
the provisions of this Agreement at the office of the Warrant Agent set forth
above, unless otherwise directed by the Warrant Agent and the Company.
(c) Any notice required to be given by the Company to the Holders
shall be made by mailing, to the Holders at their last known addresses appearing
on the register maintained by the Warrant Agent. The Company hereby irrevocably
authorizes the Warrant Agent, in the name and at the expense of the Company, to
mail any such notice upon receipt thereof from the Company. Any notice that is
mailed in the manner herein provided shall be conclusively presumed to have been
duly given when mailed, whether or not the Holder receives the notice.
Section 12.6. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Company and the Warrant Agent and their
respective successors and assigns, and the Holders from time to time of the
Warrants. Nothing in this Agreement is intended or shall be construed to confer
upon any Person, other than the Company, the Warrant Agent and the Holders of
the Warrants, any right, remedy or claim under or by reason of this Agreement or
any part hereof.
Section 12.7. Counterparts. This Agreement may be executed manually
or by facsimile in any number of counterparts, each of which shall be deemed an
original, but all of which together constitute one and the same instrument.
Section 12.8. Amendments. The Warrant Agent may, without the consent
or concurrence of the Holders of the Warrants, by supplemental agreement or
otherwise, join with the Company in making any changes or corrections in this
Agreement that (a) are required to cure any ambiguity or to correct any
defective or inconsistent provision or clerical omission or mistake or manifest
error herein contained or (b) add to the covenants and agreements of the Company
in this Agreement further covenants and agreements of the Company thereafter to
be observed, or surrender any rights or power reserved to or conferred upon the
Company in this Agreement; provided that in either case such changes or
corrections do not and will not adversely affect, alter or change the rights,
privileges or immunities of the Holders of Warrants. Upon the Warrant Agent's
request, the Company shall promptly provide an Officer's Certificate and Opinion
of Counsel which provide all conditions precedent to adoption of an amendment
that have been satisfied. In addition to the foregoing, the Warrant Agent may,
by supplemental agreement or otherwise, join with the Company in effecting any
other amendment to this Agreement with the consent or concurrence of each of the
Holders of warrants affected thereby.
Section 12.9. Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
<PAGE> 47
43
Section 12.10. Common Shares Legend. Unless and until the Common
Shares issuable upon the exercise of the Warrants are registered under the
Securities Act, or unless otherwise agreed by the Company and the Holder
thereof, such Common Shares will bear a legend substantially to the following
effect:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT
AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE
SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2)
AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE
144(k), UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER
OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE RESELL OR
OTHERWISE TRANSFER THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE EXCEPT (A) TO LONG DISTANCE INTERNATIONAL INC. (THE "COMPANY")
OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT AND REGISTRAR A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THE SHARES OF COMMON STOCK REPRESENTED
BY THIS CERTIFICATE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRANSFER AGENT AND REGISTRAR) AND AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
<PAGE> 48
44
ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE SHARES OF COMMON STOCK REPRESENTED BY
THIS CERTIFICATE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE
MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRANSFER AGENT
AND REGISTRAR. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO EACH OF THE
TRANSFER AGENT AND REGISTRAR AND 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
IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT. THE COMPANY HAS INSTRUCTED THE TRANSFER AGENT
AND REGISTRAR TO REFUSE TO REGISTER ANY TRANSFER OF THE SHARES OF COMMON
STOCK REPRESENTED BY THIS CERTIFICATE IN VIOLATION OF THE FOREGOING
RESTRICTIONS.
Section 12.11. Third Party Beneficiaries. The Holders shall be third
party beneficiaries to the agreements made hereunder between the Company, on the
one hand, and the Warrant Agent, on the other hand, and each Holder shall have
the right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder. By acquiring Warrants, each Holder agrees to be bound by the
obligations of Holders generally as set forth herein and as such obligations may
be applicable to such Holder.
Section 12.12. Termination. Except as otherwise specified herein,
this Agreement shall terminate at 5:00 p.m. (New York City time) on the tenth
anniversary of the
<PAGE> 49
45
Closing Date. Notwithstanding the foregoing, this Agreement shall terminate on
any earlier date as of which all Warrants have been exercised.
Section 12.13. Governing Law. This Agreement shall be governed by
the laws of the State of New York. The Warrant Agent, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Agreement or
the Warrants.
<PAGE> 50
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed, as of the day and year first above written.
LONG DISTANCE INTERNATIONAL INC.
By: _______________________________
Name:
Title:
THE BANK OF NEW YORK
By: _______________________________
Name:
Title:
<PAGE> 51
EXHIBIT A
FORM OF WARRANT CERTIFICATE
LONG DISTANCE INTERNATIONAL INC.
CUSIP No. _________
No. _____
WARRANTS TO PURCHASE COMMON SHARES
This certifies that ______________, or its registered assigns, is
the owner of ___________ Warrants, each of which represents the right to
purchase from LONG DISTANCE INTERNATIONAL INC., a Florida corporation (the
"Company"), after October 13, 1999 (or in connection with the initial public
offering of equity securities (other than nonconvertible preferred stock) of the
Company), 15.0874 shares of the common stock, par value $.001 per share, of the
Company (the "Common Shares") at an exercise price (the "Exercise Price") of
$.01 per Common Share (subject to adjustment as provided in the Warrant
Agreement hereinafter referred to below), upon surrender hereof at the principal
corporate trust office of The Bank of New York, or to its successor, as the
warrant agent under the Warrant Agreement (any such warrant agent being herein
called the "Warrant Agent"), or such other location contemplated by Section
12.5(b) of the Warrant Agreement, with the Subscription Form on the reverse
hereof duly executed, with signature guaranteed as therein specified and
simultaneous payment in full in cash or by certified or official bank or bank
cashier's check payable to the order of the Company. Notwithstanding the
foregoing, the Exercise Price may be paid by surrendering additional Warrants to
the Warrant Agent having an aggregate Spread equal to the aggregate Exercise
Price of the Warrants being exercised. At any time after one year after the
Closing Date and on or before the Expiration Date, any outstanding Warrants may
be exercised on any Business Day; provided that the Warrants become exercisable
in connection with the initial public offering of equity securities (other than
nonconvertible preferred stock) of the Company) and provided further that the
Warrant Registration Statement is, at the time of exercise, effective and
available for the exercise of Warrants or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of April 13, 1998 (the "Warrant Agreement"), between
the Company and The Bank of New York, as Warrant Agent, and a Registration
Rights Agreement dated as of April 7, 1998 (the "Warrant Registration Rights
Agreement"), between the Company and The Bank of New York, and is subject to the
Articles of Incorporation and Bylaws of the Company and to the terms and
provisions contained therein, to all of which terms and provisions the Holder of
this Warrant Certificate consents by acceptance hereof. The terms of the Warrant
<PAGE> 52
A-2
Agreement and the Warrant Registration Rights Agreement are hereby incorporated
herein by reference and made a part hereof. Reference is hereby made to the
Warrant Agreement and the Warrant Registration Rights Agreement for a full
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Company and the Holders of the Warrants. The
summary of the terms of the Warrant Agreement and the Warrant Registration
Rights Agreement contained in this Warrant Certificate is qualified in its
entirety by express reference to the Warrant Agreement and the Warrant
Registration Rights Agreement. All terms used in this Warrant Certificate that
are defined in the Warrant Agreement and the Warrant Registration Rights
Agreement shall have the meanings assigned to them in such agreements.
Copies of the Warrant Agreement and the Warrant Registration Rights
Agreement are on file at the office of the Warrant Agent and may be obtained by
writing to the Warrant Agent at the following address:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
A "Repurchase Event", as defined in the Warrant Agreement, shall be
deemed to occur on any date when the Company (i) consolidates with or merges
into or with another Person (but only where the holders of Common Stock receive
consideration in exchange for all or part of such stock), if the Common Stock
(or other securities) thereafter issuable upon exercise of the Warrants is not
registered under the Exchange Act or (ii) sells all or substantially all of its
assets to another Person, if the Common Stock (or other securities) thereafter
issuable upon exercise of the Warrants is not registered under the Exchange Act;
provided that, in each case, a "Repurchase Event" shall not be deemed to have
occurred if the consideration for such transaction consists solely of cash.
Following a Repurchase Event, the Company must make an offer to
repurchase for cash all outstanding Warrants (a "Repurchase Offer"). If the
Company makes a Repurchase Offer, Holders may, until the expiration date of such
offer, surrender all or part of their Warrants for repurchase by the Company.
Warrants received by the Warrant Agent in proper form during a
Repurchase Offer will, except as otherwise provided in the Warrant Agreement, be
repurchased by the Company at a price in cash (the "Repurchase Price") equal to
the value on the Valuation Date relating thereto of the Common Shares issuable,
and other securities or property of the Company which would have been delivered
upon exercise of the Warrants had the Warrants been exercised (whether or not
the Warrants are then exercisable), less the Exercise Price in effect on the
Notice
<PAGE> 53
A-3
Date for such Repurchase Offer. The value of such Common Shares and other
securities will be (i) if the Common Shares (or other securities) are registered
under the Exchange Act, determined based upon the average of the daily market
prices (as determined pursuant to Section 3.4(d)(ii)(1) of the Warrant
Agreement) of the Common Shares (or other securities) for the 20 consecutive
trading days immediately preceding such Valuation Date or (ii) if the Common
Shares (or other securities) are not registered under the Exchange Act or if the
value cannot be computed under clause (i) above, determined by the Independent
Financial Expert (as defined in the Warrant Agreement), in each case as set
forth in the Warrant Agreement.
The "Valuation Date" as defined in the Warrant Agreement shall be
deemed to occur on the date five Business Days prior to the date notice of the
Repurchase Offer is first given.
If the Company fails to make or complete a Repurchase Offer (a
"Default") as required by the Warrant Agreement, it shall be obligated to
increase the amount otherwise payable pursuant to the Warrant Agreement in
respect of the Repurchase Offer by an amount equal to interest thereon at a rate
per annum of 12 1/4% from the date of the Default to the date of payment, which
interest shall compound quarterly.
If the Company merges or consolidates with or into, or sells all or
substantially all of its property and assets to, another Person and the
consideration received by holders of Common Shares consists solely of cash, the
Holders of Warrants shall be entitled to receive distributions on the date of
such event on an equal basis with holders of Common Shares (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 rights of a Holder shall terminate and cease and such
Holder's Warrants shall expire.
The number of Common Shares purchasable upon the exercise of each
Warrant and the price per share are subject to adjustment as provided in the
Warrant Agreement. Except as stated in the immediately preceding paragraph and
in the Warrant Agreement, in the event the Company merges or consolidates with,
or sells all or substantially all of its assets to, another Person, each Warrant
will, upon exercise, entitle the Holder thereof to receive upon exercise thereof
the number of shares of capital stock or other securities or the amount of money
and other property which the holder of a Common Share (or other securities or
property issuable upon exercise of a Warrant) is entitled to receive upon
completion of such merger, consolidation or sale.
As to any final fraction of a share which the same Holder of one or
more Warrant Certificates would otherwise be entitled to purchase upon exercise
thereof in the same transaction, the Company may pay the cash value thereof
determined as provided in the Warrant Agreement.
<PAGE> 54
A-4
Subject to Article VI of the Warrant Agreement, all Common Shares
issuable by the Company upon the exercise of Warrants shall be validly issued,
fully paid and not subject to any calls for funds, and the Company shall pay any
taxes and other governmental charges that may be imposed under the laws of the
United States of America or any political subdivision or taxing authority
thereof or therein in respect of the issue or delivery thereof upon exercise of
Warrants (other than income taxes imposed on the Holders). The Company shall not
be required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares
(including other securities or property issuable upon the exercise of the
Warrants) or payment of cash to any Person other than the Holder of a Warrant
Certificate surrendered upon the exercise of a Warrant and in case of such
transfer or payment, the Warrant Agent and the Company shall not be required to
issue any share certificate or pay any cash until such tax or charge has been
paid or it has been established to the Warrant Agent's and the Company's
satisfaction that no such tax or charge is due.
Subject to the restrictions on and conditions to transfer set forth
in Articles II and VIII of the Warrant Agreement, this Warrant Certificate and
all rights hereunder are transferable by the registered Holder hereof, in whole
or in part, on the register of the Company maintained by the Warrant Agent for
such purpose at the Warrant Agent's office in New York, New York upon surrender
of this Warrant Certificate duly endorsed, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Warrant Agent
duly executed, with signatures guaranteed as specified in the attached Form of
Assignment, by the registered Holder hereof or his attorney duly authorized in
writing and by such other documentation required pursuant to the Warrant
Agreement and upon payment of any necessary transfer tax or other governmental
charge imposed upon such transfer. Upon any partial transfer, the Company will
sign and issue and the Warrant Agent will countersign and deliver to such Holder
a new Warrant Certificate or Certificates with respect to any portion not so
transferred. Each taker and Holder of this Warrant Certificate, by taking and
holding the same, consents and agrees that prior to the registration of transfer
as provided in the Warrant Agreement, the Company and the Warrant Agent may
treat the person in whose name the Warrants are registered as the absolute owner
hereof for any purpose and as the Person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding. Accordingly, the
Company and/or the Warrant Agent shall not, except as ordered by a court of
competent jurisdiction as required by law, be bound to recognize any equitable
or other claim to or interest in the Warrants on the part of any person other
than such Registered Holder, whether or not it shall have express or other
notice thereof.
This Warrant Certificate may be exchanged at the office of the
Warrant Agent maintained for such purpose in New York, New York, for Warrant
Certificates representing the same aggregate number of Warrants, each new
Warrant Certificate to represent such number of Warrants as the Holder hereof
shall designate at the time of such exchange.
<PAGE> 55
A-5
Prior to the exercise of the Warrants represented hereby, the Holder
of this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to consent to any action of the stockholders, to receive any distributions, to
exercise any pre-emptive right or to receive any notice of meetings of
stockholders, and shall not be entitled to receive any notice of any proceedings
of the Company except as provided in the Warrant Agreement.
This Warrant Certificate shall be void and all rights evidenced
hereby shall cease on April 13, 2008, unless sooner terminated by the
liquidation, dissolution or winding-up of the Company or as otherwise provided
in the Warrant Agreement upon the consolidation or merger of the Company with,
or sale of the Company to, another Person or unless such date is extended as
provided in the Warrant Agreement.
<PAGE> 56
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
LONG DISTANCE INTERNATIONAL INC.
By: _______________________________
Name:
Title:
Dated:
Countersigned:
THE BANK OF NEW YORK,
as Warrant Agent
By: _________________________
Authorized Signatory
<PAGE> 57
FORM OF REVERSE OF WARRANT CERTIFICATE
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
To: The Bank of New York,
as Warrant Agent
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
The undersigned irrevocably exercises ________ of the Warrants
represented by this Warrant Certificate and herewith makes payment of $ _______
(such payment being in cash or by certified or official bank or bank cashier's
check payable to the order or at the direction of Long Distance International
Inc. or the exercise price may be paid by surrendering additional Warrants to
the Warrant Agent having an aggregate Spread equal to the aggregate exercise
price of the Warrants being exercised) all at the exercise price and on the
terms and conditions specified in this Warrant Certificate and in the Warrant
Agreement and the Warrant Registration Rights Agreement referred to herein and
surrenders this Warrant Certificate and all right, title and interest therein to
and directs that the common stock, par value $0.001 per share, of Long Distance
International Inc. (the "Common Shares") deliverable upon the exercise of such
Warrants be registered or placed in the name and at the address specified below
and delivered thereto.
[THE FOLLOWING PROVISION TO BE INCLUDED ONLY
ON OFFSHORE CERTIFICATED WARRANTS]
The undersigned certifies that:
Check One
|_| (a) (i) it is not a U.S. person (as defined in Rule 902 of
Regulation S under the U.S. Securities Act of 1933, as
amended) and the Warrants are not being exercised on behalf of
a U.S. person.
or
|_| (ii) it is furnishing to the Warrant Agent a written opinion
of counsel to the effect that the Warrants and the Common
Shares issuable upon exercise of
<PAGE> 58
the Warrants have been registered under the U.S. Securities
Act of 1933, as amended, or are exempt from registration
thereunder.
and (b) if an opinion is not being furnished, the undersigned is located outside
the United States at the time of the exercise hereof.
Dated: _______________________________
(Signature of Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
_______________________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Warrant Agent, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Warrant Agent in addition to, or
in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
Securities and/or check or other property to be issued or delivered to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE> 59
A-9
FORM OF CERTIFICATE FOR REPURCHASE OFFER
(To be executed only upon repurchase
of Warrant by Long Distance International Inc.)
To:
The undersigned, having received prior notice of the consideration
for which LONG DISTANCE INTERNATIONAL INC. will repurchase the Warrants
represented by the within Warrant Certificate, hereby surrenders this Warrant
Certificate for repurchase by LONG DISTANCE INTERNATIONAL INC. of the number of
Warrants specified below for the consideration set forth in such notice.
Dated:
____________________________
(Number of Warrants)
____________________________
(Signature of Owner)
____________________________
(Street Address)
____________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
___________________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Warrant Agent, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Warrant Agent in addition to, or
in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
<PAGE> 60
A-10
Securities and/or check to be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
<PAGE> 61
A-11
FORM OF ASSIGNMENT
In consideration of monies or other valuable consideration received
from the Assignee(s) named below, the undersigned registered Holder of this
Warrant Certificate hereby sells, assigns, and transfers unto the Assignee(s)
named below (including the undersigned with respect to any Warrants constituting
a part of the Warrants evidenced by this Warrant Certificate not being assigned
hereby) all of the rights of the undersigned under this Warrant Certificate,
with respect to the number of Warrants set forth below:
Name(s) of Assignee(s): _____________________________________
Address: ____________________________________________________
No. of Warrants: ____________________________________________
Please insert social security or other identifying number of assignee(s):
and does hereby irrevocably constitute and appoint ________________________ the
undersigned's attorney to make such transfer on the books of __________________
maintained for the purposes, with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES EXCEPT UNLEGENDED
REGULATION S GLOBAL WARRANTS AND UNLEGENDED OFFSHORE CERTIFICATED WARRANTS]
In connection with any transfer of Warrants, the undersigned
confirms that without utilizing any general solicitation or general advertising
that:
Check One
|_| (a) these Warrants are being transferred in compliance with the
exemption from registration under the U.S. Securities Act of 1933,
as amended, provided by Rule 144A thereunder.
or
|_| (b) these 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.
or
|_| (c) these Warrants are being transferred pursuant to an effective
registration statement under the U.S. Securities Act of 1933, as
amended.
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
<PAGE> 62
conditions to any such transfer of registration set forth herein and in Article
VIII of the Warrant Agreement shall have been satisfied.
Dated:
____________________________
(Signature of Owner)
____________________________
(Street Address)
____________________________
(City) (State) (Zip Code)
Signature Guaranteed By:
_____________________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Warrant Agent, which requirements include
membership or participation in the Security
Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be
determined by the Warrant Agent in addition to, or
in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing the
Warrant(s) 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 U.S. 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 Long Distance International Inc. 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:________________
________________________________________
[NOTE: To be executed by an executive officer]
<PAGE> 63
EXHIBIT B
Form of Certificate to be Delivered
in Connection with
Transfers Pursuant to Regulation S
[Date]
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Warrants (the "Warrants") to Purchase
Common Shares of Long Distance International Inc. (the "Company")
Ladies and Gentlemen:
In connection with our proposed sale of _______________ Warrants, we
hereby certify that such sale has been effected pursuant to and in accordance
with Regulation S under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we represent that:
(1) the offer of the Warrants was not made to a person in the United
States and not to a U.S. Person (as defined in Regulation S under
the Securities Act);
(2) at the time the buy order was originated, the transferee was
outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United
States;
(3) no directed selling efforts (as such term is defined in Rule
902(b) of Regulation S under the Securities Act) have been made by
us, any of our affiliates or any persons acting
<PAGE> 64
on our behalf in the United States in contravention of the
requirements of Rule 903(b) or Rule 904(b) of Regulation S under the
Securities Act, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: _____________________________
Authorized Signature
<PAGE> 65
EXHIBIT C-1
Form of Certificate to be
Delivered by Transferor in Connection with
Transfers to Institutional Accredited Investors
[Date]
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Warrants (the "Warrants") to Purchase
Common Shares of Long Distance International Inc. (the "Company")
Ladies and Gentlemen:
We hereby certify that such transfer is being effected in compliance
with the transfer restrictions applicable to the Warrants or interests therein
transferred pursuant to and in accordance with the U.S. Securities Act of 1933,
as amended (the "Securities Act"), and accordingly we hereby further certify
that (check one):
(a) |_| such transfer is being effected pursuant to and in accordance with
Rule 144 under the Securities Act;
or
(b) |_| such transfer is being effected to the Company or a subsidiary
thereof;
or
(c) |_| such transfer is being effected pursuant to an effective
registration statement under the Securities Act;
<PAGE> 66
or
(d) |_| such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A, Rule 144
or Rule 904 thereunder, and we hereby further certify that such transfer
complies with the transfer restrictions applicable to the Warrants or interests
therein transferred to Institutional Accredited Investors and in accordance with
the requirements of the exemption claimed, which certification is supported by
an Opinion of Counsel provided by us or the transferee (a copy of which we have
attached to this certification), to the effect that such transfer is in
compliance with the Securities Act. Upon consummation of the proposed transfer
in accordance with the terms of the Warrant Agreement, the transferred Warrants
or interests therein will be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the IAI Certificated Warrant and in
the Warrant Agreement and the Securities Act.
Very truly yours,
[Name of Transferor]
By: __________________________
Authorized Signatory
<PAGE> 67
EXHIBIT C-2
Form of Certificate to be
Delivered By Transferees in Connection with
Transfers to Institutional Accredited Investors
[Date]
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Warrants (the "Warrants") to Purchase
Common Shares of Long Distance International Inc. (the "Company")
Dear Sirs:
In connection with our proposed purchase of ___________ aggregate
number of Warrants, we confirm that:
1. We understand that any subsequent transfer of the Warrants, any
interest therein or the Common Shares issuable upon exercise of any
Warrant (the "Warrant Shares") is subject to certain restrictions and
conditions set forth in the Warrant Agreement dated as of April 13, 1998
relating to the Warrants (the "Warrant Agreement") and the Warrant
Registration Rights Agreement dated as of April 7, 1998 relating to the
Warrants (the "Warrant Registration Rights Agreement") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Warrants or Warrant Shares except in compliance with, such restrictions
and conditions and the U.S. Securities Act of 1933, as amended (the
"Securities Act").
2. We understand that the Warrants represented by this Warrant
Certificate and, as of the date this Warrant Certificate was originally
issued, the Warrant Shares have not been registered under the Securities
Act, and accordingly may not be offered, sold, pledged or otherwise
transferred within the United States or to, or for the account or benefit
<PAGE> 68
C2-2
of, U.S. Persons except as set forth in the following sentence. We agree
that we will not, within the time period referred to under Rule 144(k) of
the Securities Act (taking into account the provisions of Rule 144(d)
under the Securities Act, if applicable) under the Securities Act as in
effect on the date of the transfer of this Warrant, resell or otherwise
transfer the Warrants represented by this Warrant Certificate except (a)
to Long Distance International Inc. or any subsidiary thereof, (b) to a
qualified institutional buyer in compliance with Rule 144A under the
Securities Act, (c) outside the United States in an offshore transaction
in compliance with Rule 904 under the Securities Act, (d) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act
(if available), (e) to an institutional accredited investor that, prior to
such transfer, furnishes to you, to the Company and, in the case of the
Warrant Shares, to the transfer agent and registrar therefor, a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Warrants represented by this Warrant
Certificate (the form of which letter can be obtained from the Warrant
Agent) and an opinion of counsel acceptable to Long Distance International
Inc. and its counsel that such transfer is in compliance with the
Securities Act or (f) pursuant to an effective registration statement
under the Securities Act and, in each case, in accordance with applicable
state securities laws.
3. We understand that, on any proposed resale of any Warrants, any
interest therein or Warrant Shares, we will be required to furnish to you
and the Company such certifications, legal opinions and other information
as you and the Company may reasonably require to confirm that the proposed
sale complies with the foregoing restrictions. We further understand that
the Warrants purchased by us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and
have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the
Warrants, and we and any accounts for which we are acting are each able to
bear the economic risk of our or its investment for an indefinite period
of time.
5. We are acquiring the Warrants purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
<PAGE> 69
C2-3
You, the Company and, if applicable, the transfer agent and
registrar for the Warrant Shares are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By: __________________________
Authorized Signature
<PAGE> 70
EXHIBIT D
Form of Certificate
[Date]
Long Distance International Inc.
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: Chief Financial Officer
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Re: Warrants (the "Warrants") to Purchase Common
Shares of Long Distance International Inc. (the "Company")
Dear Sirs:
This letter relates to __________ Warrants (the "Legended Warrants")
represented by a Warrant Certificate which bears a legend outlining restrictions
upon transfer of such Legended Warrants. Pursuant to Section 2.1 of the Warrant
Agreement dated as of April 13, 1998 (the "Warrant Agreement") relating to the
Warrants, we hereby certify that we are (or we will hold such securities on
behalf of) a person outside the United States to whom the Warrants could be
transferred in accordance with Rule 904 of Regulation S promulgated under the
U.S. Securities Act of 1933, as amended. Accordingly, you are hereby requested
to exchange the legended certificate for an unlegended certificate representing
an identical number of Warrants, all in the manner provided for in the Warrant
Agreement.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By: _________________________
Authorized Signature
<PAGE> 71
APPENDIX A
LIST OF FINANCIAL EXPERTS
Alex. Brown & Sons
Bear, Stearns & Co. Inc.
Credit Suisse First Boston Corporation
SBC Warburg Dillon Read Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Furman Selz, LLP
Goldman, Sachs & Co.
Lazard Freres & Co.
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Oppenheimer & Co., Inc.
PaineWebber Incorporated
Prudential Securities Inc.
Salomon Brothers Inc
<PAGE> 1
Exhibit 10.2
EXECUTION COPY
- --------------------------------------------------------------------------------
WARRANTS REGISTRATION RIGHTS AGREEMENT
between
LONG DISTANCE INTERNATIONAL INC.
and
THE BANK OF NEW YORK,
as Warrant Agent
Dated as of April 7, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
WARRANTS REGISTRATION RIGHTS AGREEMENT
WARRANTS REGISTRATION RIGHTS AGREEMENT, dated as of April 7, 1998
(this "Agreement"), between LONG DISTANCE INTERNATIONAL INC., a Florida
corporation (the "Company"), and THE BANK OF NEW YORK, as warrant agent (the
"Warrant Agent").
Pursuant to the terms of a Purchase Agreement dated April 7, 1998
(the "Purchase Agreement"), among the Company, Morgan Stanley & Co. Incorporated
and SBC Warburg Dillon Read Inc. (the "Initial Purchasers"), the Company has
agreed to issue and sell to the Initial Purchasers an aggregate of 225,000
warrants (each, a "Warrant"), each Warrant initially entitling the holder
thereof to purchase 15.0874shares of Common Stock (as defined below) of the
Company at an exercise price of $.01 per Common Share, as part of 225,000 units
(the "Units"), each Unit consisting of one 12 1/4% Senior Note due 2008 of the
Company (each a "Note" and collectively, the "Notes") to be issued pursuant to
the provisions of an Indenture dated as of the date hereof (the "Indenture")
between the Company, as issuer, and The Bank of New York, as trustee, and one
Warrant. The Note and the Warrant included in each Unit will become separately
transferable at the close of business upon the earliest to occur of (i) the date
that is six months after the Closing Date (as defined below), (ii) the
commencement of an exchange offer with respect to the Notes undertaken pursuant
to the Notes Registration Rights Agreement (as defined below), and (iii) the
effectiveness of a shelf registration statement with respect to resales of the
Notes.
In consideration of the foregoing and of the mutual agreements
contained herein and in the Purchase Agreement, the Company and the Warrant
Agent hereby agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Auditors" means, at any time, the independent auditors of the
Company at such time.
"Board" means the board of directors of the Company from time to
time.
"Closing Date" means the date hereof.
"Comfort Letter" has the meaning specified in Section 3 hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the common stock, par value $0.001 per share,
of the Company.
<PAGE> 3
2
"Common Shares" means the shares of the Common Stock of the Company.
"Company" has the meaning specified in the preamble to this
Agreement.
"Company IPO Shares" has the meaning specified in Section 2 hereof.
"Cutback Notice" has the meaning specified in Section 2 hereof.
"Expiration Date" means the tenth anniversary of the date hereof.
"Holders" means the record holders of the Warrants and the holders
of Common Shares (or other securities) received upon exercise thereof.
"Includible Secondary Shares" has the meaning specified in Section 2
hereof.
"Indenture" has the meaning specified in the recitals to this
Agreement.
"Initial Purchasers" has the meaning specified in the recitals to
this Agreement.
"managing underwriter" has the meaning specified in Section 2
hereto.
"Notes" has the meaning specified in the recitals to this Agreement.
"Opinion" has the meaning specified in Section 3 hereof.
"Other IPO Shares" has the meaning specified in Section 2 hereof.
"Piggy-back Registration Rights" has the meaning specified in
Section 2 hereof.
"Purchase Agreement" has the meaning specified in the recitals to
this Agreement.
"Registration Statement" has the meaning specified in Section 2
hereof.
"Resales Registration Statement" has the meaning specified in
Section 9 hereof.
"Resale Shelf" has the meaning specified in Section 3 hereof.
"Securities Act" means the United States Securities Act of 1933, as
amended.
<PAGE> 4
3
"Underlying Securities" means the Common Shares issuable upon
exercise of the Warrants or such other securities as shall be issuable upon the
exercise of the Warrants, pursuant to the Warrant Agreement.
"Units" has the meaning specified in the recitals to this Agreement.
"Warrant" has the meaning specified in the recitals to this
Agreement.
"Warrant Agent" has the meaning specified in the preamble to this
Agreement.
"Warrant Agreement" means the Warrant Agreement dated the date
hereof between the Company and the Warrant Agent.
"Warrant Shares" has the meaning specified in Section 2 hereof.
"Warrant Registration Statement" has the meaning specified in
Section 3 hereof.
2. Piggy-Back Registration Rights.
(a) If the Company proposes to file a Registration Statement with
the Commission respecting an offering of any shares of Common Stock (or other
securities) issuable upon exercise of the Warrants (other than an offering
registered solely on Form S-4 or S-8 or any successor form thereto and other
than the initial public offering of shares of Common Stock (or other securities)
issuable upon exercise of the Warrants if no shareholder of the Company
participates therein), the Company shall give prompt written notice to all the
Holders of Warrants or Common Shares or such other securities received upon
exercise of Warrants at least 30 days prior to the initial filing of the
registration statement relating to such offering (the "Registration Statement").
Each such Holder shall have the right, within 20 days after delivery of such
notice, to request in writing that the Company include all or a portion of such
of the Common Shares issuable upon exercise of such Holder's Warrants, such
other securities as shall be issuable upon the exercise of the Warrants, or the
Common Shares or such other securities received upon the exercise thereof,
pursuant to the Warrant Agreement ("Warrant Shares") in such Registration
Statement ("Piggy-back Registration Rights"). The Company shall include in the
public offering all of the Warrant Shares that a Holder has requested be
included, unless the underwriter for the public offering or the underwriter
managing the public offering (in either case, the "managing underwriter")
delivers a notice (a "Cutback Notice") pursuant to Section 2(b) or 2(c) hereof.
The managing underwriter may deliver one or more Cutback Notices at any time
prior to the execution of the underwriting agreement for the public offering.
<PAGE> 5
4
(b) If a proposed public offering includes both securities to be
offered for the account of the Company ("Company IPO Shares") and shares to be
sold by shareholders, the provisions of this Section 2(b) shall be applicable if
the managing underwriter delivers a Cutback Notice stating that, in its opinion,
the number of Common Shares that selling shareholders propose to sell therein,
whether or not such selling shareholders have the right to include shares
therein (the "Other IPO Shares"), plus the number of Warrant Shares that the
Holders have requested to be sold therein, plus the Company IPO Shares, exceeds
the maximum number of shares specified by the managing underwriter in such
Cutback Notice that may be distributed without adversely affecting the price,
timing or distribution of the Company IPO Shares. Such maximum number of shares
that may be so sold, excluding the Company IPO Shares, are referred to as the
"Includible Shares."
If the managing underwriter delivers such Cutback Notice, the
Company shall be entitled to include all of the Company IPO Shares in the public
offering and each requesting Holder shall be entitled to include in the public
offering up to its pro rata portion of the Includible Shares and in priority to
the inclusion of any Other IPO Shares that are proposed to be sold in such
public offering. No shareholder that proposes to sell Other IPO Shares in the
proposed initial public offering may sell any such shares therein unless all
Warrant Shares requested by the Holders to be sold therein are so included.
(c) If a proposed public offering is entirely a secondary offering,
the provisions of this Section 2(c) shall be applicable if the managing
underwriter delivers a Cutback Notice stating that, in its opinion, the
aggregate number of Warrant Shares and Other IPO Shares proposed to be sold
therein exceeds the maximum number of shares (the "Includible Secondary Shares")
specified by the managing underwriter in such Cutback Notice that may be
distributed without adversely affecting the price, timing or distribution of the
Common Shares being distributed. If the managing underwriter delivers such
Cutback Notice, each requesting Holder shall be entitled to include in the
public offering up to its pro rata portion of the Includible Secondary Shares
and in priority to the inclusion of any Other IPO Shares that are proposed to be
sold in such public offering. No shareholder that proposes to sell Other IPO
Shares in the proposed public offering may sell any such shares therein unless
all Warrant Shares requested by the Holders to be sold therein are so included.
Notwithstanding the foregoing, to the extent shareholders that
propose to sell Other IPO Shares in the proposed initial public offering have
registration rights under agreements entered into prior to the date of this
Agreement that provide registration parity or priority for such Other IPO
Shares, and to the extent such registration rights have not been waived or
otherwise subordinated to the registration rights of Holders hereunder, such
Other IPO Shares shall be includible in the public offering on a pro rata basis
with the Registrable Securities.
<PAGE> 6
5
(d) The underwriting agreement for such public offering shall
provide that each requesting Holder shall have the right to sell its Warrant
Shares to the underwriters and that the underwriters shall purchase the Warrant
Shares at the price paid by the underwriters for the Common Shares sold by the
Company and/or selling shareholders, as the case may be.
3. Shelf Registration.
(a) If only the Company sells Common Shares in an initial public
offering or all of the Warrant Shares have not been sold in a public offering,
the Company shall use its best efforts to cause to be filed pursuant to Rule 415
under the Securities Act a shelf registration statement on the appropriate form
(the "Warrant Registration Statement") covering the issuance of the Warrant
Shares upon exercise of the Warrants and shall use its best efforts to cause the
Warrant Registration Statement to become effective under the Securities Act
within 180 days after the closing date of the initial public offering; provided,
however, that (1) in no event may the Warrant Registration Statement be declared
effective prior to the first anniversary of the Closing Date and (2) if the
Commission shall request that the Company register the resale of the Warrant
Shares instead of the issuance thereof, the Warrant Registration Statement shall
register such resale as opposed to such issuance. The Company shall use
reasonable efforts to keep the Warrant Registration Statement continuously
effective until such time as all Warrants have been exercised or have expired in
the case of clause (2), until such time as all Warrant Shares have been resold.
Prior to filing the Warrant Registration Statement or any amendment thereto, the
Company shall provide a copy thereof to Morgan Stanley & Co. Incorporated and
its counsel and afford them a reasonable time to comment thereon.
(b) If the Warrant Registration Statement shall register the sale of
the Warrant Shares (a "Resale Shelf") as provided in Section 3(a)(2) above, the
Company agrees to:
(i) make available for inspection by a representative of the
Holders, any underwriter participating in any disposition pursuant to such
Resale Shelf and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, financial and other records,
documents and properties of the Company that are pertinent to the conduct
of due diligence customary for an underwritten offering, and cause the
officers, directors and employees of the Company to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with a Resale Shelf; provided, however, that such
persons shall first agree in writing with the Company that any information
that is reasonably and in good faith designated by the Company in writing
as confidential at the time of delivery of such information shall be kept
confidential by such persons, unless and to the extent that disclosure of
such information is required by law or such information becomes
<PAGE> 7
6
generally available to the public other than as a result of a disclosure
or failure to safeguard such information by such person;
(ii) use its best efforts to cause all Warrant Shares sold under a
Resale Shelf to be listed on any securities exchange or any automated
quotation system on which similar securities issued by the Company are
then listed if requested by the Holders of Warrant Shares representing a
majority of the Warrants originally issued, to the extent such Warrant
Shares satisfy applicable listing requirements;
(iii) provide a reasonable number of copies of the prospectus
included in such Resale Shelf to Holders that are selling Warrant Shares
pursuant to such Resale Shelf;
(iv) cause to be provided to the Warrant Agent, on behalf of the
Holders and beneficial owners of Warrant Shares, upon the effectiveness of
such Resale Shelf, a customary "10b-5" opinion of independent counsel (an
"Opinion") and a customary "cold comfort" letter of independent auditors
(a "Comfort Letter");
(v) cause to be provided to Holders and beneficial owners of Warrant
Shares an Opinion and Comfort Letter with respect to each Form 10-K and
Form 10-Q, including any amendments thereto, that is incorporated by
reference in such Resale Shelf; and
(vi) notify the Warrant Agent, for distribution to the Holders, (A)
when the Resale Shelf has become effective and when any post-effective
amendment thereto has been filed and becomes effective, (B) of any request
by the Commission or any state securities authority for amendments and
supplements to the Resale Shelf or of any material request by the
Commission or any state securities authority for additional information
after the Resale Shelf has become effective, (C) of the issuance by the
Commission or any state securities authority of any stop order suspending
the effectiveness of the Resale Shelf or the initiation of any proceedings
for that purpose, (D) if, between the effective date of the Resale Shelf
and the closing of any sale of Warrant Shares covered thereby, the
representations and warranties of the Company contained in any
underwriting agreement, securities sales agreement or other similar
agreement, including this Agreement, relating to disclosure cease to be
true and correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the
Warrant Shares for sale in any jurisdiction or the initiation of any
proceeding for such purpose, (E) of the happening of any event during the
period the Resale Shelf is effective such that such Resale Shelf or the
related prospectus contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary
to make statements therein not misleading and (F) of any determination by
the Company that a post-effective amendment to a
<PAGE> 8
7
Registration Statement would be appropriate. The Holders hereby agree to
suspend use of the prospectus contained in a Resale Shelf upon receipt of
such notice under clause (E) or (F) above until the Company has amended or
supplemented such prospectus to correct such misstatement or omission.
4. Suspension.
Notwithstanding the foregoing, during any consecutive 365-day
period, the Company shall have the privilege to suspend availability of the
Warrant Registration Statement and the related prospectus for up to two
30-consecutive-day periods, except during the 30 days immediately prior to the
Expiration Date, if the Board determines in good faith that there is a valid
purpose for such suspension and provides notice of such determination to the
Holders at their addresses appearing in the register of Warrants maintained by
the Warrant Agent and (b) five additional, non-consecutive three day periods,
except during the 30 day period immediately prior to the Expiration Date, if the
Board determines in good faith that the Company cannot provide adequate
disclosure during such period due to circumstances beyond its control. Notice of
such suspension shall be given promptly to the Warrant Agent.
5. Blue Sky.
The Company shall use its reasonable best efforts to register or
qualify the Underlying Securities proposed to be sold or issued pursuant to the
Registration Statement or the Warrant Registration Statement under all
applicable securities or "blue sky" laws of all jurisdictions in the United
States in which any Holder of Warrants may or may be deemed to purchase
Underlying Securities upon the exercise of Warrants or resale of the Warrant
Shares, as the case may be, and shall use its reasonable best efforts to
maintain such registration or qualification through the earlier of (A) the date
upon which all Warrants have been exercised or all Warrant Shares have been
resold, as the case may be, under the Warrant Shelf Registration Statement and
(B) the Expiration Date; provided, however, that the Company shall not be
required to (i) qualify as a foreign corporation or as a broker or a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 5, (ii) file any general consent to service of
process or (iii) subject itself to taxation in any jurisdiction if it is not
otherwise so subject.
6. Accuracy of Disclosure.
The Company (and its successors) represents and warrants to each
Holder (and each beneficial owner of a Warrant or Warrant Share) and agrees for
the benefit of each Holder (and each beneficial owner of a Warrant or Warrant
Share) that, except during any period in which the availability of the Warrant
Registration Statement has been suspended, (i) the Warrant Registration
Statement and the documents incorporated by reference therein will
<PAGE> 9
8
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading; and (ii) the
prospectus delivered to such Holder upon its exercise of Warrants or pursuant to
which such Holder sells its Warrant Shares, as the case may be, and the
documents incorporated by reference therein will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
7. Indemnity.
The Company hereby agrees to indemnify each beneficial owner of a
Warrant and each person, if any, who controls any beneficial owner of a Warrant
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934 (the "Exchange Act"), or is under common
control with, or is controlled by, any beneficial owner of a Warrant (whether or
not it is, at the time the indemnity provided for in this Section 7 is sought,
such a beneficial owner), from and against all losses, damages or liabilities
which such beneficial owner or any such controlling or affiliated person suffers
as a result of any breach, on the date of any exercise of a Warrant by such
beneficial owner or the resale of any Warrant Share by such Holder, in either
case pursuant to the Warrant Registration Statement, of the representations,
warranties or agreements contained in Section 6. Each beneficial owner of a
Warrant Share sold pursuant to a Resale Shelf, by accepting its beneficial
ownership of a Warrant, hereby (i) agrees to provide the Company with
information with respect to it that the Company reasonably requests in
connection with any Resale Shelf and (ii) agrees, severally and not jointly, to
indemnify the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act against any liability incurred by it or
such controlling person as a result of any misstatement of information provided
by such beneficial owner to the Company in writing expressly for inclusion in
the Resale Shelf.
8. Expenses.
All expenses incident to the Company's performance of or compliance
with its obligations under this Agreement will be borne by the Company,
regardless of whether a Registration Statement or Warrant Registration Statement
becomes effective, including without limitation (i) all Commission or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
reasonable fees and expenses incurred in connection with compliance with state
securities or "blue sky" laws, (iii) all reasonable expenses of any persons
incurred by or on behalf of the Company in preparing or assisting in preparing,
word processing, printing and distributing any registration statement, any
prospectus, any amendments or supplements thereto and other documents relating
to the performance of and compliance with this Agreement, (iv) the reasonable
fees (including legal fees and expenses) and disbursements of the Warrant Agent,
(v) the reasonable fees and disbursements of counsel for the Company and
<PAGE> 10
9
(vi) the fees and disbursements, if any, of the Auditors but excluding (x) fees
and disbursements of counsel retained by the participating Holders and (y) the
Holders' share of underwriting discounts and commissions.
9. Miscellaneous.
(a) No Inconsistent Agreements. Each of the Company and the Warrant
Agent represent to the other that it has not entered into, and agrees that on or
after the date of this Agreement it will not enter into, any agreement which is
inconsistent with the rights granted to the Holders of Warrants or Warrant
Shares in this Agreement or otherwise conflicts with the provisions hereof. The
Company represents that the rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's other issued and outstanding securities under any
agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Warrant Agent have obtained the
written consent of Holders of at least a majority of the outstanding Warrants
affected by such amendment, modification, supplement, waiver or consent;
provided that any amendment, modification or supplement to this Agreement which,
in the good faith opinion of the Board of Directors of the Company (and
evidenced by a resolution of such board), does not adversely affect any Holder,
shall not be subject to such requirement for written consent.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder, at the most current address given by such Holder to the Company
by means of a notice given in accordance with the provisions of this Section
9(c); (ii) if to the Company, initially at the Company's address set forth in
the Indenture and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 9(c); and (iii) if to the Warrant
Agent, initially at the Warrant Agent address set forth in the Indenture and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 9(c).
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 is acknowledged, if telecopied; and on the next business day if
timely delivered to an air courier guaranteeing overnight delivery.
<PAGE> 11
10
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation, subsequent Holders; provided that
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Warrants in violation of the terms of the Purchase Agreement or
the Warrant Agreement. If any transferee of any Holder shall acquire Warrants,
in any manner, whether by operation of law or otherwise, such Warrants shall be
held subject to all of the terms of this Agreement and the Warrant Agreement,
and by taking and holding such Warrants such person shall be conclusively deemed
to have agreed to be bound by and to perform all of the terms and provisions of
this Agreement or the Warrant Agreement and such person shall be entitled to
receive the benefits hereof.
(e) Purchases and Sales of Warrants. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405 under
the Securities Act) not to, purchase and then resell or otherwise transfer any
Warrants other than Warrants acquired and cancelled.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Warrant Agent, and each Holder shall have the right to enforce such agreements
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
(g) 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.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by the laws of
the State of New York.
(j) 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.
(k) Waiver of Immunity. To the extent that the Company has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service of notice, attachment prior to judgement,
attachment in aid of execution,
<PAGE> 12
11
execution or otherwise) with respect to itself or its property, it hereby
irrevocably waives such immunity in respect of their obligations under this
Agreement to the fullest extent permitted by law.
(l) Initial Public Offering. Notwithstanding anything to the
contrary herein contained, if the Company conducts an initial public offering of
equity securities (other than nonconvertible preferred shares), the Company will
give the Holders the opportunity to convert such Warrants into warrants to
purchase such equity securities (other than nonconvertible preferred shares) and
such Warrant Shares into such equity securities (other than nonconvertible
preferred shares). Such conversion opportunity will be on terms and conditions
determined to be fair and reasonable by the Company's Board of Directors.
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
LONG DISTANCE INTERNATIONAL INC.
By ______________________________
Name:
Title:
THE BANK OF NEW YORK
By ______________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
BETWEEN
CERTAIN ADVENT ENTITIES
AND
LONG DISTANCE INTERNATIONAL INC.
DATED JULY 28, 1997
BAKER & MCKENZIE
815 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20006
TELEPHONE: (202) 452-7000
FACSIMILE: (202) 452-7074
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT (this "Agreement") made this 28th day of July, 1997, by
and among the entities listed on Schedule 1 hereto (collectively, the "Advent
Entities") and Long Distance International Inc., a Florida corporation with an
address of 888 South Andrews Avenue, Suite 205, Fort Lauderdale, FL 33316 ("LDI"
or the "Company") (the Advent Entities and LDI being sometimes collectively
referred to herein as the "Parties").
WITNESSETH:
WHEREAS, LDI is a corporation organized under the laws of Florida;
WHEREAS, each of the Advent Entities is a limited partnership organized
under the laws of Delaware, except for Four Seasons Venture II AS, which is a
limited company organized under the laws of Norway;
WHEREAS, LDI desires to issue and sell to the Advent Entities, and the
Advent Entities desire to purchase from LDI, the following securities on the
terms and conditions set forth herein:
(i) Shares of the Series B Preferred Stock, $0.001 par value, of LDI
("Series B Stock"); and
(ii) Warrants ("Warrants") to purchase shares of common stock, $0.001
par value, of LDI.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises hereinafter set forth, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE PURCHASE
1.1 Purchase of Securities. LDI hereby agrees to issue, sell and
deliver to the Advent Entities at the Closing (as hereinafter defined) and on
the Post-Closing Adjustment Date (as hereinafter defined) the Securities (as
hereinafter defined), for the consideration set forth and payable in accordance
with the provisions of Article II.
ARTICLE II
PAYMENT FOR THE SECURITIES
<PAGE> 3
2.1 Consideration. Simultaneously with the execution and delivery of
this Agreement, LDI has issued and sold to the Advent Entities and the Advent
Entities have purchased from LDI 2,400,000 shares of Series B Stock ("Initial
Series B Stock") and Warrants to purchase 9,908,367 shares of Common Stock
("Initial Warrants", and together with the Initial Series B Stock, the "Initial
Securities") for Twenty Four Million US Dollars in cash ($24,000,000) (the
"Initial Cash Consideration"). Payment of the Initial Cash Consideration for the
Initial Securities purchased by the Advent Entities has been made by wire
transfer (to an account of LDI previously designated by it in writing) and LDI
hereby acknowledges receipt from the Advent Entities of payment in full of the
Initial Cash Consideration. Each of the Advent Entities shall have purchased the
Initial Securities for the Initial Cash Consideration as provided on Schedule 1.
2.2 Delivery of Securities.
2.2.1 Delivery of the Initial Securities purchased by the
Advent Entities pursuant to this Agreement has been made at the Closing
by LDI delivering to the duly-authorized representative of the Advent
Entities, against payment of the Initial Cash Consideration therefor,
(i) stock certificates representing the Initial Series B Stock, and
(ii) the Initial Warrants in the form of Exhibit A, with each such
certificate and Warrant respectively being dated the date of this
Agreement and registered in the respective name of each of the Advent
Entities. Each of the Advent Entities has acquired that amount of the
Initial Securities as provided in Schedule 1.
2.2.2 The Initial Securities and the securities delivered by
LDI to the Advent Entities at the Post-Closing Adjustment Date are
hereinafter sometimes referred to collectively as the "Securities".
2.3 Use of Proceeds. The proceeds from the purchase of the
Securities shall be used by LDI to fund (i) capital expenditures, (ii)
expansion costs in Western Europe, (iii) license costs and
capitalization of Subsidiaries, (iv) start up costs for new marketing
methods, (v) Transaction Costs (as hereinafter defined), and (vi)
general working capital purposes.
2.4 Post-Closing Adjustments.
2.4.1 On the Post-Closing Adjustment Date (as defined in
Section 2.4.3 below), LDI shall issue and sell to the Advent Entities,
and the Advent Entities shall purchase from LDI, for an additional cash
consideration (the "Additional Cash Consideration") delivered in
immediately available funds by wire transfer to an account specified by
LDI, amounts of additional shares of Series B Stock (the "Additional
Series B Stock") and additional Warrants (the "Additional Warrants") in
the form of Exhibit A, determined as follows:
(a) If the Preemptive Rights Holders (as defined in
Section 2.4(b) below) do not purchase any of the Securities
under the Preemptive Rights Notice (as defined in Section
2.4.2(a) below), then (x) the number of Additional Series B
Stock shall be
-2-
<PAGE> 4
75,000, (y) subject to subsection 2.4.1(d), the Additional
Warrants shall be Warrants to purchase 309,636 shares of
Common Stock, and (z) the Additional Cash Consideration shall
be Seven Hundred Fifty Thousand US Dollars (US$750,000). In
this event the "Final Advent Percentage" shall be 27.72%.
(b) If the Preemptive Rights Holders tender
subscriptions, together with the cash consideration therefor,
to purchase units of Series B Stock and Warrants in accordance
with the Preemptive Rights Notice and the amount of units to
be issued and sold by LDI in accordance therewith on the Post
Closing Adjustment Date represent in the aggregate less than
75,000 shares of Series B Stock and Warrants to purchase less
than 309,636 shares of the common Stock, then (x) the number
of Additional Series B Stock shall be 75,000, less the number
of shares of Series B Stock issued and sold by LDI to the
Preemptive Rights Holders, (y) subject to subsection 2.4.1(d),
the Additional Warrants shall be Warrants to purchase that
number of shares of Common Stock as shall be equal to the
difference of 309,636, less the initial number of shares of
Common Stock purchasable upon exercise of the Warrants
purchased by the Preemptive Rights Holder, and (z) the amount
of the Additional Cash Consideration shall be equal to the
difference of Seven Hundred Fifty Thousand US Dollars
(US$750,000), less the cash consideration delivered by
Preemptive Rights Holders in exchange for such units. In this
event the "Final Advent Percentage" shall be the percentage
obtained as follows:
Final Advent Percentage =
(2,400,000 + Q)(28)/(2,500,000)%.
Where Q = the number of Additional Series
B Stock determined pursuant to
clause (x) of this subsection.
By way of example, if the Advent Entities receive 50,000
shares of Series B Stock pursuant to this subsection (b), then
the Final Advent Percentage will be:
(2,400,000 + 50,000)(28)/(2,500,000)= 27.44%.
(c) If the Preemptive Rights Holders tender
subscriptions, together with the cash consideration therefor
to purchase units of Series B Stock and Warrants in accordance
with the Preemptive Rights Notice and the amount of the units
to be issued and sold by LDI in accordance therewith on the
Post Closing Adjustment Date represent in the aggregate 75,000
or more shares of Series B Stock and Warrants to purchase
309,636 or more shares of the Common Stock, then (x) the
number of Additional Series B Preferred Stock shall be zero,
(y) subject to subsection 2.4.1(d), the Additional Warrants
shall be Warrants to purchase that number of shares of Common
Stock obtained as follows:
Additional Warrant Shares = (96/97)(0.372872)(C+E)-A
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Where:
A= Number of Shares represented by the
Initial Warrants (i.e., 9,908,367)
C= Number of Shares outstanding as of the
Closing (i.e., 26,540,269)
E= Number of Shares represented by the Warrants
purchased by the Preemptive Rights Holders
(unknown on the date of this Agreement)
and (z) the amount of the Additional Cash Consideration shall
be equal to One US Dollar (US$1). In this event the "Final
Advent Percentage" shall be 26.88%.
(d) In the event that between the Closing and the
Post-Closing Adjustment Date the number of shares of Common
Stock which the Advent Entities may purchase pursuant to the
Initial Warrants is adjusted in accordance with the terms of
the Initial Warrants, then the Additional Warrants shall be
Warrants to purchase that number of shares of Common Stock
that the Additional Warrants would have been warrants to
purchase if the Additional Warrants had been issued on the
Closing Date and adjusted in accordance with the terms thereof
between the Closing and the Post-Closing Adjustment Date.
2.4.2 The first of the following dates shall be the "Post
Closing Determination Date":
(a) The day LDI receives executed signature pages of
the Agreement to Waive Preemptive Right included in the
Preemptive Rights Notice and Request for Waiver of Preemptive
Rights, dated July 7, 1997 (the "Preemptive Rights Notice"),
from all of the shareholders of LDI, other than Messrs.
Glassman and Friedland and Island Trading Company (the
shareholders of LDI other than Messrs. Glassman and Friedland
and Island Trading Company being referred herein as the
"Preemptive Rights Holders");
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(b) August 18, 1997, provided that none of the
Preemptive Rights Holders exercised their respective
preemptive right on or before such date; and
(c) In the event one or more Preemptive Rights
Holders exercise their respective preemptive rights, the date
on which Preemptive Rights Holders are required to tender
their subscription price to LDI under their respective
subscriptions for up to the number of units consisting of
shares of Series B Stock and Warrants to purchase the number
of shares of Common Stock to which such Preemptive Rights
Holders are eligible to subscribe. as soon as possible. LDI
shall use its commercially reasonable efforts to ensure that
such date is as soon as possible.
2.4.3 Promptly following the Post Closing Determination Date,
LDI shall provide a written notice to the Advent Entities with the
details of the determination of, and calculations for, the Additional
Series B Stock, the Additional Warrants and the Additional Cash
Consideration and stating a date within five business days thereafter
(the "Post Closing Adjustment Date"), as well as a reasonable hour and
place, for the transactions to be consummated on the Post Closing
Adjustment Date.
2.4.4 In connection with the post-Closing adjustment being
made pursuant to this Section 2.4, LDI represents that, as of the date
hereof, pursuant to that certain letter agreement, dated November 6,
1996, between LDI and ARC Limited Partners, and those certain letter
agreements, dated February 25, 1997, and July 28, 1997, between LDI and
Societe Generale Securities Corporation and Bannon & Co., Inc., certain
other purchasers (the "Other Purchasers") have agreed to purchase in
the aggregate 25,000 shares of Series B Stock and Warrants to purchase
in the aggregate 103,212 shares of Common Stock in exchange for cash
consideration of Two Hundred Fifty Thousand US Dollars (US$250,000).
2.4.5 LDI represents and warrants that all Persons entitled to
receive the Preemptive Rights Notice have been sent the Preemptive
Rights Notice by a means reasonably calculated to reach such Persons
without undue delay. LDI further represents, warrants and covenants
that no Person has been sold or shall be sold any of the securities
referred to in the Preemptive Rights Notice except for:
(a) the Advent Entities;
(b) the Other Purchasers, and to them only in the
amounts set forth previously in Section 2.4.4; and
(c) those Preemptive Rights Holders who exercise
their preemptive rights, and to them only to the extent of
such preemptive rights.
2.5 Warrant Series. The Initial Warrants, the Additional Warrants, the
warrants to be issued to the Other Purchasers as described in Section 2.4.4, and
any warrant certificates issued in
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whole or partial replacement or in substitution for any of the foregoing, shall
be warrants in the "ADV" series of warrants issued by the Company. LDI
represents, warrants and covenants that it has issued and will issue no other
securities, warrants, options or other rights to obtain securities of LDI in the
"ADV" series.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LDI
The term "LDI Affiliate" as used in this Agreement means all
corporations, partnerships, and entities of any kind that are controlled by LDI,
directly or indirectly in whole or in part. The terms "to the knowledge of LDI",
"to LDI's knowledge", "to its knowledge" when reference is made to LDI, and
similar terms mean to the actual knowledge of any of Cliff Friedland, David
Glassman, Marilyn Felos and Mark Neptune and that all such persons have made all
due inquiry. The term "Person" as used in this Agreement means an individual,
partnership, company, corporation or other legal entity, as the context
requires.
The representations and warranties contained in this Article III shall
expire on the second anniversary after the Closing, except that the
representations and warranties in Sections 3.1, 3.2, 3.3, 3.7 and 3.26 shall not
expire, and that the representations and warranties in Sections 3.8, 3.12, and
3.16 shall expire on the expiration of the applicable statute of limitations (if
any).
LDI represents and warrants the following to each of the Advent
Entities as of the date hereof and as of the Closing Date:
3.1 Corporate Standing. Each of LDI and each LDI Affiliate is duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation or organization. Each of LDI and each of the LDI
Affiliates has full corporate authority to own, lease and operate its properties
and businesses, and is in good standing and is qualified to transact business as
a foreign corporation in all states and other jurisdictions in which the nature
of its business or the properties owned by it require it to qualify to transact
business. Schedule 3.1 is a complete and correct list of all the LDI Affiliates.
3.2 Authority. LDI has the full power and authority to enter into,
execute, deliver, and perform this Agreement and each of the documents (the "LDI
Exhibited Documents") set forth as Exhibits to this Agreement to which it is a
party. The execution, delivery and performance of this Agreement and the LDI
Exhibited Documents, and the consummation of all transactions contemplated
herein and therein, have been duly authorized by all necessary corporate and
other actions of LDI and every relevant LDI Affiliate. This Agreement and the
LDI Exhibited Documents, when executed and delivered by the Parties, shall be
valid and binding obligations of LDI, enforceable against it in accordance with
their terms, subject to bankruptcy, insolvency and other similar laws affecting
the rights of creditors generally and except that the remedies of specific
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<PAGE> 8
performance, injunction and other forms of mandatory equitable relief may not be
available. Except as set forth in Schedule 3.2 attached hereto, neither the
execution and delivery of this Agreement nor the execution and delivery of LDI
Exhibited Documents nor the consummation of the transactions contemplated hereby
or thereby by LDI or any LDI Affiliate will (i) conflict with or violate any
provision of the Articles of Incorporation or By-Laws of LDI or of the
constituent or corporate governance documents of any of the LDI Affiliates, (ii)
conflict with or violate any law, rule, regulation, ordinance, order, writ,
injunction, judgment or decree applicable to LDI or any of LDI Affiliates or
their businesses or by which any of their assets is affected, or (iii) conflict
with or result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination or cancellation of, or accelerate the performance
required by or maturity of, or result in the creation of any security interest,
lien, charge or encumbrance on any of LDI's assets or any of the LDI Affiliates'
assets pursuant to any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, permit, license, franchise, lease, contract, or other
instrument or obligation to which LDI or any of the LDI Affiliates is a party or
by which any of their assets is affected. Except as set forth in Schedule 3.2
attached hereto, LDI and the LDI Affiliates are not required to submit any
notice, declaration, report or other filing or registration with any
governmental or regulatory authority or instrumentality, and no approvals or
non-objections are required to be obtained or made by LDI and the LDI Affiliates
in connection with the execution, delivery or performance by LDI of this
Agreement and the LDI Exhibited Documents or the consummation of the
transactions contemplated hereby or thereby.
3.3 Capitalization.
3.3.1 LDI is a Florida corporation having authorized capital
stock consisting of: 100,000,000 shares of common stock, par value
$0.001 per share ("Common Stock"), of which 24,083,713 shares are
issued and outstanding immediately prior to the transactions
contemplated hereby; 2,600,000 shares of Series A Preferred Stock, par
value $0.001 per share ("Series A Stock"), of which 2,456,556 shares
are issued and outstanding immediately prior to the transactions
contemplated hereby; and 5,000,000 shares of Series B Preferred Stock,
par value $0.001 per share ("Series B Stock"), of which no shares are
issued and outstanding immediately prior to the transactions
contemplated hereby. Schedule 3.3.1.A lists all persons or entities
owning of record shares of any class of LDI's capital stock, as well as
the amount and nature of capital stock held by each such person or
entity. Schedule 3.3.1.B lists all persons or entities holding of
record or, to LDI's knowledge, beneficially, options or warrants to
acquire any of LDI's capital stock, as well the amount of capital stock
covered by each such option or warrant and the exercise price therefor.
Except as described in Schedule 3.3.1.C, there are no agreements,
arrangements, warrants, calls, options, convertible rights or other
rights (vested or contingent) to acquire any capital stock of LDI.
There are no Persons which have or are entitled to any preemptive
rights to purchase or acquire any Common Stock, Series A Stock, Series
B Stock, or any other securities of LDI or the LDI Affiliates, except
for the persons listed in Schedule 3.3.1.D along with the date on which
such person's rights expire.
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3.3.2 The rights and preferences of the Common Stock, the
Series A Stock, and the Series B Stock are as defined in the Articles
of Amendment to the Second Restated Articles of Incorporation of LDI
attached hereto in the form of Exhibit B.
3.3.3 The number of shares of Common Stock represented by the
Initial Warrants and the Warrants received pursuant to Section 2.4, if
exercised in accordance with the terms thereof at the close of business
on the Post-Closing Adjustment Date, would constitute that percentage
of the shares of Common Stock issued and outstanding as of the close of
business on that day as equals the Final Advent Percentage. All of the
Series B Stock, when delivered to the Advent Entities at the Closing
Date or the Post-Closing Adjustment Date, as the case may be, will be
validly issued, fully paid and nonassessable, and will be issued by LDI
free and clear of any liens, claims, options, pledges, encumbrances or
restrictions of any nature whatsoever except as contemplated by
Schedule 3.3.3. LDI has the absolute right, power and capacity to issue
and deliver the Securities to the Advent Entities, and at the Closing
Date or Post-Closing Adjustment Date, as the case may be, the Advent
Entities will have good, clean and marketable title to the Securities.
3.3.4 Schedule 3.3.4.A lists all Persons or entities of record
owning shares of any class of capital stock of the LDI Affiliates, as
well as the amount and nature of capital stock held by each such person
or entity of record. Schedule 3.3.4.B lists all persons or entities
holding options or warrants to acquire any capital stock of the LDI
Affiliates, as well the amount of capital stock covered by each such
option or warrant and the exercise price therefor. Except as described
in Schedule 3.3.4.C, there are no agreements, arrangements, warrants,
calls, options, convertible rights or other rights (vested or
contingent) to acquire any capital stock of any LDI Affiliate from such
LDI Affiliate or, to the knowledge of LDI, from any other person.
3.3.5 All of the shares of capital stock of the LDI Affiliates
that are listed in Schedule 3.3.4.A as being owned by LDI are validly
issued, fully paid and nonassessable and all of the options and
warrants to purchase shares of capital stock of the LDI Affiliates
listed on Schedule 3.3.4.B are owned of record and beneficially by LDI
free and clear of any liens, pledges, claims, options, encumbrances or
restrictions of any nature whatsoever except as contemplated by
Schedule 3.3.5.A.
3.4 Operation of the Business. Each of LDI and each of the LDI
Affiliates owns and retains all such assets, tangible or intangible,
contractual, license and leasehold rights necessary for it (i) to operate the
Business (hereinafter defined), and (ii) to utilize the assets and contractual,
license and leasehold rights, in the same manner as they are utilized at the
date of this Agreement. With the exception of those assets used in the Business
of LDI and the LDI Affiliates pursuant to license and leasehold rights in favor
of LDI or the LDI Affiliates (as the case may be), all of the assets used in the
Business of LDI and the LDI Affiliates are owned by LDI or such LDI Affiliate
(as the case may be), and none are owned by any other Person. For purposes of
this Agreement, the
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"Business" means the provision of domestic and international telecommunication
services and products throughout the world.
3.5 No Change. Except as set forth in Schedule 3.5 attached hereto,
there has been no material adverse change since the date of the 1996 Balance
Sheet (as hereinafter defined) in the nature of LDI or any of the LDI Affiliates
and their Business or condition (financial or otherwise), or properties, assets,
liabilities (actual or contingent), operations, or the manner of conducting
their Business, other than changes in the ordinary course of business. Since
December 31, 1996, there has been no event or condition of any character which,
either individually or in the aggregate, might reasonably be expected to affect
in a materially adverse manner the business prospects, operations, properties,
assets, liabilities, earnings or financial condition of LDI or any of the LDI
Affiliates, except no representation or warranty is made in this sentence with
respect to events or conditions of general applicability or generally applicable
to companies engaged in the Business, including, without limitation, those
relating to political, economic, legal, regulatory and technological matters.
Except as set forth in Schedule 3.5 attached hereto, since December 31, 1996,
neither of LDI nor any of the LDI Affiliates have (i) declared or, directly or
indirectly, paid any dividends or made any other distributions or payments of
any kind to their shareholders or partners with respect to their shares of
capital stock, (ii) incurred any indebtedness for borrowed money, (iii) created
or permitted to be created any liens, encumbrances, or adverse charges of any
nature on any of their assets, (iv) discharged, satisfied or paid, in whole or
in part, or permitted to be discharged, satisfied or paid, in whole or in part,
any material obligation or material liability (contingent or absolute) relating
to the Business or the properties of LDI and the LDI Affiliates, other than in
the ordinary course of business, (v) waived or permitted to be waived any right
or claim of any of LDI or any of the LDI Affiliates, or (vi) assigned any
contractual rights to a third person.
3.6 Assets. Except as set forth in Schedule 3.6.A, LDI and each of the
LDI Affiliates has good and marketable title to all of its assets, free and
clear of all mortgages, options, leases, covenants, conditions, agreements,
liens, security interests, adverse claims, restrictions, charges, encumbrances
and rights of others, and there exists no restriction on the use or transfer of
any of the assets of LDI or any of the LDI Affiliates. Schedule 3.6.B sets forth
a list of all machinery or equipment, including without limitation, computer
hardware, used to conduct the Business of LDI and the LDI Affiliates with an
original market value in excess of $10,000 (the "Equipment"), together with the
date of acquisition of each piece of Equipment, and the location of each piece
of Equipment. Schedule 3.6.C sets forth a list of all "Company Software," which
shall include all of LDI's and the LDI Affiliates' software and computer
programs used in their Business, including any software or computer programs not
wholly owned by LDI or the LDI Affiliates ("Third Party Software") embedded
therein, other than off-the-shelf shrink-wrapped software. Except as set forth
in Schedule 3.6.D attached hereto, the tangible assets of LDI and the LDI
Affiliates are in good operating condition and repair, ordinary wear and tear
excepted, and are satisfactory for the purposes for which such assets are being
used in the Business. LDI and the LDI Affiliates do not, and have not since the
date of their formation, owned or have any interest in real estate except as
described in Schedule 3.6.E.
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3.7 Compliance with Laws. Except as listed on Schedule 3.7, the
operation of LDI and the LDI Affiliates and the use of their assets comply with
all applicable federal, state, local and foreign laws, ordinances, rules and
regulations (collectively the "Laws"). LDI and the LDI Affiliates have all
requisite licenses, permits, approvals and certificates from federal, state,
local and foreign governmental and quasi-governmental authorities as may be
necessary to conduct their Business and own and operate their assets (including
without limitation all licenses, permits, approvals and certificates required by
all applicable local, regional and national telecommunication laws, ordinances,
requirements, administrative rules and regulations, including but not limited to
the ordinances and business conditions of the relevant telecommunication
regulatory bodies in the United States and the United Kingdom) and such
licenses, permits, approvals and certificates are valid and in full force and
effect and by their terms, or to LDI's knowledge for any other reason, will not
be terminated or adversely affected by the consummation of the transactions
contemplated hereby. Except as disclosed on Schedule 3.7 attached hereto, LDI
and the LDI Affiliates have not received any written notice alleging any
violations by LDI or any of the LDI Affiliates of any Laws, or of investigations
of LDI or any of the LDI Affiliates initiated by administrative agencies, and,
to the knowledge of LDI, no allegations or investigations are pending or have
been threatened. No organization, governmental authority or public official has
denied or questioned in writing the entitlement of LDI or any of the LDI
Affiliates to operate its business in compliance with the Laws.
3.8 Employee Benefit Plans.
3.8.1 Except as set forth on Schedule 3.8.1.A attached hereto,
with respect to all employees and former employees of LDI and the LDI
Affiliates, LDI, the LDI Affiliates and their ERISA Affiliates (as
defined hereafter) do not maintain, contribute to or have any
liability under:
(a) any bonus, incentive compensation, profit
sharing, retirement, pension, group insurance, death benefit,
group health, medical expense reimbursement, cafeteria,
dependent care, stock option, stock purchase, stock
appreciation rights, savings, deferred compensation,
consulting, severance pay or termination pay, vacation pay,
life insurance, welfare or other employee benefit or fringe
benefit plan, program or arrangement;
(b) any plan, program or arrangement which is an
"employee pension benefit plan" as such term is defined in
Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or an "employee welfare benefit
plan" as defined in Section 3(1) of ERISA.
For purposes of this Agreement, "ERISA Affiliate" shall mean each
person (as defined in Section 3(9) of ERISA) that, together with LDI
and the LDI Affiliates (or any person whose liabilities LDI or any of
the LDI Affiliates have assumed or are otherwise subject to), currently
or in the past would be treated as a single employer under Section
4001(b) of ERISA or that would be deemed to be a member of the same
"controlled group" within the
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meaning of Section 414(b), (c), (m) and (o) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"). The plans,
programs and arrangements set forth on Schedule 3.8.1.A are herein
referred to as the "Employee Benefit Plans."
3.8.2 With respect to all employees and former employees of
LDI and the LDI Affiliates, LDI, the LDI Affiliates and their ERISA
Affiliates do not maintain, contribute to or have any liability under
any funded or unfunded medical, health or life insurance plan or
arrangement for present or future retirees or present or future
terminated employees except as required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"). LDI and the
LDI Affiliates do not, and the ERISA Affiliates of LDI and the LDI
Affiliates do not, maintain or contribute to a trust, organization or
association described in any of Sections 501(c)(9), 501(c)(17) or
501(c)(20) of the Internal Revenue Code.
3.8.3 The sole Employee Benefit Plan which has ever been
maintained by LDI, the LDI Affiliates and their ERISA Affiliates
complies with the provisions of Section 401(a) of the Internal Revenue
Code and is the Long Distance International Inc. 401(k) Employee
Savings Plan (the "Savings Plan"), which was adopted by LDI, effective
as of January 1, 1997. An application for a determination letter from
the Internal Revenue Service ("IRS") for the Savings Plan has been
prepared, but has not yet been submitted to the IRS. To the knowledge
of LDI, the Savings Plan is in material compliance, both in form and in
operation, with the provisions of Section 401(a) of the Internal
Revenue Code, and LDI intends to take all further reasonable steps
necessary to obtain a positive determination letter from the IRS for
the Savings Plan, including submitting the application for a
determination letter on a timely basis and the adoption of retroactive
amendments requested by the IRS in response to the determination letter
application.
3.8.4 With respect to each Employee Benefit Plan which is
subject to Title I of ERISA, LDI, the LDI Affiliates and their ERISA
Affiliates have complied with all of the applicable reporting,
disclosure or other requirements of ERISA and the Internal Revenue
Code, and there has been no non-exempt "prohibited transaction" as
described in Section 4975 of the Internal Revenue Code or Section 406
of ERISA.
3.8.5 LDI, the LDI Affiliates and their ERISA Affiliates, and
their respective directors, officers, employees and other
"fiduciaries," as such term is defined in Section 3(21) of ERISA, have
no material liability for failure to comply with ERISA or the Internal
Revenue Code for any action or failure to act in connection with the
administration or investment of the Employee Benefit Plans.
3.8.6 With respect to any Employee Benefit Plan which is
subject to Section 412 of the Internal Revenue Code or Section 302 of
ERISA, there has been no "accumulated funding deficiency" within the
meaning of Section 302 of ERISA or Section 412 of the Internal Revenue
Code (whether or not waived). With respect to the Employee Benefit
Plans, all applicable contributions and premium payments for all
periods ending prior to the
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Closing Date (including periods from the first day of the then current
plan year to the Closing Date) have been made, and shall be made prior
to the Closing Date in accordance with past practice and, with respect
to each Employee Benefit Plan subject to Title IV of ERISA, the
recommended contribution in the applicable actuarial report. No
Employee Benefit Plan has any unfunded liability.
3.8.7 The actuarially determined present value of all accrued
benefits under each Employee Benefit Plan subject to Title IV of ERISA
(computed on a plan termination basis) does not exceed the fair market
value of the assets of each such Employee Benefit Plan.
3.8.8 LDI, the LDI Affiliates and their ERISA Affiliates do
not maintain, contribute to or have any liability (including current or
potential withdrawal liability) with respect to any "multiemployer
plan" as such term is defined in Section 3(37) of ERISA.
3.8.9 LDI, the LDI Affiliates and their ERISA Affiliates do
not maintain, and have not maintained, an employee pension benefit plan
that has been the subject of a "reportable event," as that term is
defined in Section 4043 of ERISA, as to which notices would be required
to be filed with the Pension Benefit Guaranty Corporation ("PBGC"), or
of any event requiring disclosure under Section 4063(a) of ERISA. LDI,
the LDI Affiliates and their ERISA Affiliates have not incurred any
outstanding liability under Section 4062 of ERISA to the PBGC. All
premiums or other amounts due and payable to the PBGC have been paid.
LDI, the LDI Affiliates and their ERISA Affiliates have not terminated
any employee pension benefit plan subject to Title IV of ERISA, and no
proceeding by the PBGC to terminate any employee pension benefit plan
pursuant to Title IV of ERISA has ever been instituted or (to their
knowledge) threatened, no notice of any such termination has been
received and no condition exists for the termination of an Employee
Benefit Plan.
3.8.10 There is no pending or threatened legal action,
proceeding or investigation against or involving any Employee Benefit
Plan (other than routine claims for benefits) and, to the knowledge of
LDI, there is no basis for or fact which could give rise to any such
legal action, proceeding or investigation. Any bonding required with
respect to the Employee Benefit Plans in accordance with applicable
provisions of ERISA has been obtained and is in full force and effect.
3.8.11 Except as set forth on Schedule 3.8.11,
(a) None of LDI or any LDI Affiliates is party to any
employment agreement, whether written or oral, or agreement
with change in control or similar provisions, or collective
bargaining agreement or contract with any labor union relating
to any employees or former employees;
(b) LDI and the LDI Affiliates do not have
outstanding loans to any current or former employees, and they
have not guaranteed any such loans;
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(c) No amount payable to an employee or former
employee of LDI and the LDI Affiliates will be an "excess
parachute payment" which is non-deductible under Section 280G
of the Internal Revenue Code.
3.8.12 To the knowledge of LDI, there has been no act or acts
which would result in a disallowance of a deduction or the imposition
of a tax pursuant to Section 4980B, or with regard to plan years
beginning before December 31, 1988, Section 162(i) of the Internal
Revenue Code as in effect immediately prior to the enactment of the
Technical and Miscellaneous Revenue Act of 1988, or any regulations
promulgated thereunder, whether final, temporary or proposed. To the
knowledge of LDI, no event has occurred with respect to which LDI, the
LDI Affiliates or their ERISA Affiliates could be liable for a tax
imposed by any of Sections 4972, 4976, 4977, 4979, 4980 or 4980B of the
Internal Revenue Code, or for a civil penalty under Section 502(c) of
ERISA.
3.8.13 With respect to each of the Employee Benefit Plans, LDI
has delivered to the duly authorized representative of the Advent
Entities true and complete copies of: (i) the plan documents, including
any related trust agreements, insurance contracts or other funding
arrangements, or a written summary of the terms and conditions of the
plan if there is no written plan document; (ii) the most recent
determination letter received from the Internal Revenue Service; (iii)
the most recent IRS Form 5500; (iv) the most recent actuarial
valuation; (v) the most recent financial statement; (vi) all
correspondence with the Internal Revenue Service, the Department of
Labor and the Pension Benefit Guaranty Corporation with respect to the
past three plan years other than IRS Form 5500 filings and PBGC premium
payments; and (vii) the most recent summary plan description.
3.9 Financial Statements. Attached hereto as Schedule 3.9.A is the
consolidated balance sheet with the notes thereto (the "1996 Balance Sheet") of
LDI and the LDI Affiliates, as of and for the year ending December 31, 1996, the
consolidated income statement of LDI, including the LDI Affiliates, for the
twelve (12) months then ended (the "12-month statement") and the consolidated
balance sheet and income statement for the period from January 1, 1997 through
March 31, 1997 (along with the 12-month statement and the 1996 Balance Sheet,
collectively the "Financial Statements") together with the report thereon of
LDI's certified public accountants. The Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis. The assets, liabilities, income and expenses of LDI, including
the LDI Affiliates, are fairly valued in all material respects and accurately
reflected on the Financial Statements.
3.10 Intentionally Omitted.
3.11 Litigation. Other than as listed in Schedule 3.11 attached hereto,
there is no claim, counterclaim, suit, order, proceeding, action, or
investigation pending, written notice of which has been received, or, to their
knowledge, threatened against LDI or the LDI Affiliates or any of their
respective officers, directors, or employees (in such capacity). None of LDI or
any of the LDI
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Affiliates is plaintiff or petitioner in any litigation or proceeding other than
as listed in Schedule 3.11.
3.12 Agreements, Leases and Licenses. LDI has provided true and
accurate copies to the duly-authorized representative of the Advent Entities of
all leases, licenses, contracts and agreements of LDI or any of the LDI
Affiliates with payments to be made or received thereunder in excess of $10,000
per year, including all amendments or modifications thereto (the "Delivered
Contracts"). Schedule 3.12A contains a complete list of the Delivered Contracts.
Other than the Delivered Contracts and the contracts and agreements listed on
Schedule 3.12B, there are no leases, licenses, contracts or agreements necessary
(i) to operate the Business of LDI and the LDI Affiliates as operated at the
date hereof, or (ii) to utilize the assets and contractual, license and
leasehold rights in the same manner as LDI and the LDI Affiliates utilize such
assets and contractual, license and leasehold rights as at the date hereof. (The
agreements, contracts and other items on Schedules 3.12A and 3.12B are
collectively referred to as the "Contracts"). Neither LDI nor any of the LDI
Affiliates is in default under any of the Contracts and, to LDI's knowledge, no
other party to any of the Contracts is in default thereunder. No event has
occurred which with the passage of time or the giving of notice or both that
would constitute a default by LDI or an LDI Affiliate under any of the
Contracts. Each of the Contracts, to LDI's knowledge, is appropriate in nature
and scope of the operation of the Business. Except as set forth on Schedule
3.12C, each of the Contracts is valid, binding and enforceable against LDI and
the LDI Affiliates and to its knowledge each other party thereto in accordance
with its terms without any defenses, setoffs, counterclaims or disputes of any
nature and is in full force and effect. To LDI's knowledge, no purchase
commitment for materials, supplies, component parts or items of inventory of the
business to which LDI or any of the LDI Affiliates is a party is in excess of
the ordinary, normal, usual and current requirements of the Business or at a
price in excess of the current reasonable market price. To LDI's knowledge, no
Contract which relates to the Business obligates LDI or any of the LDI
Affiliates (i) to provide products or services to third Persons which LDI or any
of the LDI Affiliates knows or has reason to believe are at prices which would
result in a net loss on the sale or provision of such products or services, or
which are pursuant to terms or conditions it cannot reasonably expect to satisfy
or fulfill in their entirety, or (ii) to purchase or acquire services,
information, products, inventory or equipment in excess of the normal, ordinary,
usual and current requirements of the Business or at a price in excess of the
current reasonable market price. LDI and the LDI Affiliates have not waived any
right under any Contract, whether by action or inaction or otherwise. LDI and
the LDI Affiliates are not a party to, and their assets are not bound by, any
agreement that is adverse to the Business. LDI and the LDI Affiliates have not
received written notice that any party to any of the Contracts intends to cancel
or terminate any Contract prior to maturity.
3.13 Environmental and Health and Safety Matters.
3.13.1 Set forth on Schedule 3.13.1 attached hereto is a true,
accurate and complete list of all real property, owned, leased and/or
otherwise used or occupied by LDI or any of the LDI Affiliates (the
"Property").
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3.13.2 To the knowledge of LDI, except as set forth in
Schedule 3.13.2, LDI, all the LDI Affiliates, any predecessors related
to the business conducted by LDI or any LDI Affiliate, and the Property
have been at all times and are in material compliance with any
governmental statute, law, ordinance, code, rule, regulation, order or
decree or any decision, conclusion or determination made by a
government official relating to or imposing liability or standards of
conduct regarding any air emission, water discharge or use, storage,
handling, generation or disposal of any Hazardous Substances (as
defined below), including, without limitation, the following all
regulations which have been promulgated thereunder: the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Air
Act, the Clean Water Act, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act, the Used Oil Recycling Act, the
Occupational Safety and Health Act, the Federal Safe Drinking Water
Act, the Federal Water Pollution Control Act, the Oil Pollution Act,
the Emergency Planning and Community Right-to-Know Act, and all other
federal, state, tribal and local laws, rules and regulations relating
to protection of human health and the environment, reclamation of land,
wetlands and waterways or relating to the use, storage, emissions,
discharge, clean-up or release of Hazardous Substances on or into the
work-place or the environment (including, without limitation, ambient
air, oceans, waterways, wetlands, surface water, ground water
(tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation or handling of
contaminants (the "Environmental Laws"). For purposes of this
Agreement, the term "Hazardous Substances" shall mean industrial, toxic
or hazardous substances, materials or wastes or other pollutants,
contaminants, petroleum products, asbestos, polychlorinated biphenyls
("PCBs") or chemicals, all as defined and regulated under Environmental
Law.
3.13.3 To the knowledge of LDI, LDI and the LDI Affiliates
have obtained and are in material compliance with all permits, licenses
and other consents or authorizations which are required with respect to
the operation of their businesses under the Environmental Laws,
including without limitation those that are required to (a) operate or
install any equipment or facilities and (b) generate, manufacture,
formulate, store, treat, handle, transport, discharge, emit or dispose
of Hazardous Substances generated by their businesses, a true and
complete list of which is included in Schedule 3.13.3 except for those
Hazardous Substances routinely stored, handled, transported or
discharged in the day to day operations in compliance with applicable
law.
3.13.4 To LDI's knowledge, except as listed in Schedule
3.13.4.A, there are no PCBs, TCE, PCE, or asbestos containing materials
generated, used, treated, stored, maintained, disposed of, or otherwise
deposited in, located on, or related to the Property, the businesses of
LDI or the LDI Affiliates or their predecessors, or any premises at
which the businesses of LDI, the LDI Affiliates or their predecessors
were or are located. Additionally, except as described in Schedule
3.13.4.B, there are and, to LDI's knowledge, were no underground
storage tanks used, stored, maintained, located on or otherwise related
to the Property, the businesses of LDI or the LDI Affiliates or their
predecessors, or any premises
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<PAGE> 17
at which the businesses of LDI or the LDI Affiliates or their
predecessors were or are located. To the knowledge of LDI, LDI and the
LDI Affiliates have removed and properly disposed of all used or other
obsolete materials regulated by environmental, health and safety laws,
including chemical or other hazardous substances or wastes, that are
not used by LDI or the LDI Affiliates. With respect to underground
storage tanks, Schedule 3.13.4.B sets forth all information in the
possession of LDI pertaining to the size, location, construction,
installation date, use and testing history of all such underground
storage tanks (whether or not excluded from regulation under
Environmental Laws), including all underground storage tanks in use,
out of service, closed, abandoned or decommissioned.
3.13.5 To the knowledge of LDI, there has been no unlawful or
material "release" as defined in 42 U.S.C. Section 9601(22) or, threat
of a "release" of any Hazardous Substance on, from or under any
premises from which the operations of LDI or the LDI Affiliates or
their predecessors have been or are being conducted.
3.13.6 To the knowledge of LDI, LDI, the LDI Affiliates and
their predecessors have not received notice that any of them have any
potential liability with respect to the contamination, investigation,
or cleanup of any site at which Hazardous Substances have been or have
alleged to have been generated, treated, stored, released, discharged,
emitted or disposed of, and there are no past or present events, facts,
conditions or circumstances which may interfere with or prevent
compliance by the businesses of LDI or the LDI Affiliates in accordance
with Environmental Laws, or with any order, decree, judgment,
injunction, notice or demand issued, entered, promulgated or approved
thereunder, or which may give risk to any common law or other legal
liability, including, without limitation, liability under any
Environmental Laws, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, notice of violation, study or
investigation, based on or related to the manufacture, process,
distribution, use, treatment, storage, disposal, transport or handling,
or the emission, discharge, release or threatened release into the
environment of Hazardous Substances by LDI or the LDI Affiliates or
their predecessors, as a result of any act or omission of LDI or the
LDI Affiliates or their predecessors.
3.13.7 To the knowledge of LDI, Schedule 3.13.7 contains a
true, correct and complete listing of the methods used by LDI, the LDI
Affiliates and any predecessor (including, but not limited to, a list
of past and present disposal or recycling sites, waste haulers, and
manifest numbers) since January 1, 1980 to dispose of or recycle
Hazardous Substances generated by the operations and activities of LDI,
the LDI Affiliates or their predecessors.
3.13.8 To the knowledge of LDI, except as disclosed in
Schedule 3.13.8, all of LDI's, the LDI Affiliates', and their
predecessors' disposal and recycling practices relating to Hazardous
Substances have been accomplished in accordance with all applicable
Environmental Laws.
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<PAGE> 18
3.14 Intellectual Property. Each of LDI and the LDI Affiliates owns or
has adequate rights to use all patents, trademarks, service marks, trade names,
service names, copyrights, technology, know-how, processes, trade secrets, and
other intellectual property, intangible property and proprietary rights
(collectively, "Intangible Property") used in or necessary for the conduct of
its Business as now conducted and as proposed to be conducted without, to LDI's
knowledge, any infringement of or alleged infringement of the rights or alleged
rights of others. Schedule 3.14.A lists all of the Intangible Property other
than off-the-shelf shrink-wrapped software. To the knowledge of LDI, none of the
Intellectual Property has been held or stipulated to be invalid in any
litigation or proceeding. None of LDI's and the LDI Affiliates' rights to the
Intangible Property has been questioned in any litigation or proceeding that is
currently pending or that (to LDI's or LDI Affiliates' knowledge) has been
threatened, and there exists no basis for a claim against LDI or any of the LDI
Affiliates for infringement of any third Person's Intangible Property. LDI and
the LDI Affiliates have not received written notice to the effect that any
service they perform or sell may infringe any Intangible Property of another.
Except as set forth in Schedule 3.14.B, LDI and the LDI Affiliates have not
entered into or become party to any development, work for hire, license or other
agreement pursuant to which they have secured the right or obligation to use, or
granted others the right or obligation to use, any Intangible Property.
3.15 Related Party Transactions. Since December 31, 1995, no officer,
director, or person in a similar position of LDI or any of the LDI Affiliates or
any affiliate thereof has, directly or indirectly, entered into any transaction
with LDI or any of the LDI Affiliates except for any arrangements which are
either (i) disclosed on the 1996 Balance Sheet, (ii) listed on Schedule 3.15
attached hereto, or (iii) constitute compensation in the ordinary course of
business in an aggregate amount per year less than $50,000. For purposes of this
Section only, the term "affiliate" of LDI or of the LDI Affiliates shall mean
and include any officer or director or shareholder of LDI or any of the LDI
Affiliates or any person related to any such officer, director or shareholder by
blood or by marriage, or any corporation, partnership, proprietorship, trust or
other entity in which such officer, director or shareholder (or any spouse,
ancestor or descendant of the same) has more than a five percent (5%) legal or
beneficial interest, or any corporation, partnership, proprietorship, trust or
other entity which controls, is controlled by or is under common control with
LDI or any of the LDI Affiliates.
3.16 Increases in Salaries and Wages. Except as listed in Schedule 3.16
attached hereto, LDI and the LDI Affiliates have not, since December 31, 1996,
paid any salary, wage, bonus payments or any other benefits to its employees at
rates exceeding the respective rates paid to such employees which were in effect
at December 31, 1996.
3.17 Taxes. Except as otherwise indicated on Schedule 3.17.A, as to any
tax imposed by the Federal government, or any state government or any
subdivision or municipality thereof, or the government of any other country or
political subdivision thereof, including, without limitation, (i) taxes imposed
on or measured by income, (ii) taxes based on employment (including amounts
withheld from employees' compensation), and (iii) any property, franchise,
sales, use or value added tax, which, in each case, relates to or could cause a
lien or encumbrance upon any of the assets or
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the businesses of LDI or any of the LDI Affiliates, LDI and each of the LDI
Affiliates has timely (including any applicable extensions), properly and
lawfully filed all returns and elections necessary to be filed and has paid in
full the applicable taxes due on such returns (other than those being contested
in good faith), no claims for any unpaid taxes, interest or penalties are being
asserted by any governmental authority, for any period, against LDI or any of
the LDI Affiliates or any assets of LDI or any of the LDI Affiliates. LDI and
the LDI Affiliates have not paid and are not required to pay any income taxes to
any country other than those listed on Schedule 3.17.B attached hereto, or to
any state other than those listed on Schedule 3.17.C attached hereto. LDI and
each of the LDI Affiliates pays property, franchise, sales, use or value added
taxes, with respect to their businesses and properties only in those countries,
states or political subdivisions listed on Schedule 3.17.D attached hereto. LDI
and each of the LDI Affiliates has timely filed and paid all estimated taxes due
on or prior to the Closing Date. LDI has furnished the duly authorized
representative of the Advent Entities with true and complete copies of each of
the Federal, state, local and foreign income and excise tax returns, and
franchise, sales, use and value added tax returns, and any amendments thereto,
of LDI and all of the LDI Affiliates, as they relate to taxable periods since
the date of incorporation of LDI and LDI has made available to the Advent
Entities all reports of and communications from the Internal Revenue Service
("IRS") and the corresponding taxing authorities of any other state, local and
foreign governmental agencies who have examined the books and records of LDI or
any of the LDI Affiliates at any time including and since the date of
incorporation of LDI. Except as disclosed on Schedule 3.17.E attached hereto, to
the knowledge of LDI, no audit or examination of LDI or any of the LDI
Affiliates by any taxing authority or agency is now pending or currently in
progress, and LDI and the LDI Affiliates have not received from any taxing
authority or agency any notice of such an audit or examination. No waiver of any
statute of limitations has been given and is in effect in respect to the
assessment of any taxes against LDI or any of the LDI Affiliates.
3.18 Employee Salaries and Benefits. LDI has provided the duly
authorized representative of the Advent Entities with an accurate list of all
salaried employees of LDI and each of the LDI Affiliates, and the current rate
of compensation for each such employee (including a separate statement of
bonuses and fringe benefits). Except as listed on Schedule 3.18, there is no
liability for unpaid salary or wages, bonuses, vacation time, or other employee
benefits due or accrued, nor liability for withheld or deducted amounts from
employees' earnings, for the period ending on or immediately prior to the
Closing Date, including without limitation commission payments to employees,
other than in the ordinary course of business. There are no labor disputes,
strikes, work stoppages or other interruptions in service or performance by
employees, and all relationships between LDI and its employees, and between the
LDI Affiliates and their employees, are generally stable and satisfactory.
3.19 Insurance. Each of LDI and LDI Affiliates maintains in effect, and
since January 1, 1996, has maintained in effect general liability insurance,
workers' compensation insurance, insurance for acts or omissions by employees
and directors, and other insurance covering their businesses and fire and
extended coverage insurance with respect to their properties and assets.
Schedule 3.19 attached hereto is a complete list of all insurance policies
(including the amount of coverage thereunder) in effect at present. All such
insurance policies are owned solely and
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exclusively by LDI or the LDI Affiliates, as the case may be. No event has
occurred that may enable an insurer to rescind any such policies in accordance
with the respective terms of such policies.
3.20 Customer and Supplier Relationships; Warranty Claims. LDI and the
LDI Affiliates have not received any notice that any customer, subscriber,
operator, programmer or supplier of LDI or any of the LDI Affiliates, as of the
date hereof, intends to discontinue or alter the prices or terms of, or
substantially diminish, its relationship with LDI or the LDI Affiliates, except
where such discontinuation, alteration, diminution has not had and is not likely
to have, individually or in the aggregate, a material adverse effect. Other than
as set forth on Schedule 3.20, since the date of incorporation of LDI, there are
no outstanding warranty claims against LDI or any of the LDI Affiliates with
respect to products sold or services rendered by LDI or any of the LDI
Affiliates.
3.21 Accounts Receivable and Notes Receivable. The accounts receivable
and notes receivable of LDI and the LDI Affiliates, other than those listed on
Schedule 3.21, represent bona fide claims which LDI and the LDI Affiliates have
against debtors for sales or services arising on or before the Closing Date, are
not subject to counterclaims, setoffs or deductions of any kind, and are not
subject to additional requirements of performance by LDI or the LDI Affiliates.
The aggregate amount of customer advance payments (i.e., payments in excess of
actual work performed or materials supplied as of the date of such payment)
received by LDI or the LDI Affiliates at or prior to the Closing Date with
respect to such accounts receivable does not exceed $100,000. All of the
accounts receivable and notes receivable have been created since the date of
incorporation of LDI, pursuant to provision of services conforming to the terms
of purchase orders executed by and received from unrelated third Persons in the
normal course of business. Such receivables have been recorded in accordance
with LDI's or the relevant LDI Affiliate's historical revenue recognition policy
and have been collected or are collectable in accordance with their terms at the
full recorded amount thereof no later than 90 days following the Closing.
3.22 Accounts Payable. The accounts payable of LDI and the LDI
Affiliates represent bona fide claims which creditors have against them for
sales or services, are not subject to counterclaims, setoffs or deductions by
them, and are not subject to additional requirements of performance due to them.
All of the accounts payable have been created pursuant to receipt of goods or
services conforming to the terms of purchase orders executed in favor of
unrelated third Persons in the normal course of business.
3.23 Bonds; Guarantees. Other than as listed on Schedule 3.23 or as
specifically described in the Financial Statements, there are no bonds,
guarantees, notes, sureties, letters of credit, or other similar credit
agreements or debt obligations that exist with respect to LDI or the LDI
Affiliates, their Businesses or any of their assets. LDI and the LDI Affiliates
are not in default on the payment of any principal or interest on any
indebtedness for borrowed money, nor are they otherwise in default under any
indemnity, fidelity or contract bond or letter of credit, note, guarantee or
other credit agreement or debt obligation or instrument.
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3.24 Absence of Undisclosed Liabilities. Except as reserved against or
reflected in, or in the notes forming part of, the Financial Statements, or
described in Schedule 3.24, LDI and the LDI Affiliates are not subject to any
liability or financial obligation (known or unknown, direct or indirect,
absolute, contingent, accrued or otherwise), other than liabilities or financial
obligations arising in the ordinary course of business since the date of the
Financial Statements. LDI and the LDI Affiliates do not know of any facts or
circumstances which might reasonably serve as the basis for any liabilities or
financial obligations which are not disclosed in the Schedules, except no
representation or warranty is made with respect to events or conditions of
general applicability or generally applicable to companies engaged in the
Business, including, without limitation, those relating to political, economic,
legal, regulatory and technological matters.
3.25 Intentionally Omitted.
3.26 Charter Documents. LDI has delivered to the duly-authorized
representative of the Advent Entities certified copies of its Second Restated
Articles of Incorporation (which, as amended by the Articles of Amendment
attached as Exhibit B are the currently effective Articles of Incorporation of
LDI) and of its By-Laws and of the constituent and corporate governance
documents of each of the LDI Affiliates, as amended to date (if applicable), as
of the date of this Agreement. Such documents are complete, correct and current.
The minute books, which have been made available for the Advent Entities'
review, contain complete, correct and current records of all meetings and other
corporate actions of the stockholders and Board of Directors of each of LDI and
each of the LDI Affiliates since the date of incorporation of LDI.
3.27 Subsidiaries and Affiliates. Schedule 3.27 lists all subsidiaries
and Affiliates of each of the LDI Affiliates.
3.28 Location of Facilities. Schedule 3.28 is a complete list of all
facilities, together with the locations of such facilities, at which LDI's and
the LDI Affiliates' material assets are situated, together with a description of
the nature of such material assets at each such location.
3.29 Financial Model. LDI has prepared and delivered to the duly
authorized representative of the Advent Entities a financial model attached as
Schedule 3.29 (the "Model") projecting revenues, and operating expenses of the
Business for LDI and the LDI Affiliates. The historical financial data set forth
in the Model, and utilized in preparing the Model, are correct and complete in
all material respects.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH OF THE ADVENT ENTITIES
The representations and warranties contained in this Article IV shall
expire on the second anniversary of the Closing, except that the representations
and warranties in Sections 4.1 and 4.2 shall not expire.
Each of the Advent Entities represent and warrant, severally and not
jointly, the following to LDI as of the date hereof and as of the Closing Date:
4.1 Good Standing. Each of the Advent Entities is a limited partnership
duly organized, validly existing, and in good standing under the laws of
Delaware, except that Four Seasons Venture II AS is a limited company duly
organized, validly existing, and in good standing under the laws of Norway. Each
of the Advent Entities has full authority to own, lease and operate its
properties and businesses, and is in good standing and is qualified to transact
business as a foreign limited partnership or foreign corporation in all states
in which the nature of its business or the properties owned by it require it to
qualify to transact business, except to the extent that the failure to be
qualified or be in good standing would not have a material adverse effect on the
Advent Entities.
4.2 Authority. Each of the Advent Entities has the full power and
authority to enter into, execute, deliver, and perform this Agreement and each
of the documents (the "Advent Exhibited Documents") set forth as Exhibits to
this Agreement to which it is a party. The execution, delivery and performance
of this Agreement and the Advent Exhibited Documents and the consummation of all
transactions contemplated herein and therein, have been duly authorized by all
necessary action of each of the Advent Entities. This Agreement and the Advent
Exhibited Documents, when executed and delivered by the Parties, shall be valid
and binding obligations of each of the Advent Entities, enforceable against it
in accordance with the terms hereof and thereof, subject to bankruptcy,
insolvency and other similar laws affecting the rights of creditors generally
and except that the remedies of specific performance, injunction and other forms
of mandatory equitable relief may not be available. Except as set forth in
Schedule 4.2 attached hereto, neither the execution and delivery of this
Agreement nor the execution and delivery of the Advent Exhibited Documents nor
the consummation of the transactions contemplated hereby or thereby will (i)
conflict with or violate any provision of the constituent documents of any of
the Advent Entities, (ii) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction, judgment or decree applicable to any of the
Advent Entities, or its business, or by which any of the Advent Entities' assets
are bound or affected, or (iii) conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination or
cancellation of, or accelerate the performance required by or maturity of, or
result in the creation of any security interest, lien, charge or encumbrance on
any of the Advent Entities' assets pursuant to any of the terms, conditions or
provisions of, any note, bond, mortgage, indenture, permit, license, franchise,
lease, contract, or other instrument or obligation to which any of the
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Advent Entities is a party or by which any of its assets are bound or affected.
Except as set forth in Schedule 4.2 attached hereto, none of the Advent Entities
is required to submit any notice, declaration, report or other filing or
registration with any governmental or regulatory authority or instrumentality
and no approvals or non-objections are required to be obtained or made by any of
the Advent Entities in connection with the execution, delivery or performance by
such Advent Entity of this Agreement and the Advent Exhibited Documents or the
consummation of the transactions contemplated hereby or thereby.
4.3 Registration. Each of the Advent Entities understands that the
Securities to be purchased by it under this Agreement have not been registered
under the Securities Act of 1933, as amended (the "Act"), in reliance upon
exemptions contained in the Act or interpretations thereof, and cannot be
offered for sale, sold or otherwise transferred unless the Securities being
acquired hereunder subsequently are offered, sold or transferred in a
transaction that is so registered or qualifies for exemption from registration
under the Act.
4.4 Own Account. Each of the Advent Entities is acquiring the
Securities under this Agreement solely for its own account, for investment and
not with a view toward resale or other distribution within the meaning of the
Act. The Securities will not be offered for sale, sold or otherwise transferred
by such Advent Entity without either registration or exemption from registration
under the Act.
4.5 Financial Matters. Each of the Advent Entities has such knowledge
and experience in financial and business matters that such Advent Entity is
capable of evaluating the merits and risks of such Advent Entity's investment in
the Securities being acquired hereunder. Each of the Advent Entities understands
and is able to bear any economic risks associated with such investment
(including, without limitation, the necessity of holding the Securities for an
indefinite period of time, inasmuch as the Securities have not been registered
under the Act).
ARTICLE V
DELIVERIES ON CLOSING DATE BY LDI
At the Closing herein defined, LDI shall deliver to the duly authorized
representative of the Advent Entities the following:
5.1 Officers Certificate. An officers certificate of Clifford
Friedland, Chairman, and David Glassman, President, each dated the Closing Date,
certifying to the best of the knowledge and belief of each such person that each
of LDI's representations and warranties taken as a whole are true and correct in
all material respects as of the Closing Date.
5.2 Good Standing. Certificates of good standing in the state or
country of incorporation for each of the LDI Affiliates.
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5.3 Legal Opinion. A legal opinion from Loeb & Loeb LLP, counsel to
LDI.
5.4 Corporate and Third Party Authorizations. The approval for the
transactions contemplated by this Agreement from the following:
5.4.1 The Board of Directors of LDI; and
5.4.2 The shareholders of LDI.
5.5 Articles of Amendment. Evidence of the filing with the Secretary of
State of Florida of and the effectiveness of, the Articles of Amendment to
Second Restated Articles of Incorporation of LDI attached hereto as Exhibit B.
5.6 Ancillary Agreements. Shareholders Agreement in the form attached
hereto as Exhibit C duly executed by LDI and by Clifford Friedland and David
Glassman, a Registration Rights Agreement in the form attached hereto as Exhibit
D duly executed by LDI; Warrant Certificates in the form attached hereto as
Exhibit A duly executed by LDI; and a Preemptive Rights Agreement in the form
attached hereto as Exhibit E duly executed by LDI, Clifford Friedland, and David
Glassman.
5.7 Directors. Evidence of the election of Scott Lanphere and Olaf
Krohg as Advent Entities' initial representatives to LDI's Board of Directors as
directors of LDI.
5.8 Stock Option Plan. Evidence of the adoption by the Board of
Directors of the Company of the Stock Option Plan attached hereto as Exhibit F.
5.9 Committees. Evidence of the adoption by the Board of Directors of
the Company of resolutions creating an Audit Committee, an Investment Committee,
and a Compensation Committee.
5.10 Waivers of Preemptive Rights. Waivers of the preemptive rights
described in LDI's notice dated July 7, 1997, attached hereto as Exhibit G,
executed by Clifford Friedland, David Glassman, and Island Trading Company, as
well as waivers of such rights by other shareholders holding in the aggregate at
least 19.5% of the shares of capital stock of LDI immediately before the
Closing.
5.11 Resolutions. A copy of resolutions adopted by the Board of
Directors of LDI and by the shareholders of LDI, certified by the Secretary of
LDI, authorizing or ratifying the execution and delivery of this Agreement and
the Exhibits hereto, and the performance by LDI of its obligations hereunder and
thereunder.
5.12 Undertaking. An undertaking of Clifford Friedland and David
Glassman as directors of LDI with respect to amending the bylaws of LDI to
provide for the committees mentioned in
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Section 5.9 and to provide for the payment of directors' expenses, and not
thereafter voting in favor of any amendment to the bylaws that would eliminate
such provisions.
5.13 Waivers of Series A Rights. Waivers executed by certain of the
holders of record of any shares of the Series A Stock waiving any and all rights
(including without limitation statutory appraisal rights and contractual rights)
created by, or arising as a result of, the amendment to the Second Restated
Articles of Incorporation of LDI as contemplated by this Agreement, attached
hereto as Exhibit B.
ARTICLE VI
DELIVERIES ON CLOSING DATE BY ADVENT
At the Closing, each of the Advent Entities shall deliver to LDI the
following:
6.1 Officers Certificate. A certificate of its duly-authorized
representative dated the Closing Date, certifying to the best of the knowledge
and belief of each such person that such Advent Entity's representations and
warranties taken as a whole are true and correct in all material respects as of
the Closing Date.
6.2 Good Standing. A certificate of good standing in its state of
organization, or similar document for an entity organized outside the United
States of America.
6.3 Legal Opinion. Legal opinions from counsel to the Advent Entities.
6.4 Investment Committee Authorizations. Evidence of the approval for
the transactions contemplated by this Agreement from the Investment Committee.
6.5 Ancillary Agreements. Shareholders Agreement in the form attached
hereto as Exhibit C duly executed by each of the Advent Entities; the
Registration Rights Agreement in the form attached hereto as Exhibit D duly
executed by each of the Advent Entities; and a Preemptive Rights Agreement in
the form attached hereto as Exhibit E duly-executed by each of the Advent
Entities..
ARTICLE VII
CLOSING
The actual consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place on July 28, 1997 (the "Closing
Date"), at the offices of Loeb & Loeb LLP, 345 Park Avenue, New York, New York
10154, unless otherwise agreed by the Parties.
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ARTICLE VIII
FURTHER ASSURANCES OF THE PARTIES
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LDI and each of the Advent Entities shall, as described below, each
perform the indicated tasks designated to be performed by them:
8.1 Further Assurances of LDI. LDI agrees that, from time to time and
without further consideration, it will:
8.1.1 execute and deliver such further documents and take such
other action as any of the Advent Entities may reasonably require to
implement and effectuate the transactions contemplated in this
Agreement, and
8.1.2 if the Advent Entities so request, and if mutually
agreeable terms therefor can be negotiated between the Parties acting
in good faith, loan to the Advent Entities such funds as may from time
to time be required by the Advent Entities, their affiliates, or some
of the foregoing, for the payment of U.S. income and/or U.S.
withholding taxes relating to the Securities; and
8.1.3 use reasonable efforts to cause all the present holders
of shares of LDI's capital stock to execute and become parties to the
Preemptive Rights Agreement attached hereto as Exhibit E.
8.2 Further Assurances of Advent. Each of the Advent Entities agrees
that, from time to time and without further consideration, it will execute and
deliver such further documents and take such other action as LDI may reasonably
require to implement and effectuate the transactions contemplated in this
Agreement.
ARTICLE IX
EXPENSES WITH RESPECT TO TRANSACTION
9.1 LDI's Costs. LDI will pay all fees, costs and expenses incurred by
it in connection with this transaction, including, without limitation, the fees
and expenses of its attorneys, its accountants, Societe Generale Securities
Corporation, SG Bannon, LLC, ARC Limited Partners, and other persons
(collectively, "Transaction Costs"), and no portion thereof shall be paid by any
of the Advent Entities.
9.2 Advent's Costs.
9.2.1 LDI will pay all fees, costs and expenses incurred by
any of the Advent Entities in connection with this transaction
(including without limitation the reasonable fees and expenses of
attorneys, accountants and other persons) up to a maximum of $275,000
and no portion thereof shall be paid by any of the Advent Entities.
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9.2.2 The Advent Entities shall pay all fees, costs and
expenses incurred by it in connection with this transaction in excess
of the $275,000 to be paid by LDI pursuant to Section 9.2.1.
9.3 Other Costs. In addition to making the payments called for by
Section 9.2, LDI shall pay any and all fees accompanying filings required to be
made to governmental agencies in connection with the transactions contemplated
by this Agreement.
ARTICLE X
BROKERS
Each of the Parties hereby agrees to indemnify and save and hold
harmless the other Party, its shareholders, directors and officers from and
against any and all claims, losses, damages, costs or expenses of any kind or
character (including attorneys' fees) arising out of or resulting from any
agreement, arrangement or understanding alleged to have been made by such Party
with any broker or finder in connection with this Agreement or the transactions
contemplated hereby, and, if so requested by the other Party, to supply at
Closing a letter releasing the other Party from the claims of any such broker or
finder.
ARTICLE XI
INDEMNIFICATION AND RELATED MATTERS
11.1 Indemnification from LDI. From and after the Closing, LDI shall
indemnify and hold harmless each of the Advent Entities and their respective
officers, directors, employees, Affiliates, successors and permitted assigns
from all Losses (as hereinafter defined) resulting from a breach by LDI of any
of its representations, warranties, covenants or obligations under this
Agreement.
11.2 Indemnification from Advent. From and after the Closing, each of
the Advent Entities shall indemnify and hold harmless LDI and its officers,
directors, employees, Affiliates, successors and permitted assigns from all
Losses (as hereinafter defined) resulting from a breach by any of the Advent
Entities of any of their representations, warranties, covenants or obligations
under this Agreement.
11.3 Definitions.
11.3.1 As used herein, the term "Losses" means any and all
claims, demands, costs, losses, damages and liabilities, net of any
insurance proceeds received. The term "Losses" includes reasonable
attorneys' fees and costs incurred in the investigation and defense of
a claim, demand, cost, loss or liability, any Taxes (as hereinafter
defined) of LDI or any of the
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LDI Affiliates that are attributable to the Pre-Closing Tax Period (as
hereinafter defined) and that result from an Adjustment (as hereinafter
defined), and it also includes the decrease or diminution in value of
the Securities of LDI or other capital stock of LDI into which the
Securities are convertible. In the event that a claim for
indemnification shall arise under Section 11.1 or 11.7 and the breach
giving rise to such claim results in a diminution of the value of LDI's
assets, an increase in the amount of LDI's liabilities, or a payment by
LDI net of any insurance proceeds, the term "Losses" includes an amount
equal to the Final Advent Percentage of such net diminution, increase,
or payment.
11.3.2 As used herein, the term "Indemnifying Party" shall
mean the person or persons against whom a Party (the "Indemnified
Party") makes a claim for indemnification hereunder.
11.4 Certain Limitations on Losses.
11.4.1 No claim for indemnification shall be brought by any of
the Advent Entities under this Article XI until the aggregate amount of
Losses of the Advent Entities exceeds the Threshold Amount, and then
only to the extent of such excess. The "Threshold Amount" is the
quotient whose numerator is $100,000 and whose denominator is the Final
Advent Percentage expressed as a decimal. By way of example, if Section
2.4.1(a) applies, the Threshold Amount equals ($100,000 / 0.2772 =)
$360,750.36.
11.4.2 It shall be a condition to the right of an Indemnified
Party to indemnification pursuant to this Article XI for breach of a
representation or warranty that such Indemnified Party shall assert a
claim for such indemnification on or before the expiration date of such
representation or warranty, provided, however, that the foregoing shall
not be construed as requiring an Indemnified Party, before such
expiration date, to specify the full amount to which it seeks
indemnification or to specify every basis on which it claims
indemnification.
11.5 Advent Notice. The Advent Entities shall give LDI prompt notice of
any third-party claim, investigation, action, suit, hearing or proceeding with
respect to which the Advent Entities seek indemnification pursuant to Article
XI, but the failure to give such notice shall not impair any of the rights or
benefits of Advent Entities except to the extent such failure materially affects
LDI's ability to defend such claim or increases the amount of such liability. In
the case of any third-party claims as to which indemnification is sought by any
of the Advent Entities, the Advent Entities shall be entitled, at the sole
expense and liability of LDI, to exercise full control of the defense,
compromise or settlement of any third-party claim, investigation, action, suit,
hearing or proceeding, unless LDI, within a reasonable time after the giving of
such notice by the Advent Entities, shall: (i) deliver a written confirmation to
the Advent Entities that indemnification is applicable to such claim,
investigation, action, suit, hearing or proceeding and that LDI will indemnify
each of the Advent Entities in respect of such claim, investigation, action or
proceeding pursuant to the terms of this Article XI without asserting any
challenge, defense, counterclaim or offset, (ii) notify the Advent Entities in
writing of the intention of LDI to assume the defense thereof, and (iii) retain
legal
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counsel reasonably satisfactory to the Advent Entities to conduct the defense of
such claim, investigation, action, suit, hearing or proceeding. If LDI so
assumes the defense of any such claim, investigation, action, suit, hearing or
proceeding in accordance herewith, then the Advent Entities shall cooperate with
LDI in any manner reasonably requested in connection with the defense,
compromise or settlement thereof. If LDI so assumes the defense of any such
claim, investigation, action, suit, hearing or proceeding, the Advent Entities
shall have the right to employ separate counsel and to participate in (but not
control) the defense, compromise, or settlement thereof, but the fees and
expenses of such counsel employed by the Advent Entities shall be at the expense
of the Advent Entities unless (i) LDI has agreed to pay such fees and expenses,
(ii) any relief other than the payment of money damages is sought against the
Advent Entities or (iii) the named parties to any such claim, investigation,
action, suit, hearing or proceeding (including any impleaded Persons) include
any of the Advent Entities and LDI and any of the Advent Entities shall have
been advised by its counsel that there is a conflict of interest between such
Advent Entity and LDI in the conduct of the defense thereof, and in any such
case the reasonable fees and expenses of such separate counsel shall be borne by
LDI. If LDI elects to direct the defense of any such claim, investigation,
action, suit, hearing or proceeding, the Advent Entities shall not pay, or
permit to be paid, any part of any claim or demand arising from such asserted
liability unless LDI withdraws from the defense of such asserted liability, or
unless a final judgment from which no appeal may be taken by or on behalf of any
of the Advent Entities is entered against any such Advent Entity for such
liability. If LDI does not elect to defend, or if, after commencing or
undertaking any such defense, LDI fails to prosecute or withdraws from such
defense, the Advent Entities shall have the right to undertake the defense or
settlement thereof, at LDI's expense. If the Advent Entities assume the defense
of any such claim, investigation, action, suit, hearing or proceeding pursuant
to this Article XI and propose to settle the same prior to a final judgment
thereon or to forgo appeal with respect thereto, then the Advent Entities shall
give LDI prompt written notice thereof and LDI shall have the right to
participate in the settlement, assume or reassume the defense thereof or
prosecute such appeal, in each case at LDI's expense. LDI shall not, without
written consent of any of the Advent Entities, settle or compromise or consent
to entry of any judgment with respect to any such claim, investigation, action,
suit, hearing or proceeding (i) in which any relief other than the payment of
money damages is or may be sought against any of the Advent Entities or (ii)
which does not include as an unconditional term thereof the giving by the
claimant, Person conducting such investigation or initiating such hearing,
plaintiff, petitioner, cross- or counterplaintiff, or cross- or counterclaimant
to any of the Advent Entities of a release from all liability with respect to
such claim, investigation, action, suit or proceeding and all other claims or
causes of action (known or unknown) arising or which might arise out of the same
facts. The Advent Entities shall be kept fully informed concerning any matter
addressed in this Section 11.4 at all stages thereof whether or not they are
represented by their own counsel.
11.6 LDI Notice. LDI shall give the Advent Entities prompt notice of
any third-party claim, investigation, action, suit, hearing or proceeding with
respect to which LDI seeks indemnification pursuant to Article XI, but the
failure to give such notice shall not impair any of the rights or benefits of
LDI except to the extent such failure adversely affects the Advent Entities'
ability to defend such claim or increases the amount of such liability. In the
case of any third-party
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claims as to which indemnification is sought by LDI, LDI shall be entitled, at
the sole expense and liability of the Advent Entities, to exercise full control
of the defense, compromise or settlement of any third-party claim,
investigations, action, suit, hearing or proceeding unless the Advent Entities,
within a reasonable time after the giving of such notice by LDI, shall: (i)
deliver a written confirmation to LDI that the indemnification is applicable to
such claim, investigation, action, suit, hearing or proceeding and that the
Advent Entities will indemnify in respect of such claim, investigation, action
or proceeding pursuant to the terms of this Article without asserting any
challenge, defense, counterclaim or offset, (ii) notify LDI in writing of the
intention of the Advent Entities to assume the defense thereof, and (iii) retain
legal counsel reasonably satisfactory to LSI to conduct the defense of such
claim, investigation action, suit, hearing or proceeding. If the Advent Entities
so assume the defense of any such claim, investigation, action, suit, hearing or
proceeding in accordance herewith, then LDI shall cooperate with the Advent
Entities in any manner reasonably requested in connection with the defense,
compromise or settlement thereof. If the Advent Entities so assume the defense
of any such claim, investigation, action, suit, hearing or proceeding, LDI shall
have the right to employ separate counsel and to participate in (but not
control) the defense, compromise, or settlement thereof, but the fees and
expenses of such counsel employed by LDI shall be at the expense of LDI unless
(i) the Advent Entities have agreed to pay such fees and expenses, (ii) any
relief other than the payment of money damages is sought against LDI or (iii)
the named parties to any such claim, investigation, action, suit, hearing or
proceeding (including any impleaded Persons) include LDI and the Advent Entities
and LDI shall have been advised by its counsel that there is a conflict of
interest between LDI and any of the Advent Entities in the conduct of the
defense thereof, and in any such case the reasonable fees and expenses of such
separate counsel shall be borne by the Advent Entities. If the Advent Entities
elect to direct the defense of any such claim, investigation, action, suit,
hearing or proceeding, LDI shall not pay, or permit to be paid, any part of any
claim or demand arising from such asserted liability unless the Advent Entities
withdraws from the defense of such asserted liability, or unless a final
judgment from which no appeal may be taken by or on behalf of LDI is entered
against LDI for such liability. If the Advent Entities do not elect to defend,
or if, after commencing or undertaking any such defense, the Advent Entities
fail to prosecute or withdraws from such defense, LDI shall have the right to
undertake the defense or settlement thereof, at the Advent Entities' expense. If
LDI assumes the defense of any such claim, investigation, action, suit, hearing
or proceeding pursuant to this Article XI and proposes to settle the same prior
to a final judgment thereon or to forgo appeal with respect thereto, then LDI
shall give the Advent Entities prompt written notice thereof and the Advent
Entities shall have the right to participate in the settlement, assume or
reassume the defense thereof or prosecute such appeal, in each case at the
Advent Entities' expense. The Advent Entities shall not, without the written
consent of LDI, settle or compromise or consent to entry of any judgment with
respect to any such claim, investigation, action, suit, hearing or proceeding
(i) in which any relief other than the payment of money damages is or may be
sought against LDI or (ii) which does not include as an unconditional term
thereof the giving by the claimant, Person conducting such investigation or
initiating such hearing, plaintiff, petitioner, cross- or counterplaintiff, or
cross- or counterclaimant to LDI of a release from all liability with respect to
such claim, investigation, action, suit or proceeding and all other claims or
causes of action (known or unknown) arising or which might arise out of the same
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fact. LDI shall be kept fully informed concerning any matter addressed in this
Section 11.5 at all stages thereof whether or not it is represented by its own
counsel.
11.7 Tax Indemnification. Notwithstanding any other provision of this
Agreement, LDI agrees that it shall indemnify and hold each of the Advent
Entities harmless, pursuant to the terms and conditions contained in this
Article XI, for any Taxes of LDI or any of the LDI Affiliates that are
attributable to the Pre-Closing Tax Period and that result from an Adjustment.
For purposes of this Section, the following terms shall have the following
meanings:
11.7.1 "Adjustments" means an adjustment to any Tax Return as
a result of or in settlement of any audit, other administrative
proceeding or judicial proceeding or as a result of the filing of an
amended Tax Return to reflect the consequences of any determination
made in connection with any such audit or proceeding.
11.7.2 "Pre-Closing Tax Period" means taxable years or periods
ending on or before the Closing Date and, in the case of taxable years
or periods beginning before and ending after the Closing Date, the
portion of such years or periods ending at the close of business on the
Closing Date.
11.7.3 "Tax" or "Taxes" means all federal, foreign, state or
local net or gross income, gross receipts, sales, use, ad valorem,
value-added, franchise, business, withholding, "tollgate," payroll,
employment, excise, capital, property or similar taxes, assessments,
duties, fees, levies or other governmental charges together with any
interest thereon, penalties, additions to tax or additional amounts
with respect thereto and any interest in respect of such penalties,
additions or additional amounts.
11.7.4 "Tax Return" means any return, including any
informational return, pertaining to Taxes filed by or on behalf of LDI
or any of the LDI Affiliates or any related persons in their capacities
as tax payers or shareholders or recipients, holders or payers of money
or property or otherwise with any federal, foreign, state or local
taxing authority.
11.8 Rescission. In the event that, as a result of the consummation of
the transactions contemplated by this Agreement, governmental authorities in the
United Kingdom terminate or revoke either the International Facilities License
currently held by LDI Communications Limited or the International Simple Resale
License currently held by Long Distance International Limited (or both of them),
all but not less than all of the Advent Entities may rescind this Agreement and
the transactions contemplated by this Agreement and, upon tendering to LDI any
Securities received by the Advent Entities pursuant to this Agreement, require
LDI to refund to Advent the consideration paid by Advent pursuant to this
Agreement.
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ARTICLE XII
NOTICES
12.1 Notice. All notices required to be given under the terms of this
Agreement or which any of the Parties may desire to give hereunder shall be in
writing and delivered personally or sent by express delivery, or by facsimile,
or by registered or certified mail, with proof of receipt, postage and expenses
prepaid, return receipt requested, addressed as follows:
12.1.1 As to any or all of the Advent Entities, addressed to:
Advent International Corporation, 101 Federal Street, Boston,
Massachusetts 02110; facsimile: (617) 443- 0322, Attention: Olaf N.
Krohg; with a copy thereof addressed to Baker & McKenzie, 815
Connecticut Avenue, N.W., Washington, D.C. 20006-4078; facsimile: (202)
452-7074, Attention: Marc R. Paul, Esq.; or to such other address or
addresses and to the attention of such other person or persons as the
Advent Entities may from time to time designate in writing to LDI; and
12.1.2 As to LDI, addressed to: Long Distance International
Inc., 888 S. Andrews Avenue, Suite 205, Ft. Lauderdale, FL 33316,
facsimile: (954) 524-5110, Attention: David Glassman; with a copy
thereof addressed to Loeb & Loeb LLP, 345 Park Avenue, New York, NY
10154, facsimile (212) 407-4990, Attention: David S. Schaefer, Esq.; or
to such other address or addresses and to the attention of such other
person or persons as LDI may from time to time designate in writing to
the Advent Entities.
12.2 Receipt of Notice. Any notice given in accordance with this
Article XII shall be deemed to have been given when delivered personally, or
when received if sent via express delivery, facsimile, or registered or
certified mail, postage prepaid and return receipt requested.
ARTICLE XIII
EFFECTIVENESS AND ASSIGNABILITY OF AGREEMENT
This Agreement shall become effective when executed and delivered by
the Parties hereto, and shall be binding in all respects upon the respective
successors and permitted assigns of each of the Parties hereto. No Party hereto
may assign this Agreement in whole or in part without first obtaining the
written consent of the other Party, except that the Advent Entities may assign
this Agreement to any Affiliate of any of the Advent Entities.
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ARTICLE XIV
ANNOUNCEMENT OF TRANSACTION
No Party hereto shall make a public announcement of any of the
transactions contemplated by this Agreement without approval of the other Party,
which approval shall not be unreasonably withheld or delayed, unless required by
law or by applicable stock exchange requirements, and in any event such person
shall provide notice accompanied by a copy of all proposed announcements to the
other Party.
ARTICLE XV
COMPLETENESS OF AGREEMENT
The Exhibits and Schedules hereto are incorporated into this Agreement
by reference, and in this Agreement, references to this "Agreement" include
references to the Schedules and Exhibits hereto. This Agreement and the Closing
documents represent the entire contract between the Parties with respect to the
subject matter hereof and supersede all offers, proposals, statements,
representations and agreements with respect to the subject matter hereof,
including but not limited to those letters of intent dated May 7, 1997 and May
9, 1997, as amended on June 25, 1997, and that certain Draft Summary of Terms
dated May 1, 1997. This Agreement may not be amended except in an instrument in
writing signed on behalf of each of the Parties hereto.
ARTICLE XVI
CAPTIONS
The captions to the Articles and Sections contained in this Agreement
are for reference only, do not form a substantive part of this Agreement and
shall not restrict nor enlarge any substantive provision of this Agreement.
ARTICLE XVII
APPLICABLE LAW
This Agreement, the Schedules and Exhibits, and all other documents
given in connection herewith, shall be construed in accordance with the laws of
the State of New York, without regard to the principles of conflicts of laws.
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ARTICLE XVIII
CHOICE OF FORUM; VENUE; SERVICE OF PROCESS
Any claim, suit, action, or proceeding among any or all of the Parties
hereto relating to this Agreement, to any document, instrument, or agreement
delivered pursuant hereto, referred to herein, or contemplated hereby, or in any
other manner arising out of or relating to the transactions contemplated by or
referenced in this Agreement, shall be commenced and maintained exclusively in
the United States District Court for the Southern District of New York, or, if
such Court lacks jurisdiction over the subject matter, in a state court of
competent subject-matter jurisdiction sitting in the State of New York. The
Parties hereby submit themselves unconditionally and irrevocably to the personal
jurisdiction of such courts. The Parties further agree that venue shall be
exclusively in New York County, New York. The Parties irrevocably waive any
objection to such personal jurisdiction or venue including, but not limited to,
the objection that any suit, action, or proceeding brought in the State of New
York or in New York County has been brought in an inconvenient forum. The
Parties irrevocably agree that process issuing from such courts may be served on
them, either personally or by certified mail, return receipt requested, at the
addresses given in Article XII hereof; and further irrevocably waive any
objection to service of process made in such manner and at such addresses,
including without limitation any objection that service in such manner and at
such addresses is not authorized by the local or procedural laws of the State of
New York.
ARTICLE XIX
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute but one
and the same Agreement by and among the Parties.
ARTICLE XX
NO THIRD PARTY BENEFICIARY
This Agreement is intended to inure to the benefit of LDI and the
Advent Entities only; and no third Person shall have any rights, express or
implied, by reason of this Agreement.
ARTICLE XXI
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UNILATERAL RIGHT TO WAIVE FAILURES OF OTHER PARTIES
21.1 Waiver. Either of the Parties may:
21.1.1 Extend in writing the time for the performance of any
of the obligations herein contained to be performed for the benefit of
such Party;
21.1.2 Waive in writing any inaccuracies in the
representations and warranties made to it contained in this Agreement
or any Schedule or Exhibit hereto or any certificate or certificates
delivered by the other Party to this Agreement;
21.1.3 Waive in writing the failure in performance of any of
the conditions herein expressed for its benefit; and
21.1.4 Waive in writing compliance with any of the covenants
herein contained for its benefit.
21.2 Effect of Waiver. No such waiver or extension shall be valid
unless in writing and signed by the Party granting the waiver or extension, and
no such waiver or extension shall be construed to excuse or mitigate any
subsequent breach or violation of this Agreement not specifically covered by
such waiver.
ARTICLE XXII
SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the other provisions hereof, and the Agreement shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted. Furthermore, upon the request of either Party hereto, the Parties to
this Agreement shall add, in lieu of such invalid or unenforceable provisions,
provisions as similar in terms to such invalid or unenforceable provisions as
may be possible and legal, valid and enforceable.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the day and year first above written.
[Signatures begin on the next page.]
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<PAGE> 37
GLOBAL PRIVATE EQUITY III L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-A L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-B L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
<PAGE> 38
GLOBAL PRIVATE EQUITY III-C L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PGGM GLOBAL L.P., a Delaware
limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT EURO-ITALIAN DIRECT
INVESTMENT PROGRAM L.P., a Delaware
limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
<PAGE> 39
ADVENT GLOBAL GECC III L.P., a Delaware
limited partnership
By: Advent Global Management L.P., General
Partner
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS (NA) GPE III L.P., a
Delaware limited partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS GPE III L.P., a Delaware
limited partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
<PAGE> 40
ADVENT PARTNERS L.P., a Delaware limited
partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
FOUR SEASONS VENTURE II AS, a Norwegian
limited company
By: _____________________________
Pursuant to a Power of Attorney
LONG DISTANCE INTERNATIONAL INC., a
Florida corporation
By: _____________________________
Its: _____________________________
<PAGE> 41
SCHEDULE 4.2
ADVENT ENTITIES' CONFLICTS AND CONSENTS
(None)
<PAGE> 1
EXHIBIT 10.4
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (the "Agreement") dated as of July 28,
1997, by and among Long Distance International Inc., a Florida corporation
("LDI" or the "Company"); the entities listed on Schedule 1 hereto
(collectively, the "Advent Entities"); Clifford Friedland ("Friedland"); and
David Glassman ("Glassman").
WITNESSETH:
WHEREAS, LDI and the Advent Entities have entered into a Stock Purchase
Agreement of even date herewith ("Stock Purchase Agreement"), whereby the Advent
Entities are purchasing shares of Series B Preferred Stock, par value $0.001 per
share, of LDI ("Series B Preferred") and warrants (as amended, supplemented,
reissued or replaced from time to time pursuant to the terms thereof, the
"Warrants") to purchase shares of the common stock of LDI, par value $0.001 per
share ("Common Stock");
WHEREAS, Friedland is the Chairman of LDI, and Glassman is the
President of LDI;
WHEREAS, Friedland and Glassman each owns shares of Common Stock, and
WHEREAS, in connection with the Advent Entities' investment in the
Company, the parties to this Agreement wish to specify certain terms and
conditions with respect to their rights and obligations as shareholders;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, LDI, the Advent Entities, Friedland, and Glassman agree as
follows:
Section 1. Definitions and Interpretation.
Capitalized terms shall have the following meanings when used in this
Agreement:
a. "Affiliate" means a Person that is any one or more of the
following: (a) in relation to any Person, another Person that
controls, is controlled by or is
<PAGE> 2
under common control with such Person; (b) in relation to any
Shareholder which holds Shares as trustee, the beneficial
owner of those Shares or a trustee for the same beneficial
owner; (c) in relation to either Principal Shareholder, a
Family Donee of such Shareholder.
b. "Equity" means the Common Stock outstanding on a fully diluted
basis assuming the conversion of all securities convertible
into Common Stock and the exercise of all vested options and
warrants to purchase Common Stock.
c. "Exempt Transfer" means, with respect to shares of Common
Stock held by a Principal Shareholder, (i) a gift or
assignment of shares of Common Stock by such shareholder,
whether on death or inter vivos, to (A) a spouse, (B) any
other member of his immediate family (i.e., parents, children,
including those adopted, children's direct descendants,
brothers, sisters, and the spouses of the foregoing), (C) a
trust the beneficiaries of which consist solely of one or more
members of his immediate family or (D) a custodian under the
Uniform Gifts to Minors Act or similar fiduciary for the
exclusive benefit of his children; or (ii) a transfer of
shares of Common Stock to the legal representatives of a
shareholder upon his death or adjudication of incompetency or
by any such legal representatives to any person to whom such
shareholder could have transferred such shares pursuant to
subclause (A), (B), (C) or (D) of clause (i) of this
definition.
d. "Family Donee" means a Person to whom an Exempt Transfer is
made.
e. "Person" means an individual, partnership, company,
corporation or other legal entity, as the context requires.
f. "Principal Shareholder" means either of Friedland or Glassman.
g. "Redemption Event" has the same meaning as in the Articles of
Amendment to the Second Restated Articles of Incorporation
filed with the Florida Secretary of State on July 23, 1997.
h. "Shares" means shares of any class or series of the capital
stock of the Company.
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<PAGE> 3
i. "Shareholder" means any Person holding Shares beneficially or
of record.
Section 2. Tag-Along Rights.
a. If either Principal Shareholder proposes to sell, assign,
transfer or dispose of any Shares to any Person that is not an
Affiliate of such Principal Shareholder, then such Principal
Shareholder shall give written notice (a "Tag-Along Notice")
to the Advent Entities at least 45 days prior to the closing
of such sale or transfer. The Tag-Along Notice shall describe
in reasonable detail the proposed transaction including,
without limitation, the number and kind of Shares to be sold
or transferred, the nature of such sale or transfer, the
consideration to be paid, and the name and address of the
prospective purchaser or transferee.
b. Each of the Advent Entities shall have the right, exercisable
upon written notice to such Principal Shareholder within 30
days after the Tag-Along Notice is given, to participate in
such transaction on the same terms and conditions specified in
the Tag-Along Notice. To the extent that one or more of the
Advent Entities exercise such right of participation in
accordance with the terms and conditions set forth below, the
amount of securities that the Principal Shareholder may sell
in the transaction shall be correspondingly reduced.
c. The Advent Entities may sell all or any part of that number of
Shares owned by them determined in accordance with this
subsection.
i. If the Principal Shareholder proposes to sell Common Stock,
securities convertible into Common Stock, and/or options and warrants to
purchase Common Stock, then the Advent Entities shall be entitled to sell Common
Stock, securities convertible into Common Stock, and/or options and warrants to
purchase Common Stock (though not necessarily securities of the same kind as, or
in the same proportion as, the securities to be sold by the Principal
Shareholder) equal to the product obtained by multiplying (i) the aggregate
number of shares of Common Stock covered by the Tag-Along Notice (assuming the
conversion by the Principal Shareholder of all securities convertible into
Common Stock and the exercise by him of all options and warrants to purchase
Common Stock) by (ii) a fraction (the "Advent Sale Ratio"), the numerator of
which is the number of shares of Common Stock owned by the Advent Entities
(assuming the conversion by them of all
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<PAGE> 4
securities convertible into Common Stock and the exercise by them of all options
and warrants to purchase Common Stock) at the time of the sale or transfer, and
the denominator of which is the aggregate number of shares of Common Stock owned
by the Principal Shareholder (assuming the conversion by him of all securities
convertible into Common Stock and the exercise by him of all options and
warrants to purchase Common Stock) and the Advent Entities (assuming the
conversion by them of all securities convertible into Common Stock and the
exercise by them of all options and warrants to purchase Common Stock) at the
time of the Tag-Along Notice.
ii. If the Principal Shareholder proposes to sell securities
other than Common Stock, securities convertible into Common Stock, and options
and warrants to purchase Common Stock (collectively, "Non-Common-Stock
Securities"), then with respect to such the Advent Entities shall be entitled to
sell LDI securities of any type, class or series with a fair market value equal
to the product of (x) the fair market value of the Non-Common-Stock Securities
to be sold by the Principal Shareholder, and (y) the Advent Sale Ratio.
d. The Advent Entities shall decide among themselves which of the
Advent Entities shall be entitled to participate in the
transaction pursuant to this Section 2 and in what
proportions.
e. To the extent that any prospective purchaser refuses to
purchase securities from the Advent Entities, the Principal
Shareholder shall not sell any securities to such prospective
purchaser unless and until, simultaneously with such sale,
such Principal Shareholder shall purchase from the Advent
Entities the securities that the Advent Entities would have
otherwise been entitled to sell to the prospective purchaser
pursuant to Section 2(c) at the price that the Advent Entities
would have been entitled to receive from such prospective
purchaser.
f. The exercise or non-exercise of the rights of the Advent
Entities hereunder to participate in one or more sales of
Common Stock made by the Principal Shareholder shall not
adversely affect their rights to participate in subsequent
sales of Common Stock.
g. If none of the Advent Entities elect to participate in the
sale described in the Tag-Along Notice, the Principal
Shareholder may, not later than 150 days
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<PAGE> 5
following the date that the Tag-Along Notice is given to the
Advent Entities, consummate the transaction contemplated in
the Tag-Along Notice but only on terms and conditions and at a
price not more favorable to the Principal Shareholder than
those described in the Tag-Along Notice. If such transaction
is not consummated with such 150-day period, such transaction
shall again be subject to the requirements described in this
Section 2.
h. A Principal Shareholder shall not transfer any Shares to such
Principal Shareholder's Affiliate unless and until such
Affiliate shall have executed and delivered to the Advent
Entities a written agreement in form and substance reasonably
acceptable to the Advent Entities requiring such Affiliate to
apply the provisions of this Section 2 mutatis mutandis to any
proposed sale, transfer, assignment or disposition of the
Shares such Affiliate is receiving.
i. A Principal Shareholder shall not pledge, hypothecate, or in
any way encumber any Shares except in a bona fide loan
transaction that creates a mere security interest and only
provided that the pledgee shall have executed and delivered to
the Advent Entities an acknowledgment in form and substance
reasonably acceptable to the Advent Entities requiring such
pledgee to comply with the provisions of this Section 2
mutatis mutandis in connection with any proposed sale,
transfer, assignment or disposition by such pledgee of the
Shares such pledgee is receiving.
j. Any attempt by a Principal Shareholder to transfer Shares in
violation of this Section 2 shall be void, and LDI agrees it
will not effect a transfer in violation of this Section 2 nor
will it treat any alleged transferee resulting from a transfer
in violation of this Section 2 as the holder of such shares
without the written consent of the Advent Entities.
k. The Principal Shareholders agree that money damages would be
an inadequate remedy for its breach of their obligations under
this Section 2, and therefore each Principal Shareholder
consents to the entry of an injunction or a decree of specific
performance to remedy any such breach.
Section 3. Drag-Along Rights.
a. In the event that either:
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<PAGE> 6
i. an offeror makes a bona fide binding offer to acquire all
of the Equity of the Company, and the offer is accepted by Persons holding 51%
or more of the Equity of the Company, provided that acceptances by any Advent
Entity shall be disregarded in calculating such percentage, and the Advent
Entities also accept such offer,
or
ii. an offeror makes a bona fide binding offer to acquire all
or substantially all of the assets of LDI, or to acquire all the issued or
outstanding Shares by means of a merger, and the offer is accepted (subject to
Board of Directors or other required approval) by Persons holding 51% or more of
the Equity of the Company, provided that acceptances by any Advent Entity shall
be disregarded in calculating such percentage, and the Advent Entities also
accept such offer,
b. then each party to this Agreement:
i. in the case of (a)(i) above, subject to subsection (c),
undertakes to accept the offer in accordance with its terms and to execute all
such documents and to do all such other acts or things which are necessary to
transfer his Shares to the offeror in accordance with the terms of the offer;
and
ii. in the case of (a)(ii) above, subject to subsection (c),
undertakes to take all steps necessary or desirable to cause LDI to accept the
offer in accordance with its terms and to consummate the transactions proposed
in the offer.
c. If, in the case of (a)(i) above, one or more holders of Equity
do not accept the offer and are not legally bound to do so
(such holders being referred to collectively as "Dissenters"),
then the parties to this Agreement shall be released from
their obligations under subsection (b)(i) unless the offeror
is willing to consummate the proposed acquisition
substantially in accordance with the offer notwithstanding the
failure of the Dissenters to participate, in which case the
parties to this Agreement shall not be released from such
obligations. If, in the case of (a)(ii) above, one or more
holders of Equity do not take all steps necessary or desirable
to cause LDI to accept the offer and consummate the proposed
transactions, and such holders are not legally bound to do so,
and as a result LDI does not accept the offer or does not
- 6 -
<PAGE> 7
consummate the proposed transactions, the parties to this
Agreement shall be released from their obligations under
subsection (b)(ii).
d. Each party to this Agreement agrees that money damages would
be an inadequate remedy for its breach of its obligations
under this Section 3, and therefore consents to the entry of
an injunction or a decree of specific performance to remedy
any such breach.
e. A party to this Agreement shall not transfer any Shares to
such party's Affiliate unless and until such Affiliate shall
have executed and delivered to the other parties a written
agreement in form and substance reasonably acceptable to such
other parties requiring such Affiliate to apply the provisions
of this Section 3 mutatis mutandis to any proposed sale,
transfer, assignment or disposition of the Shares such
Affiliate is receiving.
f. A party to this Agreement shall not pledge, hypothecate, or in
any way encumber any Shares except in a bona fide loan
transaction that creates a mere security interest and only
provided that the pledgee shall have executed and delivered to
the other parties to this Agreement an acknowledgment in form
and substance reasonably acceptable to such other parties
requiring such pledgee to comply with the provisions of this
Section mutatis mutandis in connection with any proposed sale,
transfer, assignment or disposition by such pledgee of the
Shares such pledgee is receiving.
Section 4. Advent Entities' Information Rights.
For as long as the Advent Entities own Shares, LDI shall furnish each
of the following documents to the Advent Entities:
a. Within 60 days after the end of each of the first three fiscal
quarters in each fiscal year, (i) LDI's unaudited consolidated
financial statements, with consolidating schedules, for such
fiscal quarter, certified by its principal financial officer,
prepared in accordance with U.S. GAAP (except as otherwise
noted in the accompanying footnotes);
b. Within 45 days following the end of each quarter, management
reports of LDI; and
- 7 -
<PAGE> 8
c. Within 120 days after the end of each fiscal year, LDI's
audited consolidated financial statements, with consolidating
schedules, covering such fiscal year, certified by a firm of
independent auditors as having been prepared in accordance
with U.S. GAAP.
Section 5. Termination.
a. Upon the disposition by a party to this Agreement other than
LDI of all of Shares owned by such party, such Person shall
have no further rights under this Agreement. If not earlier
terminated pursuant to its terms, this Agreement shall
terminate on the first date on which no Shareholder who is a
party to this Agreement owns any Shares.
b. If not earlier terminated pursuant to its terms, this
Agreement will terminate on the twentieth anniversary of the
death or dissolution of the longest-living or longest-existing
Shareholder who is a party to this Agreement.
Section 6. Further Assurances. Each party to this Agreement shall
execute, deliver and perform all such additional documents, agreements,
certificates and instruments and shall take all such further actions as may be
necessary or advisable to effectuate the terms and conditions of this Agreement.
Section 7. INTENTIONALLY OMITTED.
Section 8. Notice.
a. All notices and other communications to be given under this
Agreement, including without limitation a Tag-Along Notice,
shall be in writing and shall be deemed to have been given:
i. on the date delivered if delivered personally or actually
received by a means other than those specified in the remainder of this Section
8(a);
ii. on the date sent if sent by registered or certified mail,
return receipt requested;
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<PAGE> 9
iii. on the date sent if sent by overnight courier or
international air courier; or
iv. on the date sent if sent by facsimile transmission with
electronic verification.
b. Notice shall be given to the parties to this Agreement at the
following addresses (or at such other address as a party may
specify by notice pursuant to this Section 8):
If to the Company:
Long Distance International Inc.
888 S. Andrews Avenue, Suite 205
Ft. Lauderdale, Florida 33316
Facsimile: (954) 524-5110
Attention: David Glassman
If to any of the Advent Entities:
Advent International Corporation
101 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 443-0322
Attention: Olaf N. Krohg
If to Glassman:
c/o Long Distance International Inc.
888 S. Andrews Avenue, Suite 205
Ft. Lauderdale, Florida 33316
Facsimile: (954) 524-5110
If to Friedland:
c/o Long Distance International Inc.
888 S. Andrews Avenue, Suite 205
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<PAGE> 10
Ft. Lauderdale, Florida 33316
Facsimile: (954) 524-5110
Section 9. Miscellaneous.
a. This Agreement supersedes all prior agreements among the
parties relating to the subject hereof and is intended as a
complete and exclusive statement of the terms of the agreement
between the parties with respect to such subject.
b. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without
regard to the principles of conflicts of laws of choice of
laws.
c. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
d. Any term or provision of this Agreement may be waived at any
time by any party hereto by means of a writing signed by such
party.
e. This Agreement may only be amended in a writing executed by
all the parties hereto.
f. Except as otherwise provided herein, no party hereto shall
assign this Agreement or any part hereof or any rights or
obligations hereunder without the prior written consent of the
other parties. No such assignment shall release any party of
any of obligations or liabilities it has already accrued under
this Shareholders Agreement.
g. Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
h. In this Agreement, where the context permits, words denoting a
specific gender shall be construed as including every gender.
- 10 -
<PAGE> 11
i. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect.
Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, then the
invalid, illegal, or unenforceable part shall be replaced, if
possible, by a valid, legal and enforceable provision that
most closely effectuates the intent of the parties to this
Agreement.
j. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same
agreement.
k. Except as otherwise provided in this Section 9(k), each
certificate or other instrument evidencing any Shares owned by
any party to this Agreement shall bear a legend in
substantially the following form:
"The shares of stock represented by this certificate are subject to the
terms and conditions of a Shareholders Agreement among the Company, the
holder of these shares, and certain other holders of shares of the
Company, dated as of July 28, 1997, which contains, among other
provisions, restrictions on transfer, sale or other disposition of the
shares. A copy of such agreement is on file in the offices of the
Company."
Any holder of any such certificate or instrument bearing the foregoing legend
shall be entitled to promptly receive from LDI, without expense, a new
certificate or instrument of identical tenor representing the same kind of
securities and the same number or other amount thereof not bearing such legend
if such securities shall have been sold or otherwise disposed of in accordance
with the terms of this Agreement.
l. Any claim, suit, action, or proceeding among any or all of the
parties hereto relating to this Shareholders Agreement, to any
document, instrument, or agreement delivered pursuant hereto,
referred to herein, or contemplated hereby, or in any other
manner arising out of or relating to the transactions
contemplated by or referenced in this Shareholders Agreement,
shall be commenced and maintained exclusively in the United
States District Court for the Southern District of New York,
or, if such Court lacks jurisdiction
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<PAGE> 12
over the subject matter, in a state court of competent
subject-matter jurisdiction sitting in the State of New York.
The parties hereby submit themselves unconditionally and
irrevocably to the personal jurisdiction of such courts. The
parties further agree that venue shall be exclusively in New
York County in the State of New York. The parties irrevocably
waive any objection to such personal jurisdiction or venue
including, but not limited to, the objection that any suit,
action, or proceeding brought in the State of New York has
been brought in an inconvenient forum. The parties irrevocably
agree that process issuing from such courts may be served on
them, either personally or by certified mail, return receipt
requested, at the addresses given in Section 8 hereof; and
further irrevocably waive any objection to service of process
made in such manner and at such addresses, including without
limitation any objection that service in such manner and at
such addresses is not authorized by the local or procedural
laws of the State of New York.
IN WITNESS WHEREOF, LDI and the Advent Entities have caused
this Agreement to be duly executed by their respective officers, each of whom is
duly authorized, all as of the day and year first above written.
[Signatures begin on next page]
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<PAGE> 13
GLOBAL PRIVATE EQUITY III L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-A L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-B L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
<PAGE> 14
GLOBAL PRIVATE EQUITY III-C L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PGGM GLOBAL L.P., a Delaware
limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT EURO-ITALIAN DIRECT
INVESTMENT PROGRAM L.P., a Delaware
limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
<PAGE> 15
ADVENT PARTNERS (NA) GPE III L.P., a
Delaware limited partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS GPE III L.P., a Delaware
limited partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS L.P., a Delaware limited
partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
FOUR SEASONS VENTURE II AS, a Norwegian
limited company
By: _____________________________
Pursuant to a Power of Attorney
<PAGE> 16
ADVENT GLOBAL GECC III L.P., a Delaware
limited partnership
By: Advent Global Management L.P., General
Partner
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
LONG DISTANCE INTERNATIONAL INC., a
Florida corporation
By: _____________________________
Its: _____________________________
CLIFFORD FRIEDLAND
_______________________
DAVID GLASSMAN
_______________________
<PAGE> 1
EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of July
28, 1997 (the "Effective Date"), among the entities listed on Schedule 1 hereto
(collectively, the "Holders") and Long Distance International, Inc., a Florida
corporation ("LDI").
W I T N E S S E T H:
WHEREAS, LDI and the Holders are on this date entering into a Stock
Purchase Agreement to which this Agreement is an exhibit, whereby the Holders
will purchase shares of Series B Preferred Stock, par value $0.001 per share of
LDI ("Series B Preferred") and a warrant (as amended, supplemented, reissued or
replaced from time to time pursuant to the terms thereof, the "Warrant") to
purchase shares of common stock, par value $0.001 per share ("LDI Common
Stock");
WHEREAS, LDI and the Holders, and certain other shareholders of LDI,
are entering into a Shareholders Agreement of even date herewith, whereby the
parties will agree, among other things, to certain terms upon which the
relations between the shareholders of LDI will be regulated; and
WHEREAS, in order to induce the Holders to enter into and perform the
Stock Purchase Agreement, and in order to induce the Holders to enter into and
perform the Shareholders Agreement, LDI has agreed to provide the Holders with
certain rights in respect of the registration of shares of LDI Common Stock
issuable to the Holders upon the exercise of the Warrant ("Common Shares").
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, LDI and the Holders agree as follows:
1. DEFINITIONS AND INTERPRETATION.
(a) DEFINITIONS. As used in this Agreement, the following
terms shall have the respective meanings set forth below (such meanings
to be equally applicable to both the singular and plural forms of the
terms defined):
<PAGE> 2
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"LDI REGISTRATION EXPENSES" means any and all expenses
incident to LDI's performance of its obligations under Section 2, other
than Requesting Shareholder Registration Expenses. LDI Registration
Expenses shall include but not be limited to (i) registration and
filing fees with the SEC, (ii) fees and expenses of compliance with
state securities or "blue sky" laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with blue
sky qualifications of Registrable Shares), (iii) printing expenses,
(iv) registrars and transfer agents fees, (v) the fees and expenses
incurred in connection with the registration, listing or quotation of
Registrable Shares on any National Securities Exchange, (vi) any
transfer taxes attributable to the sale of the Registrable Shares by
any Requesting Shareholder and, (vii) fees and expenses of counsel for
LDI, the reasonable fees and expenses for one counsel for the
Requesting Shareholders and fees and expenses for the independent
certified public accountants for LDI.
"NATIONAL SECURITIES EXCHANGE" means the New York Stock
Exchange, American Stock Exchange, NASDAQ Small Cap or National Market
System.
"PERSON" shall mean and include any individual, partnership,
joint venture, corporation, trust, unincorporated organization or
association or any other entity or association of any kind and any
authority, federal, state, local or foreign government, any political
subdivision of any thereof and any court, panel, judge, board, bureau,
commission, agency or other entity or body exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to any government.
"REGISTRABLE SHARES" means (i) the Common Shares and (ii) any
shares of LDI Common Stock issued in respect of the Common Shares or
other securities issued in respect of the Common Shares including,
without limitation, upon any stock split, stock dividend,
recapitalization or as a distribution.
"REQUESTING SHAREHOLDER" means any of the Holders, or any
permitted transferee of Registrable Shares, when the same shall have
requested LDI to register some or all of its/their Registrable Shares
in accordance with this Agreement.
"REQUESTING SHAREHOLDER REGISTRATION EXPENSES" means with
respect to a Requesting Shareholder, (i) underwriting discounts and
commissions relating to the sale of such
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<PAGE> 3
Requesting Shareholder's Registrable Shares, and (ii) the fees and
disbursements of counsel incurred by such Requesting Shareholder, other
than the reasonable fees and disbursements one counsel incurred on
behalf of Requesting Shareholder as a group.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
(b) INTERPRETATIONS. In this Agreement, where the context
permits, words in the singular shall be construed as including the
plural and words in the plural shall be construed as including the
singular, and words denoting a specific gender shall be construed as
including every gender.
2. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. Subsequent to the first to occur of
(x) a Qualified Public Offering (as defined in the Articles of
Amendment to Second Restated Certificate of Incorporation of LDI) of
LDI Common Stock or (y) the fifth anniversary of the Effective Date,
the Holders shall be entitled to request that LDI effect a registration
under the Securities Act with respect to some or all of the Registrable
Shares held by them upon the following terms and conditions:
(i) REQUEST FOR REGISTRATION OF REGISTRABLE SHARES.
In the event that LDI shall receive from the Holders a written
request ("Notice of Registration") that LDI effect a
registration under the Securities Act with respect to all or
any part not less than 25% of the Registrable Shares held by
any of the Holders, LDI shall use its diligent best efforts to
effect, at the earliest practicable date, such registration
(including, without limitation, the execution of an
undertaking to file required post-effective amendments, the
execution and filing of a listing agreement with a National
Securities Exchange selected by LDI and reasonably approved by
the Holders, qualification under applicable blue sky or other
state securities laws (provided that such jurisdictions do not
require LDI to qualify as a foreign corporation or become
subject to taxation in such jurisdiction) and compliance with
applicable regulations issued under the Securities Act) as
would permit or facilitate the sale and distribution of all or
such portion of such Registrable Shares on such National
Securities Exchange; provided that LDI shall not be obligated
to take any action to effect any such registration pursuant to
this
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<PAGE> 4
Section 2(a): (A) if two separate Notices of Registration with
respect to all or any part of not less than 25% of the
Registrable Shares held by any of the Holders have been
submitted to LDI and LDI has effected two such registrations
pursuant to this Section 2(a), which registrations have been
declared or ordered effective by the SEC, subject to the
following paragraph; (B) during the period starting with the
date of LDI's filing of, and ending on the date one hundred
and eighty (180) days immediately following the effective date
of, any registration statement pertaining to a pubic offering
of securities of LDI; or (C) if the number of Registrable
Shares as to which such registration has been requested shall
be less than 25% of the shares of LDI Common Stock into which
the Warrant may then be exercised.
If the Requesting Shareholder informs LDI by written notice
that it is withdrawing its Notice of Registration made
pursuant to Section 2(a)(i) above, then the registration
statement need not be filed and all efforts pursuant to such
notice will count as a registration (or an exercise of rights)
under this Section 2(a), provided, however, that the
Requesting Shareholder may pay all LDI Registration Expenses
with respect to such registration incurred to the date of such
notice of withdrawal and then all efforts pursuant to such
Notice of Registration will not so count; provided, further,
that LDI may in any event proceed with the registration on its
own behalf, or on behalf of any other Persons holding
securities of LDI.
Subject to the foregoing clauses (A) through (C) LDI shall
file a registration statement covering the Registrable Shares
so requested to be registered as soon as practicable after
receipt of the request or requests of the Requesting
Shareholder. The Holders shall not be required to exercise the
Warrant into LDI Common Stock prior to exercising their demand
registration rights hereunder with respect to such shares of
LDI Common Stock.
(ii) UNDERWRITING. The right of the Requesting
Shareholder to registration pursuant to this Section 2(a)
shall be conditioned upon the Requesting Shareholder's
participation in the underwriting arrangements required by
this Section 2(a)(ii) and the inclusion in the underwriting of
the Registrable Shares requested to be registered.
LDI and the Requesting Shareholder shall enter into
an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by
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<PAGE> 5
LDI, which managing underwriter shall be a nationally
recognized or regional underwriting firm which is not an
affiliate or associate (each as defined in Rule 12b-2
promulgated under the Exchange Act) of the Requesting
Shareholder and which is reasonably acceptable to the
Requesting Shareholder. Notwithstanding any other provision of
this Section 2(a), if the managing underwriter determines, in
good faith, that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter
may limit the number of Registrable Shares to be included in
the registration and underwriting to the extent such managing
underwriter deems necessary. Such managing underwriter may
limit the number or amount of securities to be included in the
registration such that all Persons holding securities of LDI
(including the Holders) who hold registration rights and who
have requested registration (collectively, for the purposes of
this paragraph only, the "Security Holders") shall participate
in the underwritten public offering pro rata based upon the
total number or amount of securities requested to be so
registered by each Security Holder. LDI shall so advise the
Requesting Shareholder, and the number of Registrable Shares
that may be included in the registration and underwriting
shall be limited accordingly; provided, however, that in the
event the number of Registrable Shares excluded from such
registration either (A) exceeds 25% of the number of
Registrable Shares for which registration was originally
requested by the Requesting Shareholder or (B) reduces the
number of Registrable Shares to be included in the
registration and underwriting to an amount less than 25% of
the total number of Registrable Shares, then LDI and the
Requesting Shareholder, at the Requesting Shareholder's
election, may proceed with such registration of Registrable
Shares, as so reduced, and such registration, if so effected,
shall be included for purposes of determining the number of
registrations permitted to the Holders pursuant to Section
2(a)(i)(B).
LDI and any Persons holding any securities of LDI to
whom LDI has granted registration rights may include their
respective securities for their own accounts in such
registration if the managing underwriter so agrees and if the
number of Registrable Shares of the Holders which would
otherwise have been included in such registration and
underwriting will not thereby be limited and if such inclusion
will not otherwise have a material adverse effect upon the
offering of the Holders' Registrable Shares.
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<PAGE> 6
(iii) EXPENSES OF REQUESTED REGISTRATION. LDI shall
pay all LDI Registration Expenses incurred in connection with
each registration pursuant to Section 2(a), and the Requesting
Shareholder will pay its Requesting Shareholder Registration
Expenses in connection therewith.
(b) PIGGY-BACK REGISTRATION.
(i) REGISTRATION INITIATED BY LDI. If LDI at any
time proposes to register an offering of its securities of the
same class as the Registrable Securities under the Securities
Act, either for its own account or for the account of or at
the request of one or more Persons holding securities of LDI,
LDI will:
(A) give written notice thereof to the Holders
(which shall include a list of the jurisdictions in
which LDI intends to attempt to qualify such
securities under the applicable blue sky or other
state securities laws) within 10 business days of its
receipt of a request from one or more Persons holding
securities of LDI to register securities, or from its
decision to effect a registration of securities for
its own account, whichever first occurs; and
(B) use its diligent best efforts to include in
such registration (and any related qualification
under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable
Shares specified in a written request by a Holder
made within 30 days after receipt of such written
notice from LDI, except as set forth in Sections
2(b)(ii) and 2(b)(iii) below; provided, however, that
if at any time after giving written notice to the
Holders of its intention to register LDI securities
under the Securities Act, LDI shall determine not to
register any such securities, LDI may, at its
election, give written notice of such determination
to the Holders and, thereupon, shall be relieved of
its obligation to register such Registrable Shares
pursuant to this Section 2(b) in connection with such
registration, without prejudice, however, to any
rights of the Holders to request that such
registration be effected as a registration under
other provisions of this Agreement, and provided
further that if at any time after giving written
notice to the Holders of its intention to register
LDI securities under the
- 6 -
<PAGE> 7
Securities Act, LDI shall determine to delay the
registration of such securities, LDI shall be
permitted to delay the registration of such
Registrable Shares for the same period as the delay
in registering the securities to be registered by LDI
for its own account or for others.
(ii) AMOUNT TO BE INCLUDED. In the event that
Registrable Shares are requested to be included in any
registration initiated pursuant to Section 2(b)(i) that
contemplates an underwritten public offering, and if, in the
good faith judgment of the managing underwriting of such
public offering, the inclusion of all of the Registrable
Shares originally covered by a request for registration,
together with the number or amount of securities that were
intended to be offered by LDI or other Persons holding
securities of LDI who hold registration rights, would
interfere with the successful marketing of such securities,
then, such managing underwriter may limit the number or amount
of securities to be included in the registration such that LDI
and all Persons holding securities of LDI (including the
Holders) who hold registration rights and who have requested
registration (collectively, the "Security Holders") shall
participate in the underwritten public offering pro rata based
upon the total number or amount of securities to be offered by
LDI and the total number or amount of securities held by each
Security Holder (including the number or amount of securities
which each such Security Holder may then be entitled to
receive upon the exercise of any option or warrant, or the
exchange or conversion of any security, held by such Security
Holder). If LDI or any such Security Holder would thus be
entitled to include more securities than LDI or such Security
Holder requested to be registered, the excess shall be
allocated among LDI and the other Security Holders pro rata in
a manner similar to that described in the previous sentence.
(iii) UNDERWRITING. If the registration of which LDI
gives notice is for a registered public offering involving an
underwriting, LDI shall so advise the Holders as a part of the
written notice given pursuant to Section 2(b)(i). In such
event, the right of each Requesting Shareholder to
registration pursuant to this Section 2(b) shall be
conditioned upon its participation in such underwriting and
the inclusion of the Registrable Shares in the underwriting to
the extent provided herein. The Requesting Shareholder shall
(together with LDI and the other Security Holders (if any)
distributing their
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<PAGE> 8
securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting by LDI. If the
Requesting Shareholder disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written
notice to LDI and the underwriter. Any Registrable Shares
excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
(iv) WITHDRAWAL FROM REGISTRATION. Any Holder
requesting inclusion of Registrable Shares pursuant to this
Section 2(b) may, at any time prior to the effective date of
the registration statement relating to such registration,
revoke such request by delivering written notice of such
revocation to LDI; provided, however, that if LDI, in
consultation with its financial and legal advisors, determines
that such revocation would materially delay the registration
or otherwise require a recirculation of the prospectus
contained in the registration statement, then such Holder
shall have no such right to revoke his, her or its request.
(v) EXPENSES OF REGISTRATION. LDI shall bear all LDI
Registration Expenses incurred in connection with each
registration pursuant to Section 2(b), and each Requesting
Shareholder shall pay its own Requesting Shareholder
Registration Expenses.
(c) REGISTRATION PROCEDURES. In the case of each
registration effected by LDI pursuant to this Section 2 pursuant to
which Registrable Shares are included therein, LDI shall:
(i) take all such reasonable actions, including
without limitation preparing and filing with the SEC
amendments (including post-effective amendments) and
supplements, as may be necessary to keep such registration
current and effective and to comply with the provisions of the
Securities Act and the rules and regulations promulgated
thereunder, and the rules and regulations of any applicable
National Securities Exchange, with respect to the distribution
of the Registrable Shares covered by such registration in the
case of a registration, qualification and compliance pursuant
to Sections 2(a) or 2(b) hereof, for a period of at least 90
days or until the Requesting Shareholder has completed the
distribution described in the registration statement relating
thereto, whichever first occurs;
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<PAGE> 9
(ii) promptly notify each Requesting Shareholder and
confirm such notification in writing (w) when such
registration statement becomes effective, (x) when the filing
of any post-effective amendment to such registration statement
or supplement to the prospectus is required, when the same is
filed and, in the case of a post-effective amendment, when the
same becomes effective, (y) of any written request by the SEC
for any amendment of or supplement to such registration
statement or the prospectus or for additional information, and
(z) of the entry by the SEC of any stop order suspending the
effectiveness of such registration statement or of the
initiation by the SEC of any proceedings for that purpose,
and, if such stop order shall be entered, LDI shall use its
reasonably diligent efforts to obtain the lifting thereof;
(iii) furnish to each Requesting Shareholder and any
underwriter acting on behalf of such Requesting Shareholder
(x) at a reasonable time prior to the filing thereof with the
SEC a copy of the registration statement in substantially the
form in which LDI proposes to file the same, and a copy of any
amendment (including any post-effective amendment) to such
registration statement, and promptly following the
effectiveness thereof, a conformed copy of the registration
statement as declared effective by the SEC and of each
post-effective amendment thereto, including financial
statements and (y) such number of copies of the preliminary,
any amended preliminary, and final prospectus and of each
post-effective amendment or supplement thereto, as may
reasonably be required in order to facilitate the disposition
of the Registrable Shares covered by such registration
statement in conformity with the requirements of the
Securities Act and the rules and regulations promulgated
thereunder, but only while LDI is required under the
provisions hereof to cause the registration statement to
remain effective;
(iv) use best efforts to list such Registrable Shares
on each securities exchange (if any) or qualify the
Registrable Shares for trading on any over the counter market
(if any) on which the LDI Common Stock is then listed or
traded; and
(v) use best efforts to provide a transfer agent and
registrar for all Registrable Securities registered pursuant
to such registration statement no later than the effective
date of such registration.
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<PAGE> 10
In connection with the registration of the Registrable Shares pursuant
to this Section 2, each Requesting Shareholder, hereby agrees as follows:
(vi) the Requesting Shareholder shall cooperate
with LDI in connection with the preparation of the
registration statement, and for so long the registration
statement remaining effective, shall provide to LDI, in
writing, for use in the registration statement, all such
information regarding the Requesting Shareholder and its plan
of distribution of the Registrable Shares as may be necessary
to enable LDI to prepare the registration statement and
prospectus covering the Registrable Shares, to maintain the
currency and effectiveness thereof and otherwise to comply
with all applicable requirements of law in connection
therewith;
(vii) during such time as the Requesting Shareholder
may be engaged in a distribution of Registrable Shares, the
Requesting Shareholder shall comply with Rules 10b-2, 10b-6
and 10b-7 promulgated under the Exchange Act, to the extent
applicable, and pursuant thereto it shall, among other things:
(w) not engage in any stabilization or manipulation activity
in connection with the securities in contravention of such
rules; (x) distribute the Registrable Shares solely in the
manner described in the registration statement; (y) cause to
be furnished to each broker through whom the Registrable
Shares may be offered, if any, or to the offeree if an offer
is not made through a broker, such copies of the prospectus
and any amendment or supplement thereto and documents
incorporated by reference therein as may be required by law;
and (z) not bid for or purchase any securities of LDI or
attempt to induce any Person to purchase any securities of LDI
other than as permitted under the Exchange Act;
(viii) upon receipt of a notice pursuant to Section
2(d)(ii)(x), (y) or (z), discontinue any distribution of
Registrable Shares if such discontinuance is required under
the Securities Act;
(ix) at least five (5) days prior to any
distribution of the Registrable Shares other than in an
underwritten offering, the Requesting Shareholder will advise
LDI in writing of the dates on which the distribution is
intended to commence and terminate, the number of the
Registrable Shares to be sold and the terms and the manner of
sale; such Person also shall inform LDI and any broker/dealers
through whom sales of the
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<PAGE> 11
Registrable Shares may be made when each distribution of such
shares is completed; and
(x) if cessation is required under applicable federal
and state securities laws, immediately upon notice from LDI,
the Holders on whose behalf Registrable Shares have been
registered will cease sales of Registrable Shares, for so long
as cessation is required under applicable federal and state
securities law;
(e) INDEMNIFICATION.
(i) If Registrable Shares held by any of the Holders
are included in the securities as to which any registration is
being effected, LDI will indemnify the Holders, each of its
general and limited partners, each of the officers and
directors of any corporate general or limited partner of each
of the Holders and any Person which controls, within the
meaning of Section 15 of the Securities Act, any of the
Holders, their general or limited partners, or such officers
and directors of any corporate general or limited partner and
each underwriter, if any, and each Person who controls any
underwriter within the meaning of Section 15 of the Securities
Act, against all claims, losses, damages and liabilities (and
actions in respect thereof) ("Loss") arising out of or based
on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or other document
(including any related registration statement, notification or
the like) incident to any such registration or based on any
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 any violation by LDI of
any rule or regulation promulgated under the Securities Act,
or of any other federal, state or common law applicable to LDI
and relating to any action or inaction required of LDI in
connection with any such registration, qualification of
compliance, and will reimburse the Holders, each general or
limited partner of each of the Holders, each director and
officer of any corporate general or limited partner of any of
the Holders, any Person who so controls any of the foregoing
and each such underwriter and each Person who controls any
such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or
defending any such Loss; provided, that LDI will not be liable
to so indemnify or reimburse in any such case to the extent
that any such Loss arises out of or is based on any statement
or omission resulting
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<PAGE> 12
from written information furnished to LDI by or on behalf of
the Holders or such underwriter for use therein.
(ii) The Requesting Shareholder will, if Registrable
Shares held by the Requesting Shareholder are included in the
securities as to which such registration is being effected,
indemnify LDI, each of its directors and officers, each other
Security Holder, each other Requesting Shareholder, the
independent accountants and legal counsel of LDI, each
underwriter, if any, of LDI's securities covered by such a
registration statement, the respective officers, directors and
(with respect only to accountants and legal counsel practicing
in partnership and to each other Security Holder that is a
partnership) partners of the foregoing and each person who
controls any of the foregoing within the meaning of Section 15
of the Securities Act, against all Loss arising out of or
based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement,
prospectus, or other document, or any omission (or alleged
omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse LDI, such directors, officers,
accountants, counsel, Security Holders, the other Requesting
Shareholder, underwriters, officers, directors, (with respect
only to accountants and legal counsel practicing in
partnership and to each other Security Holder that is a
partnership) partners and controlling Persons for any legal or
any other expenses reasonably incurred in connection with
investigating or defending any such Loss in each case to the
extent that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
registration statement, prospectus, or other document in
reliance upon and in conformity with written information
furnished to LDI by or on behalf of the Requesting Shareholder
for use therein; provided, however, that (i) the obligations
of the Requesting Shareholder hereunder shall be limited to an
amount equal to the aggregate public offering price of the
Registrable Shares of the Requesting Shareholder sold as
contemplated herein, unless such liability arises out of or is
based upon willful misconduct by the Requesting Shareholder
and (ii) the indemnity for untrue statements or omissions
described above, and the reimbursements obligation relating
thereto, shall not apply if the Requesting Shareholder
provides LDI with such additional written information prior to
the effectiveness of the registration statement as is required
to make the previously supplied written information true and
complete, together with a description in reasonable
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<PAGE> 13
detail of the information previously supplied which was untrue
or incomplete.
(iii) Each Person entitled to indemnification under
this Section 2(e) (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting
therefrom; provided, that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such Indemnified Party's
expense, and provided further that the failure or delay of any
Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this
Section 2(e) except to the extent that the Indemnifying Party
is prejudiced by such failure or delay. After notice from the
Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or litigation, the
Indemnifying Party will not be liable to such Indemnified
Party for any legal or other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof,
unless the Indemnifying Party abandons the defense of such
claim or litigation. No Indemnifying Party in the defense of
any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(f) CONTRIBUTION. If the indemnification provided for in
subsections (i) or (ii) of Section 2(e) is unavailable to or
insufficient to hold the Indemnified Party harmless in respect of any
Loss referred to therein for any reason other than as specified
therein, then the Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Loss in
such proportion as appropriate to reflect the relative fault of the
Indemnifying Party, on the one hand, and such Indemnified Party, on the
other, in connection with the statements or omissions which resulted in
such Loss, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or
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<PAGE> 14
alleged omission to state a material fact relates to information
supplied by (or omitted to be supplied by) the Indemnifying Party or
the Indemnified Party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by an Indemnified
Party as a result of Loss referred to above in this subsection (f)
shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or
defending any such action or claim. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
(g) INFORMATION FROM THE REQUESTING SHAREHOLDER. The
Requesting Shareholder shall furnish to LDI such information regarding
the Requesting Shareholder, and each of its general or limited
partners, each of the directors and officers of any of its corporate
general or limited partner, and any Person controlling any of the
foregoing, and the distribution proposed by the Requesting Shareholder,
as LDI may reasonably request in writing and as shall be required in
connection with any registration referred to in Section 2.
3. TERMINATION.
(a) Notwithstanding any other provision of this Agreement, the
respective covenants, agreements and obligations contained in Section 2
of this Agreement shall continue until the earlier to occur of: (i)
such date as the Holders cease to own any Registrable Shares, and (ii)
the twelfth anniversary of the Effective Date; provided that the
indemnification obligations contained in Section 2(e) and the
contribution obligations contained in Section 2(f) shall survive for
the period of the statute of limitations with respect thereto.
4. MISCELLANEOUS.
(a) The Holders and LDI acknowledge and agree that irreparable
damage would occur in the event any of the provisions of this Agreement
were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court identified in paragraph 4(j) hereof.
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<PAGE> 15
(b) All notices and other communications hereunder shall be in
writing and shall be deemed given (i) when delivered if sent by
courier, (ii) when received if sent by registered or certified mail,
return receipt requested, or by air courier or (iii) when received by
facsimile transmission with electronic verification if received during
normal business hours or otherwise the next business day, in each case
to the parties at the following addresses (or at such other address as
a party may specify by like notice):
(A) If to LDI, addressed to:
888 South Andrews Avenue, Suite 205
Fort Lauderdale, Florida 33316
Attention: David Glassman
Facsimile: (954) 524-5110
with a copy thereof addressed to:
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10151-0037
Attention: David S. Schaefer, Esq.
Facsimile: (212) 407-4990
(B) If to the Holders, addressed to:
Advent International Corporation
101 Federal Street
Boston, Massachusetts 02110
Attention: Olaf N. Krohg
Facsimile: (617) 443-0322
with a copy thereof addressed to:
Baker & McKenzie
815 Connecticut Avenue, N.W.
Washington, D.C. 20006-4078
Facsimile: (202) 452-7074
Attention: Marc R. Paul, Esq.
(c) This Agreement supersedes all prior agreements between the
parties (written or oral) relating to registration of the Registrable
Shares under the Securities Act and is intended as a complete and
exclusive statement of the terms of the agreement between the parties
with respect to such matters.
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and shall be
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<PAGE> 16
construed and enforced in accordance with the laws of such state
without regard to the principles of conflicts of laws of choice of
laws.
(e) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Any term or provision of this Agreement may be waived at
any time by an instrument in writing signed by the party which is
entitled to the benefits thereof and this Agreement may be amended or
supplemented at any time by an instrument in writing signed by all
parties hereto.
(g) Except as otherwise provided herein, LDI shall not assign
this Agreement or any part hereof or any rights or obligations
hereunder. Each Holder shall be entitled, without the consent of any
other party hereto, to assign and transfer any or all of its rights
hereunder to any permitted transferee of its Registrable Shares. Except
as otherwise provided herein, this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(h) If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent
possible.
(i) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute but one and the same agreement.
(j) Any claim, suit, action, or proceeding among any or all of
the parties hereto relating to this Agreement, to any document,
instrument, or agreement delivered pursuant hereto, referred to herein,
or contemplated hereby, or in any other manner arising out of or
relating to the transactions contemplated by or referenced in this
Agreement, shall be commenced and maintained exclusively in the United
States District Court for the Southern District of New York, or, if
such Court lacks jurisdiction over the subject matter, in a state court
of competent subject-matter jurisdiction sitting
- 16 -
<PAGE> 17
in the State of New York. The parties hereby submit themselves
unconditionally and irrevocably to the personal jurisdiction of such
courts. The parties further agree that venue shall be exclusively in
New York County in the State of New York. The parties irrevocably waive
any objection to such personal jurisdiction or venue including, but not
limited to, the objection that any suit, action, or proceeding brought
in the State of New York has been brought in an inconvenient forum. The
parties irrevocably agree that process issuing from such courts may be
served on them, either personally or by certified mail, return receipt
requested, at the addresses given in Section 4 hereof; and further
irrevocably waive any objection to service of process made in such
manner and at such addresses, including without limitation any
objection that service in such manner and at such addresses is not
authorized by the local or procedural laws of the State of New York.
(k) In any suit or proceeding brought or instituted by any of
the parties to enforce or interpret any of the provisions of this
Agreement or on account of any damages claimed to be sustained by such
instituting party by reason of another party's violation of any of the
terms or provisions of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and court costs.
IN WITNESS WHEREOF, LDI and the Holders have caused this
Agreement to be duly executed by their respective officers, each of whom is duly
authorized, all as of the day and year first above written.
[Signatures begin on next page]
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<PAGE> 18
GLOBAL PRIVATE EQUITY III L.P., a
Delaware limited partnership
By: Advent International L.P.,
General Partner
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-A L.P., a
Delaware limited partnership
By: Advent International L.P.,
General Partner
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-B L.P., a
Delaware limited partnership
By: Advent International L.P.,
General Partner
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
<PAGE> 19
GLOBAL PRIVATE EQUITY III-C L.P., a
Delaware limited partnership
By: Advent International L.P.,
General Partner
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
ADVENT PGGM GLOBAL L.P., a Delaware
limited partnership
By: Advent International L.P.,
General Partner
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
ADVENT EURO-ITALIAN DIRECT
INVESTMENT PROGRAM L.P., a Delaware
limited partnership
By: Advent International L.P.,
General Partner
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS (NA) GPE III L.P.,
a Delaware limited partnership
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
<PAGE> 20
ADVENT PARTNERS GPE III L.P., a
Delaware limited partnership
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS L.P., a Delaware
limited partnership
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
ADVENT GLOBAL GECC III L.P., a
Delaware limited partnership
By: Advent Global Management L.P.,
General Partner
By: Advent International L.P.,
General Partner
By: Advent International
Corporation, General Partner
By: _____________________________
Its: _____________________________
FOUR SEASONS VENTURE II AS, a
Norwegian limited company
By: _____________________________
Pursuant to a Power of
Attorney
LONG DISTANCE INTERNATIONAL INC., a
Florida corporation
By: _____________________________
Its: _____________________________
<PAGE> 1
EXHIBIT 10.6
PREEMPTIVE RIGHTS AGREEMENT
This Preemptive Rights Agreement (the "Agreement") dated as of July 28,
1997, by and among Long Distance International Inc., a Florida corporation
("LDI" or the "Company"); the entities listed on Schedule 1 hereto
(collectively, the "Advent Entities"); Clifford Friedland ("Friedland"); and
David Glassman ("Glassman").
WITNESSETH:
WHEREAS, the Advent Entities, Friedland and Glassman (collectively, the
"Shareholders") are all holders of shares of, or of warrants, options or other
rights exercisable or convertible into, Common Stock of the Company;
WHEREAS, in accordance with Section 607.063 of the Florida Business
Corporation Law, the Company wishes to provide for preemptive rights and to
specify the terms under which such preemptive rights may be exercised; and
WHEREAS, the Company and the Shareholders wish to provide an
opportunity to other current and future holders of shares of, or of warrants,
options or other rights exercisable or convertible into, Common Stock of the
Company to have and exercise preemptive rights on the same terms as the
Shareholders have.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, LDI and the Shareholders (collectively, the "Parties") hereby
agree as follows:
Section 1. Definitions.
Capitalized terms shall have the following meanings when used in this
Agreement:
(a) "Affiliate" of a Person means any other Person that controls, is
controlled by, or is under common control with, such Person.
<PAGE> 2
(b) "Common Stock" means the common stock of the Company, par value
$0.001 per share.
(c) "Common Stock Fair Market Value" means, if the Common Stock is
traded on the NASDAQ National Market or a national securities exchange, the
average last sale price in such market over the ten (10) trading days on which
the Common Stock was traded immediately preceding the date of determination, or
if not so traded, the fair market value of a share of Common Stock, as
determined in good faith by the Board of Directors of the Company for the
purpose of granting incentive stock options or issuing shares to employees of
the Company or any subsidiary of the Company determined as of the most recent
date that such determination has been made within one year of the applicable
date or, if no such determination has been made during such period, the fair
market value of such stock, as determined in good faith by the Board of the
Directors of the Company as of the applicable date.
(d) "Initial Public Offering" means the completion of an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended covering the offering and sale of Common
Stock for the account of the Company.
(e) "New Securities" means any Common Stock, whether now authorized or
not, and any rights, options or warrants to purchase any such Common Stock, and
securities of any type whatsoever that are, or may become, convertible into
Common Stock; provided that the term "New Securities" does not include:
(i) securities issued in connection with an acquisition by LDI of
another business entity or business segment of such an entity, whether by
merger, purchase of substantially all the assets, or by other reorganization,
but only if at the conclusion of such acquisition LDI will own more than fifty
percent (50%) of the voting power of such business entity or business segment,
and immediately after the acquisition, each Shareholder's pro rata share (as
defined in Section 2(b)) of the surviving entity's common stock; rights, options
or warrants to purchase any such common stock; and securities of any type
whatsoever that are, or may become, convertible into such common stock is no
less than his pro rata share of the Common Stock; rights, options or warrants to
purchase any Common Stock; and securities of any type whatsoever that are, or
may become, convertible into Common Stock, immediately before such acquisition;
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<PAGE> 3
(ii) securities issued to employees, consultants, officers or
directors of LDI either
(x) pursuant to any stock option, stock purchase, stock
bonus or similar plan that is or has been approved by the Board of Directors of
the Company on or before the date of this Agreement, or
(y) pursuant to any stock option, stock purchase, stock
bonus or similar plan that is approved by the Compensation Committee of the
Board of Directors of the Company, provided that such securities have an
exercise price of no less than the Common Stock Fair Market Value on the date of
the grant;
(iii) securities issued in connection with any stock split, stock
dividend, recapitalization or other reorganization of LDI;
(iv) securities issued upon the exchange, exercise or conversion
of any security that was the subject of a right of first refusal pursuant to
this Agreement;
(v) securities sold in an Initial Public Offering;
(vi) treasury shares;
(vii) any right, option or warrant to acquire any security
convertible solely into the securities excluded from the definition of New
Securities pursuant to subsections (i) through (vi) above;
(viii) any Common Stock, or any rights, options, warrants, or
shares convertible into or exchangeable for Common Stock, which the Company was,
on or before the date of this Agreement, required to issue;
(ix) any securities issued pursuant to the Stock Purchase
Agreement among LDI and the Advent Entities dated as of the date hereof;
(x) any securities issued to shareholders of the Company
pursuant to that certain preemptive rights notice dated July 7, 1997;
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<PAGE> 4
(xi) any securities issued to the purchasers thereof pursuant to
the letter agreement dated November 6, 1996, between the Company and ARC Limited
Partners and the letter agreements dated February 25, 1997, and July 28, 1997,
between the Company and Societe Generale Securities Corporation and Bannon &
Co., Inc.;
(xii) any securities as to which both:
(x) those Advent Entities that are holders of Shares, and
(y) Shareholders representing a majority of the Shares of
the Common Stock subject to this Agreement, on a fully
diluted basis, assuming full conversion or exchange of any
securities convertible into or exchangeable for Common Stock
and exercise for Common Stock of any right, option or
warrant held by such Person (or which such Person is
entitled to hold pursuant to a right of conversion or
exchange on any security)
waive the rights of first refusal contained in Section 2 of this Agreement; and
(xiii) at any time when no Person has preemptive rights, rights of
first refusal or rights of a similar nature pursuant to any other agreement with
the Company (including without limitation those certain shareholders agreement
dated July 22, 1994 and September 1994), securities issued in connection with an
acquisition by LDI of another business entity or business segment of such an
entity, whether by merger, purchase of substantially all the assets, or by other
reorganization.
(f) "Person" means an individual, partnership, company, corporation or
other legal entity, as the context requires.
(g) "Shares" means shares of any class or series of the capital stock
of the Company.
Section 2. Grant of Right of First Refusal.
(a) LDI hereby grants to each of the Shareholders the right of first
refusal to purchase such Shareholder's pro rata share of New Securities which
LDI may, from time to time, sell or issue on or after the date of this
Agreement.
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<PAGE> 5
(b) For purposes of this Agreement, a Shareholder's "pro rata share" is
the ratio of the number of Shares of Common Stock owned by such Shareholder
immediately prior to the issuance of New Securities, assuming full conversion or
exchange of any Shares convertible into or exchangeable for Common Stock and
exercise of any right, option or warrant for Common Stock held by such
Shareholder (or which it is entitled to hold pursuant to a right of conversion
or exchange of any security), to the total number of Shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of all outstanding Shares convertible into or exchangeable for Common
Stock and exercise of all outstanding rights, options and warrants for Common
Stock (or which it is entitled to hold pursuant to a right of conversion or
exchange of any security).
(c) This right of first refusal shall be subject to the remaining
provisions of this Agreement.
(d) Every Shareholder hereby irrevocably relinquishes any and all
preemptive rights or rights of first refusal or rights of a similar nature
contained in or described in any other agreement with the Company dated before
the date of this Agreement, including without limitation those certain
shareholders agreements dated July 22, 1994 and September 1994, if applicable.
(e) Notwithstanding anything in this Agreement to the contrary, no
adjustment in the number of shares of Common Stock issuable or issued upon
exercise, exchange, or conversion of any securities convertible into or
exchangeable for Common Stock and exercise for Common Stock of any right, option
or warrant held by such Person (or which such Person is entitled to hold
pursuant to a right of conversion or exchange on any security) by reason of
original provisions of or relating to such security which provide for an
automatic adjustment upon the occurrence of specified events shall be deemed an
issuance or sale or a proposed issuance or sale of New Securities, nor shall
such adjustment give rise to any rights of first refusal under this Agreement.
Section 3. Notice of Proposal to Issue or Sell.
(a) In the event LDI proposes to issue or sell New Securities, it shall
give each Shareholder written notice of the proposal (a "Section 3(a) Notice"),
describing
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<PAGE> 6
the proposed New Securities, and the terms (including the cash to be paid for,
plus the fair market value of any other consideration to be given for, the New
Securities) upon which LDI proposes to sell or issue the New Securities and the
proposed buyers, if known.
(b) Each Shareholder shall have 30 days after any Section 3(a) Notice
is given to agree to purchase such New Securities upon the terms specified in
the Section 3(a) Notice, and any Shareholder wishing to do so shall give written
notice to LDI, stating therein the quantity of New Securities to be purchased,
which in any event may not exceed such Shareholder's pro rata shares thereof. A
Shareholder who fails to give such notice shall be deemed to have waived its
right of first refusal under this Agreement.
(c) Except as otherwise provided in subsection (d), all the
Shareholders who exercise their right pursuant to Section 3(b) shall purchase
the quantity of New Securities specified in each such Shareholder's notice to
the Company on the terms specified in the Section 3(a) Notice (except that if
such terms include the giving of consideration other than cash, the Shareholders
shall pay the fair market value of such other consideration in lieu thereof) on
a date (other than a date on which banks in New York City are closed) not more
than 210 days after the date of Section 3(a) Notice. The Company shall give each
such Shareholder notice of the purchase date not less than ten days in advance
of the purchase date.
(d) If the Company proposes to sell or issue securities that are New
Securities but would not be New Securities if no Person had preemptive rights,
rights of first refusal or rights of a similar nature pursuant to any other
agreement with the Company (including without limitation those certain
shareholders agreement dated July 22, 1994 and September 1994), and if all
Persons having any such rights either waive or are deemed not to have exercised
such rights pursuant to the applicable agreements, then no Shareholder shall
have any right under this Agreement to purchase any such New Securities even if
such Shareholder has given the Company the notice described in Section 3(b).
Section 4. Sale or Issuance After Notice.
(a) From the first day after the first day on which each Shareholder
has (i) exercised its right of first refusal as provided for in Section 3(b),
(ii) waived its right of
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<PAGE> 7
first refusal in writing, or (iii) been deemed to have waived its right of first
refusal pursuant to the last sentence of Section 3(b), LDI shall have 180 days
to sell or issue, or enter into an agreement (pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, no later than 180 days
from the date of such agreement) to sell or issue, all those New Securities
covered by the applicable Section 3(a) Notice, at a price and upon terms no more
favorable to the purchasers thereof than specified in such Section 3(a) Notice.
(b) If LDI does not sell such New Securities within the time periods
specified in Section 4(a), LDI shall not be permitted to issue or sell such New
Securities, unless it first offers such securities to all the Shareholders again
pursuant to the terms of this Agreement.
Section 5. Redemption of Certain New Securities.
(a) Any options, warrants, or other rights to purchase Common Stock
that a Shareholder purchases pursuant to this Agreement (collectively, "Option
Rights") shall be subject to redemption by the Company if the Company does not
complete a sale or issuance pursuant to Section 4(a) of the New Securities the
proposed sale or issuance of which caused the Company to give the Section 3(a)
Notice that led to the Shareholder's purchase of such Option Rights.
(b) If the Company completes a sale or issuance pursuant to Section
4(a) of the New Securities the proposed sale or issuance of which caused the
Company to give the Section 3(a) Notice that led to one or more Shareholders'
purchase of any Option Rights, and any such New Securities (other than any New
Securities purchased by any Shareholder pursuant to his right of first refusal
pursuant to Section 2 hereof) expire without exercise, then the Company shall
redeem that portion of the Option Rights which equals that portion of the New
Securities (other than any New Securities purchased by any Shareholder pursuant
to his right of first refusal pursuant to Section 2 hereof) which have so
expired without exercise, unless such Option Rights are exercised before the
Company so redeems.
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<PAGE> 8
Section 6. Termination.
(a) Upon the disposition by a Shareholder of all of the Shares of
Common Stock owned by such Shareholder, such Shareholder shall have no further
rights under this Agreement.
(b) This Agreement shall terminate upon the consummation of an Initial
Public Offering.
Section 7. Further Assurances. LDI and each Shareholder shall execute,
deliver and perform all such additional documents, agreements, certificates and
instruments and shall take all such further actions as may be necessary or
advisable to effectuate the terms and conditions of this Agreement.
Section 8. Notice.
(a) All notices and other communications to be given under this
Agreement, including without limitation a Section 3(a) Notices described in
Section, shall be in writing and shall be deemed to have been given:
(i) on the date delivered if delivered personally or actually
received by a means other than those specified in the remainder of this Section
8(a);
(ii) on the date sent if sent by registered or certified mail,
return receipt requested;
(iii) on the date sent if sent by overnight courier or
international air courier; or
(iv) on the date sent if sent by facsimile transmission with
electronic verification.
(b) Notice shall be given to the parties to this Agreement at the
following addresses (or at such other address as a party may specify by notice
pursuant to this Section 8):
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<PAGE> 9
If to the Company:
Long Distance International Inc.
888 S. Andrews Avenue, Suite 205
Ft. Lauderdale, Florida 33316
Facsimile: (954) 524-5110
Attention: David Glassman
If to any of the Advent Entities:
Advent International Corporation
101 Federal Street
Boston, Massachusetts 02110
Facsimile: (617) 443-0322
Attention: Olaf N. Krohg
If to Glassman:
David Glassman
c/o Long Distance International Inc.
888 S. Andrews Avenue, Suite 205
Ft. Lauderdale, Florida 33316
Facsimile: (954) 524-5110
If to Friedland:
Clifford Friedland
c/o Long Distance International Inc.
888 S. Andrews Avenue, Suite 205
Ft. Lauderdale, Florida 33316
Facsimile: (954) 524-5110
Section 9. Additional Parties.
(a) At the option of the Company, any current or future Person holding
of record Shares of Common Stock, whether now authorized or not, or holding any
rights, options or warrants to purchase any Common Stock, or holding any
securities of any
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<PAGE> 10
type whatsoever that are, or may become, convertible into Common Stock may
become a party to this Agreement and a Shareholder for all purposes under this
Agreement by taking all of the actions specified in Section 9(b). Upon the
acceptance in writing by the Company of such Person as a party to this Agreement
following such Person's taking all such actions, such Person shall be deemed to
have become a Shareholder under this Agreement and a party to this Agreement,
and to have relinquished any and all preemptive rights, rights of first refusal,
and rights of a similar nature contained or described in any other agreement
with the Company (including without limitation those certain shareholders
agreements dated July 22, 1994 and September 1994).
(b) The required actions of a Person seeking to become a party to this
Agreement and a Shareholder are:
(i) Signing a copy of this Agreement and delivering the signed
Agreement to the Company pursuant to the provisions of Section 8(a); and
(ii) Giving the Company a writing (i) explicitly relinquishing any
and all preemptive rights, rights of first refusal or rights of a similar nature
contained in or described in any other agreement with the Company (including
without limitation those certain shareholders agreement dated July 22, 1994 and
September 1994) if applicable and (ii) specifying an address at which such
Person can be given notices under this Agreement.
Section 10. Miscellaneous.
(a) This Agreement supersedes all prior agreements among the
Shareholders relating to the subject hereof and is intended as a complete and
exclusive statement of the terms of the agreement between the parties with
respect to such subject.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the principles of
conflicts of laws of choice of laws.
(c) The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
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<PAGE> 11
(d) Any term or provision of this Agreement may be waived at any time
by any party hereto by means of a writing signed by such party.
(e) This Agreement may only be amended in a writing executed by all the
parties hereto.
(f) Except as otherwise provided herein, no party hereto shall assign
this Agreement or any part hereof or any rights or obligations hereunder without
the prior written consent of the other parties. No such assignment shall release
any party of any of obligations or liabilities it has already accrued under this
Agreement.
(g) Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(h) If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, then the invalid, illegal,
or unenforceable part shall be replaced, if possible, by a valid, legal and
enforceable provision that most closely effectuates the intent of the parties to
this Agreement.
(i) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, LDI and the Shareholders have caused this Agreement
to be duly executed as of the day and year first above written.
[Signatures begin on next page]
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<PAGE> 12
GLOBAL PRIVATE EQUITY III L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-A L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
GLOBAL PRIVATE EQUITY III-B L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
<PAGE> 13
GLOBAL PRIVATE EQUITY III-C L.P., a
Delaware limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PGGM GLOBAL L.P., a Delaware
limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT EURO-ITALIAN DIRECT
INVESTMENT PROGRAM L.P., a Delaware
limited partnership
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
<PAGE> 14
ADVENT PARTNERS (NA) GPE III L.P., a
Delaware limited partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS GPE III L.P., a Delaware
limited partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
ADVENT PARTNERS L.P., a Delaware limited
partnership
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
FOUR SEASONS VENTURE II AS, a Norwegian
limited company
By: _____________________________
Pursuant to a Power of Attorney
<PAGE> 15
ADVENT GLOBAL GECC III L.P., a Delaware
limited partnership
By: Advent Global Management L.P., General
Partner
By: Advent International L.P., General Partner
By: Advent International Corporation, General
Partner
By: _____________________________
Its: _____________________________
LONG DISTANCE INTERNATIONAL INC., a
Florida corporation
By: _____________________________
Its: _____________________________
CLIFFORD FRIEDLAND
_______________________
DAVID GLASSMAN
_______________________
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 1, 1995, between Clifford Friedland (the
"Employee"), and Long Distance International Inc., a Florida corporation (the
"Corporation").
Preliminary Statements
A. The Corporation provides long distance and other telephone
services and conducts business in the telecommunications field.
B. The Employee has been instrumental in forming and organizing the
Corporation and its business and has extensive business experience in the field
of telecommunications.
C. The Corporation wishes to retain the Employee, and the Employee
wishes to be employed by the Corporation, on the terms and conditions set forth
in this Agreement.
In consideration of the foregoing and the terms, conditions and
mutual covenants contained in this Agreement, the parties hereby agree as
follows.
Section 1. Engagement
The Corporation hereby agrees to employ the Employee during the Term
of this Agreement (as defined below) and the Employee agrees to work for and be
employed by the Corporation during the Term, on the terms and subject to the
conditions contained in this Agreement.
<PAGE> 2
Section 2. Term
This Agreement shall have a term of effectiveness that shall begin
on July 1, 1995, shall terminate on June 30, 1998 and shall be subject to
extension and earlier termination as provided in this Agreement (such period of
effectiveness and any renewal term hereunder, the "Term"). At the end-of the
Term, this Agreement shall renew for successive one year periods unless either
party gives the other written notice of termination of this Agreement at least
120 days before the end of such a one-year renewal term.
Section 3. Position and Duties
During the Term, the Employee shall serve as Chairman and co-chief
executive officer of the Corporation with David Glassman or as the sole chief
executive officer if Mr. Glassman shall cease to be employed in such capacity by
the Corporation. The Employee shall have and perform such additional or other
duties and responsibilities not inconsistent with such position and this
Agreement as may be prescribed from time to time by the Board of Directors of
the Corporation. The Employee shall carry out the policies and directives of the
Board of Directors of the Corporation and shall act in the interests of and on
behalf of the Corporation. He shall devote substantially all of his business
time and attention to his employment pursuant to this Agreement and to the
business of the Corporation.
2
<PAGE> 3
Section 4. Compensation
4.01. In consideration of the services to be rendered by the
Employee under this Agreement, the Corporation shall pay, and the Employee shall
be entitled to receive from the Corporation, the compensation provided for in
this Section 4, subject to the terms of this Agreement and the withholding and
other required deductions provided for in this Section. The Base Salary and
other compensation and benefits provided for herein may be increased by the
Board of Directors of the Corporation.
4.02. The Corporation shall pay the Employee a base salary during
the Term (the "Base Salary"), in equal installments every two (2) weeks or on
such other days as may be established by the Board of Directors of the
Corporation as the regular day for payment of salaries of employees of the
Corporation. The Base Salary shall be paid by the Corporation at the following
rates on account of the following periods, unless such salary is increased by
action of the Board of Directors of the Corporation:
(i) for the period from July 1, 1995 through June 30, 1996,
$108,000;
(ii) for the period from July 1, 1996 through June 30, 1997,
$120,000; and
(iii) for the period from July 1, 1997 through the end of the Term,
an annual Base Salary of $150,000.
3
<PAGE> 4
If any amount of Base Salary is not paid by the Corporation as provided in this
Section, or is not requested or demanded by the Employee, payment of such amount
of Base Salary shall not be deemed to be waived by the Employee but shall accrue
and remain due and payable by the Corporation promptly upon demand by the
Employee. The obligation of the Corporation to pay such amount to the Employee
shall remain in effect and binding on the Corporation. The obligation of the
Corporation to pay the Employee any Base Salary due on account of any period
during the Term shall survive any termination of this Agreement and shall remain
in effect after such termination.
4.03. The Employee shall have the right to participate in and to
receive compensation under any and all bonus, profit sharing and other
compensation arrangements or plans that may be established by the Corporation on
terms and in amounts that are commensurate with the chief executive position of
the Employee and that are not less favorable than the terms and amounts
conferred on any other employee, officer or director of the Corporation.
4.04. The Corporation shall have the right to deduct or withhold
from all compensation and benefits payable to the Employee under this Agreement
social security taxes, other federal, state and local taxes and all other
charges and amounts that shall be required by law to be deducted or withheld.
Section 5. Benefits
5.01. The Corporation shall pay the Employee a vehicle allowance of
$500 per month during the Term for use and maintenance of a vehicle used by the
4
<PAGE> 5
Employee in connection with the performance of his duties hereunder, including
costs of insurance, maintenance, mileage, fuel and repairs.
5.02. The Employee shall be entitled to participate in all benefits
that the Corporation may make available to its executive or administrative
employees, on terms no less favorable than are provided to such employees,
including all stock option, incentive, pension, retirement and benefits plans
and arrangements and all medical, disability, hospital, health and life
insurance plans and arrangements. The Employee and his wife and children shall
be entitled to participate in any group health insurance plans adopted or
maintained by the Corporation, on terms no less favorable than are provided to
other executive and administrative employees and their immediate families, as
such plans may be approved, modified and in effect from time to time.
5.03. If the Employee's employment by the Corporation or this
Agreement is terminated for any reason, the Employee shall have the right to
purchase from the Company any insurance policies on his life owned by the
Company for a price equal to the cash surrender value of the policies at the
date of termination, plus prepaid premiums. Such right shall be exercised by the
Employee by written notice to the Corporation given not later than sixty (60)
days after such termination. The purchase price for such policies provided for
in this Section 5.03 shall be paid by the Employee to the Corporation upon the
giving of such notice.
5.04. The Employee shall be entitled to take fifteen (15) business
days of vacation annually during the Term, with full payment of his salary and
other
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<PAGE> 6
compensation and benefits by the Corporation under this Agreement during such
annual vacation. The Employee shall receive as paid days off all national
holidays that the Company recognizes and observes.
Section 6. Expenses
The Corporation shall reimburse the Employee for all reasonable and
necessary business expenses incurred by the Employee during the Term in the
furtherance of the Corporation's business pursuant to this Agreement, including
expenses of travel, meals, equipment, supplies and lodging.
Section 7. Termination
7.01. The Corporation shall have the right to terminate this
Agreement and the employment of the Employee hereunder for Cause (as defined in
this Section 7.01), upon sixty (60) days' prior written notice to the Employee.
"Cause" under this agreement shall mean any of the following:
(i) any material breach of this Agreement by the Employee or any
material and intentional illegal conduct by the Employee,
unless such breach or conduct is cured within such sixty (60)
day period;
(ii) any intentional and material act of fraud, embezzlement,
larceny or conversion by the Employee affecting the
Corporation; or
(iii) absence of the Employee from the performance of his duties
hereunder for more than ninety (90) consecutive business days,
other than absence caused by vacation, death or Disability of
the
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<PAGE> 7
Employee and other than absence that occurs due to causes
beyond the control of the Employee that are deemed by the
Board of Directors of the Corporation, in its reasonable
discretion, to be reasonable causes for such absence.
7.02. The Corporation shall have the right to terminate this
Agreement and the employment of the Employee hereunder for Good Reason (as
defined in this Section 7.02), upon ninety (90) days' prior written notice to
the Employee. "Good Reason" hereunder shall mean any of the following:
(i) the death of the Employee, upon the occurrence of which the
Term of this Agreement shall terminate without any requirement
for the giving of written notice hereunder; or
(ii) any physical or mental incapacity, injury, disability or
illness of the Employee that shall give rise to any
substantial impairment of his effective performance of his
obligations or duties under this Agreement for any continuous
period of 180 days or that shall give rise to any absence of
the Employee from the performance of his duties or obligations
hereunder for any continuous period of 180 days (any such
physical or mental incapacity injury, disability or illness, a
"Disability").
7.03. (a) The Employee shall have the right to terminate this
Agreement and his employment hereunder in the event of the occurrence of any of
the following, by giving the Corporation thirty (30) days' prior written notice
of such
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<PAGE> 8
termination:
(i) any material breach of this Agreement by the Corporation;
(ii) any death or Disability of the Employee; or
(iii) any Change of Control of the Corporation, as defined in
Section 7.03(b).
(b) If (i) any Change of Control (as defined below) shall occur at
any time during Employee's employment hereunder and (ii) the Employee shall not
vote in favor of such Change of Control as either a director or shareholder of
the Corporation, then Employee may by at least thirty (30) days prior written
notice to the Corporation given within six (6) months of the occurrence of such
Change of Control, elect to terminate his employment with the Corporation as of
the end of such thirty-day period or the end of such six-month period. If
Employee elects to terminate his employment pursuant to this Section 7.03(b),
the Corporation shall promptly pay him either (A) two and nine-tenths (2.9)
times his current annual compensation payable under Sections 4.02 and 4.03
within thirty (30) days of receipt of Employee's notice of termination, if a
majority of the Corporation's Board of Directors opposed the Change of Control,
or (B) two and one-half (2.5) times such current compensation within thirty (30)
days of receipt of Employee's notice of termination, if a majority of the
Corporation's Board of Directors voted in favor of the Change of Control;
provided, however, that this Section 7.03(b) shall not apply to any change in
control that the Employee votes in favor of either as an officer, director or
shareholder of the Corporation. The current compensation of the Employee for
purposes of this Section
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<PAGE> 9
7.03(b) shall be deemed to be not less than $108,000 per annum for each period
during which the Employee was not paid reasonable compensation for his services
to the Corporation, in order to reflect reasonable compensation for such
periods. A "Change of Control" hereunder shall be deemed to be (x) a change in
ownership or effective control of the Corporation, as defined in the Code or the
regulations or proposed regulations promulgated thereunder or (y) a change in
ownership of a substantial portion of the assets of the Corporation, as defined
in the Code or the regulations or proposed regulations promulgated thereunder.
7.04. In the event of any termination of this Agreement under
Section 7.01, the Corporation shall pay the Employee all Base Salary and other
compensation, and shall continue to provide to the Employee all benefits
provided for in this Agreement, through the end of the sixty-day notice period
specified in Section 7.0l, which compensation and benefits shall be paid or
provided to the Employee at the times specified in Section 4.
7.05. In the event of the termination of this Agreement for any
reason specified in Sections 7.02 or 7.03(a)(ii), the Corporation shall pay to
the Employee or to his heirs; administrators or estate, twice the amount of all
Base Salary that would have been payable to the Employee through the end of the
Term during which such termination occurs. Such payment shall not be deemed to
be liquidated damages in connection with any breach by the Corporation of this
Agreement and shall not affect or be deemed to release or waive any other rights
or remedies of the Employee in connection with any such breach. All compensation
required to be paid on any
9
<PAGE> 10
termination of employment under this Section 7.05 shall be paid by the
Corporation to the Employee no later than the earlier of the end of the notice
period required in connection with such termination or sixty (60) days after the
death of the Employee.
7.06. In the event of any termination of this Agreement by the
Corporation without cause and without Good Reason or otherwise in breach of this
Agreement, the Corporation shall immediately pay the Employee an amount equal to
ten (10) times the compensation that would have been payable to the Employee
through the end of the Term under Sections 4.02 and 4.03 of this Agreement.
7.07. The Corporation shall pay all legal fees and expenses incurred
by the Employee in connection with any litigation or proceeding relating to the
payment of any compensation or amounts referred to in this Section, provided
that the Employee prevails in part or all of such litigation or proceeding.
Section 8. Miscellaneous
8.01. This Agreement shall be governed by and interpreted and
enforced in accordance with the law of the State of Florida applicable to
contracts negotiated, entered into and to be performed in that State, without
regard to the choice or conflicts of law principles of such State. The parties
hereto consent to the jurisdiction of the federal and state courts located in
Broward County, Florida over the parties hereto and over any disputes, actions,
proceedings or claims relating to or arising in connection with this Agreement.
8.02. If any part of this Agreement is held to be unenforceable or
invalid under, or in conflict with, the applicable law of any jurisdiction, then
the
10
<PAGE> 11
unenforceable, invalid or conflicting part shall be narrowed or replaced, to the
extent possible, by a judicial construction in such jurisdiction that
effectuates the intent of the parties regarding this Agreement and the
unenforceable, invalid or conflicting part, and such part shall be deemed to be
amended by such construction. Notwithstanding the unenforceability, invalidity
or conflict with applicable law of any part of this Agreement, the remaining
parts shall be valid, enforceable and binding on the parties.
8.03. This Agreement shall be binding upon, enforceable by and shall
inure to the benefit of each of the parties and their respective permitted
successors. This Agreement and all rights and obligations hereunder are personal
to the Employee and shall not be assignable or delegable, and any purported
assignment or delegation in violation hereof shall be null and void. Any person,
firm or corporation succeeding to the business of the Corporation by merger,
consolidation, purchase of assets or otherwise, shall assume by contract or
operation of law the obligations of the Company hereunder; provided, however,
that the Corporation shall, notwithstanding such assumption or assignment,
remain liable and responsible for the fulfillment of the terms and conditions of
the Agreement on the part of the Corporation.
8.04. This Agreement may be amended only by a writing signed by both
parties hereto. This Agreement constitutes the entire agreement among parties
hereto relating to the subject matter of this Agreement. Neither any failure nor
any delay on the part of any party to this Agreement in exercising any right,
power or privilege hereunder shall operate as a waiver of any rights of any such
party, unless
11
<PAGE> 12
such waiver is explicitly expressed by a writing executed by such party and
delivered to the other parties, nor shall a single or partial exercise of any
right preclude any other or further exercise of any other right, power or
privilege accorded to any party to this Agreement.
8.05. (a) All notices permitted or required hereunder shall be in
writing and shall be delivered by hand, by recognized, national, overnight
courier or by deposit in the United States mail, postage prepaid, by registered
or certified mail, return receipt requested, addressed to the Corporation or the
Employee, as the case may be, at the address of such party set forth below:
(i) if to the Corporation to:
Long Distance International Inc.
888 South Andrews Avenue - Suite 205
Ft. Lauderdale, Florida 33316
Attention: Chairman and President
(ii) if to the Employee to:
Clifford Friedland
2545 Bay Avenue
Miami Beach, Florida 33140
(b) Notices given by mail shall be deemed effective on the earlier
of the date shown on the proof of receipt of such mail or, unless the recipient
proves that the notice was received later or not received, three (3) days after
the date of mailing thereof. Other notices shall be deemed given on the date of
receipt. Any party hereto may change the address specified above by written
notice to the other parties hereto.
12
<PAGE> 13
8.06. The headings appearing in this Agreement are for convenience
in reference only and shall not affect the meaning or interpretation of this
Agreement.
8.07. This Agreement may be-executed in multiple counterpart copies,
each of which shall be considered an original and all of which shall be deemed
to be one and the same agreement.
8.08. The provisions of Sections 7 and 8.01 of this Agreement shall
survive any termination of this Agreement and shall remain in effect after any
such termination.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first set forth above.
LONG DISTANCE INTERNATIONAL INC.
By
--------------------------------
David Glassman, President
EMPLOYEE
-----------------------------------
Clifford Friedland
13
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 1, 1995, between David Glassman (the
"Employee"), and Long Distance International Inc., a Florida corporation (the
"Corporation").
Preliminary Statements
A. The Corporation provides long distance and other telephone
services and conducts business in the telecommunications field.
B. The Employee has been instrumental in forming and organizing the
Corporation and its business and has extensive business experience in the field
of telecommunications.
C. The Corporation wishes to retain the Employee, and the Employee
wishes to be employed by the Corporation, on the terms and conditions set forth
in this Agreement.
In consideration of the foregoing and the terms, conditions and
mutual covenants contained in this Agreement, the parties hereby agree as
follows.
Section 1. Engagement
The Corporation hereby agrees to employ the Employee during the Term
of this Agreement (as defined below) and the Employee agrees to work for and be
employed
<PAGE> 2
by the Corporation during the Term, on the terms and subject to the conditions
contained in this Agreement.
Section 2. Term
This Agreement shall have a term of effectiveness that shall begin
on July 1, 1995, shall terminate on June 30, 1998 and shall be subject to
extension and earlier termination as provided in this Agreement (such period of
effectiveness and any renewal term hereunder, the "Term"). At the end of the
Term, this Agreement shall renew for successive one year periods unless either
party gives the other written notice of termination of this Agreement at least
120 days before the end of such a one-year renewal term.
Section 3. Position and Duties
During the Term, the Employee shall serve as President and co-chief
executive officer of the Corporation with Clifford Friedland or as the sole
chief executive officer if Mr. Friedland shall cease to be employed in such
capacity by the Corporation. The Employee shall have and perform such additional
or other duties and responsibilities not inconsistent with such position and
this Agreement as may be prescribed from time to time by the Board of Directors
of the Corporation. The Employee shall carry out
2
<PAGE> 3
the policies and directives of the Board of Directors of the Corporation and
shall act in the interests of and on behalf of the Corporation. He shall devote
substantially all of his business time and attention to his employment pursuant
to this Agreement and to the business of the Corporation.
Section 4. Compensation
4.01 In consideration of the services to be rendered by the Employee
under this Agreement, the Corporation shall pay, and the Employee shall be
entitled to receive from the Corporation, the compensation provided for in this
Section 4, subject to the terms of this Agreement and the withholding and other
required deductions provided for in this Section. The Base Salary and other
compensation and benefits provided for herein may be increased by the Board of
Directors of the Corporation.
4.02 The Corporation shall pay the Employee a base salary during the
Term (the "Base Salary"), in equal installments every two (2) weeks or on such
other days as may be established by the Board of Directors of the Corporation as
the regular day for payment of salaries of employees of the Corporation. The
Base Salary shall be paid by the Corporation at the following rates on account
of the following periods, unless such salary is increased by action of the Board
of Directors of the Corporation:
3
<PAGE> 4
(i) for the period from July 1, 1995 through June 30, 1996,
$108,000;
(ii) for the period from July 1, 1996 through June 30, 1997,
$120,000; and
(iii) for the period from July 1, 1997 through the end of the Term,
an annual Base Salary of $150,000.
If any amount of Base Salary is not paid by the Corporation as provided in this
Section, or is not requested or demanded by the Employee, payment of such amount
of Base Salary shall not be deemed to be waived by the Employee but shall accrue
and remain due and payable by the Corporation promptly upon demand by the
Employee. The obligation of the Corporation to pay such amount to the Employee
shall remain in effect and binding on the Corporation. The obligation of the
Corporation to pay the Employee any Base Salary due on account of any period
during the Term shall survive any termination of this Agreement and shall remain
in effect after such termination.
4.03 The Employee shall have the right to participate in and to
receive compensation under any and all bonus, profit-sharing and other
compensation arrangements or plans that may be established by the Corporation on
terms and in amounts that are commensurate with the chief executive position of
the Employee and that are not less
4
<PAGE> 5
favorable than the terms and amounts conferred on any other employee, officer or
director of the Corporation.
4.04 The Corporation shall have the right to deduct or withhold from
all compensation and benefits payable to the Employee under this Agreement
social security taxes, other federal, state and local taxes and all other
charges and amounts that shall be required by law to be deducted or withheld.
Section 5. Benefits
5.01 The Corporation shall pay the Employee a vehicle allowance of
$500 per month during the Term for use and maintenance of a vehicle used by the
Employee in connection with the performance of his duties hereunder, including
costs of insurance, maintenance, mileage, fuel and repairs.
5.02 The Employee shall be entitled to participate in all benefits
that the Corporation may make available to its executive or administrative
employees, on terms no less favorable than are provided to such employees,
including all stock option, incentive, pension, retirement and benefits plans
and arrangements and all medical, disability, hospital, health and life
insurance plans and arrangements. The Employee and his wife and children shall
be entitled to participate in any group health insurance plans adopted or
maintained by the Corporation, on terms no less favorable
5
<PAGE> 6
than are provided to other executive and administrative employees and their
immediate families, as such plans may be approved, modified and in effect from
time to time.
5.03 If the Employee's employment by the Corporation or this
Agreement is terminated for any reason, the Employee shall have the right to
purchase from the Company any insurance policies on his life owned by the
Company for a price equal to the cash surrender value of the policies at the
date of termination, plus prepaid premiums. Such right shall be exercised by the
Employee by written notice to the Corporation given not later than sixty (60)
days after such termination. The purchase price for such policies provided for
in this Section 5.03 shall be paid by the Employee to the Corporation upon the
giving of such notice.
5.04 The Employee shall be entitled to take fifteen (15) business
days of vacation annually during the Term, with full payment of his salary and
other compensation and benefits by the Corporation under this Agreement during
such annual vacation. The Employee shall receive as paid days off all national
holidays that the Company recognizes and observes.
Section 6. Expenses
The Corporation shall reimburse the Employee for all reasonable and
necessary business expenses incurred by
6
<PAGE> 7
the Employee during the Term in the furtherance of the Corporation's business
pursuant to this Agreement, including expenses of travel, meals, equipment,
supplies and lodging.
Section 7. Termination
7.01 The Corporation shall have the right to terminate this
Agreement and the employment of the Employee hereunder for Cause (as defined in
this Section 7.01), upon sixty (60) days' prior written notice to the Employee.
"Cause" under this agreement shall mean any of the following:
(i) any material breach of this Agreement by the Employee or any
material and intentional illegal conduct by the Employee,
unless such breach or conduct is cured within such sixty (60)
day period;
(ii) any intentional and material act of fraud, embezzlement,
larceny or conversion by the Employee affecting the
Corporation; or
(iii) absence of the Employee from the performance of his duties
hereunder for more than ninety (90) consecutive business days,
other than absence caused by vacation, death or Disability of
the
7
<PAGE> 8
Employee and other than absence that occurs due to causes
beyond the control of the Employee that are deemed by the
Board of Directors of the Corporation, in its reasonable
discretion, to be reasonable causes for such absence.
7.02 The Corporation shall have the right to terminate this
Agreement and the employment of the Employee hereunder for Good Reason (as
defined in this Section 7.02), upon ninety (90) days' prior written notice to
the Employee. "Good Reason" hereunder shall mean any of the following:
(i) the death of the Employee, upon the occurrence of which the
Term of this Agreement shall terminate without any requirement
for the giving of written notice hereunder; or
(ii) any physical or mental incapacity, injury, disability or
illness of the Employee that shall give rise to any
substantial impairment of his effective performance of his
obligations or duties under this Agreement for any continuous
period of 180 days or that shall give rise to any absence of
the Employee from the performance of his duties or obligations
hereunder for any continuous
8
<PAGE> 9
period of 180 days (any such physical or mental incapacity,
injury, disability or illness, a "Disability").
7.03 (a) The Employee shall have the right to terminate this
Agreement and his employment hereunder in the event of the occurrence of any of
the following, by giving the Corporation thirty (30) days' prior written notice
of such termination:
(i) any material breach of this Agreement by the Corporation;
(ii) any death or Disability of the Employee;
(iii) or any Change of Control of the Corporation, as defined in
Section 7.03(b).
(b) If (i) any Change of Control (as defined below) shall occur at
any time during Employee's employment hereunder and (ii) the Employee shall not
vote in favor of such Change of Control as either a director or shareholder of
the Corporation, then Employee may by at least thirty (30) days prior written
notice to the Corporation given within six (6) months of the occurrence of such
Change of Control, elect to terminate his employment with the Corporation as of
the end of such thirty-day period or the end of such six-month period. If
Employee elects to terminate his employment pursuant to this Section 7.03(b),
the Corporation shall promptly pay him either (A) two and
9
<PAGE> 10
nine-tenths (2.9) times his current annual compensation payable under Sections
4.02 and 4.03 within thirty (30) days of receipt of Employee's notice of
termination, if a majority of the Corporation's Board of Directors opposed the
Change of Control, or (B) two and one-half (2.5) times such current compensation
within thirty (30) days of receipt of Employee's notice of termination, if a
majority of the Corporation's Board of Directors voted in favor of the Change of
Control; provided, however, that this Section 7.03(b) shall not apply to any
change in control that the Employee votes in favor of either as an officer,
director or shareholder of the Corporation. The current compensation of the
Employee for purposes of this Section 7.03(b) shall be deemed to be not less
than $108,000 per annum for each period during which the Employee was not paid
reasonable compensation for his services to the Corporation, in order to reflect
reasonable compensation for such periods. A "Change of Control" hereunder shall
be deemed to be (x) a change in ownership or effective control of the
Corporation, as defined in the Code or the regulations or proposed regulations
promulgated thereunder or (y) a change in ownership of a substantial portion of
the assets of the Corporation, as defined in the Code or the regulations or
proposed regulations promulgated thereunder.
7.04 In the event of any termination of this Agreement under Section
7.01, the Corporation shall pay the
10
<PAGE> 11
Employee all Base Salary and other compensation, and shall continue to provide
to the Employee all benefits provided for in this Agreement, through the end of
the sixty-day notice period specified in Section 7.01, which compensation and
benefits shall be paid or provided to the Employee at the times specified in
Section 4.
7.05 In the event of the termination of this Agreement for any
reason specified in Sections 7.02 or 7.03(a)(ii), the Corporation shall pay to
the Employee or to his heirs, administrators or estate, twice the amount of all
Base Salary that would have been payable to the Employee through the end of the
Term during which such termination occurs. Such payment shall not be deemed to
be liquidated damages in connection with any breach by the Corporation of this
Agreement and shall not affect or be deemed to release or waive any other rights
or remedies of the Employee in connection with any such breach. All compensation
required to be paid on any termination of employment under this Section 7.05
shall be paid by the Corporation to the Employee no later than the earlier of
the end of the notice period required in connection with such termination or
sixty (60) days after the death of the Employee.
7.06 In the event of any termination of this Agreement by the
Corporation without cause and without Good Reason or otherwise in breach of this
Agreement, the Corporation shall immediately pay the Employee an amount
11
<PAGE> 12
equal to ten (10) times the compensation that would have been payable to the
Employee through the end of the Term under Sections 4.02 and 4.03 of this
Agreement.
7.07 The Corporation shall pay all legal fees and expenses incurred
by the Employee in connection with any litigation or proceeding relating to the
payment of any compensation or amounts referred to in this Section, provided
that the Employee prevails in part or all of such litigation or proceeding.
Section 8. Miscellaneous
8.01 This Agreement shall be governed by and interpreted and
enforced in accordance with the law of the State of Florida applicable to
contracts negotiated, entered into and to be performed in that State, without
regard to the choice or conflicts of law principles of such State. The parties
hereto consent to the jurisdiction of the federal and state courts located in
Broward County, Florida over the parties hereto and over any disputes, actions,
proceedings or claims relating to or arising in connection with this Agreement.
8.02 If any part of this Agreement is held to be unenforceable or
invalid under, or in conflict with, the applicable law of any jurisdiction, then
the unenforceable, invalid or conflicting part shall be narrowed or replaced, to
the extent possible, by a judicial construction in such
12
<PAGE> 13
jurisdiction that effectuates the intent of the parties regarding this Agreement
and the unenforceable, invalid or conflicting part, and such part shall be
deemed to be amended by such construction. Notwithstanding the unenforceability,
invalidity or conflict with applicable law of any part of this Agreement, the
remaining parts shall be valid, enforceable and binding on the parties.
8.03 This Agreement shall be binding upon, enforceable by and shall
inure to the benefit of each of the parties and their respective permitted
successors. This Agreement and all rights and obligations hereunder are personal
to the Employee and shall not be assignable or delegable, and any purported
assignment or delegation in violation hereof shall be null and void. Any person,
firm or corporation succeeding to the business of the Corporation by merger,
consolidation, purchase of assets or otherwise, shall assume by contract or
operation of law the obligations of the Company hereunder; provided, however,
that the Corporation shall, notwithstanding such assumption or assignment,
remain liable and responsible for the fulfillment of the terms and conditions of
the Agreement on the part of the Corporation.
8.04 This Agreement may be amended only by a writing signed by both
parties hereto. This Agreement constitutes the entire agreement among parties
hereto relating to the subject matter of this Agreement. Neither
13
<PAGE> 14
any failure nor any delay on the part of any party to this Agreement in
exercising any right, power or privilege hereunder shall operate as a waiver of
any rights of any such party, unless such waiver is explicitly expressed by a
writing executed by such party and delivered to the other parties, nor shall a
single or partial exercise of any right preclude any other or further exercise
of any other right, power or privilege accorded to any party to this Agreement.
8.05 (a) All notices permitted or required hereunder shall be in
writing and shall be delivered by hand, by recognized, national, overnight
courier or by deposit in the United States mail, postage prepaid, by registered
or certified mail, return receipt requested, addressed to the Corporation or the
Employee, as the case may be, at the address of such party set forth below:
(i) if to the Corporation to:
Long Distance International Inc.
888 South Andrews Avenue - Suite 205
Ft. Lauderdale, Florida 33316
Attention: Chairman and President
(ii) if to the Employee to:
David Glassman
3024 N.E. 49th Street
Ft. Lauderdale, Florida 33308
(b) Notices given by mail shall be deemed effective on the earlier
of the date shown on the proof of receipt of such mail or, unless the recipient
proves that the notice was received later or not received, three (3)
14
<PAGE> 15
days after the date of mailing thereof. Other notices shall be deemed given on
the date of receipt. Any party hereto may change the address specified above by
written notice to the other parties hereto.
8.06 The headings appearing in this Agreement are for convenience in
reference only and shall not affect the meaning or interpretation of this
Agreement.
8.07 This Agreement may be executed in multiple counterpart copies,
each of which shall be considered an original and all of which shall be deemed
to be one and the same agreement.
8.08 The provisions of Sections 7 and 8.01 of this Agreement shall
survive any termination of this Agreement and shall remain in effect after any
such termination.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first set forth above.
LONG DISTANCE INTERNATIONAL INC.
By
-----------------------------------
Clifford Friedland, Chairman
EMPLOYEE
-------------------------------------
David Glassman
15
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of April 1, 1998,
between LONG DISTANCE INTERNATIONAL INC., a Florida corporation with offices at
888 South Andrews Avenue, Suite 205, Ft. Lauderdale, FL 33316 (the "Company"),
and RICHARD BLUME, residing at 130 East 75th Street, Apt. 9E, New York, New York
10021 ("Employee").
Since April 1, 1997, Employee has served as President of the
wireless communications business of the Company, currently organized as a
division of the Company ("LDI Wireless"), pursuant to that certain Employment
Agreement, dated as of April 1, 1997 (the "Original Agreement").
The Company desires to increase Employee's duties and to continue to
engage Employee to perform services for the Company, and any present or future
parent, subsidiary, or affiliate of the Company, and (subject to Section 11) any
successor or assign of the Company (the "LDI Companies"), and Employee desires
to perform such services, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.
SECTION 1. Term
The Company agrees to employ Employee, and Employee agrees to
serve, on the terms and conditions of this Agreement, for a period commencing
April 1, 1998 (the "Commencement Date") and ending three (3) years from the
Commencement Date, or such shorter period as may be provided for herein. Prior
to April 1, 1998, the Original Agreement shall remain in full force and effect.
On and after April 1, 1998, the Original Agreement shall be deemed terminated,
except for (x) the stock options awarded pursuant to the Stock Option Agreement,
dated as of April 1, 1997 which, as of the date hereof, shall be amended and
restated substantially in the form of Exhibit A annexed hereto, (y) accrued and
unpaid salary, and (z) any unreimbursed expenses to which Employee is entitled
under the Original Agreement. The period during which Employee is employed
hereunder is hereinafter referred to as the "Employment Period."
<PAGE> 2
SECTION 2. Duties and Services
(a) General. During the Employment Period, Employee shall
serve as an officer of one or more of the LDI Companies. As such an officer,
Employee shall have such power and authority and shall perform such duties in
the management of the business, properties and affairs of the Company as shall
be prescribed from time to time by the Board of Directors of the Company or such
other LDI Company. In performance of his duties, Employee shall be subject to
the direction of the Board of Directors of the Company (or the relevant LDI
Company, as the case may be) and the co-chief executive officers of the Company
(or the relevant LDI Company, as the case may be). Employee agrees to his
employment as described in this Section 2 and agrees to devote all of his
business time and efforts to the performance of his duties under this Agreement.
(b) Initial Responsibilities. Without limiting the generality
of the foregoing, initially Employee shall serve as the Chief Operating Officer
and as an Executive Vice President of the Company and as President of LDI
Wireless (regardless of whether LDI Wireless is organized as a division or as a
subsidiary or affiliate of any of the LDI Companies). In connection therewith,
Employee shall have such power and authority and shall perform such duties in
the management of the business, properties and affairs of the Company as
generally pertain to chief operating officers, as well as such powers and
authority and such duties as from time to time may be prescribed by the Board of
Directors. As Chief Operating Officer of the Company, Employee shall have
primary responsibility for and oversight of all activities of the Company
conducted in the United States and relating to the Company's domestic
operations, except for marketing, finance, carrier sales, dynamic telecom and
mergers, acquisitions and related business combinations. Without limiting the
generality of the foregoing, (x) Employee shall prepare and submit semi-annually
to the Chief Financial Officer and the Chairman a budget for those operations
for which Employee has responsibility as Chief Operating Officer, (y) Employee
shall perform his duties within the approved budget for such operations,
including such duties as relating to personnel, and (z) shall report to Clifford
Friedland, or in his absence or unavailability or if he shall not then be
employed by the Company, to the Board of Directors or such other officer(s) as
the Board of Directors shall determine from time to time. Subject to paragraph
(a) above, a reassignment of Employee's initial responsibilities from those
describe under this paragraph (b), shall not be and shall not be deemed to be a
breach of this Agreement by the Company; provided that Employee shall have a
title of Vice President or above and shall be headquartered at the Company's
headquarters in Florida or the Company's offices in New York City.
(c) Location. During the Employment Period, the headquarters
of the Company shall be in the Fort Lauderdale/Miami Metropolitan Area. During
the Employment Period, the headquarters of LDI Wireless shall be in New York
City.
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<PAGE> 3
Employee shall be available to the Company at its headquarters on business days
during the week and shall be available to travel as the needs of the business
require.
SECTION 3. Compensation
(a) Base Salary. The Company shall pay Employee, during the
Employment Period, an annual base salary of $100,000, increasing to $120,000 as
of May 1, 1998 ("Base Salary"), payable in equal, bi-weekly installments, or in
such other manner or on such days as the Board of Directors of the Company may
prescribe for the payment of salaries to employees of the Company. The Base
Salary may be increased at the sole discretion of the Board of Directors of the
Company provided, however, that the Base Salary shall be increased, effective as
of the first and second anniversary of the Commencement Date by an amount equal
to the annual increase, if any, in the then most recent publicly announced
Consumer Price Index for the New York City Metropolitan Area.
(b) Options.
(i) The Company shall award Employee, subject to the terms and
provisions of the Company's stock option plan ("Stock Option Plan") and the
stock option agreement to be executed and delivered pursuant thereto
substantially in the form of Exhibit B annexed hereto (the "Stock Option
Agreement"), options (the "Stock Options") to purchase 250,000 shares of the
Company's common stock, $0.001 par value per share ("Common Stock"), for a price
per share equal to $3.00.
(ii) The Stock Options shall have a term of seven (7) years
following the date the related Stock Options vest (but in no event later than 10
years from the date awarded), subject to earlier termination as set forth in the
Stock Option Agreement;
(iii) If the Common Stock underlying the Stock Options have
not been registered with the Securities and Exchange Commission in a
registration statement on Form S-8, or a similarly applicable form, within six
(6) months of the Common Stock becoming Publicly Traded, then the Company and
the Employee shall enter into a piggyback registration rights agreement.
Notwithstanding the foregoing, if required by the underwriter(s) in connection
with the public offering of the Common Stock, Employee shall execute a lock-up
agreement (i.e., restricting the sale or transfer of the Common Stock during a
period of time following consummation of such offering) if requested by such
underwriter(s).
(iv) The Stock Options shall vest during the Employment Period
in accordance with the following schedule:
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(a) 20,825 shares on the last day of each of the first 11 fiscal
quarters of the Company during the Employment Period, commencing with the fiscal
quarter ending June 30, 1998 and ending with the fiscal quarter ending December
31, 2000; and
(b) 20,925 shares on March 31, 2001.
(v) If a Change in Control shall occur prior to March 31,
2001, any unvested Stock Options shall be deemed to have vested immediately
prior to the Change in Control. For purposes hereof, a "Change of Control" shall
occur or be deemed to occur if any of the following events occur:
(A) any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) other than a group including any of David
Glassman, Clifford Friedland, Advent International Corp. or any of their
respective affiliates (a "Person") is or becomes the "beneficial owner" (as
defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding voting securities entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change of Control: (A) any redemption by the
Company, (B) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Person controlled by the Company,
or (C) any acquisition by any Person pursuant to a transaction which complies
with clauses (1), (2) and (3) of paragraph (B) below;
(B) The majority of the stockholders of the Company
approve a reorganization, merger or consolidation of the Company with any other
Person or the sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (1) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors of the Person resulting from such
Business Combination (including, without limitation, a Person which as a result
of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership of the Outstanding Company
Voting Securities immediately prior to such Business Combination, (2) no Person
(excluding any corporation resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 50% or more of, the then outstanding shares of common stock of the
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<PAGE> 5
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and
(3) at least a majority of the members of the Board of Directors of the
corporation resulting from such Business Combination were members of the Board
of Director at the time of the execution of the initial agreement, or of the
action of the board, providing for such Business Combination.
(c) Benefits. Employee shall be entitled to participate in all
benefits for which Employee qualifies that the Company may make available to
executive or administrative employees, on like terms, including all medical,
disability, hospital, health and life insurance plans and arrangements. In
addition, in the sole discretion of the Board of Directors of the Company, the
Company may pay Employee a bonus.
(d) Stock Bonus.
(i) If, on March 31, 2000, Employee is employed as President
of LDI Wireless, or as an officer of the Company who has primary responsibility
for and oversight of LDI Wireless, pursuant to and in accordance with the terms
of this Agreement, Employee shall be entitled to receive, and the Company shall
pay, as soon as is practicable, but in any event within forty-five (45) days of
that date, a bonus, payable in shares of Common Stock in an amount equal to the
quotient of (A) the product of (I) five percent (0.05), multiplied by (II) the
net income of LDI Wireless during the twelfth quarter of the Employment Period,
determined in accordance with generally accepted accounting principles and as
reflected on, or derived from, the Company's (or LDI Wireless') financial
statements for such quarter, multiplied by (III) four (4), divided by (B) the
then Current Market Price of the Common Stock. In the event that, prior to March
31, 2000, either Employee's employment with the Company is terminated by the
Company for a reason other than as set forth in Section 10(a), or Employee is
removed as the President of LDI Wireless and if so removed is also removed as
the officer of the Company who has primary responsibility for and oversight of
LDI Wireless, Employee shall be entitled to receive, and the Company shall pay,
as soon as is practicable after, but in any event within forty-five (45) days
of, the last day of the calendar quarter during which Employee is terminated or
as removed as the case may be (the "Quarter End Date"), a bonus, payable in
shares of Common Stock in an amount equal to the quotient of (A) the product of
(I) five percent (0.05), multiplied by (II) the net income of LDI Wireless
during the quarter ending on the Quarter End Date, determined in accordance with
generally accepted accounting principles and as reflected on, or derived from,
the Company's (or LDI Wireless') financial statements for such quarter,
multiplied by (III) four (4), divided by (B) the then Current Market Price of
the Common Stock. If Employee terminates his employment with the Company prior
to March 31, 2000, Employee will not be eligible to receive any bonus pursuant
to this Section 3(d)(i).
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<PAGE> 6
(ii) If the Common Stock is Publicly Traded at, or becomes
Publicly Traded within six (6) months of, the date the bonus shares of Common
Stock are issued to Employee as a bonus pursuant to this Section, such bonus
shares shall be registered in a timely manner by the Company under the
Securities Act of 1933 at the Company's expense (exclusive of underwriters'
discounts and commissions, if any). If the such Common Stock is not so Publicly
Traded at such time or within such period, then Employee shall receive a portion
of the bonus in cash in lieu of Common Stock sufficient to pay any applicable
taxes so incurred by Employee.
(iii) (A) "Current Market Price" means, in respect of any
share of Common Stock as of any time, (1) if the Common Stock shall not then be
Publicly Traded, the Fair Market Value per share of Common Stock as of such
time, or (2) if the Common Stock is then Publicly Traded, the average of the
reported last sales prices for the 30 consecutive Trading Days commencing 40
Trading Days before such time. The reported last sales price for each day shall
be the reported last sales price, regular way (and if no such sales take place
on any day, such day shall not be a Trading Day), as reported on the New York
Stock Exchange Composite Tape or, if the Common Stock is not listed or admitted
to trading on the New York Stock Exchange at such time, in the principal
consolidated or composite transaction reporting system on the principal national
securities exchange on which such security is 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 security is not quoted on the Nasdaq National
Market, the average of the closing bid and asked prices on such day in the
over-the-counter market as reported by Nasdaq or, if bid and asked prices for
the security on each such day shall not have been reported through Nasdaq, the
average of the bid and asked prices for such date as furnished by any New York
Stock Exchange member firm regularly making a market in such security selected
for such purpose by the Board of Directors of the Company.
(B) As used herein, the term "Trading Day" means a day
on which the New York Stock Exchange, each national securities exchange on which
the Common Stock is listed and the Nasdaq National Market are open for business.
(C) The Common Stock shall be considered to be "Publicly
Traded" as of any date if on such date (1) the Common Stock is registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (2) the Common Stock is listed for trading on a national
securities exchange registered under the Exchange Act or traded in the
over-the-counter market and quoted in an automated quotation system of the
National Association of Securities Dealers, Inc.
(D) "Fair Market Value" means, in respect of any
security, asset or other property, the price at which a willing seller would
sell and a
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<PAGE> 7
willing buyer would buy such security, asset or other property having full
knowledge of the facts, in an arm's-length auction transaction without time
constraints, and without being under any compulsion to buy or sell. The Fair
Market Value of a share of Common Stock as of any time shall be determined as of
the last day of the most recent calendar month which ended prior to such time,
shall be determined without giving effect to any discount for a minority
interest, to any lack of liquidity of the Common Stock or to the fact that the
Company may have no class of equity security registered under the Exchange Act
and shall be based on the Fair Market Value of the Company as of such day
divided by the number of outstanding shares of Common Stock determined as of
such time. The Fair Market Value of the Company shall be determined on a going
concern basis, and on the basis that the management and other key employees of
the Company and its subsidiaries will continue to be employed indefinitely.
(e) Severance. If the Company shall terminate Employee's services
hereunder for reasons other than those described in Section 10(a) hereof,
Employee shall be entitled to receive severance pay equal to his Base Salary
until March 30, 2001. In the event the Company becomes obligated to pay any
severance pay, the Company may elect to make payments of the Base Salary
component thereof in regular installments or in a single payment equal to the
present value thereof.
(f) Limitations. The Company shall have the right to deduct or
withhold from all compensation and benefits payable hereunder all social
security taxes, other federal, state and local taxes, and all other charges and
amounts as may be required by law to be deducted or withheld.
SECTION 4. Expenses and other Matters
Employee shall be entitled to reimbursement for reasonable
travel and other out-of-pocket expenses necessarily incurred in the performance
of his duties hereunder, upon submission and approval of written statements and
bills in accordance with the then regular procedures of the Company. Employee
shall be entitled to reasonable vacations in accordance with the then regular
procedures of the Company governing executives. The Company, at the Company's
expense, shall make available to Employee a furnished one bedroom apartment
within reasonable proximity to the Company's headquarters, as shall be mutually
agreed upon. The Company, at the Company's expense, shall make available to
Employee, as shall be mutually agreed upon, or shall reimburse Employee for the
actual monthly cost up to $500 per month for, an automobile for use while
Employee is at the Company's headquarters. The Company shall reimburse the
Employee for automobile insurance, maintenance and gas for such automobile and
for travel expenses incurred for travel between the Company's headquarters and
New York City. The Company shall make available to Employee a portion of the
services of an executive-level secretary at the Company's headquarters on such
basis as shall be necessary for Employee to perform his duties.
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SECTION 5. Representations and Warranties of Employee
Employee represents and warrants to the Company that (a)
Employee is under no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or the other rights of the Company hereunder and (b) Employee is
under no physical or mental disability that would hinder his performance of
duties under this Agreement.
SECTION 6. Non-Competition
(a) In view of the unique and valuable services it is
expected Employee will render to the LDI Companies, Employee's knowledge of the
customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the LDI Companies it is expected Employee will obtain, and in
consideration of the compensation to be received hereunder, Employee agrees (i)
that he will not during the period he is employed by any of the LDI Companies
under this Agreement or otherwise Participate In (hereinafter defined in this
Section 6) any other business or organization, whether or not such business or
organization now is or shall then be competing with, or now is or shall then be
of a nature similar to, the business of any of the LDI Companies, and, (ii)
subject to the last sentence of this Section 6(a), for a period of six (6)
months after he ceases to be employed by any of the LDI Companies under this
Agreement or otherwise, he will not compete with, or Participate In any other
business or organization which during such six-month period competes with,
either the Company or any of the other LDI Companies for which Employee renders
services hereunder, with respect to any product or service sold or activity
engaged in up to the time of such cessation in any geographical area in which at
the time of such cessation such product or service is sold or activity engaged
in, except that in each case the provisions of this Section 6(a) will not be
deemed breached merely because Employee owns not more than 5% of the outstanding
common stock of a corporation, if, at the time of its acquisition by Employee,
such stock is listed on a national securities exchange, is reported on NASDAQ,
or is regularly traded in the over-the-counter market by a member of a national
securities exchange. Notwithstanding clause (ii) above, if either (x) the
Company terminates Employee's employment under this Agreement or otherwise for
reasons other than those described in Section 10(a), (ii), (iii) or (iv) hereof,
or (y) Employee terminates his employment with the Company under this Agreement
or otherwise prior to March 31, 2001, or, (z) on or before scheduled expiration
of the Employment Period (i.e., March 31, 2001), Employee is not offered a new
contract of employment with the Company (or LDI Wireless, as the case may be) on
equal or better terms, taken as a whole, than as set forth herein, then in any
such case the restrictions set forth in this Section 6(a) shall not apply from
and after the effective date of such termination.
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<PAGE> 9
(b) The term "Participate In" shall mean: "directly or
indirectly, for his own benefit or for, with, or through any other person, firm,
or corporation, own, manage, operate, control, loan money to, or participate in
the ownership, management, operation, or control of, or be connected as a
director, officer, employee, partner, consultant, agent, independent contractor,
or otherwise with, or acquiesce in the use of his name in."
(c) In view of the unique and valuable services it is
expected Employee will render to the LDI Companies, Employee's knowledge of the
customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the LDI Companies it is expected Employee will obtain, and in
consideration of the compensation to be received hereunder, Employee agrees:
(i) that he will not during the period he is employed by
any of the LDI Companies under this Agreement or otherwise directly or
indirectly reveal the name of, solicit or interfere with, or endeavor to entice
away from any of the LDI Companies any of its suppliers, customers, or
employees; and,
(ii) for a period of two (2) years after he ceases to be
employed by any of the LDI Companies under this Agreement or otherwise, that
neither he nor any of his affiliates will:
(A) intentionally solicit, or attempt to cause any
employee of the LDI Companies to terminate his or her employment therewith or
hire any person who within twelve (12) months preceding such hiring had been
employed thereby; provided, however, that this subsection (A) shall not prohibit
such action with respect to any person whose employment is terminated or
suspended by the LDI Companies; and
(B) in any manner intentionally (1) cause or
attempt to cause any customer, supplier or other independent contractor of the
LDI Companies to reduce the level of business theretofore conducted by such
customer, supplier or other independent contractor with, or to cease doing
business with, the LDI Companies, or (2) discourage or attempt to discourage any
prospective customer, supplier or other independent contractor from doing
business with the LDI Companies.
SECTION 7. Patents, Etc.
Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs, and processes ("Such Inventions") which Employee now or
hereafter during the period he is employed by any of the LDI Companies under
this Agreement or otherwise
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<PAGE> 10
and for six months thereafter may own, conceive of, or develop and either
relating to the fields in which any of the LDI Companies may then be engaged or
contemplates being engaged or conceived of or developed utilizing the time,
material, facilities, or information of any of the LDI Companies, shall belong
to the Company; as soon as Employee owns, conceives of, or develops any Such
Invention, he agrees immediately to communicate such fact in writing to the
Secretary of the Company, and without further compensation, but at the Company's
expense (except as noted in clause (a) of this Section 7), forthwith upon
request of the Company, Employee shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks, and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Employee's right,
title, and interest in and to Such Inventions, free and clear of liens,
mortgages, security interests, pledges, charges, and encumbrances ("Liens")
(Employee to take such action, at his expense, as is necessary to remove all
such Liens) and (b), if patentable or copyrightable, to obtain patents or
copyrights (including extensions and renewals) therefor in any and all countries
in such name as the Company shall determine.
SECTION 8. Confidential Information
All confidential information (including, without limitation,
trade secrets, know how, proprietary information, price lists, marketing plans
and customer lists), which Employee may now possess, may obtain during or after
the Employment Period, or may create prior to the end of the Employment Period
relating to the business of the Company or of any customer or supplier of the
Company shall not be published, disclosed, or made accessible by Employee to any
other person, firm, or corporation either during or after the termination of his
employment or used by him except during the Employment Period in the business
and for the benefit of the Company in each case without prior written permission
of the Company. Employee shall return all tangible evidence of such confidential
information to the Company prior to or at the termination of his employment.
SECTION 9. Life Insurance
If requested by the Company, Employee shall submit to such
physical examinations and otherwise take such actions and execute and deliver
such documents as may be reasonably necessary to enable the Company, at its
expense and for its own benefit, to obtain life insurance on the life of
Employee. Employee has no reason to believe that his life is not insurable with
a reputable insurance company at rates now prevailing in the City of New York
for healthy men of his age.
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SECTION 10. Termination
(a) Notwithstanding anything herein contained, if on or after the
date hereof and prior to the end of the Employment Period,
(1) either (i) Employee shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six consecutive calendar months or for
shorter periods aggregating 180 or more days within any 12-month period,
(ii) Employee shall be convicted of a felony involving moral turpitude,
(iii) Employee materially breaches a fiduciary duty for personal gain of
himself or others (other than the LDI Companies), or (iv) Employee
breaches a material term of this Agreement then, and in each such case,
the Company shall have the right to give notice of termination of
Employee's services hereunder as of a date (not earlier than 10 days from
such notice) to be specified in such notice, and Employee's employment
hereunder shall terminate on the date so specified; provided, however,
that, in the case of an event specified in clause (iii) or (iv), if the
breach is curable within 30 days or less, then the Company shall provide
Employee with notice of such breach and a reasonable opportunity to cure
such breach under the circumstances (but not more than 30 days), and
Employee's employment hereunder shall terminate on the date so specified
if Employee has not cured such breach to the satisfaction of the Company
within the period specified, or
(2) Employee shall die, then Employee's employment hereunder
shall terminate on the date of Employee's death.
Upon termination of Employee's employment under this Section 10(a), Employee or
his estate, as the case may be, shall be entitled to receive his Base Salary, at
the rate provided in Section 3, to the date on which termination shall take
effect.
(b) Nothing contained in this Section 10 shall be deemed to limit
any other right the Company may have to terminate Employee's employment
hereunder upon any ground permitted by law (a termination "without cause"), by
giving notice of termination of Employee's services hereunder. Upon termination
of Employee's employment under this Section 10(b), Employee shall be entitled to
severance pay pursuant to and in accordance with the terms of Section 3(d)
hereof. Nothing herein shall limit the right of Employee to receive the benefits
of the stock options awarded under the Original Agreement.
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SECTION 11. Merger, Etc.
In the event of a Change in Control, then in connection
therewith (and in any event within 30 days thereof) the Company may elect:
(1) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving corporation; provided
that such corporation shall assume in writing all of the obligations of
the Company hereunder; and provided further that the Company (in the event
and so long as it remains in business as an independent going enterprise)
shall remain liable for the performance of its obligations hereunder in
the event of an unjustified failure of the acquiring corporation to
perform its obligations under this Agreement; or
(2) in addition to its other rights of termination, to
terminate this Agreement upon at least 10 days' written notice, in which
case Employee shall be entitled to severance payments pursuant to and in
accordance with the terms of Section 3(e) hereof. Nothing herein shall
limit the right of Employee to receive the benefits of the stock options
awarded under the Original Agreement.
SECTION 12. Survival
The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive Employee's
termination of employment, irrespective of any investigation made by or on
behalf of any party.
SECTION 13. Modification
This Agreement, together with the stock option agreements
referred to herein, set forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements between
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.
SECTION 14. Notices
Any notices or other communication required or permitted by
this Agreement shall be sufficiently given if delivered in person, by courier,
or if sent by registered or certified mail, postage prepaid, return receipt
requested, or by Express Mail, or similar overnight delivery service, or by
facsimile transmission (followed by
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telephone communication and hard copy), at the address set forth in the preamble
to this Agreement (or to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 14). Any such notice
or communication shall be deemed given (1) if sent by certified or registered
mail, return receipt requested, postage prepaid, five calendar days after being
deposited in the United States mail, postage prepaid; (2) if sent by Express
Mail, Federal Express or similar overnight delivery service for next Business
Day delivery, the next Business Day after being entrusted to such service, with
delivery charges prepaid or charged to the sender's account; (3) if sent by
facsimile transmission, on the date sent and (4) if delivered in person, by
courier, on the date of delivery.
SECTION 15. Waiver
Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
SECTION 16. Binding Effect
Employee's rights and obligations under this Agreement shall
not be transferable by assignment or otherwise, such rights shall not be subject
to commutation, encumbrance, or the claims of Employee's creditors, and any
attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 11.
SECTION 17. No Third Party Beneficiaries
Except as provided in Section 16, this Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
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SECTION 18. Headings
The headings in this Agreement are solely for the convenience
of reference and shall be given no effect in the construction or interpretation
of this Agreement.
SECTION 19. Counterparts; Governing Law
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
conflict of laws rule which would have the substantive law of any other state
apply to the subject matter hereof.
SECTION 20. Specific Performance
Since a breach of the provisions of Sections 6, 7 and 8 could
not adequately be compensated by money damages, the Company shall be entitled,
in addition to any other right and remedy available to it, to an injunction
restraining such breach or a threatened breach, and in either case no bond or
other security shall be required in connection therewith, and Employee hereby
consents to the issuance of such injunction. Employee agrees that the provisions
of Sections 6, 7 and 8 are necessary and reasonable to protect the Company in
the conduct of its business. If any restriction contained in Sections 6, 7 and 8
shall be deemed to be invalid, illegal, or unenforceable by reason of the
extent, duration, or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
SECTION 21. Severability
If any provision of this Agreement (including any provision
relating to the scope or term of or geographic areas covered by Sections 6, 7 or
8) or the application thereof to any person or circumstance is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby; provided that, if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a final judgment of a court of competent jurisdiction, then
such court may substitute therefor a suitable and equitable provision in order
to carry out, so far as may be valid
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<PAGE> 15
and enforceable, the intent and purpose of the invalid, void or unenforceable
provision and if such court shall fail or decline to do so, the parties shall
negotiate in good faith a suitable and equitable substitute provision. To the
extent that any provision shall be judicially unenforceable in any one or more
jurisdictions, such provision shall not be affected with respect to any other
jurisdiction, each provision with respect to each state being construed as
several and independent.
SECTION 22. Expenses
Employee's reasonable legal expenses incurred in connection
with the negotiation, execution and delivery of this Agreement up to $2,500
shall be reimbursed by the Company upon submission by employee of a written
itemized bill from Employee's legal counsel.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
LONG DISTANCE INTERNATIONAL INC.
By:
--------------------------------
David Glassman, President
--------------------------------
Richard Blume
15
<PAGE> 1
Exhibit 10.10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of February 1,
1998, between LONG DISTANCE INTERNATIONAL INC., a Florida corporation with
offices at 888 South Andrews Avenue, Suite 205, Ft. Lauderdale, FL 33316 (the
"Company"), and ELIZABETH TUTTLE, residing at ____________________________
("Employee").
The Company desires to engage Employee to perform services for the
Company, and any present or future parent, subsidiary, or affiliate of the
Company, and (subject to Section 10) any successor or assign of the Company (the
"LDI Companies"), and Employee desires to perform such services, on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.
SECTION 1. Term
The Company agrees to employ Employee, and Employee agrees to
serve, on the terms and conditions of this Agreement, for a period commencing
February 1, 1998 (the "Commencement Date") and ending three (3) years from the
Commencement Date, or such shorter period as may be provided for herein. The
period during which Employee is employed hereunder is hereinafter referred to as
the "Employment Period."
SECTION 2. Duties and Services
Employee shall serve as Chief Financial Officer of the
Company. In performance of her duties, Employee shall be subject to the
direction of the Board of Directors of the Company and the co-chief executive
officers of the Company. Employee agrees to her employment as described in this
Section 2 and agrees to devote all of her business time and efforts to the
performance of her duties under this Agreement.
SECTION 3. Compensation
(a) Base Salary. The Company shall pay Employee, during the
Employment Period, an annual base salary of $100,000, ("Base Salary"), payable
in equal, bi-weekly installments, or in such other manner or on such days as the
Board of
<PAGE> 2
Directors of the Company may prescribe for the payment of salaries to employees
of the Company.
(b) Options.
(i) The Company shall award Employee, subject to
the terms and provisions of the Company's stock option plan ("Stock Option
Plan") and the stock option agreement to be executed and delivered pursuant
thereto, options (the "Stock Options") to purchase 120,000 shares of the
Company's common stock, $0.001 par value per share ("Common Stock"), at an
exercise price of $2.10 per share.
(ii) The Stock Options shall have a term of seven
(7) years following the date the related Stock Options vest, subject to the
following: (x) if Employee's employment hereunder shall be terminated by Company
for a reason set forth in clauses (ii), (iii) or (iv) of Section 9(a)(1), or by
Employee, then any unvested Stock Options and any vested and unexercised Stock
Options shall terminate on the effective date of such termination; or (y) if
Employee's employment hereunder shall be terminated by the Company for a reason
set forth in Section 9(a)(1)(i) or by reason of Employee's death, any unvested
Stock Options shall cease to vest on the effective date of termination and any
vested but unexercised Stock Options shall terminate on the six month
anniversary of the effective date of termination.
(iii) The Stock Options shall vest during the
Employment Period in accordance with the following schedule:
on June 30, 1998, 20,000 shares and on each of September 30,
December 31, 1998, March 31, June 30, September 30, December 31, 1999, March 31,
June 30, September 30, and December 31, 2000, 10,000 shares.
(c) Benefits. Employee shall be entitled to participate in all
benefits for which Employee qualifies that the Company may make available to
executive or administrative employees, on like terms, including all medical,
disability, hospital, and health insurance plans and arrangements.
(d) Severance. If the Company shall give notice of termination of
Employee's services hereunder for reasons other than those described in Section
9.a. hereof, Employee shall be entitled to receive her full compensation (i.e.,
her Base Salary and the vesting of Stock Options) to such effective date, plus a
severance payment, payable on such date, equal to the amount of her Base Salary,
at the rate provided in Section 3 which would have been paid over a period of
three (3) months, plus Stock Options that would have vested from such effective
date through the end of such three (3) month period shall be deemed to have
vested on such effective date. In the event the Company becomes obligated to pay
any severance pay, the Company may elect to make
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payments of the Base Salary component thereof in regular installments or in a
single payment equal to the present value thereof.
(e) Limitations. The Company shall have the right to deduct or
withhold from all compensation and benefits payable hereunder all social
security taxes, other federal, state and local taxes, and all other charges and
amounts as may be required by law to be deducted or withheld.
SECTION 4. Expenses
Employee shall be entitled to reimbursement for reasonable
travel and other out-of-pocket expenses necessarily incurred in the performance
of her duties hereunder, upon submission and approval of written statements and
bills in accordance with the then regular procedures of the Company. Employee
shall be entitled to reasonable vacations in accordance with the then regular
procedures of the Company governing executives.
SECTION 5. Representations and Warranties of Employee
Employee represents and warrants to the Company that (a)
Employee is under no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of her duties
hereunder, or the other rights of the Company hereunder and (b) Employee is
under no physical or mental disability that would hinder her performance of
duties under this Agreement.
SECTION 6. Non-Competition
(a) In view of the unique and valuable services it is
expected Employee will render to the LDI Companies, Employee's knowledge of the
customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the LDI Companies it is expected Employee will obtain, and in
consideration of the compensation to be received hereunder, Employee agrees (i)
that she will not during the period she is employed by any of the LDI Companies
under this Agreement or otherwise Participate In (hereinafter defined in this
Section 6) any other business or organization, whether or not such business or
organization now is or shall then be competing with, or now is or shall then be
of a nature similar to, the business of any of the LDI Companies, and (ii) for a
period of six (6) months after she ceases to be employed by any of the LDI
Companies under this Agreement or otherwise, she will not compete with or be
engaged in the same business as, or Participate In any other business or
organization which during such six-month period competes with or is engaged in
the same business as, either the Company or any of the other LDI Companies for
which Employee renders services
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hereunder, with respect to any product or service sold or activity engaged in up
to the time of such cessation in any geographical area in which at the time of
such cessation such product or service is sold or activity engaged in, except
that in each case the provisions of this Section 6(a) will not be deemed
breached merely because Employee owns not more than 5% of the outstanding common
stock of a corporation, if, at the time of its acquisition by Employee, such
stock is listed on a national securities exchange, is reported on NASDAQ, or is
regularly traded in the over-the-counter market by a member of a national
securities exchange.
(b) The term "Participate In" shall mean: "directly or
indirectly, for her own benefit or for, with, or through any other person, firm,
or corporation, own, manage, operate, control, loan money to, or participate in
the ownership, management, operation, or control of, or be connected as a
director, officer, employee, partner, consultant, agent, independent contractor,
or otherwise with, or acquiesce in the use of her name in."
(c) In view of the unique and valuable services it is
expected Employee will render to the LDI Companies, Employee's knowledge of the
customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the LDI Companies it is expected Employee will obtain, and in
consideration of the compensation to be received hereunder, Employee agrees:
(i) that she will not during the period she is employed
by any of the LDI Companies under this Agreement or otherwise directly or
indirectly reveal the name of, solicit or interfere with, or endeavor to entice
away from any of the LDI Companies any of its suppliers, customers, or
employees; and,
(ii) for a period of two (2) years after she ceases to
be employed by any of the LDI Companies under this Agreement or otherwise, that
neither she nor any of her affiliates will:
(A) intentionally solicit, or attempt to cause any
employee of the LDI Companies to terminate her employment therewith or hire any
person who within twelve (12) months preceding such hiring had been employed
thereby; provided, however, that this subsection (A) shall not prohibit such
action with respect to any person whose employment is terminated or suspended by
the LDI Companies; and
(B) in any manner intentionally (1) cause or
attempt to cause any customer, supplier or other independent contractor of the
LDI Companies to reduce the level of business theretofore conducted by such
customer, supplier or other independent contractor with, or to cease doing
business with, the LDI Companies, or (2) discourage or attempt to discourage any
prospective customer, supplier or other independent contractor from doing
business with the LDI Companies.
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SECTION 7. Patents, Etc.
Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs, and processes ("Such Inventions") which Employee now or
hereafter during the period she is employed by any of the LDI Companies under
this Agreement or otherwise and for six months thereafter may own, conceive of,
or develop and either relating to the fields in which any of the LDI Companies
may then be engaged or contemplates being engaged or conceived of or developed
utilizing the time, material, facilities, or information of any of the LDI
Companies, shall belong to the Company; as soon as Employee owns, conceives of,
or develops any Such Invention, she agrees immediately to communicate such fact
in writing to the Secretary of the Company, and without further compensation,
but at the Company's expense (except as noted in clause (a) of this Section 7),
forthwith upon request of the Company, Employee shall execute all such
assignments and other documents (including applications for patents, copyrights,
trademarks, and assignments thereof) and take all such other action as the
Company may reasonably request in order (a) to vest in the Company all
Employee's right, title, and interest in and to Such Inventions, free and clear
of liens, mortgages, security interests, pledges, charges, and encumbrances
("Liens") (Employee to take such action, at her expense, as is necessary to
remove all such Liens) and (b), if patentable or copyrightable, to obtain
patents or copyrights (including extensions and renewals) therefor in any and
all countries in such name as the Company shall determine.
SECTION 8. Confidential Information
All confidential information (including, without limitation,
trade secrets, know how, proprietary information, price lists, marketing plans
and customer lists), which Employee may now possess, may obtain during or after
the Employment Period, or may create prior to the end of the Employment Period
relating to the business of the Company or of any customer or supplier of the
Company shall not be published, disclosed, or made accessible by Employee to any
other person, firm, or corporation either during or after the termination of her
employment or used by her except during the Employment Period in the business
and for the benefit of the Company in each case without prior written permission
of the Company. Employee shall return all tangible evidence of such confidential
information to the Company prior to or at the termination of her employment.
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SECTION 9. Termination
(a) Notwithstanding anything herein contained, if on or after the
date hereof and prior to the end of the Employment Period,
(1) either (i) Employee shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge her
duties hereunder for a period of three months, (ii) Employee shall be
convicted of a felony, (iii) Employee materially breaches a fiduciary
duty, or (iv) Employee breaches a material term of this Agreement then,
and in each such case, the Company shall have the right to give notice of
termination of Employee's services hereunder as of a date (not earlier
than 10 days from such notice) to be specified in such notice, and
Employee's employment hereunder shall terminate on the date so specified;
provided, however, that, in the case of an event specified in clause (iii)
or (iv), if the breach is curable within 30 days or less, then the Company
shall provide, if Employee has not cured such breach to the satisfaction
of the Company within the period specified, then Employee with notice of
such breach and a reasonable opportunity to cure such breach under the
circumstances (but not more than 30 days), and Employee's employment
hereunder shall terminate on the date so specified, or
(2) Employee shall die, then Employee's employment hereunder
shall terminate on the date of Employee's death. Upon termination of
Employee's employment under this Section 9(a), Employee or her estate, as
the case may be, shall be entitled to receive her Base Salary, at the rate
provided in Section 3, to the date on which termination shall take effect.
(b) Nothing contained in this Section 9 shall be deemed to limit any
other right the Company may have to terminate Employee's employment
hereunder upon any ground permitted by law (a termination "without
cause"), by giving notice of termination of Employee's services hereunder.
Upon termination of Employee's employment under this Section 9(b),
Employee shall be entitled to severance pay pursuant to and in accordance
with the terms of Section 3(d) hereof.
SECTION 10. Merger, Etc.
In the event of a future disposition of (or including) the
properties and business of the Company, substantially as an entirety, by merger,
consolidation, sale of assets, or otherwise, then the Company may elect to
assign this Agreement and all of its rights and obligations hereunder to the
acquiring or surviving corporation; provided that such corporation shall assume
in writing all of the obligations of the Company hereunder; and provided further
that the Company (in the event and so long as it remains
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in business as an independent going enterprise) shall remain liable for the
performance of its obligations hereunder in the event of an unjustified failure
of the acquiring corporation to perform its obligations under this Agreement.
SECTION 11. Survival
The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive Employee's
termination of employment, irrespective of any investigation made by or on
behalf of any party.
SECTION 12. Modification
This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all existing
agreements between them concerning such subject matter, and may be modified only
by a written instrument duly executed by each party.
SECTION 13. Notices
Any notices or other communication required or permitted by
this Agreement shall be sufficiently given if delivered in person, by courier,
or if sent by registered or certified mail, postage prepaid, return receipt
requested, or by Express Mail, or similar overnight delivery service, or by
facsimile transmission (followed by telephone communication and hard copy), at
the address set forth in the preamble to this Agreement (or to such other
address as the party shall have furnished in writing in accordance with the
provisions of this Section 13). Any such notice or communication shall be deemed
given (1) if sent by certified or registered mail, return receipt requested,
postage prepaid, five calendar days after being deposited in the United States
mail, postage prepaid; (2) if sent by Express Mail, Federal Express or similar
overnight delivery service for next Business Day delivery, the next Business Day
after being entrusted to such service, with delivery charges prepaid or charged
to the sender's account; (3) if sent by facsimile transmission, on the date sent
and (4) if delivered in person, by courier, on the date of delivery.
SECTION 14. Waiver
Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more
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occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be in writing.
SECTION 15. Binding Effect
Employee's rights and obligations under this Agreement shall
not be transferable by assignment or otherwise, such rights shall not be subject
to commutation, encumbrance, or the claims of Employee's creditors, and any
attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and her
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 10.
SECTION 16. No Third Party Beneficiaries
Except as provided in Section 15, this Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
SECTION 17. Headings
The headings in this Agreement are solely for the convenience
of reference and shall be given no effect in the construction or interpretation
of this Agreement.
SECTION 18. Counterparts; Governing Law
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
conflict of laws rule which would have the substantive law of any other state
apply to the subject matter hereof.
SECTION 19. Specific Performance
Since a breach of the provisions of Sections 6, 7 and 8 could
not adequately be compensated by money damages, the Company shall be entitled,
in
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addition to any other right and remedy available to it, to an injunction
restraining such breach or a threatened breach, and in either case no bond or
other security shall be required in connection therewith, and Employee hereby
consents to the issuance of such injunction. Employee agrees that the provisions
of Sections 6, 7 and 8 are necessary and reasonable to protect the Company in
the conduct of its business. If any restriction contained in Sections 6, 7 and 8
shall be deemed to be invalid, illegal, or unenforceable by reason of the
extent, duration, or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
SECTION 20. Severability
If any provision of this Agreement (including any provision
relating to the scope or term of or geographic areas covered by Sections 6, 7 or
8) or the application thereof to any person or circumstance is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby; provided that, if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a final judgment of a court of competent jurisdiction, then
such court may substitute therefor a suitable and equitable provision in order
to carry out, so far as may be valid and enforceable, the intent and purpose of
the invalid, void or unenforceable provision and if such court shall fail or
decline to do so, the parties shall negotiate in good faith a suitable and
equitable substitute provision. To the extent that any provision shall be
judicially unenforceable in any one or more jurisdictions, such provision shall
not be affected with respect to any other jurisdiction, each provision with
respect to each state being construed as several and independent.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
LONG DISTANCE INTERNATIONAL INC.
By:
-----------------------------------
Clifford Friedland, Chairman
----------------------------------------
Elizabeth Tuttle
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Exhibit 10.11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 1, 1997,
between LONG DISTANCE INTERNATIONAL INC., a Florida corporation with offices at
888 South Andrews Avenue, Suite 205, Ft. Lauderdale, FL 33316 (the "Company"),
and JOHN CASTELLANO, residing at 1755 SE 9th Street, Fort Lauderdale, FL 33316
("Employee").
The Company desires to engage Employee to perform services for the
Company, and any present or future parent, subsidiary, or affiliate of the
Company, and (subject to Section 10) any successor or assign of the Company (the
"LDI Companies"), and Employee desires to perform such services, on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.
SECTION 1. Term
The Company agrees to employ Employee, and Employee agrees to
serve, on the terms and conditions of this Agreement, for a period commencing
July 1, 1997 (the "Commencement Date") and ending three (3) years from the
Commencement Date, or such shorter period as may be provided for herein. The
period during which Employee is employed hereunder is hereinafter referred to as
the "Employment Period."
SECTION 2. Duties and Services
During the Employment Period, Employee shall serve as
President of Dynamic Telecom International, Inc., a wholly-owned subsidiary of
the Company. In performance of his duties, Employee shall be subject to the
direction of the Board of Directors of the Company and the co-chief executive
officers of the Company. Employee agrees to his employment as described in this
Section 2 and agrees to devote all of his business time and efforts to the
performance of his duties under this Agreement.
SECTION 3. Compensation
(a) Base Salary. The Company shall pay Employee, during the
Employment Period, an annual base salary of $90,000 ("Base Salary"), payable in
equal,
<PAGE> 2
bi-weekly installments, or in such other manner or on such days as the Board of
Directors of the Company may prescribe for the payment of salaries to employees
of the Company. The Base Salary may be increased at the sole discretion of the
Board of Directors of the Company; provided, however, that the Base Salary shall
be increased, effective as of the first and second anniversary of the
Commencement Date by an amount equal to the annual increase, if any, in the then
most recent publicly announced Consumer Price Index for the Miami, Florida
metropolitan area.
(b) Bonus. The Employee shall be entitled to receive a cash bonus
from time to time if and when the Board of Directors of the Company elects to
award such cash bonus to the Employee.
(c) Benefits. Employee shall be entitled to participate in all
benefits for which Employee qualifies that the Company may make available to
executive or administrative employees, on like terms, including all medical,
disability, hospital and health insurance plans and arrangements. In addition,
the Employee shall be entitled to receive an automobile allowance of $300 a
month to be applied for the use and maintenance of an automobile, either leased
or purchased, and costs and expenses related thereto.
(d) Severance. If the Company shall give notice of termination of
Employee's services hereunder for reasons other than those described in Section
9.a. hereof, Employee shall be entitled to receive his full compensation to such
effective date, plus a severance payment, payable on such date, equal to the
amount of his Base Salary, at the rate provided in Section 3 which would have
been paid over a period of three (3) months. In the event the Company becomes
obligated to pay any severance pay, the Company may elect to make payments of
the Base Salary component thereof in regular installments or in a single payment
equal to the present value thereof.
(e) Limitations. The Company shall have the right to deduct or
withhold from all compensation and benefits payable hereunder all social
security taxes, other federal, state and local taxes, and all other charges and
amounts as may be required by law to be deducted or withheld.
SECTION 4. Expenses
Employee shall be entitled to reimbursement for reasonable
travel and other out-of-pocket expenses necessarily incurred in the performance
of his duties hereunder, upon submission and approval of written statements and
bills in accordance with the then regular procedures of the Company. Employee
shall be entitled to reasonable vacations in accordance with the then regular
procedures of the Company governing executives.
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SECTION 5. Representations and Warranties of Employee
Employee represents and warrants to the Company that (a)
Employee is under no contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of his duties
hereunder, or the other rights of the Company hereunder and (b) Employee is
under no physical or mental disability that would hinder his performance of
duties under this Agreement.
SECTION 6. Non-Competition
(a) In view of the unique and valuable services it is
expected Employee will render to the LDI Companies, Employee's knowledge of the
customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the LDI Companies it is expected Employee will obtain, and in
consideration of the compensation to be received hereunder, Employee agrees (i)
that he will not during the period he is employed by any of the LDI Companies
under this Agreement or otherwise Participate In (hereinafter defined in this
Section 6) any other business or organization, whether or not such business or
organization now is or shall then be competing with, or now is or shall then be
of a nature similar to, the business of any of the LDI Companies, and (ii) for a
period of six (6) months after he ceases to be employed by any of the LDI
Companies under this Agreement or otherwise, he will not compete with or be
engaged in the same business as, or Participate In any other business or
organization which during such six-month period competes with or is engaged in
the same business as, either the Company or any of the other LDI Companies for
which Employee renders services hereunder, with respect to any product or
service sold or activity engaged in up to the time of such cessation in any
geographical area in which at the time of such cessation such product or service
is sold or activity engaged in, except that in each case the provisions of this
Section 6(a) will not be deemed breached merely because Employee owns not more
than 5% of the outstanding common stock of a corporation, if, at the time of its
acquisition by Employee, such stock is listed on a national securities exchange,
is reported on NASDAQ, or is regularly traded in the over-the-counter market by
a member of a national securities exchange.
(b) The term "Participate In" shall mean: "directly or
indirectly, for his own benefit or for, with, or through any other person, firm,
or corporation, own, manage, operate, control, loan money to, or participate in
the ownership, management, operation, or control of, or be connected as a
director, officer, employee, partner, consultant, agent, independent contractor,
or otherwise with, or acquiesce in the use of his name in."
(c) In view of the unique and valuable services it is
expected Employee will render to the LDI Companies, Employee's knowledge of the
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customers, trade secrets, and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the LDI Companies it is expected Employee will obtain, and in
consideration of the compensation to be received hereunder, Employee agrees:
(i) that he will not during the period he is employed by
any of the LDI Companies under this Agreement or otherwise directly or
indirectly reveal the name of, solicit or interfere with, or endeavor to entice
away from any of the LDI Companies any of its suppliers, customers, or
employees; and,
(ii) for a period of two (2) years after he ceases to be
employed by any of the LDI Companies under this Agreement or otherwise, that
neither he nor any of his affiliates will:
(A) intentionally solicit, or attempt to cause any
employee of the LDI Companies to terminate his or her employment therewith or
hire any person who within twelve (12) months preceding such hiring had been
employed thereby; provided, however, that this subsection (A) shall not prohibit
such action with respect to any person whose employment is terminated or
suspended by the LDI Companies; and
(B) in any manner intentionally (1) cause or
attempt to cause any customer, supplier or other independent contractor of the
LDI Companies to reduce the level of business theretofore conducted by such
customer, supplier or other independent contractor with, or to cease doing
business with, the LDI Companies, or (2) discourage or attempt to discourage any
prospective customer, supplier or other independent contractor from doing
business with the LDI Companies.
SECTION 7. Patents, Etc.
Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs, and processes ("Such Inventions") which Employee now or
hereafter during the period he is employed by any of the LDI Companies under
this Agreement or otherwise and for six months thereafter may own, conceive of,
or develop and either relating to the fields in which any of the LDI Companies
may then be engaged or contemplates being engaged or conceived of or developed
utilizing the time, material, facilities, or information of any of the LDI
Companies, shall belong to the Company; as soon as Employee owns, conceives of,
or develops any Such Invention, he agrees immediately to communicate such fact
in writing to the Secretary of the Company, and without further compensation,
but at the Company's expense (except as noted in clause (a) of this Section 7),
forthwith upon request of the Company, Employee shall execute all such
assignments and other documents (including applications for patents, copyrights,
trademarks, and
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assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Employee's right,
title, and interest in and to Such Inventions, free and clear of liens,
mortgages, security interests, pledges, charges, and encumbrances ("Liens")
(Employee to take such action, at his expense, as is necessary to remove all
such Liens) and (b), if patentable or copyrightable, to obtain patents or
copyrights (including extensions and renewals) therefor in any and all countries
in such name as the Company shall determine.
SECTION 8. Confidential Information
All confidential information (including, without limitation,
trade secrets, know how, proprietary information, price lists, marketing plans
and customer lists), which Employee may now possess, may obtain during or after
the Employment Period, or may create prior to the end of the Employment Period
relating to the business of the Company or of any customer or supplier of the
Company shall not be published, disclosed, or made accessible by Employee to any
other person, firm, or corporation either during or after the termination of his
employment or used by him except during the Employment Period in the business
and for the benefit of the Company in each case without prior written permission
of the Company. Employee shall return all tangible evidence of such confidential
information to the Company prior to or at the termination of his employment.
SECTION 9. Termination
(a) Notwithstanding anything herein contained, if on or after the
date hereof and prior to the end of the Employment Period,
(1) either (i) Employee shall be physically or mentally
incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of three months, (ii) Employee shall be
convicted of a felony, (iii) Employee materially breaches a fiduciary
duty, or (iv) Employee breaches a material term of this Agreement then,
and in each such case, the Company shall have the right to give notice of
termination of Employee's services hereunder as of a date (not earlier
than 10 days from such notice) to be specified in such notice, and
Employee's employment hereunder shall terminate on the date so specified;
provided, however, that, in the case of an event specified in clause (iii)
or (iv), if the breach is curable within 30 days or less, then the Company
shall provide, if Employee has not cured such breach to the satisfaction
of the Company within the period specified, then Employee with notice of
such breach and a reasonable opportunity to cure such breach under the
circumstances (but not more than 30 days), and Employee's employment
hereunder shall terminate on the date so specified, or
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(2) Employee shall die, then Employee's employment hereunder
shall terminate on the date of Employee's death. Upon termination of
Employee's employment under this Section 9(a), Employee or his estate, as
the case may be, shall be entitled to receive his Base Salary, at the rate
provided in Section 3, to the date on which termination shall take effect.
(b) Nothing contained in this Section 9 shall be deemed to limit any
other right the Company may have to terminate Employee's employment
hereunder upon any ground permitted by law (a termination "without
cause"), by giving notice of termination of Employee's services hereunder.
Upon termination of Employee's employment under this Section 9(b),
Employee shall be entitled to severance pay pursuant to and in accordance
with the terms of Section 3(d) hereof.
SECTION 10. Merger, Etc.
In the event of a future disposition of (or including) the
properties and business of the Company, substantially as an entirety, by merger,
consolidation, sale of assets, or otherwise, then the Company may elect to
assign this Agreement and all of its rights and obligations hereunder to the
acquiring or surviving corporation; provided that such corporation shall assume
in writing all of the obligations of the Company hereunder; and provided further
that the Company (in the event and so long as it remains in business as an
independent going enterprise) shall remain liable for the performance of its
obligations hereunder in the event of an unjustified failure of the acquiring
corporation to perform its obligations under this Agreement.
SECTION 11. Survival
The covenants, agreements, representations, and warranties
contained in or made pursuant to this Agreement shall survive Employee's
termination of employment, irrespective of any investigation made by or on
behalf of any party.
SECTION 12. Modification
This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof, supersedes all existing
agreements between them concerning such subject matter, and may be modified only
by a written instrument duly executed by each party.
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SECTION 13. Notices
Any notices or other communication required or permitted by
this Agreement shall be sufficiently given if delivered in person, by courier,
or if sent by registered or certified mail, postage prepaid, return receipt
requested, or by Express Mail, or similar overnight delivery service, or by
facsimile transmission (followed by telephone communication and hard copy), at
the address set forth in the preamble to this Agreement (or to such other
address as the party shall have furnished in writing in accordance with the
provisions of this Section 13). Any such notice or communication shall be deemed
given (1) if sent by certified or registered mail, return receipt requested,
postage prepaid, five calendar days after being deposited in the United States
mail, postage prepaid; (2) if sent by Express Mail, Federal Express or similar
overnight delivery service for next Business Day delivery, the next Business Day
after being entrusted to such service, with delivery charges prepaid or charged
to the sender's account; (3) if sent by facsimile transmission, on the date sent
and (4) if delivered in person, by courier, on the date of delivery.
SECTION 14. Waiver
Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
SECTION 15. Binding Effect
Employee's rights and obligations under this Agreement shall
not be transferable by assignment or otherwise, such rights shall not be subject
to commutation, encumbrance, or the claims of Employee's creditors, and any
attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 10.
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SECTION 16. No Third Party Beneficiaries
Except as provided in Section 15, this Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement.
SECTION 17. Headings
The headings in this Agreement are solely for the convenience
of reference and shall be given no effect in the construction or interpretation
of this Agreement.
SECTION 18. Counterparts; Governing Law
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. It shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to any
conflict of laws rule which would have the substantive law of any other state
apply to the subject matter hereof.
SECTION 19. Specific Performance
Since a breach of the provisions of Sections 6, 7 and 8 could
not adequately be compensated by money damages, the Company shall be entitled,
in addition to any other right and remedy available to it, to an injunction
restraining such breach or a threatened breach, and in either case no bond or
other security shall be required in connection therewith, and Employee hereby
consents to the issuance of such injunction. Employee agrees that the provisions
of Sections 6, 7 and 8 are necessary and reasonable to protect the Company in
the conduct of its business. If any restriction contained in Sections 6, 7 and 8
shall be deemed to be invalid, illegal, or unenforceable by reason of the
extent, duration, or geographical scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographical scope, or other provisions hereof, and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
SECTION 20. Severability
If any provision of this Agreement (including any provision
relating to the scope or term of or geographic areas covered by Sections 6, 7 or
8) or the application thereof to any person or circumstance is held by a court
of competent
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jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such provision to persons or circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby; provided that, if any provision hereof or the application
thereof shall be so held to be invalid, void or unenforceable by a final
judgment of a court of competent jurisdiction, then such court may substitute
therefor a suitable and equitable provision in order to carry out, so far as may
be valid and enforceable, the intent and purpose of the invalid, void or
unenforceable provision and if such court shall fail or decline to do so, the
parties shall negotiate in good faith a suitable and equitable substitute
provision. To the extent that any provision shall be judicially unenforceable in
any one or more jurisdictions, such provision shall not be affected with respect
to any other jurisdiction, each provision with respect to each state being
construed as several and independent.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
LONG DISTANCE INTERNATIONAL INC.
By:
------------------------------------
Clifford Friedland, Chairman
----------------------------------------
John Castellano
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Exhibit 10.12
SHAREHOLDERS AGREEMENT
AGREEMENT dated as of September , 1994 among Long Distance
International Inc., a Florida corporation (the "Corporation"); Clifford
Friedland ("Friedland"); David Glassman ("Glassman"); and the persons and other
entities executing and delivering this Agreement as shareholders of the
Corporation, whose names are listed on Schedule A annexed to this Agreement
(Friedland, Glassman and such other persons and entities, collectively, the
"Shareholders").
Preliminary Statements
A. Each Shareholder owns capital stock of the Corporation in the
amount specified next to the name of the Shareholder on Schedule A (such stock,
the "Stock"). Other shareholders who purchased Common Stock of the Corporation
before the date of this Agreement (the "Existing Shareholders") entered into a
separate shareholders agreement that included preemptive and registration rights
in favor of such shareholders, as well as requirements that they vote their
shares to elect David Glassman and Clifford Friedland as directors and that
shareholders wishing to sell shares first offer them to the Corporation and
other Existing Shareholders.
B. The Shareholders and the Corporation wish to provide for certain
aspects of the management, ownership and operations of the Corporation as set
forth in this Agreement, including provisions for the voting, issuance and
transfer of shares of Stock.
In consideration of the foregoing and the terms, conditions and
covenants of this Agreement, the parties hereto agree as follows.
Section 1 Management
1.1 Board of Directors. Each Shareholder shall vote all of its shares of
Stock and shall take all such other actions as may be necessary to elect and
maintain Friedland and Glassman as members of the Board of Directors of the
Corporation; provided, however, that the right of each of Friedland and Glassman
to be a member of the Board and the obligations of the Shareholders to vote to
elect either as a director shall terminate as to Friedland or Glassman when such
director owns less than five percent (5%) of the issued and outstanding capital
stock of Corporation.
Section 2 Transfers of Stock
2.1 Restriction of Transfer. No transfer or other disposition of shares of
capital stock of the Corporation owned by any Shareholder shall be made by any
Shareholder in contravention of the terms of this Agreement. Dispositions of
shares governed by this Agreement shall include any transfer, gift, sale,
assignment, pledge, hypothecation or other disposition of shares of Stock, with
the exceptions provided in
<PAGE> 2
Section 2.6 of this Agreement. Any disposition of shares of Stock made in
contravention of this Agreement shall be null, void and of no effect. The
Corporation shall not take any action to effectuate any disposition of Stock in
contravention of this Agreement and shall not record any such transfer on the
books of the Corporation.
2.2 Offer. (a) No Shareholder shall dispose of shares of Stock owned by
such Shareholder to any person or entity until such Shareholder (the "Offering
Shareholder") shall first have offered such shares first to the Corporation and
then to the Existing Shareholders and the other Shareholders listed on Schedule
A (the Shareholders and the Existing Shareholders, collectively, the "Offeree
Shareholders") by notice in writing (the "Offer Notice") and shall otherwise
have complied with this Section 2. Any Offer Notice under this Agreement shall
be given at the same time to the Corporation and the Offeree Shareholders and
shall specify (i) the person or entity to which the shares of Stock, or to which
any interest in such shares, are proposed to be transferred (the "Third Party
Offeror"), (ii) the price, other consideration and other material terms and
conditions of the transaction that the Offering Shareholder proposes to
undertake with the Third Party Offeror and (iii) the number of shares proposed
to be included in or affected by the disposition to the Third Party Offeror.
First the Corporation and then, if the Corporation does not exercise its right
to purchase the offered Stock, the Offeree Shareholders shall have the right to
acquire all (but not less than all) of the Stock or the interests therein
offered by the Offering Shareholder on the terms and conditions set forth in the
Offer Notice. Such right shall be exercisable by the Corporation within
forty-five (45) days after the Offer Notice is given by the Offering Shareholder
and by the Offeree Shareholders within the period from fifty (50) to ninety (90)
days after the Offer Notice is given to such Shareholders. Such right shall be
deemed to be exercised when written notice of such exercise is given by the
Corporation or an Offeree Shareholder to the Offering Shareholder within the
applicable period specified above.
(a) If there is more than one Offeree Shareholder, then each such
Shareholder shall have the right and option to acquire a pro rata portion of the
Stock offered by the Offering Shareholder (such pro rata portion, as defined in
Section 2.2(c), a "Pro Rata Portion"), in the manner provided in this Section 2.
If any of such Offeree Shareholders fails to exercise its right to acquire all
of the Stock that such Shareholder is entitled to acquire under this Section 2
or gives notice to the Offering Shareholder that it will not exercise such
right, then the other Offeree Shareholders shall have the right and option to
acquire Pro Rata Portions of such Stock, in the manner provided in this Section
2. If only one Offeree Shareholder exercises its option to acquire Stock subject
to this Section 2, then such Shareholder shall have the right to acquire all
(and not less than all) of such Stock offered by the Offering Shareholder, in
accordance with this Section 2. To effectuate the offer of Stock to Offeree
Shareholders pursuant to this Section 2.2, if any Offeree Shareholder fails to
exercise its option to acquire such Stock within the fifty to ninety day
exercise period provided in Section 2.2(a) or gives notice to the Offering
Shareholder that it
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will not exercise such right, then the Offering Shareholder shall promptly
notify any other Offeree Shareholders of such failure or such notice of
non-exercise and of the Pro Rata or Portion of Stock that such Offeree
Shareholder failed or declined to acquire. Such other Offeree Shareholders shall
have the right and option, exercisable for twenty (20) days after their receipt
of notice of the availability of such Pro Rata Portion of Stock, to acquire Pro
Rata Portions of the Stock that the Offeree Shareholder failed or declined to
acquire, in accordance with this Section 2. Such option shall be deemed to be
exercised when written notice of such exercise is given by such other Offeree
Shareholders to the Offering Shareholder within such fifteen-day period. Shares
of Stock that are not accepted by Offeree Shareholders for disposition pursuant
to this Section 2.2 may be disposed of to the Third Party Offeror in accordance
with Section 2.3.
(b) A "Pro Rata Portion" shall be the number of shares of Stock
equal to the total number of shares of Stock offered by an Offering Shareholder
multiplied by a fraction, the numerator of which is the number of shares of
Stock owned by the Offeree Shareholder exercising its right to acquire Stock
from an offering Shareholder and the denominator of which is the aggregate
number of shares of Stock owned by all the Offeree Shareholders that exercise
their options to acquire the offered Stock in accordance with this Section 2.
2.3 Transfer to Third Party. If all of the shares of Stock are not
acquired by the Corporation or Offeree Shareholders as provided for in Section
2.2 within the applicable notice period provided for therein, then the Offering
Shareholder may transfer or otherwise dispose of such Stock or interests therein
only to the Third Party Offeror for the consideration and only on the terms and
conditions set forth in the Offer Notice that was given to the Corporation and
the Offeree Shareholders, provided that the Third Party Offeror agrees in
writing to be bound by all of the terms of this Agreement before the
effectuation of any transfer of Stock or interests therein to the Third Party
Offeror and provided that a written instrument evidencing such agreement is
delivered to the Corporation before any such transfer is effected.
2.4 Revival of First Refusal Right. If a transfer or other disposition of
shares of Stock or interests therein to a Third Party Offeror is not consummated
within ninety (90) days after the last to expire of the options of the Offeree
Shareholders to acquire such shares or interests pursuant to this Section 2,
then any transfer or other disposition proposed to be made to such Third Party
Offeror shall again be subject to the rights and options of the Corporation and
the Offeree Shareholders and, subject to the notice requirements provided for in
this Section 2.
2.5 Closing. The closing of any disposition of shares of Stock under this
Section 2 shall take place at the principal offices of the Corporation or at the
offices of the attorneys of the Corporation, or at such other place as may be
agreed upon by the parties to such transaction, within thirty (30) days after
the last written notice that
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is timely hereunder given by the Corporation or the Offeree Shareholders in
exercise of their options to acquire such shares. Such closing shall take place
at a time during regular business hours specified by the Offering Shareholder on
fifteen (15) days' prior written notice to the persons or entities acquiring the
Stock. At the closing, the shares of Stock to be disposed of under this Section
2 shall be delivered by the transferring party to the party entitled to acquire
such shares, duly endorsed in blank or accompanied by duly executed stock
powers, with transfer stamps attached, if required by applicable law. The
acquiror of any Stock transferred under this Section 2 shall, at the closing of
such disposition, pay the acquisition price for the Stock in accordance with the
Offer Notice that was delivered in connection with the disposition of such
Stock.
2.6 Exempted Transfers. The provisions of this Section 2, with the
exception of Section 2.7, shall not apply to any of the following dispositions
of Stock, provided that the transferee or acquiror of Stock disposed of under
this Section 2.6 agrees in writing to be bound by the terms of this Agreement
and to assume the obligations of a Shareholder hereunder upon acquiring such
Stock: (i) any disposition by will or intestacy and any other disposition to an
heir, executor, estate, committee, guardian or other legal representative of a
Shareholder upon the death or legal incapacity of the Shareholder; or (ii) any
disposition to a Family Transferee of a Shareholder (as defined herein). As used
in this Agreement, a "Family Transferee" shall mean (A) a spouse, child, parent,
grandchild or sibling of a Shareholder or (B) a trust established by a
Shareholder, or a trustee, fiduciary, custodian or foundation designated by a
Shareholder, that will hold shares of Stock for the benefit of the Shareholder
or for the benefit of any of the persons described in item (A) above in this
sentence. Notwithstanding the foregoing or any other provisions of this
Agreement, no transfer or disposition of Stock shall be made by any Shareholder
in contravention of Section 2.7.
2.7 S Corporation Status. Notwithstanding any other provision of this
Agreement, no disposition of Stock may be made or effectuated and no other
action may be taken by any Shareholder that would cause the Corporation to lose,
terminate or revoke its election, eligibility, treatment or status as an S
corporation under the Internal Revenue Code of 1986, as amended, or to lose,
terminate or revoke any similar election, eligibility, treatment or status under
applicable state law (such election, eligibility, treatment or status under
state or federal law, as amended from time to time, "S Corporation Status"),
unless (i) the Corporation at the time of such proposed disposition or action
has not elected or chosen S Corporation Status or (ii) the Board of Directors of
the Corporation has decided to waive, revoke or terminate the S Corporation
Status of the Corporation prior to the effective date of the proposed action or
disposition of Stock. Nothing in this Agreement shall give any Shareholder any
right to the benefits or continuation of S Corporation Status of the
Corporation, which may be terminated by the Corporation in its discretion.
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Section 3 Preemptive Rights
3.1 Preemptive Right. Except as provided in Section 3.6, if any issuance
or sale of stock of the Corporation after the date of this Agreement would
adversely affect the proportionate or relative voting or dividend rights of any
Shareholder, then the Corporation shall not issue or sell such stock to any
person or entity until the Corporation shall first have offered to the
Shareholders the amount of such stock provided in this Section 3, in the manner
provided in this Section. Except as provided in Section 3.6, each share of Stock
shall entitle the holder thereof to a preemptive right, for the period and on
the terms provided in this Section, to subscribe for and acquire shares of the
same class of the Corporation or any equity and/or voting shares of any class of
the Corporation that the Corporation proposes to issue or any warrants, options
or rights that the Corporation proposes to grant for the purchase of stock of
the Corporation or for the purchase of any securities of the Corporation that
are convertible into or exchangeable for, or that carry any rights to subscribe
for or acquire, equity and/or voting stock of any class of the Corporation (any
such shares, securities, warrants, options or rights, "Preemption Securities).
3.2 Preemption Notice. Any offer of Preemption Securities to Shareholders
under this Section 3 shall be made by the Corporation by notice in writing (the
"Preemption Notice"), which notice shall specify the price, other-consideration
and other material terms and conditions relating to the Preemption Securities
that the Corporation proposes to issue or sell and the amount of such Preemption
Securities proposed to be issued or sold. Under this Section 3, each Shareholder
shall have the right and option, exercisable for thirty (30) days after such
Shareholder's receipt of a Preemption Notice, (i) to acquire, on the terms
contained in the Preemption Notice, such portion of the Preemption Securities
that the Corporation proposes to issue or sell as would preserve the
proportionate or relative voting and dividend rights of such Shareholder and
(ii) to acquire such Preemption Securities for a purchase price equal to the
price per share at which the Corporation proposes to issue or sell such
Preemption Securities to other persons or entities, without deduction of
expenses of and compensation for the sale, underwriting or purchase of such
Preemption Securities by underwriters or dealers. Such option and right under
this Section shall be deemed exercised when a Shareholder gives written notice
of such exercise to the Corporation. If a Shareholder fails to exercise such
option and right to acquire Preemption Securities hereunder within thirty (30)
days after the Shareholder's receipt of the Preemption Notice, then the
Corporation may issue or sell such Preemption Securities to any other person or
entity at the price or for the consideration set forth in the Preemption Notice,
with deduction of any reasonable and lawful expenses of and compensation for the
sale, underwriting or purchase of such Preemption Securities by underwriters or
dealers.
3.3 Revival of Preemptive Right. If an issuance or sale of Preemption
Securities that was described in a Preemption Notice is not consummated within
one
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hundred eighty (180) days after the expiration of the thirty-day notice period
provided for in Section 3.2, then any issuance or sale of such Preemption
Securities proposed to be made by the Corporation shall again be subject to the
rights and obligations of the Corporation and the Shareholders and the notice
requirements provided for in this Section 3.
3.4 Closing of Preemption Transaction. The closing of any issuance or sale
of Preemption Securities under this Section shall take place at the principal
offices of the Corporation its counsel. Such closing shall take, place during
regular business hours at the time specified in the Preemption Notice or, if no
such time is specified in such notice, at a time within one hundred eighty (180)
days after expiration of the thirty-day notice period provided for in Section
3.2, which time shall be specified by the Corporation by ten (10) days prior
written notice to the Shareholder acquiring the Preemption Securities. At such
closing, the Corporation-shall deliver the Preemption Securities to be issued or
sold hereunder to the Shareholder entitled to acquire such Preemption
Securities, upon payment by such Shareholder of the full purchase price provided
hereunder for such Preemption Securities, in cash or by certified check, bank
check or wire transfer.
3.5 Agreement Governs. Any Preemption Securities of the Corporation issued
or sold to a Shareholder under this Section 3 shall be subject to the terms of
this Agreement.
3.6 Securities not Subject to Preemption. The provisions of this Section 3
shall not apply to (i) treasury shares; (ii) shares of capital stock or
warrants, options, securities or rights convertible into shares of such stock
that may be issued or sold by the Corporation to employees, directors, officers,
consultants or independent contractors of the Corporation; (iii) shares,
warrants, options, securities or rights that may be issued or sold by the
Corporation in connection with the effectuation of a merger, consolidation or
other business combination, provided that the proportionate or relative voting
and dividend rights of each Shareholder as a holder of voting and equity
securities of the entity surviving such consolidation, merger or combination
shall not be less, in proportion to the voting and dividend rights of the other
Shareholders on account of voting and equity securities of such survivor, than
the proportionate voting and dividend rights of such Shareholder in relation to
such other Shareholders immediately prior to such merger or consolidation.
Section 4 Registration Rights
4.1 Definitions. For purposes of this Section 4:
(a) the term "1933 Act" means the Securities Act of 1933, as
amended;
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(b) the term "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and the declaration or ordering of effectiveness of
such registration statement;
(c) the term "Registrable Securities" means any of the shares or
Stock or any common stock of the Corporation issued as a dividend or other
distribution with respect to, or in exchange or in replacement of, the Stock;
and
(d) the term "Holder" means any Shareholder holding Registrable
Securities and any other person holding Registrable Securities to whom these
registration rights have been transferred pursuant to this Agreement.
4.2 Registration. Subject to Section 4.6, if at any time the Corporation
proposes to register any of its common stock under the 1933 Act in connection
with the public offering of such securities solely for cash on a form that would
also permit the registration of the Registrable Securities, then the Corporation
shall, each such time, promptly give each Holder written notice of such
determination. Upon the written request of any Holder given with in twenty (20)
days after the giving of any such notice by the Corporation, the Corporation
shall use its best efforts to cause to be registered under the 1933 Act all of
the Registrable Securities that each such Holder has requested be registered,
subject to the exceptions and other provisions set forth in this Agreement.
4.3 Obligations of the Corporation. Whenever required under Section 4.2 to
use its best efforts to effect the registration of any Registrable Securities,
the Corporation shall:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and remain
effective for six (6) months or until all shares registered pursuant to such
registration statement are sold, if earlier;
(b) during such period prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement;
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
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(d) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such U.S. state jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement, provided
that the Corporation shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such state jurisdictions, and further provided that
(anything in this Agreement to the contrary notwithstanding with respect to the
bearing of expenses) if any jurisdiction in which the securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by selling
shareholders, then such expenses shall be payable by selling shareholders pro
rata, to the extent required by such jurisdiction.
4.4 Furnish Information. It shall be a condition precedent to the
obligations of the Corporation to take any action pursuant to this Section 4
that the Holders shall-furnish to the Corporation such information regarding
them, the Registrable Securities held by them, and the intended method of
disposition of such securities as the Corporation shall reasonably request and
as shall be required in connection with the action to be taken by the
Corporation.
4.5 Expenses Of Registration. All expenses incurred by the Corporation in
connection with a registration pursuant to Section 4.2 (excluding underwriters'
discounts and commissions and fees and disbursements of any counsel for any
Holder), including without limitation all registration and qualification fees,
printers' and accounting fees and fees and disbursements of counsel for the
Corporation, shall be borne by the Corporation; provided, however, that the
Corporation shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 4.2 if the registration request is
subsequently withdrawn; provided that the Holders may withdraw a request made
within forty-five (45) days of the end of the fiscal year of the Corporation if
the audited financial statements of the Corporation for such year and at such
year-end materially and adversely differ from the information known to the
Holders at the time of their request, in which event the Holders shall not be
required to pay any of the expenses of the registration.
4.6 Underwriting Requirements. In connection with any offering involving
an underwriting of shares being issued by the Corporation, the Corporation shall
not be required under Section 4.2 to include in such underwriting any of the
Registrable Securities of any Holder unless such Holder agrees to the inclusion
of such Registrable Securities on the same terms and conditions as the
securities otherwise being sold through the underwriters. Notwithstanding the
foregoing the Corporation shall only be required to include in the offering so
many of the securities of the selling Holders as the underwriter, in its
discretion, believes will not jeopardize the success of the offering, which may
be no securities owned by Holders (the securities so included first to be
apportioned pro rata among the selling Holders-according to the
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total amount of securities owned by said selling Holders or in such other
proportions as shall mutually be agreed to by such selling Holders), provided
that no such reduction shall be made with respect to any securities offered by
the Corporation.
4.7 Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration of any
securities of the Corporation as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 4.
4.8 Indemnification. If any Registrable Securities are included in a
registration statement under this Section 4:
(a) To the extent permitted by law, the Corporation shall indemnify
and hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the 1933 Act) for it, and each person, if any, who
controls such Holder or underwriter within the meaning of the 1933 Act, against
any losses, claims, damages, or liabilities, joint or several to which they may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based on any untrue statement of a material fact by the Corporation, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission by the Corporation to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arise out of any violation by the Corporation of any rule or
regulation promulgated under the 1933 Act applicable to the Corporation and
relating to action or inaction required of the Corporation in connection with
any such registration; and shall reimburse each such Holder, such underwriter,
or controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 4.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Corporation (which consent shall not be unreasonably
withheld), nor shall the Corporation be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus or amendments or supplements thereto,
in reliance upon and in conformity with information furnished expressly for use
in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each Holder requesting or
joining in a registration shall indemnify and hold harmless the Corporation,
each of its directors, each of its officers who have signed the registration
statement, each
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person, if any, who controls the Corporation within the meaning of the 1933 Act
and each agent and any underwriter for the Corporation (within the meaning of
the 1933 Act) against any losses, claims, damages or liabilities to which the
Corporation or any such director, officer, controlling person, agent or
underwriter may become subject, under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or action in respect thereto) arise out
of or are based upon any untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements 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, in each case to the extent, but only to the extent, that such untrue
statement or omission was made in such registration statement, preliminary or
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Corporation or any such
director, officer, controlling person, agent or underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 4.8(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action shall not
relieve such indemnifying party of any liability to the indemnified party under
this Section unless such failure materially and adversely affects the rights or
abilities of the indemnifying party to defend such action. The omission so to
notify the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section.
Section 5 Termination
5.1 Upon Sale of all Stock. Upon the disposition by a Shareholder of all
of the Stock owned by the Shareholder, such person shall have no further rights
under this Agreement.
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5.2 Upon Certain Other Events. The rights and obligations of the
Corporation and of each Shareholder under this Agreement shall terminate upon
the earliest to occur of (i) the first sale of common stock of the Corporation
that is effected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the 1933 Act covering
the offer and sale of common stock of the Corporation to the public or (ii) any
date on which the Shareholders hold in the aggregate of record or beneficially
less than five percent (5%) of the outstanding shares of the common stock of the
Corporation.
Section 6 Further Action
6.1 General. The Corporation and each Shareholder shall execute, deliver
and perform all such additional documents, agreements, certificates and
instruments and shall take all such further actions as may be necessary or
advisable to effectuate the terms and conditions of this Agreement.
6.2 Ratification of Agreement. Each Shareholder shall use its best efforts
and shall take all actions necessary to cause the Corporation promptly to
ratify, execute and deliver this Agreement on behalf of the Corporation.
Section 7 Miscellaneous
7.1 Governing Law: Jurisdiction. This Agreement shall be governed by and
interpreted and enforced in accordance with the law of the State of Florida
applicable to contracts negotiated, entered into and to be performed solely in
that State, without regard to the choice or conflicts of law principles of such
State. The parties hereby consent to the jurisdiction of the state and federal
courts located in Broward County, Florida, over the parties hereto and over any
actions, proceedings, disputes or claims relating to or arising in connection
with this Agreement.
7.2 Severability. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, then the unenforceable, invalid or conflicting part shall be
narrowed or replaced, to the extent possible, with a judicial construction in
such jurisdiction that effectuates the intent of the parties regarding this
Agreement and the unenforceable, invalid or conflicting part. Notwithstanding
the unenforceability, invalidity or conflict with applicable law of any part of
this Agreement, the remaining parts shall be valid, enforceable and binding on
the parties.
7.3 Binding Effect; Assignment. This Agreement shall be binding upon,
enforceable by and shall inure to the benefit of the Corporation, each
Shareholder and the respective successors, heirs, legal representatives,
administrators and executors, except to the extent provided otherwise in this
Agreement. Except as otherwise permitted in this Agreement, neither this
Agreement nor any rights or obligations
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hereunder may be assigned or delegated by any party hereto without the prior
written consent of the other parties hereto. The Corporation, in its discretion,
shall have the right (i) to have other holders of capital stock of the
Corporation execute and deliver and become bound and benefitted by this
Agreement, after its date of initial execution by the Shareholders hereunder,
and (ii) to amend Schedule A annexed hereto to add the names and shareholdings
of such additional shareholders. Any such shareholders that subsequently execute
and deliver this Agreement shall be deemed to be Shareholders hereunder and
beneficiaries of this Agreement and all rights and obligations hereunder.
7.4 Amendment: Waiver: Entire Agreement. This Agreement may be amended
only by a writing signed by the parties hereto, except that additional
shareholders may be made parties hereto, and Schedule A may be amended to add
their names and shareholdings, by execution and delivery of this Agreement and
an amendment to Schedule A by the Corporation arid such additional shareholders:
This Agreement constitutes the entire agreement among the parties hereto
relating to the transactions contemplated in this Agreement. Neither any failure
nor any delay on the part of any party to this Agreement in exercising any
right, power or privilege hereunder shall operate as a waiver of any rights of
any such party, unless such waiver is made by a writing executed by such party
and delivered to the other parties, nor shall a single or partial exercise of
any right preclude any other or further exercise of any other right, power or
privilege accorded to any party to this Agreement.
7.5 Notices. (a) All notices provided for herein shall be in writing and
shall be delivered by hand, by a leading nationwide, overnight courier or by
deposit in the United States mail, postage prepaid, by registered or certified
mail, return receipt requested, addressed to the Corporation or any Shareholder,
as the case may be, at the following address of such party:
(i) if to the Corporation to:
Long Distance International Inc.
888 South Andrews Avenue
Suite 205
Ft. Lauderdale, Florida 33316
with a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Attention: Simon Taylor, Esq.
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(ii) if to a Shareholder to the address of such Shareholder
set forth on Schedule A.
(a) Notices given by mail shall be deemed to be received on the
earlier of the date shown on the proof of receipt of such mail or, unless the
recipient proves that the notice was received later or not received, five (5)
days after the date of mailing thereof. Other notices shall be deemed given on
the date of receipt. Any party hereto and any party's successor permitted
hereunder may change the address specified above by written notice to the other
parties hereto.
7.6 Books of Account. The books of account of the Corporation or copies
thereof shall be kept at its legal address. Each party or its duly authorized
representative or representatives shall have access to the complete books of
account of the Corporation and reasonable supporting documentation at reasonable
times during normal business hours of the Corporation, upon reasonable prior
notice to the Corporation, and shall be entitled to makes photocopies thereof.
7.7 Legend. Each of the certificates representing Stock shall bear a
legend setting forth any restrictions on transfer or other provisions legally
required or otherwise deemed necessary or advisable by the Corporation,
including a legend in substantially the following form, and the Corporation and-
the Subscriber agree to abide by the term set forth in such legend until it is
removed from the certificate in accordance with this Agreement and applicable
law:
"The shares of stock represented by this
certificate are subject to the term and
conditions of a Shareholders Agreement among the
Corporation, Clifford Friedland, David Glassman
and other shareholders dated as of _______,
199__, which contains, among other provisions,
restrictions on transfer, sale or other
disposition of the shares and provisions
regarding management of the Corporation. A copy
of such agreement is on file in the offices of
the Corporation."
7.8 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
7.9 Counterparts. This Agreement may be executed in two or more
counterpart copies, each of which shall be an original and all of which together
shall be one and the same agreement.
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IN WITNESS WHEREOF, the Corporation and the Shareholders have
executed and delivered this Agreement as of the date first set forth above.
LONG DISTANCE
INTERNATIONAL INC.
By
------------------------------
-----------------------------
Clifford Friedland
-----------------------------
David Glassman
-----------------------------
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<PAGE> 1
Exhibit 10.13
SHAREHOLDERS AGREEMENT
AGREEMENT dated as of July 22, 1994 among Telecard International,
Inc., a Florida corporation (the "Corporation"), doing business as Long Distance
International; Clifford Friedland ("Friedland"); David Glassman ("Glassman");
and the persons and other entities executing and delivering this Agreement as
shareholders of the Corporation, whose names are listed on Schedule A annexed to
this Agreement (Friedland, Glassman and such other persons and entities,
collectively, the "Shareholders").
Preliminary Statements
A. Each Shareholder owns capital stock of the Corporation in the
amount specified next to the name of the Shareholder on Schedule A (such stock,
the "Stock").
B. The Shareholders and the Corporation wish to provide for certain
aspects of the management, ownership and operations of the Corporation as set
forth in this Agreement, including provisions for the voting, issuance and
transfer of shares of Stock.
In consideration of the foregoing and the terms, conditions and
covenants of this Agreement, the parties hereto agree an follows.
Section 1 Management
1.1 Board of-Directors. Each Shareholder shall vote all of its
shares of Stock and shall take all such other actions as may be necessary to
elect and maintain Friedland and Glassman as members of the Board of Directors
of the Corporation; provided, however, that the right of each of Friedland and
Glassman to be a member of the Board and the obligations of the Shareholders to
vote to elect either as a director shall terminate as to Friedland or Glassman
when such director owns less than five percent (5%) of the issued and
outstanding capital stock of the Corporation.
Section 2 Transfers of Stock
2.1 Restriction of Transfer. No transfer or other disposition of
shares of capital stock of the Corporation owned by any Shareholder shall be
made by any Shareholder in contravention of the terms of this Agreement.
Dispositions of shares governed by this Agreement shall include any transfer,
gift, sale, assignment, pledge,
<PAGE> 2
hypothecation or other disposition of shares of Stock, with the exceptions
provided in Section 2.6 of this Agreement. Any disposition of shares of Stock
made in contravention of this Agreement shall be null, void and of no effect.
The Corporation shall not take any action to effectuate any disposition of Stock
in contravention of this Agreement and shall not record any such transfer on the
books of the Corporation.
2.2 Offer. (a) No Shareholder shall dispose of shares of Stock owned
by such Shareholder to any person or entity until such Shareholder (the
"Offering Shareholder") shall first have offered such shares to the Corporation
and the other Shareholders (the "Offeree Shareholders") by notice in writing
(the "Offer Notice") and shall otherwise have complied with this Section 2. Any
Offer Notice under this Agreement shall be given at the same time to the
Corporation and the Offeree Shareholders and shall specify (i) the person or
entity to which the shares of Stock, or to which any Interest in such shares,
are proposed to be transferred (the "Third Party Offeror"), (ii) the price,
other consideration and other material terms and conditions of the transaction
that the offering Shareholder proposes to undertake with the Third Party Offeror
and (iii) the number of shares proposed to be included in or affected by the
disposition to the Third Party Offeror. First the Corporation and then, if the
Corporation does not exercise its right to purchase the offered Stock, the
Offeree Shareholders shall have the right to acquire all (but not less than all)
of the Stock or the interests therein offered by the Offering Shareholder on the
terms and conditions set forth in the Offer Notice. Such right shall be
exercisable by the Corporation within forty-five (45) days after the Offer
Notice is given by the Offering Shareholder and by the Offeree Shareholders
within the period from fifty (50) to ninety (90) days after the Offer Notice in
given to such Shareholders. Such right shall be deemed to be exercised when
written notice of such exercise is given by the Corporation or an Offeree
Shareholder to the Offering Shareholder within the applicable period specified
above.
(b) If there is more than one Offeree Shareholder, then each
such Shareholder shall have the right and option to acquire a pro rata portion
of the Stock offered by the Offering Shareholder (such pro rata portion, as
defined in Section 2.2(c), a "Pro Rata Portion"), in the manner provided in this
Section 2. If any of such Offeree Shareholders fails to exercise its right to
acquire all of the Stock that such Shareholder is entitled to acquire under this
Section 2 or gives notice to the Offering Shareholder that it will not exercise
such right, then the other Offeree Shareholders shall have the right and option
to acquire Pro
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<PAGE> 3
Rata Portions of such Stock, in the manner provided in this Section 2. If only
one Offeree Shareholder exercises its option to acquire Stock subject to this
Section 2, then such Shareholder shall have the right to acquire all (and not
less than all) of such Stock offered by the Offering Shareholder, in accordance
with this Section 2. To effectuate the offer of Stock to Offeree Shareholders
pursuant to this Section 2.2, if any Offeree Shareholder fails to exercise its
option to acquire such Stock within the fifty to ninety day exercise period
provided in Section 2.2(a) or gives notice to the Offering Shareholder that it
will not exercise such right, then the Offering Shareholder shall promptly
notify any other Offeree Shareholders of such failure or such notice of
non-exercise and of the Pro Rata Portion of Stock that such Offeree Shareholder
failed or declined to acquire. Such other Offeree Shareholders shall have the
right and option, exercisable for twenty (20) days after their receipt of notice
of the availability of such Pro Rata Portion of Stock, to acquire Pro Rata
Portions of the Stock that the Offeree Shareholder failed or declined to
acquire, in accordance with this Section 2. Such option shall be deemed to be
exercised when written notice of such exercise is given by such other Offeree
Shareholders to the Offering Shareholder within such fifteen-day period. Shares
of Stock that are not accepted by Offeree Shareholders for disposition pursuant
to this Section 2.2 may be disposed of to the Third Party Offeror in accordance
with Section 2.3.
(c) A "Pro Rata Portion" shall be the number of shares of
Stock equal to the total number of shares of Stock offered by an Offering
Shareholder multiplied by a fraction, the numerator of which is the number of
shares of Stock owned by the Shareholder exercising its right to acquire Stock
from an Offering Shareholder and the denominator of which is the aggregate
number of shares of Stock owned by all the Offeree Shareholders that exercise
their options to acquire the offered Stock in accordance with this Section 2.
2.3 Transfer to Third Party. If all of the shares of Stock are not
acquired by the Corporation or Offeree Shareholders as provided for in Section
2.2 within the applicable notice period provided for therein, then the Offering
Shareholder may transfer or otherwise dispose of such Stock or interests therein
only to the Third Party Offeror for the consideration and only on the terms and
conditions set forth in the Offer Notice that was given to the Corporation and
the Offeree Shareholders, provided that the Third Party Offeror agrees in
writing to be bound by all of the terms of this Agreement before the
effectuation of any transfer of Stock or interests therein to the Third
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<PAGE> 4
Party Offeror and provided that a written instrument evidencing such agreement
is delivered to the Corporation before any such transfer is effected.
2.4 Revival of First Refusal Right. If a transfer or other
disposition of shares of Stock or interests therein to a Third Party Offeror is
not consummated within ninety (90) days after the last to expire of the options
of the Offeree Shareholders to acquire such shares or interests pursuant to this
Section 2, then any transfer or other disposition proposed to be made to such
Third Party Offeror shall again be subject to the rights and options of the
Corporation and the Offeree Shareholders and subject to the notice requirements
provided for in this Section 2.
2.5 Closing. The closing of any disposition of shares of Stock under
this Section 2 shall take place at the principal offices of the Corporation or
at the offices of the attorneys of the Corporation, or at such other place as
may be agreed upon by the parties to such transaction, within thirty (30) days
after the last written notice that is timely hereunder given by the Corporation
or the Offeree Shareholders in exercise of their options to acquire such shares.
Such closing shall take place at a time during regular business hours specified
by the Offering Shareholder on fifteen (15) days' prior written notice to the
persons or entities acquiring the Stock. At the closing, the shares of Stock to
be disposed of under this Section 2 shall be delivered by the transferring party
to the party entitled to acquire such shares, duly endorsed in blank or
accompanied by duly executed stock powers, with transfer stamps attached, if
required by applicable law. The acquiror of any Stock transferred under this
Section 2 shall, at the closing of such disposition, pay the acquisition price
for the Stock in accordance with the Offer Notice that was delivered in
connection with the disposition of such Stock.
2.6 Exempted Transfers. The provisions of this Section 2, with the
exception of Section 2.7, shall not apply to any of the following dispositions
of Stock, provided that the transferee or acquiror of Stock disposed of under
this Section 2.6 agrees in writing to be bound by the terms of this Agreement
and to assume the obligations of a Shareholder hereunder upon acquiring such
Stock: (i) any disposition by will or intestacy and any other disposition to an
heir, executor, estate, committee, guardian or other legal representative of a
Shareholder upon the death or legal incapacity of the Shareholder; or (ii) any
disposition to a Family Transferee of a Shareholder (as defined herein). As used
in this Agreement, a "Family Transferee" shall mean (A) a spouse, child, parent,
grandchild or sibling of a
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<PAGE> 5
Shareholder or (B) a trust established by a Shareholder, or a trustee,
fiduciary, custodian or foundation designated by a Shareholder, that will hold
shares of Stock for the benefit of the Shareholder or for the benefit of any of
the persons described in item (A) above in this sentence. Notwithstanding the
foregoing or any other provisions of this Agreement, no transfer or disposition
of Stock shall be made by any Shareholder in contravention of Section 2.7.
2.7 S Corporation Status. Notwithstanding any other provision of
this Agreement, no disposition of Stock may be made or effectuated and no other
action may be taken by any Shareholder that would cause the Corporation to lose,
terminate or revoke its election, eligibility, treatment or status as an S
corporation under the Internal Revenue Code of 1986, as amended, or to lose,
terminate or revoke any similar election, eligibility, treatment or status under
applicable state law (such election, eligibility, treatment or status under
state or federal law, as amended from time to time, "S Corporation Status"),
unless (i) the Corporation at the time of such proposed disposition or action
has not elected or chosen S Corporation Status or (ii) the Board of Directors of
the Corporation has decided to waive, revoke or terminate the S Corporation
Status of the Corporation prior to the effective date of the proposed action or
disposition of Stock. Nothing in this Agreement shall give any Shareholder any
right to the benefits or continuation of, S Corporation Status of the
Corporation, which may be terminated by the Corporation in its discretion.
2.8 Transferred Stock Governed by Agreement. Any acquiror or other
transferee of shares of Stock owned by any Shareholder shall receive and hold
such shares subject to the terms of this Agreement, shall have the rights and
obligations under this Agreement of the Shareholder from which the Stock was
received and shall be deemed to be a Shareholder under this Agreement; provided,
however, that no transferee of Stock of Friedland or Glassman shall have the
right to be elected or maintained as a member of the Board of Directors of the
Corporation, and no Shareholders shall have any obligation to vote their Stock
or to take any other action to elect or maintain any such transferee as a
director of the Corporation.
Section 3 Preemptive Rights
3.1 Preemptive Right. Except as provided in Section 3.6, if any
issuance or sale of stock of the Corporation after the date of this Agreement
would adversely affect the proportionate or relative voting or dividend rights
of any Shareholder, then the Corporation shall not
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<PAGE> 6
issue or sell such stock to any person or entity until the Corporation shall
first have offered to the Shareholders the amount of such stock provided in this
Section 3, in the manner provided in this Section. Except as provided in Section
3.6, each share of Stock shall entitle the holder thereof to a preemptive right,
for the period and on the terms provided in this Section, to subscribe for and
acquire shares of the same class of the Corporation or any equity and/or voting
shares of any class of the Corporation that the Corporation proposes to issue or
any warrants, options or rights that the Corporation proposes to grant for the
purchase of stock of the Corporation or for the purchase of any securities of
the Corporation that are convertible into or exchangeable for, or that carry any
rights to subscribe for or acquire, equity and/or voting stock of any class of
the Corporation (any such shares, securities, warrants, options or rights,
"Preemption Securities").
3.2 Preemption Notice. Any offer of Preemption Securities to
Shareholders under this Section 3 shall be made by the Corporation by notice in
writing (the "Preemption Notice"), which notice shall specify the price, other
consideration and other material terms and conditions relating to the Preemption
Securities that the Corporation proposes to Issue or sell and the Amount of such
Preemption Securities proposed to be issued or sold. Under this Section 3, each
Shareholder shall have the right and option, exercisable for thirty (30) days
after such Shareholder's receipt of a Preemption Notice, (i) to acquire, on the
terms contained in the Preemption Notice, such portion of the Preemption
Securities that the Corporation proposes to issue or sell as would preserve the
proportionate or relative voting and dividend rights of such Shareholder and
(ii) to acquire such Preemption Securities for a purchase price equal to the
price per share at which the Corporation proposes to issue or sell such
Preemption Securities to other persons or entities, without deduction of
expenses of and compensation for the sale, underwriting or purchase of such
Preemption Securities by underwriters or dealers. Such option and right under
this Section shall be deemed exercised when a Shareholder gives written notice
of such exercise to the Corporation. If a Shareholder fails to exercise such
option and right to acquire Preemption Securities hereunder within thirty (30)
days after the Shareholder's receipt of the Preemption Notice, then the
Corporation may issue or sell such Preemption Securities to any other person or
entity at the price or for the consideration set forth in the Preemption Notice,
with deduction of any reasonable and lawful expenses of and compensation for the
sale, underwriting or purchase of such Preemption Securities by underwriters or
dealers.
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<PAGE> 7
3.3 Revival of Preemptive Right. If an issuance or sale of
Preemption Securities that was described in a Preemption Notice is not
consummated within one hundred eighty (180) days after the expiration of the
thirty-day notice period provided for in Section 3.2, then any issuance or sale
of such Preemption Securities proposed to be made by the Corporation shall again
be subject to the rights and obligations of the Corporation and the Shareholders
and the notice requirements provided for in this Section 3.
3.4 Closing of Preemption Transaction. The closing of any issuance
or sale of Preemption Securities under this Section 3 shall take place at the
principal offices of the Corporation or its counsel. Such closing shall take
place during regular business hours at the time specified in the Preemption
Notice or, if no such time is specified in such notice, at a time within one
hundred eighty (180) days after expiration of the thirty-day notice period
provided for in Section 3.2, which time shall be specified by the Corporation by
ten (10) days prior written notice to the Shareholder acquiring the Preemption
Securities. At such closing, the Corporation shall deliver the Preemption
Securities to be issued or sold hereunder to the Shareholder entitled to acquire
such Preemption Securities, upon payment by such Shareholder of the full
purchase price provided hereunder for such Preemption Securities, in cash or by
certified check, bank check or wire transfer.
3.5 Agreement Governs. Any Preemption Securities of the Corporation
issued or sold to a Shareholder under this Section 3 shall be subject to the
terms of this Agreement.
3.6 Securities not Subject to Preemption. The provisions of this
Section 3 shall not apply to (i) treasury shares; (ii) shares of capital stock
or warrants, options, securities or rights convertible into shares of such stock
that may be issued or sold by the Corporation to employees, directors, officers,
consultants or independent contractors of the Corporation; (iii) shares,
warrants, options, securities or rights that may be issued or sold by the
Corporation in connection with the effectuation of a merger, consolidation or
other business combination, provided that the proportionate or relative voting
and dividend rights of each Shareholder as a holder of voting and equity
securities of the entity surviving such consolidation, merger or combination
shall not be less, in proportion to the voting and dividend rights of the other
Shareholders on account of voting and equity securities of such survivor, than
the proportionate voting and dividend rights of such Shareholder
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<PAGE> 8
in relation to such other Shareholders immediately prior to such merger or
consolidation.
Section 4 Registration Rights
4.1 Definitions. For purposes of this Section 4:
(a) the term "1933 Act" means the Securities Act of 1933, as
amended;
(b) the term "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the 1933 Act and the declaration or ordering of effectiveness of
such registration statement;
(c) the term "Registrable Securities" means any of the shares
or Stock or any common stock of the Corporation issued as a dividend or other
distribution with respect to, or in exchange or in replacement of, the Stock;
and
(d) the term "Holder" means any Shareholder holding
Registrable Securities and any other person holding Registrable Securities to
whom these registration rights have been transferred pursuant to this Agreement.
4.2 Registration. Subject to Section 4.6, if at any time the
Corporation proposes to register any of its common stock under the 1933 Act in
connection with the public offering of such securities solely for cash on a form
that would also permit the registration of the Registrable Securities, then the
Corporation shall, each such time, promptly give each Holder written notice of
such determination. Upon the written request of any Holder given within twenty
(20) days after the giving of any such notice by the Corporation, the
Corporation shall use its best efforts to cause to be registered under the 1933
Act all of the Registrable Securities that each such Holder has requested be
registered.
4.3 Obligations of the Corporation. Whenever required under Section
4.2 to use its best efforts to effect the registration of any Registrable
Securities, the Corporation shall:
(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become and remain effective for six (6) months or until all shares
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<PAGE> 9
registered pursuant to such registration statement are sold, if earlier;
(b) during such period prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the 1933 Act with respect to the disposition of
all securities covered by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them;
(d) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such U.S. state jurisdictions as shall be reasonably
appropriate for the distribution of the securities covered by the registration
statement, provided that the Corporation shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such state jurisdictions, and
further provided that (anything in this Agreement to the contrary
notwithstanding with respect to the bearing of expenses) if any jurisdiction in
which the securities shall be qualified shall require that expenses incurred in
connection with the qualification of the securities in that jurisdiction be
borne by selling shareholders, then such expenses shall be payable by selling
shareholders pro rata, to the extent required by such jurisdiction.
4.4 Furnish Information. It shall be a condition precedent to the
obligations of the Corporation to take any action pursuant to this Section 4
that the Holders shall furnish to the Corporation such information regarding
them, the Registrable Securities held by them, and the intended method of
disposition of such securities as the Corporation shall reasonably request and
as shall be required in connection with the action to be taken by the
Corporation.
4.5 Expenses of Registration. All expenses incurred by the
Corporation in connection with a registration pursuant to Section 4.2 (excluding
underwriters' discounts and commissions and fees and disbursements of any
counsel for any Holder), including without limitation all registration and
qualification fees,
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<PAGE> 10
printers' and accounting fees and fees and disbursements of counsel for the
Corporation, shall be borne by the Corporation; provided, however, that the
Corporation shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 4.2 if the registration request is
subsequently withdrawn; provided that the Holders may withdraw a request made
within forty-five (45) days of the end of the fiscal year of the Corporation if
the audited financial statements of the Corporation for such year and at such
year-end materially and adversely differ from the information known to the
Holders at the time of their request, in which event the Holders shall not be
required to pay any of the expenses of the registration.
4.6 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being issued by the Corporation, the
Corporation shall not be required under Section 4.2 to include in such
underwriting any of the Registrable Securities of any Holder unless such Holder
agrees to the inclusion of such Registrable Securities on the same terms and
conditions as the securities otherwise being sold through the underwriters.
Notwithstanding the foregoing, if in the opinion of the managing underwriters
the total amount of securities that all Holders request to be included in such
offering exceeds the amount of securities that the underwriters reasonably
believe compatible with the success of the offering, the Corporation shall only
be required to include in the offering so many of the securities of the selling
Holders as the underwriters believe will not jeopardize the success of the
offering (the securities so included first to be apportioned pro rata among the
selling Holders according to the total amount of securities owned by said
selling Holders or in such other proportions as shall mutually be agreed to by
such selling Holders), provided that no such reduction shall be made with
respect to any securities offered by the Corporation.
4.7 Delay of Registration. No Holder shall have any right to take
any action to restrain, enjoin, or otherwise delay any registration of any
securities of the Corporation as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 4.
4.8 Indemnification. If any Registrable Securities are included in a
registration statement under this Section 4:
(a) To the extent permitted by law, the Corporation shall
indemnify and hold harmless each Holder requesting or joining in a registration,
any underwriter (as
10
<PAGE> 11
defined in the 1933 Act) for it, and each person, if any, who controls such
Holder or underwriter within the meaning of the 1933 Act, against any losses,
claims, damages, or liabilities, joint or several, to which they may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based on any untrue statement of a material fact by the Corporation, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission by the Corporation to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arise out of any violation by the Corporation of any rule or
regulation promulgated under the 1933 Act applicable to the Corporation and
relating to action or inaction required of the Corporation in connection with
any such registration; and shall reimburse each such Holder, such underwriter,
or controlling person for any legal or other expenses as reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Indemnity agreement contained
in this Section 4.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Corporation (which consent shall not be unreasonably
withheld), nor shall the Corporation be liable in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus or amendments or supplements thereto,
in reliance upon and in conformity with information furnished expressly for use
in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each Holder requesting or
joining in a registration shall Indemnify and hold harmless the Corporation each
of its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Corporation within the meaning
of the 1933 Act and each agent and any underwriter for the Corporation (within
the meaning of the 1933 Act) against any losses, claims, damages or liabilities
to which the Corporation or any such director, officer, controlling person,
agent or underwriter may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or action in respect
thereto) arise out of or are based upon any untrue statement of any material
fact contained in such
11
<PAGE> 12
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements 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, in each case to the extent, but only to the extent, that such untrue
statement or omission was made in such registration statement, preliminary or
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Corporation or any such
director, officer, controlling person, agent or underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 4.8(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is affected without the consent of such
Holder (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action shall not
relieve such indemnifying party of any liability to the indemnified party under
this Section unless such failure materially and adversely affects the rights or
abilities of the indemnifying party to defend such action. The omission so to
notify the Indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section.
Section 5 Termination
5.1 Upon Sale of All Stock. Upon the disposition by a Shareholder of
all of the Stock owned by the Shareholder, such person shall have no further
rights under this Agreement.
12
<PAGE> 13
5.2 Upon Certain Other Events. The rights and obligations of the
Corporation and of each Shareholder under this Agreement shall terminate upon
the earliest to occur of (i) the first sale of common stock of the Corporation
that is affected pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the 1933 Act covering
the offer and sale of common stock of the Corporation to the public, provided
that shares of Stock then owned by the Shareholder are included for offer and
sale pursuant to such registration, subject to limitation of the number of such
shares of Stock that may be permitted to be so included by the underwriters of
such offering (provided such limitation is made pro rata with a limitation of
the number of Shares of the other parties hereto permitted to be so included);
or (ii) any date on which the Shareholders hold in the aggregate of record or
beneficially less than five percent (5%) of the outstanding shares of the common
stock of the Corporation.
Section 6 Further Action
6.1 General. The Corporation and each Shareholder shall execute,
deliver and perform all such additional documents, agreements, certificates and
instruments and shall take all such further actions as say be necessary or
advisable to effectuate the terms and conditions of this Agreement.
6.2 Ratification of Agreement. Each Shareholder shall use its best
efforts and shall take all actions necessary to cause the Corporation promptly
to ratify, execute and deliver this Agreement on behalf of the Corporation.
Section 7 Miscellaneous
7.1 Governing Law; Jurisdiction. This Agreement shall be governed by
and interpreted and enforced in accordance with the law of the State of Florida
applicable to contracts negotiated, entered into and to be performed solely in
that State, without regard to the choice or conflicts of law principles of such
State. The parties hereby consent to the jurisdiction of the state and federal
courts located in Broward County, Florida, over the parties hereto and over any
actions, proceedings, disputes or claims relating to or arising in connection
with this Agreement.
7.2 Severability. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, then the
13
<PAGE> 14
unenforceable, invalid or conflicting part shall be narrowed or replaced, to the
extent possible, with a judicial construction in such jurisdiction that
effectuates the intent of the parties regarding this Agreement and the
unenforceable, invalid or conflicting part. Notwithstanding the
unenforceability, invalidity or conflict with applicable law of any part of this
Agreement, the remaining parts shall be valid, enforceable and binding on the
parties.
7.3 Binding Effect; Assignment. This Agreement shall be binding
upon, enforceable by and shall inure to the benefit of the Corporation, each
Shareholder and the respective successors, heirs, legal representatives,
administrators, executors and transferees of their Stock permitted by this
Agreement, except to the extent provided otherwise in this Agreement. Except as
otherwise permitted in this Agreement, neither this Agreement nor any rights or
obligations hereunder may be assigned or delegated by any party hereto without
the prior written consent of the other parties hereto, except to a transferee of
Stock sold, transferred or otherwise disposed of in accordance with this
Agreement. Any transferee that acquires Stock in accordance with this Agreement
shall be deemed to be a Shareholder as defined and provided for in this
Agreement. The Corporation, in its discretion, shall have the right (i) to have
other holders of capital stock of the Corporation execute and deliver and become
bound and benefitted by this Agreement, after its date of initial execution by
the Shareholders hereunder, and (ii) to amend Schedule A annexed hereto to add
the names and shareholdings of such additional shareholders. Any such
shareholders that subsequently execute and deliver this Agreement shall be
deemed to be Shareholders hereunder and beneficiaries of this Agreement and all
rights and obligations hereunder.
7.4 Amendment; Waiver; Entire Agreement. This Agreement may be
amended only by a writing signed by the parties hereto, except that additional
shareholders may be made parties hereto, and Schedule A may be amended to add
their names and shareholdings, by execution and delivery of this Agreement and
an amendment to Schedule A by the Corporation and such additional shareholders.
This Agreement constitutes the entire agreement among the parties hereto
relating to the transactions contemplated in this Agreement. Neither any failure
nor any delay on the part of any party to this Agreement in exercising any
right, power or privilege hereunder shall operate as a waiver of any rights of
any such party, unless such waiver is made by a writing executed by such party
and delivered to the other parties, nor shall a single or partial exercise of
any right preclude any other or further exercise of any other right, power or
privilege accorded to any party to this Agreement.
14
<PAGE> 15
7.5 Notices. (a) All notices provided for herein shall be in writing
and shall be delivered by hand, by a leading nationwide, overnight courier or by
deposit in the United States mail, postage prepaid, by registered or certified
mail, return receipt requested, addressed to the Corporation or any Shareholder,
as the case may be, at the following address of such party:
(i) if to the Corporation to:
Telecard International, Inc.
100 S.W. 28th Street
Suite 200
Ft. Lauderdale, Florida 33315
with a copy to:
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Attention: Simon Taylor, Esq.
(ii) if to a Shareholder to the address of such Shareholder
set forth an Schedule A.
(b) Notices given by mail shall be deemed to be received on
the earlier of the date shown on the proof of receipt of such mail or, unless
the recipient proves that the notice was received later or not received, five
(5) days after the date of mailing thereof. Other notices shall be deemed given
on the date of receipt. Any party hereto and any party's successor permitted
hereunder may change the address specified above by written notice to the other
parties hereto.
7.6 Books of Account. The books of account of the Corporation or
copies thereof shall be kept at its legal address. Each party or its duly
authorized representative or representatives shall have access to the complete
books of account of the Corporation and reasonable supporting documentation at
reasonable times during normal business hours of the Corporation, upon
reasonable prior notice to the Corporation, and shall be entitled to makes
photocopies thereof.
7.7 Legend. Each of the certificates representing Stock shall bear a
legend setting forth any restrictions on transfer or other provisions legally
required or otherwise deemed necessary or advisable by the Corporation,
including a legend in substantially the
15
<PAGE> 16
following form, and the Corporation and the Subscriber agree to abide by the
terms set forth in such legend until it is removed from the certificate in
accordance with this Agreement and applicable law:
"The shares of stock represented by this certificate are
subject to the terms and conditions of a Shareholders
Agreement among the Corporation, Clifford Friedland, David
Glassman and other shareholders dated as of
____________,199__, which contains, among other provisions,
restrictions on transfer, sale or other disposition of the
shares and provisions regarding management of the Corporation.
A copy of such agreement is on file in the offices of the
Corporation."
7.8 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
7.9 Counterparts. This Agreement may be executed in two or more
counterpart copies, each of which shall be an original and all of which together
shall be one and the same agreement.
16
<PAGE> 17
IN WITNESS WHEREOF, the Corporation and the Shareholders have
executed and delivered this Agreement as of the date first set forth above.
TELECARD INTERNATIONAL, INC.
By
----------------------------
------------------------------
Clifford Friedland
------------------------------
David Glassman
------------------------------
------------------------------
------------------------------
17
<PAGE> 1
EXHIBIT 12.1
LONG DISTANCE INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands, except ratio amounts)
<TABLE>
<CAPTION>
Years Ending December 31, Three months ending
March 31,
----------------------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest.............................. $ 0 $ 0 $ 18 $ 212 $ 523 101 273
Amortization of debt expense and
debt discounts...................... 0 0 0 0 0 0 0
Interest component of rent............ 0 7 20 56 130 28 43
----- ------ ------ -------- --------- ------ -------
Total fixed charges..................... $ 0 $ 7 $ 38 $ 268 $ 653 $ 129 $ 316
===== ====== ====== ======== ========= ====== =======
Net loss................................ $(32) $(220) $(1,653) $(4,021) $(11,334) (1,492) (7,520)
Add (deduct)
Fixed charges......................... 0 0 38 268 653 129 316
Adjusted Earnings....................... $(32) $(220) $(1,615) $(3,753) $(10,681) $(1,363) $(7,204)
====== ====== ======== ======== ========= ======== ========
Ratio of Earnings to fixed charges...... N/A (31.43) (42.50) (14.00) (16.36) (10.57) (22.80)
====== ======= ======== ======== ========= ======== ========
</TABLE>
<PAGE> 1
Exhibit 21.1
LONG DISTANCE INTERNATIONAL INC.
LIST OF SUBSIDIARIES
1) Dynamic Telecom International Inc. - Florida
a) Dynamic Telecom Ltd. - United Kingdom
i) Dynamic de Italia - Italy
ii) Dynamic de Espana - Spain
2) LDI Communications LTD. - United Kingdom
3) LDI Denmark ApS - Denmark
4) LDI Telecom SA - France
5) LDI LTD. - United Kingdom
6) Newgate Communications - United Kingdom
a) Central Cellphone Ltd. - United Kingdom
7) LDI UK LTD. SPEEDIAL - United Kingdom
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 17, 1998, except for Note 15 as to which the
date is March 20, 1998, with respect to the consolidated financial statements
and schedule of Long Distance Internatioal Inc. included in the Registration
Statement (Form S-4 No. 333-00000) and related Prospectus of Long Distance
International Inc. for the registration of 225,000 of its 12 1/4% Senior Notes.
/s/ Ernst & Young LLP
West Palm Beach, Florida
June 15, 1998
<PAGE> 1
Exhibit 25.1
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
-----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
LONG DISTANCE INTERNATIONAL INC.
(Exact name of obligor as specified in its charter)
Florida 65-0423006
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
888 South Andrews Avenue
Suite 205
Fort Lauderdale, Florida 33316
(Address of principal executive offices) (Zip code)
----------------------
12-1/4% Senior Notes due 2008
(Title of the indenture securities)
===============================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Name Address
- -----------------------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit
1 to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 21st day of May, 1998.
THE BANK OF NEW YORK
By: /s/ Van K. Brown
-------------------------------
Name: Van K. Brown
Title: Assistant Vice President
-4-
<PAGE> 5
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin ................. $ 5,742,986
Interest-bearing balances .......... 1,342,769
Securities:
Held-to-maturity securities ........ 1,099,736
Available-for-sale securities ...... 3,882,686
Federal funds sold and Securities
purchased under agreements
to resell .......................... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,019,608
LESS: Allowance for loan and
lease losses ..............627,350
LESS: Allocated transfer risk
reserve..........................0
Loans and leases, net of unearned
income, allowance, and reserve ... 34,392,258
Assets held in trading accounts ...... 2,521,451
Premises and fixed assets (including
capitalized leases) ................ 659,209
Other real estate owned .............. 11,992
Investments in unconsolidated
subsidiaries and associated
companies .......................... 226,263
Customers' liability to this bank on
acceptances outstanding ............ 1,187,449
Intangible assets .................... 781,684
Other assets ......................... 1,736,574
------------
Total assets ......................... $ 56,153,587
============
LIABILITIES
Deposits:
In domestic offices ................ $ 27,031,362
Noninterest-bearing ......11,899,507
Interest-bearing .........15,131,855
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 13,794,449
Noninterest-bearing .........590,999
Interest-bearing .........13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase 2,338,881
Demand notes issued to the U.S.
Treasury ........................... 173,851
Trading liabilities .................. 1,695,216
Other borrowed money:
With remaining maturity of one year
or less .......................... 1,905,330
With remaining maturity of more than
one year through three years ..... 0
With remaining maturity of more than
three years ...................... 25,664
Bank's liability on acceptances
executed and outstanding ........... 1,195,923
Subordinated notes and debentures .... 1,012,940
Other liabilities .................... 2,018,960
------------
Total liabilities .................... 51,192,576
------------
EQUITY CAPITAL
Common stock ......................... 1,135,284
Surplus .............................. 731,319
Undivided profits and capital
reserves ........................... 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities ......................... 36,866
Cumulative foreign currency
translation adjustments ............ (36,184)
------------
Total equity capital ................. 4,961,011
------------
Total liabilities and equity
capital ............................ $ 56,153,587
============
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi
Alan R. Griffith } Directors
J. Carter Bacot
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 12,172,779
<SECURITIES> 0
<RECEIVABLES> 5,981,978
<ALLOWANCES> (956,000)
<INVENTORY> 0
<CURRENT-ASSETS> 18,718,090
<PP&E> 7,514,008
<DEPRECIATION> (519,100)
<TOTAL-ASSETS> 27,807,123
<CURRENT-LIABILITIES> 11,731,611
<BONDS> 0
13,715,085
0
<COMMON> 24,754
<OTHER-SE> (263,944)
<TOTAL-LIABILITY-AND-EQUITY> 27,807,123
<SALES> 40,115,910
<TOTAL-REVENUES> 40,115,910
<CGS> 22,719,511
<TOTAL-COSTS> 22,719,511
<OTHER-EXPENSES> 440,116
<LOSS-PROVISION> 2,580,125
<INTEREST-EXPENSE> 522,461
<INCOME-PRETAX> (11,334,004)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,334,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,334,004)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,997,564
<SECURITIES> 0
<RECEIVABLES> 8,950,121
<ALLOWANCES> (1,556,180)
<INVENTORY> 0
<CURRENT-ASSETS> 15,018,195
<PP&E> 9,254,435
<DEPRECIATION> (809,082)
<TOTAL-ASSETS> 26,321,692
<CURRENT-LIABILITIES> 16,599,504
<BONDS> 0
14,217,374
0
<COMMON> 25,544
<OTHER-SE> (7,511,414)
<TOTAL-LIABILITY-AND-EQUITY> 26,321,692
<SALES> 14,459,864
<TOTAL-REVENUES> 14,459,864
<CGS> 9,620,883
<TOTAL-COSTS> 9,620,883
<OTHER-EXPENSES> 364,249
<LOSS-PROVISION> 1,107,259
<INTEREST-EXPENSE> 273,372
<INCOME-PRETAX> (7,519,987)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,519,987)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,519,987)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
LONG DISTANCE INTERNATIONAL INC.
Offer to Exchange All Outstanding
12 1/4% Senior Notes due 2008
in Exchange for
12 1/4% Senior Notes of Long Distance International Inc.
Registered Under the Securities Act Of 1933
Pursuant to the Prospectus dated __________, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _______________, 1998, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
By Hand Or Overnight Delivery,
Registered or Certified Mail
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attn: Reorganization Area
Facsimile Transmissions:
The Bank of New York
Attention: Reorganization Area
Facsimile Number: (212) 815-6339
Delivery of this letter of transmittal to an address other than as set
forth above or transmission of this letter of transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The undersigned acknowledges that he or she has received the
Prospectus, dated _______ __, 1998 (the "Prospectus"), of Long Distance
International Inc., a Florida corporation ("LDI" or the "Company"), and this
Letter of Transmittal, which together constitute the Company's offer (the
"Exchange Offer") to exchange an
<PAGE> 2
aggregate of up to $225,000,000 principal amount 12 1/4% Senior Notes due 2008,
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act") (the "Exchange Notes") of the Company for a like amount of the
issued and outstanding 12 1/4% Senior Notes due 2008 (the "Senior Notes") of the
Company from the holders thereof.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Senior
Notes either if Senior Notes are to be forwarded herewith or if tenders of
Senior Notes are to be made by book-entry transfer to an account maintained by
The Bank of New York (the "Exchange Agent") at The Depository Trust Company (the
"Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set forth in
"The Exchange Offer--Procedures for Tendering Senior Notes" in the Prospectus.
Holders of Senior Notes, whose certificates (the "Certificates") for
such Senior Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Senior
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Senior Notes" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
2
<PAGE> 3
<TABLE>
<CAPTION>
=============================================================================================================
DESCRIPTION OF SENIOR NOTES 1 2 3
- -------------------------------------------------------------------------------------------------------------
Aggregate Principal
Principal Amount of
Amount of Senior
Name(s) and Address(es) of Registered Holder(s): Certificate Senior Notes
(Please fill in, if blank) Number(s)* Notes Tendered**
(if less than
all)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------------
* Need not be completed if Senior Notes are being tendered by book-entry holders.
** Senior Notes may be tendered in whole or in part in integral multiples of $1,000 principal
amount. See instruction 4. Unless otherwise indicated in Column 3, a holder will be deemed to
have tendered all Senior Notes represented by the Senior Notes indicated in Column 2. See
Instruction 4.
=============================================================================================================
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution
---------------------------------------------
Account Number
------------------------------------------------------------
Transaction Code Number
---------------------------------------------------
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED
DELIVERY IF TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
----------------------------------------------
Window Ticket Number (if any)
---------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
3
<PAGE> 4
Name of Institution which Guaranteed Delivery
------------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
---------------------------------------------
Account Number
------------------------------------------------------------
Transaction Code Number
---------------------------------------------------
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND
NONEXCHANGED SENIOR NOTES ARE TO BE RETURNED BY
CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE SENIOR
NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER
TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF
ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above described aggregate
principal amount of the Company's 12 1/4% Senior Notes due 2008 (the "Senior
Notes") in exchange for a like aggregate principal amount of the Company's 12
1/4% Senior Notes due 2008 (the "Exchange Notes"), which have been registered
under the Securities Act upon the terms and subject to the conditions set forth
in the Prospectus dated _______________, 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Senior Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest
4
<PAGE> 5
in and to such Senior Notes as are being tendered herewith. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent as its agent and
attorney-in-fact (with full knowledge that the Exchange Agent is also acting as
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Senior Notes, with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest) subject only
to the right of withdrawal described in the Prospectus, to (i) deliver
Certificates for Senior Notes to the Company together with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company,
upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange
Notes to be issued in exchange for such Senior Notes, (ii) present Certificates
for such Senior Notes for transfer, and to transfer the Senior Notes on the
books of the Company, and (iii) receive for the account of the Company all
benefits and otherwise exercise all rights of beneficial ownership of such
Senior Notes, all in accordance with the terms and conditions of the Exchange
Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
SENIOR NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE,
THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE
AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE
SENIOR NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES.
THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE SENIOR NOTES TENDERED
HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE
TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Senior Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Senior Notes. The
Certificate number(s) and the Senior Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Senior Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Senior Notes
than are tendered or accepted for exchange, Certificates for such nonexchanged
or nontendered Senior Notes will be returned (or, in the case of Senior Notes
tendered by book-entry transfer, such Senior Notes will be credited to an
account maintained at DTC),
5
<PAGE> 6
without expense to the tendering holder, promptly following the expiration or
termination of the Exchange Offer.
The undersigned understands that tenders of Senior Notes pursuant to any
one of the procedures described in "The Exchange Offer--Procedures for Tendering
Senior Notes" in the Prospectus and in the instructions, attached hereto will,
upon the Company's acceptance for exchange of such tendered Senior Notes,
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer. The undersigned
recognizes that, under certain circumstances set forth in the Prospectus, the
Company may not be required to accept for exchange any of the Senior Notes
tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Senior Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Senior Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Senior
Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver Exchange Notes to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING SENIOR NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE
UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF EXCHANGE NOTES
TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH EXCHANGE
NOTES. BY TENDERING SENIOR NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING
THIS LETTER OF TRANSMITTAL, A HOLDER OF SENIOR NOTES WHICH IS A BROKER-DEALER
REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY
THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE
COMMISSION TO THIRD PARTIES, THAT (A) SUCH SENIOR NOTES HELD BY THE
BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH SENIOR NOTES WERE ACQUIRED
BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
ACTIVITIES
6
<PAGE> 7
OR OTHER TRADING ACTIVITIES, AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR
SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT
IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES
ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN
CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR SENIOR NOTES,
WHERE SUCH SENIOR NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES, FOR A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO
EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR,
IF EARLIER, WHEN ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH
PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED
SENIOR NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH SENIOR NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM
THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH
MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS
UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A
MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH
THEY WERE MADE, NOT MISLEADING, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND
THE SALE OF EXCHANGE NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS
AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION
AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE
PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE
EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH
NOTICE TO SUSPEND THE SALE OF THE EXCHANGE NOTES, THE COMPANY SHALL EXTEND THE
180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE
ENTITLED TO USE THE PROSPECTUS IN CONNEC-
7
<PAGE> 8
TION WITH THE RESALE OF EXCHANGE NOTES BY THE NUMBER OF DAYS DURING THE PERIOD
FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE
DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE EXCHANGE
NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT
THE SALE OF EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Senior Notes whose Senior Notes are accepted for exchange will
not receive accrued interest on such Senior Notes for any period from and after
the last Interest Payment Date to which interest has been paid or duly provided
for on such Senior Notes prior to the original issue date of the Exchange Notes
or, if no such interest has been paid or duly provided for, will not receive any
accrued interest on such Senior Notes, and the undersigned waives the right to
receive any interest on such Senior Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after April 13, 1998.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Senior Notes tendered hereby. All authority
herein conferred or agreed to be conferred in this Letter of Transmittal shall
survive the death or incapacity of the undersigned and any obligation of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, legal
representatives, successors and assigns of the undersigned. Except as stated in
the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF SENIOR
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE SENIOR
NOTES AS SET FORTH IN SUCH BOX.
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2,5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 19)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Senior Notes hereby tendered or on the register of
holders maintained by the Company, or by any person(s) authorized to become the
registered holder(s) by endorsements and documents transmitted herewith
(including such opinions of counsel, certifications and other information as may
be required by the Company for the Senior Notes to comply with the restrictions
on transfer applicable to the Senior Notes). If signature is by an
attorney-in-fact, executor, administrator,
8
<PAGE> 9
trustee, guardian, officer of a corporation or another acting in a fiduciary
capacity or representative capacity, please set forth the signer's full title.
See Instruction 5.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date: , 1998
---------------------
Name(s)
-------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
9
<PAGE> 10
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Date: , 1998
------------
Name of Firm
--------------------------------------------------------------------
Capacity (full title)
------------------------------------------------------
(PLEASE PRINT)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------
10
<PAGE> 11
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Exchange Notes or Senior Notes not tendered are to
be issued in the name of someone other than the registered holder of the Senior
Notes whose name(s) appear(s) above.
Issue
/ / Senior Notes not tendered to:
/ / Exchange Notes to:
Name(s)
-------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes or Senior Notes not tendered are to be
sent to someone other than the registered holder of the Senior Notes whose
name(s) appear(s) above, or such registered holder(s) at an address other than
that shown above.
11
<PAGE> 12
Mail
/ / Senior Notes not tendered to:
/ / Exchange Notes, to:
Name(s)
------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(INCLUDE CODE)
Area Code and
Telephone Number
----------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE
OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Senior Notes" in the Prospectus. Certificates,
or timely confirmation of a book-entry, transfer of such Senior Notes into the
Exchange Agent's account at DTC, as well as this Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein on or prior to the Expiration Date. Senior Notes may be tendered in whole
or in part in integral multiples of $1,000 principal amount.
12
<PAGE> 13
Holders who wish to tender their Senior Notes and (i) whose Senior Notes
are not immediately available or (ii) who cannot deliver their Senior Notes,
this Letter of Transmittal and all other required documents to the Exchange
Agent on or prior to the Expiration Date or (iii) who cannot complete the
procedures for delivery by book-entry transfer on a timely basis, may tender
their Senior Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer--Procedures for Tendering Senior Notes" in the Prospectus.
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by the Company, must be received by the Exchange Agent on or prior to the
Expiration Date; and (iii) the Certificates (or a book-entry confirmation (as
defined in the Prospectus)) representing all tendered Senior Notes, in proper
form for transfer, together with a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within three New York Stock Exchange, Inc. trading days after
the date of execution of such Notice of Guaranteed Delivery, all as provided in
"The Exchange Offer--Procedures for Tendering Senior Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Senior Notes to
be properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
13
<PAGE> 14
The Company will not accept any, alternative, conditional or contingent
tenders. Each tendering, holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Transmittal is
required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on the register of holders
maintained by the Company as the owner of the Senior Notes) of
Senior Notes tendered herewith, unless such holder(s) has
completed either the box entitled "Special Issuance Instructions"
or the box entitled "Special Delivery Instructions" above, or
(ii) such Senior Notes are tendered for the account of a firm that is
an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s) on
this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Senior Notes" is inadequate, the Certificate number(s) and/or
the principal amount of Senior Notes and any other required information should
be listed on a separate signed schedule and attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Senior Notes will be
accepted only in integral multiples of $1,000 principal amount. If less than all
the Senior Notes evidenced by any Certificate submitted are to be tendered, fill
in the principal amount of Senior Notes which are to be tendered in the box
entitled "Liquidation Amount of Senior Notes Tendered (if less than all)." In
such case, new Certificate(s) for the remainder of the Senior Notes that were
evidenced by your old Certificate(s) will only be sent to the holder of the
Senior Notes, promptly after the Expiration Date. All Senior Notes represented
by Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Senior Notes may be
withdrawn at an), time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Senior Notes to be
withdrawn, the aggregate principal amount of Senior Notes to be withdrawn, and
(if Certificates for Senior Notes have been tendered) the name of the registered
holder of the Senior Notes as set forth on the
14
<PAGE> 15
Certificate for the Senior Notes, if different from that of the person who
tendered such Senior Notes. If Certificates for the Senior Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Senior Notes, the tendering holder
must submit the serial numbers shown on the particular Certificates for the
Senior Notes to be withdrawn and the signature on the notice of withdrawal must
be guaranteed by an Eligible Institution, except in the case of Senior Notes
tendered for the account of an Eligible Institution. If Senior Notes have been
tendered pursuant to the procedures for book-entry transfer set forth in the
Prospectus under "The Exchange Offer--Procedures for Tendering Senior Notes,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of Senior Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. Withdrawals of tenders of Senior
Notes may not be rescinded. Senior Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offer--Procedures for
Tendering Senior Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
None of the Company, any affiliates or assigns of the Company, the Exchange
Agent or any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Senior Notes which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Senior
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Senior Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any, tendered Senior Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of
15
<PAGE> 16
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of each such person's
authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Senior Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless Exchange Notes are to be issued in
the name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Senior Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Company may require in accordance with the restrictions on transfer
applicable to the Senior Notes. Signatures on such Certificates or bond powers
must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to
be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Senior Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Senior Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for which, may, in the view
of counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer--Conditions to the
Exchange Offer" or any conditions or irregularity in any tender of Senior Notes
of any particular holder whether or not similar conditions or irregularities are
waived in the case of other holders. The Company's interpretation of the terms
and conditions of the Exchange Offer (including this Letter of Transmittal and
the instructions hereto) will be final and binding. No tender of Senior Notes
will be deemed to have been validly made until all irregularities with respect
to such tender have been cured or waived. The Company, any affiliates or assigns
of the Company, the Exchange Agent, or any
16
<PAGE> 17
other person shall not be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Senior Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Senior Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder, and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Senior Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Senior Notes. If the Senior Notes are registered in more
than one name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
17
<PAGE> 18
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Senior Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their Senior Notes for exchanges.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of
Senior Notes nor shall any of them incur any liability for failure to give any
such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Senior Notes have been lost, destroyed or stolen, the holder should
promptly notify, the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s). This Letter
of Transmittal and related documents cannot be processed until the procedures
for replacing lost, destroyed or stolen Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Senior Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Senior
Notes tendered, or if a transfer tax is imposed for any reason other than the
exchange of Senior Notes in connection with the Exchange Offer, then the amount
of any such transfer tax (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.
18
<PAGE> 19
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF)
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
PAYOR'S NAME: THE BANK OF NEW YORK
<TABLE>
======================================================================================================================
<S> <C> <C>
PART I -PLEASE PROVIDE YOUR TIN:____________________
TIN ON THE LINE AT RIGHT AND ________________________
SUBSTITUTE CERTIFY BY SIGNING AND Social Security Number or
DATING BELOW Employer Identification
Form W-9 Number
Department Of The Treasury
Internal Revenue Service
PART 2 -TIN Applied For
Payor's Request For Taxpayer Identification Number
("TIN") and Certification
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) the number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to
be issued to me).
(2) I am not subject to back-up withholding either because
(i) I am exempt from back-up withholding, (ii) I have
not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (iii) the IRS has notified me that I am
no longer subject to backup withholding, and
(3) any other information provided on this form is true and
correct.
Signature________________ Date________, 1998
- ----------------------------------------------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax return, and you have not been notified by the
IRS that you are no longer subject to backup withholding.
======================================================================================================================
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
19
<PAGE> 20
================================================================================
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
================================================================================
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) 1 have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) 1 intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding,
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
- --------------------------------------------------------------------------------
Signature ____________________________________ Date __________, 1998
================================================================================
20
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
LONG DISTANCE INTERNATIONAL INC.
12 1/4% SENIOR NOTES, DUE 2008
FULLY AND UNCONDITIONALLY GUARANTEED
BY _________________________________
This Notice of Guaranteed Delivery, or one substantially
equivalent to this form, must be used to accept the Exchange Offer (as defined
below) if (i) certificates for the Company's 12 1/4% Senior Notes due 2008 (the
"Senior Notes") are not immediately available, (ii) Senior Notes, the Letter of
Transmittal and all other required documents cannot be delivered to The Bank of
New York (the "Exchange Agent") on or prior to 5:00 P.M. New York City time, on
the Expiration Date (as defined in the Prospectus referred to below) or (iii)
the procedures for delivery by book-entry transfer cannot be completed on a
timely basis. This Notice of Guaranteed Delivery may be delivered by hand,
overnight courier or mail, or transmitted by facsimile transmission, to the
Exchange Agent. See "The Exchange Offer--Procedures for Tendering Senior Notes"
in the Prospectus. In addition, in order to utilize the guaranteed delivery
procedure to tender Senior Notes pursuant to the Exchange Offer, a completed,
signed and dated Letter of Transmittal relating to the Senior Notes (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
P.M. New York City time, on the Expiration Date. Capitalized terms not defined
herein have the meanings assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
By Hand Or Overnight Delivery,
Registered or Certified Mail
The Bank of New York
101 Barclay Street
Floor 7 East
New York, New York 10286
Attn: Reorganization Area
Facsimile Transmissions:
The Bank of New York
Attention: Reorganization Area
Facsimile Number: (212) 815-6339
<PAGE> 2
Delivery of this Notice Of Guaranteed Delivery to an address other than
as set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to Long Distance International Inc., a
Florida corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus dated _________________, 1998 (as the
same may be amended or supplemented from time to time, the "Prospectus"), and
the related Letter of Transmittal (which together constitute the "Exchange
Offer"), receipt of which is hereby acknowledged, the aggregate principal amount
of Senior Notes set forth below pursuant to the guaranteed delivery procedures
set forth in the Prospectus under the caption "The Exchange Offer--Procedures
for Tendering Senior Notes."
Aggregate Liquidation Amount Name(s) of Registered Holder(s):________
Amount Tendered: $__________________ ________________________________________
Certificate No(s)
(if available):______________________
_____________________________________
(Total Liquidation Amount Represented
by Senior Notes Certificate(s))
$____________________________________
If Senior Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:__________________
Date:________________________________
_____________________________________
2
<PAGE> 3
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
PLEASE SIGN HERE
X_________________________________ _______________________________
X_________________________________ _______________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:___________________________________
Must be signed by the holder(s) of the Senior Notes as their name(s)
appear(s) on certificates for Senior Notes or on a security position listing, or
by person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
set forth his or her full title below.
Please print name(s) and address(es)
Name(s): _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Capacity: _________________________________________________________________
Address(es): _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
3
<PAGE> 4
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
lending agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Senior Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Senior Notes to the Exchange Agent's account at The Depositary
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof and
any other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Senior Notes tendered hereby to the Exchange Agent within
the time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
- ------------------------------------- ------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- ------------------------------------
Address Title
- ------------------------------------- ------------------------------------
Zip Code (Please Type or Print)
Area Code and Telephone No. Dated:
---------- ------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR SENIOR NOTES WITH THIS FORM.
CERTIFICATES FOR SENIOR NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
4
<PAGE> 1
EXHIBIT 99.3
LONG DISTANCE INTERNATIONAL INC.
OFFER TO EXCHANGE ITS
12 1/4% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
12 1/4% SENIOR NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED _______________, 1998
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
LONG DISTANCE INTERNATIONAL INC. (the "Company") is offering to
exchange (the "Exchange Offer"), upon and subject to the terms and conditions
set forth in the enclosed Prospectus, dated , 1998 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), its 12 1/4% Senior Notes Due 2008 which have been registered
under the Securities Act of 1933 (the "Exchange Notes") for any and all of its
outstanding 12 1/4% Senior Notes Due 2008 (the "Senior Notes"). The Exchange
Offer is being made in order to satisfy certain obligations of the Company
contained in the Notes Registration Rights Agreement dated April 7, 1998, among
the Company, Morgan Stanley & Co. Incorporated and SBC Warburg Dillon Read Inc.
In connection with the Exchange Offer, we are requesting that you
contact your clients for whom you hold Senior Notes registered in your name or
in the name of your nominee, or who hold Senior Notes registered in their own
names. The Company will not pay any fees or commissions to any broker, dealer or
other person in connection with the solicitation of tenders pursuant to the
Exchange Offer. However, you will, upon request, be reimbursed for reasonable
out-of-pocket expenses incurred in connection with soliciting acceptances of the
Exchange Offer. The Company will pay or cause to be paid all transfer taxes
applicable to the exchange of Senior Notes pursuant to the Exchange Offer,
except as set forth in the Prospectus and the Letter of Transmittal.
For your information and for forwarding to your clients, we are
enclosing the following documents:
1. Prospectus dated , 1998;
2. A Letter of Transmittal for your use and for the
information of your clients;
<PAGE> 2
3. A form of Notice of Guaranteed Delivery; and
4. A form of letter which may be sent to your clients for whose
account you hold Senior Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 (THE "EXPIRATION DATE"),
UNLESS EXTENDED BY THE COMPANY (IN WHICH CASE THE TERM "EXPIRATION DATE" SHALL
MEAN THE LATEST DATE AND TIME TO WHICH THE EXCHANGE OFFER IS EXTENDED). THE
SENIOR NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN, SUBJECT
TO THE PROCEDURES DESCRIBED IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL, AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Senior Notes should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Prospectus and the Letter of Transmittal.
If holders of Senior Notes wish to tender, but it is impracticable for
them to forward their certificates for Senior Notes prior to the expiration of
the Exchange Offer or to comply with the book-entry transfer procedures on a
timely basis, a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus and the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or
requests for additional copies of the enclosed materials, should be directed to
the Exchange Agent for the Senior Notes, at its address and telephone number set
forth on the front of the Letter of Transmittal.
Very truly yours,
Long Distance International Inc.
2
<PAGE> 3
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
3
<PAGE> 4
[BLANK]
<PAGE> 1
EXHIBIT 99.4
LONG DISTANCE INTERNATIONAL INC.
OFFER TO EXCHANGE ITS
12 1/4% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
12 1/4% SENIOR NOTES DUE 2008
TO OUR CLIENTS:
Enclosed for your consideration is a Prospectus, dated ______________,
1998 (the "Prospectus"), and a form of Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Long Distance
International Inc. (the "Company") to exchange its 12 1/4% Senior Notes due 2008
which have been registered under the Securities Act of 1933 (the "Exchange
Notes") for any and all of its outstanding 12 1/4% Senior Notes due 2008 (the
"Senior Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the Notes
Registration Rights Agreement dated as of April 7, 1997, among the Company,
Morgan Stanley & Co. Incorporated and SBC Warburg Dillon Read Inc.
This material is being forwarded to you as the beneficial owner of the
Senior Notes carried by us in your account but not registered in your name. A
TENDER OF SUCH SENIOR NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to
tender on your behalf the Senior Notes held by us for your account, pursuant to
the terms and conditions set forth in the enclosed Prospectus and Letter of
Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Senior Notes on your behalf in accordance with
the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1998, unless extended by the Company (the
"Expiration Date"). Any Senior Notes tendered pursuant to the Exchange Offer may
be withdrawn, subject to the procedures described in the Prospectus and the
Letter of Transmittal, at any time prior to the Expiration Date.
<PAGE> 2
[BLANK]
- 2 -
<PAGE> 3
If you wish to have us tender your Senior Notes, please so instruct us
by completing, executing and returning to us the instruction form included with
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER SENIOR DISCOUNT NOTES.
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein, including the Prospectus and the accompanying form
of Letter of Transmittal, relating to the Exchange Offer made by Long Distance
International Inc. with respect to its Senior Notes.
This will instruct you as to the action to be taken by you relating to
the Exchange Offer with respect to the Senior Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the Letter of Transmittal.
The aggregate principal amount at maturity of the Senior Notes held by
you for the account of the undersigned is (fill in amount):
$ ___________________________
of the 12 1/4% Senior Notes
due 2008
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To TENDER the following Senior Notes held by you for the account of the
undersigned (insert aggregate principal amount at maturity of Senior Notes to be
tendered, in integral multiples of $1,000):
$ ___________________________
of the 12 1/4% Senior Notes
due 2008
[ ] NOT to tender any Senior Notes held by you for the of the undersigned.
If the undersigned instructs you to tender the Senior Notes held by you for
the account of the undersigned, it is
- 3 -
<PAGE> 4
understood that you are authorized to make, on behalf of the undersigned
(and the undersigned, by its signature below, hereby makes to you), the
representations, warranties and agreements contained in the Letter of
Transmittal that are to be made with respect to the undersigned as beneficial
owner.
SIGN HERE
Name of beneficial owner(s):
Signature(s):
Name(s) (please print):
Address:
Telephone Number:
Taxpayer Identification or Social Security Number(s):
Date:
None of the Senior Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Senior Notes held by us
for your account.
- 4 -
